<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 September 27, 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.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2748530
(State of Incorporation) (I.R.S. Employer
Identification No.)
691 S. MILPITAS BLVD., MILPITAS, CALIFORNIA 95035
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 945-8600
N/A
(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 October 23, 1996
was 55,248,436.
This document consists of 18 pages, excluding exhibits, 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 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations:
Results of Operations 9-10
Liquidity and Capital Resources 11
Certain Factors Bearing on Future Results 12-15
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADAPTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Month Six Month
Period Ended Period Ended
------------ ------------
Sept. 27, Sept. 29, Sept. 27, Sept. 29,
(in thousands, except per share data) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $215,043 $149,110 $417,057 $287,135
Cost of revenues 92,550 62,659 178,596 119,325
- ------------------------------------------------------------------------------------------------------------
Gross profit 122,493 86,451 238,461 167,810
- ------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 30,633 18,940 58,480 37,167
Sales and marketing 24,889 18,773 48,603 35,850
General and administrative 11,047 7,593 21,257 14,735
Write-off of acquired in-process technology
and other 42,405 40,554 68,905 40,554
- ------------------------------------------------------------------------------------------------------------
Total operating expenses 108,974 85,860 197,245 128,306
- ------------------------------------------------------------------------------------------------------------
Income from operations 13,519 591 41,216 39,504
Interest income, net of interest expense 2,266 2,659 4,933 5,297
- ------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 15,785 3,250 46,149 44,801
Provision for income taxes 14,548 2,693 26,998 13,081
- ------------------------------------------------------------------------------------------------------------
Net income $ 1,237 $ 557 $ 19,151 $ 31,720
============================================================================================================
Net income per share $ .02 $ .01 $ .34 $ .59
============================================================================================================
Weighted average common and common
equivalent shares outstanding 56,820 54,461 56,254 54,201
============================================================================================================
</TABLE>
See accompanying notes.
3
<PAGE> 4
ADAPTEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
September 27, March 31,
(in thousands) 1996 1996*
- -----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 52,817 $ 91,211
Marketable securities 158,014 204,283
Accounts receivable, net 123,813 89,487
Inventories 65,432 55,028
Prepaid expenses and other 29,633 25,271
- -----------------------------------------------------------------------------------
Total current assets 429,709 465,280
- -----------------------------------------------------------------------------------
Property and equipment, net 128,308 92,778
- -----------------------------------------------------------------------------------
Other assets 101,564 88,428
- -----------------------------------------------------------------------------------
$659,581 $646,486
===================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,400 $ 3,400
Note payable -- 46,200
Accounts payable 29,736 23,974
Accrued liabilities 63,833 56,717
- -----------------------------------------------------------------------------------
Total current liabilities 96,969 130,291
- -----------------------------------------------------------------------------------
Long-term debt, net of current portion 2,550 4,250
- -----------------------------------------------------------------------------------
Shareholders' equity:
Common stock 211,981 182,932
Retained earnings 348,081 329,013
- -----------------------------------------------------------------------------------
Total shareholders' equity 560,062 511,945
- -----------------------------------------------------------------------------------
$659,581 $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>
Six-Month Period Ended
----------------------
September 27, September 29,
(in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,151 $ 31,720
Adjustments to reconcile net income to net cash
provided by operating activities:
Write-off of acquired in-process technology, net of taxes 65,434 32,631
Depreciation and amortization 12,492 8,135
Changes in assets and liabilities:
Accounts receivable (31,930) (24,128)
Inventories (311) (2,120)
Prepaid expenses (2,524) 1,006
Other assets (490) (271)
Accounts payable 3,308 (5,496)
Accrued liabilities 6,303 19,099
- ----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 71,433 60,576
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of certain net assets of Western Digital's Connectivity
Solutions Group, Corel, Inc. and Data Kinesis, Inc. (75,365) (24,489)
Purchase of property and equipment (43,445) (11,500)
Sales of (investment in) marketable securities, net 46,269 (38,729)
- ----------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (72,541) (74,718)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of short-term note (46,200) --
Proceeds from issuance of common stock 10,614 7,891
Repurchase of common stock -- (7,765)
Principal payments on long-term debt (1,700) (1,700)
- ----------------------------------------------------------------------------------------------------
NET CASH USED FOR FINANCING ACTIVITIES (37,286) (1,574)
- ----------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (38,394) (15,716)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 91,211 66,835
- ----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 52,817 $ 51,119
====================================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 6
ADAPTEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 27, 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 and six month periods ended September 27, 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>
Six-Month Period Ended
----------------------
September 27, September 29,
1996 1995
---- ----
<S> <C> <C>
Interest $ 408 421
Income taxes $33,496 $14,327
</TABLE>
3. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. The components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
September 27, March 31,
1996 1996
---- ----
<S> <C> <C>
Raw materials $16,958 $23,415
Work in process 21,608 12,865
Finished goods 26,866 18,748
------- -------
$65,432 $55,028
======= =======
</TABLE>
6
<PAGE> 7
4. Net Income Per Share
Net income per share for the three and six month periods ended
September 27, 1996 and September 29, 1995, is computed under the
treasury stock method using the weighted average number of 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. On June 28, 1996, the
Company acquired certain technologies from Corel, Inc. for $12 million
cash. Included in these technologies was Corel's CD creator product for
the CD-recordable software market. Additionally, on September 16, 1996,
the Company acquired Data Kinesis, Inc. (DKI) for $32 million and $15
million in cash and stock, respectively. DKI develops software for
improving system performance in file management and RAID applications.
The Company accounted for these acquisitions using the purchase method
of accounting, and excluding the $67 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 $10,135
In-process technology 67,200
Goodwill 14,370
-------
Assets acquired $91,705
=======
</TABLE>
The tangible assets acquired were primarily comprised of inventory and
fixed assets. Acquired in-process technology was written off in the
periods in which the acquisitions were completed, and the goodwill is
being amortized over respective benefit periods ranging from three to
five years.
On August 12, 1996, the Company completed its acquisition of Cogent
Data Technologies, Inc. (Cogent). Cogent provides high-performance Fast
Ethernet products for the networking market. The Company acquired all
of the outstanding capital stock of Cogent in exchange for 1.3 million
shares of its common stock. Additionally, the Company incurred $1.7
million in professional fees related to this acquisition which have
been included in "write-off of acquired in-process technology and
other." The Company has recorded this acquisition using the pooling
method of accounting. Cogent's historical operations have not been
material to the Company's consolidated financial statements and,
therefore, have not been reflected in the Company's consolidated
financial results prior to the acquisition. Beginning at the date of
acquisition, the book value of the acquired assets and assumed
liabilities as well as the results of Cogent's operations, all of which
are not material to the Company have been combined with those of the
Company.
7
<PAGE> 8
6. Income Taxes
The Company recorded a tax provision of $14.5 million (92% of income
before income taxes) for the three month period ended September 27,
1996. The higher effective tax rate for the three and six month periods
ended September 27, 1996 primarily resulted from the write-off of
in-process technology for which the Company will receive no tax
benefit. Excluding the effect of the write-off of in-process
technology, the Company's effective tax rate was 25% for both the three
and six month periods ended September 27, 1996. The difference between
the Company's effective tax rate and the federal statutory rate is
primarily due to income earned in Singapore where the Company is
subject to a significantly lower effective tax rate.
7. Subsequent Events
Subsequent to September 27, 1996, the Board of Director's approved a
two-for-one split of the Company's common stock for shareholders of
record as of November 1, 1996. The stock split will increase common
stock outstanding from approximately 55 million to approximately 110
million. The effect of the stock split is not reflected in the
Company's condensed consolidated statements of operations.
8
<PAGE> 9
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 Six Month
Period Ended Period Ended
------------ ------------
Sept. 27, Sept. 29, Sept. 27, Sept. 29,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 43.0 42.0 42.8 41.6
----- ----- ----- -----
Gross profit 57.0 58.0 57.2 58.4
----- ----- ----- -----
Operating expenses:
Research and development 14.3 12.7 14.0 12.9
Sales and marketing 11.6 12.6 11.7 12.5
General and administrative 5.1 5.1 5.1 5.1
Write-off of acquired in-process technology
and other 19.7 27.2 16.5 14.1
----- ----- ----- -----
50.7 57.6 47.3 44.6
----- ----- ----- -----
Income from operations 6.3 0.4 9.9 13.8
Interest income, net 1.0 1.8 1.2 1.8
----- ----- ----- -----
Income before provision for
income taxes 7.3 2.2 11.1 15.6
Provision for income taxes 6.7 1.8 6.5 4.6
----- ----- ----- -----
Net income 0.6% 0.4% 4.6% 11.0%
===== ===== ===== =====
</TABLE>
Net Revenues
Net revenues increased 44% to $215 million in the second quarter of fiscal 1997
and 45% to $417 million in the first half of fiscal 1997, from $149 million and
$287 million in the corresponding periods of fiscal 1996. This growth was
primarily attributable to increased shipments of the Company's host adapters and
proprietary integrated circuits (ICs) for mass storage devices compared to the
same periods a year ago. This increase in shipments was due to the continued
growth in the markets for high-performance microcomputers and servers for
networking applications, 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 periods a year ago.
9
<PAGE> 10
Gross Margin
Gross margins for the second quarter and the first half of fiscal 1997 were 57%
compared to 58% for the three months ended September 29, 1995 and first half of
fiscal 1996. The slight decrease in percentage was primarily due to the mix of
products shipped, which included a greater percentage of mass storage ICs and
Fast Ethernet products from the Cogent acquisition. During the quarter, the
Company continued to focus on reducing its component costs as well as
implementing design efficiencies. The Company's ability to maintain current
gross margins can be significantly affected by the mix of products shipped.
Additionally margins can be affected by competitive price pressures, the
timeliness of volume shipments of new products and the Company's ability to
achieve manufacturing cost reductions.
Operating Expenses
Research and development expenses as a percentage of net revenues were 14%
during the second quarter and first half of fiscal 1997 compared to 13% in the
corresponding periods of fiscal 1996. Actual spending for research and
development increased from the corresponding periods of fiscal 1996 by 62% to
$31 million in the second quarter and 57% to $58 million in the first half of
fiscal 1997. This increased spending was a result of the Company's continued
development of serial architectures such as Fibre Channel and 1394, networking
products, as well as its ongoing commitment to enhancing its core SCSI business.
Sales and marketing expenses remained relatively consistent as a percentage of
revenues in both the second quarter and first half of fiscal 1997 compared to
fiscal 1996. Actual sales and marketing expenses increased from the
corresponding periods of fiscal 1996 by 33% to $25 million in the second quarter
and 36% to $49 million in the first half of fiscal 1997. The increase in actual
spending was primarily a result of advertising and promotional programs aimed at
introducing new technologies and generating demand for the Company's products
and increased staffing levels to support the continued growth of the Company.
General and administrative expenses as a percentage of net revenues remained
consistent at 5% in the second quarter and first half of fiscal 1997 from the
comparable fiscal 1996 periods. Actual spending increased from a year ago
primarily due to costs associated with increased staffing levels to support the
Company's growth.
Interest and Income Taxes
Interest income, net of interest expense, decreased 15% to $2.3 million in the
second quarter and 7% to $4.9 million in the first half of fiscal 1997 compared
with the respective periods in fiscal 1996. This was due to lower cash, cash
equivalents, and marketable securities balances in the current year primarily as
a result of the Company's various strategic acquisitions.
As discussed under Note 6 of the Notes to Condensed Consolidated Financial
Statements in this report, the Company recorded a tax provision of $14.5 million
(92% of income before income taxes) for the three month period ended September
27, 1996. The higher effective tax rate for the three and six month periods
ended September 27, 1996 primarily resulted from the write-off of in-process
technology for which the Company will receive no tax benefit. Excluding the
effect of the write-off of in-process technology, the Company's effective tax
rate was 25% for both the three and six month periods ended September 27, 1996.
The difference between the Company's effective tax rate and the federal
statutory rate is primarily due to income earned in Singapore where the Company
is subject to a significantly lower effective tax rate.
10
<PAGE> 11
Liquidity and Capital Resources
Operating Activities
Net cash generated by operations for the first half of fiscal 1997 was $71
million compared with $61 million for the first half of fiscal 1996. During the
first half of fiscal 1997, the majority of funds generated from operations
resulted from $19 million of net income adjusted by non-cash items including a
non-recurring write-off of acquired in-process technology of $67 million, and
depreciation and amortization of $12 million. Additionally contributing to
favorable operating cash flows was an increase in accrued liabilities and
accounts payable totaling $10 million mainly resulting from increased operations
and staffing. Primarily offsetting these items was an increase in accounts
receivable of $32 million resulting from the timing and increases of shipments
during the quarter.
Investing Activities
During the first half of fiscal 1997, the Company paid a total of $75 million
for the acquisition of CSG, DKI, and certain technologies from Corel, Inc. The
Company also continued to invest in equipment for product development, IC
testing, board level production, and made various building and leasehold
improvements to its facilities. Additionally, in connection with an agreement
with Lucent Technologies to secure capacity for wafer fabrication, the Company
purchased $17 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 $70 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. During the first half of fiscal 1997, the Company also received
$46 million from sales of marketable securities for its acquisitions in the
current fiscal year. 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 half of fiscal 1997, the Company received proceeds from common
stock issued under the employee stock option and employee stock purchase plans
totaling $8 million and $3 million, respectively.
11
<PAGE> 12
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.
Dependence 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 operating results could be adversely affected
by a decline in demand for the Company's products and increased pricing
pressures from both competitors and customers.
Certain Risks Associated with Computer Peripherals Market. As a supplier of
controller circuits to manufacturers of computer peripherals such as disk
drives and other storage devices, a portion of the Company's business is
dependent on the overall market for computer peripherals. This market, which
itself is dependent on the market for personal computers, has historically been
characterized by periods of rapid growth followed by periods of oversupply and
contraction. As a result, suppliers to the computer peripherals industry from
time to time experience large and sudden fluctuations in demand for their
products as their customers adjust to changing conditions in their markets. If
these fluctuations are not accurately anticipated, such suppliers, including
the Company, could produce excessive or insufficient inventories of various
components which could materially and adversely affect the Company's business
and results of operations. The computer peripherals industry is also
characterized by intense price competition which in turn creates pricing
pressures on the suppliers to that industry. If the Company is unable to
correspondingly decrease its manufacturing or component costs, such pricing
pressures could have a material adverse effect on the Company's operating
results.
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, cancellations or
postponements of orders, 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. The
Company's customers from time to time encounter uncertain and changing demand
for their products. Customers generally order based on their forecasts. If
demand falls below such forecasts or if customers do not control inventories
effectively, they may cancel or reschedule shipments previously ordered from the
Company. Additionally, 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 working capital balances as
it expands its operations. As a result of the difficulty of forecasting revenues
and the Company's planned growth in spending, operating expenses 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 could cause volatility in the price of the Company's
Common Stock.
12
<PAGE> 13
Certain Issues Related to Distributors. The Company's distributors generally
offer a diverse array of products from several different manufacturers.
Accordingly, there is a risk that these distributors may give higher priority to
selling products from other suppliers, thus reducing their efforts to sell the
Company's products. A reduction in sales efforts by one or more of the Company's
current distributors or a termination of any distributor relationship with the
Company could have a materially adverse effect on its business and operating
results. The Company's distributors may on occasion build inventories in
anticipation of substantial growth in sales, and if such growth does not occur
as rapidly as anticipated, distributors may decrease the amount of product
ordered from the Company in subsequent quarters. Such a slowdown in orders could
reduce the Company's revenues in any given quarter and give rise to fluctuation
in the Company's operating results. In addition, while the Company believes that
its major distributors are currently adequately capitalized, no assurance can be
given that one or more of its distributors will not experience financial
difficulties. The failure of one or more of the Company's distributors to pay
for products ordered could have a materially adverse effect on the Company's
business or operating results.
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 capital and other commitments on
the part of the Company.
Dependence on Suppliers. The majority of the Company's ICs are manufactured by a
limited number of suppliers. The Company may from time to time experience
delays in obtaining wafers from its foundries. In addition, though the Company
has various supply agreements with its suppliers, a shortage of raw materials or
production capacity could lead any of the Company's wafer suppliers to allocate
available capacity to customers other than the Company, or to internal uses,
which could interrupt the Company's ability to meet its product delivery
obligations. Any inability or unwillingness of the Company's wafer suppliers to
provide adequate quantities of finished wafers to satisfy the Company's needs in
a timely manner would delay production and product shipments and could have a
materially adverse effect on the Company's business or operating results. Also,
if the Company's current independent wafer manufacturers were unable or
unwilling to manufacture the Company's products as required, it would have to
identify and qualify additional foundries. No assurance can be given that any
additional wafer foundries would become available or be able to satisfy the
Company's requirements on a timely basis or that qualification would be
successful. To secure an adequate supply of wafers, the Company has entered and
may continue to enter into various supply arrangements requiring advance
deposits to secure commitments from foundries for specified levels of
manufacturing capacity over extended periods. No assurance can be given as to
the effect of any such transaction on the Company's business, financial
condition, or operating results.
Additionally, the Company relies on subcontractors for the assembly and
packaging of a portion of its products. There can be no assurance that these
subcontractors will continue to be able and willing to meet the Company's
requirements for such components or services. Any significant disruption in
supplies from, or degradation in the quality of components or services supplied
by, these subcontractors could delay shipments and result in the loss of
customers or revenues or otherwise have a materially adverse effect on the
Company's business, financial condition, or results of operations.
13
<PAGE> 14
International Operations and Markets. The Company's manufacturing facility and
various subcontractors it utilizes from time to time are located primarily in
Asia. Additionally the Company has various sales offices and customers
throughout Europe, Japan, and other countries. The Company's international
operations and sales are subject to political and economic risks, including
political instability, currency controls, exchange rate fluctuations, and
changes in import/export regulations, tariffs and freight rates.
Key Personnel; Management of Growth and Acquisitions. The Company has in recent
periods experienced growth in its operations and the number of its employees.
Additionally during the past year, the Company completed several acquisitions
of other companies resulting in increased responsibilities for its management.
The success of the Company is dependent in large part on its ability to
effectively manage its operations, integrate acquisitions, and retain its key
employees.
Reliance on Industry Standards. The computer industry is characterized by
various standards and protocols that evolve with time. The Company's current
products are designed to conform to certain industry standards and protocols
such as SCSI, UltraSCSI, PCI, RAID, ATM and Fast Ethernet. If consumer
acceptance of these standards was to decline or if they were replaced with new
standards, and if the Company did not anticipate these changes and develop new
products, the Company's business and operating results could be materially
adversely affected.
Technological Change; 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. As new
technologies emerge, the Company could be adversely affected if it does not
effectively market competitive products. Also, the Company's revenues could be
adversely impacted if its customers shifted their demand to a significant extent
away from board-based I/O solutions to application-specific ICs.
Need for Interoperability. The Company's products must be designed to
interoperate effectively with a variety of hardware and software products
supplied by other manufacturers, including microprocessors, peripherals and
operating system software. The Company depends on significant cooperation with
these manufacturers in order to achieve its design objectives and produce
products that interoperate successfully. While the Company believes that it
generally has good relationships with leading system, peripheral and
microprocessor suppliers, there can be no assurance that such suppliers will
not from time to time make it more difficult for the Company to design its
products for successful interoperability or decide to compete with the Company.
Competition. As the Company has continued to broaden its bandwidth management
product offerings into the desktop, server and networking environments, it has
experienced competition from additional companies. The Company must continue to
respond to these current and new competitors, who may choose to increase their
presence in its markets. If the Company is unable to make timely introduction of
new leading-edge solutions or respond to competitive threats, its business and
operating results could be materially adversely affected.
14
<PAGE> 15
Intellectual Property. The Company has historically devoted significant
resources to research and development and believes that the intellectual
property derived from such research and development is a valuable asset that has
been and will continue to be important to the success of the Company's business.
Although the Company maintains an intellectual property protection program, no
assurance can be given that the steps taken by the Company will be adequate to
protect its proprietary rights. In addition, the laws of certain territories in
which the Company's products are or may be developed, manufactured, or sold,
including Asia and Europe, may not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States. The Company has from time to time discovered counterfeit copies of its
products being manufactured or sold by others. Although the Company maintains an
active program to detect and deter infringement of its intellectual property,
should counterfeit products become available in the market to any significant
degree it could adversely affect the business and operating results of the
Company.
Volatility of Stock Price. The stock market in general, and the market for
shares of technology companies in particular, have from time to time 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.
15
<PAGE> 16
Part II. OTHER INFORMATION
Item 4. Submissions of Matters to a Vote of Security Holders
The Company held its Annual Meeting of shareholders on August 22,
1996. Out of 53,368,673 shares of Common Stock entitled to vote at
such meeting, there were present in person or by proxy 47,694,331
shares. At the Annual meeting, the shareholders of the Company
approved the following matters:
(a) The election of John G. Adler, Laurence B. Boucher, Carl J.
Conti, John C. East, Robert J. Loarie, B. J. Moore, W.
Ferrell Sanders, F. Grant Saviers and Philip E. White as
directors of the Company for the ensuing year and until
their successors are elected. The vote for the nominated
directors was as follows:
John G. Adler, 47,592,699 votes cast for and 101,632 votes
withheld; Laurence B. Boucher, 47,589,516 votes cast for
and 104,815 votes withheld; Carl J. Conti, 47,549,365 votes
cast for and 144,966 votes withheld; John C. East,
47,549,697 votes cast for and 144,634 votes withheld;
Robert J. Loarie, 47,627,077 votes cast for and 67,254
votes withheld; B.J. Moore 47,627,049 votes cast for and
67,282 votes withheld; W. Ferrell Sanders 47,629,579 votes
cast for and 64,752 votes withheld; F. Grant Saviers,
47,590,496 votes cast for and 103,835 votes withheld,
Phillip E. White 47,625,456 votes cast for and 68,875 votes
withheld;
(b) An amendment to the Company's Amended and Restated Bylaws
to establish the range for the authorized number of
directors to be seven to twelve with the exact number to be
fixed by the Board. 46,296,449 votes were cast for
approval; 465,583 votes were cast against; 63,116 votes
abstained and 869,183 were broker non-votes;
(c) An amendment to the 1990 Director's Option Plan to (i)
increase the shares reserved for issuance thereunder by
400,000 to a total of 1,100,000 (ii) increase the term of
options granted thereunder from five to ten years, and
(iii) amend the vesting provisions of subsequent annual
option grants so that such grants will vest quarterly over
a one year period. 28,656,850 votes were cast for approval;
18,730,360 votes were cast against; 108,683 votes abstained
and 198,438 were broker non-votes;
(d) Ratification of the appointment of Price Waterhouse LLP as
the independent accountants of the Company for the fiscal
year ending March 31, 1997. 47,646,991 votes were cast for
approval; 24,890 votes were cast against and 22,450 votes
abstained.
16
<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
EXHIBIT
NUMBER DESCRIPTION
2.1 Agreement and Plan of Reorganization by and among
Adaptec, Inc., Cogent Data Technologies, Inc., CDT
Acquisition Corp., and Certain Shareholders of Cogent
Data Technologies, Inc. dated May 31, 1996.
2.2 Agreement and Plan of Reorganization by and among
Adaptec, Inc., Adaptec Acquisition Corporation, and
Data Kinesis, Inc. dated August 6, 1996.
27.1 Financial Data Schedule for the three months ended
September 27, 1996.
The agreements mentioned in 2.1 and 2.2 contain certain exhibits
which have been omitted. Such exhibits are described within the
agreements and can be furnished by the Company to the Commission
upon request.
No Reports on Form 8-K were filed during the quarter.
17
<PAGE> 18
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: November 5, 1996
/s/ ANDREW J. BROWN
----------------------------------------
Andrew J. Brown, Vice-President and
Corporate Controller
(Principal Accounting Officer)
Date: November 5, 1996
18
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
ADAPTEC, INC.,
COGENT DATA TECHNOLOGIES, INC.
CDT ACQUISITION CORP.
AND CERTAIN SHAREHOLDERS OF
COGENT DATA TECHNOLOGIES, INC.
May 31, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<C> <S> <C>
1 . Certain Definitions ............................................. 1
2. The Merger ...................................................... 3
2.1 Merger; Effective Time of the Merger .................... 3
2.2 Closing ................................................. 3
2.3 Effect of the Merger .................................... 3
2.4 Tax-Free Reorganization; Pooling of Interests ........... 4
3. Effect of Merger on the Capital Stock of the Constituent
Corporations; Exchange of Certificates .......................... 4
3.1 Exchange of Stock ....................................... 4
3.2 Dissenters'Rights ....................................... 5
3.3 Fractional Shares ....................................... 5
3.4 Exchange of Certificates ................................ 6
3.5 Taking of Necessary Action; Further Action .............. 7
3.6 Escrow Agreement ........................................ 7
4. Representations and Warranties of Cogent ........................ 7
4.1 Organization, Qualification, and Corporate Power ........ 7
4.2 Authorization ........................................... 8
4.3 Capitalization .......................................... 8
4.4 Noncontravention ........................................ 8
4.5 Fees .................................................... 9
4.6 Financial Statements .................................... 9
4.7 Subsidiaries ............................................ 9
4.8 Title to Assets ......................................... 9
4.9 Events Subsequent to Most Recent Fiscal Year End ........ 9
4.10 Undisclosed Liabilities ................................. 12
4.11 Legal Compliance ........................................ 12
4.12 Tax Matters ............................................. 12
4.13 Properties . ............................................ 13
4.14 Intellectual Property ................................... 14
4.15 Tangible Assets ......................................... 15
4.16 Inventory ............................................... 15
4.17 Contracts ............................................... 16
4.18 Notes and Accounts Receivable ........................... 17
4.19 Power of Attorney ....................................... 17
4.20 Insurance ............................................... 18
4.21 Litigation .............................................. 18
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
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<S> <C>
4.22 Product Warranty ........................................ 18
4.23 Product Liability ....................................... 18
4.24 Employees ............................................... 18
4.25 Employee Benefits ....................................... 19
4.26 Guaranties .............................................. 21
4.27 Environment, Health, and Safety ......................... 21
4.28 Certain Business Relationships With Cogent .............. 22
4.29 Fun Disclosure .......................................... 22
4.30 Information Supplied .................................... 23
4.31 Accounting Matters ...................................... 23
5. Representation of the Majority Shareholders ..................... 23
6. Representations and Warranties of Adaptec and Acquisition Sub ... 23
6.1 Organization of Adaptec ................................. 23
6.2 Capitalization .......................................... 23
6.3 Authorization ........................................... 24
6.4 Noncontravention ........................................ 24
6.5 SEC Filings; Financial Statements ....................... 25
6.6 No Undisclosed Liabilities .............................. 25
6.7 Absence of Certain Changes or Events .................... 25
6.8 Absence of Litigation ................................... 26
6.9 Information Supplied .................................... 26
6.10 Brokers' Fees ........................................... 26
6.11 Full Disclosure ......................................... 26
7. Conduct and Transactions Prior to Effective Time;
Additional Agreements ........................................... 26
7.1 General ................................................. 26
7.2 Notices and Consents .................................... 26
7.3 Operation of Business ................................... 27
7.4 Preservation of Business ................................ 27
7.5 Access to Information ................................... 27
7.6 Notice of Developments .................................. 27
7.7 Best Efforts ............................................ 27
7.8 Employment Agreements ................................... 27
7.9 Preparation of S-4 and the Proxy Statement; Other Filings 28
7.10 Shareholder Approval .................................... 28
7.11 Nasdaq National Market .................................. 29
7.12 Affiliates .............................................. 29
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
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----
<S> <C>
7.13 Pooling Accounting ................................................ 29
7.14 Exclusivity ....................................................... 29
7.15 Post-Closing Cooperation .......................................... 29
7.16 Litigation Support ................................................ 29
7.17 Transition ........................................................ 30
7.18 Confidentiality ................................................... 30
7.19 Cogent Employees .................................................. 30
8. Conditions to Obligation to Close ........................................ 30
8.1 Conditions to Each Party's Obligation to Effect the Merger ........ 30
8.2 Conditions to Adaptec's Obligation to Close ....................... 31
8.3 Conditions to Cogent's Obligation ................................. 33
9. Survival of Representations, Warranties and Covenants; Indemnification ... 34
9.1 Survival .......................................................... 34
9.2 Indemnification Provisions for Benefit of Adaptec ................. 34
9.3 Procedure for Indemnification Claims .............................. 34
9.4 Exclusivity of Remedy ............................................. 35
10. Termination .............................................................. 35
10.1 Termination of the Agreement ...................................... 35
10.2 Effect of Termination ............................................. 35
11. Miscellaneous ............................................................ 35
11.1 Press Releases and Public Announcements ........................... 36
11.2 No Third-Party Beneficiaries ...................................... 36
11.3 Entire Agreement .................................................. 36
11.4 Succession and Assignment ......................................... 36
11.5 Counterparts ...................................................... 36
11.6 Headings .......................................................... 36
11.7 Notices ........................................................... 36
11.8 Governing Law ..................................................... 38
11.9 Forum Selection; Consent to Jurisdiction .......................... 38
11.10 Amendments and Waivers ............................................ 38
11.11 Severability ...................................................... 38
11.12 Expenses .......................................................... 38
11.13 Construction ...................................................... 38
</TABLE>
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<PAGE> 5
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
11.14 Incorporation of Exhibits and Schedules ........ 38
11.15 Shareholders' Representative ................... 38
11.16 Attorneys' Fees ................................ 39
12. Location of Definitions ............................... 39
EXHIBITS
Exhibit 3.6 Escrow Agreement
Exhibit 4 Cogent Disclosure Schedule
Exhibit 6 Adaptec Disclosure Schedule
Exhibit 7.8(a) List of Key Employees
Exhibit 7.8(b) Employment Agreement
Exhibit 7.12 Affiliate Agreement
Exhibit 8.2(m) General Release
</TABLE>
-iv-
<PAGE> 6
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is entered
into as of May 31, 1996, by and among ADAPTEC, INC., a California corporation
("Adaptec"), COGENT DATA TECHNOLOGIES, INC., a Washington corporation
("Cogent"), CDT ACQUISITION CORP., a Delaware corporation and a wholly-owned
subsidiary of Adaptec ("Acquisition Sub"), and Charles Anderson, Deanna
Anderson, Alan Bellanca, Richard Rome, Nash Gubelman and Frank Foster (the
"Majority Shareholders"). Adaptec, Cogent, Acquisition Sub and the Majority
Shareholders are sometimes referred to herein individually as a "Party" and
collectively as the "Parties."
