<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
SILICON VALLEY GROUP, INC.
(Exact name of Registrant as specified in its charter)
--------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3559 94-2264681
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
101 METRO DRIVE, SUITE 400
SAN JOSE, CA 95110
(408) 441-6700
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
--------------------------
RUSSELL G. WEINSTOCK
VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER
SILICON VALLEY GROUP, INC.
101 METRO DRIVE, SUITE 400
SAN JOSE, CA95110
(408) 441-6700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
LARRY W. SONSINI, ESQ. DONALD P. CLARK, ESQ.
AARON J. ALTER, ESQ. ALEXANDER C. MCGILVRAY, JR., ESQ.
J. ROBERT SUFFOLETTA, ESQ. BRENT A. REINKE, ESQ.
Wilson Sonsini Goodrich & Rosati Clark & Trevithick
Professional Corporation 800 Wilshire Boulevard, 12th Floor
650 Page Mill Road Los Angeles, CA 90017
Palo Alto, CA 94304 (213) 629-5700
(650) 493-9300
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
Upon consummation of the Merger described herein.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock $0.01 per share................ 1,400,000 shares $19.00 $26,660,000 $8,060.61
</TABLE>
(1) Represents the number of shares of the Common Stock of the Registrant which
may be issued to former shareholders of Tinsley Laboratories, Inc. ("TLI")
pursuant to the Merger described herein.
(2) Each share of Common Stock of TLI will be converted into 0.6594 of a share
of Common Stock of the Registrant pursuant to the Merger described herein.
Pursuant to Rule 457(f) under the Securities Act of 1933, as amended, the
registration fee has been calculated based on the average of the high and
low sale prices per share of the Common Stock to be received by the
Registrant as reported by the Nasdaq Stock Market for October 20, 1997.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
3900 LAKESIDE DRIVE
RICHMOND, CA 94806
October , 1997
Dear Shareholder:
As you may be aware, Tinsley Laboratories, Inc. ("TLI") has entered into an
Agreement and Plan of Reorganization (the "Reorganization Agreement") with
Silicon Valley Group, Inc. ("SVG"), providing for the acquisition of TLI by SVG.
Pursuant to the Reorganization Agreement, a special meeting of shareholders (the
"TLI Shareholders Meeting") of TLI will be held at the offices of TLI located at
3900 Lakeside Drive, Richmond, California 94806 on November , 1997 at 10:00
a.m. local time.
At the TLI Shareholders Meeting, you will be asked to consider and vote upon
a proposal to approve and adopt the Reorganization Agreement which provides for
the merger of TLI with a wholly-owned subsidiary of SVG (the "Merger"). Upon
consummation of the Merger, TLI will become a wholly-owned subsidiary of SVG. As
a result of the Merger, each outstanding share of common stock of TLI will be
converted into 0.6594 of a share of common stock of SVG. The Merger is described
more fully in the accompanying Proxy Statement/Prospectus.
After careful consideration, the TLI Board of Directors has unanimously
approved the Reorganization Agreement and the transactions contemplated thereby,
and has concluded they are fair to, and in the best interests of, TLI and its
shareholders. Your Board of Directors unanimously recommends a vote in favor of
the Merger.
In the materials accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Proxy Statement/Prospectus relating to the proposal
to be voted upon at the TLI Shareholders Meeting and a form of Proxy. The Proxy
Statement/Prospectus more fully describes the proposed transaction. Shareholders
are urged to review carefully the information contained in the accompanying
Proxy Statement/Prospectus, in particular the information under the captions
"Risk Factors," "TLI Shareholders Meeting--Recommendation of TLI Board of
Directors," "Approval of the Merger and Related Transactions--TLI's Reasons For
the Merger" and "--Material Contacts and Board Deliberations" prior to voting on
the proposal.
All shareholders are cordially invited to attend the TLI Shareholders
Meeting in person. If you attend the TLI Shareholders Meeting, you may vote in
person if you wish even though you have previously returned your completed
Proxy. Whether or not you plan to attend the TLI Shareholders Meeting, it is
important that your shares be represented and voted at the TLI Shareholders
Meeting, regardless of the number of shares you hold. Approval of the Merger
requires the affirmative vote of the holders of a majority of the outstanding
shares of TLI common stock. Therefore, please complete, sign, date and return
your Proxy in the enclosed envelope. Please do not send in the stock
certificate(s) representing your TLI common stock at this time.
On behalf of the Board, I thank you for your support and ask you to vote in
favor of the Merger.
Sincerely,
[SIGNATURE]
Robert J. Aronno
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
YOUR VOTE IS IMPORTANT--PLEASE RETURN YOUR PROXY PROMPTLY
<PAGE>
TINSLEY LABORATORIES, INC.
3900 LAKESIDE DRIVE
RICHMOND, CA 94806
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER , 1997
------------------------
TO THE SHAREHOLDERS OF TINSLEY LABORATORIES, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "TLI
Shareholders Meeting") of Tinsley Laboratories, Inc., a California corporation
("TLI"), will be held on November , 1997 at 10:00 a.m., local time, at the
offices of TLI located at 3900 Lakeside Drive, Richmond, California 94806, to
consider and vote upon the following proposal:
To (i) approve and adopt the Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated as of September 9, 1997, among TLI, Silicon
Valley Group, Inc., a Delaware corporation ("SVG"), and SV Acquisition, Inc., a
California corporation and wholly-owned subsidiary of SVG ("Merger Sub"), and
(ii) approve the merger of Merger Sub with and into TLI pursuant to which TLI
will become a wholly-owned subsidiary of SVG and all outstanding shares of TLI
common stock will be converted into shares of SVG common stock.
Information relating to the above proposal is set forth in the attached
Proxy Statement/Prospectus. Shareholders of record at the close of business on
October , 1997 are entitled to notice of, and to vote at, the TLI Shareholders
Meeting and any adjournments or postponements thereof. Approval and adoption of
the Reorganization Agreement and approval of the Merger described above will
require the affirmative vote of the holders of a majority of the shares of TLI
common stock outstanding on the record date. All shareholders are cordially
invited to attend the TLI Shareholders Meeting in person.
By order of the Board of Directors
[SIGNATURE]
Robert J. Aronno
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Richmond, California
October , 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE TLI SHAREHOLDERS MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE
ENCLOSED ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE
NEED BE AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
<PAGE>
<TABLE>
<S> <C>
[LOGO] [LOGO]
</TABLE>
TINSLEY LABORATORIES, INC.
PROXY STATEMENT
------------------------
SILICON VALLEY GROUP, INC.
PROSPECTUS
------------------------
Silicon Valley Group, Inc., a Delaware corporation ("SVG"), Tinsley
Laboratories, Inc., a California corporation ("TLI"), and SV Acquisition Inc., a
California corporation and wholly-owned subsidiary of SVG ("Merger Sub"), have
entered into an Agreement and Plan of Reorganization, dated as of September 9,
1997 (the "Reorganization Agreement"). In accordance with the Reorganization
Agreement, Merger Sub will merge into TLI, TLI will become a wholly-owned
subsidiary of SVG and all outstanding shares of common stock of TLI, no par
value ("TLI Common Stock"), will be converted into shares of the common stock of
SVG, $0.01 par value per share ("SVG Common Stock") (all such actions being
referred to herein collectively as the "Merger").
Upon consummation of the Merger (i) each issued and outstanding share of TLI
Common Stock (other than any shares owned by SVG, Merger Sub or any direct or
indirect wholly-owned subsidiary of SVG or TLI) will be converted into 0.6594 of
a share of SVG Common Stock (the "Exchange Ratio") and each outstanding option
to purchase TLI Common Stock will be assumed by SVG and will become an
equivalent right with respect to SVG Common Stock, on the same terms as the
original option; and (ii) all shares of TLI Common Stock will cease to be
outstanding and will be canceled and retired and will cease to exist, and each
holder of a certificate formerly representing shares of TLI Common Stock will
thereafter cease to have any rights with respect thereto, except the right to
receive certificates representing the shares of SVG Common Stock into which such
shares of TLI Common Stock have been converted.
This Proxy Statement/Prospectus is being furnished to shareholders of TLI in
connection with the solicitation of proxies by the TLI Board of Directors (the
"TLI Board") for use at the special meeting of TLI shareholders to be held on
November , 1997, at the offices of TLI located at 3900 Lakeside Drive,
Richmond, California 94806, commencing at 10:00 a.m., local time, and at any
adjournment or postponement thereof (the "TLI Shareholders Meeting").
SVG Common Stock is listed for quotation on the Nasdaq Stock Market
("Nasdaq") under the symbol "SVGI." It is a condition of the obligations of SVG
and TLI to consummate the Merger that the shares of SVG Common Stock to be
issued in the Merger be approved for listing on the Nasdaq. Following
consummation of the Merger, TLI Common Stock will be removed from registration
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
will no longer be listed on the Nasdaq.
On September 9, 1997, the last full trading day prior to the public
announcement of the execution and delivery of the Reorganization Agreement, the
closing sale prices of SVG Common Stock and TLI Common Stock on the Nasdaq were
$33.50 per share and $10.75 per share, respectively. On October 20, 1997, the
closing prices of SVG Common Stock and TLI Common Stock were $30.75 per share
and $19.00 per share, respectively.
Because the Exchange Ratio is fixed, changes in the market price of SVG
Common Stock will affect the dollar value of SVG Common Stock to be received by
shareholders of TLI in the Merger. Shareholders of TLI are encouraged to obtain
current market quotations for SVG Common Stock and TLI Common Stock prior to the
TLI Shareholders Meeting.
This Proxy Statement/Prospectus constitutes the Prospectus of SVG with
respect to up to 1,400,000 shares of SVG Common Stock to be issued in the Merger
in exchange for outstanding shares of TLI Common Stock.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE
"SEC") OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT/PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. THE
SHAREHOLDERS OF TLI ARE URGED TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY, INCLUDING THE MATTERS REFERRED TO
BEGINNING ON PAGE 11 UNDER "RISK FACTORS."
--------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY, AND, IF GIVEN, ANY SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY SVG, TLI OR ANY OTHER PERSON. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OR THE SOLICITATION OF A PROXY IN ANY
JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS NOT LAWFUL TO MAKE ANY
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES HEREUNDER SHALL
CREATE UNDER ANY CIRCUMSTANCES ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF SVG OR TLI SINCE THE DATE HEREOF, OR THAT ANY INFORMATION HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE AS OF WHICH SUCH INFORMATION IS
PROVIDED.
--------------------------
This Proxy Statement/Prospectus and the accompanying proxy card are first
being mailed to shareholders of TLI on or about October , 1997.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS OCTOBER , 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AVAILABLE INFORMATION..................................................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................... 1
SUMMARY................................................................................................... 3
SELECTED FINANCIAL INFORMATION............................................................................ 9
RISK FACTORS.............................................................................................. 11
Risks related to SVG's Business......................................................................... 11
Risks related to TLI's Business......................................................................... 17
Risks related to the Merger............................................................................. 19
COMPARATIVE PER SHARE DATA................................................................................ 21
MARKET PRICE INFORMATION.................................................................................. 22
TLI SHAREHOLDERS MEETING.................................................................................. 23
Date, Time and Place of TLI Shareholders Meeting........................................................ 23
Purpose................................................................................................. 23
Record Date and Outstanding Shares...................................................................... 23
Vote Required........................................................................................... 23
Proxies................................................................................................. 23
Solicitation of Proxies; Expenses....................................................................... 24
Recommendation of TLI Board of Directors................................................................ 24
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS........................................................... 25
SVG's Reasons for the Merger............................................................................ 25
TLI's Reasons for the Merger............................................................................ 25
Recommendation of TLI's Board of Directors.............................................................. 26
Material Contacts and Board Deliberations............................................................... 26
Interests of Certain Persons in the Merger.............................................................. 29
Certain Federal Income Tax Considerations............................................................... 29
Governmental and Regulatory Matters..................................................................... 31
Accounting Treatment.................................................................................... 31
Rights of Dissenting Shareholders....................................................................... 31
TLI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................. 34
TLI'S BUSINESS............................................................................................ 37
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS OF TLI........................................ 40
TERMS OF THE MERGER....................................................................................... 42
Effective Time.......................................................................................... 42
Manner and Basis for Converting Shares.................................................................. 42
Treatment of Employee Equity Benefit Plans.............................................................. 43
Stock Ownership Following the Merger.................................................................... 43
Effect of the Merger.................................................................................... 43
Representations and Warranties.......................................................................... 43
Conduct of TLI's Business Prior to the Merger........................................................... 43
No Solicitation......................................................................................... 45
Conditions to the Merger................................................................................ 46
Termination of the Reorganization Agreement............................................................. 47
Effect of Termination................................................................................... 48
Break-Up Fee............................................................................................ 48
Indemnification and Insurance........................................................................... 49
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Affiliate Agreements.................................................................................... 49
COMPARISON OF CAPITAL STOCK............................................................................... 50
Description of SVG Capital Stock........................................................................ 50
Description of TLI Capital Stock........................................................................ 50
Comparison of Capital Stock............................................................................. 51
LEGAL MATTERS............................................................................................. 57
EXPERTS................................................................................................... 57
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................................................ F-1
ANNEX A--Agreement and Plan of Reorganization, Dated as of September 9, 1997, Among SVG, TLI and Merger
Sub................................................................................................... A-1
ANNEX B--California Dissenters' Rights Provisions....................................................... B-1
</TABLE>
ii
<PAGE>
AVAILABLE INFORMATION
SVG and TLI are subject to the information reporting requirements of the
Exchange Act, and in accordance therewith file reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC"). Such
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional
offices located at Seven World Trade Center, Suite 1300, New York, New York
10048, and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may be obtained by mail from the
Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The SEC also maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC at the address
http://www.sec.gov. SVG Common Stock and TLI Common Stock are listed on the
Nasdaq, and such reports, proxy statements and other information can also be
inspected at the offices of the Nasdaq Stock Market, 1735 K Street, NW,
Washington, DC 20006.
SVG has filed with the SEC a registration statement on Form S-4 (herein
referred to, together with all amendments and exhibits, as the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act").
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. For further information,
reference is hereby made to the Registration Statement. Copies of the
Registration Statement and the exhibits and schedules thereto are available as
described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the SEC by SVG pursuant to the
Exchange Act are incorporated by reference in this Proxy Statement/Prospectus:
1. SVG's Annual Report on Form 10-K for the fiscal year ended September 30,
1996.
2. SVG's Quarterly Reports on Form 10-Q for the quarters ended December 31,
1996, March 31, 1997 and June 30, 1997; and
3. The description of SVG Common Stock contained in SVG's Registration
Statement on Form 8-A filed with the SEC on or about November 23, 1983.
All documents and reports filed by SVG pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act between the date of this Proxy Statement/Prospectus
and the date of the TLI Shareholders Meeting shall be deemed to be incorporated
by reference in this Proxy Statement/ Prospectus and to be part hereof from the
dates of filing of such documents and reports. Statements contained in this
Proxy Statement/ Prospectus as to the contents of any contract or other document
referred to herein are not necessarily complete and, in each instance, reference
is made to the copy of such contract or other documents filed as an exhibit to
the Registration Statement or incorporated by reference therein, each such
statement being qualified in all respects by such reference.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any statement
so modified or superseded shall not be deemed to constitute a part hereof except
as so modified or superseded.
All information contained or incorporated by reference in this Proxy
Statement/Prospectus relating to SVG has been supplied by SVG and all such
information relating to TLI has been supplied by TLI.
1
<PAGE>
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE RELATING
TO SVG THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON ORAL OR
WRITTEN REQUEST BY ANY PERSON TO WHOM THIS PROXY STATEMENT/ PROSPECTUS HAS BEEN
DELIVERED FROM SVG, 101 METRO DRIVE, SUITE 400, SAN JOSE, CALIFORNIA 95110,
ATTENTION: INVESTOR RELATIONS; TELEPHONE NUMBER: (408) 441-6700. IN ORDER TO
ASSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE TLI SHAREHOLDERS MEETING,
ANY SUCH REQUEST SHOULD BE MADE BY NOVEMBER , 1997.
This Proxy Statement/Prospectus contains trademarks of SVG and TLI and may
contain trademarks of others.
2
<PAGE>
SUMMARY
OTHER THAN STATEMENTS OF HISTORICAL FACT, STATEMENTS MADE IN THIS PROXY
STATEMENT/PROSPECTUS, INCLUDING STATEMENTS AS TO THE BENEFITS EXPECTED TO RESULT
FROM THE MERGER AND AS TO FUTURE FINANCIAL PERFORMANCE, ARE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION
21E OF THE EXCHANGE ACT. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH IN "RISK FACTORS" BELOW, WHICH TLI SHAREHOLDERS SHOULD
CAREFULLY REVIEW.
THE FOLLOWING CONTAINS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS PROXY STATEMENT/ PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN A COMPLETE
STATEMENT OF ALL MATERIAL ELEMENTS OF THE PROPOSAL TO BE VOTED ON AND IS
QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION APPEARING ELSEWHERE
IN THIS PROXY STATEMENT/PROSPECTUS AND IN THE INFORMATION AND DOCUMENTS ANNEXED
HERETO AND INCORPORATED BY REFERENCE HEREIN.
THE COMPANIES
SILICON VALLEY GROUP, INC.
SVG designs, manufactures, markets and services semiconductor processing
equipment used in the fabrication of integrated circuits. The fabrication of
integrated circuits involves repeating a complex series of process steps to a
semiconductor wafer. The three broad categories of wafer processing steps are
deposition, photolithography and etching. SVG has three principal product groups
which focus primarily on photolithography, photoresist processing and deposition
for oxidation/diffusion and low pressure chemical vapor deposition ("LPCVD").
SVG's products incorporate proprietary technologies and unique processes, and
focus on providing process and product technologies and productivity
enhancements to its customers.
SVG manufactures and markets its photolithography exposure products through
its subsidiary, SVG Lithography Systems, Inc. ("SVGL"), its photoresist
processing products through its PhotoProcess Division, formerly known as the
Track Systems Division ("Track") and its oxidation/diffusion and LPCVD products
through its Thermco Systems Division ("Thermco").
SVG was incorporated in California on October 26, 1973 and reincorporated in
Delaware on April 10, 1987. SVG's executive offices are located at 101 Metro
Drive, Suite 400, San Jose, California 95110, and its telephone number is (408)
441-6700.
TINSLEY LABORATORIES, INC.
TLI designs, manufactures and sells precision optical components, assemblies
and systems to customers in a variety of industries and research endeavors. TLI
believes that it is an industry leader in the fabrication of precision aspheric
lenses and mirrors. Aspheric lenses, which typically perform the tasks of a
number of optical surfaces, permit the design of compact optical systems and
assemblies which are critical where space and weight are important factors.
Through its wholly-owned subsidiary, Century Precision Industries, Inc.
doing business as Century Precision Optics ("Century"), TLI also designs,
manufactures, sells and distributes high-quality lenses and related accessories
to cinematographers, videographers and film and video rental equipment companies
for use with their cameras and cinematography equipment.
TLI's precision optical components, assemblies and systems are sold to
semiconductor processing equipment manufacturers, color television tube
manufacturers, aerospace and military equipment and systems manufacturers,
agencies of the United States government, universities and other instrument and
equipment manufacturers. Such products are generally designed and produced to
meet the customers'
3
<PAGE>
specifications as opposed to Century's proprietary products which are sold in
the general commercial market.
TLI was incorporated in California in 1946. TLI's executive offices are
located at 3900 Lakeside Drive, Richmond, California 94806, and its telephone
number is (510) 222-8110.
SV ACQUISITION, INC.
Merger Sub is a California corporation recently organized by SVG for the
purpose of effecting the Merger. It has no material assets and has not engaged
in any activities except in connection with the Merger. Merger Sub's executive
offices are located at 101 Metro Drive, Suite 400, San Jose, CA 95110, and its
telephone number is (408) 441-6700.
SPECIAL MEETING OF SHAREHOLDERS OF TLI
TIME, DATE, PLACE AND PURPOSE
The TLI Shareholders Meeting will be held at 3900 Lakeside Drive, Richmond,
California 94806, on November , 1997 at 10:00 a.m., local time. The purpose of
the TLI Shareholders Meeting is to allow TLI shareholders to vote upon a
proposal to approve and adopt the Reorganization Agreement and approve the
Merger. See "TLI Shareholders Meeting--Date, Time and Place of TLI Shareholders
Meeting" and "--Purpose."
RECORD DATE AND VOTE REQUIRED
Only holders of record of TLI Common Stock at the close of business on
October , 1997 (the "Record Date") are entitled to notice of and to vote at
the TLI Shareholders Meeting. Pursuant to the California General Corporation Law
("CGCL"), the affirmative vote of the holders of a majority of the shares of TLI
Common Stock outstanding as of the Record Date is required to approve and adopt
the Reorganization Agreement and to approve the Merger. Certain executive
officers, directors and principal shareholders of TLI (who as of the Record Date
owned in the aggregate approximately % of the outstanding shares of TLI
Common Stock) have entered into agreements with SVG which obligates each such
shareholder to vote all shares of TLI Common Stock held by such holder in favor
of the proposal to approve and adopt the Reorganization Agreement and approve
the Merger.
As of the Record Date, there were approximately shareholders of
record of TLI Common Stock and shares of TLI Common Stock outstanding,
with each share entitled to one vote on the matter to be acted upon at the TLI
Shareholders Meeting. See "TLI Shareholders Meeting--Vote Required."
RECOMMENDATION OF TLI BOARD OF DIRECTORS
The TLI Board has unanimously approved the Reorganization Agreement and the
transactions contemplated thereby and has determined that the Merger is fair to
and in the best interests of TLI and its shareholders. After careful
consideration, the TLI Board unanimously recommends a vote in favor of approval
and adoption of the Reorganization Agreement and approval of the Merger.
Shareholders should read this Proxy Statement/Prospectus carefully prior to
voting. See "TLI Shareholders Meeting--Recommendations of TLI Board of
Directors," "Approval of the Merger and Related Transactions--TLI's Reasons For
the Merger" and "--Material Contacts and Board Deliberations."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors pertaining to the
Merger and the businesses of SVG and TLI.
4
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the TLI Board with respect to the
Reorganization Agreement and the Merger, holders of TLI Common Stock should be
aware that certain of the executive officers of TLI have certain interests in
the Merger that are in addition to the interests of holders of TLI Common Stock
generally. See "Approval of the Merger and Related Transactions--Interests of
Certain Persons in the Merger." In particular, certain of TLI's executive
officers are expected to enter into employment agreements following the Merger.
See "Approval of the Merger and Related Transactions--Interests of Certain
Persons in the Merger."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Merger is intended to qualify as a reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), in which case no
gain or loss generally should be recognized by the holders of shares of TLI
Common Stock on the conversion of their shares of TLI Common Stock solely into
shares of SVG Common Stock in the Merger. As a condition to the consummation of
the Merger, SVG and TLI will have received an opinion from their respective tax
counsel that the Merger will constitute a reorganization under Section 368(a) of
the Code. However, all TLI shareholders are urged to consult their own tax
advisors. See "Approval of the Merger and Related Transactions--Certain Federal
Income Tax Considerations;" and "Terms of the Merger--Conditions to the Merger."
GOVERNMENTAL AND REGULATORY MATTERS
Consummation of the Merger is subject to compliance with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). The notifications required under the HSR Act have been furnished to the
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the specified waiting
period under the HSR Act for the Merger is expected to expire on November 13,
1997, assuming no request for further information from either the FTC or the
Antitrust Division is received. The Merger must also satisfy the requirements of
federal and certain state securities laws. See "Approval of the Merger and
Related Transactions--Governmental and Regulatory Matters."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for financial
reporting purposes in accordance with generally accepted accounting principles.
Consummation of the Merger is conditioned upon (i) receipt by SVG of a letter
from its independent auditors dated the date of the closing of the Merger (the
"Closing Date") to the effect that such auditors concur with SVG management's
conclusion that pooling of interests accounting for the Merger is appropriate
and (ii) receipt by TLI of a letter from its independent auditors dated on the
Closing Date to the effect that such auditors concur with TLI management's
conclusion that no conditions exist relating to TLI that would preclude SVG from
accounting for the Merger as a pooling of interests. See "Approval of the Merger
and Related Transactions--Accounting Treatment" and "Terms of the
Merger--Conditions to the Merger."
RIGHTS OF DISSENTING SHAREHOLDERS
The shareholders of TLI who vote against the Merger may be entitled to
appraisal rights under applicable California law. See "Approval of the Merger
and Related Transactions--Rights of Dissenting Shareholders."
5
<PAGE>
THE MERGER
TERMS OF THE MERGER; EXCHANGE RATIO
At the Effective Time (as defined below), Merger Sub will merge with and
into TLI and TLI will become a wholly-owned subsidiary of SVG. Once the Merger
is consummated, Merger Sub will cease to exist as a corporation and TLI will
remain as a wholly-owned subsidiary of SVG (the "Surviving Corporation"). As a
result of the Merger, each outstanding share of TLI Common Stock, other than any
shares owned by SVG, Merger Sub or any direct or indirect wholly-owned
subsidiary of SVG or TLI, will be converted into 0.6594 of a share of SVG Common
Stock, and each outstanding option with respect to TLI Common Stock will be
assumed by SVG and will become an equivalent option with respect to shares of
SVG Common Stock.
On September 9, 1997, the last full trading day prior to the public
announcement of the execution and delivery of the Reorganization Agreement, the
closing prices per share of SVG Common Stock and TLI Common Stock on the Nasdaq
were $33.50 and $10.75, respectively. On October 20, 1997, the closing prices
per share of SVG Common Stock and TLI Common Stock on the Nasdaq were $30.75 and
$19.00, respectively. See "Market Price Information." Because the Exchange Ratio
is fixed, changes in the market price of SVG Common Stock will affect the value
of the SVG Common Stock to be received by shareholders of TLI in the Merger. TLI
shareholders are encouraged to obtain current market quotations for SVG Common
Stock and TLI Common Stock prior to the TLI Shareholders Meeting.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of Articles of Merger (the
"Articles of Merger") with the Secretary of State of the State of California or
at such later time as may be agreed in writing by SVG, TLI and Merger Sub and
specified in the Articles of Merger (the "Effective Time"). Assuming all
conditions to the Merger are met or waived prior thereto, it is currently
anticipated that the Closing Date and Effective Time will be on November ,
1997. See "Terms of the Merger--Effective Time."
EXCHANGE OF TLI STOCK CERTIFICATES
Promptly after the Effective Time, SVG, acting through ChaseMellon
Shareholder Services LLC as its exchange agent (the "Exchange Agent"), will
deliver to each TLI shareholder of record as of the Effective Time by U.S. mail
at its address of record a letter of transmittal with instructions to be used by
such shareholder in surrendering certificates which, prior to the Merger,
represented shares of TLI Common Stock. CERTIFICATES SHOULD NOT BE SURRENDERED
BY THE HOLDERS OF TLI COMMON STOCK UNTIL SUCH HOLDERS RECEIVE THE LETTER OF
TRANSMITTAL FROM THE EXCHANGE AGENT, AND THEN ONLY IN ACCORDANCE WITH THE TERMS
OF SUCH LETTER OF TRANSMITTAL.
FORM S-8 REGISTRATION STATEMENT
As soon as reasonably practical after the Effective Time, SVG will file a
registration statement on Form S-8 under the Securities Act covering the shares
of SVG Common Stock issuable upon exercise of options to purchase TLI Common
Stock to be assumed by SVG. See "Terms of the Merger--Manner and Basis for
Converting Shares."
STOCK OWNERSHIP FOLLOWING THE MERGER
Based upon the capitalization of TLI as of the close of business on the
Record Date, an aggregate of approximately shares of SVG Common Stock
will be issued to TLI shareholders in the Merger and SVG will assume options to
acquire up to approximately additional shares of SVG Common Stock. Based
upon the number of shares of SVG Common Stock issued and outstanding as of
October 14,
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<PAGE>
1997, and after giving effect to the issuance of SVG Common Stock as described
in the previous sentence and the exercise of all options to purchase TLI Common
Stock assumed by SVG, the former holders of TLI Common Stock, options to
purchase TLI Common Stock would hold, and have voting power with respect to,
approximately % of SVG's total issued and outstanding shares. The foregoing
numbers of shares and percentages are subject to change to reflect any changes
in the capitalization of either SVG or TLI subsequent to the dates indicated and
prior to the Effective Time, and there can be no assurance as to the actual
capitalization of SVG or TLI at the Effective Time or SVG at any time following
the Effective Time.
BOARD OF DIRECTORS; MANAGEMENT FOLLOWING THE MERGER
The Board of Directors of the Surviving Corporation will consist of the
directors of Merger Sub immediately prior to the Effective Time. The officers of
TLI immediately prior to the Effective Time will be the officers of the
Surviving Corporation, until their successors are duly appointed.
CONDUCT OF BUSINESS PRIOR TO THE MERGER
Pursuant to the Reorganization Agreement, TLI has agreed that, until the
earlier of the termination of the Reorganization Agreement pursuant to its terms
or the Effective Time, subject to certain exceptions set forth in the
Reorganization Agreement, and except to the extent that SVG consents in writing,
TLI will carry on its business diligently and in accordance with good commercial
practice, in the usual, regular and ordinary course, and in compliance with all
applicable laws and regulations, pay its debts and taxes when due subject to
good faith disputes over such debts or taxes, pay or perform other material
obligations when due, and use its commercially reasonable efforts consistent
with past practices and policies (i) to preserve intact its present business
organization, (ii) to keep available the services of its present officers and
employees and (iii) to preserve its relationships with customers, suppliers,
distributors, licensors, licensees and others with which it has business
dealings. TLI has also agreed that it will promptly notify SVG of any material
event involving its business or operations. In addition, subject to certain
exceptions, TLI has agreed that, without the prior written consent of SVG, it
will not perform or engage in certain activities in the conduct of its business
and the business of its subsidiaries. See "Terms of the Merger--Conduct of TLI's
Business Prior to the Merger."
NO SOLICITATION
Pursuant to the Reorganization Agreement, except under certain limited
circumstances, TLI has agreed that it will not (i) solicit any alternate
acquisition proposal, (ii) participate in any discussions or negotiations with
any other persons with respect to an alternate acquisition proposal or (iii)
provide any non-public information concerning TLI to any other persons in
connection with any alternate acquisition proposal. See "Terms of the Merger--No
Solicitation."
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to certain conditions, including (i)
declaration by the SEC of the effectiveness of the Registration Statement, (ii)
approval and adoption of the Reorganization Agreement and approval of the Merger
by the shareholders of TLI at the TLI Shareholders Meeting, (iii) absence of any
law or order prohibiting consummation of the Merger, (iv) receipt by SVG and TLI
of legal opinions that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, (v) receipt by SVG of a letter from its
independent auditors dated the Closing Date to the effect that such auditors
concur with SVG management's conclusion that pooling of interests accounting for
the Merger is appropriate and receipt by TLI of a letter from its independent
auditors dated on the Closing Date to the effect that such auditors concur with
TLI management's conclusion that pooling of interests accounting is appropriate,
(vi) subject to certain materiality thresholds, the accuracy of the
representations and warranties made by each party in the Reorganization
Agreement, (vii) subject to certain materiality
7
<PAGE>
thresholds, performance of all covenants required by the Reorganization
Agreement and (viii) the absence of a material adverse effect with regard to
either SVG or TLI. See "Terms of the Merger--Conditions to the Merger."
TERMINATION; FEES
The Reorganization Agreement may be terminated under certain circumstances.
TLI has agreed that, if the Merger is not consummated under certain
circumstances, it will pay SVG a sum of $2.2 million. SVG has agreed that if the
Merger is not consummated under certain circumstances, it will pay certain
expenses of TLI related to this transaction in an aggregate amount not to exceed
$250,000. See "Terms of the Merger--Termination of the Reorganization Agreement"
and "--Break-Up Fee."
AFFILIATE AGREEMENTS
Each of the members of the TLI Board, each of TLI's executive officers and
certain other principal shareholders of TLI have entered into agreements
restricting sales, dispositions or other transactions reducing their risk of
investment in respect of the shares of TLI Common Stock held by them prior to
the Merger and the shares of SVG Common Stock to be received by them in the
Merger so as to comply with the requirements of applicable federal securities
laws and to help ensure that the Merger will be treated as a pooling of
interests for accounting and financial reporting purposes. Certain persons who
may be deemed affiliates of SVG have entered into agreements restricting sales,
dispositions or other transactions reducing their risk of investment with
respect of the shares of SVG Common Stock held by them so as to help ensure that
the Merger will be treated as a pooling of interests for accounting and
financial reporting purposes.
MARKET AND PRICE DATA
SVG Common Stock is traded on the Nasdaq under the symbol "SVGI." On
September 9, 1997, the last full trading day before announcement of the
execution of the Reorganization Agreement, the closing price of SVG Common Stock
as reported on the Nasdaq was $33.50 per share. On October 20, 1997, the closing
price of SVG Common Stock as reported on the Nasdaq was $30.75 per share. There
can be no assurance as to the actual price of SVG Common Stock prior to, at or
at any time following the Effective Time of the Merger.
TLI Common Stock is traded on the Nasdaq under the symbol "TNSL." On
September 9, 1997, the last full trading day before announcement of the
execution of the Reorganization Agreement, the closing price of TLI Common Stock
as reported on the Nasdaq was $10.75 per share. Following the Merger, TLI Common
Stock will no longer be traded on the Nasdaq. On October 20, 1997, the closing
price of TLI Common Stock as reported on the Nasdaq was $19.00 per share. There
can be no assurance as to the actual price of TLI Common Stock prior to or at
the Effective Time of the Merger, or in the event the Merger is not consummated.
See "Risk Factors," "Market Price Information" and "Comparison of Capital
Stock."
8
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected historical financial information of SVG and TLI has
been derived from their respective consolidated historical financial statements
and should be read in conjunction with such consolidated financial statements
and notes thereto. The audited consolidated financial statements and notes
thereto of SVG for each of the fiscal years ended September 30, 1994, 1995 and
1996 and the unaudited interim consolidated financial statements for the nine
months ended June 30, 1996 and 1997 are incorporated by reference in this Proxy
Statement/Prospectus. The selected historical financial information of SVG as of
June 30, 1997, and for the nine-month periods ended June 30, 1996 and 1997 in
the opinion of SVG's management, reflects all adjustments necessary for the fair
presentation of such unaudited interim financial information. The audited
consolidated financial statements and notes thereto of TLI as of December 31,
1995 and December 29, 1996 and for the three years in the period ended December
29, 1996 and the unaudited interim consolidated financial statements as of June
30, 1997 and for the six months ended June 30, 1996 and 1997 are included
elsewhere in this Proxy Statement/Prospectus. The selected historical financial
information of TLI as of June 30, 1997 and for the six-month periods ended June
30, 1996 and 1997, in the opinion of TLI's management, reflects all adjustments
necessary for the fair presentation of such unaudited interim financial
information and are included elsewhere herein. The results of operations for the
1997 interim periods of SVG and of TLI are not necessarily indicative of the
results to be expected for the entire year.
SVG SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE
YEAR ENDED SEPTEMBER 30, 30,
---------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $ 192,457 $ 240,633 $ 319,922 $ 462,032 $ 639,928 $ 496,806 $ 425,523
Income (loss) before income taxes and
minority interest................... 1,564 6,920 26,820 61,234 98,384 80,418 (10,176)
Net income (loss)..................... (292) 4,485 16,764 38,995 63,221 51,730 (6,808)
Preferred stock dividend.............. 209 1,190 1,190 537 -- -- --
Net income (loss) per share........... (0.03) 0.22 0.84 1.57 2.07 1.69 (0.22)
Shares used in per share
computations........................ 14,754 15,277 18,538 24,850 30,554 30,520 30,458
BALANCE SHEET DATA:
Working capital....................... $ 91,148 $ 107,975 $ 171,191 $ 325,481 $ 463,655 $ 431,679
Total assets.......................... 180,777 212,284 271,674 500,725 729,377 728,064
Long-term debt and capital
leases.............................. 1,652 2,338 1,510 654 217 5,913
Shareholders' equity.................. 121,116 126,997 185,215 350,247 541,949 548,162
</TABLE>
9
<PAGE>
TLI SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SIX MONTHS ENDED
-------------------------------------------------------------------- JUNE 30,
DECEMBER 27, DECEMBER 26, DECEMBER 24, DECEMBER 31, DECEMBER 29, --------------------
1992 1993 1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales..................... $ 11,051 $ 12,238 $ 12,969 $ 13,109 $ 17,408 $ 8,152 $ 10,540
Net income.................... 587 483 346 122 879 330 855
Net income per share.......... 0.35 0.31 0.23 0.08 0.53 0.21 0.49
Shares used in per share
computations................ 1,660 1,575 1,540 1,534 1,672 1,544 1,731
BALANCE SHEET DATA:
Working capital............... $ 3,049 $ 3,335 $ 3,318 $ 2,647 $ 2,982 $ 1,917
Total assets.................. 9,994 12,818 12,842 12,940 14,880 15,761
Total long term debt and notes
payable..................... 132 2,449 1,908 1,361 1,501 764
Stockholders' equity.......... 7,810 7,800 8,148 8,170 9,098 9,816
</TABLE>
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RISK FACTORS
THE INFORMATION IN THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS ARE SUBJECT
TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED BELOW, THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH
SPEAK ONLY AS OF THE DATE HEREOF. FORWARD-LOOKING STATEMENTS ARE INDICATED BY AN
ASTERISK (*) FOLLOWING THE SENTENCE IN WHICH SUCH STATEMENT IS MADE. NEITHER SVG
NOR TLI UNDERTAKE ANY OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS
OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS. THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY BY
HOLDERS OF TLI COMMON STOCK IN EVALUATING WHETHER TO APPROVE AND ADOPT THE
REORGANIZATION AGREEMENT AND APPROVE THE MERGER. THESE FACTORS SHOULD BE
CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION INCLUDED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS, INCLUDING IN CONJUNCTION WITH
FORWARD-LOOKING STATEMENTS MADE HEREIN. FOR PERIODS FOLLOWING THE MERGER,
REFERENCES TO SVG SHOULD BE CONSIDERED TO REFER TO SVG AND ITS SUBSIDIARIES,
INCLUDING TLI, UNLESS THE CONTEXT OTHERWISE REQUIRES.
RISKS RELATED TO SVG'S BUSINESS
CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY
The semiconductor industry into which SVG sells its products is highly
cyclical and has, historically, experienced periodic downturns which have had a
severe effect on the semiconductor industry's demand for semiconductor
processing equipment. During the first quarter of calendar 1996 (SVG's second
fiscal quarter), the growth rate of the worldwide semiconductor industry,
measured in terms of its book-to-bill ratio, declined. From March 1996 through
March 1997, SVG's quarterly customer order bookings ("bookings") were
substantially below first half fiscal 1996 levels and SVG experienced customer
deferrals of scheduled equipment delivery dates and, to a lesser extent,
customer order cancellations. Notwithstanding a significant increase in bookings
during the third quarter of fiscal 1997, SVG believes that fiscal 1997 shipments
will be lower than fiscal 1996 levels as a result of the lower bookings in the
four preceding fiscal quarters.* Further, there can be no assurance that SVG
will not again experience customer delivery deferrals, order cancellations or a
prolonged period of customer orders at reduced levels, any or a combination of
which would have an adverse effect on its operating results.*
Prior downturns in the worldwide semiconductor industry have resulted in
significant reductions in SVG's net sales, gross margin and net income.
Moreover, SVG expects that its operations as a whole will continue to be
dependent on the capital expenditures of semiconductor manufacturers, which in
turn will be dependent on anticipated demand for integrated circuits and
products utilizing integrated circuits.* Any prolonged weakness in demand
experienced by the semiconductor industry is likely to have an adverse effect on
SVG's business and results of operations.*
CUSTOMER CONCENTRATION
SVG relies on a limited number of customers for a substantial percentage of
its net sales. During fiscal 1996, SVG's two largest customers accounted for 41%
of SVG's net sales, the largest representing 31% of the total. During the first
nine months of fiscal 1997, a similar trend existed with two customers
accounting for 56% of SVG's net sales, the largest representing 29% of the
total. The loss of any significant customer,
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<PAGE>
including but not limited to the two largest customers, delays in shipments due
to rescheduling or reductions in orders by a significant customer, including
reductions in orders due to market, economic or competitive conditions in the
semiconductor industry, will adversely affect SVG's business and results of
operations.* SVG believes that, for the foreseeable future, due in part to its
customer base consisting primarily of manufacturers of logic devices, it will
continue to rely on a limited number of major customers for a substantial
percentage of its net sales.*
FLUCTUATIONS IN QUARTERLY RESULTS
SVG has, at times during its existence, experienced quarterly fluctuations
in its operating results. Due to the relatively small number of systems sold
during each fiscal quarter and the relatively high revenue per system, customer
order rescheduling or cancellations, or production or shipping delays can
significantly affect quarterly revenues and profitability. SVG has experienced,
and may again experience, quarters during which a substantial portion of SVG's
net sales are realized near the end of the quarter.* Accordingly, shipments
scheduled near the end of a quarter which are delayed for any reason can cause
quarterly net sales to fall short of anticipated levels. Since most of SVG's
expenses are fixed in the short term, such shortfalls in net sales could have a
material adverse effect on SVG's business and results of operations.* SVG's
operating results may also vary from quarter to quarter based upon numerous
factors including the timing of new product introductions, product mix, level of
sales, the relative proportion of domestic and international sales, activities
of competitors, acquisitions, international events, and difficulties obtaining
materials or components on a timely basis.* In light of these factors, SVG may
experience variability in its quarterly operating results.*
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCT DEVELOPMENT
Semiconductor manufacturing equipment and processes are subject to rapid
technological change. SVG believes that its future success will depend upon its
ability to continue to enhance its existing products and their process
capabilities and to develop and manufacture new products with improved process
capabilities that enable semiconductor manufacturers to fabricate semiconductors
more efficiently.* SVG is developing products capable of processing 300mm wafers
to enable advanced semiconductor manufacturers to progress from the current
200mm wafer standard.* Failure to successfully introduce these or any other new
products in a timely manner could result in the loss of competitive position and
could reduce sales of existing products.* In addition, new product introductions
could contribute to quarterly fluctuations in operating results as orders for
new products commence and increase the potential for a decline in orders of
existing products, particularly if new products are delayed.*
From time-to-time, SVG has experienced delays in the introduction of its
products and product enhancements due to technical, manufacturing and other
difficulties and may experience similar delays in the future.* For example,
during fiscal 1996, SVG announced a new Track product, the 200APS. Initial
shipments of the 200APS were scheduled to commence during the second quarter of
fiscal 1997, but have been delayed by approximately nine to twelve months.*
There can be no assurance that SVG will not experience manufacturing problems as
a result of instability of the design of either the hardware or software
elements of the new technology, or be able to efficiently manufacture the 200APS
or other products.* These issues could result in product delivery delays and a
subsequent loss of future sales.* Semiconductor manufacturers tend to select
either a single supplier or a primary supplier for a certain type of equipment.
