<PAGE>
As filed with the Securities and Exchange Commission on September 11, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________________
SILICON GRAPHICS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 94-2789662
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2011 N. SHORELINE BLVD.
MOUNTAIN VIEW, CALIFORNIA 94043-1389
(650) 960-1980
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
_____________________________
SANDRA M. ESCHER
DIRECTOR, CORPORATE LEGAL SERVICES
SILICON GRAPHICS, INC.
2011 N. SHORELINE BLVD.
MOUNTAIN VIEW, CALIFORNIA 94043-1389
(650) 960-1980
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
_____________________________
COPY TO:
WILLIAM H. HINMAN, JR.
SHEARMAN & STERLING
555 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA 94104
(415) 616-1100
_____________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]__________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
``
<TABLE>
<CAPTION>
====================================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SHARES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE(1) FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.001 per share (including 2,969,000 Shares $28.9375 $85,915,437.50 $26,035
associated preferred share purchase rights)
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based on
the average high and low prices of the Common Stock as reported on the New York
Stock Exchange on September 9, 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.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 11, 1997
PROSPECTUS
- ----------
2,969,000 SHARES
Silicon Graphics, Inc.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
This Prospectus relates to an aggregate of 2,969,000 shares (including the
associated preferred share purchase rights, the "Shares") of common stock, par
value $0.001 per share (the "Common Stock"), of Silicon Graphics, Inc. (the
"Company") which may be offered and sold from time to time by certain
stockholders of the Company (the "Selling Stockholders"). See "Selling
Stockholders". The Shares were acquired by the Selling Stockholders in
connection with the Company's acquisition of ParaGraph International, Inc.
("ParaGraph") on September , 1997. See "The ParaGraph Acquisition."
The Shares may be offered for sale by the Selling Stockholders from time to
time on the New York Stock Exchange (the "NYSE"), in the over-the-counter
market, in privately negotiated transactions or otherwise at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Shares may be sold by the Selling
Stockholders directly to purchasers or through agents, underwriters or dealers.
See "Selling Stockholders" and "Plan of Distribution". If required, the names of
any such agents or underwriters involved in the sale of the Shares in respect of
which this Prospectus is being delivered and the applicable agent's commission,
dealer's purchase price or underwriter's discount, if any, will be set forth in
an accompanying supplement to this prospectus (a "Prospectus Supplement").
The Selling Stockholders will receive all of the net proceeds from the sale
of the Shares and will pay all underwriting discounts and selling commissions,
if any, applicable to the sale of the Shares. The Company is responsible for
payment of all other expenses incident to the offer and sale of the Shares.
The Selling Stockholders and any broker/dealers, agents or underwriters
that participate in the distribution of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and any commissions, discounts or concessions received by
them and any profit on the resale of the Shares purchased by them may be deemed
to be underwriting commissions or discounts under the Securities Act.
The Common Stock is listed on the NYSE under the symbol "SGI". On
September 9, 1997, the last sale price of the Common Stock, as reported on the
composite tape for issues listed on the NYSE, was $29-3/16 per share.
_________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
_________________________________
The date of this Prospectus is , 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at Seven World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates.
Such reports, proxy statements and other information can also be inspected at
the offices of the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006. The Commission maintains a World Wide Web
site that contains reports, proxy and information statements and other
information regarding registrants, such as the Company, that file electronically
with the Commission. The address of the site is http://www.sec.gov. The Common
Stock is listed on the New York Stock Exchange and the Pacific Stock Exchange.
Reports, proxy and information statements and other information concerning the
Company can be inspected and copied at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005 and at the offices of
the Pacific Stock Exchange, 115 Sansome Street, 3rd Floor, San Francisco,
California 94104.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Shelf Registration Statement") under the Securities Act with respect to the
offering of the Common Stock made hereby. This Prospectus does not contain all
of the information set forth in the Shelf Registration Statement, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is hereby made to the Shelf Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Shelf Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Shelf Registration Statement
may be inspected without charge at the offices of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and copies of all or any part thereof may
be obtained from the Public Reference Section of the Commission upon the payment
of the fees prescribed by the Commission. In addition, copies of the Shelf
Registration Statement may be obtained from the Commission's World Wide Web site
at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
and are incorporated herein by reference (Commission File No. 1-10441):
1. The Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996.
2. The Company's Amendment on Form 10-K/A to its Annual Report on Form
10-K for the fiscal year ended June 30, 1996.
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
4. The Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996.
5. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997.