RECITALS
A. Pursuant to the Agreement and Plan of Merger in the form attached
hereto as Exhibit 2.1 providing for the merger of Acquisition Sub into Cogent
pursuant to the Washington Business Corporation Act (the "WBCA" the shares of
Common Stock of Cogent issued and outstanding immediately prior to the effective
time of the Merger will be converted into shares of Common Stock of Adaptec.
B. The Parties desire to enter into this Agreement for the purpose of
setting forth certain representations, warranties and covenants made by each to
the other as an inducement to the execution and delivery of this Agreement, and
to serve as conditions precedent to the consummation of the merger of
Acquisition Sub into Cogent.
C. The respective Boards of Directors of Adaptec, Cogent and
Acquisition Sub have approved and adopted this Agreement, and the agreement is
intended to be a plan of reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended;
D. For accounting purposes, it is intended that the transaction be
accounted for as a pooling of interests under United States generally accepted
accounting principles.
NOW, THEREFORE, in consideration of these premises and of the mutual
agreements, representations, warranties and covenants herein contained, the
parties hereto do hereby agree as follows:
AGREEMENT
1. Certain Definitions. As used in this Agreement the following terms
have the following meanings (terms defined in the singular to have a correlative
meaning when used in the plural and vice versa). Certain other terms are defined
in the text of this Agreement, the location of which is set forth in Section 11
hereof.
"Affiliate" of a Person means any other Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with such Person.
<PAGE> 7
"Business Condition" means the current business, financial condition,
results of operations and assets of such corporate entity.
"Confidential Information" means any information concerning the
business and affairs of Cogent or its subsidiaries that is designated by Cogent
as confidential except for information which (i) was known to, or had been (or
was in the process of being) independently developed by, Adaptec or an Affiliate
of Adaptec prior to the receipt thereof from Cogent; (ii) was at the time of
disclosure by Cogent a matter of public knowledge through no fault of Adaptec or
an Affiliate of Adaptec; or (iii) was or hereafter is obtained by Adaptec or an
Affiliate of Adaptec from a third party under no duty of confidentiality to
Cogent or it subsidiaries.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation, retirement plan, severance plan or similar plan or arrangement;
(b) Employee Pension Benefit Plan; (c) Employee Welfare Benefit Plan; (d)
Multiemployer Plan; and (e) any other nonqualified plan providing welfare
benefits, including but not limited to medical, dental, life insurance and
disability benefits.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec,
3(l).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Gross Negligence" consists of an intentional act, or the failure to
perform a duty, with reckless disregard for the consequences of such act or
failure.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, drawings, specifications, customer and
supplier lists, pricing and cost information, financial information, and
business and marketing plans and proposals), (f) all computer software
(including data and related documentation), (g) all other proprietary rights,
and (h) all copies and tangible embodiments thereof (in whatever form or
medium).
"Material Adverse Effect" on any corporation shall mean a material
adverse effect on the Business Condition of such corporation.
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37) and
Code Sec. 414(f).
-2-
<PAGE> 8
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable, (c) purchase
money liens and liens securing rental payments under capital lease arrangements,
and (d) other liens arising in the Ordinary Course of Business and not incurred
in connection with the borrowing of money.
2. The Merger.
2.1 Merger; Effective Time of the Merger. Subject to the terms
and conditions of this Agreement, Acquisition Sub will be merged with and into
Cogent (the "Merger") in accordance with the WBCA and the Delaware General
Corporation Law (the "DGCL"). In accordance with the provisions of this
Agreement, Articles of Merger in such form as is required by, and executed in
accordance with, the WBCA, shall be filed with the Washington Secretary of State
and the Delaware Secretary of State in accordance with the WBCA and the DGCL on
the Closing Date (as defined in Section 2.2) and each issued and outstanding
share of Common Stock of Cogent ("Cogent Common Stock"), shall be converted into
shares of Common Stock, $.001 par value, of Adaptec (" Adaptec Common Stock")
in the manner contemplated by Section 3. The Merger shall become effective at
the time of the filing of such Articles of Merger with the Washington Secretary
of State (the date of such filing being hereinafter referred to as the
"Effective Date of the Merger" and the time of such filing being hereinafter
referred to as the "Effective Time of the Merger").
2.2 Closing. The closing of the Merger (the "Closing") will
take place as soon as practicable on the first business day after satisfaction
or waiver of the latest to occur of the conditions set forth in Section 7 (the
"Closing Date"), at the offices of Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, California 94304-1050,
unless a different date or place is agreed to by the Parties.
2.3 Effect of the Merger. At the Effective Time of the Merger,
(i) the separate existence of Acquisition Sub shall cease and Acquisition Sub
shall be merged with and into Cogent (Cogent and Acquisition Sub are sometimes
referred to herein as the "Constituent Corporations" and Cogent after the Merger
is sometimes referred to herein as the "Surviving Corporation"), (ii) the
Articles of Incorporation of Cogent shall be the Articles of Incorporation of
the Surviving Corporation, (iii) the Bylaws of Acquisition Sub shall be the
Bylaws of the Surviving Corporation, (iv) the directors of Acquisition Sub shall
be the directors of the Surviving Corporation, (v) the officers of Acquisition
Sub shall be the officers of the Surviving Corporation and (vi) the Merger
shall, from and after the Effective Time of the Merger, have all the effects
provided by applicable law.
-3-
<PAGE> 9
2.4 Tax-Free Reorganization; Pooling of Interests. The Merger
is intended to qualify as a tax free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and to be accounted for as a pooling of interests pursuant to Opinion No. 16 of
the Accounting Principles Board.
3. Effect of Merger on the Capital Stock of the Constituent
Corporations; Exchange of Certificates.
3.1 Exchange of Stock. As of the Effective Time of the Merger,
each share of Cogent Common Stock that is issued and outstanding immediately
prior to the Effective Time of the Merger (other than shares, if any, held by
persons exercising dissenters' rights in accordance with Chapter 23B.13 of the
WBCA ("Dissenting Shares") as provided for in Section 3.2 below), shall, by
virtue of the Merger and without any action on the part of the Cogent
shareholders, be converted into the right to receive, subject to the provisions
of the Escrow Agreement, that number of shares of Adaptec Common Stock as is
determined in accordance with the formula set forth below. The number of shares
of Adaptec Common Stock into which each share of Cogent Common Stock is
convertible as determined under the formula set forth below is hereinafter
referred to as the "Exchange Ratio".
A. Unless B or C applies, the Exchange Ratio shall be:
PP/APS = ER
------
OS
B. If the Average Price - Closing is greater than 1.05
multiplied by the Average Price at Signing (APC>1.05 x APS)
then the Exchange Ratio shall be computed as:
PP x LO5/APC = ER
------------
OS
C. If Average Price - Closing is less than 0.95 multiplied by the
Average Price at Signing (APC<0.95 x APS) then the Exchange
Ratio shall be computed as:
PP x 0.95/APC = ER
-------------
OS
where:
ER = Exchange Ratio
PP = $68,763,558 minus any expenses payable by the shareholders
of Cogent pursuant to Section 10.12 hereof
-4-
<PAGE> 10
APS = Average of the closing prices of the Adaptec Common Stock as
reported on the NASDAQ National Market for the five trading
days prior to the date of execution of this Agreement (the
"Average Price at Signing").
APC = Average of the closing prices of the Adaptec Common Stock as
reported on the NASDAQ National Market for the five trading
days prior to the Closing Date (the "Average Price at
Closing").
OS = The total number of shares of Cogent Common Stock that are
issued and outstanding immediately prior to the Effective
Time of the Merger.
3.2 Dissenters' Rights. If holders of Cogent Common Stock are entitled
to dissenters' rights at the Effective Time of the Merger under Chapter 23B.13
of the WBCA, the shares as to which dissenters' rights are available
("Dissenting Shares") shall not be converted into Adaptec Common Stock on or
after the Effective Time of the Merger, but shall instead be converted into the
right to receive from the Surviving Corporation such consideration as may be
determined to be due with respect to such Dissenting Shares pursuant to the
WBCA. Each holder of Dissenting Shares (a "Dissenting Shareholder") who,
pursuant to the provisions of Chapter 23B.13 of the WBCA, becomes entitled to
payment of the value of shares of Cogent Common Stock held by such Dissenting
Shareholder shall receive payment therefor (but only after the value therefor
shall have been agreed upon or finally determined pursuant to such provisions).
In the event of the legal obligation, after the Effective Time of the Merger, to
deliver shares of Adaptec Common Stock to any Dissenting Shareholder who shall
have failed to make an effective demand for appraisal or shall have lost his
status as a Dissenting Shareholder, the Surviving Corporation shall issue and
deliver, upon surrender by such Dissenting Shareholder of his certificate or
certificates representing shares of Cogent Common Stock, the shares of Adaptec
Common Stock to which such Dissenting Shareholder is then entitled under this
Section 3.2 and Chapter 23B.13 of the WBCA. The Surviving Corporation will pay
all sums due to holders of Dissenting Shares on account of such shares.
3.3 Fractional Shares. No fractional share of Adaptec Common Stock
shall be issued in the Merger. In lieu thereof, each holder of shares of Cogent
Common Stock who would otherwise be entitled to receive a fraction of a share of
Adaptec Common Stock shall receive from Adaptec an amount of cash (rounded to
the nearest whole cent) equal to the product of the fraction of a share of
Adaptec Common Stock to which such holder would otherwise be entitled,
multiplied by the per share market value of Adaptec Common Stock (based on the
closing price of Adaptec Common Stock as reported on the Nasdaq National Market
on the Effective Date of the Merger). For the purpose of determining fractional
shares, all shares of Adaptec Common Stock to be issued to any Cogent
shareholder shall be aggregated.
-5-
<PAGE> 11
3.4 Exchange of Certificates.
(a) Exchange Agent. Prior to the Closing Date, Adaptec
shall appoint Chemical Trust Company of California to act as the exchange agent
(the "Exchange Agent") in the Merger.
(b) Adaptec to Provide Adaptec Common Stock. Promptly
after the Effective Date of the Merger (but in no event later than ten business
days thereafter), Adaptec shall make available for exchange in accordance with
this Section 3, through such reasonable procedures as Adaptec may adopt, the
shares of Adaptec Common Stock issuable pursuant to Section 3.1 in exchange for
outstanding shares of Cogent Common Stock.
(c) Exchange Procedures. Within ten days after the
Effective Date of the Merger, the Exchange Agent shall mail to each holder of
record of a certificate or certificates which immediately prior to the Effective
Date of the Merger represented outstanding shares of Cogent Common Stock (the
"Certificates") whose shares are being converted into Adaptec Common Stock
pursuant to Section 3.1 hereof, (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent and
which shall be in such form and have such other provisions as Adaptec may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for Adaptec Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Adaptec with the reasonable concurrence of the
former Cogent shareholders, together with such letter of transmittal, duly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefor the number of shares of Adaptec Common Stock to which the
holder of Cogent Common Stock is entitled pursuant to Section 3.1 hereof. The
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Cogent Common Stock which is not registered on the
transfer records of Cogent, the appropriate number of shares of Adaptec Common
Stock may be delivered to a transferee if the Certificate representing such
Cogent Common Stock is presented to the Exchange Agent and accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. From and after the Effective
Date of the Merger, until surrendered as contemplated by this Section 3.4, each
Certificate shall be deemed for all corporate purposes to evidence the number of
shares of Adaptec Common Stock into which the shares of Cogent Common Stock
represented by such Certificate have been converted and shall have the rights
with respect thereto as provided by the California General Corporation Law.
(d) No Further Ownership Rights in Capital Stock of
Cogent. All Adaptec Common Stock delivered upon the surrender for exchange of
shares of Cogent Common Stock in accordance with the terms hereof shall be
deemed to have been delivered in full satisfaction of all rights pertaining to
such Cogent Common Stock. There shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of Cogent Common Stock
which were outstanding immediately prior to the Effective Date of the Merger.
If, after the Effective Date of the Merger, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled
-6-
<PAGE> 12
and exchanged as provided in this Section 3.4, provided that the presenting
holder is listed on Cogent's shareholder list as a holder of Cogent Common
Stock.
3.5 Taking of Necessary Action; Further Action. Adaptec, Cogent and
Acquisition Sub shall take all such action as may be necessary or appropriate in
order to effect the Merger as promptly as possible provided that nothing herein
shall obligate any Majority Shareholder to vote in favor of the Merger. If, at
any time after the Effective Date of the Merger, any further action is necessary
or desirable to carry out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of either Cogent or
Acquisition Sub, the officers and directors of such corporation are fully
authorized in the name of the corporation or otherwise to take, and shall take,
all such action.
3.6 Escrow Agreement. At the Closing, the Majority Shareholders and
Adaptec shall execute and deliver an escrow agreement (the "Escrow Agreement"),
substantially in the form attached hereto as Exhibit 3.6 Pursuant to the Escrow
Agreement, the Escrow Amount shall be deducted, pro rata, from the number of
shares of Adaptec Common Stock otherwise issuable to the Majority Shareholders
and shall be placed in escrow for the purpose of securing the indemnity
obligations set forth in Section 9 hereof. As used herein "Escrow Amount" shall
mean 10% of the shares of Adaptec Common Stock (rounded to the nearest whole
share) issuable to the Majority Shareholders in the Merger pursuant to Section
3.1.
4. Representations and Warranties of Cogent. Cogent hereby represents and
warrants, to Adaptec and Acquisition Sub that the statements contained in this
Section 4 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Section 4), except as set forth in the disclosure schedule delivered by Cogent
to Adaptec on the date hereof (and initialed by Adaptec), a copy of which is
attached hereto as Exhibit 4 (referred to herein as the "Cogent Disclosure
Schedule") and except for events occurring in the Ordinary Course of Business of
Cogent between the date of this Agreement and the Closing Date, which events are
not material individually or in the aggregate, do not violate any of the
covenants or agreements of Cogent, and are disclosed to Adaptec by means of an
updated Cogent Disclosure Schedule not less than two days prior to the Closing.
The Cogent Disclosure Schedule will be arranged in paragraphs corresponding to
the lettered and numbered paragraphs contained in this Section 4.
4.1 Organization, Qualification, and Corporate Power. Cogent is a
corporation duly organized and validly existing under the laws of the
jurisdiction of the State of Washington. Cogent is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required. Cogent has full corporate power and authority, and
has all necessary licenses and permits, to carry on the businesses in which it
is engaged and to own and use the properties owned and used by it. Section 4.1
of the Cogent Disclosure Schedule lists the directors and officers of Cogent.
The operations now being conducted by Cogent have not been conducted under any
other name during the past five (5) years.
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4.2 Authorization. Cogent has full power and authority to execute and
deliver this Agreement, and, subject to receipt of the requisite approvals of
its shareholders, to consummate the transactions contemplated hereunder and to
perform its obligations hereunder and except as set forth on Section 4.2 of the
Cogent Disclosure Schedule no other proceedings on the part of Cogent are
necessary to authorize the execution, delivery and performance of this
Agreement. This Agreement constitutes the valid and legally binding obligation
of Cogent, enforceable against Cogent in accordance with its terms and
conditions. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency, commission,
regulatory authority or other governmental authority or instrumentality,
domestic or foreign, is required by or with respect to Cogent in connection with
the execution and delivery of this Agreement or the Articles of Merger by Cogent
or by consummation by Cogent of the transactions contemplated hereby or thereby,
except for (i) the filing of a premerger notification report by Cogent under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the distribution of the registration statement/proxy statement
relating to the Shareholders' Meeting (the "Registration Statement/Proxy
Statement") and the obtaining of the approval of the Merger by Cogent's
shareholders, and (iii) the filing of the Articles of Merger with the Secretary
of State of the State of Washington and the Secretary of the State of the State
of Delaware and appropriate documents with the relevant authorities of other
states in which Cogent is qualified to do business.
4.3 Capitalization.
(a) Capital Stock. The entire authorized capital stock of Cogent
consists of 10,000,000 shares of Common Stock without par value, 2,242,793 of
which are issued and outstanding, and 5,000,000 shares of Preferred Stock, none
of which are issued and outstanding. All of the issued and outstanding shares of
capital stock have been duly authorized, are validly issued, fully paid, and
non-assessable, and are held of record by the respective shareholders as set
forth in Section 4.3(a) of the Cogent Disclosure Schedule. All of the
outstanding shares of capital stock have been offered, issued and sold by Cogent
in compliance with applicable Federal and state securities laws.
(b) No Other Rights or Agreements. Section 4.3(b) of the Cogent
Disclosure Schedule lists all of the holders of options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights and other rights
that could require Cogent to issue, sell or otherwise cause to become
outstanding any of its capital stock (the "Stock Rights"), and if determinable,
the number of shares of Cogent Common Stock subject to such Stock Rights. Except
as set forth in Section 4.3(b) of the Cogent Disclosure Schedule, there are no
other outstanding or authorized Stock Rights. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to Cogent. Except as set forth in Section 4.3(b) of
the Cogent Disclosure Schedule, there are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of the capital stock of
Cogent.
4.4 Noncontravention. Neither the execution and the delivery of this
Agreement nor the consummation of the transactions contemplated hereby, will (A)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Cogent is subject or any provision of its
Articles
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of Incorporation or bylaws, or (B) except as set forth in Section 4.4 of the
Cogent Disclosure Schedule, (i) conflict with, (ii) result in a breach of, (iii)
constitute a default under, (iv) result in the acceleration of, (v) create in
any party the right to accelerate, terminate, modify, or cancel, or (vi) require
any notice under, any agreement, contract, lease, license, instrument, franchise
permit or other arrangement to which Cogent is a party or by which it is bound
or to which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets).
4.5 Fees. Except for the fee to be paid to Broadview Associates L.P.,
Cogent has no liability or obligation to pay any fees or commissions to any
broker, finder or agent with respect to the transactions contemplated by this
Agreement.
4.6 Financial Statements. Section 4.6 of the Cogent Disclosure Schedule
contains an audited balance sheet and statement of operations as of and for the
fiscal year ended March 31, 1995 and an unaudited balance sheet and statement of
operations as of and for the fiscal year ended March 31, 1996 (the "Most Recent
Fiscal Year End") for Cogent (collectively the "Financial Statements"). The
Financial Statements (including the notes thereto) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis (except that the unaudited Financial Statements lack footnotes and certain
other presentation items) throughout the periods covered thereby and present
fairly the financial condition of Cogent as of such dates and the consolidated
results of operations of Cogent as for such periods. The books of account of
Cogent reflect as of the dates shown thereon substantially all items of income
and expenses, and all assets, liabilities and accruals of Cogent required to be
reflected therein, in accordance with generally accepted accounting principles
consistently applied.
4.7 Subsidiaries. Cogent has no subsidiaries.
4.8 Title to Assets. Except as set forth in Section 4.8 of the Cogent
Disclosure Schedule, Cogent has good and marketable title to, or a valid
leasehold interest in, the properties and assets (including, without limitation,
all Intellectual Property) used by it, located on its premises, or shown on the
balance sheet of Cogent as of March 31, 1996 (the "Most Recent Balance Sheet")
or acquired after the date thereof, free and clear of all Security Interests,
except for properties and assets disposed of in the Ordinary Course of Business
since the date of the Most Recent Balance Sheet. No Person other than Cogent
will own at the time of the Closing any assets or properties currently utilized
in or reasonably necessary to the operations or business of Cogent or situated
on any of the premises of Cogent. There are no existing contracts, agreements,
commitments or arrangements with any Person to acquire any of the assets or
properties of Cogent (or any interest therein) except for this Agreement and
those contracts entered into during the Ordinary Course of Business for the sale
of products and services to customers of Cogent.
4.9 Events Subsequent to Most Recent Financial Year End. Since the Most
Recent Fiscal Year End, there has not been any material adverse change in the
Business Condition of Cogent. Without limiting the generality or the foregoing,
since that date:
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(a) Cogent has not sold, leased, transferred, or assigned any
assets or properties, tangible or intangible, outside the Ordinary Course of
Business;
(b) except for those agreements, contracts, leases and
commitments identified in Section 4.17 of the Cogent Disclosure Schedule, Cogent
has not entered into, assumed or become bound under or obligated by any
agreement, contract, lease or commitment (collectively a "Cogent Agreement") or
extended or modified the terms of any Cogent Agreement which (i) involves the
payment of greater than $50,000 per annum or which extends for more than one (1)
year, (ii) involves any payment or obligation to any Affilliate of Cogent other
than in the Ordinary Course of Business, (iii) involves the sale of any assets
material to the business and operations of Cogent, (iv) involves any OEM
relationship, or (v) involves any exclusive or extraordinary license of Cogent's
technology;
(c) Except as set forth on Section 4.9(e) of the Cogent
Disclosure Schedule, no party (including Cogent) has accelerated, terminated,
made modifications to, or canceled any agreement, contract, lease, or license to
which Cogent is a party or by which it is bound and Cogent has not modified,
canceled or waived or settled any debts or claims held by it, outside the
Ordinary Course of Business, or waived or settled any rights or claims of a
substantial value, whether or not in the Ordinary Course of Business;
(d) none of the assets of Cogent, tangible or intangible, has
become subject to any Security Interest;
(e) Cogent has not made any capital expenditures except in the
Ordinary Course of Business and not exceeding $50,000 in the aggregate of all
such capital expenditures;
(f) Except as set forth on Section 4.9(f) of the Cogent
Disclosure Schedule, Cogent has not made any capital investment in, or any loan
to, any other Person in excess of $10,000;
(g) Except as set forth on Section 4.9(g) of the Cogent
Disclosure Schedule, Cogent has not created, incurred, assumed, prepaid or
guaranteed any indebtedness for borrowed money and capitalized lease
obligations, or extended or modified any existing indebtedness;
(h) Except in the Ordinary Course of Business, Cogent has not
granted any license or sublicense of any rights under or with respect to any
Intellectual Property;
(i) there has been no change made or authorized in the
articles of incorporation or bylaws of Cogent;
(j) Except as set forth on Section 4.9(j) of the Cogent
Disclosure Schedule, Cogent has not issued, sold, or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including, upon conversion, exchange, or exercise) any of
its capital stock;
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(k) Cogent has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash or
in kind) or redeemed, purchased, or otherwise acquired any of its capital stock;
(1) Cogent has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property in excess of $50,000
in the aggregate of all such damage, destruction and losses;
(m) Except as set forth on Section 4.9(m) of the Cogent
Disclosure Schedule, Cogent has not suffered any repeated, recurring or
prolonged shortage, cessation or interruption of inventory shipments, supplies
or utility services;
(n) Except as set forth on Section 4.9(n) of the Cogent
Disclosure Schedule, Cogent has not entered into any other transaction with, or
paid any bonuses in excess of an aggregate of $10,000 to, any of its
Affiliates, directors, officers, or employees, and, in any event, any such
transaction was on fair and reasonable terms no less favorable to Cogent than
would be obtained in a comparable arm's length transaction with a Person which
is not such an Affiliate, director, officer or employee thereof;
(o) Except as set forth on Section 4.9(o) of the Cogent
Disclosure Schedule, Cogent has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement;
(p) Except as set forth on Section 4.9(p) of the Cogent
Disclosure Schedule, Cogent has not granted any increase in the base
compensation of any of its directors or officers, or, except in the Ordinary
Course of Business, any of its employees;
(q) Except as set forth on Section 4.9(q) of the Cogent
Disclosure Schedule, Cogent has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, or employees (or
taken any such action with respect to any other Employee Benefit Plan);
(r) Cogent has not made any other change in employment terms
for any of its directors, officers, or employees outside the Ordinary Course of
Business;
(s) Except as set forth on Section 4.9(s) of the Cogent
Disclosure Schedule, Cogent has not suffered any adverse change or any threat of
any adverse change in its relations with, or any loss or threat of loss of, any
of its major customers, distributors or dealers;
(t) Except as set forth on Section 4.9(t) of the Cogent
Disclosure Schedule, Cogent has not suffered any adverse change or any threat of
any adverse change in its relations with, or any loss or threat of loss of, any
of it major suppliers;
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(u) Cogent has not received notice or had knowledge of any
actual or threatened labor trouble or strike, or any other occurrence, event or
condition of a similar character;
(v) Cogent has not changed any of the accounting principles
followed by it or the method of applying such principles;
(w) Cogent has not made a change in any of its banking or safe
deposit arrangements;
(x) Except for the execution of this Agreement, Cogent has not
entered into any transaction other than in the Ordinary Course of Business; and
(y) Cogent has not committed to any of the foregoing.
4.10 Undisclosed Liabilities. Cogent has no liability (whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due, including
any liability for taxes) of a character which, under GAAP, should be accrued,
shown or disclosed on a balance sheet of Cogent, except for (i) liabilities set
forth on the Most Recent Balance Sheet, (ii) liabilities which have arisen after
the Most Recent Fiscal Year End in the Ordinary Course of Business, and (iii)
liabilities arising out of the transactions contemplated by this Agreement.
4.11 Legal Compliance. Cogent has complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof). No action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, notice or inquiry has been
filed or commenced against, or received by, any governmental body alleging any
failure to so comply. The licenses, permits, approvals, registrations,
qualifications, certificates and other governmental authorizations that are
listed on Section 4.11 of the Cogent Disclosure Schedule are the only
governmental authorizations that are necessary for the operations of Cogent as
they are presently conducted.
4.12 Tax Matters
(a) For purposes of this Agreement, "Taxes" means all federal,
state, municipal, local or foreign income, gross receipts, windfall profits,
severance, property, production, sales, use, value added, license, excise,
franchise, employment, withholding, capital stock, levies, imposts, duties,
transfer and registration fees or similar taxes or charges imposed on the
income, payroll, properties or operations of Cogent, together with any interest,
additions or penalties, deficiencies or assessments with respect thereto and any
interest in respect of such additions or penalties.
(b) Cogent has filed all reports and returns with respect to
any Taxes ("Tax Returns") that it was required to file. All such Tax Returns
were correct and complete in all respects and no such Tax Returns are currently
the subject of audit. Except as set forth in Section 4.12 (b)
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of the Cogent Disclosure Schedule. All Taxes owed by Cogent (whether or not
shown on any Tax Return) were paid in full when due or are being contested in
good faith and are supported by adequate reserves on the Most Recent Financial
Statements. Cogent has provided adequate reserves on its Financial Statements
for the payment of any taxes accrued but not yet due and payable. Cogent is not
currently the beneficiary of any extension of time within which to file any Tax
Return, and Cogent has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to any Tax assessment or
deficiency.
(c) There is no dispute or claim concerning any Tax liability
of Cogent either (A) claimed of raised by any authority in writing or (B) based
upon personal contact with any agent of such authority. There are no tax liens
of any kind upon any property or assets of Cogent, except for inchoate liens for
taxes not yet due and payable.