SVG believes that prolonged delays in delivering initial quantities of newly
developed products to multiple customers, whether due to the protracted release
of product from engineering into manufacturing or due to manufacturing
difficulties, could result in semiconductor manufacturers electing to install
competitive equipment in their fabrication facilities and could preclude
industry acceptance of SVG's products.* Therefore, SVG's inability to effect the
timely production of new products or any failure of these products to achieve
market acceptance could have a material adverse effect on SVG's business and
results of operations.*
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<PAGE>
Historically, the unit cost of SVG's products has been the highest when they
are newly introduced into production and cost reductions have come over time
through engineering improvements, economies of scale and improvements in the
manufacturing process.* As a result, new products have, at times, had an
unfavorable impact on SVG's gross margins and results of operations. There can
be no assurance that the initial shipments of new products will not have an
adverse effect on SVG's profitability or that SVG will be able to attain design
improvements, manufacturing efficiencies or manufacturing process improvements
over time.* Further, the potential unfavorable effect of newly introduced
products on profitability can be exacerbated when there is intense price
competition in the marketplace.*
INTENSE COMPETITION
The semiconductor equipment industry is intensely competitive. SVG faces
substantial competition both in the United States and other countries. In
addition to technology, one significant area of competition is cost of
ownership, a formula which includes such data as initial price, system
throughput and reliability and time to maintain or repair. Other competitive
factors include familiarity with particular manufacturers' products, established
relationships between suppliers and customers, product availability and
technological differentiation. Many of SVG's competitors are Japanese
corporations. With the strength of the U.S. Dollar in relation to the Japanese
yen, SVG's ability to compete on the basis of price has been and may continue to
be impaired.
IMPORTANCE OF THE JAPANESE AND PACIFIC RIM MARKETS
SVG's customers are heavily concentrated in the United States and Europe.
The Japanese and Pacific Rim markets (including fabrication plants located in
other parts of the world which are operated by Japanese and Pacific Rim
semiconductor manufacturers) represent a substantial portion of the overall
market for semiconductor manufacturing equipment. Further, in many instances,
Japanese and Pacific Rim semiconductor manufacturers fabricate devices such as
dynamic random access memory devices ("DRAMs"), with potentially different
economic cycles than those affecting the sales of devices manufactured by the
majority of SVG's U.S. and European customers. To date, neither SVG's shipments
into Japan nor into the Pacific Rim have been significant. SVG believes that it
must substantially increase its share of these markets if it is to compete as a
global supplier.* Failure to secure customers in these markets may limit the
global market share available to SVG and may increase SVG's vulnerability to
industry or geographic downturns.*
In the past, several of SVG's larger customers have entered into joint
ventures ("JV") with European, Japanese or Pacific Rim semiconductor
manufacturers. In such cases, SVG has encountered intense price competition from
foreign competitors who are suppliers to the non-U.S. member of the JV. Further,
in certain instances SVG has not secured the equipment order when the non-U.S.
member has had the responsibility for selecting the equipment to be used by the
JV in its U.S. operations. There can be no assurance that as SVG's customers
form additional alliances, whether in the U.S. or in other parts of the world,
that SVG will be successful in obtaining equipment orders or that it will be
able to obtain orders with sufficient gross margin to generate profitable
transactions, either of which could have an adverse effect on SVG's results of
operations.*
In the Pacific Rim, SVG has been investing in the staffing and facilities
necessary to sell, service and support customers, primarily in Korea, and
intends to commence such investments in Taiwan.* Throughout the Pacific Rim, SVG
will be competing with established equipment suppliers with significant market
share and anticipates that it will encounter significant price competition as
well as competition based on technological ability.* There can be no assurance
that SVG's Pacific Rim operations will be profitable, even if it is successful
in obtaining significant sales into this region.*
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<PAGE>
SVG LITHOGRAPHY SYSTEMS, INC. (SVGL)--UNCERTAIN MARKET FOR MICRASCAN
PRODUCTS
SVG believes that the photolithography exposure equipment market is one of
the largest segments of the semiconductor processing equipment industry.* To
address this market, SVG has invested and expects to continue to invest
substantial resources in SVGL's Micrascan technology and its family of Micrascan
deep ultraviolet ("Deep UV") step and scan photolithography systems, capable of
producing .25 and below micron line widths. The development of a market for
SVG's Micrascan step and scan photolithography products will be highly dependent
on the continued trend towards finer line widths in integrated circuits and the
ability of stepper manufacturers to keep pace with this trend through either
enhanced technologies or improved processes. Stepper manufacturers have been
successful in extending the capability of I-Line steppers which have been
utilized in the fabrication of complex semiconductor devices with line widths of
less than 0.5 micron, such as 64 megabit DRAMs. SVG believes Deep UV lithography
will be required to fabricate devices with line widths below 0.3 micron.*
Semiconductor manufacturers can purchase Deep UV steppers to produce product at
.25 micron line widths. However, SVG believes that as devices increase in
complexity and size and require finer line widths, the technical advantages of
Deep UV step and scan systems as compared to Deep UV steppers will enable
semiconductor manufacturers to achieve finer line widths, higher yields and
critical dimension control.* SVG also believes that the transition to Deep UV
step and scan systems will accelerate in calendar 1998 and that advanced
semiconductor manufacturers are beginning to require volume quantities of
production equipment as advanced as the current and pending versions of
Micrascan.* Currently, competitive Deep UV step and scan equipment capable of
producing .25 micron line widths is available from two competitors, and SVG
believes that at least one other manufacturer of advanced photolithography
systems will begin volume shipments of step and scan machines in the near
future.* There can be no assurance that SVG will be successful in competing with
such systems.* Further, if manufacturers of I-Line or Deep UV steppers are able
to further enhance existing technology to achieve finer line widths sufficiently
to erode the competitive and technological advantages of Deep UV step and scan
systems, demand for the Micrascan technology may not develop as SVG expects.*
SVG believes that advanced logic devices and DRAMs will require increasingly
finer line widths and that it is critical for SVGL to maintain technological
leadership.* Consequently, SVGL must continue to develop advanced technology
equipment capable of meeting its customers' current and future requirements
while offering those customers a progressively lower cost of ownership.* In
particular, SVG believes that it must continue its development of future systems
capable of printing line widths finer than .25 micron.*
SVGL--NEED TO INCREASE MANUFACTURING CAPACITY AND SYSTEM OUTPUT
SVG believes that its ability to supply systems in volume will be a major
factor in customer decisions to commit to the Micrascan technology.* Based upon
its forecast of continued high growth in demand for photolithography equipment
and potential future demand for advanced lithography products, SVG is increasing
SVGL's production capacity under an extremely aggressive expansion schedule. As
part of this expansion, SVG purchased from The Perkin-Elmer Corporation
("Perkin-Elmer") a 248,000 square foot facility occupied by SVGL in Wilton,
Connecticut and an additional 201,000 square foot building, which SVGL now
occupies, in Ridgefield, Connecticut. During fiscal 1997, SVG has invested in
significant further capital improvements related to the buildings purchased and
the equipment required to expand the production capabilities of SVGL.* In
addition to the timely construction and equipping of facilities, successful
completion of this expansion will require the recruitment, training and
retention of a high quality workforce, and the achievement of satisfactory
manufacturing results on a scale greater than SVGL has attempted in the past.
There can be no assurance SVG can manage these efforts successfully. Any failure
to manage such efforts could result in product delivery delays and a subsequent
loss of future revenues. In particular, SVG believes that protracted delays in
delivering initial quantities of Micrascan products could result in
semiconductor manufacturers electing to install competitive equipment in their
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<PAGE>
advanced fabrication facilities, which could impede acceptance of the Micrascan
products on an industry-wide basis. In addition, SVG's operating results could
also be adversely affected by the increase in fixed costs and operating expenses
related to increases in production capacity if net sales do not increase
commensurately.
The time required to build a Micrascan system is significant. If SVGL is to
be successful in supplying increased quantities of Micrascan systems, it will
not only need to be able to build more systems, it will need to build them
faster.* SVGL will require additional trained personnel and additional raw
materials and components, as well as improved manufacturing and testing
techniques to both facilitate volume and shorten manufacturing cycle time.* To
that end, SVGL is continuing to develop its vendor supply infrastructure,
increase its staffing levels and implement manufacturing improvements to meet
anticipated shipment volumes for 1998 and beyond.* Additionally, SVG must
increase its field service and technical support organization staffing and
infrastructure to support the anticipated customer requirements. There can be no
assurance that SVG will not experience manufacturing difficulties or encounter
problems in its attempt to increase production and upgrade or expand existing
operations.
One of the most critical components of the Micrascan systems are the
projection optics, which are primarily manufactured by SVGL. As part of its
overall investment in capacity, SVG is increasing SVGL's optical manufacturing
floorspace and procuring metrology equipment, and in some instances fabricating
test stands. SVG believes that in order for SVGL to attain it goals, it must be
successfully reduce the cycle times required to build projection optics and
increase the optical manufacturing output.*
SVG believes that protracted delays in delivering quantities of both current
and future generations of Micrascan products to multiple customers could result
in semiconductor manufacturers electing to install competitive equipment in
their advanced fabrication facilities, which could preclude industry acceptance
of the Micrascan technology and products.* In addition, SVG's operating results
could also be adversely affected by the increase in fixed costs and operating
expenses related to increases in production capacity and field service and
technical support activities if net sales do not increase commensurately.*
SVGL--SOLE SOURCE MATERIALS AND COMPONENTS
The raw material for a proprietary component of the optical system for the
Micrascan is available from only one supplier and SVGL's projected demand will
require that supplier to expand its capacity. The supplier has committed to
expand its capacity to meet SVGL's projected requirements in exchange for a
long-term, non-cancelable supply agreement. The agreement specifies quantities
of material that increase over time and the supplier is obligated to create and
store certain defined quantities of safety stock. Additionally, a version of
SVG's Micrascan III photolithography system utilizes an Excimer laser
manufactured in volume by only one supplier. There can be no assurance that
either supplier will be able to supply the quantities of material required by
SVGL. If either supplier was unable to meet its commitments, SVGL would be
unable to manufacture the quantity of systems required to meet the anticipated
future demand, which would have a material adverse effect on SVG's business and
results of operations.
SVGL--RESEARCH AND DEVELOPMENT FUNDING
Historically, SVG has depended on external funding to assist in the high
cost of development in its photolithography operation. During fiscal 1996, SVG
entered into agreements with certain customers (the "Participants") whereby each
agreed to assist in funding SVG's development of an advanced technology 193
nanometer Micrascan system. In exchange for such funding, each Participant
received the right to purchase one such system and, in addition, received a
right of first refusal (ratable among such Participants) to all such machines
manufactured during the first two years following the initial system shipments.
For each initial system ordered, each Participant agreed to fund $5,000,000 in
such development costs. The agreements call for each Participant to pay
$1,000,000 of initial development funding and four subsequent payments of
$1,000,000 upon the completion of certain development milestones. The
Participants may
15
<PAGE>
withdraw from the development program without penalty, but payments made against
completed development milestones are not refundable and all preferential rights
to future equipment are forfeited. At June 30, 1997, SVG had received
$13,000,000 in funding from six Participants, of which $5,098,000 had been
recognized and offset against research and development expenditures. In March
1997, one participant withdrew from the program. There can be no assurances that
the other Participants will remain in the program.* In the event that SVG does
not receive the funding anticipated under the agreements, it would be required
to replace the shortfall from its own funds or other sources. If SVG were
required to use its own funds, its research and development expenses would
increase and its operating income would be reduced correspondingly. The
agreements with the Participants stipulate that if SVG receives funding for the
development program in excess of $25,000,000, it will issue, ratably to the
Participants, credits totaling such excess in the form of a cash discount which
can be applied to the purchase of additional systems by each Participant. There
is no assurance that SVG will receive all funding which it currently anticipates
or that it will be able to obtain future outside funding beyond that which it is
currently receiving.
SVGL--MARKET PENETRATION
SVG believes that for SVGL to succeed in the long term, it must sell its
Micrascan products on a global basis. The Japanese market (including fabrication
plants operated outside Japan by Japanese semiconductor manufacturers) and the
Korean market represent a substantial portion of the overall market for
photolithography exposure equipment. To date, SVG has not been successful
penetrating either of these markets.
SVGL--FUTURE PROFITABILITY
While the recent volume of orders for Micrascan systems has been relatively
consistent and encouraging, they are not necessarily indicative of industry-wide
acceptance of the Micrascan technology. If SVGL is to attain its objective of
being a volume supplier of advanced photolithography systems, SVG believes that
it must expand its customer base to include additional customers from whom it
secures and successfully fulfills orders for production-quantities of Micrascan
systems.* Although SVGL is profitable, SVG believes that as a result of costs
associated with the continued development of the Micrascan technology, the
expansion of SVGL's manufacturing capacity, the related increase in manpower and
customer support, and the potential difficulties inherent in manufacturing
initial quantities of the .25 micron and sub-.25 micron Micrascan systems, in
particular the projection optics required for these systems, there can be no
assurance that SVGL will be able to operate profitably in the future.*
RAW MATERIALS
Most raw materials and components not produced by SVG are available from
more than one supplier. However, certain raw materials, components and
subassemblies are obtained from single sources or a limited group of suppliers.
Although SVG seeks to reduce its dependence on these sole and limited source
suppliers and SVG has not experienced significant production delays due to
unavailability or delay in procurement of component parts or raw materials to
date, disruption or termination of certain of these sources could occur and such
disruptions could have at least a temporary adverse effect on SVG's business and
results of operations. Moreover, a prolonged inability to obtain certain
components could have a material adverse effect on SVG's business and results of
operations and could result in damage to customer relationships. See
"--SVGL--Sole Source Materials and Components."
PATENTS AND LICENSES
As is typical in the semiconductor equipment industry, SVG has from time to
time received, and may in the future receive, communications from third parties
asserting patents or copyrights on certain of SVG's products and technologies.
At least one of SVG's customers has put SVG on notice that it has received a
notice of infringement from Jerome H. Lemelson, alleging that equipment used in
the
16
<PAGE>
manufacture of electronic devices infringes patents issued to Mr. Lemelson
relating to "machine vision" or "barcode reader" technologies. The customer has
put SVG on notice that it intends to seek indemnification from SVG for any
damages and expenses resulting from this matter if found liable or if the
customer settles the claim. Although SVG has not received any recent
communications on this subject, it cannot predict the outcome of this or any
similar claim or its effect upon SVG, and there can be no assurance that any
such litigation or claim would not have a material adverse effect upon SVG's
financial condition or results of operations.
ENVIRONMENTAL REGULATION
To date, SVG has not encountered significant issues regarding the discharge
of material into the environment or otherwise relating to the protection of the
environment and therefore has not been required to spend significant amounts for
capital or non-capital expenditures in order to comply with laws and regulations
pertaining thereto. In August 1996, SVG purchased from Perkin-Elmer,
approximately 50 acres of land and a 201,000 square foot building thereon (the
"Property") located in Ridgefield, Connecticut. At the time SVG purchased the
Property, it was aware that certain groundwater and soil contamination was
present and that the Property was subject to a clean-up order being performed by
Perkin-Elmer under the jurisdiction of the Connecticut Department of
Environmental Protection. Agreements between SVG and Perkin-Elmer provide that
Perkin-Elmer has sole responsibility for all obligations or liabilities related
to the clean-up order. While SVG believes that it has been adequately
indemnified, if for some reason Perkin-Elmer was unable to comply or did not
comply with the clean-up order, SVG could be required to do so.
BUSINESS INTERRUPTION
SVG manufactures its Track products in San Jose, California and
substantially all of its Thermco products in Orange, California. SVGL's
photolithography exposure products are manufactured in Wilton and Ridgefield,
Connecticut. If SVG were to lose the use of one of its facilities as a result of
an earthquake, flood or other natural disaster, the resultant interruptions in
operations would have a material adverse effect on SVG's results of operations
and financial condition. SVG's California facilities are located in seismically
active regions.
EMPLOYEES
SVG's future success is dependent upon its ability to attract and retain
qualified management, technical, sales and support personnel for its operations.
In particular, SVGL's growth is very dependent on SVG's ability to attract and
retain key skilled employees, particularly those related to the optical segment
of its business. The competition for such personnel is intense. Some key
positions in SVG are held by persons who have only recently been appointed to
such positions. SVG's growth has increased its dependence on key management
personnel. The loss of certain key people, the failure of key persons to perform
in their current positions or SVG's inability to attract and retain new key
employees could materially adversely affect SVG's performance.
RISKS RELATED TO TLI'S BUSINESS
RELIANCE ON SUPPLIERS
Certain of the raw materials, components and sub-systems that are required
for TLI's business are obtained from a single source or a limited group of
suppliers. The partial or complete loss of certain of these sources of suppliers
could have a material adverse effect on TLI's results of operations and could
damage certain of TLI's customer relationships.
17
<PAGE>
DEPENDENCE ON NEW PROCESSES AND PRODUCTS
In order to meet its strategic objectives, TLI must continue to develop new
and improve its existing manufacturing processes. The success of TLI in
developing, introducing and selling new and enhanced products depends upon a
variety of factors including product selection, timely and efficient completion
of product design and development, timely and efficient implementation of
manufacturing processes, effective sales and marketing and product performance
in the field. There can be no assurance that TLI will be able to develop and
introduce new products and processes or enhancements to its existing products
and processes in a manner that satisfies its customers' needs or achieves market
acceptance. The failure to do so could have a material adverse effect on the
business, results of operations or financial condition of TLI.
DEPENDENCE ON KEY PERSONNEL
TLI is highly dependent upon the experience and continuing service of
certain scientists, engineers and production and management personnel.
Competition for the services of these personnel is intense, and there can be no
assurance that TLI will be able to retain or attract the personnel necessary for
TLI's success. The loss of the services of TLI's key personnel could have a
material adverse effect on the business, results of operations or financial
condition of TLI.
COMPETITION
TLI has a number of present and potential competitors, most of which have
greater financial, technological, and personnel resources and greater
manufacturing and marketing capabilities than TLI. In addition, TLI competes in
many instances with the internal development efforts of its current and
prospective customers. TLI's competitors can be expected to continue to improve
the design and performance of their products and to introduce new products with
competitive price and/or performance characteristics. In order to compete
effectively, TLI will be required to continue investing in research and process
development and sales and marketing. There can be no assurance that TLI will be
able to make the technological advances necessary to maintain such competitive
advantages.
PROPRIETARY TECHNOLOGY CLAIMS
TLI does not currently hold any material patents and relies on a combination
of trade secrets and employee non-compete and non-disclosure agreements to
protect its intellectual property rights. There can be no assurance that the
steps taken by TLI to protect its rights will be adequate to prevent
misappropriation of TLI's technology or the development by TLI's competitors of
comparable current or future intellectual property. Furthermore, there can be no
assurance that, in the future, third parties will not assert infringement claims
against TLI. Asserting TLI's rights or defending against third-party claims
could involve substantial expense, which could materially and adversely affect
the business, results of operations or financial condition of TLI.
RISKS RELATED TO GOVERNMENT CONTRACTS
A significant portion of TLI's sales have historically been made pursuant to
government contracts. TLI expects, in the foreseeable future, to continue to
derive a significant portion of its revenues from such sales. TLI's government
contracts generally require TLI to maintain a separate and extensive set of
government-specific accounting records, and such contracts are generally subject
to oversight audits by government representatives. Any failure by TLI to
properly maintain its accounting records for government contracting purposes
could result in the loss of such contracts, which would have a material adverse
effect on TLI's business, results of operation or financial condition. In
addition, to the extent that any of TLI's senior management personnel are
required to devote significant amounts of time to compliance with audits
pertaining to TLI's government contracting activities, the attention of such
senior management personnel would be diverted from other TLI activities, in
which case TLI could be materially adversely
18
<PAGE>
affected. In addition to the foregoing, government contracts are also subject to
profit and cost controls and limitations, and to provisions permitting
termination, in whole or in part, without prior notice at the government's
convenience.
BUSINESS INTERRUPTION
TLI currently manufactures its precision optical components and subsystems
at its facility in Richmond, California and its film and video products at its
facility in Burbank, California. These areas have experienced significant
seismic activity in the past, and are likely to experience such activity in the
future. Given the complex nature of TLI's products, it would be difficult for
the Company to arrange for independent manufacturing facilities to supply such
products. Any prolonged inability to utilize either of TLI's manufacturing
facilities as a result of earthquake or other natural disaster or otherwise
would have a material adverse effect on the Company's financial condition and
results of operations.
CUSTOMER CONCENTRATION
A significant portion of TLI's sales has been derived from a limited number
of customers. For example, six customers accounted for approximately $3,879,000
in sales for the first 6 months of 1997 or 37% of total sales for such period,
and five customers accounted for approximately $4,717,000 in sales for 1996, or
27% of total sales for such period. TLI's customers generally do not enter into
long-term agreements obligating them to purchase TLI's products. The loss of any
one of these customers could have a material adverse effect on TLI's business,
results of operations or financial condition.
RISKS RELATED TO THE MERGER
UNCERTAINTY RELATING TO INTEGRATION
The successful combination of SVG and TLI, including the successful
operation of TLI as an autonomous subsidiary of SVG, will require substantial
effort from each company. The diversion of the attention of management and any
difficulties encountered in the transition process could have an adverse impact
on SVG's ability to realize the anticipated benefits of the Merger. The
successful combination of the two companies will also require coordination of
their research and development and sales and marketing efforts. In addition, the
process of combining the two organizations could cause the interruption of, or a
loss of momentum in, TLI's activities. There can be no assurance that SVG will
be able to retain TLI's key management, technical, sales and customer support
personnel, or that SVG will realize the anticipated benefits of the Merger.
EFFECT OF MERGER ON CUSTOMERS AND PARTNERS
Certain of TLI's existing customers or strategic partners may view
themselves as competitors of SVG, and therefore determine that the Merger is
competitively disadvantageous to them. As a consequence, TLI's relationship with
these customers or strategic partners could be adversely affected. In addition,
SVG's relationships with certain of its suppliers that compete with TLI may be
adversely affected by the Merger.
RISKS ASSOCIATED WITH FIXED EXCHANGE RATIO
As a result of the Merger, each outstanding share of TLI Common Stock will
be converted into 0.6594 of a share of SVG Common Stock. Because the Exchange
Ratio is fixed and will not increase or decrease due to fluctuations in the
market price of either SVG Common Stock or TLI Common Stock, the specific value
of the consideration to be received by TLI shareholders in the Merger will
depend on the market price of SVG Common Stock at the Effective Time. In the
event that the market price of SVG Common Stock decreases or increases prior to
the Effective Time, the market value at the Effective Time of SVG Common Stock
to be received by TLI shareholders in the Merger would correspondingly decrease
or
19
<PAGE>
increase. The market prices of SVG Common Stock and TLI Common Stock as of a
recent date are set forth herein under "Summary--Market and Price Data," and
"Market Price Information." TLI shareholders are advised to obtain recent market
quotations for SVG Common Stock and TLI Common Stock. SVG Common Stock and TLI
Common Stock historically have been subject to substantial price volatility. No
assurance can be given as to the market prices of SVG Common Stock or TLI Common
Stock at any time before the Effective Time or as to the market price of SVG
Common Stock at any time thereafter. See "Summary--Market and Price Data,"
"Market Price Information" and "Comparison of Capital Stock."
UNCERTAINTY OF TRANSFERABILITY OF TECHNOLOGY AND EXPERTISE
A primary reason for SVG entering into the Merger is to transfer TLI's
technology and expertise relating to aspherical lenses, a key component of SVG's
photolithography products, and to have TLI commence fabrication of
non-aspherical lenses which are currently produced by SVG. There can be no
assurance that such technology is scalable, or that such expertise can be
transferred without substantial time or expense, if at all. Much of TLI's
expertise is embodied in the highly skilled craftsmen who produce TLI's lenses.
There can be no assurance that all or most of those individuals will continue as
employees of the Surviving Corporation, or be able to transfer their expertise
to SVG, or that TLI will be successful in expanding its operations to produce
non-aspherical lenses. The inability of SVG to transfer this production
technology for use in processes of a substantially larger scale could have a
material adverse effect on SVG's ability to realize any significant benefits
from the Merger.
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<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of SVG and
TLI and certain equivalent TLI per share data. The information set forth below
should be read in conjunction with the selected historical financial data
included elsewhere in and incorporated by reference into this Proxy Statement/
Prospectus. Pro forma SVG data giving effect to the Merger on a pooling of
interests basis has not been presented because it is not materially different
from historical SVG information.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
HISTORICAL--SVG
Net income per share............................................................... $ 0.84 $ 1.57 $ 2.07
Cash dividends per share........................................................... -- -- --
Book value per share (at period end)(1)............................................ 8.87 13.88 17.96
<CAPTION>
FISCAL YEAR ENDED
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
HISTORICAL--TLI
Net income per share............................................................... $ 0.23 $ 0.08 $ 0.53
Cash dividends per share........................................................... -- -- --
Book value per share (at period end)(1)............................................ 5.35 5.33 5.86
<CAPTION>
FISCAL YEAR ENDED
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
EQUIVALENT--TLI(2)
Net income per share............................................................... $ 0.34 $ 0.12 $ 0.80
Cash dividends per share........................................................... -- -- --
Book value per share (at period end)............................................... 8.11 8.08 8.89
</TABLE>
- ------------------------
(1) Historical book value per share is computed by dividing total stockholders'
equity by the number of shares outstanding at the end of each period.
(2) The equivalent TLI per share data is calculated based on TLI historical data
and an assumed exchange ratio in the Merger of 0.6594 of a share of SVG
Common Stock for each share of TLI Common Stock outstanding.
21
<PAGE>
MARKET PRICE INFORMATION
The table below sets forth, for the calendar quarters indicated, the
reported high and low closing prices of SVG Common Stock and TLI Common Stock,
as reported on the Nasdaq. TLI Common Stock Prices have been adjusted
retroactively to reflect the two-for-one stock split effected in August 1996.
<TABLE>
<CAPTION>
SVG COMMON STOCK TLI COMMON STOCK
------------------ ------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
1994 Calendar Year
First Quarter............................................................. $12 1/8 $ 9 1/4 $ 3 7/8 $ 3 1/4
Second Quarter............................................................ 13 3/8 9 1/2 3 5/16 3 3/4
Third Quarter............................................................. 12 3/8 9 1/4 3 1/4 2 3/4
Fourth Quarter............................................................ 14 7/8 11 3/8 3 1/4 2 3/8
1995 Calendar Year
First Quarter............................................................. $21 1/4 $14 $ 3 3/16 $ 2 3/8
Second Quarter............................................................ 30 3/4 18 3/8 3 3/8 2 3/4
Third Quarter............................................................. 37 1/8 24 7/8 3 7/8 3 1/8
Fourth Quarter............................................................ 49 3/8 32 5/8 3 5/8 3 1/8
1996 Calendar Year
First Quarter............................................................. $38 1/2 $23 $ 4 1/8 $ 3 1/8
Second Quarter............................................................ 30 5/8 18 1/4 6 7/8 3 1/2
Third Quarter............................................................. 27 17 7/32 7 1/4 5 1/2
Fourth Quarter............................................................ 19 3/8 15 3/8 8 1/2 6
1997 Calendar Year
First Quarter............................................................. $27 1/8 $18 5/8 $10 3/4 $ 7 1/2
Second Quarter............................................................ 26 3/8 18 1/2 9 3/16 6 1/2
Third Quarter (through October 14, 1997 for TLI).......................... 37 3/4 28 1/2 24 1/2 9 13/16
Fourth Quarter (through October 14, 1997 for SVG)......................... 35 13/16 32 11/16
</TABLE>
The table below sets forth the closing prices per share of SVG Common Stock
and TLI Common Stock on Nasdaq on September 9, 1997, the last full trading date
prior to the public announcement of the signing of Reorganization Agreement, and
on October 20, 1997, the last practicable trading date for which information is
available before the printing of this Proxy Statement/Prospectus; and the
equivalent per share prices for TLI Common Stock based on the SVG Common Stock
prices multiplied by the Exchange Ratio of 0.6594.
<TABLE>
<CAPTION>
SVG COMMON TLI COMMON TLI
STOCK STOCK EQUIVALENT
------------- ------------- -----------
<S> <C> <C> <C>
September 9, 1997....................................................... $ 33.50 $ 10.75 $ 22.09
October 20, 1997........................................................ $ 30.75 $ 20.27 $ 19.00
</TABLE>
Because the Exchange Ratio is fixed, changes in the market price of SVG
Common Stock will affect the dollar value of SVG Common Stock to be received by
shareholders of TLI in the Merger. TLI shareholders are urged to obtain current
market quotations for SVG Common Stock and TLI Common Stock prior to the TLI
Shareholders Meeting.
To date, SVG has not declared or paid dividends on its Common Stock. The
Board of Directors of SVG presently intends to retain all earnings for use in
SVG's business and therefore does not anticipate declaring or paying any cash
dividends in the foreseeable future. In addition, SVG's revolving credit
facility prohibits the payment of cash dividends on SVG Common Stock.
22
<PAGE>
TINSLEY LABORATORIES, INC.
SHAREHOLDERS MEETING
DATE, TIME AND PLACE OF TLI SHAREHOLDERS MEETING
The TLI Shareholders Meeting will be held at the offices of TLI located at
3900 Lakeside Drive, Richmond, California 94806, on November , 1997 at 10:00
a.m., local time.
PURPOSE
The purpose of the TLI Shareholders Meeting is to vote upon a proposal to
approve and adopt the Reorganization Agreement and approve the Merger.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of TLI Common Stock on the Record Date are entitled
to notice of, and to vote at, the TLI Shareholders Meeting. As of the Record
Date, there were shareholders of record holding an aggregate of
approximately shares of TLI Common Stock.
This Proxy Statement/Prospectus is being mailed on or about October , 1997
to all shareholders of record of TLI as of the Record Date.
VOTE REQUIRED
Pursuant to the California General Corporation Law ("CGCL"), the affirmative
vote of the holders of a majority of the shares of TLI Common Stock outstanding
as of the Record Date is required to approve and adopt the Reorganization
Agreement and approve the Merger. Each holder of record of TLI Common Stock on
the Record Date will be entitled to cast one vote per share on the proposal to
be acted upon at the TLI Shareholders Meeting. As of the Record Date, the
directors and executive officers of TLI and their affiliates held approximately
% of the outstanding shares of TLI Common Stock. See "Security Ownership of
Management and Principal Shareholders of TLI."
The presence, in person or by proxy, of at least a majority of the
outstanding shares of TLI Common Stock entitled to vote at the TLI Shareholders
Meeting is necessary to constitute a quorum for the transaction of business.
Abstentions will be counted for purposes of determining a quorum. For purposes
of obtaining the required vote of a majority of the outstanding shares of TLI
Common Stock for approval and adoption of the Reorganization Agreement and
approval of the Merger, the effect of an abstention and the effect of a non-vote
are the same as that of a vote against the proposal.
Certain executive officers, directors and principal shareholders of TLI (who
as of the Record Date owned in the aggregate approximately % of the
outstanding shares of TLI Common Stock) have entered into agreements with SVG
which obligates each such holder to vote all shares of TLI Common Stock held by
such holder in favor of the proposal to approve and adopt the Reorganization
Agreement and approve the Merger.
PROXIES
Each of the persons named in the proxy is an officer of TLI. All shares of
TLI Common Stock that are entitled to vote and are represented at the TLI
Shareholders Meeting by properly executed proxies received prior to or at the
TLI Shareholders Meeting and not duly and timely revoked will be voted at the
TLI Shareholders Meeting in accordance with the instructions indicated on such
proxies. If no such instructions are indicated, such proxies will be voted to
approve and adopt the Reorganization Agreement and to approve the Merger.
Execution of a proxy does not in any way affect a shareholder's right to
attend the meeting and vote in person. Any proxy may be revoked by a shareholder
at any time before it is exercised by delivering a
23
<PAGE>
written revocation or a later-dated proxy to the Secretary of TLI, or by
attending the meeting and voting in person. Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to TLI at 3900 Lakeside
Drive, Richmond, California 94806, Attention: Secretary, or hand-delivered to
the Secretary of TLI, in each case at or before the taking of the vote at the
TLI Shareholders Meeting.
SOLICITATION OF PROXIES; EXPENSES
All costs of solicitation of proxies will be borne by TLI. Brokers,
custodians and fiduciaries will be requested to forward proxy solicitation
material to the owners of stock held in their names, and TLI will reimburse them
for their reasonable out-of-pocket costs. In addition, proxies may also be
solicited by directors, officers and employees of TLI personally or by mail,
telephone or telegraph following the original solicitation. Such persons will
not receive additional compensation for such solicitation. TLI's expenses for
soliciting the proxies is estimated at $6,000.
RECOMMENDATION OF TLI BOARD OF DIRECTORS
The TLI Board has unanimously approved the Reorganization Agreement and the
transactions contemplated thereby and has determined that the Merger is fair to,
and in the best interests of, TLI and its shareholders. THE TLI BOARD
UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE
REORGANIZATION AGREEMENT AND APPROVAL OF THE MERGER.
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APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
OTHER THAN STATEMENTS OF HISTORICAL FACT, THE STATEMENTS MADE IN THIS
SECTION, INCLUDING STATEMENTS AS TO THE BENEFITS EXPECTED TO RESULT FROM THE
MERGER AND AS TO FUTURE FINANCIAL PERFORMANCE ARE FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
EXCHANGE ACT. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
SET FORTH IN "RISK FACTORS" AND ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS.
SVG'S REASONS FOR THE MERGER
The Board of Directors of SVG has identified several benefits of the Merger,
including the following:
- SVG believes that by virtue of this acquisition it will be able to enhance
its precision optics manufacturing technological capability. The Merger is
synergistic because the combination of TLI's core competence in computer
controlled polishing technology and SVG's metrology technology will enable
improved repeatability and potentially a reduction in cycles of precision
lens polishing.
- The Merger of TLI will allow SVG to increase its capacity to produce
precision spherical optical components, in addition to aspherical lenses
for its photolithography division, which constitute a critical component
of projection optics used in substantially all of SVG's step and scan
photolithography products.
- The Merger is of strategic importance to SVG because it enables SVG to
bring in-house the expertise of what it believes to be the best source for
aspherical lenses, thereby limiting SVG's dependence on outside suppliers.
Aspherical lenses are a critical component of SVG's step and scan
photolithography products.
- SVG believes that extreme ultra violet ("Extreme UV") has the potential to
be a major factor in future generations of photolithography technology.
TLI's precision optics technology and know-how makes it particularly
qualified for the development of such technology.
TLI'S REASONS FOR THE MERGER
The TLI Board believes that the Merger is fair to and in the best interests
of TLI and its shareholders, and the TLI Board has unanimously approved the
Reorganization Agreement and the Merger. The following are among the reasons the
TLI Board believes the Merger will be beneficial to TLI and its shareholders:
- The Merger is expected to provide TLI's shareholders with SVG Common
Stock, in a tax-free exchange, at a significant premium over the market
price for shares of TLI Common Stock prevailing prior to the public
announcement of the Merger.
- The Merger is expected to provide TLI's shareholders with greater
liquidity in respect of their investment since the market for SVG's Common
Stock is significantly larger and has historically been much more active
than the market for TLI's Common Stock.
- The Merger is expected to provide TLI with greater resources with which to
develop and expand its manufacturing capabilities and technology.
- The Merger is expected to provide TLI with additional technological and
other support from SVG in TLI's capacity as a wholly-owned subsidiary of
SVG.
In addition to the factors set forth above, in the course of its
deliberations concerning the Merger, the TLI Board consulted with TLI's legal
advisors as well as TLI's management, and reviewed a number of other factors
relevant to the Merger, including (i) reports from management and legal advisors
on specific
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terms of the Reorganization Agreement and ancillary transaction agreements
referred to in the Reorganization Agreement; (ii) information concerning the
financial performance, business operations and prospects of SVG presented at
meetings of the TLI Board, including among other things, SVG's recent and
historical stock and earnings performance; (iii) TLI's understanding that TLI
would operate as a wholly-owned subsidiary of SVG after the Merger, with
sufficient independence to continue to implement its business strategy; (iv)
TLI's belief that the management styles and corporate cultures of the two
companies would be complementary; (v) the expected tax and accounting treatment
of the Merger; (vi) TLI's assessment of the financial fairness of the Exchange
Ratio to the holders of TLI Common Stock; and (vii) the fact that the
Reorganization Agreement would permit the TLI Board to terminate the agreement
under certain circumstances.
The TLI Board also considered a number of potentially negative factors in
its deliberations concerning the Merger, including (i) the possibility of
management disruption associated with the Merger and the risk that key technical
and management personnel of TLI might not continue with TLI; (ii) the risks
associated with obtaining necessary approvals of the Merger and the possibility
that the Merger may not be consummated even if approved by TLI's shareholders;
(iii) the possibility that the Merger might adversely affect TLI's relationship
with certain of its customers; (iv) the possibility of a decline in the value of
SVG Common Stock; and (v) the risk that the potential benefits of the Merger
might not be realized. The TLI Board concluded, however, that the benefits of
the transaction to TLI and its shareholders outweighed the risks associated with
the foregoing factors. In considering the Merger, the TLI Board also concluded
that, in order to minimize certain risks, TLI should continue to focus on its
current business and support its existing customer base while expanding its
manufacturing capabilities on the West Coast to fabricate microlithography
optics.
The foregoing discussion of the information and factors considered by the
TLI Board in connection with its evaluation of the Merger is not intended to be
exhaustive but is intended to include all of the material factors considered by
the directors. In view of the wide variety of factors considered by the TLI
Board, the TLI Board did not find it practical to, and did not, quantify or
otherwise assign relative weights to the specific factors considered.
RECOMMENDATION OF TLI'S BOARD OF DIRECTORS
AT A SPECIAL MEETING OF THE TLI BOARD HELD ON SEPTEMBER 9, 1997, THE TLI
BOARD UNANIMOUSLY DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF TLI AND ITS SHAREHOLDERS, UNANIMOUSLY APPROVED THE REORGANIZATION
AGREEMENT AND THE MERGER, AND UNANIMOUSLY RECOMMENDED APPROVAL AND ADOPTION OF
THE REORGANIZATION AGREEMENT AND APPROVAL OF THE MERGER BY TLI'S SHAREHOLDERS.
MATERIAL CONTACTS AND BOARD DELIBERATIONS
SVG and TLI have had a commercial relationship since November 22, 1994, when
TLI began supplying aspherical lenses to SVG for use in SVG's photolithography
products pursuant to a purchase order issued by SVG.
On February 26, 1997, Robert Richardson, Corporate Vice President, New
Business Development of SVG, and Boris Lipkin, Corporate Vice President, Human
Resources and Procurement of SVG met with Robert Aronno, President and Chief
Executive Officer of TLI, at TLI's Richmond, California facility, to discuss
TLI's then current optics supply agreement with SVG and an expansion of the
business relationship to include technology transfer and spherical lens
manufacturing.
On March 25, 1997, Mr. Richardson and Mr. Aronno met at SVG's offices in San
Jose, California to further discuss the expansion of the optics supply
arrangement and other possible business arrangements. At this meeting, Mr.
Aronno disclosed to Mr. Richardson that a third party, a customer of TLI, was
negotiating to purchase a minority stake in TLI. After discussing the
implications of such an investment in TLI on SVG's relationship with TLI, Mr.
Richardson indicated that SVG might be interested in pursuing
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an equity transaction with TLI. Mr. Richardson indicated that, if TLI were
interested, Mr. Richardson would pursue the possibility of an SVG investment in
TLI with SVG's management. Mr. Aronno indicated that the TLI Board would be
willing to consider a proposal from SVG.
After a number of internal meetings among management at SVG to discuss a
possible transaction with TLI, Mr. Richardson and Papken Der Torossian, Chief
Executive Officer and Chairman of the Board of Directors of SVG, held a
telephone conference on April 11, 1997 with Mr. Aronno. During this discussion,
the prospect of a purchase by SVG of all of the outstanding stock of TLI was
raised for the first time. The parties also discussed possible structures for
such a transaction.
On April 24, 1997, Mr. Richardson and Mr. Aronno held a telephone conference
in which Mr. Aronno verbally provided a general overview of TLI's business for
the next succeeding two fiscal years.