6. The Company's Current Report on Form 8-K dated July 24, 1997.
7. The description of the Company's common stock contained in its
registration statement filed on Form 8-A filed March 16, 1990, and the
description of the Company's Preferred Share Purchase Rights contained
in its Form 8-A filed on November 12, 1992, as amended by an amendment
on Form 8-A/A filed on July 20, 1995.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of the filing of this Shelf
Registration Statement and prior to the end of Offering of the Shares shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the dates of filing of such documents. 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 of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
2
<PAGE>
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (WITHOUT EXHIBITS, UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE WITHOUT
CHARGE UPON REQUEST. REQUESTS FOR DOCUMENTS SHOULD BE DIRECTED TO SILICON
GRAPHICS, INC., 2011 N. SHORELINE BLVD., MOUNTAIN VIEW, CALIFORNIA 94039-7311,
ATTENTION: INVESTOR RELATIONS (TELEPHONE: (650) 933-2607).
__________________________
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain matters discussed in the documents incorporated herein by reference
may constitute forward-looking statements and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in the Company's Annual and
Quarterly Reports filed with the Commission.
3
<PAGE>
THE COMPANY
The Company is a leader in high-performance computing. The Company's broad
range of workstations and graphics servers deliver advanced 3D graphics and
computing capabilities for engineering and creative professionals. Silicon
Graphics(R) and Cray(R) Research-branded servers are the market leaders in
technical computing applications. The Company's highly scalable servers also
have a growing presence in the enterprise market, with a particular emphasis on
Internet, large corporate data and telecommunications applications.
The Company's MIPS Group designs and markets the world's highest volume
computer RISC microprocessors. The Company also markets applications software
targeted at engineering and creative professionals in the digital content
creation and manufacturing sectors.
The Company was originally incorporated as a California corporation in
November 1981 and reincorporated in Delaware in January 1990. The principal
executive offices of the Company are located at 2011 N. Shoreline Blvd.,
Mountain View, California 94043-1389 and its telephone number at that address is
(650) 960-1980.
THE PARAGRAPH ACQUISITION
On September , 1997, the Company acquired all of the outstanding shares
of ParaGraph pursuant to an agreement and plan of merger and reorganization
dated as of May 14, 1997 (as amended, the "Merger Agreement") among the Company,
ParaGraph Acquisition Corporation, ParaGraph and certain stockholders of
ParaGraph. ParaGraph, which was headquartered in Campbell, California, makes
three-dimensional Internet software for personal computers. Pursuant to the
Merger Agreement, the Company issued the Shares to the Selling Stockholders
pursuant to exemptions from registration under the Securities Act.
The terms of the Merger Agreement require the Company to file a shelf
registration statement covering the Shares. The Shelf Registration Statement of
which this Prospectus is a part constitutes such required shelf registration
statement.
USE OF PROCEEDS
The Selling Stockholders will receive all of the net proceeds from the
offering of the Shares hereby. Accordingly, the Company will not receive any
proceeds from the sale of the Shares.
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock by the Selling Stockholders as of
September 30, 1997, as reported to the Company by the Selling Stockholders, the
number of Shares being offered by the Selling Stockholders and the amount and
percentage of the Common Stock to be owned beneficially by the Selling
Stockholders following this offering, assuming all Shares offered hereby are
sold.
<TABLE>
<CAPTION>
Shares of Common Stock Shares of Common Stock
Beneficially Owned Beneficially Owned
Prior to the Offering After the Offering
----------------------- -----------------------
Number of
Shares of ------ ---------------
Common
Name of Selling Stockholder Number Percentage/(1)/ Stock Offered Number Percentage/(1)/
- --------------------------- ---------- --------------- ------------- ------ ---------------
<S> <C> <C> <C> <C> <C>
Stepan Pachikov 717,481 * 717,481 0 *
Katz Family Limited Partnership 490,672 * 490,672 0 *
ParaGraph International Employee