(d) Cogent has not filed a consent under Sec. 341(f) of the
Internal Revenue Code of 1986, as amended (the "Code") concerning collapsible
corporations. Cogent has not made any payments, is not obligated to make any
payments, and is not a party to any agreement that under any circumstances
could obligate it to make any payments as a result of the consummation of the
Merger that will not be deductible under Code Sec. 280G. Cogent has not been a
United States real property holding corporation within the meaning of Code Sec.
897(c)(2) during the applicable period specified in Code Sec. 897(c)(1)(A)(ii).
Cogent is not a party to any tax allocation or sharing agreement. Cogent (A) has
not been a member of any affiliated group within the meaning of Code Sec. 1504
or any similar group defined under a similar provision of state, local, or
foreign law (an "Affiliated Group") filing a consolidated federal Income Tax
Return (other than a group the common parent of which was Cogent) and (B) has no
any liability for the taxes of any Person (other than any of Cogent and its
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, or
otherwise.
(e) The unpaid Taxes of Cogent (A) did not, as of the Most
Recent Fiscal Period End, exceed by any amount the reserve for Tax liability
(rather than any reserve for deferred taxes established to reflect timing
differences between book and tax income) set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) and (B) will not exceed
by any material amount that reserve as adjusted for operations and transactions
through the Closing Date in accordance with the past custom and practice of
Cogent in filing its Tax Returns.
4.13 Properties.
(a) Cogent owns no real property.
(b) Section 4.13 of the Cogent Disclosure Schedule lists and
describes briefly all real property leased or subleased to Cogent. Cogent has
delivered to Adaptec correct and complete copies of the leases and subleases
listed in Section 4.13 of The Cogent Disclosure Schedule (as amended to date),
and with respect to each lease and sublease listed in Section 4.13 of the Cogent
Disclosure Schedule to the knowledge of Cogent, except as set forth on Section
4.13 of the Cogent Disclosure Schedule:
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(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect in all respects;
(ii) no party to the lease or sublease is in breach
or default, and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(iii) no party to the lease or sublease has
repudiated any provision thereof,
(iv) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease:
(v) Cogent has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold or
subleasehold; and
4.14 Intellectual Property.
(a) Cogent has not interfered with, infringed upon,
misappropriated or violated any Intellectual Property rights of third parties in
any respect, and except as set forth on Section 4.14(a) of the Cogent Disclosure
Schedule. Cogent has not received since its inception any charge, complaint,
claim, demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that any of Cogent must
license or refrain from using any Intellectual Property rights of any third
party). To the best of Cogent's knowledge, no third party has interfered with,
infringed upon, misappropriated, or violated any Intellectual Property rights of
Cogent.
(b) Section 4.14(b) of the Cogent Disclosure Schedule
identifies each patent or registration which has been issued to Cogent with
respect to any of the Intellectual Property used in Cogent's business,
identifies each pending patent application or application for registration which
Cogent has made with respect to any of the Intellectual Property used in
Cogent's business, and identifies each license, agreement, or other permission
which Cogent has granted to any third party with respect to any of the
Intellectual Property used in Cogent's business (together with any exceptions).
Cogent has delivered to Adaptec correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as amended
to date). Section 4.14(b)of the Cogent Disclosure Schedule also identifies (i)
each trade name or unregistered trademark used by Cogent in connection with any
of its businesses and (ii) each unregistered copyright owned by Cogent with
respect to Intellectual Property used in Cogent's business. With respect to each
item of Intellectual Property required to be identified in Section 4.14(b) of
the Cogent Disclosure Schedule:
(i) Cogent possesses, or will possess prior to the
Closing, all right, title, and interest in and to the item, free and clear of
any Security Interest, license, or other restriction;
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(ii) the item is legal and valid and in full force
and effect and is not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or threatened in
writing which challenges the legality, validity, enforceability, use or
ownership of the item; and
(iv) Except as set forth in the Cogent Disclosure
Schedule, Cogent has no obligation to indemnify any Person for or against any
interference, infringement, misappropriation, or other conflict with respect to
the item.
(c) Section 4.14(c) of the Cogent Disclosure Schedule
identifies each item of Intellectual Property that any third party owns and that
Cogent uses pursuant to license, sublicense, agreement, or permission. Cogent
has delivered to Adaptec correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to date). With respect to
each item of Intellectual Property required to be identified in Section 4.14(c)
of the Cogent Disclosure Schedule:
(i) the license, sublicense, agreement or permission
covering the item is, to the knowledge of Cogent, legal, valid, binding and
enforceable, and in full force and effect in all respects;
(ii) no party to the license, sublicense, agreement,
or permission is, to the knowledge of Cogent, in breach or default, and no event
has occurred which with notice or lapse of time would constitute a breach or
default or permit termination, modification or acceleration thereunder;
(iii) no party to the license, sublicense, agreement,
or permission has repudiated any provision thereof; and
(iv) Cogent has not granted any sublicense or similar
right with respect to the license, sublicense, agreement, or permission.
4.15 Tangible Assets. The buildings, machinery, equipment, and
other tangible assets that Cogent owns and leases are free from material
defects, have been maintained in accordance with normal industry practice, and
are in good operating condition and repair (subject to normal wear and tear) and
are usable in the Ordinary Course of Business,
4.16 Inventory. Except as set forth in Section 4.16 of the
Cogent Disclosure Schedule, all of the inventory of Cogent, which consists of
raw materials and supplies, manufactured and processed parts, work in process,
and finished goods, is usable, merchantable and fit for the purpose for which it
was procured or manufactured, and none of such inventory is obsolete, damaged,
or defective, subject only to the reserve for inventory write down set forth on
the face of the Most Recent Balance Sheet as adjusted for operations and
transactions through the Closing Date in accordance with the past custom and
practice of Cogent.
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4.17 Contracts. Section 4.l7 of the Cogent Disclosure Schedule
lists the following contracts, agreements, commitments and other arrangements
currently in effect to which Cogent is a party or by which Cogent or any of its
assets is bound:
(a) any agreement (or group of related agreements)
for the lease of personal property to or from any Person providing for lease
payments in excess of $12,000 per annum;
(b) except for purchase orders issued in the Ordinary
Course of Business, any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the performance
of which will extend over a period of more than one year or involves
consideration in excess of $50,000;
(c) any agreement for the purchase of supplies,
components, products or services from single source suppliers, custom
manufacturers or subcontractors the performance of which will extend over a
period of more than one year or involves consideration in excess of $50,000;
(d) any agreement concerning a partnership or joint
venture;
(e) any agreement (or group of related agreements)
under which it has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money or any capitalized lease obligation in excess of $50,000 or
under which it has imposed a Security Interest on any of its assets, tangible or
intangible;
(f) any agreement concerning confidentiality,
noncompetition or restraint of trade;
(g) any agreement with any Cogent shareholder or any
of such shareholder's Affiliates (other than Cogent) or with any Affiliate of
Cogent;
(h) any profit sharing, stock option, stock purchase,
stock appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
(i) any collective bargaining agreements;
(j) any agreement for the employment of any
individual on a full-time, part-time, consulting, or other basis;
(k) any agreement under which Cogent has advanced or
loaned any amount to any of its directors, officers, and employees;
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(l) any other agreement under which the consequences
of a default or termination could have a Material Adverse Effect on Cogent;
(m) any agreement with any original equipment
manufacturer involving consideration in excess of $100,000;
(n) any agreement pursuant to which Cogent is
obligated to provide maintenance, support or training for its products;
(o) any standard form agreement used by Cogent,
including, but not limited to, any purchase order, statement of standard terms
and conditions of sale, or employment offer letter;
(p) any agreement pursuant to which any of Cogent's
products is manufactured; and
(q) any other agreement (or group of related
agreements) the performance of which involves consideration in excess of $50,000
or which is expected to continue for more than six months from the date hereof.
Cogent has delivered to Adaptec a correct and complete copy of each written
agreement listed in Section 4.17 of the Cogent Disclosure Schedule (as amended
to date) and a written summary setting forth the terms and conditions of each
oral agreement referred to in Section 4.17 of the Cogent Disclosure Schedule.
Except as set forth on Section 4.17 of the Cogent Disclosure Schedule, with
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect in all respects in accordance with its
terms; (B) no party is in breach or default, and no event has occurred, which
with notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; and (C) no
party has repudiated any provision of the agreement;
4.18 Notes and Accounts Receivable. Except as set forth on
Section 4.18 of the Cogent Disclosure Schedule all notes and accounts
receivable of Cogent, all of which are reflected properly on the books and
records of Cogent, are valid receivables (less cash discounts) subject to no
setoffs, defenses or counterclaims, are current and collectible, and will be
collected in accordance with their terms at their recorded amounts, subject only
to the reserves for bad debts, warranty, and allowance for distributor returns
set forth on the face of the Most Recent Balance Sheet as adjusted for
operations and transactions through the Closing Date in accordance with the past
custom and practice of Cogent.
4.19 Power of Attorney. Except as set forth on Section 4.19 of
the Cogent Disclosure Schedule, there are no outstanding powers of attorney
executed on behalf of Cogent.
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4.20 Insurance. Cogent has delivered to Adaptec copies of each
insurance policy (including policies providing property, casualty, liability,
and workers' compensation coverage and bond and surety arrangements) with
respect to which Cogent is a party, a named insured, or otherwise the
beneficiary of coverage. With respect to each such insurance policy: (A) the
policy is legal, valid, binding, enforceable, and in full force and effect in
all respects (and there has been no notice of cancellation or nonrenewal of the
policy received), (B) neither Cogent nor any other party to the policy, is in
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; (C) no party to the policy has
repudiated any provision thereof, and (D) there has been no failure to give any
notice or present any claim under the policy in due and timely fashion. Section
4.20 of the Cogent Disclosure Schedule describes any self-insurance arrangements
presently maintained by Cogent.
4.21 Litigation. Section 4.21 of the Cogent Disclosure
Schedule sets forth each instance in which Cogent (or any of its assets) (i) is
subject to any outstanding injunction, judgment, order, decree, ruling, or
charge or (ii) is or has been within the last three years a party, or, to the
knowledge of Cogent, is threatened to be made a party, to any action, suit,
proceeding, hearing, arbitration, or investigation of, in, or before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator. To the knowledge of Cogent, there
are no facts or circumstances which would form the basis of any claim against
Cogent.
4.22 Product Warranty. Substantially all of the products
manufactured, sold, leased, and delivered by Cogent have conformed in all
respects with all applicable contractual commitments and all express and implied
warranties, and as disclosed in the Cogent Disclosure Schedule, Cogent has no
liability (whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and whether
due or to become due) for replacement or repair thereof or other damages in
connection therewith, other than in the Ordinary Course of Business in an
aggregate amount not exceeding $50,000. Substantially all of the products
manufactured, sold, leased, and delivered by Cogent are subject to standard
terms and conditions of sale or lease. Section 4.17(o) of the Cogent Disclosure
Schedule includes copies of the standard terms and conditions of sale or lease
for Cogent (containing applicable guaranty, warranty, and indemnity provisions).
4.23 Product Liability. To the best of Cogent's knowledge,
Cogent has no liability (whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due) arising out of any injury to individuals or
property as a result of the ownership, possession, or use of any product
manufactured, sold, leased, or delivered by Cogent.
4.24 Employees. Except as set forth on Section 4.24 of the
Cogent Disclosure Schedule, no executive, key employee, or significant group of
employees has advised any executive officer of Cogent that he, she or they plan
to terminate employment with Cogent during the next 12 months. Cogent is not a
party to or bound by any collective bargaining agreement, nor has it experienced
any strike or grievance, claim of unfair labor practices, or other collective
bargaining dispute within the
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past three years. Cogent has not committed any unfair labor practice. There is
no organizational effort presently being made or threatened by or on behalf of
any labor union with respect to employees of Cogent.
4.25 Employee Benefits.
(a) Section 4.25 (a) of the Cogent Disclosure
Schedule lists each Employee Benefit Plan that Cogent maintains or to which
Cogent contributes or is obligated to contribute.
(i) Each such Employee Benefit Plan (and
each related trust, or fund established by Cogent) complies in form and in
operation in all respects with their terms, the applicable requirements of
ERISA, the Code, and other applicable laws.
(ii) All required reports and descriptions
(including Form 5500 Annual Reports, Summary Annual Reports, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to each
such Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I
of ERISA and of Code Sec. 4980B have been met in all respects with respect to
each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. To
the best of Cogent's knowledge, no event has occurred and no condition exists
with respect to any Employee Benefit Plan that would subject Cogent to any tax
under Code Sections 4972, 4976 or 4979 or to a fine under ERISA Sections 502(i)
or 502(1).
(iii) All contributions, premiums or other
payments (including all employer contributions and employee salary reduction
contributions) which are due have been paid to each Employee Benefit Plan and
all contributions, premiums or other payments for any period ending on or before
the Closing Date which are not yet due shall been paid to each such Employee
Benefit Plan or shall be accrued in accordance with the custom and practice of
Cogent.
(iv) Each such Employee Benefit Plan which
is an Employee Pension Benefit Plan and which is intended to qualify under Code
Sec. 401 (a), has received a favorable determination letter from the Internal
Revenue Service with respect to the qualification of the plan under Code Section
401 (a) and the exemption of any corresponding trust under Code Section 501,
unless the Internal Revenue Service is deemed to have approved the form of such
Plan under applicable IRS Revenue Procedures. A copy of such determination
letters have been provided to Adaptec and nothing has occurred since the date of
each such determination letter that would cause such Employee Pension Benefit
Plan to lose its ability to rely on such letter. Each Employee Pension Benefit
Plan has been restated to comply with the 1986 Tax Reform Act and subsequent
applicable tax legislation to the extent required by governing tax law. A copy
of any determination letters applicable to such restatement which have been
received by Cogent has been provided to Adaptec.
(v) Neither Cogent nor any other Person or
entity under common control with Cogent within the meaning of Section 414(b),
(c) or (m) of the Code and the regulations thereunder has now or at any previous
time, maintained, established, sponsored, participated in, or
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contributed to, any Employee Pension Benefit Plan that is subject to Part 3 of
Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code. No
Employee Welfare Benefit Plan or other Employee Benefit Plan providing welfare
benefits is funded with a trust or other funding vehicle, other than insurance
policies or contracts with a health maintenance organization or similar health
care delivery entity.
(vi) Cogent has delivered to Adaptec
correct and complete copies of the plan documents and summary plan descriptions,
the most recent determination letter received from the Internal Revenue Service,
if any, the most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts, and other funding agreements which implement
each maintained Employee Benefit Plan. The terms of any such documentation or
other communication do not prohibit Adaptec from amending or terminating any
such Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that
Cogent, and/or any controlled group of corporations within the meaning of Code
Sec. 1563 (a "Controlled Group of Corporations") which includes Cogent,
maintains or ever has maintained or to which any of them contributes, ever
contributed, or ever has been required to contribute:
(i) To the best of Cogent's knowledge, there
have been no prohibited transactions within the meaning of ERISA Sec. 406 and
Code Sec. 4975 with respect to any such Employee Benefit Plan. No fiduciary
within the meaning of ERISA Sec. 3(21) (a "Fiduciary"), has any liability for
breach of fiduciary duty or any other failure to act or comply in connection
with the administration or investment of the assets of any such Employee Benefit
Plan. No action, suit, proceeding, hearing, or investigation with respect to the
administration or the investment of the assets of any such Employee Benefit Plan
(other than routine claims for benefits) is pending or threatened.
(c) Except as disclosed in Section 4.25(c) of the
Cogent Disclosure Schedule, Cogent does not maintain or contribute to, has never
maintained or contributed to, and has never been required to contribute to, any
Employee Welfare Benefit Plan or any other Employee Benefit Plan providing
medical, health, or life insurance or other welfare-type benefits for current
or future retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Sec. 4980B or Part 6 of Subtitle B of Title
I of ERISA).
(d) There is no liability in connection with any
Employee Benefit Plan that is not fully disclosed or provided for on the Most
Recent Balance Sheet for which disclosure would be required under generally
accepted accounting principles.
(e) No Employee Benefit Plan or Cogent has any
liability to any plan participant, beneficiary or other person by reason of the
payment of benefits or the failure to pay benefits with respect to benefits
under or in connection with any such Employee Benefit Plan, other than claims in
the normal administration of such plans.
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4.26 Guaranties. Cogent is not a guarantor or otherwise
responsible for any liability or obligation (including indebtedness) of any
other Person.
4.27 Environment, Health, and Safety.
(a) For purposes of this Agreement, the following
terms have the following meanings:
"Environmental, Health, and Safety Laws" means any
and all federal, state, local or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, plans, injunctions, judgments, decrees,
requirements or rulings now or hereafter in effect, imposed by any governmental
authority regulating, relating to, or imposing liability or standards of conduct
relating to pollution or protection of the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), public health and safety, or employee health and safety, concerning any
Hazardous Materials or Extremely Hazardous Substances, as such terms as defined
herein, or otherwise regulated, under any Environmental, Health and Safety Laws.
The term "Environmental, Health and Safety Laws" shall include, without
limitation, the Clean Water Act (also known as the Federal Water Pollution
Control Act), 33 U.S.C. Section 1251 et seq., the Toxic Substances Control Act,
15 U.S.C. Section 2601 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et
seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section
136 et seq., the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq., the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq., the Superfund Amendment and Reauthorization Act of 1986,
Public Law 99-4, 99, 100 Stat. 1613, the Emergency Planning and Community Right
to Know Act, 42 U.S.C. Section 11001 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., and the Occupational Safety and
Health Act, 29 U.S.C. Section 651 et seq., all as amended, together with any
amendments thereto, regulations promulgated thereunder and all substitutions
thereof.
"Extremely Hazardous Substance" means a substance on
the list described in Section 302 (42 U.S.C. Section 11002(a)(2)) of the
Emergency Planning and Community Right to Know Act, 42 U.S.C. Section 11001 et
seq., as amended.
"Hazardous Material" means any material or substance
that, whether by its nature or use, is now or hereafter defined as a pollutant,
dangerous substance, toxic substance, hazardous waste, hazardous material,
hazardous substance or contaminant under any Environmental, Health and Safety
Laws, or which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and which is now or
hereafter regulated under any Environmental, Health and Safety Laws, or which is
or contains petroleum, gasoline, diesel fuel or other petroleum hydrocarbon
product.
(b) Each of Cogent and its predecessors and
Affiliates (A) has complied with the Environmental, Health, and Safety Laws in
all respects (and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, directive or notice has been filed or commenced
against any of them alleging any such failure to comply), (B) has obtained and
been in substantial compliance with all of the terms and conditions of all
permits, licenses, certificates and
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other authorizations which are required under the Environmental, Health, and
Safety Laws, and (C) has complied in all respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables which are contained in the Environmental, Health, and
Safety Laws.
(c) Cogent has no liability (whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due) with
respect to, and none of Cogent and its predecessors and Affiliates has handled
or disposed of any Hazardous Materials or extremely Hazardous Substances,
arranged for the disposal of any Hazardous Materials or Extremely Hazardous
Substances, exposed any employee or other individual to any Hazardous Materials
or Extremely Hazardous Substances, or owned or operated any property or facility
in any manner that could give rise to any liability, for damage to any site,
location, surface water, groundwater, land surface or subsurface strata, for any
illness of or personal injury to any employee or other individual, or for any
reason under any Environmental, Health, and Safety Law.
(d) No Extremely Hazardous Substances are currently,
or have been, located at, on, in, under or about all properties and equipment
used in the business of Cogent and its predecessors and Affiliates.
(e) No Hazardous Materials are currently located at,
on, in, under or about all properties and equipment used in the business of
Cogent and its predecessors and Affiliates in a manner which violates any
Environmental, Health and Safety Laws or which requires cleanup or corrective
action of any kind under any Environmental, Health and Safety Laws.
4.28 Certain Business Relationships With Cogent. Neither the
shareholders of Cogent nor any director or officer of Cogent, nor any member of
their immediate families, nor any Affliate of any of the foregoing, owns,
directly or indirectly, or has an ownership interest in (a) any business
(corporate or otherwise) which is a party to, or in any property which is the
subject of, any business arrangement or relationship of any kind with Cogent in
excess of $2,000 per annum, or (b) any business (corporate or otherwise) which
conducts the same business as, or a business similar to, that conducted by
Cogent.
4.29 Full Disclosure. No representation or warranty in this
Section 4 or in any document delivered by Cogent pursuant to the transactions
contemplated by this Agreement, and no statement, list, certificate or
instrument furnished to Adaptec pursuant hereto or in connection with this
Agreement contains any untrue statement of a material fact, or omits or shall
omit to state any fact necessary, in light of the circumstances under which it
was made, to make any statement herein or therein not materially misleading.
There is no fact, event or condition which Cogent has not disclosed to Adaptec
in writing and which is having or is reasonably likely to have a Material
Adverse Effect on Cogent. Except as specifically disclosed on the Cogent
Disclosure Schedule, Cogent has delivered to Adaptec true, correct and complete
copies of all documents, including all amendments, supplements and modifications
thereof or waivers currently in effect thereunder, described in the Cogent
Disclosure Schedule.
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4.30 Information Supplied. None of the information supplied or
to be supplied by Cogent for inclusion in the Registration Statement on Form S-4
to be filed with the Securities and Exchange Commission (the "SEC") by Adaptec
in connection with the issuance of the Adaptec Common Stock in or as a result of
the Merger (the "S-4"), including the Proxy Statement included therein, at the
date such information is supplied and at the time of the Shareholders' Meeting,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading or will, in the case of the S-4 at the time
the S-4 becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
4.31 Accounting Matters. Neither Cogent nor any of its
Affiliates, has taken or agreed to take any action that would adversely affect
the ability of Adaptec to account for the business combination to be effected by
the Merger as a pooling of interests.
5. Representation of the Majority Shareholders. Each of the Majority
Shareholders represents and warrants to Adaptec that he or she is not aware, and
has no reason to believe, that any of the representations and warranties of
Cogent set forth in Section 4 is untrue or inaccurate.
6. Representations and Warranties of Adaptec and Acquisition Sub. Adaptec
and Acquisition Sub jointly and severally represent and warrant to Cogent that
the statements contained in this Section 6 are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Section 6), except as set forth in the
disclosure schedule delivered by Adaptec and Acquisition Sub to Cogent on the
date hereof (and initialed by Adaptec, Acquisition Sub and Cogent), a copy of
which is attached hereto as Exhibit 6 (referred to herein as the "Adaptec
Disclosure Schedule") and except for events occurring in the Ordinary Course of
Business of Adaptec and Acquisition Sub between the date of this Agreement and
the Closing Date, which events are not material individually or in the
aggregate, do not violate any of the covenants or agreements of Adaptec or
Acquisition Sub, and are disclosed to Cogent by means of an updated Adaptec
Disclosure Schedule not less than two days prior to the Closing. The Adaptec
Disclosure Schedule will be arranged in paragraphs corresponding to the numbered
paragraphs contained in this Section 6.
6.1 Organization of Adaptec. Each of Adaptec and Acquisition Sub is a
corporation duly organized, validity existing, and in good standing under the
laws of the States of California and Delaware, respectively. Each of Adaptec and
Acquisition Sub is duly authorized to conduct business and is in good standing
under the laws of each jurisdiction where such qualification is required.
6.2 Capitalization.
(a) As of March 31, 1996, the authorized capital stock of
Adaptec consisted of (i) 1,000,000 shares of Preferred Stock, $.001 par value,
none of which are outstanding
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and (ii) 200,000,000 shares of Common Stock, of which 53,019,777 shares were
issued and outstanding, 10,534,396 shares were reserved for issuance pursuant to
Adaptec's employee and director stock plans, and 120,000,000 shares were
reserved for issuance under Adaptec's Shareholder Rights Plan. The authorized
capital stock of Acquisition Sub consists of 100 shares of Common Stock, $.001
par value, all of which, as of the date hereof, are issued and outstanding and
owned by Adaptec. All of the outstanding shares of Adaptec's and Acquisition
Sub's respective capital stock have been duly authorized and validly issued and
are fully paid and nonassessable. Except as set forth in this Section 6.2, there
are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
Adaptec or any of its subsidiaries or obligating Adaptec or any of its
subsidiaries to issue or sell any shares of capital stock of, or other equity
interests in, Adaptec, or any of its subsidiaries.
(b) The shares of Adaptec Common Stock to be issued
pursuant to Section 3.1 of this Agreement are duly authorized and reserved for
issuance, and the shares of Adaptec Common Stock to be issued pursuant to
Section 3.5 of this Agreement will be duly authorized, and in each case upon
issuance thereof will be validly issued, fully paid and nonassessable and,
subject to notice of issuance, shall be approved for listing on the Nasdaq
National Market.
6.3 Authorization. Adaptec and Acquisition Sub each has full
power and authority (including full corporate power and authority) to execute
and deliver this Agreement, to consummate the transactions contemplated
hereunder and to perform its obligations hereunder and no other proceedings are
necessary to authorize the execution, delivery and performance of this
Agreement. This Agreement constitutes the valid and legally binding obligation
of Adaptec and Acquisition Sub, enforceable against Adaptec and Acquisition Sub
in accordance with its terms and conditions. Adaptec has full corporate power
and authority to execute and deliver the Escrow Agreement. The Escrow Agreement
constitutes the valid and binding obligation of Adaptec, enforceable against
Adaptec in accordance with its terms and conditions. Except for the filing of
(i) the S-4, (ii) a premerger notification report by Adaptec under the HSR Act,
and (iii) the Articles of Merger with the Secretary of States of Washington and
Delaware, neither Adaptec nor Acquisition Sub need give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated by
this Agreement.
6.4 Noncontravention. Neither the execution and the delivery
of this Agreement and, to the extent applicable, the Shareholders Agreement, nor
the consummation of the transactions contemplated hereby, will (A) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which Adaptec or Acquisition Sub is subject or any provision of their
respective charters or bylaws, or (B) (i) conflict with, (ii) result in a breach
of, (iii) constitute a default under, (iv) result in the acceleration of, (v)
create in any party the right to accelerate, terminate, modify, or cancel, or
(vi) require any notice under, any agreement, contract, lease, license,
instrument, or other arrangement to which Adaptec or any of its subsidiaries or
Acquisition Sub is a party or by which any of them is bound or to which any of
their assets is subject.
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6.5 SEC Filings; Financial Statements.
(a) Adaptec, has filed all forms, reports and
documents required to be filed with the SEC since March 31, 1995, and has
heretofore delivered to Cogent, in the form filed with the SEC, (i) its Annual
Reports an Form 10-K for the fiscal years ended March 31, 1995 and March 31,
1994, (ii) its Quarterly Reports on Form 10-Q for the periods ended June 30,
1995, September 30, 1995, December 31, 1995, (iii) all proxy statements relating
to Adaptec's meetings of shareholders (whether annual or special) held since
March 31, 1995, (iv) all other reports filed by Adaptec with the SEC since March
31, 1995 and (v) all amendments and supplements to all such reports and
registration statements, including Adaptec's Annual Report filed pursuant to
Rule 14a-3 promulgated under the Exchange Act, filed by Adaptec with the SEC
(collectively, the "Adaptec SEC Reports"). The Adaptec SEC Reports (i) were
prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (ii) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. None of Adaptec's subsidiaries is required
to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the Adaptec
SEC Reports has been prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
thereto) and each fairly presents the consolidated financial position of Adaptec
and its subsidiaries as at the respective dates thereof and the consolidated
results of its operations and cash flows for the periods indicated, except that
the unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not, or are not expected to be,
material in amount.
(c) Adaptec has heretofore furnished to Cogent a
complete and correct copy of any amendments or modifications, which have not yet
been filed with the SEC but which are required to be filed, to agreements,
documents or other instruments which previously had been filed by Adaptec with
the SEC pursuant to the Securities Act or the Exchange Act.
6.6 No Undisclosed Liabilities. Neither Adaptec nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise)
which are in the aggregate material to the business, operations or financial
condition of Adaptec and its subsidiaries taken as a whole, except liabilities
adequately reserved for in the balance sheet as of March 31, 1996 provided to
Cogent (the "Adaptec Balance Sheet") or incurred since March 31, 1996 in the
ordinary course of business and consistent with past practice and liabilities
incurred in connection with this Agreement.
6.7 Absence of Certain Changes or Events. Since March 31,
1996, Adaptec and its subsidiaries have conducted their respective businesses in
the Ordinary Course of Business, and since such date, there has not occurred any
change in the financial condition, results of operations,
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<PAGE> 31
business or prospects of Adaptec, or any development that would reasonably be
expected to have a Material Adverse Effect on Adaptec.