On May 12, 1997, Mr. Richardson and Russell Weinstock, Vice President and
Chief Financial Officer of SVG, met with Mr. Aronno at TLI's offices in
Richmond, California. At this meeting, Mr. Aronno gave Messrs. Richardson and
Weinstock a tour of TLI's Richmond, California facility. The parties then
further discussed TLI's business operations and the possibility of an agreement
to negotiate with SVG exclusively.
On May 27, 1997, Mr. Richardson and Subrata Chatterji, Corporate Manager,
Business Development of SVG, met with Mr. Aronno to discuss the terms of a
confidentiality agreement, a draft of which had been previously provided to TLI
as the basis for the exchange of additional information in connection with a
possible transaction between SVG and TLI. SVG informed TLI at this meeting that,
as part of the confidentiality agreement, a standstill agreement would be
required before negotiations proceeded further.
On June 2, 1997, Mr. Richardson and Mr. Aronno met at the Holiday Inn in
Milpitas to review the confidentiality agreement.
On June 3, 1997, the parties entered into the confidentiality agreement
which provided for, among other things, TLI's agreement not to solicit or
entertain alternative proposals to acquire or invest in TLI for a period of 75
days.
On June 4, 1997, Messrs. Richardson and Chatterji and Mr. Aronno met at
SVG's offices in San Jose, California. The parties discussed TLI's key
employees, the nature and extent of TLI's outstanding stock options and the
capitalization of TLI generally, including the concentration of stock ownership.
The parties also reviewed the financial data supplied by TLI and discussed
various customers of TLI.
On June 5, 1997, the discussions of the prior day were continued
telephonically. During this phone conference, the parties discussed for the
first time the possible range of values for an acquisition, SVG's desire to
obtain voting agreements from certain key shareholders of TLI and SVG's desire
for an escrow of a portion of the consideration payable in the transaction.
On June 13, 1997, SVG delivered to TLI a non-binding term sheet setting out
the proposed terms of an acquisition of all of the outstanding stock of TLI,
with the exception of an exchange ratio for the exchange of TLI Common Stock
into SVG Common Stock.
From June 13, 1997 through September 2, 1997, SVG conducted a due diligence
review of TLI's operations, material contracts, corporate records and
facilities.
On June 20, SVG delivered to TLI its initial draft Reorganization Agreement,
which draft omitted an exchange ratio for the exchange of TLI stock into SVG
stock, which was still under negotiation.
On June 27, 1997, Messrs. Richardson, Weinstock and Chatterji met with Mr.
Aronno to negotiate the terms of the Reorganization Agreement. Among the issues
discussed were the assumption of outstanding TLI options, the size of the
proposed break-up fee, whether a meeting of TLI's shareholders would have to be
called by TLI if a Superior Proposal (as defined in the Reorganization
Agreement) were received by TLI, certain of the representations and warranties
being requested by either party and various due diligence issues.
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On June 30, 1997, Mr. Weinstock and Mr. Aronno held a telephone discussion
on certain open issues, including the break-up fee and whether or not SVG would
be entitled to an option to acquire up to 20% of TLI Common Stock in the event
the Merger was not consummated.
On July 9, 1997, Messrs. Richardson and Chatterji met with Mr. Aronno at
SVG's offices in San Jose to review TLI's preliminary second quarter financial
statements.
From July 16 through July 18, 1997, representatives of SVG's
photolithography division, SVGL, met with Mr. Aronno and certain operations
personnel from TLI to conduct a preliminary review of TLI's optics manufacturing
technology, metrology capability and human and physical resources.
On July 28, 1997, Mr. Ken Clark, Director of Risk Management for SVG, met
with Mr. Aronno and Stephen Hertzog, Quality Assurance Manager of TLI, to
conduct an environmental due diligence review of TLI's facilities in Richmond,
California. On July 30, 1997, Mr. Clark conducted an environmental review of
Century's operations in Burbank, California with William Turner, General Manager
of Century. As a result of such review, SVG engaged an environmental consulting
firm to conduct additional environmental due diligence, including soil and
ambient air testing.
On August 5, 1997, Debra Young, Director of Accounting of SVG met with Mr.
Aronno and Bruce Layne, Controller of TLI, to review TLI's financial and
accounting records.
On August 6, 1997, Ms. Young met with Mr. Turner of Century to review the
financial and accounting records relating to Century's business.
On August 8, 1997, Messrs. Richardson and Weinstock conducted a telephone
conference with Mr. Aronno to discuss the valuation of TLI and what would be an
acceptable exchange ratio to SVG based on its financial due diligence conducted
to date.
On August 12, 13 and 14, 1997, James McClay, Vice President of Optical
Operations, Edward Kelley, Manager of Optical Fabrication and Thomas Fahey,
Manager Subcontract-Optical, of SVG met with Mr. Aronno and Daniel Bajuk,
Executive Vice President of TLI, to discuss TLI's manufacturing capacity and
certain technical aspects of TLI's manufacturing processes.
On August 14, 1997, Mr. McClay and Mr. Turner met in Burbank to conduct
technical due diligence of Century's business operations.
On August 17, 1997, the exclusivity period provided in the confidentiality
agreement expired. TLI declined SVG's request for an extension of the
exclusivity period requested by Mr. Richardson in a telephone conversation with
Mr. Aronno on this date.
On August 18, 1997, Mr. Richardson and Mr. Turner met in Burbank to discuss
Century's business operations.
On August 26, 1997, a conference call was held between Messrs. Richardson
and Chatterji and Mr. Aronno as well as their respective legal counsel to
discuss certain environmental due diligence issues relating to TLI's Richmond
facility.
On September 2, 1997, Mr. Clark and a representative of SVG's environmental
consultant met at Tinsley's Richmond facility to conclude the environmental
review of TLI's facilities.
On September 5, 1997, Messrs. Richardson and Clark apprised Mr. Aronno about
the preliminary findings of the SVG's environmental consulting firm. The
preliminary findings revealed no significant environmental issues.
From September 2 through September 8, 1997, representatives of SVG and TLI
conducted final negotiations on the remaining unresolved issues. On the morning
of September 9, 1997, the parties agreed to an exchange ratio and, having
resolved all remaining issues, exchanged signature pages to the Reorganization
Agreement.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the TLI Board with respect to the
Reorganization Agreement and the Merger, holders of shares of TLI Common Stock
should be aware that certain executive officers of TLI have certain interests in
the Merger that are in addition to the interests of holders of TLI Common Stock
generally. In particular, certain of TLI's executive officers are expected to
enter into employment agreements following the Merger. The TLI Board has
considered these interests, among other matters, in approving the Reorganization
Agreement and the Merger.
STOCK OPTIONS
At the Effective Time, each outstanding option issued pursuant to TLI's 1993
Incentive Stock Option Plan (the "ISO Plan") and all nonqualified stock options
then outstanding will be assumed by SVG. Each option so assumed will continue to
have, and be subject to, the same terms and conditions set forth in the ISO Plan
and/or the stock option agreement by which it is evidenced, except that each
option will be or become exercisable for SVG Common Stock rather than TLI Common
Stock. See "Terms of the Merger-- Treatment of Employee Equity Benefit Plans."
As of the Record Date, certain executive officers and directors of TLI owned
outstanding options to purchase up to an aggregate of shares of TLI
Common Stock. The exercise prices for such options range between $2.75 and $3.50
per share.
INDEMNIFICATION AND INSURANCE
Pursuant to the Reorganization Agreement, SVG has agreed that, after the
Effective Time, it will cause the Surviving Corporation to fulfill and honor in
all respects the obligations of TLI pursuant to any indemnification agreement
between TLI and each person who is or was a director or officer of TLI or any of
its subsidiaries and any indemnification provisions of TLI's Articles of
Incorporation or Bylaws in effect on the date of the Reorganization Agreement.
See "Terms of the Merger--Indemnification and Insurance."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations relevant to the conversion of shares of TLI Common Stock into
shares of SVG Common Stock pursuant to the Merger that are generally applicable
to holders of TLI Common Stock. This discussion is based on currently existing
provisions of the Code, existing and proposed Treasury Regulations thereunder
and current administrative rulings and court decisions, all of which are subject
to change. Any such change, which may or may not be retroactive, could alter the
tax consequences to SVG, TLI or TLI's shareholders as described herein.
TLI shareholders should be aware that this discussion does not deal with all
federal income tax considerations that may be relevant to particular TLI
shareholders in light of their particular circumstances, such as shareholders
who are dealers in securities, who are subject to the alternative minimum tax
provisions of the Code, who are foreign persons, who do not hold their TLI
Common Stock as capital assets or who acquired their shares in connection with
stock option plans or in other compensatory transactions. In addition, the
following discussion does not address the tax consequences of the Merger under
foreign, state or local tax laws, the tax consequences of transactions
effectuated prior or subsequent to, or concurrently with, the Merger (whether or
not any such transactions are undertaken in connection with the Merger),
including without limitation any transaction in which shares of TLI Common Stock
are acquired or shares of SVG Common Stock are disposed of, or the tax
consequences of the assumption by SVG of the TLI options. Accordingly, TLI
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES.
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The Merger is intended to constitute a "reorganization" within the meaning
of the Code (a "Reorganization"), in which case, subject to the limitations and
qualifications referred to herein, the Merger will generally result in the
following federal income tax consequences:
(a) No gain or loss will be recognized by holders of TLI Common Stock upon
their receipt in the Merger of shares of SVG Common Stock except to the extent
of cash received in lieu of fractional shares.
(b) The aggregate tax basis of the SVG Common Stock received by TLI
shareholders in the Merger (including any fractional shares not actually
received) will be the same as the aggregate tax basis of the TLI Common Stock
converted pursuant to the Merger.
(c) The holding period of the SVG Common Stock received by each TLI
shareholder in the Merger will include the period for which the TLI Common Stock
surrendered in exchange therefor was considered to be held, provided that the
TLI Common Stock so surrendered is held as a capital asset at the time of the
Merger.
(d) A shareholder who exercises dissenters' rights with respect to a share
of TLI Common Stock and receives payment for such share in cash will generally
recognize gain or loss for federal income tax purposes, measured by the
difference between the holder's basis in such share and the amount of cash
received, provided that the payment is neither essentially equivalent to a
dividend within the meaning of Section 302 of the Code nor has the effect of a
distribution of a dividend within the meaning of Section 356(a)(2) of the Code
(collectively, a "Dividend Equivalent Transaction"). A sale of TLI Common Stock
pursuant to an exercise of dissenters' rights will generally not be a Dividend
Equivalent Transaction if, as a result of such exercise, the shareholder
exercising dissenters' rights owns no shares of SVG Common Stock (either
actually or constructively within the meaning of Section 318 of the Code). If,
however, a shareholder's sale for cash of TLI Common Stock pursuant to an
exercise of dissenters' rights is a Dividend Equivalent Transaction, then such
shareholder will generally recognize income for federal income tax purposes in
an amount up to the entire amount of cash so received.
(e) Cash payments in lieu of a fractional share will be treated as if a
fractional share of SVG Common Stock had been issued in the Merger and then
redeemed by SVG. A TLI shareholder receiving such cash will generally recognize
gain or loss upon such payment equal to the difference (if any) between such
shareholder's basis in the fractional share and the amount of cash received.
(f) Neither SVG nor TLI will recognize any gain solely as a result of the
Merger.
The parties are not requesting a ruling from the Internal Revenue Service
("IRS") in connection with the Merger. The obligations of each of SVG and TLI to
effect the Merger are contingent on receipt of an opinion from their respective
counsel (Wilson Sonsini Goodrich & Rosati, P.C. and Clark & Trevithick,
respectively), to the effect that, for federal income tax purposes, the Merger
will qualify as a "reorganization" within the meaning of Section 368(a) of the
Code. These opinions, which are collectively referred to herein as the "Tax
Opinions," will neither bind the IRS nor preclude the IRS from adopting a
contrary position. In addition, the Tax Opinions will be subject to certain
assumptions and qualifications and will be based on the truth and accuracy of
certain representations made by SVG, Merger Sub and TLI, including
representations in certificates delivered to counsel by the respective
managements of SVG, Merger Sub and TLI. Of particular importance are those
assumptions and representations relating to the "continuity of interest"
requirement.
To satisfy the continuity of interest requirement, TLI shareholders must
not, pursuant to a plan or intent existing at or prior to the Merger, dispose of
or transfer so much of either (i) their TLI Common Stock in anticipation of the
Merger or (ii) the SVG Common Stock to be received in the Merger (collectively,
"Planned Dispositions"), such that TLI shareholders, as a group, would no longer
have a significant equity interest in the TLI business being conducted after the
Merger. TLI shareholders will generally be regarded as having a significant
equity interest as long as the number of shares of SVG Common Stock received in
the Merger less the number of shares subject to planned dispositions (if any)
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represents, in the aggregate, a substantial portion of the entire consideration
received by the TLI shareholders in the Merger. No assurance can be made that
the continuity of interest requirement will be satisfied, and if such
requirement is not satisfied, that the Merger would not be treated as a
Reorganization. The Tax Opinions rely in part on representations from SVG and
TLI relating to the continuity of interest requirement.
A successful IRS challenge to the Reorganization status of the Merger (as a
result of a failure to satisfy the continuity of interest requirement or
otherwise) would result in TLI shareholders recognizing taxable gain or loss
with respect to each share of TLI Common Stock surrendered equal to the
difference between the shareholder's basis in such share and the fair market
value, as of the Effective Time, of the SVG Common Stock received in exchange
therefor. In such event, a shareholder's aggregate basis in the SVG Common Stock
so received would equal its fair market value, and the shareholder's holding
period for such stock would begin the day after the Merger.
GOVERNMENTAL AND REGULATORY MATTERS
Under the HSR Act, and the rules promulgated thereunder by the FTC, the
Merger cannot be consummated until notifications have been given to the FTC or
the Antitrust Division and the specified waiting period has expired or
terminated early. The notifications required under the HSR Act have been
furnished to the FTC and the Antitrust Division and the specified waiting period
under the HSR Act for the Merger is expected to expire on November 13, 1997,
assuming no request for further information from either the FTC or the Antitrust
Division is received. At any time before or after consummation of the Merger,
and notwithstanding the expiration of the applicable waiting periods under the
HSR Act, the Antitrust Division, the FTC or any state or foreign governmental
authority could take such action under the antitrust laws as it deems necessary
or desirable in the public interest. Such action could include seeking to enjoin
the consummation of the Merger or seeking divestiture of TLI or businesses of
SVG or TLI by SVG. Private parties may also seek to take legal action under the
antitrust laws under certain circumstances.
Based on information available to them, SVG and TLI believe that the Merger
will be effected in compliance with federal and state antitrust laws. However,
there can be no assurance that a challenge to the consummation of the Merger on
antitrust grounds will not be made or that, if such a challenge were made, SVG
and TLI would prevail.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for financial
reporting purposes in accordance with generally accepted accounting principles.
This accounting method would permit the recorded assets and liabilities of TLI
to be carried forward to the consolidated financial statements of SVG at their
recorded historical amounts. Consummation of the Merger is conditioned upon (i)
receipt by SVG of a letter from its independent auditors dated the Closing Date
to the effect that such auditors concur with SVG management's conclusion that
pooling of interests accounting for the Merger is appropriate and (ii) receipt
by TLI of a letter from its independent auditors dated on the Closing Date to
the effect that such auditors concur with TLI management's conclusion that no
conditions exist relating to TLI that would preclude SVG from accounting for the
Merger as a pooling of interests.
RIGHTS OF DISSENTING SHAREHOLDERS
If the Merger is consummated, holders of TLI Common Stock who have properly
exercised dissenters' rights in connection with the Merger under Sections
1300-1312 ("Chapter 13") of the CGCL will have the right to receive such
consideration as may be determined to be due with respect to Dissenting Shares
(as defined below) pursuant to the laws of the State of California, so long as
demands for such consideration
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are properly filed at or before the TLI Shareholders Meeting with respect to 5%
or more of the outstanding shares of TLI Common Stock.
The following summary of the provisions of Chapter 13 is not intended to be
a complete statement of such provisions, and TLI shareholders are urged to read
the full text of Chapter 13, a copy of which is attached to this Proxy
Statement/Prospectus as Annex B.
If the Merger is approved by the required vote of the holders of TLI Common
Stock and is not abandoned or terminated, each holder of shares of TLI Common
Stock who votes against the Merger and who follows the procedures set forth in
Chapter 13 will be entitled to have his or her shares of TLI Common Stock
purchased by TLI for cash at their fair market value, so long as demands for
such consideration are properly filed at or before the TLI Shareholders Meeting
with respect to 5% or more of the outstanding shares of TLI Common Stock. The
fair market value of shares of TLI Common Stock will be determined as of the day
before the first announcement of the terms of the Merger, excluding any
appreciation or depreciation resulting as a consequence of the Merger, but
adjusted for any stock split, reverse stock split or share dividend that becomes
effective thereafter. The shares of TLI Common Stock with respect to which
holders have perfected their purchase demand in accordance with Chapter 13 and
have not effectively withdrawn or lost such rights are referred to as the
"Dissenting Shares."
Within 10 days after approval of the Merger by TLI's shareholders, TLI must,
if demands for appraisal have been properly filed by the holders of 5% or more
of the outstanding shares of TLI Common Stock, mail a notice of such approval
(the "Approval Notice") to all shareholders who have voted against the approval
of the Merger and followed the procedures set forth in Chapter 13, together with
a statement of the price determined by TLI to represent the fair market value of
the applicable Dissenting Shares (determined in accordance with the immediately
preceding paragraph), a brief description of the procedures to be followed in
order for the shareholder to pursue his or her dissenters' rights, and a copy of
Sections 1300-1304 of the CGCL. The statement of price by TLI constitutes an
offer by TLI to purchase all Dissenting Shares at the stated amount.
A shareholder of TLI electing to exercise dissenters' rights must, within
the time period provided in Section 1301(b) of the CGCL, demand in writing from
TLI the purchase of his or her shares of TLI Common Stock and payment to the
shareholder at their fair market value. A holder who elects to exercise
dissenters' rights should mail or deliver his or her written demand to TLI at
3900 Lakeside Drive, Richmond, California 94086, Attention: Secretary. The
demand should specify the holder's name and mailing address and the number of
shares of TLI Common Stock held of record by such shareholder and state that
such holder is demanding purchase of his or her shares and payment of their fair
market value, and must also contain a statement as to what the shareholder
claims to be the fair market value of such shares as of the day before the first
announcement of the terms of the proposed Merger. Such statement of the fair
market value of the shares of TLI Common Stock constitutes an offer by the
shareholder to sell the Dissenting Shares held by such shareholder at that
price.
Within the time period provided in Section 1302 of the CGCL, the shareholder
must also submit the certificates representing the Dissenting Shares to TLI for
endorsement as Dissenting Shares.
If TLI and the TLI shareholder agree that the shares are Dissenting Shares
and agree upon the purchase price of the shares, the dissenting shareholder is
entitled to the agreed-upon price with interest thereon at the legal rate on
judgments from the date of such agreement. Payment for the Dissenting Shares
must be made within 30 days after the later of the date of such agreement or the
date on which all statutory and contractual conditions to the Merger are
satisfied, and is subject to surrender to TLI of the certificates representing
the Dissenting Shares.
If TLI denies that the shares are Dissenting Shares or if TLI and the
shareholder fail to agree upon the fair market value of the shares of TLI Common
Stock, then within the time period provided in Section 1304(a) of the CGCL, any
shareholder who has made a valid written purchase demand and who has not
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voted in favor of approval and adoption of the Reorganization Agreement may file
a complaint in the superior court of the proper county requesting a
determination as to whether the shares are Dissenting Shares or as to the fair
market value of such holder's shares of TLI Common Stock or both, or may
intervene in any pending action brought by any other TLI shareholder. If the
fair market value of the Dissenting Shares is at issue, the court may appoint
one or more impartial appraisers to determine the fair market value of such
Dissenting Shares.
Except as expressly limited by Chapter 13 of the CGCL, holders of Dissenting
Shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
holder of Dissenting Shares may not withdraw a demand for payment unless TLI
consents thereto.
Dissenting Shares lose their status as Dissenting Shares, and dissenting
shareholders cease to be entitled to require TLI to purchase their Shares if:
(a) the Merger is abandoned; (b) the shares are transferred prior to their
submission to TLI for the required endorsement; (c) the dissenting shareholder
and TLI do not agree upon the status of the shares as Dissenting Shares or do
not agree on the purchase price, but neither TLI nor the shareholder files a
complaint or intervenes in a pending action within six months after mailing of
the Approval Notice; or (d) with TLI's consent, the holder delivers to TLI a
written withdrawal of such holder's demand for purchase of his or her shares.
TLI SHAREHOLDERS WILL HAVE NO APPRAISAL RIGHTS UNLESS DEMANDS FOR APPRAISAL
AND PAYMENT ARE RECEIVED AT OR PRIOR TO THE DATE OF THE TLI SHAREHOLDERS MEETING
FROM HOLDERS OF 5% OR MORE OF THE OUTSTANDING SHARES OF TLI COMMON STOCK.
All officers and directors of TLI have agreed not to exercise dissenters'
rights with respect to the Merger.
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TLI MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS--SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NET SALES. TLI's net sales for the six months ended June 30, 1997 were
$10,540,000, an increase of $2,388,000 or 29% from $8,152,000 for the six months
ended June 30, 1996. The increase in net sales was primarily due to increased
revenues related to TLI's commercial products.
BACKLOG. Due to variations in the magnitude and duration of orders received
by TLI, and because TLI's contracts may be canceled or rescheduled by its
customers without significant penalties, TLI's backlog at any particular date
may not be a meaningful indicator of future financial results. TLI's backlog at
June 30, 1997 was $13,280,000, an increase of 20% over the backlog of
$11,025,000 at June 30, 1996. The higher 1997 backlog was due to increased
customer orders of microlithography products and government related business.
GROSS MARGIN. During the six months ended June 30, 1997, gross margin was
36% compared to 32% during the six months ended June 30, 1996. The increase in
gross margin was principally the result of increased sales of commercial
products which typically have had higher margins than TLI's government related
sales.
SELLING, ADMINISTRATIVE, AND RESEARCH AND DEVELOPMENT EXPENSES
("SAR&D"). For the first half of 1997, SAR&D was $2,189,000 (21% of net sales)
compared to $1,884,000 (23% of net sales) in the first six months of 1996. Such
increase in SAR&D was primarily due to increased marketing and other
administrative expenses necessary to support the current level of operations.
Compared to the year-earlier period, the decrease in 1997 SAR&D as a percentage
of net sales was primarily the result of the increase in sales.
PROVISION FOR INCOME TAXES. For the first half of 1997, the provision for
income taxes reflected an effective tax rate of 41.8%, compared to 38.3% for the
year ended December 29, 1996. TLI's effective tax rate approximates the
statutory federal and state rates adjusted for non-deductible goodwill offset by
non-taxable income related to TLI's Foreign Sales Corporation (the "FSC").
NET INCOME. TLI had net income of $855,000, or $0.49 per share, for the six
months ended June 30, 1997 compared to $330,000, or $0.21 per share, for the six
months ended June 30, 1996.
RESULTS OF OPERATIONS--YEARS ENDED DECEMBER 29, 1996 AND DECEMBER 31, 1995
NET SALES. TLI's net sales for 1996 were $17,408,000, a 33% increase over
net sales of $13,109,000 in 1995. Increased shipments of both microlithography
products introduced in 1995 and newly introduced cinematography products
combined with increased government related sales were the primary reasons for
the higher 1996 net sales.
BACKLOG. TLI's backlog at the end of 1996 was $10,300,000, which was an
increase of 16% over the backlog of $8,885,000 at the end of 1995. Increased
customer orders of commercial products and microlithography accounted for the
year to year increase.
GROSS MARGIN. TLI's gross margin for both 1996 and 1995 was 31%. The level
gross margins reflected the favorable effect of increased sales, offset by
inefficiencies related to increasing the production volume of certain
microlithography products in 1996.
SELLING, ADMINISTRATIVE, AND RESEARCH AND DEVELOPMENT EXPENSES. For 1996,
SAR&D was $3,539,000 (20% of net sales) compared to $3,423,000 (26% of net
sales) in 1995. From year to year, all of the major components of SAR&D were
substantially level in absolute dollar terms. The decrease in SAR&D as a percent
of net sales was primarily the result of higher 1996 sales.
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<PAGE>
INTEREST EXPENSE. During 1996, interest expense was $215,000 compared to
$179,000 in 1995. The year to year increase in interest expense was the result
of a note payable related to the March 1996 purchase of land for future
manufacturing expansion.
PROVISION FOR INCOME TAXES. The 1996 provision for income taxes reflected
an effective tax rate of 38.3% in 1996 compared to 44.0% in 1995. TLI's
effective tax rate approximates the statutory federal and state rates adjusted
for non-deductible goodwill offset by non-taxable income related to TLI's FSC.
NET INCOME. TLI had net income of $879,000, or $0.53 per share, for 1996
compared to $122,000, or $0.08 per share, for 1995.
RESULTS OF OPERATIONS--YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 25, 1994
NET SALES. During 1995, net sales were $13,109,000 compared to $12,969,000
in fiscal 1994. Increased sales of certain commercial products were offset in
part by lower government related sales.
BACKLOG. TLI's backlog at the end of 1995 was $8,885,000, which was an
increase of 122% over the backlog of $4,002,000 at the end of 1994. The year to
year increase in backlog was attributable to increasing orders of cinematography
and microlithography products from both new and existing customers.
GROSS MARGIN. Gross margin for 1995 was 31%, up from 30% in 1994. The
increase in gross margin over the preceding year was primarily the result of
increased sales of commercial products, which typically have higher margins than
TLI's government related sales.
SELLING, ADMINISTRATIVE, AND RESEARCH AND DEVELOPMENT EXPENSES. For 1995
SAR&D was $3,423,000 (26% of net sales) compared to $3,070,000 (24% of net
sales) in 1994. In comparison to the preceding year, the increase in SAR&D, both
in absolute dollars and as a percentage of net sales, was primarily the result
of certain expenses incurred at the inception of certain executive deferred
compensation agreements and increased employee recruiting and other
personnel-related costs.
OTHER INCOME. During 1995, other income, which consists of the net effect
of non-operating income and expense items, was $21,000 in 1995, down from
$156,000 in 1994. The year to year decrease was principally due to the receipt
of non-recurring proceeds from a key-man life insurance policy.
INTEREST EXPENSE. TLI had interest expense of $179,000 and $216,000 in 1995
and 1994, respectively. The decrease was due to a lower outstanding debt balance
during 1995.
PROVISION FOR INCOME TAXES. The 1995 provision for income taxes reflected
an effective tax rate of 44.0% compared to 41.5% in 1994. TLI's effective tax
rate approximates the statutory federal and state rates adjusted for
non-deductible goodwill offset by non-taxable income related to TLI's FSC.
NET INCOME. TLI had net income of $122,000, or $0.08 per share for 1995
compared to $346,000, or $0.23 per share for 1994.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, cash and cash equivalents were $379,000, a decrease of
$567,000 from cash and cash equivalents of $946,000 at December 29, 1996. The
decrease in cash and cash equivalents was primarily due to purchases of fixed
assets and payments of long-term debt, offset in part by cash provided by
operating activities and additional bank borrowings.
TLI has a $1.2 million bank revolving line of credit (the "Bank Line") which
was amended on October 14, 1997. The Bank Line bears interest at the bank's
prime rate plus 1% and expires on April 30, 1998. At September 30, 1997 TLI had
$250,000 outstanding under the Bank Line. During 1997, the Company renewed its
bank line of credit, which expired on April 30, 1997, and increased available
35
<PAGE>
borrowings from $1,000,000 to $1,200,000. The line of credit is secured by the
Company's current and future assets. Borrowings under this line of credit bears
interest at a variable rate of prime plus 1% per annum. The line of credit,
which expires on April 30, 1998, requires the Company to meet various financial
covenants. The Company was not in compliance with certain financial covenants as
of June 30, 1997. The Company received a waiver from the bank for these
covenants as of June 30, 1997. Subsequent to June 30, 1997, the bank amended the
line of credit to reduce the requirement of certain financial covenants.
TLI is currently negotiating with a manufacturer of cinematographic
equipment located in the United Kingdom to purchase assets intended to
complement Century's optical lense business. The cost to TLI to purchase and
finance the ongoing operation could require TLI to obtain third party financing
if the Merger is not consummated.
On April 1, 1998, TLI is obligated to repay in full a $750,000 note payable
related to the 1996 purchase of land and a building.
At October 10, 1997, TLI estimates that it will require an additional
$700,000 in capital expenditures for use in the ordinary course of its business
over the twelve months ended September 30, 1998.
At September 30, 1997, TLI had cash of approximately $146,000. On October
15, 1997, TLI made an additional $150,000 draw on the Bank Line and had $800,000
of available credit remaining. TLI believes that it has adequate working capital
and available bank credit to sustain operations, provide for the expansion of
its business and fulfill its obligations under the LOI for at least the next
twelve months.
36
<PAGE>
BUSINESS
GENERAL
TLI designs, manufactures and sells precision optical components, assemblies
and systems to customers in a variety of industries and research endeavors. TLI
believes that it is an industry leader in the fabrication of precision aspheric
lenses and mirrors. Aspheric lenses, which typically perform the tasks of a
number of optical surfaces, permit the design of compact optical systems and
assemblies which are especially desirable where space and weight are important
factors.
Through Century, its wholly owned subsidiary, TLI also designs,
manufactures, sells and distributes high-quality lenses and related accessories
to cinematographers, videographers and film and video rental equipment companies
for use in their cameras and cinematography equipment.
TLI's precision optical components, assemblies and systems are used in a
variety of applications. Such products are generally designed and produced to
meet the customers' specifications as opposed to Century's proprietary products
which are sold in the general commercial market. Among other things, TLI's
precision optical components, assemblies and systems and aspheric lenses and
mirrors are utilized: (i) in microlithography processing equipment; (ii) in
tooling used by manufacturers of color television tubes; (iii) in advanced
avionics, pilot training and forward-looking target acquisition and simulation
equipment in high performance and reconnaissance aircraft; (iv) in laser fusion
research; and (v) in large-scale telescopes.
Within the last year, TLI has also begun to realize increasing revenues from
its activities pursuant to a joint sponsored research agreement with a
consortium of three other United States governmental and private industrial
organizations. The consortium was organized to develop ultra-precision optics
manufacturing and systems technologies needed by the United States semiconductor
industry to produce future generations of semiconductor wafers and by the United
States government for the future exploration of space. The consortium includes
SEMATECH, Inc., NASA's Goddard Space Flight Center and a subsidiary of SVG. The
joint sponsored research agreement among the members of such consortium is being
coordinated and largely funded by SEMATECH, Inc.
GOVERNMENT SALES
Sales to agencies of the United States government by TLI are made primarily
through subcontracts with prime contractors. In fiscal 1996, such sales by TLI
were approximately $5,405,000 compared to approximately $3,901,000 in fiscal
1995 and $5,819,000 in fiscal 1994. In the first six months of 1997, such sales
were $1,630,000 compared to $1,665,000 for the first six months of 1996.
MARKETING
TLI's domestic sales and certain foreign sales are handled directly by its
in-house sales staff. TLI's domestic customers are distributed throughout the
United States market. Century sells directly and through dealers and
distributors throughout the United States and international markets.
MAJOR CUSTOMERS
Due to the highly specialized nature of TLI's business, a few customers,
including certain government agencies, have historically accounted for an
important percentage of its sales. These major customers vary from year to year.
In fiscal 1996, sales to five domestic customers (three in 1995 and four in
1994), none of which has any other material relationship with TLI, totaled
approximately $4,717,000 ($3,111,000 and $4,041,000 in fiscal 1995 and fiscal
1994, respectively). In the first six months of 1997, such sales were $3,879,000
to six domestic customers compared to $2,550,000 to four domestic customers for
the first six months of 1996. In fiscal 1996, and for the first six months of
1997, SVG accounted for $1,057,000 and $418,000 of TLI sales, respectively.
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<PAGE>
FOREIGN SALES
TLI's revenues from sales to customers outside the United States in fiscal
1996 amounted to approximately 18% of total revenues as compared to
approximately 19% in fiscal 1995 and 17% in fiscal 1994. In the first six months
of 1997, such sales were $2,279,000, or 22% of total revenues, compared to
$1,589,000, or 19%, for the first six months of 1996. (See note 9 to TLI's
consolidated financial statements included herein.)
COMPETITION
TLI has a number of present and potential competitors, most of which have
greater financial, technological, and personnel resources as well as greater
manufacturing and marketing capabilities than TLI. In addition, TLI competes in
many instances with the internal development efforts of its current and
prospective customers. TLI's competitors can be expected to continue to improve
the design and performance of their products and to introduce new products with
competitive price and/or performance characteristics. In order to compete
effectively, TLI will be required to continue investing in research and process
development and sales, marketing and service. There can be no assurance that TLI
will be able to make the technological advances necessary to maintain its
competitive position.
BACKLOG
TLI's backlog at the end of fiscal 1996 was approximately $10,300,000, which
was an increase of 16% over TLI's backlog of approximately $8,885,000 at the end
of fiscal 1995 and approximately 157% above TLI's backlog of approximately
$4,002,000 at the end of fiscal 1994. At the end of the first six months of 1997
and 1996, TLI's backlog was $13,280,000 and $11,025,000, respectively. Because
of the variations in the magnitude and duration of orders received by TLI and
because TLI's contracts may be canceled or rescheduled by the customer without
significant penalty, TLI's backlog at any particular date may not be a
meaningful indicator of future financial results.
RAW MATERIALS
Certain of the raw materials, components and sub-systems that are required
for TLI's business are obtained from a single source or a limited group of
suppliers. The partial or complete loss of certain of these sources of suppliers
could have a material adverse effect on TLI's results of operations and could
damage certain of TLI's customer relationships.
PATENTS AND LICENSES
As a general rule, TLI does not seek patent or process licenses from others.
TLI believes that the success of its products depends generally on its
proprietary technology, computer software, manufacturing skills and speed of
response to sales opportunities.
RESEARCH AND DEVELOPMENT
TLI's research and development expenditures decreased slightly in fiscal
1996 to approximately $349,000 from approximately $355,000 expended in fiscal
1995. In fiscal 1994, TLI expended approximately $383,000 for research and
development. For the first six months of 1997 and 1996, TLI expended $220,000
and $205,000, respectively, on research and development. TLI's research and
development program is principally dedicated to improvement of its design
capability, aspheric process technology and computer controlled equipment. TLI
has also continued to spend product development funds to expand Century's
product lines.
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EMPLOYEES
TLI employed 113 people on a full-time basis at the end of fiscal 1996, as
compared to 104 full-time people at the end of fiscal 1995 and 92 full-time
people at the end of fiscal 1994. As of June 30, 1997, TLI employed 121 people
on a full-time basis. None of TLI's employees is represented by a labor
organization. TLI considers its relations with its employees to be satisfactory.
GOVERNMENT REGULATIONS AND ENVIRONMENTAL LAWS
Compliance with existing or proposed governmental regulations and with
federal, state and local environmental laws has not had any material effect on
TLI's operations. TLI does not expect that continued compliance with such
existing or proposed governmental regulations and laws will materially affect
its capital expenditures, earnings or competitive position.
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SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL SHAREHOLDERS OF TLI
The following table sets forth certain information regarding beneficial
ownership of TLI Common Stock as of September 30, 1997 (except as otherwise
noted) by (i) each director of TLI, (ii) TLI's Chief Executive Officer and each
of the two other most highly compensated executive officers of TLI during the
fiscal year ended December 29, 1996, (iii) all directors and executive officers
of TLI as a group, and (iv) all those known by TLI to be beneficial owners of
more than 5% of outstanding shares of TLI Common Stock. This table is based on
information provided to TLI or filed with the SEC by TLI's directors, executive
officers and principal shareholders. Unless otherwise indicated in the footnotes
below, and subject to community property laws where applicable, each of the
named persons has sole voting and investment power with respect to the shares
shown as beneficially owned.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
BENEFICIALLY OWNED COMMON STOCK
BENEFICIAL OWNER (1) OWNED
- --------------------------------------------------------------------------- -------------------- -----------------
<S> <C> <C>
5% SHAREHOLDERS
The Globus Family (2)
201 Crandon Boulevard
Key Biscayne, FL 33149................................................... 408,740 24.6%
Don H. and Jean E. Feathers (3)
P.O. Box 2608
Murphys, CA 95237........................................................ 217,818 13.2%
Robert J. Aronno (4)(5)
One Camelia Lane
Lafayette, CA 94549...................................................... 149,688 8.9%
Athena Capital Management, Inc. (6)
621 E. Germantown Pike, Suite 105
Plymouth Valley, PA 19401................................................ 143,490 8.7%
Lauretta R. Feathers (7)
P.O. Box 2608
Murphys, CA 95237........................................................ 117,000 7.1%
EXECUTIVE OFFICERS AND DIRECTORS
Stephen E. Globus (4)(8)................................................... 408,740 24.6%
Robert J. Aronno (4)(5).................................................... 149,688 8.9%
Daniel J. Bajuk (4)........................................................ 63,820 3.8%
Stephen L. Davenport (4)................................................... 14,000 0.8%
Steven E. Manios (4)....................................................... 10,000 0.6%
All directors and executive officers as a group including the
above-named persons (7 persons).......................................... 722,748 40.9%
</TABLE>
- ------------------------
(1) The figures shown include the following numbers of shares that the named
persons have the right to acquire pursuant to options exercisable within 60
days following September 30, 1997: Mr. Aronno, 27,000; Mr. Globus, 10,000;
Mr. Bajuk, 39,700; and all directors and executive officers as a group,
113,300.
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(2) These shares are deemed to be beneficially owned by Jane Globus and her
three sons, Stephen E. Globus, Richard D. Globus and Ronald P. Globus
(collectively the "Globus Family"), by virtue of shared voting power and
shared dispositive power with respect to such shares.
(3) Includes 117,000 shares which are deemed to be owned by Mr. and Mrs.
Feathers by virtue of their shared voting power and shared dispositive power
with respect to such shares.
(4) Such person may be deemed to be a "control person" of TLI by virtue of his
position as an executive officer of TLI and/or his beneficial ownership of
shares of TLI Common Stock.
(5) Includes 58,500 shares which are deemed to be owned by Mr. Aronno by virtue
of his shared voting power and shared dispositive power with respect to such
shares.
(6) These shares are deemed to be owned by Athena Capital Management, Inc.
because of such firm's shared voting and shared dispositive power with
respect to such shares.
(7) An aggregate of 58,500 of these shares are deemed to be beneficially owned
by Robert J. Aronno and all of such 117,000 shares are also deemed to be
beneficially owned by Don H. and Jean E. Feathers by virtue of such persons'
shared voting power and shared dispositive power with respect to such
shares.
(8) These shares are deemed to be beneficially owned by the Globus Family (of
which Mr. Globus is a member) by virtue of shared voting power and shared
dispositive power with respect to such shares.
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<PAGE>
TERMS OF THE MERGER
THE FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE REORGANIZATION
AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX A TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. HOWEVER, THE
FOLLOWING IS NOT A COMPLETE STATEMENT OF ALL PROVISIONS OF THE REORGANIZATION
AGREEMENT AND RELATED AGREEMENTS. STATEMENTS MADE IN THIS PROXY
STATEMENT/PROSPECTUS WITH RESPECT TO THE TERMS OF THE REORGANIZATION AGREEMENT
AND SUCH RELATED AGREEMENTS ARE QUALIFIED IN THEIR RESPECTIVE ENTIRETIES BY
REFERENCE TO THE MORE DETAILED INFORMATION SET FORTH IN THE REORGANIZATION
AGREEMENT AND SUCH RELATED AGREEMENTS.
EFFECTIVE TIME
Subject to the provisions of the Reorganization Agreement, SVG, TLI and
Merger Sub shall cause the Merger to be consummated by filing Articles of Merger
with the Secretary of State of the State of California in accordance with the
relevant provisions of California law as soon as practicable on or after the
Closing Date (the time of such filing, or such later time as may be agreed in
writing by the parties and specified in the Articles of Merger, being the
"Effective Time" of the Merger). The closing of the Merger (the "Closing") shall
take place at the offices of SVG at a time and date to be specified by the
parties within two business days after satisfaction or waiver of the conditions
set forth in the Reorganization Agreement or at such other date, time and
location as SVG, Merger Sub and TLI may agree. The Closing is currently
anticipated to occur on or about November , 1997.
MANNER AND BASIS FOR CONVERTING SHARES
At the Effective Time, by virtue of the Merger and without any action on the
part of Merger Sub, TLI or the holders of any of the following securities, each
share of TLI Common Stock issued and outstanding immediately prior to the
Effective Time (other than any shares of TLI Common Stock owned by SVG, Merger
Sub or any direct or indirect wholly-owned subsidiary of SVG or TLI) will be
canceled and extinguished and automatically converted into 0.6594 of a share of
SVG Common Stock. Each share of TLI Common Stock owned by SVG, Merger Sub or any
direct or indirect wholly-owned subsidiary of SVG or TLI immediately prior to
the Effective Time will be canceled and extinguished without any conversion
thereof.
At the Effective Time, all options to purchase TLI Common Stock then
outstanding (collectively, the "TLI Options") will be assumed by SVG. See
"--Treatment of Employee Equity Benefit Plans." Each share of Common Stock, no
par value, of Merger Sub issued and outstanding immediately prior to the
Effective Time will be converted into one validly issued, fully paid and
nonassessable share of Common Stock, no par value, of the Surviving Corporation.