6.8 Absence of Litigation. Other than as disclosed in the
Adaptec SEC Reports, there are no claims, actions, suits, proceedings or
investigations pending or, to the best knowledge of Adaptec, threatened against
Adaptec or any of its subsidiaries, or any properties or rights of Adaptec or
any of its subsidiaries, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, that,
individually or in the aggregate, could have a Material Adverse Effect on
Adaptec.
6.9 Information Supplied. None of the information supplied by
Adaptec or Acquisition Sub for inclusion in the Proxy Statement or the S-4 at
the time such information is supplied and at the time of the Shareholders'
Meeting, contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading or will, in the case of the S-4, at
the time the S-4 becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
6.10 Brokers' Fees. Except as contained in Section 11.12,
neither Adaptec nor Acquisition Sub has any liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which Cogent could become liable
or obligated.
6.11 Full Disclosure. No representation or warranty in this
Section 6 or in any document delivered by Adaptec or Acquisition Sub pursuant to
the transactions contemplated by this Agreement, and no statement, certificate
or schedule furnished or to be furnished by Adaptec or Acquisition Sub to Cogent
in, or pursuant to the provisions of, this Agreement contains or shall contain
any untrue statement of a material fact or omits or shall omit to state any
material fact necessary, in the light of the circumstances under which it was
made, in order to make the statements herein or therein not misleading. There
is no event, fact or condition that materially and adversely affects the
business, assets (including intangible assets), financial condition, results of
operations or prospects of Adaptec and its subsidiaries taken as a whole, or
that reasonably could be expected to do so, that has not been set forth in this
Agreement or in the Adaptec Disclosure Schedule.
7. Conduct and Transactions Prior to Effective Time; Additional Agreements.
7.1 General. Each of Adaptec, Cogent and Acquisition Sub will use its
reasonable best efforts to take all action and to do all things necessary,
proper, or advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of the
closing conditions set forth in Section 8 below).
7.2 Notices and Comments. Cogent will give any notices to third parties
and will use its reasonable best efforts to obtain any third party consents
that Adaptec reasonably may request
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in connection with the matters identified in Section 4.4 of the Cogent
Disclosure Schedule and as may be necessary for Adaptec to operate the business
of Cogent as an ongoing concern following the Closing Date. Notwithstanding the
foregoing, nothing in this Section 7.2 shall be construed to require any Party
to transfer or assign rights or other assets to a Person who is not a Party.
7.3 Operation of Business. Cogent will not engage in any
practice, take any action, or enter into any transaction outside the Ordinary
Course of Business. Without limiting the generality of the foregoing, Cogent
will not (i) cause or permit any amendment to its Articles of Incorporation or
Bylaws, (ii) issue any capital stock or issue or grant any options, warrants or
rights to acquire any capital stock (other than in connection with the exercise
of stock options outstanding on the date of this Agreement) or (iii) declare,
set aside, or pay any dividend or make any distribution with respect to its
capital stock or redeem, purchase, or otherwise acquire any of its capital
stock, or (iv) otherwise engage in any practice, take any action, or enter into
any transaction of the sort described in Section 4.9 above. In addition, Cogent
will comply with all laws, statutes, ordinances, rules, regulations and orders
applicable to its or to the conduct of its business, except for violations that
would not subject Cogent to a penalty or loss that would constitute a Material
Adverse Effect on Cogent.
7.4 Preservation of Business. Cogent will use its best efforts
to keep its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.
7.5 Access to Information. Cogent will permit Adaptec and its
representatives to have access at all reasonable times, and in a manner so as
not to interfere with the normal business operations of Cogent, to the business
and operations of Cogent. Neither such access, inspection and furnishing of
information to Adaptec and its representatives, nor any investigation by Adaptec
and its representatives, shall in any way diminish or otherwise effect Adaptec's
right to rely on any representation or warranty made by Cogent hereunder. All
information received or made available to Adaptec and its representatives
pursuant to this Section 7.5 shall be subject to and deemed covered by the terms
of the Master Mutual Nondisclosure Agreement, NDA #3813 dated April 1, 1996
between Adaptec and Cogent.
7.6 Notice of Developments. Each Party will give prompt
written notice to the others of any material adverse development causing a
breach of any of its own representations and warranties in Section 4, Section 5
or Section 6 above. No disclosure by any Party pursuant to this Section 7,6,
however, shall be deemed to amend or supplement the Cogent Disclosure Schedule
or the Adaptec Disclosure Schedule or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant.
7.7 Best Efforts. Adaptec, Cogent and Acquisition Sub will
each use its best efforts to effectuate the transactions contemplated hereby and
to fulfill and cause to be fulfilled the conditions to closing under this
Agreement.
7.8 Employment Agreements. Prior to the Effective Time of the
Merger, Cogent will use its best efforts to obtain an employment agreement and
covenant not to compete (the
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"Employment Agreement") in the form attached hereto as Exhibit 7.8(a) with the
persons listed on Exhibit 7.8(b) attached hereto and with those other key
employees designated by Adaptec following the date hereof.
7.9 Preparation of S-4 and the Proxy Statement; Other
Filings. As promptly as practicable after the date of this Agreement, Cogent
shall provide to Adaptec and its counsel for inclusion in the Prospectus/Proxy
Statement on the S-4 in form and substance satisfactory to Adaptec and its
counsel, such information concerning Cogent, its operations, capitalization,
technology, share ownership and other material as Adaptec or its counsel may
reasonably request. As promptly as practicable after the date of this Agreement,
Adaptec shall prepare and file with the SEC the S-4, in which the Proxy
Statement will be included as a prospectus. Each of Adaptec and Cogent shall use
its reasonable efforts to respond to any comments of the SEC, to have the S-4
declared effective under the Securities Act as promptly as practicable after
such filing and to cause the Proxy Statement to be mailed to Cogent's
shareholders at the earliest practicable time. As promptly as practicable after
the date of this Agreement, Adaptec and Cogent shall prepare and file any other
filings required under the Exchange Act, the Securities Act or any other Federal
or state securities or "blue sky" laws relating to the Merger and the
transactions contemplated by this Agreement and the Articles of Merger,
including, without limitation, under the HSR Act (the "Other Filings"). Each
company will notify the other company promptly of the receipt of any comments
from the SEC or its staff and of any request by the SEC or its staff or any
other governmental officials for amendments or supplements to the S-4, the Proxy
Statement or any Other Filing or for additional information and will supply the
other company with copies of all correspondence between such company or any of
its representatives, on the one hand, and the SEC, or its staff or any other
governmental officials, on the other hand, with respect to the S-4, the Proxy
Statement, the Merger or any Other Filing. The Proxy Statement, the S-4 and the
Other Filings shall comply in all material respects with all applicable
requirements of law. Whenever any event occurs which should be set forth in an
amendment or supplement to the Proxy Statement, the S-4 or any Other Filing,
Adaptec or Cogent, as the case may be, shall promptly inform the other company
of such occurrence and cooperate in filing with the SEC or its staff or any
other government officials, and/or mailing to shareholders of Cogent, such
amendment or supplement. The Proxy Statement shall include the unanimous
recommendation of the Board of Directors of Cogent that the shareholders of
Cogent approve the Merger.
7.10 Shareholder Approval. Cogent will call a meeting of its
shareholders (the "Shareholders' Meeting") to be hold as promptly as practicable
for the purpose of obtaining the shareholder approval required in connection
with the transactions contemplated hereby and by the Articles of Merger and
shall use all reasonable efforts to obtain such approval. Cogent shall
coordinate and cooperate with Adaptec with respect to the timing of the
Shareholders Meeting. Cogent shall not change the date of the Shareholders
Meeting without the prior written consent of Adaptec, nor shall Cogent adjourn
the Shareholders Meeting without the prior written consent of Adaptec, unless
such adjournment is due to the lack of a quorum, in which case the Chairman of
the Shareholders Meeting shall announce at such meeting the time and place of
the adjourned meeting.
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7.11 Nasdaq National Market. Adaptec shall use its best
efforts to cause the shares of Adaptec Common Stock issuable to the shareholders
of Cogent in the Merger to be authorized for quotation on the Nasdaq National
Market, upon official notice of issuance.
7.12 Affiliates. Cogent shall use its best efforts to deliver
or cause to be delivered to Adaptec, from each "affiliate" of Cogent within the
meaning of Accounting Series Releases 130 and 135 of the SEC, an agreement in
the form attached as Exhibit 7.12 (the "Affiliate Agreement"). Adaptec and
Acquisition Sub shall be entitled to place appropriate legends on the
certificates evidencing any Adaptec Common Stock to be received by such
"affiliates" pursuant to the terms of this Agreement and the Articles of Merger,
and to issue appropriate stop transfer instructions to the transfer agent for
Adaptec Common Stock, consistent with the terms of such Affiliates Agreements.
7.13 Pooling Accounting. Each Party agrees not to take any
action that would adversely affect the ability of Adaptec to treat the Merger as
a pooling of interests, and each party agrees to take such action as may be
reasonably required to negate the impact of any past actions which would
adversely impact the ability of Adaptec to treat the Merger as pooling of
interests.
7.14 Exclusivity. None of the Majority Shareholders nor Cogent
will (i) solicit, initiate, or encourage the submission of any proposal or offer
from any Person relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the assets, of Cogent (including any
acquisition structured as a merger, consolidation, or share exchange) (each
an "Other Proposal") or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any Other Proposal, Except to immediate family members or trust created in their
behalf, none of the Majority Shareholders will transfer or offer to transfer any
of their Cogent Common Stock. None of the Majority Shareholders will vote their
Cogent Common Stock in favor of any Other Proposal.
7.15 Post-Closing Cooperation. In case at any time after the
Effective Time of the Merger any further action is necessary to carry out the
purposes of this Agreement, each of the Parties will take such further action
(including the execution and delivery of such further instruments and documents)
as any other Party reasonably may request, all at the sole cost and expense of
the requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section 9 below),
7.16 Litigation Support. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction (A) on or
prior to the Effective Time of the Merger involving Cogent or (B) arising out of
Adaptec's operation of the business of the Surviving Corporation following the
Effective Time of the Merger in the manner in which it is presently conducted
and planned to be conducted, each of the other Parties will cooperate with the
party, its counsel in the contest or defense, make available their personnel,
and provide such testimony and access to their books and records as shall be
reasonably necessary in connection with the contest or defense, all at
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the reasonable cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 9 below),
7.17 Transition. None of the Majority Shareholders will take
any action that is designed or intended to have the effect of discouraging any
lessor, licensor, customer, supplier, or other business associate of Cogent from
maintaining the same business relationships with the Surviving Corporation after
the Effective Time of the Merger as it maintained with Cogent prior to the
Effective Time of the Merger.
7.18 Confidentiality. Each of the Majority Shareholders will
treat and hold as such all of the Confidential Information, refrain from using
any of the Confidential Information except in connection with this Agreement. In
the event that any of the Majority Shareholders is requested or required (by
oral question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process or by
law or regulation pursuant to the advice of counsel) to disclose any
Confidential Information, that Person will notify Adaptec promptly of the
request or requirement so that Adaptec may seek an appropriate protective order.
If, in the absence of a protective order, any of the Majority Shareholders and
directors and officers of Cogent is, on the advice of counsel, compelled to
disclose any Confidential Information, that Person may disclose the Confidential
Information; provided, however, that such disclosing Person shall use its
reasonable efforts to obtain, at the reasonable request of Adaptec, an order or
other assurance that confidential treatment will be accorded to such portion of
the Confidential Information required to be disclosed as Adaptec shall
designate. In the event that anything in this Section 7.18 is inconsistent with
any provision of an Employment Agreement, the terms of such Employment Agreement
shall prevail.
7.19 Cogent Employees. Except for the Cogent employees who
will be executing Employment Agreements, all employees of Cogent following the
Closing will be subject to Adaptec's standard employment terms and practices.
Except as otherwise prohibited, these employees will be eligible to participate
in all standard Adaptec benefit plans. Employees of Cogent as of the Effective
Time shall be permitted to participate in the Adaptec Employee Stock Purchase
Plan commencing on the first enrollment date following the Effective Time,
subject to compliance with the eligibility provisions of such plan.
8. Conditions to Obligation to Close.
8.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction prior to the Closing Date of the following conditions:
(a) the S-4 shall have been declared effective by the
SEC under the Securities Act, no stop order suspending the effectiveness of the
S-4 shall have been issued by the SEC and no proceeding for that purpose (or any
similar proceeding with respect to the Proxy Statement) shall have been
initiated or threatened by the SEC,
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(b) this Agreement and the Articles of Merger shall
have been approved and adopted by the affirmative vote or consent of the holders
of at least 90% of the issued and outstanding shares of Cogent Common Stock
present, in person or by proxy, at the meeting of Cogent's shareholders
Contemplated by Section 7.10;
(c) the applicable waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated; and
(d) all material authorizations, consents, orders or
approvals of, or declarations or filings with, or expiration of waiting periods
imposed by, any governmental entity necessary for the consummation of the
transactions contemplated by this Agreement and the Articles of Merger shall
have been filed, expired or been obtained.
8.2 Conditions to Adaptec's Obligation to Close. The
obligation of Adaptec and Acquisition Sub to consummate the transactions to be
performed by it in connection with the Closing is subject to satisfaction of the
following conditions:
(a) the representations and warranties set forth in
Section 4 and Section 5 above (supplemented by the updated Cogent Disclosure
Schedule permitted under Section 4) shall be true and correct in all material
respects at and as of the Closing Date;
(b) Cogent shall have performed and complied with all
of its covenants hereunder in all respects through the Closing;
(c) all Stock Rights shall have been terminated or
shall have been exercised for, or converted into, shares of Cogent Common Stock;
(d) Cogent shall have procured all of the third party
consents specified in Section 7.2 above;
(e) no action, suit, or proceeding shall be pending
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect materially and adversely the right of Adaptec
to control the Surviving Corporation following the Effective Time of the Merger,
or (D) affect adversely the right of Cogent or the Surviving Corporation to own
its assets (including without limitation its intellectual property assets) and
to operate its businesses (and no such injunction, judgment, order, decree,
ruling or charge shall be in effect) and no law, statute, ordinance, rule,
regulation or order shall have been enacted, enforced or entered which has
caused or will likely cause any of the effects under clause (A), (B), (C), or
(D) of this Section 8.2(f) to occur.
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(f) the Chief Executive Officer of Cogent shall have
delivered to Adaptec a certificate to the effect that each of the conditions
specified above in Sections 8.2(a) to 8.2(e) (inclusive) is satisfied in all
respects;
(g) each of the employees of Cogent listed on
Exhibit 7.8(b) attached hereto shall have executed and delivered an Employment
Agreement and such agreement shall be in full force and effect;
(h) Adaptec shall have received from counsel to
Cogent an opinion in form and substance mutually satisfactory to Adaptec and
Cogent, addressed to Adaptec, and dated as of the Closing Date;
(i) Adaptec shall have received a letter from Price
Waterhouse in form and substance satisfactory to Adaptec to the effect that the
Merger will be accounted for as a pooling of interests.
(j) Adaptec shall have received the executed Cogent
Affiliate Agreements contemplated by Section 7.12.
(k) Adaptec, as agent for the shareholders of Cogent
shall have received a properly executed FIRPTA Notification Letter, in form and
substance satisfactory to Adaptec, which states that shares of capital stock of
Cogent do not constitute "United States real property interests" under Section
897(c) of the Code, for purposes of satisfying Adaptec's obligations under
Treasury Regulation Section 1.1445-2(c)(3).
(l) all actions to be taken by the Majority
Shareholders and Cogent in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to Adaptec and its counsel;
(m) each officer and director of Cogent shall have
executed and delivered a general release of any claims against Cogent and its
successors in the form attached hereto as Exhibit 7.2(m);
(n) there shall have been no Material Adverse Effect
on Cogent on or before the Closing Date;
(o) all disputes between Cogent and third parties
shall have been resolved to the satisfaction of Adaptec;
(p) Deloitte & Touche LLP shall have completed its
audit of Cogent's financial statements for the fiscal year ended March 31, 1996
and such audit shall be satisfactory to Adaptec; and
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(q) Adaptec shall have received a letter from
Deloitte & Touche LLP to the effect that it is not aware of any actions taken by
Cogent or its Affiliates that would adversely affect the ability of Adaptec to
account for the merger as a pooling of interests.
Adaptec may waive any condition (in whole or in part)
specified in this Section 8.2 if it executes a writing so stating at or prior to
the Closing.
8.3 Conditions to Cogent's Obligation. The obligation of
Cogent to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(a) the representations and warranties of Adaptec
and Acquisition Sub set forth in Section 6 above shall be true and correct in
all respects at and as of the Closing Date;
(b) Adaptec shall have performed and complied with
all of its covenants hereunder in all respects through the Closing;
(c) no action, suit, or proceeding shall be pending
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement
or (B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect) and no law, statute, ordinance,
rule, regulation or order shall have been enacted, enforced or entered which has
caused or will likely cause any of the effects under clause (A) or (B) of this
Section 8.3(c) to occur;
(d) the Chief Financial Officer or other duly
authorized officer of Adaptec shall have delivered to Cogent a certificate to
the effect that each of the conditions specified above in Sections 8.3(a) to
8.3(c) (inclusive) is satisfied in all respects;
(e) Adaptec and the employees of Cogent listed on
Exhibit 6.8(b) hereto shall each have executed and delivered an Employment
Agreement and such agreement shall be in full force and effect;
(f) Cogent shall have received from counsel to
Adaptec an opinion in form and substance mutually satisfactory to Adaptec and
Cogent, addressed to Cogent, and dated as of the Closing Date;
(g) Cogent shall have received an opinion from its
counsel to the effect that the Merger will constitute a reorganization within
the meaning of Section 368 of the Code.
(h) all actions to be taken by Adaptec in connection
with consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents
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required to effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to Cogent and its counsel.
Cogent may waive any condition (in whole or in part) specified
in this Section 8.3 if it executes a writing so stating at or prior to the
Closing.
9. Survival of Representations, Warranties and Covenants;
Indemnification.
9.1 Survival. All of the representations and warranties of the
Parties contained in Sections 4, 5 and 6 shall survive the Closing (even if the
damaged Party knew or had reason to know of any misrepresentation or breach of
warranty at the time of Closing) and continue in full force and effect for a
period of one year following the Closing. The covenants and agreements in this
Agreement shall survive except to the extent they are specifically limited by
their terms.
9.2 Indemnification Provisions for Benefit of Adaptec. The
Majority Shareholders agree, jointly and severally, to indemnify and hold
harmless Adaptec from and against the entirety of any and all claims, actions,
proceedings, or direct or indirect losses, including court costs and reasonable
attorneys' fees and expenses ("Losses") resulting from (i) any breach of any of
the representations, warranties, agreements or covenants of Cogent or the
Majority Shareholders contained herein; (ii) any failure of Cogent prior to the
Closing to comply with applicable federal and state securities laws; and (iii)
any failure of Cogent to comply with applicable German tax laws with respect
to Cogent's German operations. Notwithstanding the foregoing, the Majority
Shareholders shall not be required to indemnify Adaptec under this Section 9
except to the extent that the cumulative amount of the Losses incurred by
Adaptec exceeds $ 150,000, in which case the Majority Shareholders shall be
obligated to indemnify Adaptec only for the amount of such Losses that exceed
$150,000.
9.3 Procedure for Indemnification Claims.
(a) In the event that Adaptec makes a claim against
any Majority Shareholder for indemnification under Section 9.2 (a "Claim"), it
shall notify the Shareholders' Representative in writing as to the existence and
amount of the Claim (the "Claim Notice"). If the Majority Shareholder with
respect to such Claim disputes the existence or the amount of such Claim, the
Majority Shareholder shall notify Adaptec in writing (with reasonable
specificity) within thirty (30) days following the Adaptec's receipt of the
Claim Notice (the "Response Notice"). Upon such an exchange of written
notification, the parties will negotiate in good faith for up to thirty
(30) days or such other period of time as the parties mutually agree in an
effort to resolve their differences with respect to such Claim. If no Response
Notice is received by Adaptec within thirty (30) days of the Shareholders'
Representative's receipt of the Claim Notice or if the parties have not
resolved their differences with the aforementioned thirty (30) day negotiation
period, then Adaptec shall be entitled to recover the amount of the Claim from
the Escrow Fund pursuant to the Escrow Agreement.
(b) Adaptec, may defend against, and consent to the
entry of any judgment or enter into any settlement with respect to, any third
party claim which may give rise to a Claim
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under this Section 9 in any manner Adaptec may deem appropriate (and Adaptec
need not consult with, or obtain any consent from, any Majority Shareholder in
connection therewith), and the Majority Shareholders will remain responsible for
any Losses Adaptec may suffer resulting from, arising out of, relating to, in
the nature of, or caused by the third party claim to the fullest extent
provided in this Section 9.
9.4 Exclusivity of Remedy. Notwithstanding any other provision
of this Agreement, in the absence of fraud, Adaptec's sole recourse following
the Closing for any breach by Cogent or any Majority Shareholder of any
representation, warranty, agreement or covenant contained herein shall be the
recovery of the Escrow Amount Common Stock pursuant to the Escrow Agreement.
10. Termination.
10.1 Termination of the Agreement. Certain of the Parties may
terminate this Agreement as provided below:
(a) Adaptec and Cogent may terminate this Agreement
as to all Parties by mutual written consent at any time prior to the Closing;
(b) Adaptec may terminate this Agreement by giving
written notice to Cogent and the Majority Shareholders at any time prior to the
Closing (A) in the event either of Cogent or the Majority Shareholders has
breached any representation, warranty, or covenant contained in this Agreement
in any respect, Adaptec, has notified Cogent and the Majority Shareholders of
the breach, and the breach has continued without cure for a period of thirty
(30) days after the notice of breach or (B) if the Closing shall not have
occurred on or before October 31, 1996, by reason of the failure of any
condition precedent under Section 8.1 or 8.2 hereof (unless the failure
results primarily from Adaptec itself breaching any representation, warranty,
or covenants contained in this Agreement); and
(c) Cogent may terminate this Agreement by giving
written notice to Adaptec and the Majority Shareholders at any time prior to the
Closing (A) in the event Adaptec has breached any representation, warranty, or
covenant contained in this Agreement in any respect, Cogent has notified Adaptec
of the breach, and the breach has continued without cure for a period of thirty
(30) days after the notice of breach or (B) if the Closing shall not have
occurred on or before October 31, 1996, by reason of the failure of any
condition precedent under Section 8.1 or 8.3 hereof (unless the failure results
primarily from Cogent itself breaching any representation, warranty, or
covenants contained in this Agreement).
10.2 Effect of Termination. If any Party terminates this
Agreement pursuant to Section 10.1. above, all rights and obligations of the
Parties hereunder shall terminate without any liability of any Party to any
other Party (except for any liability of any Party then in breach); provided,
however, that the confidentiality provisions contained in Section 7.18 above
shall survive termination.
11. Miscellaneous.
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11.1 Press Releases and Public Announcements. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written approval
of Adaptec and Cogent; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
11.2 No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties, the
shareholders and option holders of Cogent and their respective successors and
permitted assigns.
11.3 Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
11.4 Succession and Assignment. This Agreement shall be
binding upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either this
Agreement or any of its rights, interests, or obligations hereunder without the
prior written approval of the other Parties; provided, however, that Adaptec may
(i) assign any or all of its rights and interests hereunder to one or more of
its subsidiaries and (ii) designate one or more of its subsidiaries to perform
its obligations hereunder (in any or all of which cases Adaptec nonetheless
shall remain responsible for the performance of all of its obligations
hereunder).
11.5 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
11.6 Headings. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
11.7 Notices. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given or received
if (and then two business days after) it is sent by registered or certified
mail, return receipt requested, postage prepaid and addressed to the intended
recipient as set forth below:
If to Adaptec:
Adaptec, Inc.
691 S. Milpitas Blvd.
Milpitas, California 95035
Attention: Christopher G. O'Meara
Alicia Jayne Moore, Esq.
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Copy to:
Wilson, Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Henry P. Massey, Jr., Esq.
If to Cogent:
Cogent Data Technologies, Inc.
640 Mullis St.
Friday Harbor, WA 98250
Attention: Charles Anderson
Deanna Anderson
Copy to:
Davis Wright Tremaine
2600 Century Square
Seattle, WA 98101-1688
Attention: A. Peter Parsons, Esq.
If to the Majority Shareholders:
Deanna Anderson
c/o Cogent Data Technologies, Inc.
640 Mullis St.
Friday Harbor, WA 98250
Copy to:
Davis Wright Tremaine
2600 Century Square
Seattle, WA 98101-1688
Attention: A. Peter Parsons, Esq.
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
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11.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of California
without giving effect to any choice or conflict of law provision or rule
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California.
11.9 Forum Selection; Consent to Jurisdiction. All disputes
arising out of or in connection with this Agreement shall be solely and
exclusively resolved by a court of competent jurisdiction in the State of
California. The Parties hereby consent to the jurisdiction of the Superior Court
of the State of California and the United States District Courts of California
and waive any objections or rights as to forum nonconveniens, lack of personal
jurisdiction or similar grounds with respect to any dispute relating to this
Agreement.
11.10 Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
Adaptec, Cogent and the Majority Shareholders. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior to subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
occurrence.
11.11 Severability. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
11.12 Expenses. Each of Adaptec and Cogent will bear their own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby; provided, however,
that the shareholders of Cogent will be responsible for (i) any brokers',
finders' or advisory fees payable on behalf of Cogent in connection with the
Agreement and the transactions contemplated hereby in excess of $700,000, and
(ii) any legal or accounting fees in excess of $100,000 undertaken on behalf of
Cogent or its principals in connection with the Agreement and the transactions
contemplated hereby.
11.13 Construction. The Parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
11.14 Incorporation of Exhibits and Schedules. The Exhibits
and Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
11.15 Shareholders' Representative. The Majority Shareholders
hereby appoint Deanna Anderson as their agent and representative (the
"Shareholders' Representative") for the purposes of: (i) representing, acting
for and binding each of them for all purposes of this Agreement,
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including without limitation, authorizing delivery to Adaptec of the Adaptec
Shares in the Escrow Fund in satisfaction of claims by Adaptec, the settlement
of any controversies or disagreements between Adaptec and the Majority
Shareholders of Cogent hereunder; (ii) receiving or giving any notices to or
from the Majority Shareholders hereunder; and (iii) communicating with Adaptec
or Cogent as to any matters relating to this Agreement. In the event Deanna
Anderson is unable, unwilling or unavailable to serve as the Shareholders'
Representative, the Majority Shareholders hereby appoint Charles Anderson to
serve in such capacity; provided that any such agency may be changed by the
holders of a majority in interest in the Escrow Amount upon not less than 10
days written notice to Adaptec. Adaptec shall be entitled to presumptively rely
without further inquiry upon all acts of, and communications from, the
Shareholders' Representative as being the authorized actions and communications
of the Shareholders' Representative as approved by the Majority Shareholders.
The Shareholders' Representative shall be entitled to take binding action on
behalf of the Majority Shareholders upon obtaining the approval of such Majority
Shareholders who immediately prior to the Closing owned at least 51% of the
aggregate voting power of all of the Majority Shareholders. The Shareholders'
Representative shall not be liable for any act done or omitted while acting in
good faith and the exercise of reasonable judgment. Each Majority Shareholder
hereby further agrees that he will indemnify and hold harmless the Shareholders'
Representative against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Shareholders' Representative in
connection with any and all actions taken by the Shareholders' Representative
under the provisions of this Section 11.15 and under Article 8 hereunder.
11.16 Attorneys' Fees. If any legal proceeding or other action
relating to this Agreement is brought or otherwise initiated, the prevailing
party shall be entitled to recover reasonable attorneys fees, costs and
disbursements (in addition to any other relief to which the prevailing party may
be entitled).
12. Location of Definitions. The following table sets forth the
Sections of this Agreement in which certain terms are defined:
<TABLE>
<CAPTION>
Term Section
----------------- -----------------
<S> <C>
Acquisition Sub Introduction
Affiliate 1
Affiliated Group 4.12(d)
Adaptec 2.1
Adaptec Common Stock Introduction
Adaptec Disclosure Schedule 6
Adaptec SEC Reports 6.5(a)
Certificates 3.4(c)
Closing 2.2
Closing Date 2.2
Code 2.4
Cogent Introduction
Cogent Common Stock 2.1
Cogent Disclosure Schedule 4
</TABLE>
-39-
<PAGE> 45
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Cogent Shareholders' Meeting 7.10
Confidential Information 1
Controlled Group of Corporations 4.2(b)
Dissenting Shareholder 3.2
Dissenting Shares 3.2
Exchange Agent 3.4(a)
Exchange Ratio 3.1
Effective Date of the Merger 2.1
Effective Time of the Merger 2.1
Employee Benefit Plan 1
Employee Pension Benefit Plan 1
Employee Welfare Benefit Plan 1
Employment Agreement 7.8
Environmental, Health and Safety Laws 4.27(a)
ERISA 1
Fiduciary 4.25
Financial Statements 4.6
Intellectual Property 1
Majority Shareholders Introduction
Merger 2.1
Merger Agreement 2.1
Most Recent Balance Sheet 4.8
Most Recent Fiscal Year End 4.6
Ordinary Course of Business 1
Party Introduction
Person 1
Registration Statement/Proxy Statement 4.2
Security Interest 1
Shareholders' Meeting Date 7.10
Surviving Corporation 2.3
Taxes 4.12(a)
Tax Returns 4.12(b)
</TABLE>
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<PAGE> 46
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
as of the date first above written.