The Exchange Ratio will be adjusted to reflect appropriately the effect of
any stock split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into SVG Common Stock or TLI Common
Stock), reorganization, recapitalization, reclassification or other like change
with respect to SVG Common Stock or TLI Common Stock occurring or having a
record date on or after the date of the Reorganization Agreement and prior to
the Effective Time.
Promptly after the Effective Time, SVG, acting through the Exchange Agent,
will deliver to each holder of record of TLI Common Stock, as of the Effective
Time, a letter of transmittal with instructions to be used by such holder in
surrendering such certificates in exchange for certificates representing shares
of SVG Common Stock. CERTIFICATES SHOULD NOT BE SURRENDERED BY THE HOLDERS OF
TLI COMMON STOCK UNTIL SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL FROM THE
EXCHANGE AGENT, AND THEN ONLY IN ACCORDANCE WITH THE TERMS OF SUCH LETTER OF
TRANSMITTAL.
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TREATMENT OF EMPLOYEE EQUITY BENEFIT PLANS
STOCK OPTIONS
At the Effective Time, each outstanding TLI Option, whether or not
exercisable, will be assumed by SVG and will continue to have, and be subject
to, the same terms and conditions set forth in the ISO Plan and/or the stock
option agreement by which it is evidenced (including, to the extent permissible,
such options, except that each option will be or become exercisable for SVG
Common Stock rather than TLI Common Stock. See "Approval of the Merger and
Related Transactions--Interests of Certain Persons in the Merger" for a
discussion of certain options held by directors and executive officers.
FORM S-8 FILING
SVG has agreed to file with the SEC, as soon as reasonably practical after
the Effective Time, a registration statement on Form S-8 to register shares of
SVG Common Stock issuable as the result of the assumption of the TLI Options.
STOCK OWNERSHIP FOLLOWING THE MERGER
Based upon the capitalization of TLI as of the close of business on the
Record Date, an aggregate of approximately shares of Common Stock will
be issued to TLI shareholders in the Merger and SVG will assume options to
acquire up to approximately additional shares of TLI Common Stock. Based
upon the number of shares of SVG Common Stock issued and outstanding as of
October 14, 1997, and after giving effect to the issuance of SVG Common Stock as
described in the previous sentence and the exercise of all options to purchase
TLI Common Stock assumed by SVG, the former holders of TLI Common Stock and
options to purchase TLI Common Stock would hold, and have voting power with
respect to, approximately % of SVG's total issued and outstanding shares.
The foregoing numbers of shares and percentages are subject to change to reflect
any changes in the capitalization of either SVG or TLI subsequent to the dates
indicated and prior to the Effective Time, and there can be no assurance as to
the actual capitalization of SVG or TLI at the Effective Time or SVG at any time
following the Effective Time.
EFFECT OF THE MERGER
Once the Merger is consummated, Merger Sub will cease to exist as a
corporation and TLI will remain as the Surviving Corporation.
Pursuant to the Reorganization Agreement, the Articles of Incorporation of
Merger Sub in effect immediately prior to the Effective Time will become the
Articles of Incorporation of the Surviving Corporation and the Bylaws of Merger
Sub will become the Bylaws of the Surviving Corporation. The Board of Directors
of the Surviving Corporation will consist of the directors who are serving as
directors of Merger Sub immediately prior to the Effective Time. The officers of
TLI immediately prior to the Effective Time will be the officers of the
Surviving Corporation, until their resignations or until their successors are
duly appointed.
REPRESENTATIONS AND WARRANTIES
Pursuant to the Reorganization Agreement, each of TLI, SVG and Merger Sub
has made certain representations and warranties relating to its respective
business and various other matters. None of such representations and warranties
will survive the Merger.
CONDUCT OF TLI'S BUSINESS PRIOR TO THE MERGER
Pursuant to the Reorganization Agreement, TLI has agreed that, until the
earlier of the termination of the Reorganization Agreement pursuant to its terms
or the Effective Time, subject to certain exceptions,
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<PAGE>
and except to the extent that SVG consents in writing, TLI will carry on its
business, in all material respects, in the usual, regular and ordinary course,
and in compliance with all applicable laws and regulations, pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, pay or
perform other material obligations when due, and use its reasonable best efforts
consistent with past practices and policies (i) to preserve intact its present
business organization, (ii) to keep available the services of its present
officers and employees, and (iii) to preserve its relationships with customers,
suppliers, distributors, licensors, licensees and others with which it has
business dealings.
In addition, except as permitted by the terms of the Reorganization
Agreement and subject to certain exceptions, until the earlier of the
termination of the Reorganization Agreement pursuant to its terms or the
Effective Time, TLI has agreed not to do any of the following or permit its
subsidiaries to do any of the following without the prior written consent of
SVG:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant or director stock plans or authorize cash
payments in exchange for any options granted under any of such plans;
(b) Grant any severance or termination pay to any officer or employee except
payments in amounts consistent with policies and past practices or pursuant to
written agreements outstanding, or policies existing, on the date of the
Reorganization Agreement and as previously disclosed in writing or made
available to SVG, or adopt any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend, amend
or modify in any material respect any rights to its intellectual property, or
enter into grants to future patent rights, other than non-exclusive licenses in
the ordinary course of business and consistent with past practice;
(d) Declare or pay any dividends on or make any other distributions (whether
in cash, stock, equity securities or property) in respect of any capital stock
or split, combine or reclassify any capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for any capital stock;
(e) Repurchase or otherwise acquire, directly or indirectly, any shares of
its capital stock;
(f) Issue, deliver, sell, authorize or propose the issuance, delivery or
sale of, any shares of capital stock or any securities convertible into shares
of capital stock, or subscriptions, rights, warrants or options to acquire any
shares of capital stock or any securities convertible into shares of capital
stock, or enter into other agreements or commitments of any character obligating
it to issue any such shares or convertible securities, other than the issuance
delivery and/or sale of shares of TLI Common Stock pursuant to the exercise of
stock options therefor outstanding as of the date of the Reorganization
Agreement;
(g) Cause, permit or propose any amendments to any charter document or bylaw
(or similar governing instruments of any subsidiaries);
(h) Other than the specific transaction contemplated by the Cooke LOI,
acquire or agree to acquire by merging or consolidating with, or by purchasing
any equity interest in or a material portion of the assets of, or by any other
manner, any business or any corporation, partnership interest, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets which are material, individually or in the aggregate, to
the business of TLI or enter into any material joint ventures, strategic
partnerships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any properties or
assets which are material, individually or in the aggregate, to the business of
TLI, except in the ordinary course of business consistent with past practice;
(j) Incur any indebtedness for borrowed money (other than ordinary course
trade payables or pursuant to existing credit facilities in the ordinary course
of business) or guarantee any such indebtedness
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or issue or sell any debt securities or warrants or rights to acquire debt
securities of TLI or guarantee any debt securities of others;
(k) Adopt or amend any employee benefit or employee stock purchase or
employee option plan, or enter into any employment contract, pay any special
bonus or special remuneration to any director or employee, or increase the
salaries or wage rates of its officers or employees other than in the ordinary
course of business, consistent with past practice, or change in any material
respect any management policies or procedures;
(l) Pay, discharge or satisfy any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business;
(m) Make any grant of exclusive rights to any third party;
(n) Take any action that would be reasonably likely to interfere with SVG's
ability to account for the Merger as a pooling of interests whether or not
otherwise permitted by the foregoing provisions; or
(o) Agree in writing or otherwise to take any of the foregoing actions.
NO SOLICITATION
Under the terms of the Reorganization Agreement, TLI has agreed that, until
the earlier of the Effective Time or termination of the Reorganization Agreement
pursuant to its terms, TLI and its subsidiaries will not, and will instruct
their respective directors, officers, employees, representatives, investment
bankers, agents and affiliates not to, directly or indirectly (i) solicit or
knowingly encourage submission of, any Acquisition Proposal (as defined below)
by any person, entity or group (other than SVG and its affiliates, agents and
representatives), or (ii) participate in any discussions or negotiations with,
or disclose any non-public information concerning TLI or any of its subsidiaries
to, or afford any access to the properties, books or records of TLI or any of
its subsidiaries to, or otherwise assist or facilitate, or enter into any
agreement or understanding with, any person, entity or group (other than SVG and
its affiliates, agents and representatives), in connection with any Acquisition
Proposal with respect to TLI. An "Acquisition Proposal" means any proposal or
offer relating to (i) any merger, consolidation, sale of substantial assets or
similar transactions involving TLI or any of its subsidiaries (other than sales
of assets or inventory in the ordinary course of business or as permitted under
the terms of the Reorganization Agreement), (ii) sale by TLI of any shares of
capital stock of TLI (including without limitation by way of a tender offer or
an exchange offer) except as may be permitted by the Reorganization Agreement,
(iii) the acquisition by any person of beneficial ownership or a right to
acquire beneficial ownership of, or the formation of any "group" (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) which beneficially owns, or has the right to acquire beneficial
ownership of, 10% or more of the then outstanding shares of capital stock of TLI
(except for acquisitions in the market for passive investment purposes of not
more than 15% of the then outstanding shares of capital stock of TLI only in
circumstances where the person or group qualifies for filing a Schedule 13G
report under the Exchange Act with respect thereto and is not and does not
become obligated to file a Schedule 13D report under the Exchange Act), or (iv)
any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing. Pursuant to the
Reorganization Agreement, TLI further agreed to cease any and all activities,
discussions or negotiations with any parties conducted prior to the date of the
Reorganization Agreement with respect to any Acquisition Proposal. In addition,
TLI has agreed that it will (i) notify SVG as promptly as practicable if it
receives any Acquisition Proposal or written inquiry or any written request for
information or access in connection with a potential Acquisition Proposal, and
(ii) as promptly as practicable notify SVG of the significant terms and
conditions of any such Acquisition Proposal. In addition, subject to the
foregoing, TLI has agreed that, from and after the date of the Reorganization
Agreement until the earlier of the Effective Time or termination of the
Reorganization Agreement pursuant to its terms, TLI and its subsidiaries will
not, and will instruct their
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respective directors, officers, employees, representatives, investment bankers,
agents and affiliates not to, directly or indirectly, make or authorize any
public statement, recommendation or solicitation in support of any Acquisition
Proposal made by any person, entity or group (other than SVG); provided,
however, that SVG and TLI have agreed that nothing contained in the
Reorganization Agreement will prohibit TLI's Board of Directors from taking and
disclosing to TLI's shareholders a position with respect to a tender or exchange
offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act.
Notwithstanding the foregoing, but subject to the restrictions on the
conduct of TLI's business described above, prior to the Effective Time, TLI may,
to the extent the TLI Board determines, in good faith, after consultation with
outside legal counsel, that the TLI Board's fiduciary duties under applicable
law require it to do so, participate in discussions or negotiations with, and
furnish non-public information and afford access to the properties, books or
records of TLI, to any person, entity or group after such person, entity or
group has delivered to TLI in writing, an unsolicited bona fide Acquisition
Proposal which the TLI Board in its good faith reasonable judgment determines
would result in a transaction more favorable than the Merger to the shareholders
of TLI from a financial point of view (a "Superior Proposal"). In addition, in
connection with a possible Acquisition Proposal, TLI may refer any third party
to the provisions of the Reorganization Agreement described herein or make a
copy of the provisions available to a third party. In the event TLI receives a
Superior Proposal, nothing contained in the Reorganization Agreement will
prevent the TLI Board from recommending such Superior Proposal to its
shareholders, if the TLI Board determines, in good faith, after consultation
with outside legal counsel, that such action is required by its fiduciary duties
under applicable law. In such case, the TLI Board may withdraw, modify or
refrain from making its recommendation concerning the Merger, and, to the extent
it does so, TLI may refrain from soliciting proxies to secure the vote of its
shareholders as may otherwise be required by the Reorganization Agreement;
provided, however, that TLI (i) shall provide SVG at least 48 hours prior notice
of any TLI Board meeting at which the TLI Board is reasonably expected to
consider a Superior Proposal, and (ii) shall not recommend to its shareholders a
Superior Proposal for a period of not less than 5 business days after SVG's
receipt of a copy of such Superior Proposal (or a description of the significant
terms and conditions thereof, if not in writing). In addition, notwithstanding
anything to the contrary contained in the Reorganization Agreement, the TLI
Board may withdraw or modify in a manner adverse to SVG the recommendation of
the TLI Board regarding approval and adoption of the Reorganization Agreement
and approval of the Merger to the extent that the TLI Board determines, in good
faith, after consultation with outside legal counsel, that compliance with its
fiduciary duties under applicable law would require it to do so. TLI has agreed
not to provide any non-public information to a third party unless (i) TLI
provides such non-public information pursuant to a non-disclosure agreement with
terms regarding the protection of confidential information at least as
restrictive as such terms in the existing non-disclosure agreement entered into
by SVG and TLI in connection with the Merger, and (ii) such non-public
information has been previously delivered to SVG.
CONDITIONS TO THE MERGER
The respective obligations of each party to the Reorganization Agreement to
effect the Merger are subject to the satisfaction at or prior to the Effective
Time of the following conditions: (i) the Reorganization Agreement shall have
been approved and adopted, and the Merger shall have been duly approved, by the
requisite vote under applicable law, by the shareholders of TLI; (ii) the SEC
shall have declared effective the Registration Statement of which this Proxy
Statement/Prospectus is a part and no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of this Proxy
Statement/Prospectus, shall have been initiated or threatened in writing by the
SEC; (iii) no governmental entity shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which is
in effect and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger and all waiting periods, if any, under
the HSR Act relating to the transactions contemplated hereby will have
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expired or terminated early, (iv) SVG and TLI shall each have received written
opinions from their respective tax counsel (Wilson Sonsini Goodrich & Rosati,
P.C. and Clark & Trevithick, respectively), in form and substance reasonably
satisfactory to them, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and such
opinions shall not have been withdrawn; provided, however, that, if the counsel
to either SVG or TLI does not render such opinion, this condition shall
nonetheless be deemed to be satisfied with respect to such party if counsel to
the other party renders such opinion to such party, and (v) the shares of SVG
Common Stock issuable to shareholders of TLI in the Merger and such other shares
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on the Nasdaq upon official notice of issuance.
In addition, the obligation of TLI to consummate and effect the Merger is
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, exclusively by
TLI: (i) the representations and warranties of SVG and Merger Sub contained in
the Reorganization Agreement shall, subject to certain materiality thresholds,
have been true and correct in all material respects on and as of the date of the
Reorganization Agreement and such representations and warranties shall be true
and correct in all material respects on and as of the Effective Time except for
changes contemplated by the Reorganization Agreement and except in such cases
where the failure to be so true and correct would not have a material adverse
effect on SVG; (ii) SVG and Merger Sub shall have performed or complied in all
material respects with all agreements and covenants required by the
Reorganization Agreement to be performed or complied with by them on or prior to
the Effective Time; and (iii) no material adverse event with respect to SVG
shall have occurred since the date of the Reorganization Agreement.
Further, the obligations of SVG and Merger Sub to consummate and effect the
Merger are subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, exclusively
by SVG: (i) the representations and warranties of TLI contained in the
Reorganization Agreement shall, subject to certain materiality thresholds, have
been true and correct in all material respects on and as of the date of the
Reorganization Agreement and such representations and warranties shall be true
and correct in all material respects on and as of the Effective Time except for
changes contemplated by the Reorganization Agreement and except in such cases
where the failure to be so true and correct would not have a material adverse
effect on TLI; (ii) TLI shall have performed or complied in all material
respects with all agreements and covenants required by the Reorganization
Agreement to be performed or complied with by it on or prior to the Effective
Time; (iii) no material adverse event with respect to TLI shall have occurred
since the date of the Reorganization Agreement; and (iv) SVG shall have
received, a copy of a letter addressed to TLI, dated as of the Effective Time,
in substance reasonably satisfactory to SVG (and which may contain customary
qualifications and assumptions), to the effect that Ernst & Young LLP concurs
with TLI management's conclusion that no conditions exist related to TLI that
would preclude SVG from accounting for the Merger as a pooling of interests; and
SVG shall have received from Deloitte & Touche LLP, the independent auditors for
SVG, a letter dated the Effective Time, in substance reasonably satisfactory to
SVG (which may contain customary qualifications and assumptions), to the effect
that Deloitte & Touche LLP concurs with SVG management's conclusion that, as of
the Effective Time, no conditions exist that would preclude SVG from accounting
for the Merger as a pooling of interests.
TERMINATION OF THE REORGANIZATION AGREEMENT
The Reorganization Agreement provides that it may be terminated at any time
prior to the Effective Time (i) by mutual written consent of SVG and TLI duly
authorized by the Board of Directors of SVG and the TLI Board; (ii) by either
TLI or SVG if the Merger is not consummated by December 31, 1997 for any reason,
provided that such right to terminate the Reorganization Agreement is not
available to any party whose failure to act has been a principal cause of or
resulted in the failure of the Merger to occur on or
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before such date and such action or failure to act constitutes a breach of the
Reorganization Agreement; (iii) by either TLI or SVG if a governmental entity
issues an order, decree or ruling or takes any other action, in any case having
the effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, which order, decree, ruling or other action is final and nonappealable;
(iv) by either TLI or SVG if the required approvals of the shareholders of TLI
contemplated by the Reorganization Agreement shall not have been obtained by
reason of the failure to obtain the required vote at a meeting of TLI
shareholders duly convened therefor as contemplated by the Reorganization
Agreement or at any adjournment thereof (provided that TLI may not terminate the
Reorganization Agreement pursuant to this provision if the failure to obtain TLI
shareholder approval was caused by the action or failure to act of TLI and such
action or failure to act constitutes a material breach by TLI of the
Reorganization Agreement); (v) by either TLI or SVG at any time prior to the
approval of the Merger by TLI's shareholders, if the TLI Board recommends a
Superior Proposal to the shareholders of TLI or if the TLI Board has withheld,
withdrawn or modified in a manner adverse to SVG its recommendation in favor of
adoption and approval of the Reorganization Agreement and approval of the
Merger; (vi) by TLI, upon a breach of any representation, warranty, covenant or
agreement on the part of SVG set forth in the Reorganization Agreement, or if
any such representation or warranty of SVG shall have become inaccurate, subject
to certain materiality thresholds and cure provisions; or (vii) by SVG, upon a
breach of any representation, warranty, covenant or agreement on the part of TLI
set forth in the Reorganization Agreement, or if any such representation or
warranty of TLI shall have become inaccurate, subject to certain materiality
thresholds and cure provisions.
EFFECT OF TERMINATION
If the Reorganization Agreement is terminated by SVG or TLI as described
above, the Reorganization Agreement will be of no further force or effect,
except that certain provisions contained therein, including those discussed
below relating to the "break-up" fee payable by TLI to SVG under certain
circumstances, will survive such termination, and TLI, SVG and Merger Sub will
remain liable for certain breaches of the Reorganization Agreement occurring
prior to such termination.
BREAK-UP FEE
TLI has agreed that if, prior to or concurrent with termination of the
Reorganization Agreement, either (i) the TLI Board shall have withheld,
withdrawn or modified in a manner adverse to SVG its recommendation in favor of
adoption and approval of the Reorganization Agreement and approval of the Merger
and there shall not have been since the date of the Reorganization Agreement a
material adverse event with respect to SVG prior to the time such recommendation
is withheld, withdrawn or modified and SVG shall not be in material breach of
the Reorganization Agreement at the time such recommendation is withheld,
withdrawn or modified (other than such breaches as have been cured as of the
time such recommendation is withheld, withdrawn or modified), or (ii) the TLI
Board recommends a Superior Proposal to the shareholders of TLI and there shall
not have been since the date of the Reorganization Agreement a material adverse
event with respect to SVG prior to the time of such recommendation and SVG shall
not be in material breach of the Reorganization Agreement at the time of such
recommendation (other than such breaches as have been cured as of the time of
such recommendation), then TLI shall pay to SVG $2.2 million within one business
day following the earlier to occur of termination of the Reorganization
Agreement or a TLI Negative Vote (as defined below).
TLI has also agreed that, if no payment is required pursuant to the
provision of the Reorganization Agreement summarized in the preceding paragraph,
and if (i) the vote of the shareholders of TLI as contemplated by the
Reorganization Agreement approving and adopting the Reorganization Agreement and
approving the Merger is not obtained by reason of the failure to obtain the
required vote at a meeting of shareholders duly convened therefor as
contemplated by the Reorganization Agreement (a "Negative Vote"), and (ii) prior
to such Negative Vote there was an Acquisition Proposal which was publicly
disclosed
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(a "Competing Proposal"), and (iii) (a) within twelve months following a
Negative Vote, TLI enters into a definitive agreement with respect to an
Acquisition Proposal with the party (or any affiliate of the party) that made
the Competing Proposal or an Acquisition Proposal with such party (or any such
affiliate) with respect to TLI has been made, or (b) within six months following
a Negative Vote, TLI enters into a definitive agreement with respect to an
Acquisition Proposal with any other party or an Acquisition Proposal with any
other party with respect to TLI has been consummated, TLI will pay to SVG $2.2
million within one business day following consummation of TLI's acquisition;
provided a material adverse event with respect to SVG has not occurred prior to
the Negative Vote.
SVG and TLI have agreed that payment of the fees described in the preceding
two paragraphs will not be in lieu of damages incurred in the event of breach of
the Reorganization Agreement.
SVG has agreed that if the Merger is not consummated due to a breach of a
representation or warranty made by SVG in the Reorganization Agreement, subject
to certain materiality thresholds and cure provisions, it will pay certain
expenses of TLI related to this transaction in an aggregate amount not to exceed
$250,000.
Except as set forth above, SVG and TLI have agreed that all fees and
expenses incurred in connection with the Reorganization Agreement and the
transactions contemplated thereby will be paid by the party incurring such
expenses whether or not the Merger is consummated, except that SVG and TLI will
share equally all fees and expenses, other than attorneys' and accountants fees
and expenses, incurred in connection with the printing and filing of this Proxy
Statement/Prospectus.
INDEMNIFICATION AND INSURANCE
Pursuant to the Reorganization Agreement, SVG has agreed that, after the
Effective Time, it will cause the Surviving Corporation to fulfill and honor in
all respects the obligations of TLI pursuant to any indemnification agreement
currently in effect between TLI and each person who is or was a director or
officer of TLI or any of its subsidiaries at or prior to the Effective Time (the
"Indemnified Parties") and pursuant to any indemnification provisions under
TLI's Articles of Incorporation or Bylaws as in effect on the date of the
Reorganization Agreement.
AFFILIATE AGREEMENTS
Each of the members of the TLI Board, the executive officers of TLI and
certain principal shareholders of TLI who may be deemed to be affiliates of TLI
have entered into agreements restricting sales, dispositions or other
transactions reducing their risk of investment in respect of the shares of TLI
Common Stock held by them prior to the Merger and the shares of SVG Common Stock
to be received by them in the Merger so as to comply with the requirements of
applicable federal securities laws and to help ensure that the Merger will be
treated as a pooling of interests for accounting and financial reporting
purposes. Certain persons who may be deemed to be affiliates of SVG have entered
into agreements restricting sales, dispositions or other transactions reducing
their risk of investment in respect of the shares of SVG Common Stock held by
them so as to help ensure that the Merger will be treated as a pooling of
interests for accounting and financial reporting purposes.
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COMPARISON OF CAPITAL STOCK
DESCRIPTION OF SVG CAPITAL STOCK
The authorized capital stock of SVG consists of 100,000,000 shares of Common
Stock, $0.01 par value per share, and 1,000,000 shares of Preferred Stock, $0.01
par value per share.
SVG COMMON STOCK
As of October , 1997, there were approximately shares of SVG Common
Stock outstanding. The holders of SVG Common Stock are entitled to one vote per
share on all matters to be voted upon by the stockholders. Stockholders may
cumulate votes in connection with the election of directors. The holders of SVG
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
SVG, the holders of SVG Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities. SVG Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to SVG Common Stock. All outstanding shares
of SVG Common Stock are fully paid and non-assessable, and the shares of SVG
Common Stock to be outstanding upon completion of the Merger will be fully paid
and non-assessable.
PREFERRED STOCK
SVG has 1,000,000 shares of Preferred Stock authorized, of which, as of
September 30, 1997, no shares were outstanding. Although prohibited by the
Reorganization Agreement, the SVG Board has the authority to issue these shares
of Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions granted to or imposed upon any unissued and
undesignated shares of Preferred Stock and to fix the number of shares
constituting any series and the designations of such series, without any further
vote or action by the stockholders. The SVG Board, without stockholder approval,
can issue Preferred Stock with voting and conversion rights which could
adversely affect the voting power or other rights of the holders of SVG Common
Stock and the issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of SVG.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of SVG Common Stock is ChaseMellon
Shareholder Services LLC and its telephone number is (415) 954-9512.
DESCRIPTION OF TLI CAPITAL STOCK
The authorized capital stock of TLI consists of 6,000,000 shares of Common
Stock, no par value, and 500,000 shares of Preferred Stock, no par value.
TLI COMMON STOCK
As of the Record Date, there were approximately shares of TLI Common
Stock outstanding. Holders of TLI Common Stock are entitled to one vote per
share on all matters to be voted upon by the shareholders. The shareholders of
TLI may cumulate votes in the election of directors. The holders of TLI Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the TLI Board out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of TLI, the holders of TLI
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities. TLI Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to TLI Common Stock. All outstanding shares of TLI Common Stock are
fully paid and non-assessable, and the shares of SVG
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Common Stock to be received by TLI Shareholders in the Merger in exchange for
the TLI Common Stock outstanding immediately prior to completion of the Merger
will be fully paid and non-assessable.
PREFERRED STOCK
TLI has 500,000 shares of Preferred Stock authorized, of which, as of the
Record Date, no shares were outstanding. Although prohibited by the
Reorganization Agreement, the TLI Board has the authority to issue these shares
of Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions granted to or imposed upon any unissued and
undesignated shares of Preferred Stock and to fix the number of shares
constituting any series and the designations of such series, without any further
vote or action by the shareholders. Although it presently has no intention to do
so, the TLI Board, without shareholder approval, can issue Preferred Stock with
voting and conversion rights which could adversely affect the voting power or
other rights of the holders of TLI Common Stock and the issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of TLI.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of TLI Common Stock is ChaseMellon
Shareholder Services LLC and its telephone number is (415) 954-9512.
COMPARISON OF CAPITAL STOCK
After consummation of the Merger, the holders of TLI Common Stock who
receive SVG Common Stock under the terms of the Reorganization Agreement will
become shareholders of SVG. As shareholders of TLI, their rights are presently
governed by California law and by TLI's Articles of Incorporation (the "TLI
Articles") and TLI's Bylaws (the "TLI Bylaws"). As shareholders of SVG, their
rights will be governed by Delaware law and by SVG's Certificate of
Incorporation (the "SVG Certificate") and SVG's Bylaws (the "SVG Bylaws"). The
following discussion summarizes the material differences between the rights of
holders of TLI Common Stock and the rights of holders of SVG Common Stock and
differences between the charters and bylaws of TLI and SVG. This summary does
not purport to be complete and is qualified in its entirety by reference to the
TLI Articles and TLI Bylaws, the SVG Certificate and SVG Bylaws and the relevant
provisions of California and Delaware law.
SIZE OF THE BOARD OF DIRECTORS. In accordance with Delaware law, the SVG
Bylaws provide the SVG Board the authority to set the exact number of directors
within the range of from four to seven persons. The number of directors of SVG
is currently fixed at six. The SVG Board acting without shareholder approval may
change such number within the range authorized in the SVG Bylaws. Changes in the
authorized number of directors of SVG outside the range provided for in the SVG
Bylaws requires shareholder approval. Under California law, although changes in
the number of directors must in general be approved by a majority of the
outstanding shares, the board of directors may fix the exact number of directors
within a stated range set forth in the articles of incorporation or bylaws, if
that stated range has been approved by the shareholders. The TLI Bylaws provide
the TLI Board the authority to set the exact number of directors within the
range of from four to seven persons.
LOANS TO OFFICERS AND EMPLOYEES. Under Delaware law, a corporation may make
loans to, guarantee the obligations of or otherwise assist its officers or other
employees and those of its subsidiaries (including directors who are also
officers or employees) when such action, in the judgment of the directors, may
reasonably be expected to benefit the corporation. Under California law, any
loan or guaranty to or for the benefit of a director or officer of the
corporation or its parent requires approval of the shareholders unless such loan
or guaranty is provided under a plan approved by shareholders owning a majority
of the outstanding shares of the corporation. In addition, under California law,
shareholders of any corporation with 100 or more shareholders of record may
approve a bylaw authorizing the board of directors alone to approve loans or
guaranties to or on behalf of officers (whether or not such officers are
directors) if the
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board determines that any such loan or guaranty may reasonably be expected to
benefit the corporation. The TLI Bylaws are silent as to whether TLI may make
loans to, guarantee the obligations of or otherwise assist its officers or other
employees and those of its subsidiaries (including directors who are also
officers or employees) and accordingly California law governs the ability of TLI
to make such loans.
VOTING BY BALLOT. Under Delaware law, the right to vote by written ballot
may be restricted if so provided in the certificate of incorporation. The SVG
Bylaws provides that the election of directors at a shareholders' meeting may be
by voice vote or by written ballot, provided that any election of directors must
be by ballot if demanded by any stockholder before voting has begun. The SVG
Certificate does not eliminate the written ballot requirement. California law
provides that the election of directors may proceed in the manner described in a
corporation's bylaws. TLI's Bylaws provide that, upon the demand of any
shareholder made at a meeting before the voting begins, the election of
directors shall be by ballot.
CUMULATIVE VOTING. In an election of directors under cumulative voting,
each share of stock normally having one vote is entitled to a number of votes
equal to the number of directors to be elected. A shareholder may then cast all
such votes for a single candidate or may allocate them among as many candidates
as the shareholder may choose. Under Delaware law, cumulative voting in the
election of directors is not available unless specifically provided for in the
certificate of incorporation. In contrast, California law provides that any
shareholder is entitled to cumulate his or her votes in the election of
directors upon proper notice of his or her intention to do so. However, a
"listed" corporation (as defined below in the section entitled "Classified Board
of Directors") may eliminate shareholders' cumulative voting rights. SVG has
provided for cumulative voting in the SVG Certificate and cumulative voting is
therefore available to SVG's shareholders. TLI has not eliminated the right of
cumulative voting, and cumulative voting is therefore available to TLI's
shareholders.
CLASSIFIED BOARD OF DIRECTORS. A classified board is one on which a certain
number of the directors are elected on a rotating basis each year. This method
of electing directors makes changes in the composition of the board of
directors, and thus a potential change in control of a corporation, a lengthier
and more difficult process. Delaware law permits, but does not require, a
classified board of directors, with staggered terms under which one-half or
one-third of the directors are elected for terms of two or three years,
respectively. Under California law, directors generally must be elected
annually; however, a "listed" corporation is permitted to adopt a classified
board. A listed corporation is defined under California law as a corporation
with (i) outstanding securities listed on the NYSE or American Stock Exchange,
or (ii) a class of securities designated as a national market system security on
and by the National Association of Securities Dealers Automatic Quotation System
(or any successor national market system) if the corporation has at least 800
holders of its equity securities. Neither the SVG Certificate nor the TLI
Articles provides for a classified board.
POWER TO CALL SPECIAL SHAREHOLDERS' MEETINGS; ADVANCE NOTICE OF SHAREHOLDER
BUSINESS AND NOMINEES. Under Delaware law, a special meeting of shareholders may
be called by the board of directors or by any other person authorized to do so
in the certificate of incorporation or the bylaws. Under California law, a
special meeting of shareholders may be called by the board of directors, the
chairman of the board, the president, the holders of shares entitled to cast not
less than 10% percent of the votes at such meeting and such additional persons
as are authorized by the articles of incorporation or the bylaws. The SVG Bylaws
authorize the Board of Directors, the Chairman of the Board, the President or
the holders of shares entitled to cast not less than 10% of the votes at such
meeting to call a special meeting of shareholders. The SVG Bylaws require timely
advance notice in proper written form of shareholder nominees for election as
director or shareholder business to be brought before a meeting, and permit the
chairman of the meeting to refuse to acknowledge the nomination of any person or
the proposal of any business not made in compliance with the procedures set
forth in the SVG Bylaws. The TLI Bylaws allow shareholders holding 10% of the
outstanding shares of TLI's voting stock, the Board of Directors, the Chairman
of the
52
<PAGE>
Board or the President to call special meetings of shareholders. The TLI Bylaws
contain no advance notice provisions similar to those contained in the SVG
Bylaws.
ELIMINATION OF ACTIONS BY WRITTEN CONSENT OF SHAREHOLDERS. Under California
and Delaware law, shareholders may take action by written consent in lieu of
voting at a shareholders meeting. Both California law and Delaware law permit a
corporation, pursuant to a provision in such corporation's articles or
certificate of incorporation, as the case may be, to eliminate the ability of
shareholders to act by written consent. Elimination of the ability of
shareholders to act by written consent could lengthen the amount of time
required to take shareholder actions because certain actions by written consent
are not subject to the minimum notice requirements of a shareholders' meeting,
and could deter hostile takeover attempts. If the ability of shareholders to act
by written consent is eliminated, a holder or group of holders controlling a
majority in interest of a corporation's capital stock, for example, would not be
able to amend such corporation's bylaws or remove its directors pursuant to a
shareholders' written consent. Neither the SVG Certificate nor the TLI Articles
provide for the elimination of the ability of shareholders to act by written
consent.
SHAREHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS. In the last several
years, a number of states (but not California) have adopted special laws
designed to make certain kinds of "unfriendly" corporate takeovers, or other
transactions involving a corporation and one or more of its significant
shareholders, more difficult. Under Section 203 of the DGCL ("Section 203"),
certain "business combinations" by Delaware corporations with "interested
shareholders" are subject to a three-year moratorium unless specified conditions
are met. Under Section 1203 of the California Corporations Code, certain
business combinations with certain interested shareholders are subject to
specified conditions, including a requirement that a fairness opinion must be
obtained and delivered to the corporation's shareholders, but there is no
equivalent provision to Section 203.
California law does require that holders of nonredeemable common stock
receive nonredeemable common stock in a merger of the corporation with the
holder of more than 50% but less than 90% of such common stock or its affiliate
unless all of the holders of such common stock consent to the transaction. This
provision of California law may have the effect of making a "cash-out" merger by
a majority shareholder more difficult to accomplish.
REMOVAL OF DIRECTORS. Under Delaware law, except as otherwise provided in
the corporation's certificate of incorporation, a director of a corporation that
has a classified board of directors or cumulative voting may be removed only
with cause. A director of a corporation that does not have a classified board of
directors or cumulative voting may be removed with the approval of a majority of
the outstanding shares entitled to vote with or without cause. Under California
law, any director or the entire board of directors may be removed, with or
without cause, with the approval of a majority of the outstanding shares
entitled to vote; however, no individual director may be removed (unless the
entire board is removed) if the number of votes cast against such removal would
be sufficient to elect the director under cumulative voting. In addition, when,
by the provisions of the articles of incorporation, the holders of shares of a
class or series, voting as a class or series, are entitled to elect one or more
directors, any director so elected may be removed only by the applicable vote of
holders of shares of that class or series. The SVG Certificate and the SVG
Bylaws do not provide for a classified board but do provide for cumulative
voting. Delaware law governs the removal of SVG Directors. California law
governs the removal of TLI directors.
FILLING VACANCIES ON THE BOARD OF DIRECTORS. Under Delaware law, vacancies
and newly created directorships may be filled by a majority of the directors
then in office (even though less than a quorum) unless otherwise provided in the
certificate of incorporation or bylaws (and unless the certificate of
incorporation directs that a particular class of stock is to elect such
director, in which case any other directors elected by such class, or a sole
remaining director so elected, may fill such vacancy). Under California law, any
vacancy on the board of directors (other than one created by removal of a
director)
53
<PAGE>
may be filled by the board. Unless otherwise specified in a corporation's
articles of incorporation or bylaws, if the number of directors in office at the
time a vacancy occurs is less than a quorum, a vacancy may be filled by the
unanimous written consent of the directors then in office, by the affirmative
vote of a majority of the directors at a meeting held pursuant to notice or
waivers of notice or by a sole remaining director. A vacancy created by removal
of a director may be filled by the board only if the board is so authorized. The
SVG Bylaws allow any newly created directorship or vacancy on the Board to be
filled only by a majority of the directors then in office even though less than
a quorum (unless the SVG Board determines by resolution that the newly created
directorship shall be filled by the shareholders). The TLI Bylaws allow a
vacancy (other than one created by removal of a director) to be filled by the
remaining members of the TLI Board.
INDEMNIFICATION AND LIMITATION OF LIABILITY. California and Delaware have
similar laws relating to indemnification by a corporation of its officers,
directors, employees and other agents. The laws of both states also permit
corporations to adopt a provision in their charters eliminating the liability of
a director to the corporation or its shareholders for monetary damages for
breach of the director's fiduciary duty of care. There are nonetheless certain
differences between the laws of the two states with respect to indemnification
and limitation of liability.
The SVG Certificate eliminates the liability of directors to the fullest
extent permissible under Delaware law, as such law exists currently or as it may
be amended in the future. Under Delaware law, such provision may not eliminate
or limit director monetary liability for (i) breaches of the director's duty of
loyalty to the corporation or its shareholders; (ii) acts or omissions not in
good faith or involving intentional misconduct or knowing violations of law;
(iii) the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or (iv) transactions in which the director received an improper
personal benefit. Such limitation of liability provisions do not affect the
availability of non-monetary remedies such as injunctive relief or rescission.
The TLI Articles also eliminate the liability of directors to the fullest
extent permissible under California law. California law does not permit the
elimination of monetary liability where such liability is based on (i)
intentional misconduct or knowing and culpable violation of law; (ii) acts or
omissions that a director believes to be contrary to the best interests of the
corporation or its shareholders, or that involve the absence of good faith on
the part of the director; (iii) receipt of an improper personal benefit; (iv)
acts or omissions that show reckless disregard for the director's duty to the
corporation or its shareholders, where the director in the ordinary course of
performing a director's duties should be aware of a risk of serious injury to
the corporation or its shareholders; (v) acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation and its shareholders; (vi) interested transactions
between the corporation and a director in which a director has a material
financial interest; and (vii) liability for improper distributions, loans or
guarantees.
Delaware law states that the indemnification provided by statute shall not
be deemed exclusive of any other rights under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise. The SVG Bylaws include a
provision providing that SVG shall indemnify its directors to the fullest extent
permissible under Delaware law.
California corporations may include in their charter a provision which
extends the scope of indemnification through agreements, bylaws or other
corporate action beyond that specifically authorized by statute. The TLI
Articles include a provision that TLI shall indemnify its directors and officers
to the fullest extent permissible under California law.
INSPECTION OF SHAREHOLDERS LIST. Both California and Delaware law allow any
shareholder to inspect and copy the shareholders list for a purpose reasonably
related to such person's interest as a shareholder. California law provides, in
addition, for an absolute right to inspect and copy the corporation's
shareholders list by persons holding an aggregate of 5% or more of a
corporation's voting shares, or, under certain
54
<PAGE>
other circumstances, shareholders holding an aggregate of 1% or more of such
shares. Although Delaware law does not provide for any such absolute right of
inspection, such right is granted under the SVG Bylaws.
DIVIDENDS AND REPURCHASES OF SHARES. California law dispenses with the
concepts of par value of shares for most purposes as well as statutory
definitions of capital, surplus and the like. The concepts of par value, capital
and surplus are retained under Delaware law.
Delaware law permits a corporation to declare and pay dividends out of (i)
surplus or (ii) if there is no surplus, out of net profits for the fiscal year
in which the dividend is declared and/or for the preceding fiscal year as long
as the amount of capital of the corporation following the declaration and
payment of the dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. In addition, Delaware law generally
provides that a corporation may redeem or repurchase its shares only if such
redemption or repurchase would not impair the capital of the corporation.
Notwithstanding the foregoing, a Delaware corporation may redeem or repurchase
shares having a preference upon the distribution of any of its assets (or shares
of common stock, if there are no such shares of preferred stock) if such shares
will be retired upon acquisition (and provided that, after the reduction in
capital made in connection with such retirement of shares, the corporation's
remaining assets are sufficient to pay any debts not otherwise provided for).
Under California law, a corporation may not make any distribution (including
dividends, whether in cash or other property, and repurchases of its shares)
unless either the corporation's retained earnings immediately prior to the
proposed distribution equal or exceed the amount of the proposed distribution
or, immediately after giving effect to such distribution, the corporation's
assets (exclusive of goodwill, capitalized research and development expenses and
deferred charges) would be at least equal to 1 1/4 times its liabilities (not
including deferred taxes, deferred income and other deferred credits), and the
corporation's current assets would be at least equal to its current liabilities
(or 1 1/4 times its current liabilities if the average pre-tax and pre-interest
expense earnings for the preceding two fiscal years were less than the average
interest expense for such years). Such tests are applied to California
corporations on a consolidated basis.
SHAREHOLDER VOTING ON MERGERS AND SIMILAR TRANSACTIONS. Both California and
Delaware law generally require that the holders of a majority of the outstanding
voting shares of the acquiring and target corporations approve statutory
mergers. Delaware law does not require a shareholder vote of the surviving
corporation in a merger (unless the corporation provides otherwise in its
certificate of incorporation) if (i) the Merger Agreement does not amend the
existing certificate of incorporation; (ii) each share of the surviving
corporation outstanding before the Merger is equal to an identical outstanding
or treasury share after the Merger; and (iii) the number of shares to be issued
by the surviving corporation in the Merger does not exceed 20% of the shares
outstanding immediately prior to the Merger. California law contains a similar
exception to its voting requirements for reorganizations where shareholders or
the corporation itself, or both, immediately prior to the reorganization will
own immediately after the reorganization equity securities constituting more
than five-sixths of the voting power of the surviving or acquiring corporation
or its parent entity.