COGENT DATA TECHNOLOGIES, INC,
Company: By: /s/
-----------------------------
Title: President
--------------------------
Adaptec: ADAPTEC, INC.
By:
-----------------------------
Title:
--------------------------
Acquisition Sub: CDT ACQUISITION CORP.
By: /s/
-----------------------------
Title:
--------------------------
Majority Shareholders: By: /s/ Charles Anderson
-----------------------------
Charles Anderson
By: /s/ Deanna Anderson
-----------------------------
Deanna Anderson
By: /s/ Alan Ballanca
-----------------------------
Alan Ballanca
By: /s/ Richard Rome 5/31/96
-----------------------------
Richard Rome
By: /s/ Nash Gubelman
-----------------------------
Nash Gubelman
By: /s/ Frank Foster
-----------------------------
Frank Foster
-41-
<PAGE> 1
EXHIBIT 2.2
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is entered
into as of this 6 day of August, 1996, among Adaptec, Inc., a California
corporation ("Adaptec"), Adaptec Acquisition Corporation, a California
corporation and a wholly-owned subsidiary of Adaptec ("Adaptec Sub"), and
Data Kinesis, Inc., a California corporation ("DKI").
RECITALS
A. The parties intend that, subject to the terms and conditions of this
Agreement, Adaptec Sub will merge with and into DKI in a reverse triangular
merger (the "Merger"), with DKI to be the surviving corporation of the Merger,
all pursuant to the terms and conditions of this Agreement and an Agreement
of Merger substantially in the form of Exhibit A (the "Agreement of Merger")
and the applicable provisions of the laws of the State of California.
B. Upon the effectiveness of the Merger, (i) all outstanding capital
stock of DKI ("DKI Stock") will be converted into the right to receive cash as
set forth herein, and (ii) Adaptec will assume all outstanding options to
purchase shares of capital stock of DKI and such options will become options to
acquire Adaptec Common Stock, as provided in this Agreement and the Agreement of
Merger.
NOW, THEREFORE, the Parties hereto hereby agree as follows:
1. CERTAIN DEFINITIONS.
As used in this Agreement the following terms have the following
meanings (terms defined in the singular have a correlative meaning when used in
the plural and vice versa). Certain other terms are defined in the text of this
Agreement, the location of which is set forth herein.
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 common control with such Person.
1.2 "Employee Benefit Plan" means any (a) nonqualified deferred
compensation, retirement plan, severance plan or similar plan or arrangement;
(b) Employee Pension Benefit Plan; (c) Employee Welfare Benefit Plan; (d)
Multiemployer Plan (as set forth in Section 3(37) of ERISA and Section 414(f)
of the Internal Revenue Code of 1986, as amended (the "Code")); and (e) any
other nonqualified plan providing welfare benefits, including but not limited to
medical, dental, life insurance and disability benefits.
1.3 Employee Pension Benefit Plan" means a plan as set forth in
Section 3(2) of ERISA.
1.4 "Employee Welfare Benefit Plan" means a plan as set forth in
Section 3(1) of ERISA.
1.5 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
<PAGE> 2
1.6 "Intellectual Property" means all (a) inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof; (b)
trademarks, service marks, trade dress, logos, trade names, and corporate names,
together with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith; (c) copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith; (d) trade secrets and confidential business information
(including ideas, research and development, know-how, formulas, compositions,
drawings, specifications, customer and supplier lists, pricing and cost
information, financial information, and business and marketing plans and
proposals); (e) computer software (including data and related documentation);
(f) mask work rights; (g) other proprietary rights; and (h) copies and
embodiments thereof (in whatever form or medium).
1.7 "Material Adverse Change" or "Material Adverse Effect" means a
material adverse change or effect on the business, financial condition,
operations, results of operations, or future prospects, as such prospects exist
at the time of the applicable representation or covenant, of DKI or Adaptec, as
appropriate.
1.8 "Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
1.9 "Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
1.10 "Security Interest" means any mortgage, pledge, lien, encumbrance
or other security interest.
1.11 The following table sets forth the Sections of this Agreement in
which certain terms are defined:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Adaptec Disclosure Package............ 4.4
Adaptec Option, Adaptec Options ...... 2.3
Adaptec Stock Price .................. 2.3
Adaptec Upper Bound .................. 2.3
Adaptec Lower Bound.................... 2.3
Affiliate............................. 1.1
Affiliated Group ..................... 3.14(d)
Balance Sheet Date ................... 3.9
Claim ................................ 11.4
Claim Certificate .................... 11.4
Closing .............................. 7.1
Closing Date ......................... 7.1
Closing Price ........................ 2.3
Confidential Intellectual Property ... 3.16(b)
Consent to Option Assumption ......... 2.3
Controlled Group of Corporations...... 3.23(b)
Dissenting Shares..................... 2.2
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
DKI Ancillary Agreements ......................... 3.2(a)
DKI Benefit Arrangements ......................... 3.22(b)
DKI Certificates ................................. 7.2(b)
DKI Disclosure Schedule .......................... 3
DKI Legal/Accounting Fee Cap ..................... 12.8
DKI Option, DKI Options .......................... 2.3
DKI Optionholder Material ........................ 3.31
DKI Plan ......................................... 2.3
DKI Shareholder Materials ........................ 3.31
Exchange Ratio ................................... 2.3
Effective Time.................................... 2.1
Employee Benefit Plan ............................ 1.2
Employee Pension Benefit Plan .................... 1.3
Employee Welfare Benefit Plan .................... 1.4
Environmental, Health, and Safety Laws ........... 3.25(a)(i)
ERISA ............................................ 1.5
Exchange Ratio ................................... 2.3
Exercise Price ................................... 2.3
Extremely Hazardous Substance..................... 3.25(a)(ii)
FIRPTA............................................ 9.15
Fiduciary ........................................ 3.23(b)(i)
Financial Statements ............................. 3.6
HSR Filing ....................................... 5.6
Hazardous Material ............................... 3.25(a)(iii)
Holdback Amount .................................. 2.5
Holdback Period .................................. 2.5
Holdback Payment ................................. 7.2(c)
Indemnification Letter ........................... 9.19
Indemnified Persons .............................. 11.2
Indemnifying Shareholder ......................... 11.2
Initial Payment .................................. 7.2(b)
Intellectual Property ............................ 1.6
Letter of Intent ................................. 3.3(c)
Material Adverse Change/Material Adverse Effect... 1.7
NFT .............................................. 3.32
NFT Stock Purchase Agreement ..................... 3.32
NFT Note ......................................... 3.32
Ordinary Course of Business ...................... 1.8
Outstanding DKI Stock ............................ 2.2
Person ........................................... 1.9
Per Share Cash Consideration ..................... 2.2(a)
Per Share Holdback Amount ........................ 2.5
Securities Act ................................... 3.3(c)
Security Interest ................................ 1.10
Shareholders' Agent .............................. 11.4
Signing Price .................................... 2.3
Taxes ............................................ 3.14(a)
Tax Returns ...................................... 3.14(b)
Third Party Claim ................................ 11.5
Third Party Licenses ............................. 3.16(c)
</TABLE>
-3-
<PAGE> 4
2. PLAN OF REORGANIZATION
2.1 The Merger. Subject to the terms and conditions of this Agreement
and the Agreement of Merger, at the Effective Time, Adaptec Sub will be merged
with and into DKI in accordance with applicable provisions of the laws of the
State of California. The "Effective Time" means the time and date on which the
Agreement of Merger and any required officers' certificates are filed with the
office of the Secretary of State of the State of California and the Merger
becomes effective under California Law.
2.2 DKI Shares. Subject to the terms and conditions of this Agreement,
each share of DKI Common Stock and DKI Preferred Stock (determined on an as
converted to Common Stock basis) issued and outstanding immediately prior
to the Effective Time ("Outstanding DKI Stock"), other than shares, if any,
held by persons exercising dissenters' rights in accordance with Chapter 13
of the California General Corporation Law ("Dissenting Shares"), will be
converted, by virtue of the Merger, at the Effective Time and without
further action on the part of any holder thereof, into the right to receive:
(a) cash in an amount equal to (i) Forty-Four Million Dollars
($44,000,000) divided by (ii) the sum of (A) the number of shares of Outstanding
DKI Stock and (B) the number of shares of DKI Common Stock issuable upon
exercise of options, whether vested or unvested, or warrants which are
outstanding immediately prior to the Effective Time (the resulting quotient
taken to four decimal points, rounding upwards, the "Per Share Cash,
Consideration"), reduced by the Per Share Holdback Amount, as defined in Section
2.5 hereof; and
(b) payments, if any, with respect to any Holdback Amount, as defined
below, released pursuant to Section 7.
2.3 DKI Options. Subject to the terms and conditions of this Agreement,
at the Effective Time, Adaptec will assume each outstanding option to purchase
DKI Common Stock (singularly, a "DKI Option" and, collectively, the "DKI
Options") granted under DKI's 1996 Stock Option/Stock Issuance Plan, as amended
(the "DKI Plan"), and each such DKI Option shall be amended so that it becomes
an option to purchase shares of Adaptec Common Stock (singularly, an "Adaptec
Option" and, collectively, the "Adaptec Options") for that number of shares
determined by multiplying the number of shares of DKI Common Stock subject to
such DKI Option by a fraction (the "Exchange Ratio") equal to (a) the Per Share
Cash Consideration divided by (b) the Adaptec Stock Price, as defined below. The
term "Adaptec Stock Price" shall mean the average closing sale price per share
of Adaptec Common Stock quoted on the Nasdaq National Market for the five
trading days prior to the second day prior to the Effective Time (the "Closing
Price"); provided, however, (i) if the Closing Price exceeds 110% (the "Adaptec
Upper Bound") of $40.925 (the "Signing Price"), the Adaptec Stock Price shall be
the Adaptec Upper Bound, and (ii) if the Closing Price is less than 90% (the
"Adaptec Lower Bound") of the Signing Price, the Adaptec Stock Price shall be
equal to the Adaptec Lower Bound. Subject to the foregoing and Section 2.4
below, the exercise price per share (the "Exercise Price") for each such Adaptec
Option will equal the exercise price of the corresponding DKI Option immediately
prior to the Effective Time divided by the Exchange Ratio, such that there is no
or de minimis change in the aggregate exercise price of each DKI Option. If the
foregoing calculation results in an
-4-
<PAGE> 5
Adaptec Option being exercisable for a fraction of a share (after aggregation of
all shares subject to such option), then the number of shares of Adaptec Common
Stock subject to such Adaptec Option will be rounded down to the nearest whole
number with no cash being paid for such fractional share. The per share Exercise
Price of each Adaptec Option shall be rounded up to the nearest hundredth of a
cent ($0.0001). Vesting accrued under the DKI Option prior to the Effective
Time will be credited to an optionee for the purposes of determining the number
of shares subject to exercise after the Merger. It is the intention of the
parties that to the extent a DKI Option was an incentive stock option under
Section 422 of the Internal Revenue Code prior to the Merger, the corresponding
Adaptec Option shall continue to remain an incentive stock option unless the
Closing Price is greater than the Adaptec Upper Bound, in which case the Adaptec
Option shall be a non-qualified option. Unless the parties hereto and the
optionee otherwise agree, the term, exercisability, vesting schedule and all
other terms of the Adaptec Option will be substantially the same as those of the
corresponding DKI Option. Each holder of a DKI Option shall execute a consent to
option assumption and amendment ("Consent to Option Assumption") in
substantially the form attached hereto as Exhibit 2.3. Adaptec will use its
reasonable efforts to cause the Adaptec Common Stock issuable upon exercise of
the Adaptec Options held by employees of Adaptec to be registered on Form S-8 of
the Securities and Exchange Commission ("SEC") within seven (7) business days
following the Effective Time and, as of the Effective Time, will have reserved a
sufficient number of shares of Adaptec Common Stock for issuance upon exercise
thereof.
2.4 Adjustments for Capital Changes. If prior to the Merger, Adaptec
recapitalizes its Common Stock, splits-up its outstanding shares of Common Stock
into a greater number, combines its outstanding shares of Common Stock into a
lesser number, declares a dividend on its outstanding shares of Common Stock
payable in shares or securities convertible into shares, or reorganizes,
reclassifies or otherwise changes its outstanding shares of Common Stock into
the same or a different number of shares of other classes, the Signing Price,
the Closing Price, the Adaptec Upper Bound, the Adaptec Lower Bound, the
Exchange Ratio, the Exercise Price and the number and type of securities subject
to the Adaptec Options shall be appropriately adjusted.
2.5 Holdback. For a period of eighteen (18) months (the "Holdback
Period") following the Closing Date, as defined below, Adaptec will hold Four
Million Four Hundred Thousand Dollars ($4,400,000) (the "Holdback Amount") as
security for the accuracy of DKI's representations and warranties set forth in
Section 3 hereof, the performance of the covenants set forth in Section 5 hereof
and the indemnification obligations set forth in Section 11 hereof. The term
"Per Share Holdback Amount" shall mean an amount equal to (a) the Holdback
Amount divided by (b) the number of shares of Outstanding DKI Stock, such
quotient taken to four decimal points, rounding upwards. Following expiration of
the Holdback Period, the Holdback Amount, less deductions made to such Holdback
Amount pursuant to Section 7 hereof, will be paid as provided in Section 7
hereof.
2.6 Dissenting Shares. If holders of DKI Common Stock or DKI Preferred
Stock are entitled to dissenters' rights in connection with the Merger under
Chapter 13 of the California General Corporation Law, any Dissenting Shares
shall not be converted into the right to receive the consideration set forth in
Section 2.2 but shall be converted into the right to receive such consideration
as may be determined to be due with respect to such Dissenting Shares pursuant
to Chapter 13 of the California General Corporation Law. DKI shall give Adaptec
prompt notice of
-5-
<PAGE> 6
any demand for appraisal or purchase with respect to Dissenting Shares, and
Adaptec shall have the right to participate in all negotiations and proceedings
with respect to such demand.
2.7 Effects of the Merger. At the Effective Time: (a) Adaptec Sub will
be merged with and into DKI, the separate existence of Adaptec Sub will cease
and DKI will be the surviving corporation, pursuant to the terms of the
Agreement of Merger; (b) the Articles of Incorporation of DKI shall be the
Articles of Incorporation of the surviving corporation, except that such
Articles of Incorporation shall be amended to provide that the authorized
capital stock of the surviving corporation shall be 10,000 shares of Common
Stock; (c) the Bylaws of Adaptec Sub shall be the Bylaws of the surviving
corporation; (d) the directors of Adaptec Sub immediately prior to the Effective
Time will become the directors of the surviving corporation and the officers of
Adaptec Sub immediately prior to the Effective Time will become the officers of
the surviving corporation; (e) each share of Adaptec Sub's Common Stock
outstanding immediately prior to the Effective Time will be converted into one
share of Common Stock of the surviving corporation; (f) each share of DKI Stock
and each DKI Option outstanding immediately prior to the Effective Time will be
converted or assumed as provided in Sections 2.2 and 2.3 above; and (g) the
Merger will, from and after the Effective Time, have all of the effects provided
by applicable law.
2.8 Hart-Scott-Rodino Filings. Each of Adaptec and DKI, and their
Affiliates, will promptly prepare and file the applicable notices (if any)
required to be filed by it under the Hart-Scott-Rodino Antitrust Improvements
Act (the "HSR Act"), and comply promptly with any requests to it from the
Federal Trade Commission or United States Department of Justice for additional
information.
2.9 Funding of DKI. If the Closing does not occur prior to September
15, 1996, the parties hereto will discuss the funding needs of DKI and
mechanisms to provide such funding to DKI. If the parties are unable to agree on
a mechanism to provide funding to DKI within five (5) business days of
initiation of such discussions, DKI may raise up to Two Hundred Fifty Thousand
Dollars ($250,000) through the issuance of equity or debt to a third party,
provided, however, that in the event of such funding, Adaptec's obligations
pursuant to Sections 2.2 and 2.3 hereof shall be adjusted, to Adaptec's
reasonable satisfaction, such that the total consideration paid by Adaptec and
Adaptec Sub pursuant to the Merger and this Agreement, including liabilities
assumed by Adaptec or Adaptec Sub and liabilities of DKI outstanding as of the
Effective Time, shall not change as a result of such funding. Nothing herein
shall be construed as an obligation or requirement that Adaptec provide any
funds or payments to DKI prior to the Closing.
3. REPRESENTATIONS AND WARRANTIES OF DKI
DKI hereby represents and warrants to Adaptec that the statements
contained in this Section 3 are true, correct and complete as of the date of
this Agreement, except as specifically set forth in the disclosure schedule
delivered by DKI to Adaptec on the date hereof, a copy of which is attached
hereto as Schedule 3 (referred to herein as the "DKI Disclosure Schedule"). The
DKI Disclosure Schedule will be arranged in schedules corresponding to the
lettered and numbered paragraphs contained in this Section 3.
-6-
<PAGE> 7
3.1 Organization and Good Standing. DKI is (a) a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation; (b) has the corporate power and authority to own, operate and
lease its properties and to carry on its business as now conducted and as
proposed to be conducted; and (c) is qualified as a foreign corporation in each
jurisdiction in which a failure to be so qualified could reasonably be expected
to have a DKI Material Adverse Effect. Schedule 3.1 of the DKI Disclosure
Schedule lists the current directors and officers of the Company. The operations
and business now being conducted by the Company have not been conducted under
any other name or entity.
3.2 Power, Authorization and Validity.
(a) DKI has the right, power, legal capacity and authority to
enter into and perform its obligations under this Agreement, and all agreements
to which DKI is or will be a party that are required to be executed pursuant to
this Agreement (the "DKI Ancillary Agreements"). The execution, delivery and
performance of this Agreement and the DKI Ancillary Agreements have been duly
and validly approved and authorized by DKI's Board of Directors.
(b) No filing, authorization or approval, governmental or
otherwise, on behalf of DKI or any Affiliate of DKI is necessary to enable DKI
to enter into, and to perform its obligations under, this Agreement and the DKI
Ancillary Agreements, except for (a) the filing of the Agreement of Merger with
the California Secretary of State and the filing of appropriate documents with
the relevant authorities of other states in which DKI is qualified to do
business, if any; (b) the approval of the DKI shareholders of the transactions
contemplated hereby; (c) the approvals of the holders of DKI Options as
contemplated herein; and (d) the filings required by the HSR Act.
(c) This Agreement and the DKI Ancillary Agreements are, or
when executed by DKI will be, valid and binding obligations of DKI enforceable
in accordance with their respective terms, except as to the effect, if any,
of (a) applicable bankruptcy and other similar laws affecting the rights of
creditors generally, and (b) rules of law governing specific performance,
injunctive relief and other equitable remedies; provided, however, that the
Agreement of Merger will not be effective until filed with the California
Secretary of State.
3.3 Capitalization.
(a) The entire authorized capital stock of DKI consists of
10,000,000 shares of DKI Common Stock, of which 176,539 shares are issued and
outstanding as of the date hereof, and 283,666 shares of DKI Preferred Stock,
of which 283,666 shares are issued and outstanding as of the date hereof. All
outstanding shares of DKI Common Stock and DKI Preferred Stock are fully vested,
and none of such shares are subject to any rights of repurchase. No holder of
DKI Common Stock or DKI Preferred Stock is obligated to DKI under any note (or
other instrument evidencing indebtedness) with respect to the purchase of such
DKI Common Stock or DKI Preferred Stock. An aggregate of 429,134 shares of DKI
Common Stock are reserved and authorized for issuance pursuant to the DKI Plan,
of which options to purchase a total of 259,346 shares of DKI Common Stock are
outstanding. All issued and outstanding shares of DKI Common Stock and DKI
Preferred Stock have been duly authorized and validly issued, are fully
-7-
<PAGE> 8
paid and nonassessable, and are held of record by the respective DKI
shareholders as set forth in Schedule 3.3(a) of the DKI Disclosure Schedule. No
liquidation preference shall be due any share of DKI Preferred Stock as a result
of the Merger or the transactions contemplated hereby.
(b) All DKI Options have been duly authorized and validly
issued and are held of record by the respective DKI optionholders as set forth
in Schedule 3.3(b) of the DKI Disclosure Schedule, which schedule includes the
number of shares of Common Stock subject to the vesting schedule (including
vesting commencement date) of and the exercise price of each DKI Option and
whether the recipient of such DKI Option was or is an employee, consultant or
director of DKI. Attached to Schedule 3.3(b) are all form(s) of option grant
documents, option exercise documents and all notices, attachments and other
documents relating to such form(s). No DKI Option is subject to an acceleration
of vesting, nor is any DKI Option subject to any other change in vesting as a
result of the Merger and the transactions contemplated hereby.
(c) Except as set forth in this Section 3.3, there are no
options, warrants, calls, commitments, conversion privileges or preemptive or
other rights or agreements outstanding to purchase any of DKI's authorized but
unissued capital stock or any securities convertible into or exchangeable for
shares of DKI Common Stock or DKI Preferred Stock, or obligating DKI to grant,
extend, or enter into any such option, warrant, call, commitment, conversion
privilege or other right or agreement, and there is no liability for dividends
accrued but unpaid. Except for the letter agreement entered into by certain
shareholders of DKI in connection with the Confidential Letter of Intent dated
July 3, 1996 between Adaptec and DKI (the "Letter of Intent") and except as
contemplated by Section 5.4 hereof, there are no voting agreements, rights of
first refusal or other restrictions (other than normal restrictions on transfer
under applicable federal and state securities laws) applicable to any of DKI's
outstanding securities. DKI is not under any obligation to register under the
Securities Act of 1933, as amended (the "Securities Act"), any of its presently
outstanding securities or any securities that may be subsequently issued. All
DKI Common Stock and DKI Preferred Stock issued, offered and sold by the Company
was issued, offered and sold in compliance with federal and state securities
laws.
3.4 Subsidiaries. DKI does not have any subsidiaries or any interest,
direct or indirect, in any corporation, partnership, joint venture or other
business entity.
3.5 No Violation. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(a) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which DKI is subject or any provision of the
Amended and Restated Articles of Incorporation or Bylaws of DKI; or (b) (i)
conflict with, (ii) result in a breach of, (iii) constitute a default under,
(iv) result in the acceleration of, (v) create in any party the right to require
any notice under, accelerate, terminate, modify, or (vi) result in the
cancellation of any agreement, contract, lease, license, instrument, franchise
permit or other arrangement to which DKI is a party or by which it is bound or
to which any of its assets is subject.
3.6 DKI's Financial Statements. Attached as Schedule 3.6 of the DKI
Disclosure Schedule are copies of DKI's unaudited balance sheets for the year
ended December 31, 1995, DKI's unaudited balance sheet for the six months ended
Juno 30, 1996 and unaudited income
-8-
<PAGE> 9
statements for the same periods (collectively, the "Financial Statements"). The
Financial Statements (a) are in accordance with the books and records of DKI,
(b) fairly present the financial condition of DKI at the date therein indicated
and the results of operations for the period therein specified and (c) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis, subject, in the case of the unaudited Financial Statements,
to normal year end accruals.
3.7 Books and Records.
(a) The books, records and accounts of DKI (i) are in all
material respects true, complete and correct; (ii) have been maintained in
accordance with good business practices on a consistent basis; (iii) are stated
in reasonable detail and accurately, in all material respects, and fairly
reflect the transactions and dispositions of the assets of DKI; and (iv)
accurately, in all material respects, and fairly reflect the basis for the
Financial Statements.
(b) DKI's internal accounting controls are sufficient to
provide reasonable assurances that; (i) transactions are executed in accordance
with management's general or specific authorization; (ii) transactions are
recorded as necessary (A) to permit preparation of financial statements in
conformity with generally accepted accounting principles or any other criteria
applicable to such statements and (B) to maintain accountability for assets; and
(iii) the amount recorded for assets on the books and records of DKI is compared
with the existing assets at reasonable intervals, and appropriate action is
taken with respect to any differences.
3.8 Litigation. DKI has not been and is not a party to any action,
suit, proceeding, hearing, claim, arbitration or investigation, including
without limitation any that may prevent consummation of any of the transactions
contemplated by this Agreement, in or before any court or administrative agency,
nor, to the best of DKI's knowledge, has any such action, suit, proceeding,
hearing, claim, arbitration or investigation been threatened. Neither DKI nor
any of its assets has been nor is subject to any outstanding injunction,
judgment, order, decree, ruling or charge. There are no facts or circumstances
which DKI believes could reasonably form the basis of any claim against DKI.
There is, to the best of DKI's knowledge, no reasonable basis for any
shareholder or former shareholder of DKI, or any other person, firm,
corporation, or entity, to assert a claim against DKI or Adaptec based upon;
(i) ownership or rights to ownership of any shares of DKI Stock; (ii) any
rights as a DKI shareholder, including any option or preemptive rights or
rights to notice or to vote; or (iii) any rights under any agreement among
DKI and its shareholders.
3.9 Undisclosed Liabilities. DKI has no liability (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, and whether due or to
become due, including any liability for taxes), except for liabilities set forth
on the face of the balance sheets contained in the Financial Statements (rather
than in any notes thereto) or the DKI Disclosure Schedule, except for those that
may have been incurred after June 30, 1996 (the "Balance Sheet Date") in the
Ordinary Course of Business and which in the aggregate would not have a DKI
Material Adverse Effect.
3.10 Absence of Certain Changes. Except for transactions explicitly
contemplated by this Agreement in connection with the Merger, since the Balance
Sheet Date:
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(a) there has not been any DKI Material Adverse Change;
(b) DKI has not sold, leased, transferred, or assigned any
material assets or properties, tangible or intangible, other than in the
Ordinary Course of Business;
(c) DKI has not entered into, assumed or become bound under
any agreement, contract, lease, or commitment or extended or modified the terms
of any presently existing agreement, contract, lease or commitment that involves
the payment, individually or in the aggregate, of more than $25,000 per annum,
extends for more than one year or involves any relationship with an original
equipment manufacturer, distributor or sales representative;
(d) Neither DKI nor any other party has accelerated,
terminated, made modifications to, or canceled any agreement, contract, lease,
or license to which DKI is a party or by which it is bound, and DKI has not
modified, canceled or waived or settled any debts or claims held by it or waived
or settled any rights or claims of a substantial value;
(e) none of the assets of DKI, tangible or intangible, has
become subject to any Security Interest;
(f) DKI has not made any capital expenditures or incurred or
paid expenses exceeding $25,000 in the aggregate of all such capital
expenditures or expenses, except legal and accounting fees incurred or paid in
connection with the Merger and the transactions contemplated hereby;
(g) DKI has not made any capital investment in, or any loan
to, any other Person;
(h) DKI has not created, incurred, assumed, or guaranteed any
indebtedness for borrowed money and capitalized lease obligations;
(i) DKI has not granted any license or sublicense to, or sold,
transferred or assigned, any Intellectual Property rights;
(j) there has been no change made or authorized in the Amended
and Restated Articles of Incorporation or Bylaws of DKI;
(k) DKI has not issued, sold, or otherwise disposed of any of
its capital stock, or granted any options, warrants, or other rights to purchase
or obtain any of its capital stock;
(l) DKI has not declared, set aside, or paid any dividend or
made any distribution with respect to its capital stock (whether in cash or in
kind) or redeemed, purchased, or otherwise acquired any of its capital stock;
(m) DKI has not experienced any damage, destruction, or loss
(whether or not covered by insurance) to its property in excess of $25,000 in
the aggregate of all such damage, destruction and losses;
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<PAGE> 11
(n) DKI has not suffered any repeated, recurring or prolonged
shortage, cessation or interruption of inventory shipments, supplies or utility
services;
(o) Other than increases in base compensation and cash bonuses
in the Ordinary Course of Business, DKI has not made any loan to, entered into
any transaction with, made any changes in employment terms with, or granted any
salary increase, bonus or extraordinary payment to, any of its directors,
officers, or employees or their Affiliates, and, in any event, any such loan,
transaction, change, or grant was on fair and reasonable terms no less favorable
to DKI than would be obtained in a comparable arm's length transaction with a
Person which is not such a director, officer or employee or an Affiliate
thereof;
(p) DKI has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement;
(q) DKI has not adopted, amended, modified, or terminated any
bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, or employees (or
taken any such action with respect to any other Employee Benefit Plan);
(r) DKI has not modified any outstanding DKI Option;
(s) DKI has not suffered any adverse change or, to the best of
its knowledge, any threat of any adverse change in its relations with, or any
loss or threat of loss of, any of its major customers, distributors, dealers or
major suppliers;
(t) DKI has not received notice or had knowledge of any actual
or threatened labor trouble or strike, or any other occurrence, event or
condition of a similar character;
(u) DKI has not changed any of the accounting principles
followed by it or the method of applying such principles;
(v) DKI has not made a change in any of its banking or safe
deposit arrangements;
(w) DKI has not entered into any transaction other than in the
Ordinary Course of Business; and
(x) DKI has not committed to any of the foregoing.