Both California and Delaware law also require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the outstanding voting shares of the corporation transferring such assets.
With certain exceptions, California law also requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding. By contrast, Delaware law
generally does not require class voting, except in certain transactions
involving an amendment to the certificate of incorporation which adversely
affects a specific class of shares, increases or decreases the number of
authorized shares of a class of shares or increases or decreases the par value
of the shares of a class of shares.
55
<PAGE>
INTERESTED DIRECTOR TRANSACTIONS. Under both California and Delaware law,
certain contracts or transactions in which one or more of a corporation's
directors has an interest are not void or voidable because of such interest,
provided that certain conditions, such as obtaining the required approval and
fulfilling the requirements of good faith and full disclosure, are met. With
certain exceptions, the conditions are similar under California and Delaware
law. Under California and Delaware law, either (i) the shareholders or the
disinterested directors must approve any such contract or transaction after full
disclosure of the material facts, and in California in the case of board
approval the contract or transaction must also be "just and reasonable" to the
corporation, or (ii) the contract or transaction must have been just and
reasonable (in California) or fair (in Delaware) as to the corporation at the
time it was approved. In the latter case, California law explicitly places the
burden of proof on the interested director.
Under California law, if shareholder approval is sought, the interested
director is not entitled to vote his shares with respect to any action regarding
such contract or transaction. If board approval is sought, the contract or
transaction must be approved by a majority vote of a quorum of the directors,
without counting the vote of any interested directors (except that interested
directors may be counted for purposes of establishing a quorum).
Under Delaware law, if board approval is sought, the contract or transaction
must be approved by a majority of the disinterested directors (even though less
than a quorum). Therefore, certain transactions that the TLI Board would lack
the authority to approve because of the number of interested directors, could be
approved by a majority of the disinterested directors of SVG representing less
than a quorum.
DISSENTERS' RIGHTS. Under both California and Delaware law, a shareholder
of a corporation participating in certain major corporate transactions may be
entitled, under varying circumstances, to dissenters' or appraisal rights
pursuant to which such shareholder may receive cash in the amount of the fair
market value of his or her shares in lieu of the consideration he or she would
otherwise receive in the transaction. Under Delaware law, such rights are not
available (i) with respect to the sale, lease or exchange of all or
substantially all of the assets of a corporation (unless otherwise provided in
the corporation's certificate of incorporation); (ii) with respect to a merger
or consolidation by a corporation the shares of which are either listed on a
national securities exchange or are held of record by more than 2,000 holders if
such shareholders receive only shares of the surviving corporation, shares of
any other corporation which are either listed on a national securities exchange
or held of record by more than 2,000 holders, cash in lieu of fractional shares
or a combination of the foregoing; or (iii) to shareholders of a corporation
surviving a merger if no vote of the shareholders of the surviving corporation
is required to approve the Merger because the Reorganization Agreement does not
amend the existing certificate of incorporation, each share of the surviving
corporation outstanding prior to the Reorganization is an identical outstanding
or treasury share after the Merger, and the number of shares to be issued in the
Merger does not exceed 20% of the shares of the surviving corporation
outstanding immediately prior to the Merger and if certain other conditions are
met.
In contrast, shareholders of a California corporation whose shares are
listed on a national securities exchange or on a list of over-the-counter margin
stocks issued by the Board of Governors of the Federal Reserve System generally
do not have dissenters' rights unless the holders of at least 5% of the class of
outstanding shares claim the right or unless the corporation or any law
restricts the transfer of such shares. In addition, dissenters' rights are
unavailable if the shareholders of a corporation or the corporation itself, or
both, immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five-sixths of the
voting power of the surviving or acquiring corporation or its parent entity, and
if the shares of the surviving corporation have the same rights, preferences,
privileges and restrictions as the shares of the disappearing corporation that
are surrendered in exchange. Dissenters' rights may be available to shareholders
of TLI with respect to the Merger.
DISSOLUTION. Under Delaware law, unless the board of directors approves a
proposal to dissolve, a dissolution must be approved by shareholders holding
100% of the total voting power of the corporation.
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<PAGE>
Only if a dissolution is initially approved by the board of directors may it be
approved by a simple majority of the corporation's outstanding shares of capital
stock entitled to vote thereon. Delaware law allows a Delaware corporation to
include in its certificate of incorporation a super majority voting requirement
in connection with dissolutions initiated by the Board. The SVG Certificate
contains no such super majority voting requirement. Under California law,
shareholders holding 50% or more of the total voting power may authorize a
corporation's dissolution, with or without the approval of the corporation's
board of directors, and this right may not be modified by the articles of
incorporation.
SHAREHOLDER DERIVATIVE SUITS. Under Delaware law, a shareholder may only
bring a derivative action on behalf of the corporation if the shareholder was a
shareholder of the corporation at the time of the transaction in question or his
or her stock thereafter devolved upon him or her by operation of law. California
law provides that a shareholder bringing a derivative action on behalf of a
corporation need not have been a shareholder at the time of the transaction in
question, provided that certain tests are met. California law also provides that
the corporation or the defendant in a derivative suit may make a motion to the
court for an order requiring the plaintiff shareholder to furnish a security
bond. Delaware does not have a similar bonding requirement.
LEGAL MATTERS
Certain legal matters in connection with the Reorganization Agreement and
the federal income tax consequences of the Merger will be passed upon for TLI by
Clark & Trevithick. Certain legal matters in connection with the Reorganization
Agreement and the federal income tax consequences of the Merger will be passed
upon for SVG by Wilson Sonsini Goodrich & Rosati, Professional Corporation.
EXPERTS
The consolidated financial statements of SVG at September 30, 1995 and 1996,
and for each of the three years in the period ended September 30, 1996,
incorporated by reference in this Proxy Statement/ Prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports
incorporated by reference in the Proxy Statement/Prospectus, and are
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of TLI at December 31, 1995 and
December 29, 1996, and for each of the three years in the period ended December
29, 1996, included in the Proxy Statement of TLI which is referred to and made a
part of this Prospectus and Registration Statement, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
57
<PAGE>
TINSLEY LABORATORIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................. F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Income.......................................................................... F-4
Consolidated Statements of Stockholders' Equity............................................................ F-5
Consolidated Statements of Cash Flows...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Tinsley Laboratories, Inc.
We have audited the accompanying consolidated balance sheets of Tinsley
Laboratories, Inc. as of December 31, 1995 and December 29, 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 29, 1996. These
financial statements and schedule are the responsibility of the Company's
management. Our audit also included the financial statement schedule for each of
the three years in the period ended December 29, 1996 listed in the Index at
Item 21. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Tinsley
Laboratories, Inc. at December 31, 1995 and December 29, 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 29, 1996 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule for each of the three years in the period ended December 29,
1996 when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
San Francisco, California
March 14, 1997
except for Note 11, as to which the date is
October 14, 1997
F-2
<PAGE>
TINSLEY LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1997
DECEMBER 31, DECEMBER 29, -------------
1995 1996
------------- ------------- (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 560,692 $ 946,222 $ 379,136
Trade receivables (net of allowance for doubtful accounts of $49,000 at
December 31, 1995, $75,000 at December 29, 1996, and $91,000 at June
30, 1997).............................................................. 1,521,097 2,245,186 2,265,619
Unbilled receivables..................................................... 837,701 680,600 1,135,955
Inventories.............................................................. 1,864,988 1,785,721 1,809,566
Prepaid expenses and other receivables................................... 127,816 144,545 130,040
Deferred income taxes.................................................... 316,057 521,891 521,891
------------- ------------- -------------
Total current assets....................................................... 5,228,351 6,324,165 6,242,207
Property, plant, and equipment, net........................................ 5,285,487 6,288,088 7,332,801
Cash surrender value of life insurance (net of loans thereon of $283,000 at
December 31, 1995, $279,000 at December 29, 1996, and $279,000 at June
30, 1997)................................................................ 564,025 627,263 657,263
Goodwill (net of amortization of $316,000 at December 31, 1995, $438,000 at
December 29, 1996, and $499,000 at June 30, 1997)........................ 1,516,963 1,394,791 1,333,705
Noncompetition agreement and other assets (net of amortization of $258,000
at December 31, 1995, $358,000 at December 29, 1996, and $408,000 at June
30, 1997)................................................................ 345,364 245,364 195,364
------------- ------------- -------------
Total assets............................................................... $ 12,940,190 $ 14,879,671 $ 15,761,340
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................................... $ 491,296 $ 640,397 $ 880,821
Accrued liabilities...................................................... 540,905 538,474 478,137
Accrued compensation and related liabilities............................. 634,905 861,115 1,477,715
Income taxes payable..................................................... 362,008 691,945 199,848
Current portion--long-term debt obligations.............................. 151,878 160,635 1,266,383
Current portion--notes payable to related parties........................ 400,000 450,000 22,000
------------- ------------- -------------
Total current liabilities.................................................. 2,580,992 3,342,566 4,324,904
Long-term debt obligations, less current portion........................... 900,928 1,491,110 655,912
Long-term notes payable to related parties, less current portion........... 460,000 10,000 108,000
Deferred income taxes...................................................... 270,985 324,686 227,101
Deferred compensation...................................................... 557,102 613,777 629,105
Commitments................................................................
Stockholders' equity:
Preferred stock, with no par value; 500,000 shares authorized; none
issued or outstanding.................................................. -- -- --
Common stock, stated value $0.16 2/3 per share: 6,000,000 shares
authorized; 1,534,248, 1,551,948 and 1,555,548 shares issued and
outstanding at December 31, 1995, December 29, 1996 and June 30, 1997,
respectively........................................................... 255,706 258,633 259,233
Capital in excess of stated value........................................ 1,216,028 1,261,776 1,271,076
Retained earnings........................................................ 6,826,289 7,704,963 8,560,227
Minimum pension liability................................................ (127,840) (127,840) (274,218)
------------- ------------- -------------
Total stockholders' equity................................................. 8,170,183 9,097,532 9,816,318
------------- ------------- -------------
Total liabilities and stockholders' equity................................. $ 12,940,190 $ 14,879,671 $ 15,761,340
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
TINSLEY LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
------------------------------------------- JUNE 30,
DECEMBER 25, DECEMBER 31, DECEMBER 29, ---------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................. $ 12,968,892 $ 13,109,144 $ 17,408,410 $ 8,152,097 $ 10,539,978
Costs and expenses:
Cost of goods sold.................. 9,025,794 9,088,148 12,078,932 5,542,204 6,696,264
Selling, administrative and research
and development expenses.......... 3,069,899 3,423,398 3,539,314 1,884,286 2,189,165
Amortization of intangible assets... 222,172 222,172 222,172 111,086 111,086
------------- ------------- ------------- ------------ -------------
12,317,865 12,733,718 15,840,418 7,537,576 8,996,515
------------- ------------- ------------- ------------ -------------
Income from operations................ 651,027 375,426 1,567,992 614,521 1,543,463
Other income.......................... 155,622 21,307 71,025 65,156 7,978
Interest expense...................... (215,783) (179,366) (214,539) (89,205) (82,677)
------------- ------------- ------------- ------------ -------------
Income before income taxes............ 590,866 217,367 1,424,478 590,472 1,468,764
Provision for income taxes............ 245,081 95,737 545,804 260,204 613,500
------------- ------------- ------------- ------------ -------------
Net income............................ $ 345,785 $ 121,630 $ 878,674 $ 330,268 $ 855,264
------------- ------------- ------------- ------------ -------------
------------- ------------- ------------- ------------ -------------
Net income per common share........... $ 0.23 $ 0.08 $ 0.53 $ 0.21 $ 0.49
------------- ------------- ------------- ------------ -------------
------------- ------------- ------------- ------------ -------------
Number of shares used in per share
calculation......................... 1,539,934 1,534,248 1,671,715 1,543,948 1,731,125
------------- ------------- ------------- ------------ -------------
------------- ------------- ------------- ------------ -------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
TINSLEY LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON CAPITAL IN MINIMUM TOTAL
SHARES COMMON EXCESS OF RETAINED PENSION STOCKHOLDERS'
OUTSTANDING STOCK STATED VALUE EARNINGS LIABILITY EQUITY
----------- ---------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 26, 1993........ 1,523,048 $ 253,842 $ 1,187,467 $ 6,358,874 $ -- $7,800,183
Exercise of stock options........ 1,000 166 2,209 -- -- 2,375
Net income....................... -- -- -- 345,785 -- 345,785
----------- ---------- ------------ ------------ ----------- ------------
Balances, December 25, 1994........ 1,524,048 254,008 1,189,676 6,704,659 -- 8,148,343
Exercise of stock options........ 10,200 1,698 26,352 -- -- 28,050
Net income....................... -- -- -- 121,630 -- 121,630
Adjustment for minimum pension
liability...................... -- -- -- -- (127,840) (127,840)
----------- ---------- ------------ ------------ ----------- ------------
Balances, December 31, 1995........ 1,534,248 255,706 1,216,028 6,826,289 (127,840) 8,170,183
Exercise of stock options........ 17,700 2,927 45,748 -- -- 48,675
Net income....................... -- -- -- 878,674 -- 878,674
----------- ---------- ------------ ------------ ----------- ------------
Balances, December 29, 1996........ 1,551,948 258,633 1,261,776 7,704,963 (127,840) 9,097,532
Exercise of stock options
(unaudited).................... 3,600 600 9,300 -- -- 9,900
Net income (unaudited)........... -- -- -- 855,264 -- 855,264
Adjustment for minimum pension
liability (unaudited).......... -- -- -- -- (146,378) (146,378)
----------- ---------- ------------ ------------ ----------- ------------
Balances, June 30, 1997
(unaudited)...................... 1,555,548 $ 259,233 $ 1,271,076 $ 8,560,227 $ (274,218) $9,816,318
----------- ---------- ------------ ------------ ----------- ------------
----------- ---------- ------------ ------------ ----------- ------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
TINSLEY LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
---------------------------------------- JUNE 30,
DECEMBER 25, DECEMBER 31, DECEMBER 29, -----------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................. $ 345,785 $ 121,630 $ 878,674 $ 330,268 $ 855,264
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 844,960 945,550 1,021,470 481,853 488,599
Deferred income taxes.................................... 92,665 (235,911) (152,133) (38,196) --
Changes in operating assets and liabilities:
Trade and unbilled receivables......................... (1,047,827) 325,869 (566,988) (657,536) (475,788)
Inventories............................................ 435,964 (348,461) 79,267 (375,890) (23,845)
Prepaid expenses and other receivables................. (11,184) (20,444) (16,729) 60,017 14,505
Trade accounts payable and accrued liabilities......... 138,924 234,599 146,670 133,866 180,087
Accrued compensation and related liabilities, and
deferred compensation................................ 5,059 206,666 282,885 86,295 387,965
Income taxes payable................................... 124,490 135,026 329,937 (9,600) (492,097)
------------ ------------ ------------ ---------- -----------
Net cash provided by operating activities.................. 928,836 1,364,524 2,003,053 11,077 934,690
INVESTING ACTIVITIES
Purchase of property, plant and equipment.................. (581,474) (1,113,865) (1,051,899) (506,384) (1,302,226)
Increase in cash surrender value of life insurance......... (63,722) (68,502) (63,238) (30,000) (30,000)
------------ ------------ ------------ ---------- -----------
Net cash used in investing activities...................... (645,196) (1,182,367) (1,115,137) (536,384) (1,332,226)
FINANCING ACTIVITIES
Principal payments on long-term debt....................... (575,428) (542,756) (551,061) (373,845) (529,450)
Borrowings under line of credit............................ -- -- 500,000 500,000 350,000
Repayments of borrowings under line of credit.............. -- -- (500,000) -- --
Proceeds from exercise of stock options.................... 2,375 28,050 48,675 26,675 9,900
------------ ------------ ------------ ---------- -----------
Net cash (used in) provided by financing activities........ (573,053) (514,706) (502,386) 152,830 (169,550)
------------ ------------ ------------ ---------- -----------
Net (decrease) increase in cash and cash equivalents....... (289,413) (332,549) 385,530 (372,477) (567,086)
Cash and cash equivalents at beginning of period........... 1,182,654 893,241 560,692 560,692 946,222
------------ ------------ ------------ ---------- -----------
Cash and cash equivalents at end of period................. $ 893,241 $ 560,692 $ 946,222 $ 188,215 $ 379,136
------------ ------------ ------------ ---------- -----------
------------ ------------ ------------ ---------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ 227,113 $ 167,409 $ 225,491 $ 99,873 $ 90,039
Income taxes........................................... $ 136,000 $ 196,622 $ 368,000 $ 201,000 $ 1,106,000
Supplemental schedule of noncash investing and financing
activities:
Issuance of notes payable for the purchases of
property, plant and equipment........................ $ -- $ -- $ 750,000 $ 750,000 $ 120,000
Minimum pension liability and related deferred tax
asset................................................ $ -- $ 213,067 $ -- $ -- $ 243,963
</TABLE>
See accompanying notes.
F-6
<PAGE>
TINSLEY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997, RESPECTIVELY, IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Tinsley Laboratories, Inc., (the "Company") designs, manufactures and sells
precision optical components, assemblies and systems, including color television
tooling products, optical instruments, aspheric lenses, metal mirrors and
massive optical components. The Company also manufactures and distributes video,
cinematography and camera lenses. The Company's fiscal year is the 52 or 53 week
period which ends on the Sunday closest to December 31. The fiscal years ended
December 25, 1994 and December 29, 1996 were 52 week periods and the fiscal year
ended December 31, 1995 was a 53 week period. Beginning in 1997, the Company
adopted a calendar basis fiscal year.
The Company sells its products primarily to large corporations that act as
prime government contractors or to the U.S. Government directly and to
distributors and end users in the photography and cinematography industries. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral. The Company maintains reserves for potential credit
losses and such losses have not historically been material to the Company.
RESTATEMENT
As described in Note 10, the Company entered into employment agreements with
its President and Chief Executive Officer and Vice President of Marketing in
June 1995. The Company had not recorded the annual bonus or deferred
compensation under the employment agreements for 1995 and 1996. To correctly
record compensation related to the employment agreements, the Company has
restated its consolidated financial statements for the years ended December 31,
1995 and December 29, 1996. The effect of the restatement on the results of
operations was a reduction of net income of $146,755 or $0.10 per share for the
year ended December 31, 1995 and a reduction of net income of $54,804 or $0.03
per share for the year ended December 29, 1996. In the opinion of management,
all material adjustments related to these agreements which are necessary to
restate the 1995 and 1996 consolidated financial statements have been recorded.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its two active wholly owned subsidiaries, Century Precision Industries, Inc.
d/b/a Century Precision Optics ("Century") and Tinsley International, Inc.,
after elimination of intercompany transactions and balances.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The consolidated financial statements as of June 30, 1997 and for the six
months ended June 30, 1996 and 1997 have been prepared by the Company pursuant
to the rules and regulations of the Securities and Exchange Commission for
interim financial reporting. These statements are unaudited but, in the opinion
of management, include all adjustments (consisting only of normal recurring
adjustments and accruals) necessary for a fair presentation of the financial
information set forth herein. The operating results for the six months ended
June 30, 1997 are not necessarily indicative of the results that may be expected
for any future period or the fiscal year ended December 28, 1997.
F-7
<PAGE>
TINSLEY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997, RESPECTIVELY, IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BUSINESS COMBINATION
On May 19, 1993, the Company acquired all of the outstanding capital stock
of Century, which manufactures and distributes video, cinematography and camera
lenses. The purchase price was $2,250,000, of which $1,500,000 was paid in cash.
The balance was financed with a promissory note to Century's former owner in the
amount of $750,000 (see Note 6). An additional $200,000 was paid and capitalized
as costs for outside professional and financing expenses directly related to the
acquisition. This acquisition has been accounted for as a purchase and,
accordingly, the acquired assets and liabilities have been recorded at their
estimated fair value at the date of acquisition. The excess of the purchase
price over the estimated fair market value of the assets (goodwill) was
approximately $1,833,000 and is being amortized using the straight-line method
over 15 years. The operating results of this acquisition are included in the
Company's consolidated results of operations from the date of acquisition.
As part of the purchase, the Company entered into a Noncompetition Agreement
with the former owner of Century that required the Company to pay a total of
$600,000, of which $100,000 was paid in cash upon closing of the purchase, an
additional $50,000 was paid in November 1993, $140,000 was paid in May 1994,
$100,000 was paid in May 1995 and $100,000 was paid in May 1996, in
consideration of the former owner's promise not to compete with the business of
Century for a period of six years after the closing. As of December 29, 1996,
the remaining liability was $110,000 payable in installments of $100,000 on May
19, 1997 and $10,000 on May 19, 1998. This liability (and the related intangible
asset which is being amortized over six years) has been recorded in the
consolidated financial statements.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less from the date of purchase to be cash equivalents.
Substantially all of the Company's cash and cash equivalents are maintained in
two financial institutions.
REVENUE RECOGNITION
The majority of the Company's sales are from fixed price contracts and
product sales for which revenue is recognized as units are delivered or
accepted. Sales under cost-plus contracts are recognized as services are
performed. At the time a loss on a contract becomes known, the entire amount of
the estimated loss on the contract is accrued. Differences between invoiced
amounts and revenue recognized are reflected as unbilled receivables.
INVENTORIES
Inventories are stated at the lower of cost or market on the first-in,
first-out method. Inventoried costs related to contracts in process include
actual production cost and factory overhead, reduced by amounts related to
revenue recognized. The Company provides for obsolete inventories in the period
when obsolescence is determined to have occurred.
F-8
<PAGE>
TINSLEY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997, RESPECTIVELY, IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and is being depreciated on
the straight-line basis over the estimated useful lives of the assets. Estimated
useful lives for purposes of depreciation are as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings 40 years
Machinery and equipment 3 to 10 years
Leasehold improvements Life of lease
</TABLE>
LONG-LIVED ASSETS
The Company assesses long-lived assets, including goodwill, for impairment
in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"). Under SFAS 121, goodwill associated with assets
acquired in a purchase business combination is included in impairment
evaluations when events or circumstances exist that indicate the carrying amount
of those assets may not be recoverable.
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). In accordance with the provisions of SFAS 123, the
Company applies APB Opinion No. 25 and related interpretations in accounting for
its stock option plans and, as a result, has not recognized compensation cost in
connection with such plans. Note 8 to the consolidated financial statements
contains a summary of the pro forma effects on reported net income and net
income per share for 1995 and 1996 as if the Company had elected to recognize
compensation cost based on the fair value of the options granted at grant date
as prescribed by SFAS 123.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of shares
of common stock outstanding. Common equivalent shares from stock options (using
the treasury stock method) are also included in the computation when dilutive.
The difference between primary and fully diluted earnings per share is not
material for all periods presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-9
<PAGE>
TINSLEY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997, RESPECTIVELY, IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK SPLIT
In August 1996, the Company's Board of Directors approved a two-for-one
stock split. All shares and per share data in the accompanying consolidated
financial statements have been retroactively adjusted to reflect this stock
split.
RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share," which is
required to be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods which are presented in its consolidated financial
statements. Under the new requirements for calculating basic earnings per share,
the dilutive effect of stock options will be excluded. Under the new
requirements, the Company's basic earnings per share for fiscal years 1994, 1995
and 1996 would be $0.23 per share, $0.08 per share and $0.57 per share,
respectively, and $0.21 per share and $0.55 per share for the six months ended
June 30, 1996 and 1997, respectively.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
DECEMBER 31, DECEMBER 29, -------------
1995 1996
------------ ------------ (UNAUDITED)
<S> <C> <C> <C>
Raw materials............................................... $ 230,271 $ 229,640 $ 268,112
Contracts-in-progress....................................... 1,305,604 1,213,390 1,939,231
Less progress billings...................................... (431,000) (576,000) (1,299,000)
------------ ------------ -------------
874,604 637,390 640,231
Finished goods.............................................. 760,113 918,691 901,223
------------ ------------ -------------
$1,864,988 $1,785,721 $ 1,809,566
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
F-10
<PAGE>
TINSLEY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997, RESPECTIVELY, IS UNAUDITED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Land....................................................................... $ 644,553 $1,144,803
Building................................................................... 2,550,875 2,960,708
Machinery and equipment.................................................... 5,878,788 6,614,870
Leasehold improvements..................................................... 191,094 235,844
Equipment construction-in-progress......................................... 260,455 371,439
------------ ------------
9,525,765 11,327,664
Less accumulated depreciation.............................................. 4,240,278 5,039,576
------------ ------------
$5,285,487 $6,288,088
------------ ------------
------------ ------------
</TABLE>
4. RESEARCH AND DEVELOPMENT
Research and development expenditures of $383,000, $355,000 and $349,000
were charged against operations as incurred in fiscal years 1994, 1995 and 1996,
respectively.
5. PROVISION FOR INCOME TAXES
The components of income tax expense were as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal................................................... $ 108,334 $ 249,570 $ 585,283
State..................................................... 44,082 82,078 112,654
------------ ------------ ------------
152,416 331,648 697,937
------------ ------------ ------------
Deferred:
Federal................................................... 74,750 (200,024) (128,991)
State..................................................... 17,915 (35,887) (23,142)
------------ ------------ ------------
92,665 (235,911) (152,133)
------------ ------------ ------------
Total:
Federal................................................... 183,084 49,546 456,292
State..................................................... 61,997 46,191 89,512
------------ ------------ ------------
$ 245,081 $ 95,737 $ 545,804
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-11
<PAGE>
TINSLEY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997, RESPECTIVELY, IS UNAUDITED)
5. PROVISION FOR INCOME TAXES (CONTINUED)
A reconciliation of total income tax expense with the statutory federal
income tax rate appears as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29,
1994 1995 1996
--------------- --------------- ---------------
(% OF PRETAX INCOME)
<S> <C> <C> <C>
Income tax expense at federal statutory rate................ 34.0% 34.0% 34.0%
State franchise tax, net of federal benefit................. 6.1 6.1 3.8
Life insurance proceeds..................................... (4.3) -- --
Amortization of goodwill.................................... 7.0 19.1 2.9
Foreign sales corporation commission........................ (1.5) (12.3) (2.7)
Other, net.................................................. 0.2 (2.9) 0.3
--- ----- ---
41.5% 44.0% 38.3%
--- ----- ---
--- ----- ---
</TABLE>
Deferred income taxes reflect the net tax effect of timing differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Inventory reserve........................................................ $ 123,830 $ 171,417
Deferred compensation.................................................... 223,398 263,068
Accounting for long-term contracts....................................... 34,073 91,894
Accrued vacation......................................................... 91,674 99,668
State franchise tax...................................................... 30,763 38,847
Other.................................................................... 56,028 72,526
Minimum pension liability................................................ 85,227 85,227
------------ ------------
Total deferred tax asset................................................... 644,993 822,647
Deferred tax liabilities:
Depreciation and amortization............................................ (582,888) (589,101)
Prepaid property taxes................................................... (17,033) (16,291)
Other.................................................................... -- (20,050)
------------ ------------
Total deferred tax liabilities............................................. (599,921) (625,442)
------------ ------------
Net deferred tax assets.................................................... $ 45,072 $ 197,205
------------ ------------
------------ ------------
</TABLE>
F-12
<PAGE>
TINSLEY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997, RESPECTIVELY, IS UNAUDITED)
5. PROVISION FOR INCOME TAXES (CONTINUED)
The following is a summary of deferred tax assets and liabilities classified
as current and non-current:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Current.................................................................. $ 333,090 $ 558,232
Non-current.............................................................. 311,903 264,415
------------ ------------
644,993 822,647
------------ ------------
Deferred tax liabilities:
Current.................................................................. (17,033) (36,341)
Non-current.............................................................. (582,888) (589,101)
------------ ------------
(599,921) (625,442)
------------ ------------
Total deferred tax assets (liabilities):
Current.................................................................. 316,057 521,891
Non-current.............................................................. (270,985) (324,686)
------------ ------------
$ 45,072 $ 197,205
------------ ------------
------------ ------------
</TABLE>
F-13
<PAGE>
TINSLEY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997, RESPECTIVELY, IS UNAUDITED)
6. LONG-TERM DEBT OBLIGATIONS
Long-term debt and notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
8.5% loan agreement dated June 30, 1993, principal and interest payable monthly with
a final payment of $209,000 due on July 15, 2000................................... $ 933,778 $ 795,269
8% promissory note dated May 19, 1993, principal and interest payable in four annual
installments beginning May 1994 through May 1997 to a related party................ 350,000 150,000
8% subordinated promissory note dated June 1, 1993, principal payable in four
installments and interest payable four times a year through June 1997 to a related
party.............................................................................. 300,000 200,000
Noncompetition Agreement, dated May 19, 1993, payable annually through May 1998 to a
related party...................................................................... 210,000 110,000
8% promissory note dated March 11, 1996, interest payable monthly with principal
balance of $750,000 due on April 1, 1998........................................... -- 750,000
6% special assessment bond dated April 2, 1974, principal and interest payable
semiannually through April 1999.................................................... 12,039 9,935
12% special assessment bond dated April 2, 1982, principal and interest payable
semiannually through April 2007.................................................... 102,024 96,541
Other................................................................................ 4,965 --
------------ ------------
1,912,806 2,111,745
Less current portion................................................................. 551,878 610,635
------------ ------------
$1,360,928 $1,501,110
------------ ------------
------------ ------------
</TABLE>
The aggregate maturities of long-term debt at December 29, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997............................................................................ $ 610,635
1998............................................................................ 933,878
1999............................................................................ 187,372
2000............................................................................ 309,502
2001............................................................................ 8,270
Thereafter...................................................................... 62,088
------------
$ 2,111,745
------------
------------
</TABLE>
At December 29, 1996, the Company had outstanding an irrevocable standby
letter of credit for $162,000, which secures the required payments on the 8%
promissory note, dated May 19, 1993, to a related party. The letter of credit is
subject to renewal in June 1997.
During 1996, the Company established a $1,000,000 bank line of credit.
Borrowings under the line of credit are secured by the Company's assets and bear
interest at the bank's prime rate plus 1% per annum. The line of credit, which
expires on April 30, 1997, requires the Company to meet various financial
F-14
<PAGE>
TINSLEY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997, RESPECTIVELY, IS UNAUDITED)
6. LONG-TERM DEBT OBLIGATIONS (CONTINUED)
covenants. The Company was not in compliance with the current ratio covenant as
of December 29, 1996. The Company received a waiver from the bank for this
covenant as of December 29, 1996. There were no borrowings under this line of
credit at December 29, 1996 (see Note 11).
During 1996, the Company purchased a research and development facility and
office space for $900,000. The Company paid $150,000 in cash upon closing of the
escrow and issued a $750,000 promissory note secured by the property bearing
interest at 8% per annum due and payable on April 1, 1998.
7. LEASE COMMITMENTS
The Company leases certain facilities, manufacturing equipment and operating
equipment under noncancelable operating leases. Future minimum rental payments
under these leases as of December 29, 1996 are as follows:
<TABLE>
<S> <C>
1997.................................................... $ 314,998
1998.................................................... 288,863
1999.................................................... 288,863
2000.................................................... 288,863
2001.................................................... 311,544
Thereafter.............................................. 735,950
---------
$2,229,081
---------
---------
</TABLE>
During 1993, Century entered into a lease agreement with a related party for
the office building occupied by Century. Base rent was $8,667 per month through
October 1994. An option to extend the term of the lease for an additional two
years from the original date of termination was exercised in 1994 and extended
the term through October 1996 at $9,398 per month. The Company is currently
occupying this building under a month-to-month cancelable lease. Rent expense
paid to this related party by Century during 1994, 1995 and 1996 was
approximately $105,000, $113,000 and $113,000, respectively.
Total rent expense for 1994, 1995 and 1996 approximated $197,000, $210,000,
and $223,000, respectively.
8. STOCK OPTIONS
Effective February 4, 1993, the Company's Board of Directors approved the
1993 Incentive Stock Option Plan ("1993 Plan") and reserved 200,000 shares of
common stock for issuance under the 1993 Plan, which was subsequently approved
by the Company's stockholders. All full-time employees are eligible to receive
options under the 1993 Plan. The 1993 Plan will expire in February 2003 and is
intended to qualify as an incentive stock option plan pursuant to Section 422 of
the Internal Revenue Code. The exercise price per share of all incentive stock
options granted under the 1993 Plan must be at least equal to the fair market
value of the shares at the date of the grant. Vesting is established by the
Company's Board of Directors or Compensation Committee and generally occurs at
the rate of 20% per year.
F-15
<PAGE>
TINSLEY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997, RESPECTIVELY, IS UNAUDITED)
8. STOCK OPTIONS (CONTINUED)
From time to time, the Company has issued non-qualified stock options to
certain key employees, consultants and board members at the discretion of the
Board of Directors or Compensation Committee. The non-qualified stock options
have a per share exercise price equal to or in excess of 100% of the market
value of the shares of the Company's common stock on the date of grant. Vesting
is established by the Company's Board of Directors or Compensation Committee.
The Company has adopted SFAS 123 which was issued in October 1995. In
accordance with the provisions of SFAS 123, the Company applies APB Opinion 25
and related interpretations in accounting for its stock option plans and,
accordingly, does not recognize compensation cost. If the Company had elected to
recognize compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS 123, net income and net income per share would
have been reduced to the pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Net income--as reported.......................................... $ 121,630 $ 878,674
Net income--pro forma............................................ $ 85,966 $ 872,268
Net income per share--as reported................................ $ 0.08 $ 0.53
Net income per share--pro forma.................................. $ 0.06 $ 0.52
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------
DECEMBER 31, DECEMBER 29,
1995 1996
--------------- ---------------
<S> <C> <C>
Expected volatility.............................................. 0.264 0.264
Risk-free interest rate.......................................... 5.90% 6.40%
Expected life of options in years................................ 4.5 4.5
Expected dividend yield.......................................... 0.00% 0.00%
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly different
from those of traded options and because changes in these subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not provide a reliable single measure of the
fair value of its stock options.
F-16
<PAGE>
TINSLEY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997, RESPECTIVELY, IS UNAUDITED)
8. STOCK OPTIONS (CONTINUED)
Price data and activity for all stock options are summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
IN NUMBER OF SHARES PRICE RANGE
------------------- -------------
<S> <C> <C>
Balance at December 26, 1993....................................... 228,200 $ 2.38 - 2.94
Exercised........................................................ (1,000) 2.38
Canceled......................................................... (40,000) 2.75
------- -------------
Balance at December 25, 1994....................................... 187,200 2.75 - 2.94
Granted.......................................................... 151,000 3.07 - 3.50
Exercised........................................................ (10,200) 2.75
------- -------------
Balance at December 31, 1995....................................... 328,000 2.75 - 3.50
Granted.......................................................... 67,500 7.50
Exercised........................................................ (17,700) 2.75
Canceled......................................................... (40,000) 3.07 - 3.50
------- -------------
Balance at December 29, 1996....................................... 337,800 $ 2.75 - 7.50
------- -------------
------- -------------
</TABLE>
At December 29, 1996, options to purchase 232,000 common shares were
exercisable at prices ranging from $2.75 to $7.50 per share. Outstanding options
had a weighted average exercise price of $3.91 and an average remaining life of
2.7 years.
9. MAJOR CUSTOMERS AND GEOGRAPHICAL INFORMATION
A significant portion of the Company's sales has been derived from major
customers. Four customers accounted for approximately $4,041,000 in sales for
fiscal year 1994, three customers accounted for approximately $3,111,000 in
sales for fiscal year 1995, and five customers accounted for approximately
$4,717,000 in sales for fiscal year 1996.
International sales during the last three fiscal years were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Europe...................................................... $ 914,004 $1,375,361 $1,622,937
Asia........................................................ 478,915 781,690 1,138,740
Canada and Mexico........................................... 563,037 165,632 194,167
South Pacific............................................... 140,960 41,223 26,628
Latin and South America..................................... 47,245 58,971 58,032
Other....................................................... 53,632 18,314 13,372
------------ ------------ ------------
$2,197,793 $2,441,191 $3,053,876
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-17
<PAGE>
TINSLEY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997, RESPECTIVELY, IS UNAUDITED)
10. EMPLOYEE BENEFIT PLANS
Effective January 1985, the Company adopted a defined benefit pension plan
(the "Plan") for eligible employees with at least one year of service.
Substantially all employees of the Company are covered by the Plan. Benefits are
payable in the form of a life annuity at an annual rate of up to fifty percent
of average compensation during a five year measurement period, less a portion of
social security benefits. For service of less than twenty-five years, the fifty
percent of average compensation, as defined, is reduced proportionately. All
eligible employees must participate in the Plan for at least five years in order
to receive applicable benefits thereunder.
During 1995, the Company decided to terminate the Plan and is in the process
of finalizing the plan of termination. As of December 29, 1996, the Company has
recorded an additional minimum pension liability of $213,037 representing the
excess of the estimated accumulated benefit obligation of $1,691,792 over the
actual fair market value of the Plan assets (principally money market funds) of
$1,478,755 at December 29, 1996. The minimum pension liability resulted in a
charge to stockholders' equity of $127,840 (net of income taxes of $85,197).
During 1996, the Company made contributions to the Plan of $45,000 which were
expensed.
When the termination of the Plan is finalized, the minimum pension liability
(adjusted for subsequent changes in the accumulated benefit obligation and plan
assets) will be charged to the Company's consolidated results of operations.
Effective July 1, 1995, the Company adopted a contributory defined
contribution plan (the "Contribution Plan") in which the Company's employees may
participate provided they have completed at least six months of continuous
employment. The Company, at its discretion, may make contributions on behalf of
all eligible employees to the Contribution Plan on an annual basis. During 1996,
the Company accrued $140,000 for contributions to the Contribution Plan. No
contributions were made by the Company to the Contribution Plan during fiscal
years 1994 or 1995.
In 1986, the Company entered into deferred compensation agreements with
certain key employees under which the Company agreed to pay certain fixed
amounts over a ten year period after the employees reach the age of 65. Payments
provided for in these agreements begin vesting five years after the date of the
agreements and become fully vested only if the employees remain employed by the
Company through the age of 65. For accounting purposes, the present value of
these payments is being charged ratably to expense over the period until the
employees reach the age of 65 using a discount rate of 8%. The charge to expense
for these agreements was none in 1994, $14,000 in 1995 and $17,000 in 1996.
In 1995, the Company entered into an employment agreement with its President
and Chief Executive Officer (the "President") and Vice President of Marketing
(the "Vice President"). Under the agreement with the President, the Company may
be required to pay annual bonuses for three years to the President, based on the
Company's performance. Additionally, the Company agreed to make annual payments
of $50,000 to the President over a ten year period beginning the month after the
President's retirement, which vested immediately, and annual payments of $10,000
to the Vice President over a ten year period beginning on the month after the
Vice President's retirement. The charge to expense for deferred compensation
under these agreements was $245,000 in fiscal year 1995 and $53,000 in fiscal
year 1996.
F-18
<PAGE>
TINSLEY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997, RESPECTIVELY, IS UNAUDITED)
11. SUBSEQUENT EVENTS
The Company is currently negotiating with a manufacturer of cinematographic
equipment located in the United Kingdom to purchase assets intended to
complement its subsidiary's optical lense business. The Company anticipates the
cash payment for such assets will be approximately $2,000,000. The cost to the
Company to purchase and finance the ongoing operation could require the Company
to obtain third party financing if the transaction with Silicon Valley Group,
Inc. described below is not consummated.
During 1997, the Company renewed its bank line of credit, which expired on
April 30, 1997 and increased available borrowings from $1,000,000 to $1,200,000.
The line of credit is secured by the Company's current and future assets.
Borrowings under this line of credit bear interest at a variable rate of prime
plus 1% per annum. The line of credit, which expires on April 30, 1998, requires
the Company to meet various financial covenants. The Company was not in
compliance with certain financial covenants as of June 30, 1997. The Company
received a waiver from the bank for these covenants as of June 30, 1997.
Subsequent to June 30, 1997, the bank amended the line of credit to reduce the
requirements of certain financial covenants.
The Company entered into an agreement and plan of reorganization, dated
September 9, 1997 (the "Reorganization Agreement") with Silicon Valley Group,
Inc. ("SVG"). In accordance with the Reorganization Agreement, if the plan of
reorganization is consummated, each issued and outstanding share of the
Company's common stock will be converted into 0.6594 of a share of SVG common
stock and each outstanding option to purchase the Company's common stock under
the Company's stock option plans will be assumed by SVG and will become an
equivalent right with respect to SVG's common stock on the same terms as the
original option.
F-19
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SILICON VALLEY GROUP, INC.
SV ACQUISITION, INC.
AND
TINSLEY LABORATORIES, INC.
DATED AS OF SEPTEMBER 9, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C> <C>
ARTICLE I--THE MERGER....................................................................... A-1
1.1 The Merger...................................................................... A-1
1.2 Effective Time; Closing......................................................... A-1
1.3 Effect of the Merger............................................................ A-2
1.4 Certificate of Incorporation; Bylaws............................................ A-2
1.5 Directors and Officers.......................................................... A-2
1.6 Effect on Capital Stock......................................................... A-2
1.7 Dissenting Shares............................................................... A-4
1.8 Surrender of Certificates....................................................... A-4
1.9 No Further Ownership Rights in TLI Common Stock................................. A-6
1.10 Lost, Stolen or Destroyed Certificates.......................................... A-6
1.11 Tax and Accounting Consequences................................................. A-6
1.12 Taking of Necessary Action; Further Action...................................... A-6
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF TLI........................................... A-6
2.1 Organization of TLI............................................................. A-6
2.2 TLI Capital Structure........................................................... A-7
2.3 Obligations With Respect to Capital Stock....................................... A-7
2.4 Authority....................................................................... A-8
2.5 SEC Filings; TLI Financial Statements........................................... A-8
2.6 Absence of Certain Changes or Events............................................ A-9
2.7 Taxes........................................................................... A-9
2.8 Title to Properties; Absence of Liens and Encumbrances.......................... A-10
2.9 Intellectual Property........................................................... A-11
2.10 Compliance; Permits; Restrictions............................................... A-13
2.11 Litigation...................................................................... A-13
2.12 Brokers' and Finders' Fees...................................................... A-13
2.13 Employee Benefit Plans.......................................................... A-13
2.14 Employees; Labor Matters........................................................ A-16
2.15 Environmental Matters........................................................... A-16
2.16 Agreements, Contracts and Commitments........................................... A-17
2.17 Pooling of Interests............................................................ A-17
2.18 Change of Control Payments...................................................... A-18
2.19 Statements; Proxy Statement/Prospectus.......................................... A-18
2.20 Board Approval.................................................................. A-18
2.21 Customs......................................................................... A-18
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF SVG AND MERGER SUB........................... A-18
3.1 Organization of SVG............................................................. A-18
3.2 SVG and Merger Sub Capital Structure............................................ A-19
3.3 Authority....................................................................... A-19
3.4 SEC Filings; SVG Financial Statements........................................... A-20
3.5 Absence of Certain Changes or Events............................................ A-20
3.6 Statements; Proxy Statement/Prospectus.......................................... A-20
3.7 Litigation...................................................................... A-20
3.8 Brokers' and Finders' Fees...................................................... A-21
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----------
<S> <C> <C>
ARTICLE IV--CONDUCT PRIOR TO THE EFFECTIVE TIME............................................. A-21
4.1 Conduct of Business............................................................. A-21
ARTICLE V--ADDITIONAL AGREEMENTS............................................................ A-22
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings; Board
Recommendations............................................................... A-22
5.2 Meeting of Shareholders......................................................... A-23
5.3 Confidentiality; Access to Information.......................................... A-23
5.4 No Solicitation................................................................. A-24
5.5 Public Disclosure............................................................... A-25
5.6 Legal Requirements.............................................................. A-25
5.7 Third Party Consents............................................................ A-25
5.8 Notification of Certain Matters................................................. A-25
5.9 Best Efforts and Further Assurances............................................. A-26
5.10 Stock Options................................................................... A-26
5.11 Form S-8........................................................................ A-26
5.12 Indemnification................................................................. A-26
5.13 Nasdaq Listing.................................................................. A-27
5.14 TLI Affiliate Agreement......................................................... A-27
5.15 Regulatory Filings; Reasonable Efforts.......................................... A-27
5.16 Tax-Free Reorganization......................................................... A-27
5.17 Comfort Letter.................................................................. A-27
5.18 Employment Agreements........................................................... A-27
5.19 Confidentiality Agreements...................................................... A-27
ARTICLE VI--CONDITIONS TO THE MERGER........................................................ A-28
6.1 Conditions to Obligations of Each Party to Effect the Merger.................... A-28
6.2 Additional Conditions to Obligations of TLI..................................... A-28
6.3 Additional Conditions to the Obligations of SVG and Merger Sub.................. A-29
ARTICLE VII--TERMINATION, AMENDMENT AND WAIVER.............................................. A-29
7.1 Termination..................................................................... A-29
7.2 Notice of Termination; Effect of Termination.................................... A-30
7.3 Fees and Expenses............................................................... A-30
7.4 Amendment....................................................................... A-31
7.5 Extension; Waiver............................................................... A-31
ARTICLE VIII--GENERAL PROVISIONS............................................................ A-32
8.1 Non-Survival of Representations and Warranties.................................. A-32
8.2 Notices......................................................................... A-32
8.3 Interpretation; Knowledge....................................................... A-32
8.4 Counterparts.................................................................... A-33
8.5 Entire Agreement; Third Party Beneficiaries..................................... A-33
8.6 Severability.................................................................... A-33
8.7 Other Remedies; Specific Performance............................................ A-33
8.8 Governing Law................................................................... A-33
8.9 Rules of Construction........................................................... A-34
8.10 Assignment...................................................................... A-34
8.11 WAIVER OF JURY TRIAL............................................................ A-34
</TABLE>
ii
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Form of TLI Voting Agreement
Exhibit B Form of TLI Affiliate Agreement
Exhibit C Form of Employment and Noncompetition Agreement
</TABLE>
INDEX OF SCHEDULES
TLI Disclosure Schedules
SVG Disclosure Schedules
Schedule 5.14 List of TLI Affiliates
Schedule 5.18 List of Individuals to Sign Employment Agreement
Schedule 6.2(d) List of SVG Consents
Schedule 6.3(e) List of TLI Consents
iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and
entered into as of September 9, 1997, among Silicon Valley Group, Inc., a
Delaware corporation ("SVG"), SV Acquisition, Inc., a California corporation and
a wholly-owned subsidiary of SVG ("MERGER SUB"), and Tinsley Laboratories, Inc.,
a California corporation ("TLI").
R E C I T A LS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in accordance with the California General
Corporation Law ("CALIFORNIA LAW"), SVG and TLI intend to enter into a business
combination transaction.
B. The Board of Directors of TLI (i) has determined that the Merger (as
defined in Section 1.1) is consistent with and in furtherance of the long-term
business strategy of TLI and fair to, and in the best interests of, TLI and its
shareholders, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) has determined to
recommend that the shareholders of TLI adopt and approve this Agreement and
approve the Merger.
C. Concurrently with the execution of this Agreement, and as a condition
and inducement to SVG's willingness to enter into this Agreement, each of the
officers and directors of TLI and certain other principal shareholders of TLI
shall enter into Voting Agreements in substantially the form attached hereto as
EXHIBIT A (the "TLI VOTING AGREEMENTS").
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE").
E. It is also intended by the parties hereto that the Merger shall qualify
for accounting treatment as a pooling of interests.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of California Law, Merger Sub shall be merged with and
into TLI (the "MERGER"), the separate corporate existence of Merger Sub shall
cease and TLI shall continue as the surviving corporation. TLI as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"SURVIVING CORPORATION."
1.2 EFFECTIVE TIME; CLOSING. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing Articles
of Merger with the Secretary of State of the State of California in accordance
with the relevant provisions of California Law (the "ARTICLES OF MERGER") (the
time of such filing (or such later time as may be agreed in writing by the
parties and specified in the Articles of Merger) being the "EFFECTIVE TIME") as
soon as practicable on or after the Closing Date (as herein defined). Unless the
context otherwise requires, the term "AGREEMENT" as used herein refers
collectively to this Agreement and Plan of Reorganization and the Articles of
Merger. The closing of the Merger (the "CLOSING") shall take place at the
offices of SVG, at a time and date to be specified by the parties, which shall
be no later than the second business day after the satisfaction or waiver of the
conditions set forth in Article VI, or at such other time, date and location as
the parties hereto agree in writing (the "CLOSING DATE").
A-1
<PAGE>
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of
California Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of TLI and Merger Sub shall vest in the Surviving Corporation, and
all debts, liabilities and duties of TLI and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Articles of Incorporation of Merger Sub,
as in effect immediately prior to the Effective Time, shall be the Articles
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Articles of Incorporation of the Surviving
Corporation; PROVIDED, HOWEVER, that at the Effective Time the Articles of
Incorporation of the Surviving Corporation shall be amended so that the name
of the Surviving Corporation shall be Tinsley, Inc.
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 DIRECTORS AND OFFICERS. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of TLI immediately prior to the Effective Time, until their respective
successors are duly appointed.
1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, TLI or the holders of
any of the following securities:
(a) CONVERSION OF TLI COMMON STOCK. Each share of Common Stock, no par
value, of TLI (the "TLI COMMON STOCK") issued and outstanding immediately
prior to the Effective Time, (other than any shares of TLI Common Stock to
be canceled pursuant to Section 1.6(b) and any Dissenting Shares (as defined
in and to the extent provided in Section 1.7(a)) will be canceled and
extinguished and automatically converted (subject to Sections 1.6(e) and
(f)) into the right to receive 0.6594 (the "EXCHANGE RATIO") share of Common
Stock of SVG (the "SVG COMMON STOCK") upon surrender of the certificate
representing such share of TLI Common Stock in the manner provided in
Section 1.8 (or in the case of a lost, stolen or destroyed certificate, upon
delivery of an affidavit (and bond, if required) in the manner provided in
Section 1.10).
(b) CANCELLATION OF SVG-OWNED STOCK. Each share of TLI Common Stock
held by TLI or owned by Merger Sub, SVG or any direct or indirect wholly
owned subsidiary of TLI or of SVG immediately prior to the Effective Time
shall be canceled and extinguished without any conversion thereof.
(c) STOCK OPTION PLAN. At the Effective Time, all incentive stock
options to purchase TLI Common Stock then outstanding under TLI's 1993
Incentive Stock Option Plan (the "TLI STOCK OPTION PLAN") and all
nonqualified stock options then outstanding shall be assumed by SVG in
accordance with Section 5.10 hereof.
(d) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock, no par
value, of Merger Sub (the "MERGER SUB COMMON STOCK") issued and outstanding
immediately prior to the Effective Time shall be converted into one validly
issued, fully paid and nonassessable share of Common Stock, no par value, of
the Surviving Corporation. Each certificate evidencing ownership of shares
of Merger Sub Common Stock shall continue to evidence ownership of such
shares of capital stock of the Surviving Corporation.
(e) ADJUSTMENTS TO EXCHANGE RATIO.
(i) The Exchange Ratio shall be adjusted to reflect appropriately
the effect of any stock split, reverse stock split, stock dividend
(including any dividend or distribution of securities
A-2
<PAGE>
convertible into SVG Common Stock or TLI Common Stock), reorganization,
recapitalization or other like change with respect to SVG Common Stock or
TLI Common Stock occurring on or after the date hereof and prior to the
Effective Time.
(ii) TLI acknowledges and agrees that SVG and its independent public
accountants shall be entitled to conduct a review of TLI's financial
statements at June 30, 1997 to determine if any adjustments are required
with respect to such statements. Such review shall be completed as soon
as practicable following the date hereof and in no event later than ten
(10) days following the date hereof. If, as a result of such review, SVG
and their independent public accountants believe, in good faith, that
adjustments are required to TLI's financial statements, SVG shall so
inform TLI in writing of the amount of such adjustment (the "ADJUSTMENT
AMOUNT"). TLI shall have ten (10) days following its receipt of SVG's
determination of the Adjustment Amount to deliver to SVG a written notice
setting forth in reasonable detail its reasons for objecting to SVG's
determination of the Adjustment Amount and its proposed determination of
what the Adjustment Amount should be. In the event that SVG does not
receive such a written notice from TLI within such ten (10) day period,
the Adjustment Amount for all purposes of this Agreement shall be the
amount as initially determined by SVG. In the event SVG receives the
aforementioned written notice from TLI within the ten (10) day period,
SVG shall have five (5) days to either accept the revised adjustment
amount proposed by TLI or to object to the amount proposed by TLI. In the
event that SVG agrees to the revised amount proposed by TLI, the amount
proposed by TLI shall be deemed to be the Adjustment Amount for all
purposes of this Agreement. If SVG disagrees with TLI's proposed
determination of the Adjustment Amount, SVG shall give written notice of
such objection to TLI, and the dispute shall be resolved in accordance
with the arbitration procedures set forth in Section 1.6(e)(iii) hereof.
(iii) In the event a dispute exists as to the Adjustment Amount after
the procedures set forth in Section 1.6(ii) hereof have been completed,
either SVG or TLI may, by written notice to the other, demand arbitration
of the dispute. Within ten (10) days after such written notice is
received by the other party, SVG and TLI shall each select one (1)
arbitrator, and the two (2) arbitrators so selected shall select a third
arbitrator. The decision of the arbitrators as to the Adjustment Amount
shall be binding and conclusive upon the parties to this Agreement.
Judgment upon any award rendered by the arbitrators may be entered in any
court having jurisdiction. Any such arbitration shall be held in Santa
Clara, California under the commercial rules then in effect of the
American Arbitration Association. For purposes of this Section 1.6(e), in
any arbitration hereunder, TLI shall be deemed to be the Non-Prevailing
Party unless the arbitrators award TLI more than one-half (1/2) of the
amount in dispute, plus any amounts not in dispute. The arbitrators shall
have the discretion to cause the Non-Prevailing Party to pay its own
expenses, the fees of each arbitrator, the administrative fee of the
American Arbitration Association, and the expenses, including without
limitation, attorneys' fees and costs, reasonably incurred by the other
party to the arbitration. In the absence of such determination by the
arbitrators, the parties shall each pay one-half of the costs and
expenses of such arbitration, and each party shall separately pay its
counsel fees and other expenses.
(iv) In the event that the Adjustment Amount (determined in
accordance with the other provisions of this Section 1.6) does not exceed
$75,000, no adjustment shall be made to the Exchange Ratio. In the event
that the Adjustment Amount (determined in accordance with the other
provisions of this Section 1.6) exceeds $75,000, the Exchange Ratio shall
be adjusted by multiplying the Exchange Ratio by the quotient of the
Adjusted Price (as defined below) divided by the Initial Price (as
defined below). For purposes of this Section 1.6(e)(iv), the "ADJUSTED
PRICE" shall be determined by multiplying the Number of Shares (as
defined below) by the SVG Closing Price (as defined below) and
subtracting therefrom the amount by which the Adjustment Amount exceeds
$75,000. For purposes of this Section 1.6(e)(iv), the "INITIAL PRICE"
shall be
A-3
<PAGE>
determined by multiplying the Number of Shares (as defined below) by the
SVG Closing Price (as defined below). For purposes of this Section
1.6(e)(iv), the "SVG CLOSING PRICE" shall be the average closing price of
one share of SVG Common Stock for the five (5) most recent days that SVG
Common Stock has traded ended on the trading day immediately prior to the
date of this Agreement, as reported by the Nasdaq National Market. For
purposes of this Section 1.6(e)(iv), the "NUMBER OF SHARES" shall be
determined by multiplying the Exchange Ratio in effect immediately prior
to the adjustment by the sum of the number of shares of TLI Common Stock
outstanding on the date hereof plus the number of shares of TLI Common
Stock subject to outstanding options on the date hereof.
(f) FRACTIONAL SHARES. No fraction of a share of SVG Common Stock will
be issued by virtue of the Merger, but in lieu thereof each holder of shares
of TLI Common Stock who would otherwise be entitled to a fraction of a share
of SVG Common Stock (after aggregating all fractional shares of SVG Common
Stock to be received by such holder) shall receive from SVG an amount of
cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the average closing price of one share of SVG
Common Stock for the five (5) most recent days that SVG Common Stock has
traded ending on the trading day immediately prior to the Effective Time, as
reported on the Nasdaq National Market.
1.7 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary, the
shares of any holder of TLI Common Stock who has demanded and perfected
appraisal rights for such shares in accordance with California Law and who,
as of the Effective Time, has not effectively withdrawn or lost such
appraisal rights ("DISSENTING SHARES"), shall not be converted into or
represent a right to receive SVG Common Stock pursuant to Section 1.6, but
the holder thereof shall only be entitled to such rights as are granted by
California Law.
(b) Notwithstanding the foregoing, if any holder of shares of TLI Common
Stock who demands appraisal of such shares under California Law shall
effectively withdraw or lose (through failure to perfect or otherwise) the
right to appraisal, then, as of the later of the Effective Time or the
occurrence of such event, such holder's shares shall automatically be
converted into and represent only the right to receive SVG Common Stock and
cash in lieu of fractional shares of SVG Common Stock in accordance with
Section 1.6 hereof, without interest thereon, upon surrender of the
certificate representing such shares of TLI Common Stock in the manner
provided in Section 1.8 (or in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit (and bond, if required) in the
manner provided in Section 1.10).
(c) TLI shall give SVG (i) prompt notice of any written demands for
appraisal of any shares of TLI Common Stock, withdrawals of such demands,
and any other instruments served pursuant to California Law and received by
TLI which relate to any such demand for appraisal and (ii) the opportunity
to participate in all negotiations and proceedings which take place prior to
the Effective Time with respect to demands for appraisal under California
Law. TLI shall not, except with the prior written consent of SVG or as may
be required by applicable law, voluntarily make any payment with respect to
any demands for appraisal of TLI Common Stock or offer to settle or settle
any such demands. Any payments made in respect of Dissenting Shares shall be
made by TLI or the Surviving Corporation, as the case may be.
1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. ChaseMellon Shareholder Services shall act as the
exchange agent (the "EXCHANGE AGENT") in the Merger.
(b) SVG TO PROVIDE COMMON STOCK. Promptly after the Effective Time,
SVG shall make available to the Exchange Agent for exchange in accordance
with this Article I, the shares of SVG Common Stock issuable pursuant to
Section 1.6 in exchange for outstanding shares of TLI Common
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Stock, and cash in an amount sufficient for payment in lieu of fractional
shares pursuant to Section 1.6(f) and any dividends or distributions to
which holders of shares of TLI Common Stock may be entitled pursuant to
Section 1.8(d).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, SVG shall
cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a certificate or certificates (the "CERTIFICATES"), which
immediately prior to the Effective Time represented outstanding shares of
TLI Common Stock whose shares were converted into the right to receive
shares of SVG Common Stock pursuant to Section 1.6, cash in lieu of any
fractional shares pursuant to Section 1.6(f) and any dividends or other
distributions pursuant to Section 1.8(d), (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 shall be in such form and have such other provisions as
SVG may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing
shares of SVG Common Stock, cash in lieu of any fractional shares pursuant
to Section 1.6(f) and any dividends or other distributions pursuant to
Section 1.8(d). Upon surrender of Certificates for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by SVG,
together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holders of such
Certificates shall be entitled to receive in exchange therefor certificates
representing the number of whole shares of SVG Common Stock, payment in lieu
of fractional shares which such holders have the right to receive pursuant
to Section 1.6(f) and any dividends or distributions payable pursuant to
Section 1.8(d), and the Certificates so surrendered shall forthwith be
canceled. Until so surrendered, outstanding Certificates will be deemed from
and after the Effective Time, for all corporate purposes, subject to Section
1.8(d) as to the payment of dividends, to evidence the ownership of the
number of full shares of SVG Common Stock into which such shares of TLI
Common Stock shall have been so converted and the right to receive an amount
in cash in lieu of the issuance of any fractional shares in accordance with
Section 1.6(f) and any dividends or distributions payable pursuant to
Section 1.8(d).
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the date of this Agreement with
respect to SVG Common Stock with a record date after the Effective Time will
be paid to the holders of any unsurrendered Certificates with respect to the
shares of SVG Common Stock represented thereby until the holders of record
of such Certificates shall surrender such Certificates. Subject to
applicable law, following surrender of any such Certificates, the Exchange
Agent shall deliver to the record holders thereof, without interest,
certificates representing whole shares of SVG Common Stock issued in
exchange therefor along with payment in lieu of fractional shares pursuant
to Section 1.6(f) hereof and the amount of any such dividends or other
distributions with a record date after the Effective Time payable with
respect to such whole shares of SVG Common Stock.
(e) TRANSFERS OF OWNERSHIP. If certificates for shares of SVG Common
Stock are to be issued in a name other than that in which the Certificates
surrendered in exchange therefor are registered, it will be a condition of
the issuance thereof that the Certificates so surrendered will be properly
endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to SVG or any agent designated by it
any transfer or other taxes required by reason of the issuance of
certificates for shares of SVG Common Stock in any name other than that of
the registered holder of the Certificates surrendered, or established to the
satisfaction of SVG or any agent designated by it that such tax has been
paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.8, neither the Exchange Agent, SVG, the Surviving Corporation nor
any party hereto shall be liable to a holder of shares of SVG Common Stock
or TLI Common Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
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1.9 NO FURTHER OWNERSHIP RIGHTS IN TLI COMMON STOCK. All shares of SVG
Common Stock issued upon the surrender for exchange of shares of TLI Common
Stock in accordance with the terms hereof (including any cash paid in respect
thereof pursuant to Section 1.6(f) and 1.8(d)) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of TLI
Common Stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of TLI Common Stock which were
outstanding immediately prior to the Effective Time. If after the Effective Time
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of SVG Common Stock,
cash for fractional shares, if any, as may be required pursuant to Section
1.6(f) and any dividends or distributions payable pursuant to Section 1.8(d);
PROVIDED, HOWEVER, that SVG may, in its discretion and as a condition precedent
to the issuance thereof, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against SVG, TLI or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
1.11 TAX AND ACCOUNTING CONSEQUENCES.
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368 of the Code.
The parties hereto adopt this Agreement as a "plan of reorganization" within
the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Income Tax Regulations.
(b) It is intended by the parties hereto that the Merger shall qualify
for accounting treatment as a pooling of interests.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of TLI and Merger Sub, the officers and directors of TLI and
Merger Sub will take all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TLI
TLI represents and warrants to SVG and Merger Sub, subject to the exceptions
specifically disclosed in writing in the disclosure letter and referencing a
specific representation supplied by TLI to SVG dated as of the date hereof and
certified by a duly authorized officer of TLI (the "TLI SCHEDULES"), as follows
(provided that, any exception disclosed on the TLI Schedules that sets forth a
dollar amount for such exception shall constitute an exception to the referenced
specific representation only up to such disclosed dollar amount):
2.1 ORGANIZATION OF TLI.
(a) TLI and each of its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation; has the corporate power and authority to own, lease and
operate its assets and property and to carry on its business as now being
conducted and as proposed to be conducted; and is duly qualified or licensed
to do business and is in good standing in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except where
the failure to be so qualified would not have a Material Adverse Effect (as
defined below) on TLI.
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(b) TLI has delivered to SVG a true and complete list of all of TLI's
subsidiaries, indicating the jurisdiction of incorporation of each
subsidiary and TLI's equity interest therein.
(c) TLI has delivered or made available to SVG a true and correct copy
of the Articles of Incorporation and Bylaws of TLI and similar governing
instruments of each of its subsidiaries, each as amended to date, and each
such instrument is in full force and effect. Neither TLI nor any of its
subsidiaries is in violation of any of the provisions of its Articles of
Incorporation or Bylaws or equivalent governing instruments.
(d) When used in connection with TLI, the term "MATERIAL ADVERSE EFFECT"
means, for purposes of this Agreement, any change, event or effect that is
materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of TLI and its subsidiaries
taken as a whole.
2.2 TLI CAPITAL STRUCTURE. The authorized capital stock of TLI consists of
6,000,000 shares of Common Stock, no par value, of which there were 1,565,548
shares issued and outstanding as of July 31, 1997 and 500,000 shares of
Preferred Stock, no par value, of which no shares are issued or outstanding. All
outstanding shares of TLI Common Stock are duly authorized, validly issued,
fully paid and nonassessable and are not subject to preemptive rights created by
statute, the Articles of Incorporation or Bylaws of TLI or any agreement or
document to which TLI is a party or by which it is bound. As of July 31, 1997,
TLI had reserved an aggregate of 324,200 shares of TLI Common Stock, net of
exercises, for issuance to employees, consultants and non-employee directors
pursuant to the TLI Stock Option Plan or otherwise. As of July 31, 1997, there
were options outstanding to purchase an aggregate of 171,600 shares of Common
Stock issued to employees pursuant to the TLI Stock Option Plan, and options
outstanding to purchase an aggregate of 152,600 shares of Common Stock issued to
employees, consultants and non-employee directors which were not granted
pursuant to a stock option plan. All shares of TLI Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and nonassessable. The TLI Schedules list for each
person who held options to acquire shares of TLI Common Stock as of July 31,
1997, the name of the holder of such option, the exercise price of such option,
the number of shares as to which such option will have vested at such date, the
vesting schedule for such option and whether the exercisability of such option
will be accelerated in any way by the transactions contemplated by this
Agreement, and indicate the extent of acceleration, if any.
2.3 OBLIGATIONS WITH RESPECT TO CAPITAL STOCK. Except as set forth in
Section 2.2, there are no equity securities, partnership interests or similar
ownership interests of any class of TLI, or any securities exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except for securities TLI owns, directly or indirectly through one
or more subsidiaries, there are no equity securities, partnership interests or
similar ownership interests of any class of any subsidiary of TLI, or any
security exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except as set forth in Section 2.2, there
are no options, warrants, equity securities, partnership interests or similar
ownership interests, calls, rights (including preemptive rights), commitments or
agreements of any character to which TLI or any of its subsidiaries is a party
or by which it is bound obligating TLI or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem
or otherwise acquire, or cause the repurchase, redemption or acquisition, of any
shares of capital stock, partnership interests or similar ownership interests of
TLI or any of its subsidiaries or obligating TLI or any of its subsidiaries to
grant, extend, accelerate the vesting of or enter into any such option, warrant,
equity security, call, right, commitment or agreement. There are no registration
rights and, to the knowledge of TLI, there are no voting trusts, proxies or
other agreements or understandings with respect to any equity security of any
class of TLI or with respect to any equity security, partnership interest or
similar ownership interest of any class of any of its subsidiaries.
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2.4 AUTHORITY.
(a) TLI has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action on the part of TLI, subject only to the approval and
adoption of this Agreement and the approval of the Merger by TLI's
shareholders and the filing and recordation of the Articles of Merger
pursuant to California Law. A vote of the holders of at least a majority of
the outstanding shares of the TLI Common Stock is required for TLI's
shareholders to approve and adopt this Agreement and approve the Merger.
This Agreement has been duly executed and delivered by TLI and, assuming the
due authorization, execution and delivery by SVG and, if applicable, Merger
Sub, constitutes a valid and binding obligation of TLI, enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity. The
execution and delivery of this Agreement by TLI does not, and the
performance of this Agreement by TLI will not, (i) conflict with or violate
the Articles of Incorporation or Bylaws of TLI or the equivalent
organizational documents of any of its subsidiaries, (ii) subject to
obtaining the approval and adoption of this Agreement and the approval of
the Merger by TLI's shareholders as contemplated in Section 5.2 and
compliance with the requirements set forth in Section 2.4(b) below, conflict
with or violate any law, rule, regulation, order, judgment or decree
applicable to TLI or any of its subsidiaries or by which its or any of their
respective properties is bound or affected, or (iii) result in any breach of
or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or impair TLI's rights or alter the
rights or obligations of any third party under, or give to others any rights
of termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of TLI
or any of its subsidiaries pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which TLI or any of its subsidiaries is a party
or by which TLI or any of its subsidiaries or its or any of their respective
properties are bound or affected. The TLI Schedules list all consents,
waivers and approvals under any of TLI's or any of its subsidiaries'
agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental authority or instrumentality, foreign or domestic
("GOVERNMENTAL ENTITY"), is required by or with respect to TLI in connection
with the execution and delivery of this Agreement or the consummation of the
Merger, except for (i) the filing of the Articles of Merger with the
Secretary of State of the State of California, (ii) the filing of the Proxy
Statement (as defined in Section 2.19) with the Securities and Exchange
Commission ("SEC") in accordance with the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT"), (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable federal and state securities laws and the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), and the
securities or antitrust laws of any foreign country, and (iv) such other
consents, authorizations, filings, approvals and registrations which if not
obtained or made would not be material to TLI or SVG or have a material
adverse effect on the ability of the parties to consummate the Merger.
2.5 SEC FILINGS; TLI FINANCIAL STATEMENTS.
(a) TLI has filed all forms, reports and documents required to be filed
with the SEC since June 30, 1995 and has made available to SVG such forms,
reports and documents in the form filed with the SEC. All such required
forms, reports and documents (including those that TLI may file subsequent
to the date hereof) are referred to herein as the "TLI SEC REPORTS." As of
their respective dates, the TLI SEC Reports (i) were prepared in accordance
with the requirements of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), or the Exchange Act, as the case may be,
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and the rules and regulations of the SEC thereunder applicable to such TLI
SEC Reports 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 TLI'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 TLI SEC Reports (the "TLI
FINANCIALS"), including any TLI SEC Reports filed after the date hereof
until the Closing, (x) complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, (y) was
prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on
Form 10-Q under the Exchange Act) and (z) fairly presented the consolidated
financial position of TLI and its subsidiaries as at the respective dates
thereof and the consolidated results of TLI's 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.
The balance sheet of TLI contained in TLI SEC Reports as of March 31, 1997
is hereinafter referred to as the "TLI BALANCE SHEET." Except as disclosed
in the TLI Financials, since the date of the TLI Balance Sheet neither TLI
nor any of its subsidiaries has any liabilities (absolute, accrued,
contingent or otherwise) of a nature required to be disclosed on a balance
sheet or in the related notes to the consolidated financial statements
prepared in accordance with GAAP which are, individually or in the
aggregate, material to the business, results of operations or financial
condition of TLI and its subsidiaries taken as a whole, except liabilities
(i) provided for in the TLI Balance Sheet, or (ii) incurred since the date
of the TLI Balance Sheet in the ordinary course of business consistent with
past practices and immaterial in the aggregate.
(c) TLI has heretofore furnished to SVG 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 TLI with the SEC pursuant to
the Securities Act or the Exchange Act.
2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the TLI
Balance Sheet there has not been: (i) any Material Adverse Effect on TLI, (ii)
any material change by TLI in its accounting methods, principles or practices,
except as required by concurrent changes in GAAP, or (iii) any material
revaluation by TLI of any of its assets, including, without limitation, writing
down the value of capitalized inventory or writing off notes or accounts
receivable other than in the ordinary course of business.
2.7 TAXES.
(a) DEFINITION OF TAXES. For the purposes of this Agreement, "TAX" or
"TAXES" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and
liabilities relating to taxes, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value added,
ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest, penalties
and additions imposed with respect to such amounts and any obligations under
any agreements or arrangements with any other person with respect to such
amounts and including any liability for taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS.
(i) TLI and each of its subsidiaries have timely filed all federal,
state, local and foreign returns, estimates, information statements and
reports ("RETURNS") relating to Taxes required to be filed by TLI and
each of its subsidiaries, except such Returns which are not material to
TLI, and have paid all Taxes shown to be due on such Returns.
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(ii) TLI and each of its subsidiaries as of the Effective Time will
have withheld with respect to its employees all federal and state income
taxes, the Federal Insurance Contribution Act ("FICA"), the Federal
Unemployment Tax Act ("FUTA") and other Taxes required to be withheld.
(iii) Neither TLI nor any of its subsidiaries has been delinquent in
the payment of any Tax nor is there any Tax deficiency outstanding,
proposed or assessed against TLI or any of its subsidiaries, nor has TLI
or any of its subsidiaries executed any waiver of any statute of
limitations on or extending the period for the assessment or collection
of any Tax.
(iv) No audit or other examination of any Return of TLI or any of
its subsidiaries is presently in progress, nor has TLI or any of its
subsidiaries been notified of any request for such an audit or other
examination.
(v) No adjustment relating to any Returns filed by TLI or any of its
subsidiaries has been proposed formally or informally by any Tax
authority to TLI or any of its subsidiaries or any representative
thereof.
(vi) Neither TLI nor any of its subsidiaries has any liability for
unpaid Taxes which has not been accrued for or reserved on the TLI
Balance Sheet, whether asserted or unasserted, contingent or otherwise,
which is material to TLI.
(vii) There is no contract, agreement, plan or arrangement, including
but not limited to the provisions of this Agreement, covering any
employee or former employee of TLI or any of its subsidiaries that,
individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to Sections 280G, 404 or
162(m) of the Code.
(viii) Neither TLI nor any of its subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as defined in Section 341(f)(4) of the Code) owned by TLI.
(ix) Neither TLI nor any of its subsidiaries is party to or has any
obligation under any tax-sharing, tax indemnity or tax allocation
agreement or arrangement.
(x) Except as may be required as a result of the Merger, TLI and its
subsidiaries have not been and will not be required to include any
adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or Section 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions,
events or accounting methods employed prior to the Closing.
(xi) None of TLI's or its subsidiaries' assets are tax exempt use
property within the meaning of Section 168(h) of the Code.
(xii) The TLI Schedules list (A) any foreign Tax holidays, (B) any
intercompany transfer pricing agreements, or other arrangements that have
been established by TLI or any of its subsidiaries with any Taxing
authority and (C) any expatriate programs or policies affecting TLI or
any of its subsidiaries.
2.8 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The TLI Schedules list the real property owned by TLI. The TLI
Schedules list all real property leases to which TLI is a party and each
amendment thereto. All such current leases are in full force and effect, are
valid and effective in accordance with their respective terms, and there is
not, under any of such leases, any existing default or event of default (or
event which with notice or lapse of time, or both, would constitute a
default) that would give rise to a claim in an amount greater than $100,000.
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(b) TLI has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("LIENS"), except as reflected
in TLI Financials or in the TLI Schedules and except for liens for taxes not
yet due and payable and such imperfections of title and encumbrances, if
any, which are not material in character, amount or extent, and which do not
materially detract from the value, or materially interfere with the present
use, of the property subject thereto or affected thereby.
2.9 INTELLECTUAL PROPERTY.
For the purposes of this Agreement, the following terms have the following
definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United
States, international and foreign patents and applications therefor and
all reissues, divisions, renewals, extensions, provisionals,
continuations and continuations-in-part thereof; (ii) all inventions
(whether patentable or not), invention disclosures, improvements, trade
secrets, proprietary information, know how, technology, technical data
and customer lists, and all documentation relating to any of the
foregoing; (iii) all copyrights, copyrights registrations and
applications therefor, and all other rights corresponding thereto
throughout the world; (iv) all industrial designs and any registrations
and applications therefor throughout the world; (v) all trade names,
logos, common law trademarks and service marks, trademark and service
mark registrations and applications therefor throughout the world; (vi)
all databases and data collections and all rights therein throughout the
world; and (vii) any similar or equivalent rights to any of the
foregoing anywhere in the world.
"TLI INTELLECTUAL PROPERTY" shall mean any Intellectual Property that is
owned by, or exclusively licensed to, TLI.
"REGISTERED INTELLECTUAL PROPERTY" means all United States,
international and foreign: (i) patents and patent applications
(including provisional applications); (ii) registered trademarks,
applications to register trademarks, intent-to-use applications, or
other registrations or applications related to trademarks; (iii)
registered copyrights and applications for copyright registration; and
(iv) any other Intellectual Property that is the subject of an
application, certificate, filing, registration or other document issued,
filed with, or recorded by any state, government or other public legal
authority.
(a) Section 2.9 of the TLI Schedules lists all of the Registered
Intellectual Property owned by, or filed in the name of, TLI (the "TLI
REGISTERED INTELLECTUAL PROPERTY").
(b) Section 2.9 of the TLI Schedules lists all proceedings or actions
before any court, tribunal (including the United States Patent and Trademark
Office ("PTO") or equivalent authority anywhere in the world) related to any
TLI Intellectual Property.
(c) No TLI Intellectual Property or product or service of TLI is subject
to any proceeding or outstanding decree, order, judgment, agreement, or
stipulation restricting in any manner the use, transfer, or licensing
thereof by TLI, or which may affect the validity, use or enforceability of
such TLI Intellectual Property.
(d) Each item of TLI Registered Intellectual Property is valid and
subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Registered Intellectual Property have
been made and all necessary documents and certificates in connection with
such Registered Intellectual Property have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property.
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(e) Except as set forth in Section 2.9 of TLI Schedules: (i) TLI owns
and has good and exclusive title to, or has license to, each item of TLI
Intellectual Property, including all TLI Registered Intellectual Property
listed in Section 2.9 of the TLI Schedules, free and clear of any lien or
encumbrance (excluding licenses and related restrictions); and (ii) TLI is
the exclusive owner of all trademarks and trade names used in connection
with the operation or conduct of the business of TLI, including the sale of
any products or the provision of any services by TLI.
(f) TLI owns exclusively, and has good title to, all copyrighted works
that are TLI products or which TLI otherwise expressly purports to own.
(g) To the extent that any work, invention, or material has been
developed or created by a third party for TLI, TLI has a written agreement
with such third party with respect thereto and TLI thereby either (i) has
obtained ownership of, and is the exclusive owner of, or (ii) has obtained a
license to all such third party's Intellectual Property in such work,
material or invention by operation of law or by valid assignment, to the
extent it is legally possible to do so.
(h) Except as set forth in Section 2.9 of the TLI Schedules, TLI has not
transferred ownership of, or granted any exclusive license with respect to,
any Intellectual Property that is or was TLI Intellectual Property, to any
third party.
(i) Section 2.9 of the TLI Schedules lists all material contracts,
licenses and agreements to which TLI is a party (i) with respect to TLI
Intellectual Property licensed or transferred to any third party (other than
end-user licenses in the ordinary course); or (ii) pursuant to which a third
party has licensed or transferred any material Intellectual Property to TLI.
(j) The contracts, licenses and agreements listed on Section 2.9 of TLI
Schedules are in full force and effect. The consummation of the transactions
contemplated by this Agreement will neither violate nor result in the
breach, modification, cancellation, termination, or suspension of such
contracts, licenses and agreements. TLI is in material compliance with, and
has not materially breached any term of any of such contracts, licenses and
agreements and, to the knowledge of TLI, all other parties to such
contracts, licenses and agreements are in compliance with, and have not
materially breached any term of, such contracts, licenses and agreements.
Following the Closing Date, TLI will be permitted to exercise all of TLI's
rights under the contracts, licenses and agreements listed in Section 2.9 of
the TLI Schedules to the same extent TLI would have been able to had the
transactions contemplated by this Agreement not occurred and without the
payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which TLI would otherwise be required to pay.
(k) Section 2.9 of the TLI Schedules lists or specifically refers to all
contracts, licenses and agreements between TLI and any third party wherein
or whereby TLI has agreed to, or assumed, any obligation or duty to warrant,
indemnify, hold harmless or otherwise assume or incur any obligation or
liability with respect to the infringement or misappropriation by TLI or
such third party of the Intellectual Property of any third party, except
such contracts entered into in the ordinary course of TLI's business.
(l) The operation of the business of TLI as such business currently is
conducted, including TLI's design, development, manufacture, marketing and
sale of the products or services of TLI (including with respect to products
currently under development) has not, does not and will not infringe or
misappropriate the Intellectual Property of any third party (provided that
with respect to patent rights, such representation is limited to TLI's
knowledge) or, to its knowledge, constitute unfair competition or trade
practices under the laws of any jurisdiction.
(m) TLI has not received notice from any third party that the operation
of the business of TLI or any act, product or service of TLI, infringes or
misappropriates the Intellectual Property of any third party or constitutes
unfair competition or trade practices under the laws of any jurisdiction.
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(n) Except as set forth in Section 2.9 of the TLI Schedules, to the
knowledge of TLI, no Person has or is infringing or misappropriating any TLI
Intellectual Property.
(o) Except as set forth in Section 2.9 of the TLI Schedules, there have
been, and are, no claims asserted against TLI or, to its knowledge, against
any customer of TLI, related to any product or service of TLI.
(p) TLI has taken reasonable steps to protect TLI's rights in TLI's
confidential information and trade secrets that it wishes to protect or any
trade secrets or confidential information of third parties provided to TLI,
and, without limiting the foregoing, TLI has and enforces a policy requiring
each employee and contractor involved with TLI Intellectual Property on a
regular basis to execute a proprietary information / confidentiality
agreement substantially in TLI's standard form and all current and former
employees and contractors of TLI have executed such an agreement, except
where the failure to do so is not reasonably expected to be material to TLI.
2.10 COMPLIANCE; PERMITS; RESTRICTIONS.
(a) Neither TLI nor any of its subsidiaries is, in any material respect,
in conflict with, or in default or violation of (i) any law, rule,
regulation, order, judgment or decree applicable to TLI or any of its
subsidiaries or by which TLI or any of its subsidiaries or any of their
respective properties is bound or affected, or (ii) any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which TLI or any of its subsidiaries is
a party or by which TLI or any of its subsidiaries or its or any of their
respective properties is bound or affected. No investigation or review by
any Governmental Entity is pending or threatened against TLI or any of its
subsidiaries, nor has any Governmental Entity indicated an intention to
conduct the same. There is no material agreement, judgment, injunction,
order or decree binding upon TLI or any of its subsidiaries which has or
could reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of TLI or any of its subsidiaries, any
acquisition of material property by TLI or any of its subsidiaries or the
conduct of business by TLI as currently conducted.
(b) TLI and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities that are
material to the operation of the business of TLI (collectively, the "TLI
PERMITS"). TLI and its subsidiaries are in compliance in all material
respects with the terms of the TLI Permits.
2.11 LITIGATION. There is no action, suit, proceeding, claim, arbitration
or investigation pending, or as to which TLI or any of its subsidiaries has
received any notice of assertion nor, to TLI's knowledge, is there a threatened
action, suit, proceeding, claim, arbitration or investigation against TLI or any
of its subsidiaries which would be likely to be material to TLI. TLI is not
aware of any basis for any action, suit, proceeding, claim, arbitration or
proceeding of the type described in the preceding sentence, and TLI has no
knowledge of any unasserted claim, the assertion of which is likely, and which,
if asserted, will seek damages, an injunction or other legal, equitable,
monetary or nonmonetary relief, which claim individually or collectively with
other such unasserted claims if granted would be material to TLI. No
Governmental Entity has at any time challenged or questioned in writing the
legal right of TLI to manufacture, offer or sell any of its products in the
present manner or style thereof.