3.11 Broker's Fees. DKI has no liability or obligation to pay any
fees or commissions to any broker, finder, agent or similar Person with
respect to the transactions contemplated by this Agreement, nor has DKI
entered into any agreement, written or oral, with respect to, or held any
discussions with any such broker, finder, agent or similar Person with
respect to the transactions contemplated by this Agreement, the result of
which would entitle such broker, finder, agent or similar Person to a fee
or commission in connection therewith.
3.12 Title to Assets. DKI has good and marketable title to, or a valid
leasehold interest in the properties and assets used by it, located on its
premises, or shown on the Financial
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<PAGE> 12
Statements or acquired after the date thereof (other than properties sold or
otherwise disposed of in the Ordinary Course of Business), free and clear of all
Security Interests other than those set forth on the search of filings with
respect to DKI under Article 9 of the Uniform Commercial Code, or any equivalent
statute, attached hereto as Schedule 3.12. No Person other than DKI or DKI's
lessors owns any assets or properties currently utilized in or reasonably
necessary to the operations or business of DKI or situated on any of the
premises of DKI. There are no existing contracts, agreements, commitments or
arrangements with any Person to acquire any of the assets or properties of DKI
(or any interest therein) except for this Agreement.
3.13 Legal Compliance. DKI has complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), the violation or breach of which would
have a DKI Material Adverse Effect. No action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, notice or inquiry has been
filed or, to the best of DKI's knowledge, commenced against or received by, any
governmental body alleging any failure to so comply. DKI has all licenses,
permits, approvals, registrations, qualifications, certificates and other
governmental authorizations necessary for the operations of DKI and whose
failure to have been obtained could reasonably be expected to have a Material
Adverse Effect.
3.14 Tax Matters.
(a) For purposes of this Agreement, "Taxes" means all federal,
state, municipal, local or foreign income, gross receipts, windfall profits,
severance, property, production, sales, use, value added, license, excise,
franchise, employment, withholding, capital stock, levies, imposts, duties,
transfer and registration fees or similar taxes or charges imposed on the
income, payroll, properties or operations of DKI, together with any interest,
additions or penalties, deficiencies or assessments with respect thereto and any
interest in respect of such additions or penalties.
(b) DKI has filed all reports and returns with respect to any
Taxes ("Tax Returns") that it was required to file. All such Tax Returns were
correct and complete in all material respects, and no such Tax Returns are
currently the subject of audit. All Taxes owed by DKI (whether or not shown on
any Tax Return) were paid in full when due. Any contested Taxes were contested
or are being contested in good faith and, if currently being contested, are
supported by adequate reserves. DKI has provided adequate reserves on its
Financial Statements for the payment of any taxes accrued but not yet due and
payable. DKI is not currently the beneficiary of any extension of time within
which to file any Tax Return, and DKI has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to any Tax
assessment or deficiency.
(c) There is no dispute or claim concerning any Tax liability
of DKI either (i) claimed or raised by any authority in writing or (ii) based
upon personal contact with any agent of such authority. There are no tax liens
of any kind upon any property or assets of DKI, except for inchoate liens for
taxes not yet due and payable.
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(d) DKI has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations. DKI has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
any circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G. DKI has not been a United States real
property holding corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii). DKI is not a
party to any tax allocation or sharing agreement. DKI (i) has not been a member
of any affiliated group within the meaning of Code Section 1504 or any similar
group defined under a similar provision of state, local, or foreign law (an
"Affiliated Group") filing a consolidated Federal Income Tax Return (other than
a group the common parent of which was DKI) and (ii) has no any liability for
the taxes of any Person (other than DKI) under Treas. Reg. Section 1.1502-6
(or any similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(e) The unpaid Taxes of DKI (i) did not, as of June 30, 1996,
exceed by any amount the reserve for Tax liability (rather than any reserve for
deferred taxes established to reflect timing differences between book and tax
income) set forth on the face of DKI's June 30, 1996 balance sheet (rather than
in any notes thereto) and (ii) will not exceed by any material amount that
reserve as adjusted for operations and transactions through the Closing Date in
accordance with the past custom and practice of DKI in filing its Tax Returns.
3.15 Properties.
(a) DKI owns no real property.
(b) Schedule 3.15 of the DKI Disclosure Schedule lists and
describes briefly all real or personal property leased or subleased to DKI. DKI
has delivered to Adaptec correct and complete copies of the leases and subleases
listed in Schedule 3.15 of the DKI Disclosure Schedule.
(c) The equipment and other tangible assets that DKI owns and
leases are free from material defects, have been maintained in accordance with
normal industry practice, and are in good operating condition and repair
(subject to normal wear and tear) and are usable in the Ordinary Course of
Business.
(d) All of the inventory of DKI is usable and fit for the
purpose for which it was procured or manufactured, and none of such inventory is
slow-moving, obsolete, damaged or defective, except as shall not have a DKI
Material Adverse Effect.
3.16 Intellectual Property.
(a) Patents, Trademarks and Copyrights. Schedule 3.16(a) of
the DKI Disclosure Schedule identifies each patent, trademark, service mark,
copyright, mask work, disclosure or other registration right with respect to
Intellectual Property owned by DKI, or application for any of the foregoing,
which is owned by DKI, has been issued to DKI or has been submitted by DKI for
issuance and lists the application and registration number, date of application,
date of registration, names of all assignors and registered owners and the
country of filing for each such right, if applicable. All applications for
registration of such Intellectual Property were true and accurate in all
material respects at the time of filing. All registrations for
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<PAGE> 14
such Intellectual Property are valid and enforceable, and all fees to maintain
DKI's rights in such 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 such Intellectual Property, have been paid. No other person or
entity other than DKI has the right to file, prosecute, or maintain applications
for patents, copyrights, trademarks, trade names, or service marks which relate
to any Intellectual Property owned by DKI, or any patents and registrations that
issue therefrom. Schedule 3.16(a) of the DKI Disclosure Schedule also identifies
each (i) trade name, dba or unregistered trademark used by DKI in connection
with its businesses and (ii) each unregistered copyright owned by DKI.
(b) Confidential Intellectual Property. DKI has identified for
Adaptec and provided Adaptec an opportunity to review all material trade
secrets, draft patent applications, product development plans, computer source
code and other material Intellectual Property owned by DKI which is not
generally available to the public or customers of DKI ("Confidential
Intellectual Property"). DKI has taken all actions that are customary, necessary
or reasonable to protect the confidentiality of the Confidential Intellectual
Property and the enforceability of any trade secrets with respect thereto,
including without limitation, the marking of all material confidential or
proprietary information with appropriate "Proprietary" or "Confidential"
legends, the establishment of policies for the handling, disclosure and use of
such property and the acquisition of written non-disclosure agreements from
every party receiving such property. No Confidential Intellectual Property has
been made available to any party except employees or contractors of DKI who have
signed a confidentiality agreement in substantially the form attached to
Schedule 3.16(b) and who have taken customary, necessary or reasonable steps to
prevent disclosure of such property. Schedule 3.16(b)of the DKI Disclosure
Schedule lists all locations at which backup copies of Confidential Intellectual
Property have ever been stored, and DKI has arranged for Adaptec to recover or
destroy any such copies following the Closing. Schedule 3.16(b) also lists all
individuals or entities that currently have a copy of or access to any
Confidential Intellectual Property other than on the premises of DKI's main
office and lists all individuals or entities with a copy of or access to any
significant portion of DKI's computer source code.
(c) Intellectual Property Licenses. Schedule 3.16(c) of the
DKI Disclosure Schedule identifies each item of Intellectual Property that any
third party owns, in whole or in part, which is incorporated in or forms part of
any product licensed, sold, developed or being developed by DKI or is otherwise
used in DKI's business, and a list of all rights granted to DKI to use, or to
allow DKI's customers or licensees to use such Intellectual Property of any
such third party or to modify or incorporate such Intellectual Property in any
such products, other than end-user licenses related to "off the shelf,"
shrink-wrap commercial business productivity software products not incorporated
in any way in any product licensed, sold, developed or being developed by DKI
(herein referred to as "Third Party Licenses"). DKI is not, nor will it or
Adaptec be, as a result of the execution and delivery of this Agreement or the
performance of either DKI's or Adaptec's obligations under this Agreement, in
violation of any Third Party Licenses. Schedule 3.16(c) includes a list
of, and DKI has provided Adaptec with a copy of, all licenses, sublicenses,
agreements or permissions with respect to any Intellectual Property owned
or used by DKI or to which DKI is bound. DKI has a license, sublicense,
agreement or permission allowing DKI to make, use and sell products based
on each item of Intellectual Property identified on Schedule 3.16(c).
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<PAGE> 15
(d) Ownership and Transfer of Intellectual Property. With
respect to each item of Intellectual Property owned or used by DKI; (i) DKI
possesses, and as of the Effective Time, Adaptec and DKI will possess, all
right, title and interest in and to the item, free and clear of any Security
Interest, license, except as set forth on Schedule 3.16(d), or other
restriction; (ii) DKI is, and as of the Effective Time, Adaptec or DKI will be,
the sole and exclusive owner of such item; (iii) the item is not subject to any
outstanding injunction, judgment, order, decree, ruling or charge; (iv) no
action, suit, litigation, proceeding, hearing, investigation, charge, complaint,
claim or demand is pending or threatened which relates to or challenges the
legality, validity, enforceability, use or ownership of the item; (v) DKI has
never agreed to indemnify any person for or against any interference,
infringement, misappropriation, or other conflict with respect to such item; and
(vi) neither the Merger nor the transactions contemplated hereby will affect the
legality or validity of such item or result in any event which impairs Adaptec's
or DKI's ownership of such item following the Merger. As of the Effective Time,
Adaptec or DKI will have sufficient title and ownership of all Intellectual
Property, except as set forth on Schedule 3.16(d), that is used in DKI's
business or is necessary for the commercial exploitation of any products which
DKI has licensed, sold or developed or is developing without breach of any
contractual obligation or any conflict with or infringement of the rights of
others.
(e) Intellectual Property Infringement. DKI has not interfered
with, infringed upon, misappropriated or violated any Intellectual Property
rights of third parties in any respect, and none of the directors, officers or
employees of DKI has received during the last three years any charge, complaint,
claim, demand or notice alleging any such interference, infringement,
misappropriation, or violation, including without limitation, any claim that DKI
must license or refrain from using any Intellectual Property rights of any third
party. No third party has interfered with, infringed upon, misappropriated, or
violated any Intellectual Property rights owned by DKI. None of DKI's employees,
consultants, directors 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 or interfere with the conduct of the
business of DKI as now conducted or as proposed to be conducted by Adaptec or
DKI or that could interfere with the ability of Adaptec or DKI to use, license
or sell the products licensed, sold, developed or being developed by DKI. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby 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, consultants or directors is now obligated. Except for Third
Party Licenses set forth on Schedule 3.16(c), the conduct of DKI's business and
the sale or license of products licensed, sold, developed or being developed by
DKI does not require the use of any Intellectual Property of any third party,
including without limitation, any former employer of any past or present
employees, consultants or directors of DKI. DKI is not using any confidential
information or trade secrets of any third party, including without limitation,
any former employer of any past or present employees, consultants or directors
of DKI or any party which was in a confidential relationship with any such
former employer. All of the Intellectual Property owned by DKI has been created
by employees or consultants of DKI within the scope of their employment by or
consulting relationship with DKI and such employees or consultants executed
valid and binding agreements in the form attached to Schedule 3.16(e) assigning
all of their entire right, title and interest in the Intellectual Property to
DKI.
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(f) Computer Software. Schedule 3.16(f) contains a block
diagram of the architecture of the software and firmware being developed by DKI
or being incorporated into its product under development and a directory listing
of such software and firmware. Except for Third Party Licenses, all software and
firmware identified in Schedule 3.16(f) is owned by DKI. The software identified
in Schedule 3.16(f) includes the only computer software licensed, sold,
developed or being developed by DKI. With respect to all computer software
included in the Intellectual Property owned by DKI, DKI maintains documentation
setting forth in reasonable detail all of the functions of such software. DKI
maintains suitable technical and user documentation for all such software and
adequate comments within its source code to allow such software to be maintained
and modified without undue burden by reasonably competent programmers or
engineers skilled in the art who have access to such documentation and source
code. Each item of the Intellectual Property owned by DKI consisting of software
operates in accordance with the current product specification therefor without
material operating defects, except as set forth in software bug reports provided
to Adaptec. Schedule 3.16(f) sets forth the schedule of major milestones to be
accomplished with respect to each product in development by DKI. DKI has no
reason to believe that its product development plans will not proceed in
accordance with such schedule. None of the Intellectual Property owned by DKI
consisting of software contains any calls to subroutines, libraries or
application programming interfaces ("APIs") of any operating systems or
third-party software except calls which are documented in the standard
documentation generally provided to customers with such subroutines, libraries
or APIs, and DKI has a complete set of all such documentation.
3.17 No Products. DKI has not sold any products and has not had any
customers or licensees other than Adaptec.
3.18 Selected Contracts. Schedule 3.18 of the DKI Disclosure Schedule
lists the following contracts, agreements, commitments and other arrangements to
which DKI is a party or by which it or any of its assets is bound:
(a) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease payments in
excess of $25,000 per annum;
(b) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the performance
of which will extend over a period of more than one year or involve
consideration in excess of $25,000 per annum;
(c) any agreement for the purchase of supplies, components,
products or services from single source suppliers, custom manufacturers or
subcontractors;
(d) any agreement concerning a partnership or joint venture;
(e) any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money or any capitalized lease obligation or under which it has imposed a
Security Interest on any of its assets, tangible or intangible;
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(f) any agreement concerning confidentiality, noncompetition
or restraint of trade;
(g) any agreement with any of DKI's shareholders,
optionholders, or any of such Affiliates (other than DKI) or with any Affiliate
of DKI;
(h) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other similar plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
(i) any collective bargaining agreement;
(j) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis;
(k) any agreement under which DKI has advanced or loaned any
amount to any of its directors, officers, and employees;
(l) any agreement under which a default or termination could
reasonably be expected to have a DKI Material Adverse Effect;
(m) any agreement with any original equipment manufacturer
entered into or performed by DKI within the last three years;
(n) any agreement regarding product design, development,
manufacture, delivery, maintenance, support, service or training;
(o) any standard form agreement used by DKI, including, but
not limited to, any purchase order, statement of standard terms and conditions
of sale, or employment offer letter;
(p) any powers of attorney given by DKI; and
(q) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $25,000 or which is
material to DKI.
DKI has made available to Adaptec a correct and complete copy of each
written agreement listed in Schedule 3.18 of the DKI Disclosure Schedule and a
written summary setting forth the terms and conditions of each oral agreement
referred to in Schedule 3.18 of the DKI Disclosure Schedule. With respect to
each such agreement, each lease or sublease listed on Schedule 3.15, each
license listed on Schedule 3.16(c) and each insurance policy listed on
Schedule 3.21: (i) the agreement or other item is legal, valid, binding,
enforceable, and in full force and effect in all respects, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws and equitable principles relating to or
limiting creditors rights generally; (ii) to the best of DKI's knowledge, no
party is in breach or default, and no event has occurred, which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; (iii) to the best of DKI's
knowledge, no party has repudiated any provision thereof; (iv) there are no
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disputes, oral agreements, or forbearance programs in effect; (v) DKI has not
assigned, transferred, mortgaged, deeded in trust or encumbered any interest
therein; and (vi) to the best of DKI's knowledge, all approvals of governmental
authorities (including licenses and permits) required in connection therewith
and whose failure to have been obtained could reasonably be expected to have a
Material Adverse Effect have been obtained.
3.19 Notes and Accounts Receivable. All notes and accounts receivable
of DKI, all of which are reflected properly on the books and records of DKI, are
valid receivables subject to no setoffs, defenses or counterclaims and are
collectible.
3.20 Bank Accounts. Schedule 3.20 lists all bank accounts of DKI, the
authorized signatories to the account and the name and telephone number of a
contact person with respect to such account.
3.21 Insurance. Schedule 3.21 of the DKI Disclosure Schedule sets
forth a true and complete list of its current insurance policies, including
names of carriers, amounts of coverage and premiums therefore. DKI believes
that it has and is insured with respect to its properties and the conduct of
its business in such amounts and against such risks as are reasonable in
relation to its business and will use its reasonable efforts to maintain such
insurance at least through the Effective Time. DKI has made available to
Adaptec true and complete copies of all insurance policies covering DKI and
its properties, assets, employees or operations.
3.22 Employees.
(a) DKI does not have any employment contracts or consulting
agreements currently in effect that are not terminable at will (other than
agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions).
(b) Schedule 3.22(b) lists each employment, severance or other
similar contract, arrangement or policy and each plan or arrangement (written or
oral) providing for insurance coverage (including any self-insured
arrangements), workers' benefits, vacation benefits, severance benefits,
disability benefits, death benefits, hospitalization benefits, retirement
benefits, deferred compensation, profit-sharing, bonuses, stock options, stock
purchase, phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits for
employees, consultants or directors which (i) is entered into, maintained or
contributed to, as the case may be, by DKI and (ii) covers any employee or
former employee of DKI. Such contracts, plans and arrangements as are
described in this Section 3.22(b) are herein referred to collectively as the
"DKI Benefit Arrangements." Each DKI Benefit Arrangement or Employee Benefit
Plan has been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
which are applicable to such DKI Benefit Arrangement or Employee Benefit Plan.
DKI has delivered to Adaptec or its counsel a complete and correct copy or
description of each DKI Benefit Arrangement or Employee Benefit Plan.
(c) Since December 31, 1995, there has been no amendment to,
written interpretation or announcement (whether or not written) by DKI relating
to, or change in employee participation or coverage under, any DKI Benefit
Arrangement or Employee Benefit
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<PAGE> 19
Plan that would increase materially the expense of maintaining such DKI Benefit
Arrangement or Employee Benefit Plan above the level of the expense incurred in
respect thereof for the fiscal year ended December 31, 1995.
(d) DKI has provided, or will have provided prior to the
Closing, to individuals entitled thereto all required notices and coverage, if
any, pursuant to Section 4980B of the Code and the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), with respect to any
"qualifying event" (as defined in Section 4980B(f)(3) of the Code) occurring
prior to and including the Closing Date, and no material tax payable on account
of Section 4980B of the Code has been incurred with respect to any current or
former employees (or their beneficiaries) of DKI.
(e) No benefit payable or which may become payable by DKI
pursuant to any DKI Benefit Arrangement or Employee Benefit Plan or as a result
of or arising under this Agreement shall constitute an "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code) which is subject to the
imposition of an excise tax under Section 4999 of the Code or which would not be
deductible by reason of Section 280G of the Code.
(f) DKI is in compliance in all material respects with all
applicable laws, agreements and contracts relating to employment, employment
practices, wages, hours, and terms and conditions of employment, including, but
not limited to, employee compensation matters, but not including ERISA. DKI has
no reason to believe it does not have good labor relations; nothing has come to
DKI's attention as a result of the negotiation or entering into this Agreement
that would lead DKI to believe that the consummation of the transactions
contemplated hereby will have a DKI Material Adverse Effect on labor relations;
and DKI has no knowledge that any of its or their key employees intends to leave
its or their employ.
(g) No employee of DKI is in violation of any term of any
employment contract, patent disclosure agreement, noncompetition agreement, or
any other contract or agreement, or any restrictive covenant relating to the
right of any such employee to be employed thereby, or to use trade secrets or
proprietary information of others, and the employment of such employees does not
subject DKI to any liability. DKI knows of no grievance of any DKI employee with
respect to which the aggrieved employee, or his or her representative, has
discussed or threatened legal action against the DKI.
(h) A list of all employees, officers and consultants of DKI
and their current compensation (including salary, bonus or commission
arrangements or other contingencies) has previously been delivered to Adaptec.
(i) DKI is not a party to any (i) agreement with any executive
officer or other key employees thereof (A) the benefits of which are contingent,
or the terms of which are materially altered, upon the occurrence of a
transaction involving DKI in the nature of any of the transactions contemplated
by this Agreement, (B) providing any term of employment or compensation
guarantee, or (C) providing severance benefits or other benefits after such
termination of employment; or (ii) agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be materially increased, or the
vesting of benefits of which will be materially accelerated, by
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the occurrence of any of the transactions contemplated by this Merger or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Merger.
3.23 Employee Benefits.
(a) Schedule 3.23 of the DKI Disclosure Schedule lists each
Employee Benefit Plan that DKI maintains or to which DKI contributes or is
obligated to contribute.
(i) Each such Employee Benefit Plan (and each related
trust, or fund established by DKI) complies in form and in operation in all
material respects with their terms, the applicable requirements of ERISA, the
Code, and other applicable laws.
(ii) All required reports and descriptions (including
Form 5500 Annual Reports, Summary Annual Reports, PBGC-l's, and Summary Plan
Descriptions) have been filed or distributed with the Internal Revenue Service
and/or the Department of Labor, as the case may be, with respect to each such
Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title 1 of
ERISA and of Code Section 4980B have been met in all respects with respect to
each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. No
event has occurred and no condition exists with respect to any Employee Benefit
Plan that would subject DKI to any tax under Code Sections 4972, 4976 or 4979 or
to a fine under ERISA Sections 502(i) or 502(l).
(iii) All contributions, premiums or other payments
(including all employer contributions and employee salary reduction
contributions) which are due have been paid to each Employee Benefit Plan and
all contributions, premiums or other payments for any period ending on or
before the Closing Date which are not yet due shall been paid to each such
Employee Benefit Plan or shall be accrued in accordance with the custom and
practice of DKI.
(iv) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan and which is intended to qualify under Code
Section 401(a), has received a favorable determination letter from the Internal
Revenue Service with respect to the qualification of the plan under Code
Section 401(a) and the exemption of any corresponding trust under Code Section
501, unless the Internal Revenue Service is deemed to have approved the form of
such Plan under applicable IRS Revenue Procedures. A copy of the most recent
such determination letter with respect to each Employee Benefit Plan has been
provided to Adaptec and nothing has occurred since the date of each such
determination letter that would cause such Employee Pension Benefit Plan to lose
its ability to rely on such letter. Each Employee Pension Benefit Plan has been
amended or restated to comply with the 1986 Tax Reform Act and subsequent
applicable tax legislation to the extent required by governing tax law,
disregarding any statutory or regulatory requirements with respect to which the
due date for timely compliance has not yet occurred. A copy of any determination
letters applicable to such amendment or restatement which have been received by
DKI has been provided to Adaptec.
(v) Neither DKI nor any other Person or entity under
common control with DKI within the meaning of Section 414(b),(c) or (m) of the
Code and the regulations thereunder has now or at any previous time, maintained,
established, sponsored, participated in, or contributed to, any Employee Pension
Benefit Plan that is subject to Part 3 of Subtitle B of
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Title I of ERISA, Title IV of ERISA or Section 412 of the Code. No Employee
Benefit Plan constitutes, or has constituted, a Multiemployer Plan. No Employee
Welfare Benefit Plan or other Employee Benefit Plan providing welfare benefits
is funded with a trust or other funding vehicle, other than insurance policies
or contracts with a health maintenance organization or similar health care
delivery entity.
(vi) DKI has made available to Adaptec correct and
complete copies of the current plan documents, and the most recent summary plan
descriptions, the most recent determination letter received from the Internal
Revenue Service, if any, the most recent Form 5500 Annual Report, and the
current version of all related trust agreements, insurance contracts, and other
funding agreements which implement each maintained Employee Benefit Plan. The
terms of any such documentation or other communication permit Adaptec to amend
or terminate any such Employee Benefit Plan without penalty.
(b) With respect to each Employee Benefit Plan that DKI,
and/or any controlled group of corporations within the meaning of Code Section
1563 (a "Controlled Group of Corporations") which includes DKI, maintains or
ever has maintained or to which any of them contributes, ever contributed, or
ever has been required to contribute:
(i) There have been no prohibited transactions within
the meaning of ERISA Section 406 and Code Section 4975 with respect to any such
Employee Benefit Plan. No fiduciary within the meaning of ERISA Section 3(21)
(a "Fiduciary"), has any liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or investment of
the assets of any such Employee Benefit Plan. No action, suit, proceeding,
hearing, or investigation with respect to the administration or the investment
of the assets of any such Employee Benefit Plan (other than routine claims for
benefits) is pending or, to the best of DKI's knowledge, threatened.
(c) DKI does not maintain or contribute to, has never
maintained or contributed to, and has never been required to contribute to, any
Employee Welfare Benefit Plan or any other Employee Benefit Plan providing
medical, health, or life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Section 4980B or Part 6 of Subtitle B of
Title I of ERISA).
(d) There is no liability in connection with any Employee
Benefit Plan that is not fully disclosed or provided for on DKI's June 30, 1996
balance sheet for which disclosure would be required under generally accepted
accounting principles.
(e) No Employee Benefit Plan or DKI has any liability to any
plan participant, beneficiary or other person by reason of the payment of
benefits or the failure to pay benefits with respect to benefits under or in
connection with any such Employee Benefit Plan, other than claims in the normal
administration of such plans.
3.24 Guaranties. DKI is not a guarantor or otherwise responsible for
any liability or obligation (including indebtedness) of any other Person.
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3.25 Environment, Health, and Safety.
(a) For purposes of this Agreement, the following terms have the
following meanings:
(i) "Environmental, Health, and Safety Laws" means any and all
federal, state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, plans, injunctions, judgments, decrees, requirements or
rulings now or hereafter in effect, imposed by any governmental authority
regulating, relating to, or imposing liability or standards of conduct relating
to pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
public health and safety, or employee health and safety, concerning any
Hazardous Materials or Extremely Hazardous Substances, as such terms as defined
herein, or otherwise regulated, under any Environmental, Health and Safety Laws.
The term "Environmental, Health and Safety Laws" shall include, without
limitation, the Clean Water Act (also known as the Federal Water Pollution
Control Act). 33 U.S.C. Section 1251 et seq., the Toxic Substances Control Act.
15 U.S.C. Section 2601 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et
seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section
136 et seq., the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq., the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq., the Superfund Amendment and Reauthorization Act of 1986,
Public Law 99-4, 99, 100 Stat. 1613, the Emergency Planning and Community Right
to Know Act, 42 U.S.C. Section 11001 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., and the Occupational Safety and
Health Act, 29 U.S.C. Section 651 et seq., all as amended, together with any
amendments thereto, regulations promulgated thereunder and all substitutions
thereof.
(ii) "Extremely Hazardous Substance" means a substance on the
list described in Section 302 (42 U.S.C. Section 11002(a)(2)) of the Emergency
Planning and Community Right to Know Act, 42 U.S.C. Section 11001 et seq., as
amended.
(iii) "Hazardous Material" means any material or substance
that, whether by its nature or use, is now or hereafter defined as a pollutant,
dangerous substance, toxic substance, hazardous waste, hazardous material,
hazardous substance or contaminant under any Environmental, Health and Safety
Laws, or which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and which is now or
hereafter regulated under any Environmental, Health and Safety Laws, or which is
or contains petroleum, gasoline, diesel fuel or other petroleum hydrocarbon
product.
(b) DKI (i) has complied with the Environmental, Health, and Safety
Laws in all material respects (and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, directive or notice has been
filed or commenced against it alleging any such failure to comply); (ii) has
obtained and been in compliance in all material respects with all of the terms
and conditions of all permits, licenses, certificates and other authorizations
which are required under the Environmental, Health, and Safety Laws; and (iii)
has complied in all respects with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in the Environmental, Health, and Safety Laws.
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(c) DKI has no liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), and DKI
has not handled or disposed of any Hazardous Materials or extremely Hazardous
Substances, arranged for the disposal of any Hazardous Materials or Extremely
Hazardous Substances, exposed any employee or other individual to any Hazardous
Materials or Extremely Hazardous Substances, or owned or operated any property
or facility in any manner that could give rise to any liability, for damage to
any site, location, surface water, groundwater, land surface or subsurface
strata, for any illness of or personal injury to any employee or other
individual, or for any reason under any Environmental, Health, and Safety Law.
(d) No Extremely Hazardous Substances are currently, or have been,
located at, on, in, under or about all properties and equipment used in the
business of DKI and its Affiliates.
(e) No Hazardous Materials are currently located at, on, in, under
or about all properties and equipment used in the business of DKI and its
Affiliates in a manner which violates any Environmental, Health and Safety Laws
or which requires cleanup or corrective action of any kind under any
Environmental, Health and Safety Laws.
3.26 Corporate Documents. DKI has made available to Adaptec or its counsel
for examination all documents and information listed in the DKI Disclosure
Schedule or other Exhibits called for by this Agreement which has been requested
by Adaptec's legal counsel, including, without limitation, the following: (a)
copies of DKI's Amended and Restated Articles of Incorporation and Bylaws as
currently in effect; (b) its Minute Book containing records of proceedings,
consents, actions, and meetings of the stockholders, the DKI Board of Directors
and any committees thereof that have taken place; (c) its stock ledger and
journal reflecting all stock issuances and transfers; (d) all permits, orders,
and consents issued by any regulatory agency with respect to DKI, or any
securities of DKI, and all applications for such permits, orders, and consents;
and (e) all amendments, supplements, modifications and waivers to all such
documents and information.
3.27 Certain Transactions and Agreements. None of the officers of DKI, nor
any of their "affiliates" or "associates" (as those terms are defined in Rule
405 promulgated under the Securities Act) or members of their immediate family,
has any direct or indirect material interest in (a) any firm or corporation that
competes with DKI (except with respect to any interest of less than one percent
of the stock of any corporation whose stock is publicly traded), (b) any person
or entity which purchases from or sells, licenses or furnishes to DKI any goods,
property, technology or intellectual or other property rights or services, (c)
any contract or agreement to which DKI is a party or by which it may be bound or
affected, except for normal compensation for services as an officer, director or
employee of DKI, or (d) any property, real or personal, tangible or intangible,
including without limitation Intellectual Property used in or pertaining to the
business of DKI, except for the normal rights of a shareholder.
3.28 Associations. DKI is not a member of any organization or association
(a) which is developing or proposes to develop standards relating to any
Intellectual Property owned by DKI, (b) imposes or is contemplating the
imposition on its members of any obligations or limitations
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<PAGE> 24
on such members to do business or (c) for which such membership or expiration of
such membership could have a Material Adverse Effect on DKI.
3.29 No Adverse Developments. To the best of DKI's knowledge, there is no
existing or threatened development (exclusive of general economic factors
affecting business in general) affecting DKI (or affecting customers,
suppliers, employees, and other Persons which have relationships with DKI) that
would prevent Adaptec from conducting the business of DKI following the Closing
in the manner in which it was conducted or planned to be conducted by DKI prior
to the Closing.
3.30 Full Disclosure. No representation or warranty in this Section 3 or
in any DKI Ancillary Agreement, and no statement, list, certificate or
instrument furnished by DKI identified in this Agreement or in the DKI
Disclosure Schedule to Adaptec pursuant hereto or in connection with this
Agreement contains any untrue statement of a material fact, or omits to state
any fact necessary to make any statements contained herein or therein, in light
of the circumstances under which they were made, not materially misleading.
3.31 Information Supplied. None of the information provided or to be
provided by DKI for inclusion in the materials to be supplied to the DKI
shareholders (the "DKI Shareholder Materials") or to the DKI optionholders (the
"DKI 0ptionholder Materials"), at the date such information is supplied, at the
Effective Time and, in the case of the DKI Shareholder Material, at the time of
the meeting or solicitation of the DKI shareholders to approve the Merger,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading.
3.32 Continued Funding. To DKI's knowledge NFT Ventures, Inc., a Utah
corporation ("NFT") has complied in all material respects with that certain
Stock Purchase Agreement dated February 28, 1996 (the "NFT Stock Purchase
Agreement") and the promissory note of NFT delivered with respect thereto (the
"NFT Note"). NFT has no obligation to fund DKI other than as set forth in the
NFT Stock Purchase Agreement and the NFT Note. The outstanding principal amount
on the NFT Note as of the date hereof is as set forth on Schedule 3.3(a) of the
DKI Disclosure Schedule.
4. REPRESENTATIONS AND WARRANTIES OF ADAPTEC AND ADAPTEC SUB
Adaptec and Adaptec Sub represent and warrant to DKI and the shareholders
and optionholders of DKI immediately prior to the Effective Time that the
statements contained in this Section 4 are true, correct and complete as of the
date of this Agreement.
4.1 Organization and Good Standing. Each of Adaptec and Adaptec Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California, and has the corporate power and authority to own,
operate and lease its properties and to carry on its business as now conducted
and as proposed to be conducted.
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4.2 Power, Authorization and Validity.
(a) Each of Adaptec and Adaptec Sub has the right, power, legal
capacity and authority to enter into and perform its obligations under this
Agreement, and all agreements to which it is or will be a party that are
required to be executed pursuant to this Agreement (the Adaptec Ancillary
Agreements"). The execution, delivery and performance of this Agreement and the
Adaptec Ancillary Agreements have been duly and validly approved and authorized
by the Board of Directors of Adaptec and/or Adaptec Sub, as appropriate.
(b) No filing, authorization or approval, governmental or otherwise,
on behalf of Adaptec or Adaptec Sub is necessary to enable Adaptec or Adaptec
Sub to enter into, and to perform their obligations under, this Agreement and
the Adaptec Ancillary Agreements, except for (i) the filing of the Agreement of
Merger with the California Secretary of State, and the filing of appropriate
documents with the relevant authorities of other states in which Adaptec or
Adaptec Sub is qualified to do business, if any; (ii) such filings as may be
required to comply with federal and state securities laws; and (iii) the filings
required by the HSR Act.
(c) This Agreement and the Adaptec Ancillary Agreements are, or when
executed by Adaptec and Adaptec Sub will be, valid and binding obligations of
Adaptec and Adaptec Sub, as appropriate, enforceable in accordance with their
respective terms, except as to the effect, if any, of (i) applicable bankruptcy
and other similar laws affecting the rights of creditors generally, (ii) rules
of law governing specific performance, injunctive relief and other equitable
remedies and (iii) the enforceability of provisions requiring indemnification in
connection with the offering, issuance or sale of securities; provided, however,
that the Agreement of Merger will not be effective until filed with the
California Secretary of State.
4.3 No Violation of Existing Agreements. Neither the execution and
delivery of this Agreement nor any Adaptec Ancillary Agreement, nor the
consummation of the transactions contemplated hereby, will conflict with, or
(with or without notice or lapse of time, or both) result in a termination,
breach, impairment or violation of (a) any provision of the Amended and Restated
Articles of Incorporation or Bylaws of Adaptec or Adaptec Sub, as currently in
effect or (b) any federal, state, local or foreign judgment, writ, decree,
order, statute, rule or regulation applicable to Adaptec, Adaptec Sub or their
assets or properties.
4.4 Disclosure. Adaptec has delivered to DKI a disclosure package
consisting of Adaptec's annual report on Form 10-K for its fiscal year ending
March 31, 1996 (the "Fiscal Year End"), all Forms 10-Q and 8-K filed by Adaptec
with the SEC since the Fiscal Year End and up to the date of this Agreement and
all proxy materials distributed to Adaptec's shareholders since the Fiscal Year
End and up to the date of this Agreement (the "Adaptec Disclosure Package").
Adaptec hereby acknowledges that the Adaptec Disclosure Package will be
incorporated in the DKI Shareholder Materials and the DKI Optionholder
Materials. As of the date hereof, the date of the DKI shareholder solicitation
and the Effective Time, the Adaptec Disclosure Package, this Agreement, all
exhibits and schedules hereto, other than the DKI Disclosure Schedule and
Schedules provided with respect to Section 3 hereof, and any certificates or
documents to be delivered by Adaptec to DKI pursuant to this Agreement, when
taken together, do not contain any untrue statement of a material fact or omit
to state any material
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<PAGE> 26
fact necessary in order to make the statements contained herein and therein, in
light of the circumstances under which such statements were made, not
misleading.
4.5 Absence of Certain Changes. Since the Fiscal Year End, there has not
been any change in the financial condition, properties, assets, liabilities,
business or operations of Adaptec or Adaptec Sub which change by itself or in
conjunction with all other such changes, whether or not arising in the Ordinary
Course of Business, has had or will have an Adaptec Material Adverse Effect
thereon except as disclosed in the Adaptec Disclosure Package.
4.6 Brokers' Fees. With the exception of its obligations to Unterberg
Harris, Adaptec and Adaptec Sub have no liability or obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
4.7 Adaptec Options. As of the Effective Time the shares of Adaptec
Common Stock issuable upon exercise of the Adaptec Options will have been
authorized and reserved, and when issued against payment therefore, will be
validly issued, fully paid, non-assessable and free from pre-emptive rights.
4.8 No Intention to Relocate. Adaptec has no current intention to move
DKI more than 30 miles from its current Nashua, New Hampshire location.
5. DKI COVENANTS
During the period (a) with respect to Sections 5.1 through 5.15, from
the date of this Agreement until the Effective Time, and (b) with respect to
Section 5.16, after the Effective Time, DKI covenants and agrees as follows:
5.1 Advice of Changes. DKI will promptly advise Adaptec in writing (a)
of any event occurring subsequent to the date of this Agreement that would
render any representation or warranty of DKI contained in this Agreement, if
made on or as of the date of such event or the Closing Date, untrue or
inaccurate in any material respect and (b) of any Material Adverse Change. To
ensure compliance with this Section 5.1, DKI shall deliver to Adaptec within
fifteen (15) days after the end of each monthly accounting period ending after
the date of this Agreement and before the Closing Date, an unaudited balance
sheet and statement of operations, which financial statements shall be prepared
in accordance with DKI's books and records and generally accepted accounting
principles and shall fairly present the financial position of DKI as of their
respective dates and the results of DKI's operations for the periods then ended.
5.2 Maintenance of Business. DKI will use its best efforts to carry on
and preserve its business and its relationships with customers, suppliers,
employees and others in substantially the same manner as it has prior to the
date hereof. If DKI becomes aware of a material deterioration in the
relationship with any customer, supplier or employee, it will promptly bring
such information to the attention of Adaptec in writing and, if requested by
Adaptec, will exert its best efforts to restore the relationship.
5.3 Conduct of Business. Except as set forth in Schedule 5.3, DKI will
continue to conduct its business and maintain its business relationships in the
Ordinary Course of Business
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and will not, without the prior written consent of Adaptec, do any of the
following except for transactions explicitly contemplated by this Agreement in
connection with the Merger:
(a) incur any indebtedness for borrowed money in an amount exceeding
$25,000 or issue or sell any debt securities;
(b) enter into any transaction not in the Ordinary Course of
Business and not exceeding $25,000 in amount, except the incurrence or payment
of legal and accounting fees in connection with the Merger and the transactions
contemplated hereby;
(c) encumber or permit to be encumbered any of its assets except in
the Ordinary Course of Business consistent with past practice and to an extent
which does not exceed $25,000;
(d) dispose of any of its assets except in the Ordinary Course of
Business consistent with past practice;
(e) enter into any lease or contract for the purchase or sale of any
property, real or personal, except in the Ordinary Course of Business consistent
with past practice and not exceeding $25,000;
(f) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained to the date of
this Agreement so as to have a DKI Material Adverse Effect;
(g) pay any bonus, increased salary or special remuneration to any
officer, employee or consultant or enter into any new employment or consulting
agreement with any such person;
(h) change accounting methods;
(i) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital stock, or redeem or otherwise acquire any of
its capital stock;
(j) amend or terminate any contract, agreement or license to which
it is a party except (i) those amended or terminated in the Ordinary Course of
Business, and (ii) where the effect of such amendment or termination does not
exceed $25,000;
(k) lend any amount to any person or entity, other than (i) advances
for travel and expenses which are incurred in the Ordinary Course of Business,
not in excess of $25,000, and documented by receipts for the claimed amounts or
(ii) any loans pursuant to a DKI 401(k) Plan, if any;
(l) guarantee or act as a surety for any obligation except for the
endorsement of checks and other negotiable instruments in the Ordinary Course of
Business, not in excess of $25,000;
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<PAGE> 28
(m) waive or release any right or claim except in the Ordinary
Course of Business, and where the value of such right/claim waived or released
does not exceed $25,000;
(n) issue or sell any shares of its capital stock of any class
(except upon the exercise of an option or warrant currently outstanding), or any
other of its securities, or issue or create any warrants, obligations,
subscriptions, options, convertible securities, or other commitments to issue
shares of capital stock, or accelerate the vesting of any outstanding option or
other security;
(o) split or combine the outstanding shares of its capital stock of
any class or enter into any recapitalization affecting the number of outstanding
shares of its capital stock of any class or affecting any other of its
securities;
(p) merge, consolidate or reorganize with, or acquire any entity;
(q) amend its Amended and Restated Articles of Incorporation or
Bylaws;
(r) license any of its technology or Intellectual Property except
(i) in the Ordinary Course of Business, and (ii) for consideration not in excess
of $25,000;
(s) agree to any audit assessment by any tax authority or file any
federal or state income or franchise tax return unless copies of such returns
have been delivered to Adaptec for its review prior to filing;
(t) change any insurance coverage or issue any certificates of
insurance except in the Ordinary Course of Business; or
(u) agree to do any of the things described in the preceding clauses
5.3(a) through 5.3(t).
5.4 DKI Shareholder Approval. DKI will hold a special meeting or solicit
written consent of its shareholders at the earliest practicable date to submit
this Agreement, the Merger and related matters for the consideration and
approval of the DKI shareholders. Approval of this Agreement, the Merger and,
related matters will be recommended by DKI's Board of Directors and management,
and DKI's Board of Directors and management will use best efforts to obtain such
approval from all DKI shareholders. Any meeting will be called, held and
conducted, and any proxies or shareholder written consents will be solicited, in
compliance with applicable law. Concurrently with the execution of this
Agreement, DKI will have caused all of the shareholders whose signature line
appears on Exhibit 5.4 to execute an agreement in the form of Exhibit 5.4
agreeing, among other things, to vote in favor of the Merger.
5.5 Shareholder and Optionholder Materials. DKI will send to its
shareholders in a timely manner, for the purpose of considering and voting upon
the Merger, the DKI Shareholder Materials and shall provide a copy of such
material to Adaptec and its counsel. DKI shall be solely responsible for any
statement, information or omission in the DKI Shareholder Materials relating to
it or its affiliates based upon written information furnished by it. DKI will
send to its optionholders in a timely manner, for the purpose of receiving their
consent to the assumption of the DKI Options with Adaptec Options, the DKI
Optionholder Materials in form and substance
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reasonably satisfactory to Adaptec and necessary or desirable to satisfy all
requirements of applicable law, including without limitation, federal
securities law.
5.6 Regulatory Approvals. DKI will execute and file, or join in the
execution and filing, of any application or other document that may be necessary
in order to obtain the authorization, approval or consent of any governmental
body, federal, state, local or foreign which may be reasonably required, or
which Adaptec may reasonably request, in connection with the consummation of the
transactions contemplated by this Agreement, including but not limited to the
filing relating to the HSR Act (the "HSR Filing") pursuant to Section 2.8 of
this Agreement. DKI will use its best efforts to obtain all such authorizations,
approvals and consents.
5.7 No Solicitation. Until September 30, 1996 or the earlier mutual
abandonment of the transactions contemplated by this Agreement, DKI will not,
and will not authorize any officer or director of DKI or any other person on its
behalf to, solicit, encourage, entertain discussions, negotiate or accept any
offer from any party concerning the possible disposition of all or any
substantial portion of DKI's business, assets or capital stock by merger, sale
or any other means or any other transaction that would involve a change in
control of DKI, provided, however, that DKI's Board of Directors shall not be
precluded from responding to an unsolicited offer that is superior to the Merger
terms provided herein, provided the DKI Board of Directors first receives advice
of counsel that under its fiduciary duty it must act upon such offer. DKI will
promptly notify Adaptec in writing of any inquiries or proposals by other
parties.
5.8 Access. Until the Closing, DKI will allow Adaptec and its agents
reasonable access during normal business hours to all files, books, records,
offices and assets of DKI, including, without limitation, any and all
information relating to DKI's taxes, commitments, contracts, leases, licenses,
computer software (including source code), real, personal and intangible
property and financial condition. DKI will cause its accountants to cooperate
with Adaptec and its agents in making available all financial information
reasonably requested, including without limitation the right to examine all
working papers pertaining to all financial statements prepared or audited by
such accountants.
5.9 Satisfaction of Conditions Precedent. DKI will use its best efforts to
satisfy or cause to be satisfied all the conditions precedent which are set
forth in Section 9, and DKI will use its best efforts to cause the transactions
contemplated by this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all consents and authorizations of third
parties and to make all filings with, and give all notices to, third parties
that may be necessary or reasonably required on its part in order to effect the
transactions contemplated hereby.
5.10 Employment: Non-Competition Agreements. DKI shall obtain from each
employee listed on Schedule 5.10 hereto an employment agreement or an
employment offer letter which may include an agreement not to compete with the
business of DKI or Adaptec (or any successor corporations) in substantially the
forms attached to Schedule 5.10, as designated on such Schedule.
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5.11 Blue Sky Laws. DKI shall use its best efforts to assist Adaptec to
the extent necessary to comply with the securities and Blue Sky laws of all
jurisdictions which are applicable in connection with the Merger.
5.12 Amendment and Assumption of Options. DKI and its Board of Directors
will take such actions as are necessary or appropriate to provide for the
assumption of the DKI Options with the Adaptec Options, including without
limitation the obtaining of consents to such assumption by DKI's optionholders
in substantially the form attached hereto as Exhibit 2.3 and such actions as are
necessary or appropriate to provide that the Merger and the transactions
contemplated hereby will not cause accelerated vesting of any DKI Option.
5.13 Prohibited Securities Trading. DKI will take reasonable actions to
prevent trading in Adaptec Common Stock by DKI's officers, directors, employees
and agents that would be based on non-public information.
5.14 Supplements to Disclosure Schedule. From time to time prior to the
Effective Time, DKI will supplement or amend the DKI Disclosure Schedule with
respect to any matter which if existing or occurring or known to DKI at the date
of this Agreement, would have been required to be set forth on such DKI
Disclosure Schedule or which is necessary to correct any information in the DKI
Disclosure Schedule which is rendered inaccurate thereby. No supplement or
amendment to the DKI Disclosure Schedule shall have any effect for the purpose
of determining satisfaction of the condition to Closing set forth in Section 9.1
of this Agreement, but any such supplement or amendment shall be deemed to be
incorporated into DKI's representations and warranties in the event of the
Closing of the Merger.
5.15 Amendment of Option Plan. DKI shall amend the DKI Plan and receive
the approval of (i) DKI's Board of Directors and (ii) all optionees holding
outstanding DKI Options, to amend Article Two, Sections III.A and III.B of the
DKI Plan to provide for the assumption of options in a merger in the manner
contemplated in this Agreement. In connection with the approval sought in (ii)
above, DKI shall forward the DKI Optionholder Materials to each holder of DKI
Options prior to approval by such Optionholder, which disclosure statement shall
comply with all applicable laws and contained no material misstatements or
omissions.
5.16 Further Assurances. In case at any time after the Effective Time any
further action is reasonable and necessary or desirable to carry out the
purposes of this Agreement or to vest the surviving corporation with full title
to all properties, assets, rights, approvals, immunities and franchises of DKI,
the officers and directors of DKI shall take all such reasonable and necessary
action.
6. ADAPTEC COVENANTS
During the period (a) with respect to Sections 6.1 through 6.6, from the
date of this Agreement until the Effective Time, and (b) with respect to Section
6.7, after the Effective Time, Adaptec covenants and agrees as follows:
6.1 Advice of Changes. Adaptec will promptly advise DKI in writing (a) of
any event occurring subsequent to the date of this Agreement that would render
any representation or warranty of Adaptec contained in this Agreement, if made
on or as of the date of such event or
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the Closing Date, untrue or inaccurate in any material respect and (b) of any
Material Adverse Change in Adaptec's business, results of operations or
financial condition.
6.2 Regulatory Approvals. Adaptec will execute and file, or join in the
execution and filing, of any application or other document that may be necessary
in order to obtain the authorization, approval or consent of any governmental
body, federal, state, local or foreign, which may be reasonably required, or
which DKI may reasonably request, in connection with the consummation of the
transactions contemplated by this Agreement, including but not limited to the
HSR Filing pursuant to Section 2.8 of this Agreement. Adaptec will use its best
efforts to obtain all such authorizations, approvals and consents.
6.3 Blue Sky Laws. Adaptec shall take such steps as may be necessary to
comply with the securities and Blue Sky laws of all jurisdictions which are
applicable in connection with the Merger.
6.4 Materials. Adaptec will furnish DKI with all information concerning
Adaptec, its subsidiaries, directors, officers, shareholders and the Adaptec
Options as may be reasonably necessary for the DKI Shareholder Materials or the
DKI Optionholder Materials. Adaptec shall be responsible for any statement,
information or omission in any material Adaptec provides to DKI specifically for
inclusion in the DKI Shareholder Materials or DKI Optionholder Materials.
6.5 Subsequent SEC Filings. Adaptec shall provide DKI with a true and
complete copy of any document it files with the SEC prior to the Effective Time.
6.6 Nasdaq National Market. Adaptec will file an additional notification
with The Nasdaq National Market to approve for listing, subject to official
notice of its issuance, the shares of Adaptec Common Stock to be issued upon
exercise of the Adaptec Options. Adaptec shall exercise reasonable good faith
efforts to cause such shares to be approved for listing on The Nasdaq National
Market, subject only to official notice of issuance, prior to the Effective
Time.
6.7 Continuation of Benefits. Adaptec shall make available to employees of
DKI who become employed by Adaptec after the Merger the same Employee Benefit
Plans as are generally available to similarly situated employees of Adaptec,
and, where Adaptec deems appropriate, Adaptec will take into consideration prior
service with DKI when determining benefits available to such former employees of
DKI.
7. CLOSING MATTERS
7.1 The Closing. Subject to termination of this Agreement as provided in
Section 10 below, the closing of the Merger and the transactions contemplated
hereby (the "Closing") will take place at the offices of Fenwick & West LLP, Two
Palo Alto Square, Palo Alto, California 94306 at 9:00 a.m., local time on
September __, 1996 or, if all conditions to closing have not been satisfied or
waived by such date, such other place, time and date as DKI and Adaptec may
mutually select (the "Closing Date"). Concurrently with the Closing, the
Agreement of Merger will be filed in the office of the California Secretary of
State. The Agreement of Merger provides that the Merger shall become effective
upon filing.
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7.2 Exchange of Consideration.
(a) As of the Effective Time, each share of DKI Common Stock or DKI
Preferred Stock that is outstanding immediately prior thereto, other than
Dissenting Shares, will, by virtue of the Merger and without further action,
cease to exist and will be converted into the right to receive the consideration
specified in Section 2.2 hereof.
(b) At the Closing, each holder of shares of DKI Stock will
surrender the certificate(s) for such shares (the "DKI Certificates"), duly
endorsed as requested by Adaptec, to Adaptec for cancellation and Adaptec will
issue to each tendering holder of DKI Certificate(s) the Per Share Cash
Consideration less the Per Share Holdback Amount, multiplied by the number of
shares set forth on such DKI Certificates, to which such holder is entitled
pursuant to Section 2.2 (each such payment to each tendering holder of DKI
Certificates, an "Initial Payment").
(c) To the extent the Holdback Amount is not used to satisfy Claims,
as defined below, pursuant to Sections 3, 5 or 11 hereof, the Holdback Amount,
less any amount which is the subject of an outstanding Claim, will be paid,
promptly after the completion of the Holdback Period, to all tendering holders
of DKI Certificates pro rata according to the amount of the Initial Payment
received by such tendering holder (or in the event of an assignment, by the
initial holder who received the initial payment) (such pro rata payment, the
"Holdback Payment"). To the extent any portion of the Holdback Amount is not
distributed after the completion of the Holdback Period because of outstanding
unresolved Claims, any portion of the Holdback Amount remaining after resolution
of such Claims shall be paid to all tendering holders of DKI Certificates pro
rata according to the amount of the Initial Payment received by such tendering
holder. The right to receive payments pursuant to this Section 7.2(c) and
Section 2.2(b) shall not be assignable or transferable, except that any Person
may assign all such rights of such Person, in their entirety, upon written
notice to Adaptec.
(d) With respect to any portion of the Holdback Amount which is
deducted as a result of a Claim, such portion shall earn simple interest at the
rate of five percent (5%) per annum, from the Effective Time through the earlier
of (i) the date of the deduction or (ii) the end of the Holdback Period. Any
portion of the Holdback Amount which is not deducted as a result of a Claim
shall earn simple interest at a rate of five percent (5%) per annum from the
Effective Time through the end of the Holdback Period. Any interest earned on
the Holdback Amount shall be deemed to be included in the definition of Holdback
Amount. Interest shall be calculated on the basis of a 365-day year.
(e) All cash amounts delivered upon the surrender of DKI
Certificates in accordance with the terms hereof will be deemed to have been
delivered in full satisfaction of all rights pertaining to such DKI Stock. If,
after the Effective Time, DKI Certificates are presented for any reason, they
will be canceled and exchanged for consideration as provided in this Section
7.2.
(f) Until certificates representing DKI Stock outstanding prior to
the Merger are surrendered pursuant to Section 7.2(b) above, such certificates
will be deemed, for all purposes, to evidence the right to receive the
consideration set forth in this Section 7.2.
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7.3 Assumption of Options. At the Closing, each holder of a DKI Option
will consent to the amendment of such DKI Option and the assumption of such
option by Adaptec, and such DKI optionholder will execute a consent to
assumption in substantially the form as Exhibit 2.3 hereto.
8. CONDITIONS TO OBLIGATIONS OF DKI
DKI's obligations hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing, of each of the following conditions (any
one or more of which may be waived by DKI):
8.1 Accuracy of Representations and Warranties. The representations and
warranties of Adaptec set forth in Section 4 shall be true and accurate in all
material respects on and as of the Closing with the same force and effect as if
they had been made at the Closing, and DKI shall receive a certificate to such
effect executed by Adaptec's President or Chief Financial Officer.
8.2 Covenants. Adaptec shall have performed and complied in all material
respects with all of its covenants contained herein required to be performed on
or before the Closing, and DKI shall receive a certificate to such effect signed
by Adaptec's President or Chief Financial Officer.
8.3 Compliance with Law. There shall be no order, decree, or ruling by any
court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
8.4 Government Consents. There shall have been obtained at or prior to the
Closing Date such permits or authorizations, and there shall have been taken
such other action, as may be required to consummate the Merger by any regulatory
authority having jurisdiction over the parties and the actions herein proposed
to be taken, including but not limited to requirements under applicable federal
and state securities laws.
8.5 Opinion of Adaptec's Counsel. DKI shall have received from counsel to
Adaptec an opinion in form and substance reasonably satisfactory to DKI and its
counsel.
8.6 Documents. DKI shall have received all written consents, assignments,
waivers, authorizations or other certificates reasonably deemed necessary by
DKI's legal counsel for DKI to consummate the transactions contemplated hereby.
8.7 Requisite Approval. The principal terms of this Agreement and the
Agreement of Merger shall have been approved and adopted by Adaptec's Board of
Directors, as required by applicable law and Adaptec's Articles of Incorporation
and Bylaws.
8.8 Hart-Scott-Rodino Compliance. All applicable waiting periods under the
HSR Act shall have expired or early termination shall have been granted by both
the Federal Trade Commission and the United States Department of Justice.
8.9 Employment Agreements. DKI or the appropriate employees shall have
received copies of the employment agreements set forth in Section 5.11 hereof
executed by Adaptec.
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8.10 Nasdaq Additional Shares Notification. The Adaptec Common Stock to be
issued pursuant to the exercise of the Adaptec Options shall have been approved
for quotation on the Nasdaq National Market, subject only to official notice of
issuance by Adaptec.
8.11 Per Share Cash Consideration. Adaptec shall have made provisions to
DKI's reasonable satisfaction for the delivery at the Closing by cashier's check
or in immediately available funds (which may be effected the following day if
not practicable on the Closing Date) of the Per Share Cash Consideration less
the Per Share Holdback Amount for each share of DKI Common Stock being exchanged
in connection with the Merger and with respect to which a stock certificate and
all documentation to be signed by the holder of such share has been surrendered
to Adaptec.