2.12 BROKERS' AND FINDERS' FEES. TLI has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
2.13 EMPLOYEE BENEFIT PLANS.
(a) The TLI Schedules contain an accurate and complete list of each
material plan, program, policy, practice, contract, agreement or other
arrangement providing for compensation, severance, termination pay,
performance awards, stock or stock-related awards, fringe benefits or other
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employee benefits or remuneration of any kind, whether formal or informal,
written or otherwise, funded or unfunded and whether or not legally binding,
including without limitation, each "employee benefit plan" within the
meaning of Section 3(3) of ERISA, which is or has been maintained,
contributed to, or required to be contributed to, by TLI or any trade or
business which is under common control with TLI within the meaning of
Section 414 of the Code (an "AFFILIATE") for the benefit of any current,
former, or retired employee, officer, or director of TLI or any Affiliate
(the "TLI EMPLOYEE PLANS"), together with a schedule of all liabilities,
whether or not accrued, under each such TLI Employee Plan. Except as
disclosed on such Schedules, TLI does not have any plan or commitment,
whether legally binding or not, to establish any new TLI Employee Plan, to
modify any TLI Employee Plan (except to the extent required by law or to
conform any such TLI Employee Plan to the requirements of any applicable
law, in each case as previously disclosed to SVG in writing, or as required
by this Agreement), or to enter into any TLI Employee Plan, nor does it have
any intention or commitment to do any of the foregoing.
(b) TLI has provided to SVG (i) correct and complete copies of all
documents embodying or relating to each TLI Employee Plan including without
limitation all amendments thereto, written interpretations thereof and
corporate actions relating thereto; (ii) the most recent annual actuarial
valuations, if any, prepared for each TLI Employee Plan; (iii) the three
most recent annual reports (Series 5500 and all schedules thereto), if any,
required under ERISA or the Code in connection with each TLI Employee Plan
or related trust; (iv) if the TLI Employee Plan is funded, the most recent
annual and periodic accounting of TLI Employee Plan assets; (v) the most
recent summary plan description together with a summary of material
modifications thereto, if any, required under ERISA with respect to each TLI
Employee Plan; (vi) all IRS determination letters, prior notification
letters and rulings relating to TLI Employee Plans and copies of all
applications and correspondence to or from the IRS or the Department of
Labor ("DOL") with respect to any TLI Employee Plan; (vii) all material
agreements and contracts relating to each TLI Employee Plan, including but
not limited to, trust agreements, administration service agreements, group
annuity contracts and group insurance contracts; (viii) all communications
material to any Employees relating to any TLI Employee Plan and any proposed
TLI Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments
or vesting schedules or other events which would result in any material
liability to TLI; and (ix) all registration statements and prospectuses
prepared in connection with each TLI Employee Plan.
(c) (i) TLI has performed in all material respects all obligations
required to be performed by it under, is not in default or violation of, and
has no knowledge of any default or violation by any other party to each TLI
Employee Plan, and each TLI Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all applicable laws,
statutes, orders, rules and regulations (including any applicable exemptions
thereto), including but not limited to ERISA or the Code; (ii) each TLI
Employee Plan intended to qualify under Section 401(a) of the Code and each
trust intended to qualify under Section 501(a) of the Code has either
received a favorable determination letter with respect to each such Plan
from the IRS or has remaining a period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such a determination
letter and make any amendments necessary to obtain a favorable
determination, and nothing has occurred since the date of such letter that
could reasonably be expected to affect the qualified status of such plan;
(iii) no "prohibited transaction", within the meaning of Section 4975 of the
Code or Section 406 or 407 of ERISA, and not otherwise exempt under Section
408 of ERISA, or Section 4975 of the Code has occurred with respect to any
TLI Employee Plan; (iv) there are no actions, suits or claims pending, or,
to the knowledge of TLI, threatened or anticipated (other than routine
claims for benefits) against any TLI Employee Plan or against the assets of
any TLI Employee Plan; and (v) each TLI Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance
with its terms, without liability to TLI, SVG or any Affiliate (other than
ordinary administration expenses typically incurred
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in a termination event); (vi) there are no audits, inquiries or proceedings
pending or, to the knowledge of TLI or any affiliates, threatened by the IRS
or DOL with respect to any TLI Employee Plan; and (vii) neither TLI nor any
Affiliate is subject to any penalty or tax with respect to any TLI Employee
Plan under Section 402(i) of ERISA or Sections 4975 through 4980 of the
Code, (viii) no legal or administrative action has been taken by the Pension
Benefit Guaranty Corporation ("PBGC") to terminate any TLI Employee Plan
that constitutes a defined benefit plan, as defined by Section 3(35) of
ERISA, as amended (the "TLI DB PLAN"), or to appoint a trustee to administer
such a TLI DB Plan; (ix) as of the Effective Time, no liability to the PBGC
under Title IV of ERISA has been incurred by TLI or an Affiliate that has
not been satisfied in full; (x) as of the Effective Time, each TLI DB Plan
was fully-funded on a termination basis; (xi) each TLI DB Plan has been
maintained in compliance with the minimum funding standards of ERISA and the
Code where applicable and has not incurred any "accumulated funding
deficiency," as defined in Section 302 of ERISA and Section 412 of the Code,
whether or not waived; and (xii) neither has a reportable event within the
meaning of Section 4043 of ERISA and the regulations thereunder, nor any
event described in Section 4041 (other than the standard termination
contemplated herein), 4062 or 4063 of ERISA occurred with respect to any
such TLI DB Plan.
(d) As of the Effective Time, TLI will have (i) taken any and all
necessary and appropriate corporate actions to terminate all TLI DB Plans;
(ii) approved the necessary plan amendment terminating all TLI DB Plans;
(iii) prepared an "Application for Determination for Terminating Plan" on
Form 5310 for each such TLI DB Plan and submitted these completed Form(s)
and all applicable schedules and attachments thereto to SVG for its approval
prior to submission to the Internal Revenue Service (the "IRS"); and (iv)
taken any and all necessary legal actions to terminate all TLI DB Plans,
subject to approval by SVG including, without limitation, submission of a
notice of sufficiency to the PBGC, the notice to affected individuals and
the standard termination provisions contained in Section 4041 of ERISA ET
SEQ.
(e) Prior to the Effective Time, TLI has (i) either terminated its
participation in or taken corporate action to terminate any TLI Employee
Plans that are "multiple employer" plans, as defined in Section 413(c) of
the Code (collectively, "TLI MULTIPLE EMPLOYER PLAN"); (ii) no "withdrawal
liability" from any such TLI Multiple Employer Plan whether directly or as a
result of a controlled group liability; (iii) approved the necessary plan
amendment terminating all TLI Multiple Employer Plan or its participation
therein; and (iv) in the event that any TLI Multiple Employer Plan was
terminated in its entirely, prepared an "Application for Determination for
Terminating Plan" on Form 5310 for all TLI Multiple Employer Plans and
submitted such completed Form(s) and all applicable schedules and
attachments thereto to SVG for its approval prior to submission to the IRS.
(f) No TLI Employee Plan provides, or has any liability to provide, life
insurance, medical or other employee welfare benefits to any employee upon
his or her retirement or termination of employment for any reason, except as
may be required by the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended ("COBRA"), or other applicable statute, and TLI has never
represented, promised or contracted (whether in oral or written form) to any
employee (either individually or to employees as a group) that such
employee(s) would be provided with life insurance, medical or other employee
welfare benefits upon their retirement or termination of employment, except
to the extent required by statute.
(g) Neither TLI nor any Affiliate has, prior to the Effective Time and
in any material respect, violated any of the health care continuation
requirements of COBRA or any similar provisions of state law applicable to
its current, former or retired employees or other "qualified beneficiaries"
(as that term is defined pursuant to COBRA).
(h) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or together with the
occurrence of any additional or subsequent events
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contemplated by this Agreement) constitute an event under any TLI Employee
Plan, trust or loan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or obligation to fund benefits
with respect to any current, former or retired employee of TLI.
(i) No payment or benefit which will or may be made by TLI or SVG or any
of their respective affiliates with respect to any Employee as a result of
the transactions contemplated by this Agreement will be characterized as an
"excess parachute payment," within the meaning of Section 280G(b)(1) of the
Code.
2.14 EMPLOYEES; LABOR MATTERS. To TLI's knowledge after reasonable
inquiry, no employee of TLI (i) is in violation of any term of any employment
contract, patent disclosure agreement, non-competition agreement, or any
restrictive covenant to a former employer relating to the right of any such
employee to be employed by TLI because of the nature of the business conducted
or presently proposed to be conducted by TLI or to the use of trade secrets or
proprietary information of others and (ii) has given notice to TLI, nor is TLI
otherwise aware, that any employee intends to terminate his or her employment
with TLI except for terminations of a nature and number that are consistent with
TLI's prior experience. To TLI's knowledge, there are no activities or
proceedings of any labor union to organize any employees of TLI or any of its
subsidiaries and there are no strikes, or material slowdowns, work stoppages or
lockouts, or threats thereof by or with respect to any employees of TLI or any
of its subsidiaries. TLI is not, and has never been, a party to any collective
bargaining agreement. TLI and its subsidiaries are and have been in compliance
in all material respects with all applicable laws regarding employment
practices, terms and conditions of employment, and wages and hours (including,
without limitation, ERISA, WARN or any similar state or local law).
2.15 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. Except as reasonably would not be likely to
result in liability to TLI, no underground storage tanks and no amount of
any substance that has been designated by any Governmental Entity or by
applicable federal, state or local law to be radioactive, toxic, hazardous
or otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as
a hazardous waste pursuant to the United States Resource Conservation and
Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws (a "HAZARDOUS MATERIAL"), but excluding office and janitorial
supplies, are present, as a result of the actions of TLI or any of its
subsidiaries or any affiliate of TLI, or, to TLI's knowledge, as a result of
any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water
thereof, that TLI or any of its subsidiaries has at any time owned,
operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. Except as reasonably would not be
likely to result in liability to TLI, neither TLI nor any of its
subsidiaries has transported, stored, used, manufactured, disposed of,
released or exposed its employees or others to Hazardous Materials in
violation of any law in effect on or before the Closing Date, nor has TLI or
any of its subsidiaries disposed of, transported, sold, used, released,
exposed its employees or others to or manufactured any product containing a
Hazardous Material (collectively "HAZARDOUS MATERIALS ACTIVITIES") in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) PERMITS. TLI and its subsidiaries currently hold all environmental
approvals, permits, licenses, clearances and consents (the "TLI
ENVIRONMENTAL PERMITS") necessary for the conduct of TLI's and its
subsidiaries' Hazardous Material Activities and other businesses of TLI and
its
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subsidiaries as such activities and businesses are currently being
conducted. TLI and its subsidiaries are in compliance with the terms of the
TLI Environmental Plans.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to
TLI's knowledge, threatened concerning any TLI Environmental Permit,
Hazardous Material or any Hazardous Materials Activity of TLI or any of its
subsidiaries. TLI is not aware of any fact or circumstance which could
involve TLI or any of its subsidiaries in any environmental litigation or
impose upon TLI any material environmental liability.
2.16 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth in the TLI
Schedules, neither TLI nor any of its subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or commitment with
any officer or director level employee or member of TLI's Board of
Directors, other than those that are terminable by TLI or any of its
subsidiaries on no more than thirty days notice without liability or
financial obligation, except to the extent general principles of wrongful
termination law may limit TLI's or any of its subsidiaries' ability to
terminate employees at will;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(c) any agreement of indemnification or guaranty not entered into in the
ordinary course of business other than indemnification agreements between
TLI or any of its subsidiaries and any of its officers or directors;
(d) any agreement, contract or commitment containing any covenant
limiting the freedom of TLI or any of its subsidiaries to engage in any line
of business or compete with any person or granting any exclusive
distribution rights;
(e) any agreement, contract or commitment currently in force relating to
the disposition or acquisition of assets not in the ordinary course of
business or any ownership interest in any corporation, partnership, joint
venture or other business enterprise;
(f) any material joint marketing or development agreement;
(g) any agreement, contract or commitment currently in force to provide
or receive source code for any product, service or technology except for
maintenance purposes;
(h) any agreement, contract or commitment currently in force to license
any third party to manufacture or reproduce any TLI product, service or
technology except as a distributor in the normal course of business.
Neither TLI nor any of its subsidiaries, nor to TLI's knowledge any other
party to a TLI Contract (as defined below), has breached, violated or defaulted
under, or received notice that it has breached violated or defaulted under, any
of the material terms or conditions of any of the agreements, contracts or
commitments to which TLI or any of its subsidiaries is a party or by which it is
bound of the type described in clauses (a) through (h) above (any such
agreement, contract or commitment, a "TLI CONTRACT") in such a manner as would
permit any other party to cancel or terminate any such TLI Contract, or would
permit any other party to seek damages, which would be reasonably likely to be
material to TLI.
2.17 POOLING OF INTERESTS. To the knowledge of TLI, based on consultation
with its independent accountants, neither TLI nor any of its directors,
officers, affiliates or shareholders has taken any action which would preclude
SVG's ability to account for the Merger as a pooling of interests.
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2.18 CHANGE OF CONTROL PAYMENTS. The TLI Schedules set forth each plan or
agreement pursuant to which any amounts may become payable (whether currently or
in the future) to current or former officers and directors of TLI as a result of
the Merger.
2.19 STATEMENTS; PROXY STATEMENT/PROSPECTUS. The information supplied by
TLI for inclusion in the Registration Statement (as defined in Section 3.3(b))
shall not at the time the Registration Statement is filed with the SEC and at
the time it 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 in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The information
supplied by TLI for inclusion in the proxy statement/prospectus to be sent to
the shareholders of TLI in connection with the meeting of TLI's shareholders to
consider the approval and adoption of this Agreement and the approval of the
Merger (the "TLI SHAREHOLDERS' MEETING") (such proxy statement/prospectus as
amended or supplemented is referred to herein as the "PROXY STATEMENT") shall
not, on the date the Proxy Statement is first mailed to TLI's shareholders, at
the time of the TLI Shareholders' Meeting and at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not false or misleading;
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the TLI
Shareholders' Meeting which has become false or misleading. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder. If at any time prior to
the Effective Time any event relating to TLI or any of its affiliates, officers
or directors should be discovered by TLI which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy Statement,
TLI shall promptly inform SVG. Notwithstanding the foregoing, TLI makes no
representation or warranty with respect to any information supplied by SVG or
Merger Sub which is contained in any of the foregoing documents.
2.20 BOARD APPROVAL. The Board of Directors of TLI has, as of the date of
this Agreement, determined (i) that the Merger is fair to, and in the best
interests of TLI and its shareholders, and (ii) to recommend that the
shareholders of TLI approve and adopt this Agreement and approve the Merger.
2.21 CUSTOMS. All goods imported into the United States or any other
country by TLI or any of its subsidiaries ("IMPORTED GOODS") have been, with
such exceptions as are not material, properly valued and classified in
accordance with applicable tariff laws, rules and regulations, and all proper
duties, tariffs or excise taxes have been paid with respect to the Imported
Goods. No penalties have been assessed, asserted or claimed with respect to any
Imported Goods. All Imported Goods have been properly marked as to country of
origin, content and material.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SVG AND MERGER SUB
SVG and Merger Sub represent and warrant to TLI, subject to the exceptions
specifically disclosed in writing in the disclosure letter supplied by SVG to
TLI dated as of the date hereof and certified by a duly authorized officer of
SVG (the "SVG SCHEDULES"), as follows:
3.1 ORGANIZATION OF SVG.
(a) Each of SVG and Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation; has the corporate power and authority to own, lease and
operate its assets and property and to carry on its business as now being
conducted and as proposed to be conducted; and is duly qualified or licensed
to do business and is in good standing in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except where
the failure to be so qualified would not have a Material Adverse Effect (as
defined below) on SVG.
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(b) SVG has delivered or made available to TLI a true and correct copy
of the Certificate of Incorporation and Bylaws of SVG, each as amended to
date, and each such instrument is in full force and effect. SVG is not in
violation of any of the provisions of its Certificate of Incorporation or
Bylaws.
(c) When used in connection with SVG, the term "MATERIAL ADVERSE EFFECT"
means, for purposes of this Agreement, any change, event or effect that is
materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of SVG and its subsidiaries
taken as a whole.
3.2 SVG AND MERGER SUB CAPITAL STRUCTURE. The authorized capital stock of
SVG consists of 100,000,000 shares of Common Stock, $0.01 par value, of which
there were 30,875,845 shares issued and outstanding as of July 31, 1997, and
1,000,000 shares of Preferred Stock, $0.01 par value, of which no shares are
issued or outstanding. The authorized capital stock of Merger Sub consists of
100 shares of Common Stock, no par value, all of which, as of the date hereof,
are issued and outstanding and are held by SVG. Merger Sub was formed on July
31, 1997, for the purpose of consummating a merger and has no material assets or
liabilities except as necessary for such purpose. All outstanding shares of SVG
Common Stock are duly authorized, validly issued, fully paid and nonassessable
and are not subject to preemptive rights created by statute, the Certificate of
Incorporation or Bylaws of SVG or any agreement or document to which SVG is a
party or by which it is bound.
3.3 AUTHORITY.
(a) Each of SVG and Merger Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of SVG and, in the
case of this Agreement, Merger Sub, subject only to the filing and
recordation of the Articles of Merger pursuant to California Law. This
Agreement has been duly executed and delivered by each of SVG and Merger Sub
and, assuming the due authorization, execution and delivery by TLI,
constitutes the valid and binding obligation of SVG and Merger Sub,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy and other similar laws and general principles of
equity. The execution and delivery of this Agreement by each of SVG and
Merger Sub does not, and the performance of this Agreement by each of SVG
and Merger Sub will not, (i) conflict with or violate the Certificate of
Incorporation or Bylaws of SVG or the Articles of Incorporation or Bylaws of
Merger Sub, (ii) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to SVG or Merger Sub or by which any of their
respective properties is bound or affected or (iii) result in any breach of
or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or impair SVG' rights or alter the
rights or obligations of any third party under, or give to others any rights
of termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of SVG
or Merger Sub pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation to which SVG or Merger Sub is a party or by which SVG or
Merger Sub or any of their respective properties are bound or affected.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to SVG or Merger Sub in connection with the execution and delivery
of this Agreement or the consummation of the Merger, except for (i) the
filing of a Form S-4 Registration Statement (the "REGISTRATION STATEMENT")
with the SEC in accordance with the Securities Act, (ii) the filing of the
Articles of Merger with the Secretary of State of the State of California,
(iii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and
state securities laws and the HSR Act and the securities or antitrust laws
of any foreign country, and (iv) such other consents, authorizations,
filings,
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approvals and registrations which if not obtained or made would not be
material to SVG or TLI or have a material adverse effect on the ability of
the parties to consummate the Merger.
3.4 SEC FILINGS; SVG FINANCIAL STATEMENTS.
(a) SVG has filed all forms, reports and documents required to be filed
with the SEC since June 30, 1995, and has made available to TLI such forms,
reports and documents in the form filed with the SEC. All such required
forms, reports and documents (including those that SVG may file subsequent
to the date hereof) are referred to herein as the "SVG SEC REPORTS." As of
their respective dates, the SVG SEC Reports (i) were prepared in accordance
with the requirements of the Securities Act or the Exchange Act, as the case
may be, and the rules and regulations of the SEC thereunder applicable to
such SVG SEC Reports, 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 SVG'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 SVG SEC Reports (the "SVG
FINANCIALS"), including any SVG SEC Reports filed after the date hereof
until the Closing, (x) complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, (y) was
prepared in accordance with GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto or, in
the case of unaudited interim financial statements, as may be permitted by
the SEC on Form 10-Q under the Exchange Act) and (z) fairly presented the
consolidated financial position of SVG and its subsidiaries as at the
respective dates thereof and the consolidated results of SVG's 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. The balance sheet of SVG contained in SVG SEC Reports as of
March 31, 1997 is hereinafter referred to as the "SVG BALANCE SHEET."
3.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the SVG
Balance Sheet, there has not been any Material Adverse Effect on SVG.
3.6 STATEMENTS; PROXY STATEMENT/PROSPECTUS. The information supplied by
SVG for inclusion in the Registration Statement shall not at the time the
Registration Statement is filed with the SEC and at the time it 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 in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The information supplied by SVG for
inclusion in the Proxy Statement shall not, on the date the Proxy Statement is
first mailed to TLI's shareholders, at the time of the TLI Shareholders' Meeting
and at the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not false or misleading; or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the TLI Shareholders' Meeting which has become
false or misleading. If at any time prior to the Effective Time, any event
relating to SVG or any of its affiliates, officers or directors should be
discovered by SVG which should be set forth in an amendment to the Registration
Statement or a supplement to the Proxy Statement, SVG shall promptly inform TLI.
Notwithstanding the foregoing, SVG makes no representation or warranty with
respect to any information supplied by TLI which is contained in any of the
foregoing documents.
3.7 LITIGATION. There is no action, suit, proceeding, claim, arbitration
or investigation pending, or as to which SVG or any of its subsidiaries has
received any notice of assertion nor, to SVG's knowledge, is there a threatened
action, suit, proceeding, claim, arbitration or investigation against SVG or any
of its
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subsidiaries which would be likely to be material to SVG. SVG is not aware of
any basis for any action, suit, proceeding, claim, arbitration or proceeding of
the type described in the preceding sentence, and SVG has no knowledge of any
unasserted claim, the assertion of which is likely, and which, if asserted, will
seek damages, an injunction or other legal, equitable, monetary or nonmonetary
relief, which claim individually or collectively with other such unasserted
claims if granted would be material to SVG. No Governmental Entity has at any
time challenged or questioned in writing the legal right of SVG to manufacture,
offer or sell any of its products in the present manner or style thereof.
3.8 BROKERS' AND FINDERS' FEES. SVG has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS. During the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement pursuant
to its terms or the Effective Time, TLI, (which for the purposes of this Article
4 shall include TLI and each of its subsidiaries) shall, except to the extent
that SVG shall otherwise consent in writing, carry on its business diligently
and in accordance with good commercial practice and in the usual, regular and
ordinary course, in substantially the same manner as heretofore conducted and in
compliance with all applicable laws and regulations, pay its debts and taxes
when due subject to good faith disputes over such debts or taxes, pay or perform
other material obligations when due, and use its commercially reasonable efforts
consistent with past practices and policies to preserve intact its present
business organization, keep available the services of its present officers and
employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has business
dealings. In addition, TLI will promptly notify SVG of any material event
involving its business or operations.
In addition, except as permitted by the terms of this Agreement, without the
prior written consent of SVG, TLI shall not do any of the following and shall
not permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant or director stock plans or authorize
cash payments in exchange for any options granted under any of such plans;
(b) Grant any severance or termination pay to any officer or employee
except payments in amounts consistent with policies and past practices or
pursuant to written agreements outstanding, or policies existing, on the
date hereof and as previously disclosed in writing to SVG, or adopt any new
severance plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the TLI Intellectual
Property, or enter into grants to future patent rights, other than
non-exclusive licenses in the ordinary course of business and consistent
with past practice;
(d) Declare or pay any dividends on or make any other distributions
(whether in cash, stock, equity securities or property) in respect of any
capital stock or split, combine or reclassify any capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(e) Repurchase or otherwise acquire, directly or indirectly, any shares
of capital stock;
(f) Issue, deliver, sell, authorize or propose the issuance, delivery or
sale of, any shares of capital stock or any securities convertible into
shares of capital stock, or subscriptions, rights, warrants or options to
acquire any shares of capital stock or any securities convertible into
shares of capital stock,
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or enter into other agreements or commitments of any character obligating it
to issue any such shares or convertible securities, other than the issuance
of shares of TLI Common Stock pursuant to the exercise of stock options
therefor outstanding as of the date of this Agreement;
(g) Cause, permit or propose any amendments to any charter document or
Bylaw (or similar governing instruments of any subsidiaries);
(h) Other than the specific transaction contemplated by that certain
Letter Agreement dated July 15, 1997 between TLI and Taylor Hobson Limited,
acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a material portion of the assets of, or
by any other manner, any business or any corporation, partnership interest,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or
in the aggregate, to the business of TLI or enter into any material joint
ventures, strategic partnerships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the aggregate,
to the business of TLI, except in the ordinary course of business consistent
with past practice;
(j) Incur any indebtedness for borrowed money (other than ordinary
course trade payables or pursuant to existing credit facilities in the
ordinary course of business) or guarantee any such indebtedness or issue or
sell any debt securities or warrants or rights to acquire debt securities of
TLI or guarantee any debt securities of others;
(k) Adopt or amend any employee benefit or employee stock purchase or
employee option plan, or enter into any employment contract, pay any special
bonus or special remuneration to any director or employee, or increase the
salaries or wage rates of its officers or employees other than in the
ordinary course of business, consistent with past practice, or change in any
material respect any management policies or procedures;
(l) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business;
(m) Make any grant of exclusive rights to any third party;
(n) Take any action that would be reasonably likely to interfere with
SVG's ability to account for the Merger as a pooling of interests whether or
not otherwise permitted by the provisions of this Article IV; or
(o) Agree in writing or otherwise to take any of the actions described
in Article 4 (a) through (n) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT; OTHER FILINGS;
BOARD RECOMMENDATIONS.
(a) As promptly as practicable after the execution of this Agreement,
TLI will (subject to review and comment by SVG) prepare, and file with the
SEC, the Proxy Statement and SVG will prepare and file with the SEC the
Registration Statement (pursuant to which the issuance of the shares of SVG
Common Stock to be issued in the Merger shall be registered under the
Securities Act) in which the Proxy Statement will be included as a
prospectus. Each of TLI and SVG will respond to any comments of the SEC,
will use its respective reasonable best efforts to have the Registration
Statement declared effective under the Securities Act as promptly as
practicable after such filing and will cause the Proxy Statement to be
mailed to the TLI shareholders at the earliest practicable time. As promptly
as
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practicable after the date of this Agreement, TLI and SVG will prepare and
file any other filings required under the Exchange Act, the Securities Act
or any other Federal, foreign or Blue Sky laws relating to the Merger and
the transactions contemplated by this Agreement (the "OTHER FILINGS"). Each
of TLI and SVG will notify the other promptly upon the receipt of any
comments from the SEC or its staff and of any request by the SEC or its
staff or any other government officials for amendments or supplements to the
Registration Statement, the Proxy Statement or any Other Filing or for
additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government officials, on the
other hand, with respect to the Registration Statement, the Proxy Statement,
the Merger or any Other Filing. The Proxy Statement, the Registration
Statement and the Other Filings will comply in all material respects with
all applicable requirements of law and the rules and regulations promulgated
thereunder. Whenever any event occurs which is required to be set forth in
an amendment or supplement to the Proxy Statement, the Registration
Statement or any Other Filing, TLI or SVG, as the case may be, will promptly
inform the other of such occurrence and cooperate in filing with the SEC or
its staff or any other government officials, and/or mailing to shareholders
of TLI, such amendment or supplement.
(b) The Proxy Statement will include the recommendation of the Board of
Directors of TLI in favor of adoption and approval of this Agreement and
approval of the Merger (except that the Board of Directors of TLI may
withdraw, modify or refrain from making such recommendation to the extent
that the Board determines, in good faith, after consultation with outside
legal counsel, that compliance with the Board's fiduciary duties under
applicable law would require it to do so).
5.2 MEETING OF SHAREHOLDERS. Promptly after the date hereof, TLI will take
all action necessary in accordance with California Law and its Articles of
Incorporation and Bylaws to convene the TLI Shareholders' Meeting to be held as
promptly as practicable, and in any event (to the extent permissible under
applicable law) within 45 days after the declaration of effectiveness of the
Registration Statement, for the purpose of voting upon this Agreement and the
Merger. TLI will use its reasonable best efforts to solicit from its
shareholders proxies in favor of the adoption and approval of this Agreement and
the approval of the Merger and will take all other action necessary or advisable
to secure the vote or consent of its shareholders required by the rules of The
Nasdaq Stock Market or California Law to obtain such approvals.
5.3 CONFIDENTIALITY; ACCESS TO INFORMATION.
(a) The parties acknowledge that TLI and SVG have previously executed a
Confidentiality Agreement dated as of June 3, 1997 (the "CONFIDENTIALITY
AGREEMENT"), which Confidentiality Agreement will continue in full force and
effect in accordance with its terms.
(b) ACCESS TO INFORMATION. TLI will afford SVG and its accountants,
counsel and other representatives reasonable access during normal business
hours to the properties, books, records and personnel of TLI during the
period prior to the Effective Time to obtain all information concerning the
business, including the status of product development efforts, properties,
results of operations and personnel of TLI, as SVG may reasonably request.
No information or knowledge obtained by SVG in any investigation pursuant to
this Section 5.3 will affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the
parties to consummate the Merger. SVG will afford TLI the opportunity to
conduct such diligence as it may reasonably request and which is customary
for target companies on transactions similar to the Merger. No information
or knowledge obtained by TLI in any investigation pursuant to this Section
5.3 will affect or be deemed to modify any representation or warranty
contained herein or the conditions to the obligations of the parties to
consummate the Merger.
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5.4 NO SOLICITATION.
(a) From and after the date of this Agreement until the earlier of the
Effective Time or termination of this Agreement pursuant to its terms, TLI
and its subsidiaries will not, and will instruct their respective directors,
officers, employees, representatives, investment bankers, agents and
affiliates not to, directly or indirectly, (i) solicit or knowingly
encourage submission of, any proposals or offers by any person, entity or
group (other than SVG and its affiliates, agents and representatives), or
(ii) participate in any discussions or negotiations with, or disclose any
non-public information concerning TLI or any of its subsidiaries to, or
afford any access to the properties, books or records of TLI or any of its
subsidiaries to, or otherwise assist or facilitate, or enter into any
agreement or understanding with, any person, entity or group (other than SVG
and its affiliates, agents and representatives), in connection with any
Acquisition Proposal with respect to TLI. For the purposes of this
Agreement, an "ACQUISITION PROPOSAL" means any proposal or offer relating to
(i) any merger, consolidation, sale of substantial assets or similar
transactions involving TLI or any of its subsidiaries (other than sales of
assets or inventory in the ordinary course of business or as permitted under
the terms of this Agreement), (ii) sale by TLI of any shares of capital
stock of TLI (including without limitation by way of a tender offer or an
exchange offer) except as may be permitted pursuant to Article 4, (iii) the
acquisition by any person of beneficial ownership or a right to acquire
beneficial ownership of, or the formation of any "group" (as defined under
Section 13(d) of the Exchange Act and the rules and regulations thereunder)
which beneficially owns, or has the right to acquire beneficial ownership
of, 10% or more of the then outstanding shares of capital stock of TLI
(except for acquisitions for passive investment purposes of not more than
15% of the then outstanding shares of capital stock of TLI only in
circumstances where the person or group qualifies for and files a Schedule
13G with respect thereto and does not become obligated to file a Schedule
13D); or (iv) any public announcement of a proposal, plan or intention to do
any of the foregoing or any agreement to engage in any of the foregoing. TLI
will immediately cease any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of
the foregoing. TLI will (i) notify SVG as promptly as practicable if it
receives any proposal or written inquiry or any written request for
information or access in connection with an Acquisition Proposal or
potential Acquisition Proposal and (ii) as promptly as practicable notify
SVG of the significant terms and conditions of any such Acquisition
Proposal. In addition, subject to the other provisions of this Section 5.4,
from and after the date of this Agreement until the earlier of the Effective
Time and termination of this Agreement pursuant to its terms, TLI and its
subsidiaries will not, and will instruct their respective directors,
officers, employees, representatives, investment bankers, agents and
affiliates not to, directly or indirectly, make or authorize any public
statement, recommendation or solicitation in support of any Acquisition
Proposal made by any person, entity or group (other than SVG); PROVIDED,
HOWEVER, that nothing herein shall prohibit TLI's Board of Directors from
taking and disclosing to TLI's shareholders a position with respect to a
tender offer pursuant to Rules 14d-9 and 14e-2 promulgated under the
Exchange Act.
(b) Notwithstanding the provisions of paragraph (a) above, prior to the
Effective Time, TLI may, to the extent the Board of Directors of TLI
determines, in good faith, after consultation with outside legal counsel,
that the Board's fiduciary duties under applicable law require it to do so,
participate in discussions or negotiations with, and, subject to the
requirements of paragraph (c), below, furnish information to any person,
entity or group after such person, entity or group has delivered to TLI in
writing, an unsolicited bona fide Acquisition Proposal which the Board of
Directors of TLI in its good faith reasonable judgment determines would
result in a transaction more favorable than the Merger to the shareholders
of TLI from a financial point of view (a "TLI SUPERIOR PROPOSAL"). In
addition, notwithstanding the provisions of paragraph (a) above, in
connection with a possible Acquisition Proposal, TLI may refer any third
party to this Section 5.4 or make a copy of this Section 5.4 available to a
third party. In the event TLI receives a TLI Superior Proposal, nothing
contained in this Agreement (but subject to the terms hereof) will prevent
the Board of Directors of
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TLI from recommending such TLI Superior Proposal to its shareholders, if the
Board determines, in good faith, after consultation with outside legal
counsel, that such action is required by its fiduciary duties under
applicable law; in such case, the Board of Directors of TLI may withdraw,
modify or refrain from making its recommendation set forth in Section
5.1(b), and, to the extent it does so, TLI may refrain from soliciting
proxies to secure the vote of its shareholders as may be required by Section
5.2; PROVIDED, HOWEVER, that TLI shall (i) provide SVG at least forty eight
(48) hours prior notice of any TLI Board meeting at which it is reasonably
expected to contemplate a Superior Proposal and (ii) not recommend to its
shareholders a TLI Superior Proposal for a period of not less than 5
business days after SVG's receipt of a copy of such TLI Superior Proposal
(or a description of the significant terms and conditions thereof, if not in
writing).
(c) Notwithstanding anything to the contrary in this Section 5.4, TLI
will not provide any non-public information to a third party unless: (i) TLI
provides such non-public information pursuant to a nondisclosure agreement
with terms regarding the protection of confidential information at least as
restrictive as such terms in the Confidentiality Agreement; and (ii) such
non-public information has been previously delivered to SVG.
(d) SVG and TLI acknowledge and agree that the provisions of this
Section 5.4 supersede and replace Section 9 of the Confidentiality
Agreement. Except as set forth in this Section 5.3(d), the provisions of the
Confidentiality Agreement shall remain in full force and effect.
5.5 PUBLIC DISCLOSURE. SVG and TLI will consult with each other and, to
the extent practicable, agree, before issuing any press release or otherwise
making any public statement with respect to the Merger, this Agreement or an
Acquisition Proposal and will not issue any such press release or make any such
public statement prior to such consultation, except as may be required by law or
any listing agreement with a national securities exchange. The parties have
agreed to the text of the joint press release announcing the signing of this
Agreement.
5.6 LEGAL REQUIREMENTS. Each of SVG, Merger Sub and TLI will take all
reasonable actions necessary or desirable to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the transactions contemplated by this Agreement (including furnishing all
information required in connection with approvals by or filings with any
Governmental Entity, and prompt resolution of any litigation prompted hereby)
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such filings with or investigations by any
Governmental Entity, and any other such requirements imposed upon any of them or
their respective subsidiaries in connection with the consummation of the
transactions contemplated by this Agreement. SVG will use its commercially
reasonable efforts to take such steps as may be necessary to comply with the
securities and blue sky laws of all jurisdictions which are applicable to the
issuance of SVG Common Stock pursuant hereto. TLI will use its commercially
reasonable efforts to assist SVG as may be necessary to comply with the
securities and blue sky laws of all jurisdictions which are applicable in
connection with the issuance of SVG Common Stock pursuant hereto.
5.7 THIRD PARTY CONSENTS. As soon as practicable following the date
hereof, SVG and TLI will each use its commercially reasonable efforts to obtain
all material consents, waivers and approvals under any of its or its
subsidiaries' agreements, contracts, licenses or leases required to be obtained
in connection with the consummation of the transactions contemplated hereby.
5.8 NOTIFICATION OF CERTAIN MATTERS. SVG and Merger Sub will give prompt
notice to TLI, and TLI will give prompt notice to SVG, of the occurrence, or
failure to occur, of any event, which occurrence or failure to occur would be
reasonably likely to cause (a) any representation or warranty contained in this
Agreement and made by it to be untrue or inaccurate in any material respect at
any time from the date of this Agreement to the Effective Time such that the
conditions set forth in Section 6.2(a) or 6.3(a), as the case may be, would not
be satisfied as a result thereof or (b) any material failure of SVG and Merger
Sub or TLI, as the case may be, or of any officer, director, employee or agent
thereof, to comply with or satisfy
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any covenant, condition or agreement to be complied with or satisfied by it
under this Agreement. Notwithstanding the above, the delivery of any notice
pursuant to this section will not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
5.9 BEST EFFORTS AND FURTHER ASSURANCES. Subject to the respective rights
and obligations of SVG and TLI under this Agreement, each of the parties to this
Agreement will use its reasonable best efforts to effectuate the Merger and the
other transactions contemplated hereby and to fulfill and cause to be fulfilled
the conditions to closing under this Agreement; provided that neither SVG nor
TLI nor any subsidiary or affiliate thereof will be required to agree to any
divestiture by itself or any of its affiliates of shares of capital stock or of
any business, assets or property, or the imposition of any material limitation
on the ability of any of them to conduct their businesses or to own or exercise
control of such assets, properties and stock. Subject to the foregoing, each
party hereto, at the reasonable request of another party hereto, will execute
and deliver such other instruments and do and perform such other acts and things
as may be necessary or desirable for effecting completely the consummation of
the transactions contemplated hereby.
5.10 STOCK OPTIONS.
(a) At the Effective Time, each outstanding option to purchase shares of
TLI Common Stock under the TLI Stock Option Plan or otherwise (each a "TLI
STOCK OPTION"), whether or not exercisable, will be assumed by SVG. Each TLI
Stock Option so assumed by SVG under this Agreement will continue to have,
and be subject to, the same terms and conditions set forth in the TLI Stock
Option Plan (if such option was granted pursuant to such plan) immediately
prior to the Effective Time (including, without limitation, any repurchase
rights), except that (i) each TLI Stock Option will be exercisable (or will
become exercisable in accordance with its terms) for that number of whole
shares of SVG Common Stock equal to the product of the number of shares of
TLI Common Stock that were issuable upon exercise of such TLI Stock Option
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of SVG Common Stock and
(ii) the per share exercise price for the shares of SVG Common Stock
issuable upon exercise of such assumed TLI Stock Option will be equal to the
quotient determined by dividing the exercise price per share of TLI Common
Stock at which such TLI Stock Option was exercisable immediately prior to
the Effective Time by the Exchange Ratio, rounded up to the nearest whole
cent. Within ten (10) days following the Effective Time, SVG will issue to
each holder of an outstanding TLI Stock Option a notice describing the
foregoing assumption of such TLI Stock Option by SVG.
(b) It is intended that TLI Stock Options assumed by SVG shall qualify
following the Effective Time as incentive stock options as defined in
Section 422 of the Code to the extent TLI Stock Options qualified as
incentive stock options immediately prior to the Effective Time and the
provisions of this Section 5.10 shall be applied consistent with such
intent.
(c) SVG will reserve sufficient shares of SVG Common Stock for issuance
under Section 5.10(a) and under Section 1.6(c) hereof.
5.11 FORM S-8. SVG agrees to file a registration statement on Form S-8 for
the shares of SVG Common Stock issuable with respect to assumed TLI Stock
Options as soon as reasonably practical after the Closing Date.
5.12 INDEMNIFICATION.
(a) From and after the Effective Time, SVG will fulfill and honor and
will cause the Surviving Corporation to fulfill and honor in all respects
the obligations of TLI pursuant to any indemnification agreements between
TLI and its directors and officers or indemnification provisions under TLI's
Articles of Incorporation or Bylaws existing prior to the date hereof. From
and after the Effective Time, such obligations shall be the joint and
several obligations of SVG and the Surviving Corporation
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and, by executing this Agreement, SVG hereby assumes such obligations. The
Articles of Incorporation and By-laws of the Surviving Corporation will
contain appropriate provisions with respect to indemnification, which
provisions will not be amended, repealed or otherwise modified from the
Effective Time in any manner that would adversely affect the rights
thereunder of individuals who, immediately prior to the Effective Time, were
directors, officers, employees or agents of TLI, unless such modification is
required by law.
(b) This Section 5.12 will survive any termination of this Agreement and
the consummation of the Merger at the Effective Time, is intended to benefit
TLI, the Surviving Corporation and the indemnified parties, and will be
binding on all successors and assigns of the Surviving Corporation.
5.13 NASDAQ LISTING. SVG agrees to authorize for quotation on the Nasdaq
National Market the shares of SVG Common Stock issuable, and those required to
be reserved for issuance, in connection with the Merger, upon official notice of
issuance.
5.14 TLI AFFILIATE AGREEMENT. Set forth on Schedule 5.14 is a list of
those persons who may be deemed to be, in TLI's reasonable judgment, affiliates
of TLI within the meaning of Rule 145 promulgated under the Securities Act (each
a "TLI AFFILIATE"). TLI will provide SVG with such information and documents as
SVG reasonably requests for purposes of reviewing such list. TLI will use its
reasonable best efforts to deliver or cause to be delivered to SVG, as promptly
as practicable on or following the date hereof, from each TLI Affiliate an
executed affiliate agreement in substantially the form attached hereto as
EXHIBIT B (the "TLI AFFILIATE AGREEMENT"), each of which will be in full force
and effect as of the Effective Time. SVG will be entitled to place appropriate
legends on the certificates evidencing any SVG Common Stock to be received by a
TLI Affiliate pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for the SVG Common Stock,
consistent with the terms of the TLI Affiliate Agreement.