9. CONDITIONS TO OBLIGATIONS OF ADAPTEC
The obligations of Adaptec hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing, of each of the following conditions (any
one or more of which may be waived by Adaptec):
9.1 Accuracy of Representations and Warranties. The representations and
warranties of DKI set forth in Section 3 shall be true and accurate on and as of
the Closing with the same force and effect as if they had been made at the
Closing, and Adaptec shall receive a certificate to such effect executed by
DKI's President and Chief Financial Officer.
9.2 Covenants. DKI shall have performed and complied with all of its
covenants contained herein required to be performed on or before the Closing,
and Adaptec shall receive a certificate to such effect signed by DKI's President
and Chief Financial officer.
9.3 Absence of Material Adverse Change. There shall not have been, in the
reasonable judgment of the Board of Directors of Adaptec, any Material Adverse
Change to DKI.
9.4 Compliance with Law. There shall be no order, decree, or ruling by any
court or governmental agency or thereof, or any other fact or circumstance,
which would prohibit or render illegal the transactions contemplated by this
Agreement.
9.5 Government Consents. There shall have been obtained at or prior to the
Closing Date such permits or authorizations, and there shall have been taken
such other action, as may be required to consummate the Merger by any regulatory
authority having jurisdiction over the parties and the actions herein proposed
to be taken, including but not limited to requirements under applicable federal
and state securities laws.
9.6 Opinion of DKI's Counsel. Adaptec shall have received from counsel to
DKI an opinion in form and substance reasonably satisfactory to Adaptec and its
counsel.
9.7 Consents. Adaptec shall have received duly executed copies of all
material third-party consents, approvals, assignments, waivers, authorizations
or other certificates contemplated by this Agreement or reasonably deemed
necessary by Adaptec's legal counsel to provide for the continuation in full
force and effect of any and all material contracts, licenses, including without
limitation those listed on Schedule 3.16(c) hereof, and leases of DKI and for
Adaptec to
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consummate the transactions contemplated hereby in form and substance reasonably
satisfactory to Adaptec, except for such thereof as Adaptec and DKI shall have
agreed shall not be obtained.
9.8 No Litigation. No litigation or proceeding shall be threatened or
pending for the purpose or with the probable effect of enjoining or preventing
the consummation of any of the transactions contemplated by this Agreement, or
which could be reasonably expected to have a material adverse effect on the
present or future operations or financial condition of DKI.
9.9 Requisite Approvals. The principal terms of this Agreement and the
Agreement of Merger and the Merger shall have been affirmatively approved and
adopted by each of DKI's shareholders and by DKI's Board of Directors, with no
shareholders dissenting therefrom.
9.10 Due Diligence. Adaptec shall have completed to its satisfaction its
due diligence investigations of DKI and its business, including without
limitation, legal, financial, tax and technical reviews of DKI, and shall be
satisfied, in its sole discretion, with the results of such reviews and
investigations.
9.11 Employment and Non-Competition Agreements. Adaptec shall have
received executed copies of the employment agreements, employment offer letters
and non-competition agreements set forth in Section 5.10 hereof to Adaptec's
satisfaction. Adaptec shall have received confirmation, to its satisfaction,
that the employees of DKI intend to continue their employment with DKI
following the Merger.
9.12 DKI Plan Matters. The DKI Plan shall have been amended pursuant to
Section 5.15 to Adaptec's reasonable satisfaction and each holder of a DKI
Option shall have executed a consent in substantially the form as Exhibit 2.3.
9.13 Hart-Scott-Rodino Compliance. All applicable waiting periods under
the HSR Act shall have expired or early termination shall have been granted by
both the Federal Trade Commission and the United States Department of Justice.
9.14 Termination of Rights. Any registration rights, rights of refusal,
rights to any liquidation preference, or redemption rights of any DKI
shareholder shall have been terminated or waived as of the Closing.
9.15 FIRPTA: Tax Withholding. Adaptec, as agent for the shareholders of
DKI, shall have received (i) a properly executed Foreign Investment and Real
Property Tax Act of 1980 ("FIRPTA") Notification Letter, in form and substance
satisfactory to Adaptec, which states that shares of DKI Stock do not constitute
"United States real property interests" under Section 897(c) of the Code, for
purposes of satisfying Adaptec's obligations under Treasury Regulation Section
1.14452(c)(3), and (ii) all such properly completed and executed W-9 or related
forms from each DKI shareholder required to notify Adaptec of any federal tax
withholding obligation in connection with the Initial Payment and/or the
Holdback Payment to such DKI shareholder.
9.16 Internal Revenue Service Notification. DKI shall have provided
notification to the Internal Revenue Service required pursuant to Treasury
Regulation Section 1.897-2(h)(2).
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9.17 Resignation of Directors. The directors of DKI in office
immediately prior to the Effective Time of the Merger shall have resigned as
directors of the surviving corporation of the Merger effective as of the
Effective Time of the Merger.
9.18 Satisfactory Form of Legal and Accounting Matters. The form,
scope and substance of all legal and accounting matters contemplated hereby and
all closing documents and other papers delivered hereunder shall be acceptable
to Adaptec's counsel, or Adaptec's financial advisors, specifically including
written confirmation by Adaptec's financial advisor that all issues relating to
the accounting treatment of DKI's in-process research and development have been
resolved to such Adaptec financial advisor's satisfaction.
9.19 Indemnification Letter Agreement. DKI shall have obtained from
each of DKI's shareholders an executed letter agreement, in substantially the
form attached hereto as Exhibit 9.19 (the "Indemnification Letter").
9.20 NFT Note. NFT shall have paid the entire outstanding principal
amount under the NFT Note, together with all interest accrued thereon, or DKI
shall have made provisions for the repayment of such note to Adaptec's
satisfaction.
9.21 DKI Stock Certificates. All stock certificates representing
Outstanding DKI Stock shall have been delivered to Adaptec properly endorsed
for transfer to Adaptec's satisfaction.
10. TERMINATION OF AGREEMENT
10.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time:
(a) by mutual consent of Adaptec and DKI;
(b) by DKI, if the conditions set forth in Section 8 are not
complied with or performed and such noncompliance or nonperformance has not
been cured or eliminated (or by it nature cannot be cured or eliminated) by
Adaptec on or before October 31, 1996; or
(c) by Adaptec, if the conditions set forth in Section 9 are
not complied with or performed and such noncompliance or nonperformance has not
been cured or eliminated (or by it nature cannot be cured or eliminated) by DKI
on or before October 31, 1996.
Any termination of this Agreement under this Section 10.1 will be
effective by the delivery of notice of the terminating party to the other
party hereto.
10.2 No Liability. Any termination of this Agreement pursuant to this
Section 10 will be without further obligation or liability upon any party in
favor of the other party hereto other than the obligations provided in Sections
5.4, 5.7, 11, and 12 of this Agreement; provided, however, that nothing herein
will limit the obligations of DKI and Adaptec to use their best efforts to
cause the Merger to be consummated, as set forth above.
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11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING
COVENANTS
11.1 Survival of Representations. All representations, warranties and
covenants of Adaptec and DKI contained in this Agreement will remain operative
and in full force and effect, regardless of any investigation made by or on
behalf of the parties to this Agreement, and will survive the Effective Time for
a period of eighteen (18) months, except that any representation with respect
to tax matters shall survive the Effective Time and will continue until the
expiration of its statute of limitations.
11.2 Agreement to Indemnify. Subject to the limitations set forth in
this Section 11, holders of the Outstanding DKI Stock immediately prior to the
Effective Time (by executing the Indemnification Letter pursuant to Section 9.19
hereof) (each, an "Indemnifying Shareholder") will jointly and severally
indemnify and hold harmless Adaptec and its officers, directors, agents and
employees, and each person, if any, who controls or may control Adaptec within
the meaning of the Securities Act (hereinafter referred to individually as an
"Indemnified Person" and collectively as "Indemnified Persons") from and against
any and all claims, demands, actions, causes of actions, losses, costs,
damages, liabilities and expenses, including without limitation, reasonable
legal fees and costs (hereinafter referred to as "Damages"):
(a) Arising out of any misrepresentation or breach of or
default in connection with any of the representations, warranties and covenants
given or made by DKI in this Agreement or any certificate, document or
instrument delivered by or on behalf of DKI pursuant hereto (other than with
respect to specific changes of which DKI has advised Adaptec in a written
update to Schedule 3 delivered prior to the Closing);
(b) Resulting from any failure of any DKI shareholders to have
good, valid and marketable title to the issued and outstanding DKI Stock held by
such shareholders, free and clear of all liens, claims, pledges, options,
adverse claims, assessments or charges of any nature whatsoever, or to have full
right, capacity and authority to vote such DKI Stock in favor of the Merger and
the other transactions contemplated by the Agreement of Merger; or
(c) Consisting of legal and accounting fees, costs and/or
expenses incurred by DKI in connection with the Merger and the transactions
contemplated hereby in excess of the DKI Legal/Accounting Fee Cap (as defined in
Section 12.8 hereof):
(d) Relating to the termination or severance of any DKI
officer or other employee; or
(e) Resulting from any unreasonable delay in the release of
Adaptec products, which, and only to the extent such, delay is attributable to
DKI software. As used in the previous sentence, "unreasonable delay" shall be
assessed by reference to the milestone schedule in Schedule 3.16(f) hereof.
11.3 Limitations. Except with respect to Sections 11.2(c) and 11.2(d),
the indemnification provided for in Section 11 will not apply unless and until
the aggregate Damages for which one or more Indemnified Persons seek
indemnification under Section 11 exceeds $50,000, in which event the
indemnification provided for in Section 11 will include all Damages
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in excess of such $50,000. Except in the event of fraud or breach of a
representation regarding tax matters, the aggregate Damages for which the
Indemnifying Shareholders will be liable hereunder shall not exceed the Holdback
Amount.
11.4 Procedure for Asserting Holdback Claims. If Adaptec wishes to
assert a claim against the Holdback Amount for indemnification pursuant to this
Section 11 (a "Claim"), Adaptec shall deliver to NFT, as agent of the
Indemnifying Shareholders (the "Shareholders' Agent"), a certificate signed by
an officer of Adaptec (a "Claim Certificate") providing notice of such claim
and specifying in reasonable detail the manner in which the Claim was paid,
incurred or otherwise arose, and the nature of the breach, misrepresentation or
other matter to which such Claim is related. Adaptec shall act reasonably and
in good faith in preparing any such Claim Certificate and in specifying any
alleged Claim. If the Shareholders' Agent disputes the Claim, the Shareholders'
Agent shall notify Adaptec of such disagreement within ten (10) days of the
receipt from Adaptec of the Claim Certificate. Thereupon, Adaptec and the
Shareholders' Agent will, during the thirty (30) day period following delivery
of the Claim Certificate, negotiate in good faith to resolve their differences
with respect to the Claim. Upon the expiration of such 30-day period, Adaptec
shall deduct from the Holdback Amount the amount of the original Claim or, if
Adaptec and the Shareholders' Agent have agreed on a different amount,
reflected in a written memorandum signed by both parties, such different amount.
If the Shareholders' Agent does not object in the manner set forth above to the
Claim presented in the Claim Certificate, Adaptec shall deduct the amount of the
Claim from the Holdback Amount.
11.5 Matters Involving Third Parties. If any third party shall notify
Adaptec or any Indemnified Person with respect to any matter (a "Third Party
Claim") which may give rise to a claim for indemnification against the
Indemnifying Shareholders, Adaptec or the Indemnified Person shall promptly
notify the Shareholders' Agent in writing; provided, however, that no delay on
the part of Adaptec or the Indemnified Person in notifying the Shareholders'
Agent shall relieve the Indemnifying Shareholders from any obligation hereunder.
Adaptec or the Indemnified Person may defend against, and consent to the entry
of any judgment or enter into any settlement with respect to, the Third Party
Claim in any manner Adaptec or such Indemnified Person reasonably deems
appropriate and the Indemnifying Shareholders will remain responsible for any
damages suffered by the Indemnified Person resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this Section 11. With respect to the defense of any Third
Party Claim, Adaptec or the Indemnified Person shall use reasonable efforts to
consider strategy and other suggestions of the Indemnifying Shareholders.
Counsel for the Indemnifying Shareholders shall be permitted to monitor
Adaptec's or the Indemnified Person's defense of a Third Party Claim for the
purpose of advising the Indemnifying Shareholders of the status and progress of
the defense. Any such activity shall be at the sole expense of the Indemnifying
Shareholders.
11.6 No Indemnity for Corporate Agents. Each of the Indemnifying
Shareholders agrees that such Indemnifying Shareholder will not make any claim
for indemnification against DKI by reason of the fact that such Indemnifying
Shareholder was a director, officer, employee or agent of any such entity or was
serving at the request of any such entity as a partner, trustee, director,
officer, employee or agent of another entity (whether such claim is for
judgments, damages, penalties, fines, costs, amounts paid in settlement, losses,
expenses or otherwise and whether such claim is pursuant to any statute, charter
document, bylaw, agreement, or otherwise)
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with respect to any action, suit, proceeding, complaint, claim or demand brought
by Adaptec against the Indemnifying Shareholder (whether such action, suit,
proceeding, complaint, claim or demand is pursuant to this Agreement, applicable
law or otherwise).
11.7 Shareholders' Agent.
(a) Authority. For purposes of Section 11, NFT shall act as
the Shareholders' Agent on behalf of holders of Outstanding DKI Stock or their
successors or assigns ("Former DKI Shareholders"), subject to the provisions
hereof. The Shareholders' Agent shall keep the Former DKI Shareholders
reasonably informed of his decisions of a material nature. The Shareholders'
Agent is authorized to take any action deemed by him appropriate or reasonably
necessary to carry out the provisions of Section 11, and is authorized to act on
behalf of the Former DKI Shareholders for all purposes related to Section 11,
with such powers as are expressly delegated to the Shareholders' Agent by the
terms of this Agreement and the DKI Ancillary Documents, together with such
other powers as are reasonably incidental thereto. In addition the Shareholders'
Agent is authorized to accept service of process upon the Former DKI
Shareholders. Shareholders' Agent shall not have any duties or responsibilities
except those expressly set forth in this Agreement or in any other DKI Ancillary
Documents, be a trustee for any Former DKI Shareholder or have any fiduciary
duty to any Former DKI Shareholder. All decisions and actions of the
Shareholders' Agent shall be binding and conclusive upon the Former DKI
Shareholders and may be relied upon by Adaptec and DKI.
(b) Standard of Conduct. Neither the Shareholders' Agent nor
any of its partners, members, directors, officers, employees or agents shall be
liable to any of the Former DKI Shareholders for any error of judgment, act done
or omitted by him, or mistake of fact or law in connection with his services
pursuant to Section 11, unless caused by his or its own gross negligence or
willful misconduct. In taking any action or refraining from taking any action
whatsoever the Shareholders' Agent shall be protected in relying upon any
notice, paper or other document reasonably believed by him to be genuine, or
upon any evidence reasonably deemed by him to be sufficient. Shareholders' Agent
shall not be required to take any action which is contrary to this Agreement or
any other DKI Ancillary Document or applicable law. The Shareholders' Agent may
consult with counsel in connection with his duties and shall be fully protected
in any act taken, suffered or permitted by him in good faith in accordance with
the advice of counsel. In connection with his services under Section 11, the
Shareholders' Agent shall not be responsible for determining or verifying the
authority of any person acting or purporting to act on behalf of any party to
this Agreement.
(c) Indemnification. Each Former DKI Shareholder agrees to
indemnify Shareholders' Agent, ratably in accordance with their pro rata share
of the Holdback Amount for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may at any time be
imposed on, incurred by or asserted against Shareholders' Agent in any way
relating to or arising out of this Agreement or any documents contemplated by
or referred to herein or therein or the transactions contemplated hereby or
thereby or the enforcement of any of the terms hereof or thereof or of any
such other documents; provided, however, that no Former DKI Shareholder shall
be liable for any of the foregoing to the extent they arise from Shareholders'
Agent's gross negligence or willful misconduct. Shareholders' Agent shall be
fully justified in refusing to take
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or to continue to take any action hereunder unless it shall first be indemnified
to its reasonable satisfaction by the Former DKI Shareholders against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
(d) Resignation or Removal of the Shareholder Agent. Subject
to the appointment and acceptance of a successor Shareholders' Agent as provided
below, Shareholders' Agent may resign at any time thirty (30) days subsequent to
giving notice thereof to the Former DKI Shareholders and Shareholders' Agent may
be removed at any time with or without cause by action of the Former DKI
Shareholders who represented a majority of the rights to the Holdback Amount.
Upon any such resignation or removal, the Former DKI Shareholders shall have the
right to appoint a successor Shareholders' Agent, which Shareholders' Agent
shall be reasonably acceptable to Adaptec. If no successor Shareholders' Agent
shall have been appointed by the Former DKI Shareholders and accepted such
appointment within twenty (20) days after the retiring Shareholders' Agent
giving of Notice of Resignation or the Former DKI Shareholders' removal of the
Shareholders' Agent, then the retiring or removed Shareholders' Agent may, on
behalf of the Former DKI Shareholders' appoint a successor which shall be
reasonably acceptable to Adaptec. Upon the acceptance of any appointment as
Shareholders' Agent hereunder, such successor Shareholders' Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring or removed the Shareholders' Agent, and the retiring
or removed Shareholders' Agent shall be discharged from its duties and
obligations hereunder. After any retiring Shareholders Agent's resignation or
removal hereunder as the Shareholders' Agent, the provisions of this Section
11.7 shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Shareholders' Agent.
(e) Agent in its Individual Capacity. Shareholders' Agent, to
the extent it was a Former DKI Shareholder, shall have the same rights and
powers under this Agreement as any other Former DKI Shareholder and may exercise
the same as though it were not Shareholders' Agent, and the terms "Former DKI
Shareholder" or "Former DKI Shareholder" shall include Shareholders' Agent in
its capacity as such.
11.8 Non-Exclusive Remedy. Except in the event of fraud or breach of a
representation regarding tax matters, each Indemnifying Shareholder's
indemnification obligations set forth herein shall be limited to such
Indemnifying Shareholder's pro rata portion of the Holdback Amount and the
Holdback Amount shall be Adaptec's exclusive remedy against the Indemnifying
Shareholder with respect to such obligation. In the event of fraud or a breach
of a representation regarding tax matters, if the Holdback Amount shall become
depleted. Adaptec and all other Indemnified Persons shall have all available
remedies under law or equity against the Indemnifying Shareholders.
12. MISCELLANEOUS
12.1 Governing Law. The internal laws of the State of
California (irrespective of its choice of law principles) will govern the
validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties hereto.
12.2 Assignment: Binding Upon Successors and Assigns. Neither party
hereto may assign any of its rights or obligations hereunder without the prior
written consent of the other
- 40 -
<PAGE> 41
party hereto. This Agreement will be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
12.3 Severability. If any provision of this Agreement, or the
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
12.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
both parties reflected hereon as signatories.
12.5 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the exercise of any other.
12.6 Amendment. Any term or provision of this Agreement may be amended,
and the observance of any term 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 thereby. The Agreement may be amended by
the parties hereto at any time before or after approval of DKI's shareholders,
but, after such approval, no amendment will be made which by applicable law
requires the further approval of DKI's shareholders without obtaining such
further approval.
12.7 No Waiver. The waiver by a party of any breach hereof or default
in the performance hereof will not be deemed to constitute a waiver of any other
default or any succeeding breach or default. The failure of any party to enforce
any of the provisions hereof will not be construed to be a waiver of the right
of such party thereafter to enforce such provisions.
12.8 Expenses. Each party will bear its respective expenses and legal
fees incurred with respect to this Agreement, and the transactions contemplated
hereby; provided, however, that if the Merger is consummated Adaptec will pay
promptly upon demand the reasonable investment banking, legal and accounting
fees and expenses incurred by DKI in this transaction, not to exceed in the
aggregate $50,000.00 (the "DKI Legal/Accounting Fee Cap"). Any such fees and
expenses in excess of that amount shall be recoverable by Adaptec in accordance
with Section 11.
12.9 Attorneys' Fees. Should suit be brought to enforce or interpret
any part of this Agreement, the prevailing party will be entitled to recover,
as an element of the costs of suit and not as damages, reasonable attorneys'
fees to be fixed by the court (including without limitation,
-41-
<PAGE> 42
costs, expenses and fees on any appeal). The prevailing party will be entitled
to recover its costs of suit, regardless of whether such suit proceeds to final
judgment.
12.10 Notices. Any notice or other communication required or
permitted to be given under this Agreement will be in writing, will be
delivered (i) personally, (ii) by registered or certified mail, postage prepaid,
(iii) via overnight delivery by a nationally recognized courier service, or (iv)
via facsimile with a copy to follow the same day pursuant to methods (i), (ii),
or (iii), and will be deemed given upon delivery, if delivered personally, three
days after deposit in the mails, if mailed, one day after deposit for overnight
delivery, if sent by overnight courier service, or when sent, if sent by
facsimile, to the following addresses:
(i) If to Adaptec:
Adaptec, Inc.
691 South Milpitas Blvd.
Milpitas, CA 95305
Attention: Alicia J. Moore
Vice President, General Counsel
Fax: 408-957-7137
With a copy to:
Dennis R. DeBroeck, Esq.
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Fax: 415-494-1417
(ii) If to DKI:
Data Kinesis, Inc.
85 Pine Street Extension
Nashua, NH 03060
Attention: Richard L. Napolitano
Fax: 603-577-9827
With a copy to:
J. Matthew Lyons, Esq.
Brobeck, Phleger & Harrison LLP
301 Congress Avenue, Suite 1200
Austin, TX 78701
Fax: 512-477-5813
-42-
<PAGE> 43
(iii) If to Shareholders' Agent:
NFT Ventures Inc.
12950 Saratoga Avenue, Suite A
Saratoga, CA 95070
Fax: 408-252-0757
Attn: Mark Rogers
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 12.10.
12.11 Construction of Agreement. This Agreement has been negotiated by
the respective parties hereto and their attorneys and the language hereof will
not be construed for or against either party. A reference to a Section or an
exhibit will mean a Section in, or exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference purposes
only and will not in any manner limit the construction of this Agreement which
will be considered as a whole.
12.12 No Joint Venture. Nothing contained in this Agreement will be
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party will have
the power to control the activities and operations of any other and their status
is, and at all times, will continue to be, that of independent contractors with
respect to each other. No party will have any power or authority to bind or
commit any other. No party will hold itself out as having any authority or
relationship in contravention of this Section.
12.13 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
12.14 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, partner or any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof will be personal solely between the parties
to this Agreement.
12.15 Public Announcement. DKI will not make any public announcement of
the Merger without Adaptec's prior written consent. Adaptec may, after
consulting with DKI, issue such press releases, and make such other disclosures
regarding the Merger, as it determines are required under applicable securities
laws or regulatory rules.
12.16 Confidentiality. DKI and Adaptec each recognize that they have
received and will receive confidential information concerning the other during
the course of the Merger negotiations and preparations. Accordingly, Adaptec and
DKI each agrees (a) to use its respective best efforts to prevent the
unauthorized disclosure of any confidential information concerning the other
that was or is disclosed during the course of such negotiations and
- 43 -
<PAGE> 44
preparations and is clearly designated in writing as confidential at the time
of disclosure, and (b) to not make use of or permit to be used any such
confidential information other than for the purpose of effectuating the Merger
and related transactions. The obligations of this section will not apply to
information that (i) is or becomes part of the public domain (other than by the
other party's unauthorized or wrongful disclosure), (ii) is disclosed by the
disclosing party to third parties without restrictions on disclosure, (iii) is
received by the receiving party from a third party without breach of a
nondisclosure obligation to the other party or (iv) is required to be disclosed
by law. In the event of the termination of this Agreement prior to the Closing
of the Merger. Adaptec on the request of DKI, shall return any documents, files
diskettes or other tangible property received by Adaptec in the course of its
due diligence investigation and shall return or destroy any copies (including
electronic files) of such documents and tangible property and any copies of
software received by Adaptec; provided however, that this sentence shall not
restrict Adaptec's access to any property pursuant to any other outstanding
agreement between Adaptec and DKI. This agreement regarding confidentiality
shall be in addition to, and not in limitation of, that certain Master Mutual
Nondisclosure Agreement dated as of October 10, 1994 between Adaptec and DKI.
12.17 Entire Agreement. This Agreement and the exhibits hereto
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto including the Letter of
Intent. The express terms hereof control and supersede any course of performance
or usage of the trade inconsistent with any of the terms hereof.
- 44 -
<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ADAPTEC, INC. DATA KINESIS, INC.
a California corporation a California corporation
By: By:
------------------------------- -------------------------------
Its: Its:
------------------------------ ------------------------------
ADAPTEC ACQUISITION CORPORATION
a California corporation
By:
-------------------------------
Its:
------------------------------
The undersigned is executing this Agreement for the purpose of
accepting its appointment as Shareholders' Agent pursuant to the terms of
Section 11.7 hereof.
NET VENTURES, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
-45-
<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ADAPTEC, INC. DATA KINESIS, INC.
a California corporation a California corporation
By: /s/ By:
--------------------------------- --------------------------------
Its: Vice President and Treasurer Its:
-------------------------------- -------------------------------
ADAPTEC ACQUISITION CORPORATION
a California corporation
By: /s/
---------------------------------
Its: Secretary
--------------------------------
The undersigned is executing this Agreement for the purpose of accepting
its appointment as Shareholders' Agent pursuant to the terms of Section 11.7
hereof.
NFT VENTURES, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
-45-
<PAGE> 47
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ADAPTEC, INC. DATA KINESIS, INC.
a California corporation a California corporation
By: By: /s/
------------------------------ --------------------------------
Its: Its: President/CTO
----------------------------- -------------------------------
ADAPTEC ACQUISITION CORPORATION
a California corporation
By:
------------------------------
Its:
-----------------------------
The undersigned is executing this Agreement for the purpose of
accepting its appointment as Shareholders' Agent pursuant to the terms of
Section 11.7 hereof.
NFT VENTURES, INC.
By: /s/ Mark Rogers
------------------------------
Name: Mark Rogers
----------------------------
Title: Secretary/Treasurer
---------------------------
-45-
<PAGE> 48
Adaptec, Inc.
August __, 1996
Page 2
(v) agrees to keep in confidence and not to disclose to any party,
other than the undersigned's lawyer, accountant, financial or other
similar advisors, the existence or terms of the Plan, until such time
as, and only to the extent that, such information is publicly disclosed
by Adaptec; and
(vi) represents that it has not traded in any securities of Adaptec
since June 3, 1996 and agrees not to trade in any securities of Adaptec
until the earlier of the Effective Time or the termination of the
Merger in accordance with the terms of the Plan.
Any capitalized terms not otherwise defined herein shall have the
definitions set forth in the Plan. This letter may be signed in counterparts,
each of which shall be enforceable against the party or parties signing such
counterpart. Upon receipt by Adaptec of signatures for all DKI shareholders
whose name appears below, the letter dated August 3, 1996 from such DKI
shareholders to Adaptec shall terminate.
Very truly yours,
NFT Ventures, Inc.
By: /s/ MARK ROGERS
-----------------------------
Title: Secretary/Treasurer
--------------------------
Print Name: MARK ROGERS
---------------------
/s/ RICHARD L. NAPOLITANO
---------------------------------
Richard L. Napolitano
/s/ RICHARD A. DWYER
---------------------------------
Richard A. Dwyer
'
/s/ CHET JUSCZAK
---------------------------------
Chet Jusczak
/s/ BOB PERET
---------------------------------
Bob Peret
/s/ BRYAN PANNER
---------------------------------
Bryan Panner
46
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUN-29-1996
<PERIOD-END> SEP-27-1996
<CASH> 52817
<SECURITIES> 158014
<RECEIVABLES> 119553
<ALLOWANCES> 4260
<INVENTORY> 65432
<CURRENT-ASSETS> 429709
<PP&E> 176850
<DEPRECIATION> 48542
<TOTAL-ASSETS> 659581
<CURRENT-LIABILITIES> 96969
<BONDS> 2550
0
0
<COMMON> 211981
<OTHER-SE> 348081
<TOTAL-LIABILITY-AND-EQUITY> 659581
<SALES> 215043
<TOTAL-REVENUES> 215043
<CGS> 92550
<TOTAL-COSTS> 92550
<OTHER-EXPENSES> 108974
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 206
<INCOME-PRETAX> 15785
<INCOME-TAX> 14548
<INCOME-CONTINUING> 1237
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1237
<EPS-PRIMARY> .02
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</TABLE>