5.15 REGULATORY FILINGS; REASONABLE EFFORTS. As soon as may be reasonably
practicable, TLI and SVG each shall file with the United States Federal Trade
Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice ("DOJ") Notification and Report Forms relating to the
transactions contemplated herein as required by the HSR Act, as well as
comparable pre-merger notification forms required by the merger notification or
control laws and regulations of any applicable jurisdiction, as agreed to by the
parties. TLI and SVG each shall promptly (a) supply the other with any
information which may be required in order to effectuate such filings and (b)
supply any additional information which reasonably may be required by the FTC,
the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate.
5.16 TAX-FREE REORGANIZATION. No party shall take any action either prior
to or after the Effective Time that could reasonably be expected to cause the
merger to fail to qualify as a "reorganization" under Section 368(a) of the
Code.
5.17 COMFORT LETTER. Ernst & Young LLP, certified public accountants to
TLI, shall provide a letter reasonably acceptable to SVG, relating to their
review of the financial statements relating to TLI contained in or incorporated
by reference in the Registration Statement.
5.18 EMPLOYMENT AGREEMENTS. As soon as practicable following the Effective
Time, TLI and each of the individuals listed on Schedule 5.18 hereto shall enter
into Employment Agreements substantially in the form attached hereto as EXHIBIT
C.
5.19 CONFIDENTIALITY AGREEMENTS. TLI agrees that from and after the date
hereof, it will use all reasonable efforts to cause each of its employees and
contractors involved with TLI Intellectual Property to execute a proprietary
information/confidentiality agreement in TLI's standard form as previously
provided to SVG.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) TLI SHAREHOLDER APPROVAL. This Agreement shall have been approved
and adopted, and the Merger shall have been duly approved, by the requisite
vote under applicable law, by the shareholders of TLI.
(b) REGISTRATION STATEMENT EFFECTIVE; PROXY STATEMENT. The SEC shall
have declared the Registration Statement effective. No stop order suspending
the effectiveness of the Registration Statement or any part thereof shall
have been issued and no proceeding for that purpose, and no similar
proceeding in respect of the Proxy Statement, shall have been initiated or
threatened in writing by the SEC.
(c) NO ORDER; HSR ACT. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the
Merger. All waiting periods, if any, under the HSR Act relating to the
transactions contemplated hereby will have expired or terminated early.
(d) TAX OPINIONS. SVG and TLI shall each have received written
opinions from their respective tax counsel (Wilson Sonsini Goodrich &
Rosati, P.C. and Clark & Trevithick, respectively), in form and substance
reasonably satisfactory to them, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code
and such opinions shall not have been withdrawn; PROVIDED, HOWEVER, that if
the counsel to either SVG or TLI does not render such opinion, this
condition shall nonetheless be deemed to be satisfied with respect to such
party if counsel to the other party renders such opinion to such party. The
parties to this Agreement agree to make reasonable representations as
requested by such counsel for the purpose of rendering such opinions.
(e) NASDAQ LISTING. The shares of SVG Common Stock issuable to
shareholders of TLI pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall
have been authorized for quotation on the Nasdaq National Market upon
official notice of issuance.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF TLI. The obligation of TLI to
consummate and effect the Merger shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by TLI:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of SVG and Merger Sub contained in this Agreement shall have been true and
correct in all material respects on and as of the date of this Agreement. In
addition, the representations and warranties of SVG and Merger Sub contained
in this Agreement shall be true and correct in all material respects on and
as of the Effective Time except for changes contemplated by this Agreement
and except for those representations and warranties which address matters
only as of a particular date (which shall remain true and correct as of such
particular date), with the same force and effect as if made on and as of the
Effective Time, except in such cases (other than the representation in
Section 3.2) where the failure to be so true and correct would not have a
Material Adverse Effect on SVG. TLI shall have received a certificate with
respect to the foregoing signed on behalf of SVG by an authorized officer of
SVG;
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(b) AGREEMENTS AND COVENANTS. SVG and Merger Sub shall have performed
or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or
prior to the Effective Time, and TLI shall have received a certificate to
such effect signed on behalf of SVG by an authorized officer of SVG; and
(c) MATERIAL ADVERSE EFFECT. No Material Adverse Effect with respect
to SVG shall have occurred since the date of this Agreement.
(d) CONSENTS. SVG shall have obtained all material consents, waivers
and approvals required in connection with the consummation of the
transactions contemplated hereby under the agreements, contracts, licenses
or leases set forth on Schedule 6.2(d).
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF SVG AND MERGER SUB. The
obligations of SVG and Merger Sub to consummate and effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, exclusively by
SVG:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of TLI contained in this Agreement shall have been true and correct in all
material respects as of the date of this Agreement. In addition, the
representations and warranties of TLI contained in this Agreement shall be
true and correct in all material respects on and as of the Effective Time
except for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such particular date), with
the same force and effect as if made on and as of the Effective Time, except
in such cases (other than the representations in Sections 2.2 and 2.3) where
the failure to be so true and correct would not have a Material Adverse
Effect on TLI. SVG shall have received a certificate with respect to the
foregoing signed on behalf of TLI by the Chief Executive Officer and the
Chief Financial Officer of TLI.
(b) AGREEMENTS AND COVENANTS. TLI shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the
Effective Time, and the SVG shall have received a certificate to such effect
signed on behalf of TLI by the Chief Executive Officer and the Chief
Financial Officer of TLI.
(c) MATERIAL ADVERSE EFFECT. No Material Adverse Effect with respect
to TLI shall have occurred since the date of this Agreement.
(d) OPINION OF ACCOUNTANTS. SVG shall have received a letter from
Deloitte & Touche LLP and Ernst & Young LLP, respectively, dated within two
(2) business days prior to the Effective Time, regarding that firm's
concurrence with SVG's management's and TLI's management's conclusions as to
the appropriateness of pooling of interest accounting for the Merger under
Accounting Principles Board Opinion No. 16, if the Merger is consummated in
accordance with this Agreement.
(e) CONSENTS. TLI shall have obtained all material consents, waivers
and approvals required in connection with the consummation of the
transactions contemplated hereby under the agreements, contracts, licenses
or leases set forth on Schedule 6.3(e).
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time of the Merger, whether before or after approval of the Merger by
the shareholders of TLI:
(a) by mutual written consent duly authorized by the Boards of Directors
of SVG and TLI;
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(b) by either TLI or SVG if the Merger shall not have been consummated
by December 31, 1997 for any reason; PROVIDED, HOWEVER, that the right to
terminate this Agreement under this Section 7.1(b) shall not be available to
any party whose action or failure to act has been a principal cause of or
resulted in the failure of the Merger to occur on or before such date and
such action or failure to act constitutes a breach of this Agreement;
(c) by either TLI or SVG if a Governmental Entity shall have issued an
order, decree or ruling or taken any other action (an "ORDER"), in any case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree or ruling is final and
nonappealable;
(d) by either TLI or SVG if the required approvals of the shareholders
of TLI contemplated by this Agreement shall not have been obtained by reason
of the failure to obtain the required vote at a meeting of TLI shareholders
duly convened therefor or at any adjournment thereof (PROVIDED that the
right to terminate this Agreement under this Section 7.1(d) shall not be
available to TLI where the failure to obtain TLI shareholder approval shall
have been caused by the action or failure to act of TLI in breach of this
Agreement);
(e) by SVG or TLI, if the Board of Directors of TLI recommends a TLI
Superior Proposal to the shareholders of TLI, or if the Board of Directors
of TLI shall have withheld, withdrawn or modified in a manner adverse to SVG
its recommendation in favor of adoption and approval of this Agreement and
approval of the Merger;
(f) by TLI, upon a breach of any representation, warranty, covenant or
agreement on the part of SVG set forth in this Agreement, or if any
representation or warranty of SVG shall have become untrue, in either case
such that the conditions set forth in Section 6.2(a) or Section 6.2(b) would
not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, PROVIDED that if such
inaccuracy in SVG's representations and warranties or breach by SVG is
curable by SVG through the exercise of its commercially reasonable efforts,
then TLI may not terminate this Agreement under this Section 7.1(f) for
thirty (30) days after notice from TLI of such breach, provided SVG
continues to exercise such commercially reasonable efforts to cure such
breach; or
(g) by SVG, upon a breach of any representation, warranty, covenant or
agreement on the part of TLI set forth in this Agreement, or if any
representation or warranty of TLI shall have become untrue, in either case
such that the conditions set forth in Section 6.3(a) or Section 6.3(b) would
not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, PROVIDED, that if such
inaccuracy in TLI's representations and warranties or breach by TLI is
curable by TLI through the exercise of its commercially reasonable efforts,
then SVG may not terminate this Agreement under this Section 7.1(g) for
thirty (30) days after notice from SVG of such breach, provided TLI
continues to exercise such commercially reasonable efforts to cure such
breach.
7.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except (i) as set forth
in this Section 7.2, Section 7.3 and Article 8, each of which shall survive the
termination of this Agreement, and (ii) nothing herein shall relieve any party
from liability for any breach of this Agreement. No termination of this
Agreement shall affect the obligations of the parties contained in the
Confidentiality Agreement, all of which obligations shall survive termination of
this Agreement in accordance with their terms.
7.3 FEES AND EXPENSES.
(a) GENERAL. Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring
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such expenses whether or not the Merger is consummated; PROVIDED, HOWEVER,
that SVG and TLI shall share equally all fees and expenses, other than
attorneys' and accountants fees and expenses, incurred in relation to the
printing and filing of the Proxy Statement (including any preliminary
materials related thereto) and the Registration Statement (including
financial statements and exhibits) and any amendments or supplements
thereto.
(b) TLI PAYMENTS.
(i) If either (x) the Board of Directors of TLI shall have withheld,
withdrawn or modified in a manner adverse to SVG its recommendation in
favor of adoption and approval of this Agreement and approval of the
Merger and at that time there shall not have occurred a Material Adverse
Effect with respect to SVG, or (y) the Board of Directors of TLI
recommends a TLI Superior Proposal to the shareholders of TLI, TLI shall
pay to SVG an amount equal to $2.2 million within one (1) business day
following the earlier to occur of (A) termination of this Agreement
pursuant to Section 7.1(e) hereof and (B) a TLI Negative Vote (as defined
below);
(ii) If no payment shall be required pursuant to clause 7.3(b)(i)
above, and if (x) the vote of the shareholders of TLI approving and
adopting this Agreement and approving the Merger shall not have been
obtained by reason of the failure to obtain the required vote at a
meeting of shareholders duly convened therefor or at any adjournment
thereof (a "TLI NEGATIVE VOTE") and (y) prior to such TLI Negative Vote
there shall have occurred an Acquisition Proposal with respect to TLI
which shall have been publicly disclosed (a "TLI COMPETING PROPOSAL") and
(z) (A) within 12 months following such TLI Negative Vote, TLI shall
enter into a definitive agreement with respect to an Acquisition Proposal
with the party (or any affiliate of the party) that made the TLI
Competing Proposal or an Acquisition Proposal with such party (or any
such affiliate) with respect to TLI shall have been consummated or (B)
within 6 months following such TLI Negative Vote, TLI shall enter into a
definitive agreement with respect to an Acquisition Proposal with any
other party or an Acquisition Proposal with any other party with respect
to TLI shall have been consummated, then, provided that there shall have
not occurred a Material Adverse Effect with respect to SVG prior to the
TLI Negative Vote, TLI shall pay to SVG an amount equal to $2.2 million
within one (1) business day following demand therefor after the
occurrence of the events set forth in (x) and (y) and either (z)(A) or
(z)(B) above; and
(iii) If no payment shall be required pursuant to clauses 7.3(b)(i)
or (ii) above and if there shall be a TLI Negative Vote then TLI shall
pay to SVG an amount equal to $2.2 million within one (1) business day
following demand therefor; provided there shall not have occurred a
Material Adverse Effect with respect to SVG prior to the TLI Negative
Vote.
(c) Payment of the fees described in Section 7.3(b) above shall not be
in lieu of damages incurred in the event of breach of this Agreement.
(d) In the event that this Agreement is terminated by TLI pursuant to
Section 7.1(f) hereof, SVG agrees to pay the reasonable fees and expenses
incurred by TLI in connection with this Agreement in an aggregate amount not
to exceed $250,000.
7.4 AMENDMENT. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of the parties hereto.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing
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signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of TLI, SVG and Merger Sub contained in this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to SVG or Merger Sub, to:
Silicon Valley Group, Inc.
101 Metro Drive, Suite 400
San Jose, CA 95110
Attention: Chief Financial Officer
Telephone No.: (408) 441-6700
Telecopy No.: (408) 467-5828
and
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry W. Sonsini, Esq.
Aaron J. Alter, Esq.
Telephone No.: (415) 493-9300
Telecopy No.: (415) 493-6811
(b) if to TLI, to:
Tinsley Laboratories, Inc.
3900 Lakeside Drive
Richmond, CA 94806
Attention: Robert J. Aronno
Telephone No.: (510) 222-8110
Telecopy No.: (510) 223-4534
with a copy to:
Clark & Trevithick
800 Wilshire Blvd., 12th Floor
Los Angeles, CA 90017
Attention: Donald P. Clark, Esq.
Telephone No.: (213) 629-5700
Telecopy No.: (213) 624-9441
8.3 INTERPRETATION; KNOWLEDGE.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise
indicated. The words "INCLUDE," "INCLUDES" and "INCLUDING" when used herein
shall be deemed in each case to be followed by the words "without
limitation."
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The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When reference is made herein to "THE
BUSINESS OF" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference
to the subsidiaries of an entity shall be deemed to include all direct and
indirect subsidiaries of such entity.
(b) For purposes of this Agreement (a) as it relates to SVG, the term
"KNOWLEDGE" means, with respect to any matter in question, that either of
the Chief Executive Officer or Chief Financial Officer of SVG, as have
actual knowledge of such matter; (b) as it relates to TLI, the term
"KNOWLEDGE" means, with respect to any matter in question that any of the
Chief Executive Officer, Chief Financial Officer, or any other officer or
manager who in the ordinary course of his duties has knowledge of a specific
matter.
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the TLI Schedules (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
it being understood that the Confidentiality Agreement shall continue in full
force and effect until the Closing and shall survive any termination of this
Agreement; and (b) are not intended to confer upon any other person any rights
or remedies hereunder, except as specifically provided in Section 5.12.
8.6 SEVERABILITY. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the 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 such void or unenforceable provision.
8.7 OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof;
provided that issues involving the corporate governance of any of the parties
hereto shall be governed by their respective jurisdictions of incorporation.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction of
any state or federal court within the Northern District of California, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, other than issues involving the corporate
governance of any of the parties hereto, agrees that process may be served upon
them in any manner authorized by the laws of the State of
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California for such persons and waives and covenants not to assert or plead any
objection which they might otherwise have to such jurisdiction and such process.
8.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 ASSIGNMENT. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other party. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.11 WAIVER OF JURY TRIAL. EACH OF SVG, TLI AND MERGER SUB HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF SVG, TLI OR MERGER SUB IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
*****
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
SILICON VALLEY GROUP, INC.
By: /s/ W.A. HIGHTOWER
-----------------------------------------
Name: W.A. Hightower
Title: Pres. & CEO
SV ACQUISITION CORP.
By: /s/ RUSSELL G. WEINSTOCK
-----------------------------------------
Name: Russell G. Weinstock
Title: VP of Finance & CFO
TINSLEY LABORATORIES, INC.
By: /s/ ROBERT J. ARONNO
-----------------------------------------
Name: Robert J. Aronno
Title: President
**** REORGANIZATION AGREEMENT ****
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ANNEX B
CALIFORNIA CORPORATIONS CODE
GENERAL CORPORATION LAW
CHAPTER 13
DISSENTERS' RIGHTS
SECTION1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of their terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for determination of shareholders
entitled to vote on the reorganization and (A) were not voted in favor of
the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective
date of a short-form merger; provided, however, that subparagraph (A) rather
than subparagraph (B) of this paragraph applies in any case where the
approval required by Section 1201 is sought by written consent rather than
at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
SECTION1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
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of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION1303. AGREED PRICE--TIME FOR PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interests thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
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SECTION1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
paying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION1305. APPRAISERS' REPORT--PAYMENT--COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine that the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
B-3
<PAGE>
SECTION1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SECTION1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into
shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in amending action as
provided in Section 1304, within six months after the date on which notice
of the approval of the outstanding shares or notice pursuant to subdivision
(i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Section 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
SECTION1312. ATTACHING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof, but any holder of shares of a class whose terms and
B-4
<PAGE>
provisions specifically set forth the amount to be paid in respect to them in
the event of a reorganization or short-form merger is entitled to payment in
accordance with those terms and provisions or, if the principal terms of the
reorganization are approved pursuant to subdivision (b) of Section 1202, is
entitled to payment in accordance with the terms and provisions of the approved
reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining the shareholder
or the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to the
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
B-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits indemnification
of officers and directors in certain circumstances. As permitted by amendments
to the Delaware General Corporation Law effective in July 1986, the Registrant
has included a provision in its Restated Certificate of Incorporation that,
subject to certain limitations, eliminates the ability of the Registrant and its
stockholders to recover monetary damages from a director of the Registrant for
breach of fiduciary duty as a director. Article VI of the Registrant's Bylaws
provides for indemnification of the Registrant's directors and officers in
certain circumstances. The Registrant has a directors' and officers' liability
insurance policy which affords directors and officers insurance coverage for
losses arising from claims based on breaches of duty, negligence, error and
other wrongful acts. Additionally, the Registrant may in the future enter into
indemnification agreements with its directors and executives officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
<C> <C> <S>
(a) Exhibits
2.1 Agreement and Plan of Reorganization, dated as of September 9, 1997, among SVG, SVG
Acquisition, Inc. and TLI (included as Annex A to the Proxy Statement/Prospectus which is
a part of this Registration Statement).
2.2 Form of TLI Voting Agreement.
2.3 Form of TLI Affiliate Agreement.
*2.4 Form of Articles of Merger.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
*8.1 Tax Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
*8.2 Tax Opinion of Clark & Trevithick.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
23.2 Consent of Ernst & Young LLP, independent auditors.
23.3 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit 5.1).
*23.4 Consent of Clark & Trevithick, P.C. (included in Exhibit 8.2).
24.1 Power of Attorney (see Page II-4).
99.1 TLI Form of Proxy.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules
Schedule II--Valuation Allowance Schedule
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
II-1
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(7) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(8) To supply by means of a post-effective amendment all required
information concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration statement
when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
II-2
<PAGE>
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Jose, State of California, on the 21st day of
October, 1997.
<TABLE>
<S> <C> <C>
SILICON VALLEY GROUP, INC.
By: /s/ RUSSELL G. WEINSTOCK
-----------------------------------------
Russell G. Weinstock
VICE PRESIDENT, FINANCE AND
CHIEF FINANCIAL OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Russell G. Weinstock, his attorney-in-fact, with
the power of substitution, for him in any and all capacities, to sign any and
all amendments to this Registration statement (including post-effective
amendments), and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following in the capacities and on
the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ PAPKEN S. DER TOROSSIAN
- ------------------------------ Chairman of the Board and October 21, 1997
(Papken S. Der Torossian) Chief Executive Officer
/s/ RUSSELL G. WEINSTOCK Vice President, Finance
- ------------------------------ and Chief Financial October 21, 1997
(Russell G. Weinstock) Officer
/s/ WILLIAM A. HIGHTOWER
- ------------------------------ Director October 21, 1997
(William A. Hightower)
/s/ NAM P. SUH
- ------------------------------ Director October 21, 1997
(Nam P. Suh)
/s/ WILLIAM L. MARTIN
- ------------------------------ Director October 21, 1997
(William L. Martin)
/s/ LAWRENCE TOMLINSON
- ------------------------------ Director October 21, 1997
(Lawrence Tomlinson)
II-4
<PAGE>
SCHEDULE II--VALUATION ALLOWANCE SCHEDULE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance at beginning of period........................................ $ -- $ 20,000 $ 49,000
Balance at end of period.............................................. 20,000 49,000 75,000
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization, dated as of September 9, 1997, by and among Silicon Valley Group,
Inc., SV Acquisition, Inc. and TLI (included in the Statement/Prospectus which is a part of this
Registration Statement).
2.2 Form of TLI Voting Agreement.
2.3 Form of TLI Affiliate Agreement.
*2.4 Form of Articles of Merger.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
*8.1 Tax Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
*8.2 Tax Opinion of Clark & Trevithick.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
23.2 Consent of Ernst & Young LLP, independent auditors.
23.3 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit 5.1).
*23.4 Consent of Clark & Trevithick (included in Exhibit 8.2).
24.1 Power of Attorney (see Page II-4).
99.1 TLI Form of Proxy.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 2.2
VOTING AGREEMENT
This Voting Agreement ("AGREEMENT") is made and entered into as of
September 9, 1997, between Silicon Valley Group, Inc., a Delaware corporation
("PARENT"), and the undersigned shareholder ("SHAREHOLDER") of Tinsley
Laboratories, Inc., a California corporation (the "COMPANY").
RECITALS
A. Concurrently with the execution of this Agreement, Parent, the
Company and SV Acquisition, Inc., a California corporation and a wholly-owned
subsidiary of Parent ("MERGER SUB"), are entering into an Agreement and Plan
of Reorganization (the "MERGER AGREEMENT") which provides for the merger (the
"MERGER") of Merger Sub with and into the Company. Pursuant to the Merger,
shares of capital stock of the Company will be converted into Common Stock of
Parent on the basis described in the Merger Agreement.
B. The Shareholder is the record holder and beneficial owner (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT")), of such number of shares of the outstanding Common
Stock of the Company as is indicated on the final page of this Agreement
(the "SHARES").
C. As a material inducement to enter into the Merger Agreement, Parent
desires the Shareholder to agree, and the Shareholder is willing to agree, to
vote the Shares and any other such shares of capital stock of the Company so
as to facilitate consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows:
1. AGREEMENT TO VOTE SHARES; ADDITIONAL PURCHASES.
1.1 AGREEMENT TO VOTE SHARES. At every meeting of the
shareholders of the Company called with respect to any of the following, and
at every adjournment thereof, and on every action or approval by written
consent of the shareholders of the Company with respect to any of the
following, Shareholder shall vote the Shares and any New Shares in favor of
(x) approval of the Merger Agreement and the Merger and (y) any matter that
could reasonably be expected to facilitate the Merger.
<PAGE>
1.2 ADDITIONAL PURCHASES. Shareholder agrees that any shares of
capital stock of the Company that Shareholder purchases or with respect to
which Shareholder otherwise acquires beneficial ownership after the execution
of this Agreement and prior to the date of termination of this Agreement
("NEW SHARES") shall be subject to the terms and conditions of this Agreement
to the same extent as if they constituted Shares.
2. IRREVOCABLE PROXY. Concurrently with the execution of this
Agreement, Shareholder agrees to deliver to Parent a proxy in the form
attached hereto as EXHIBIT A (the "PROXY"), which shall be irrevocable, with
the total number of shares of capital stock of the Company beneficially owned
(as such term is defined in Rule 13d-3 under the Exchange Act) by Shareholder
set forth therein.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. Shareholder (i)
is the beneficial owner of the Shares, which at the date hereof are free and
clear of any liens, claims, options, charges or other encumbrances; (ii) does
not beneficially own any shares of capital stock of the Company other than
the Shares (excluding shares as to which Shareholder currently disclaims
beneficial ownership in accordance with applicable law); and (iii) has full
power and authority to make, enter into and carry out the terms of this
Agreement.
4. ADDITIONAL DOCUMENTS. Shareholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Parent or Shareholder, as the case may be, to carry out
the intent of this Agreement.
5. CONSENT AND WAIVER. Shareholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreements to which Shareholder is a party or pursuant to
any rights Shareholder may have.
6. TERMINATION. This Agreement shall terminate and shall have no
further force or effect as of the earlier to occur of (i) such date and time
as the Merger shall become effective in accordance with the terms and
provisions of the Merger Agreement or (ii) such date and time as the Merger
Agreement shall have been terminated pursuant to Article VII thereof.
7. MISCELLANEOUS.
7.1 SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions, covenants
and restrictions
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<PAGE>
of this Agreement shall remain in full force and effect and shall in no way
be affected, impaired or invalidated.
7.2 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor
any of the rights, interests or obligations of the parties hereto may be
assigned by either of the parties without prior written consent of the other.
7.3 AMENDMENTS AND MODIFICATION. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
7.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge that Parent will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements
of Shareholder set forth herein. Therefore, it is agreed that, in addition
to any other remedies that may be available to Parent upon any such
violation, Parent shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to Parent at law or in equity.
7.5 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by cable, telegram or telex, or sent by mail (registered or certified
mail, postage prepaid, return receipt requested) or overnight courier
(prepaid) to the respective parties as follows:
If to Parent: Silicon Valley Group, Inc.
101 Metro Drive, Suite 400
San Jose, CA 95110
Attn: Chief Executive Officer
With a copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Larry W. Sonsini, Esq.
Aaron J. Alter, Esq.
-3-
<PAGE>
If to the Shareholder: To the address for notice set forth on the
last page hereof.
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall only be effective upon receipt.
7.6 GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the internal laws of the State of
California (without regard to the principles of conflict of laws thereof).
7.7 ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties in respect of the subject matter hereof, and
supersedes all prior negotiations and understandings between the parties with
respect to such subject matter.
7.8 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall
constitute one and the same agreement.
7.9 EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction or interpretation of
this Agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the date and year first above written.
SILICON VALLEY GROUP, INC.
By:______________________________
Title:___________________________
SHAREHOLDER:
By:______________________________
Shareholder's Address for Notice:
_________________________________
_________________________________
_________________________________
__________ Shares of Common Stock
Beneficially Owned
***VOTING AGREEMENT***
-5-
<PAGE>
Exhibit A
IRREVOCABLE PROXY
The undersigned Shareholder of Tinsley Laboratories, Inc., a California
corporation (the "COMPANY"), hereby irrevocably appoints the directors on the
Board of Directors of Silicon Valley Group, Inc., a Delaware corporation
("PARENT"), and each of them, as the sole and exclusive attorneys and proxies
of the undersigned, with full power of substitution and resubstitution, to
the full extent of the undersigned's rights with respect to the shares of
capital stock of the Company beneficially owned by the undersigned, which
shares are listed on the final page of this Proxy (the "SHARES"), and any and
all other shares or securities issued or issuable in respect thereof on or
after the date hereof, until such time as that certain Agreement of Merger
and Plan of Reorganization dated as of September 9, 1997 (the "MERGER
AGREEMENT"), among Parent, SV Acquisition, Inc., a California corporation and
a wholly-owned subsidiary of Parent ("MERGER SUB"), and the Company, shall be
terminated in accordance with its terms or the Merger (as defined in the
Merger Agreement) is effective. Upon the execution hereof, all prior proxies
given by the undersigned with respect to the Shares and any and all other
shares or securities issued or issuable in respect thereof on or after the
date hereof are hereby revoked and no subsequent proxies will be given.
This proxy is irrevocable, is granted pursuant to the Voting Agreement
dated as of September 9, 1997 between Parent and the undersigned Shareholder
(the "VOTING AGREEMENT"), and is granted in consideration of Parent entering
into the Merger Agreement. The attorneys and proxies named above will be
empowered at any time prior to termination of the Merger Agreement to
exercise all voting and other rights (including, without limitation, the
power to execute and deliver written consents with respect to the Shares) of
the undersigned at every annual, special or adjourned meeting of the Company
shareholders, and in every written consent in lieu of such a meeting, or
otherwise, in favor of approval of the Merger and the Merger Agreement and
any matter that could reasonably be expected to facilitate the Merger.
The attorneys and proxies named above may only exercise this proxy to
vote the Shares subject hereto at any time prior to termination of the Merger
Agreement at every annual, special or adjourned meeting of the shareholders
of the Company and in every written consent in lieu of such meeting, in favor
of approval of the Merger and the Merger Agreement and any matter that could
reasonably be expected to facilitate the Merger. The undersigned Shareholder
may vote the Shares on all other matters.
<PAGE>
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable.
Dated: September __, 1997
Signature of Shareholder:_____________________________________
Print Name of Shareholder:____________________________________
_____________________________Shares of Common Stock Beneficially Owned
***PROXY***
-2-
<PAGE>
EXHIBIT 2.3
AFFILIATE AGREEMENT
This AFFILIATE AGREEMENT ("AGREEMENT") dated as of September 9, 1997, is
by and among Silicon Valley Group, Inc., a Delaware corporation ("PARENT"),
Tinsley Laboratories, Inc., a California corporation (the "COMPANY"), and the
undersigned affiliate ("AFFILIATE") of the Company.
R E C I T A L S
A. Parent and the Company have entered into an Agreement and Plan of
Reorganization ("MERGER AGREEMENT") pursuant to which Parent and the Company
intend to enter into a business combination transaction to pursue their long
term business strategies (the "MERGER") (capitalized terms used and not
otherwise defined herein shall have the respective meanings ascribed to them
in the Merger Agreement).
B. Pursuant to the Merger, at the Effective Time the outstanding
shares of the Company's Common Stock, including any shares owned by
Affiliate, will be converted into the right to receive shares of Parent
Common Stock as set forth in the Merger Agreement.
C. Affiliate has been advised that Affiliate may be deemed to be an
"affiliate" of the Company, as the term "affiliate" is used (i) for purposes
of paragraphs (c) and (d) of Rule 145 of the Rules and Regulations of the
Securities and Exchange Commission (the "SEC") and (ii) in the SEC's
Accounting Series Releases 130 and 135, as amended, although nothing
contained herein shall be construed as an admission by Affiliate that
Affiliate is in fact an affiliate of the Company.
D. It is a condition to consummation of the Merger pursuant to the
Merger Agreement that (i) the attorneys for each of Parent and the Company
will have delivered written opinions that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "CODE"), and (ii) the independent accounting
firms that audit the annual financial statements of Parent and the Company
will have delivered their written concurrences with the conclusions of
management of Parent and the Company to the effect that the Merger will be
accounted for as a pooling of interests under Accounting Principles Board
Opinion No. 16.
E. The execution and delivery of this Agreement by Affiliate is a
material inducement to Parent to enter into the Merger Agreement.
<PAGE>
NOW, THEREFORE, intending to be legally bound, the parties hereby agree
as follows:
1. ACKNOWLEDGMENTS BY AFFILIATE. Affiliate acknowledges and
understands that the representations, warranties and covenants by Affiliate
set forth herein will be relied upon by Parent, the Company, and their
respective affiliates, counsel and accounting firms, and that substantial
losses and damages may be incurred by these persons if Affiliate's
representations, warranties or covenants are breached. Affiliate has
carefully read this Agreement and the Merger Agreement and has discussed the
requirements of this Agreement with Affiliate's professional advisors, who
are qualified to advise Affiliate with regard to such matters.
2. COMPLIANCE WITH RULE 145 AND THE ACT.
(a) Affiliate has been advised that (i) the issuance of shares of
Parent Common Stock in connection with the Merger is expected to be effected
pursuant to a Registration Statement on Form S-4 under the Securities Act of
1933, as amended (the "ACT"), and as such will not be deemed "restricted
securities" within the meaning of Rule 144 promulgated thereunder and resale
of such shares will not be subject to any restrictions other than as set
forth in Rule 145 of the Act unless otherwise transferred pursuant to an
effective registration statement under the Act or an appropriate exemption
from registration, (ii) Affiliate may be deemed to be an affiliate of the
Company, and (iii) no sale, transfer or other disposition by Affiliate of any
Parent Common Stock received by Affiliate will be registered under the Act.
Affiliate accordingly agrees not to sell, transfer or otherwise dispose of
any Parent Common Stock issued to Affiliate in the Merger unless (x) such
sale, transfer or other disposition is made in conformity with the
requirements of Rule 145(d) promulgated under the Act, or (y) Affiliate
delivers to Parent a written opinion of counsel, reasonably acceptable to
Parent in form and substance, that such sale, transfer or other disposition
is otherwise exempt from registration under the Act.
(b) Parent will give stop transfer instructions to its transfer
agent with respect to any Parent Common Stock received by Affiliate pursuant
to the Merger and there will be placed on the certificates representing such
Parent Common Stock, or any substitutions therefor, a legend stating in
substance:
"THE SHARES REPRESENTED BY THIS
CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145
PROMULGATED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, APPLIES AND MAY
ONLY BE TRANSFERRED IN CONFORMITY
WITH RULE 145(d) UNDER SUCH ACT OR IN
ACCORDANCE WITH A WRITTEN OPINION OF
2
<PAGE>
COUNSEL, REASONABLY ACCEPTABLE TO
THE ISSUER IN THE FORM AND SUBSTANCE
THAT SUCH TRANSFER IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED."
The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend) and Parent shall so instruct its transfer
agent, if Affiliate delivers to Parent (i) satisfactory written evidence that
the shares have been sold in compliance with Rule 145 (in which case, the
substitute certificate will be issued in the name of the transferee), or (ii)
an opinion of counsel, in form and substance reasonably satisfactory to the
effect that public sale of the shares by the holder thereof is no longer
subject to Rule 145.
3. COVENANTS RELATED TO POOLING OF INTERESTS. In accordance with SAB
65, until the second day after the day that Parent publicly announces
financial results covering at least 30 days of combined operations of Parent
and the Company, Affiliate will not sell, exchange, transfer, pledge,
distribute, or otherwise dispose of or grant any option, establish any
"short" or put-equivalent position with respect to or enter into any similar
transaction (through derivatives or otherwise) intended or having the effect,
directly or indirectly, to reduce its risk relative to any securities, or
shares of Parent Common Stock received by Affiliate in connection with the
Merger. Parent may, at its discretion, cause a restrictive legend to the
foregoing effect to be placed on Parent Common Stock certificates issued to
Affiliate in the Merger and place a stock transfer notice consistent with the
foregoing with its transfer agent with respect to the certificates, provided
that such restrictive legend shall be removed and/or such notice shall be
countermanded promptly upon expiration of the necessity therefor at the
request of Affiliate.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS RELATED TO TAX EFFECTS OF
THE MERGER.
(a) Affiliate has good and valid title to the number of shares of
the Company's Common Stock (and the number of options to purchase the
Company's Common Stock) set forth on the last page of this Agreement free and
clear of any liens, pledges, security interests, adverse claims, equities,
options, proxies, charges, encumbrances or restrictions of any nature and did
not acquire any of the Company's Common Stock in contemplation of the Merger;
(b) Affiliate has not engaged in a Sale (as defined below) of any
shares of the Company's Common Stock in contemplation of the Merger;
(c) Affiliate has no plan or intention (a "PLAN") to engage in a
sale, exchange, transfer, redemption or reduction in any way of Affiliate's
risk of
3
<PAGE>
ownership by short sale or otherwise, or other disposition, directly or
indirectly (such actions being collectively referred to herein as a "Sale")
of shares of Parent Common Stock to be received by Affiliate in the Merger;
(d) If Affiliate is a partnership, then the term "sale" as used in
paragraph (c) above shall be deemed to include any distribution to the
partners of the undersigned unless no recipient of any such distribution will
receive shares of the Company's Common Stock representing 1% or more of the
shares of the Company's Common Stock presently outstanding;
(e) Affiliate is not aware of, or participating in, any Plan on
the part of the Affiliates of the Company to engage in a Sale or Sales of the
Parent Common Stock to be received in the Merger; and
(f) Affiliate understands that Parent, the Company and their
respective affiliates, as well as legal counsel to Parent and the Company (in
connection with rendering their opinions that the Merger will be a
"reorganization" within the meaning of Section 368(a) of the Code) will be
relying on (a) the truth and accuracy of the representations contained herein
and (b) Affiliate's performance of the obligations set forth herein.
5. SPECIFIC PERFORMANCE. Affiliate agrees that irreparable damages
would occur in the event that any of the provisions of this Agreement were
not performed in accordance with their specific terms, or were otherwise
breached. It is, accordingly, agreed that Parent shall be entitled to
injunctive relief to prevent breaches of the provisions of this Agreement,
and to enforce specifically the terms and provisions thereof, in addition to
any other remedy to which Parent may be entitled at law or in equity.
6. MISCELLANEOUS.
(a) For the convenience of the parties hereto, this Agreement may
be executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
document.
(b) This Agreement shall be enforceable by, and shall inure to the
benefit of and be binding upon, the parties hereto and their respective
successors and assigns. As used herein, the term "successors and assigns"
shall mean, where the context so permits, heirs, executors, administrators,
trustees and successor trustees, and personal and other representatives.
(c) This Agreement shall be governed by and construed, interpreted
and enforced in accordance with the internal laws of the State of California
(without regard to the principles of conflict of laws thereof).
4
<PAGE>
(d) If a court of competent jurisdiction determines that any
provision of this Agreement is not enforceable or enforceable only if limited
in time and/or scope, this Agreement shall continue in full force and effect
with such provision stricken or so limited.
(e) This Agreement shall not be modified or amended, or any right
hereunder waived or any obligation excused, except by a written agreement
signed by each of the parties hereto.
5
<PAGE>
Executed as of the date shown on the first page of this Agreement.
SILICON VALLEY GROUP, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
TINSLEY LABORATORIES, INC.
By: ___________________________________
Name: _________________________________
Title: ________________________________
________________________________
AFFILIATE
By: ___________________________________
Name of Affiliate: ____________________
Name of Signatory (if different from
Affiliate):
_______________________________________
Title of Signatory
(if applicable): ______________________
Number of shares of the Company's Common Stock beneficially owned by Affiliate:
_______________________________________
Number of shares of the Company's Common Stock subject to options beneficially
owned by Affiliate:
_______________________________________
***AFFILIATE AGREEMENT***
6
<PAGE>
EXHIBIT 5.1
October 21, 1997
Silicon Valley Group, Inc.
101 Metro Drive, Suite 400
San Jose, CA 95110
RE: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 to be filed with the
Securities and Exchange commission (the "Registration Statement") in connection
with the registration under the Securities Act of 1933, as amended, of Silicon
Valley Group, Inc. ("SVG") Common Stock to be offered to the security holders of
Tinsley Laboratories, Inc. ("TLI") in connection with the proposed acquisition
of TLI by SVG (the "Merger"). As your counsel, we have examined the proceedings
proposed to be taken in connection with the issuance of the SVG Common Stock to
the security holders of TLI pursuant to the terms of the Merger.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
SVG Common Stock to be offered pursuant to the terms of the Merger, and upon
completion of the proceedings being taken in order to permit such transactions
to be carried out in accordance with the securities laws of the various states,
where required, the SVG Common Stock, when issued in the manner referred to in
the Registration Statement, will be legally and validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the incorporation by reference in this Registration Statement
of Silicon Valley Group, Inc. on Form S-4 of our reports dated October 24, 1996,
appearing in and incorporated by reference in the Annual Report on Form 10-K of
Silicon Valley Group, Inc. for the year ended September 30, 1996 and to the
reference to us under the heading "Experts" in the Proxy Statement/Prospectus,
which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
San Jose, California
October 16, 1997
<PAGE>
EXHIBIT 23.2
TINSLEY LABORATORIES, INC.
CONSENT OF ERNST & YOUNG, LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 14, 1997, except for Note 11, as to which the
date is October 14, 1997, included in the Proxy Statement of Tinsley
Laboratories, Inc. that is made part of the Registration Statement (Form S-4 No.
33-0000) and Prospectus of SVG for the registration of 2,000,000 shares of its
common stock.
ERNST & YOUNG, LLP
San Francisco, California
October 16, 1997
<PAGE>
TINSLEY LABORATORIES, INC.
SPECIAL MEETING OF SHAREHOLDERS - NOVEMBER ___, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF TINSLEY LABORATORIES, INC. (THE "COMPANY")
The undersigned hereby appoints Robert J. Aronno and ____________________,
and each of them, as attorneys-in-fact and proxies of the undersigned, with
full power of substitution, to vote all of the shares of the Company's common
stock which the undersigned may be entitled to vote at the Special Meeting of
Shareholders of the Company to be held at TLI's offices located at 3900
Lakeside Drive, Richmond, California 94806, on November __, 1997 at 10:00
a.m. local time, and at any and all adjournments or postponements thereof,
with all of the powers the undersigned would possess if personally present,
upon and in respect of the following proposal and in accordance with the
following instructions. The proposal referred to herein is described in
detail in the accompanying proxy statement/prospectus.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
THE PROPOSAL SPECIFIED ON THE REVERSE SIDE. IF A SPECIFIC DIRECTION IS
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
--------------
SEE REVERSE
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE) SIDE
--------------
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<PAGE>
Please mark
votes as in / X /
this example.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTPAID RETURN ENVELOPE. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
FOLLOWING PROPOSAL.
FOR AGAINST ABSTAIN
1. To (i) approve and adopt the Agreement and Plan / / / / / /
of Reorganization, dated as of September 9, 1997,
among the Company, Silicon Valley Group, Inc., a
Delaware corporation ("SVG"), and SV Acquisition,
Inc., a California corporation and wholly-owned
subsidiary of SVG, and (ii) approve the Merger of
SV Acquisition, Inc. with and into the Company
pursuant to which the Company will become a
wholly-owned subsidiary of SVG and all outstanding
shares of the Company's Common Stock will be
converted into shares of SVG's Common Stock.
MARK HERE FOR ADDRESS
CHANGE AND NOTE AT LEFT / /
Please sign exactly as your name
__ __ __ appears hereon. If the stock is
| registered in the names of two or
| more persons, each should sign.
| Executors, administrators, trustees,
guardians and attorneys-in-fact should
add their titles. If the signer is a
corporation, please give the full
corporate name and have a duly
authorized officer sign, stating such
officer's title. If the signer is a
partnership, please sign in the
partnership's name by an authorized
person.
Signature:________________ Date:______ Signature:________________ Date:________
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