Benefit Trust 367,275 * 367,275 0 *
Margaret K. Cann Charitable
Revocable Unitrust 125,233 * 125,233 0 *
Martin J. Katz Charitable
Revocable Unitrust 125,233 * 125,233 0 *
Gregory W. Slayton 104,361 * 104,361 0 *
William H. Pearlman 97,923 * 97,923 0 *
Shelia Guberman 73,052 * 73,052 0 *
Ilia Lossev 73,052 * 73,052 0 *
Andrei Skaldin 73,052 * 73,052 0 *
Eduard Talnykin 71,748 * 71,748 0 *
Stephen Ardron 52,180 * 52,180 0 *
Regis McKenna 49,997 * 31,308 18,689 *
Aron B. Katz Charitable
Revocable Unitrust 41,744 * 41,744 0 *
Phyllis A. Katz Charitable
Revocable Unitrust 41,744 * 41,744 0 *
1995 Aron B. Katz Irrevocable
Trust 41,744 * 41,744 0 *
1995 Phyllis A. Katz Irrevocable
Trust 41,744 * 41,744 0 *
Michael Reimer 40,856 * 40,856 0 *
Abel Aganbegyan 31,308 * 31,308 0 *
Dean Bailey 25,655 * 25,655 0 *
Disney Online 23,275 * 23,275 0 *
Brian Bundy 23,263 * 23,263 0 *
Leonid Kitainik 20,872 * 20,872 0 *
Leonid Kuznetsov 20,872 * 20,872 0 *
Alexandre Pashintsev 20,872 * 20,872 0 *
Gene Feroglia 19,567 * 19,567 0 *
R&D Associates 12,001 * 12,001 0 *
Vladek Polyakov 11,686 * 11,686 0 *
Esther Dyson 10,436 * 10,436 0 *
Gary Kasparov 10,436 * 10,436 0 *
Valery Makarov 10,436 * 10,436 0 *
Leonid Malkov 10,436 * 10,436 0 *
Howard Mairehofer 9,131 * 9,131 0 *
Michele Rueckert 8,792 * 8,792 0 *
Ilya Poluektov 7,609 * 7,609 0 *
Sergey Arutiunov 6,305 * 6,305 0 *
Igor Bazdyrev 4,891 * 4,891 0 *
Serguei Osokine 4,891 * 4,891 0 *
Evgueni Tchetchetkine 4,891 * 4,891 0 *
Vern del Rosario 4,196 * 4,196 0 *
Daniel Arthur Stevens 4,000 * 4,000 0 *
Yuri Ardulov 3,668 * 3,668 0 *
Vladimir Iakovlev 3,739 * 3,739 0 *
Christopher Caen 2,826 * 2,826 0 *
Oleg Efimov 2,690 * 2,690 0 *
Jim Till 2,663 * 2,663 0 *
Sergey Gitman 2,646 * 2,446 200 *
Mikhail Ovsiannikov 2,446 * 2,446 0 *
Mikhail Ryleev 2,337 * 2,337 0 *
Boris Gorbatov 2,119 * 2,119 0 *
Alexandre Barilov 2,011 * 2,011 0 *
Alexandre Kravtchenko 2,006 * 1,956 50 *
Paula K. Baker 1,758 * 1,758 0 *
Stuart M. Leudan 1,758 * 1,758 0 *
Richard Stauter 1,758 * 1,758 0 *
Natalia Bagotskaia 1,695 * 1,695 0 *
John Poluektov 1,521 * 1,521 0 *
Dmitri Koubenski 1,250 * 1,250 0 *
Sergei Dobrokhotov 978 * 978 0 *
Tanya Kvitka 978 * 978 0 *
Gene Ruda 913 * 913 0 *
Mary Ann Golay 879 * 879 0 *
Patricia Jean Hogan 879 * 879 0 *
Anne P. Livingston 879 * 879 0 *
Olga Carpenter 782 * 782 0 *
Svetlana Kondratieva 587 * 587 0 *
Sviatoslav Shabrov 489 * 489 0 *
Courtney Hendrix 439 * 439 0 *
Jennifer Johnson 439 * 439 0 *
Michael Benenson 407 * 407 0 *
Eleni Kochergin 380 * 380 0 *
Leonid Khodulev 336 * 336 0 *
Vasily Ivashin 260 * 260 0 *
Kriss Kapka 260 * 260 0 *
Ekaterina Ovsiannikova 244 * 244 0 *
Irene Birman 221 * 221 0 *
Helen Jahn 53 * 53 0 *
</TABLE>
___________________
* Less than 1%
/(1)/ Based on the number of shares of Common Stock outstanding on September
30, 1997.
4
<PAGE>
PLAN OF DISTRIBUTION
The Shares offered hereby may be sold from time to time to purchasers
directly by the Selling Stockholders. Alternatively, the Selling Stockholders
may from time to time offer the Shares in ordinary brokerage transactions or to
or through underwriters, broker/dealers or agents, who may receive compensation
in the form of underwriting discounts, concessions or commissions from the
Selling Stockholders or the purchasers of the Shares for whom they may act as
agents. The Selling Stockholders and any underwriters, broker/dealers or agents
that participate in the distribution of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act and any profit on the
sale of the Shares by them and any discounts, commissions, concessions or other
compensation received by any such underwriter, broker/dealer or agent may be
deemed to be underwriting discounts and commissions under the Securities Act.
The sale of the Shares by the Selling Stockholders may be effected from
time to time on the New York Stock Exchange, in the over-the-counter market, in
privately negotiated transactions or otherwise at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices. At the time a particular offering of the Shares is made, a
Prospectus Supplement, if required, will be distributed which will set forth the
number of Shares being offered and the terms of the offering, including the name
or names of any underwriters, broker/dealers or agents, any discounts,
commissions and other terms constituting compensation from the Selling
Stockholders and any discounts, commissions or concessions allowed or reallowed
or paid to broker/dealers.
Any securities covered by this Prospectus which qualify for sale pursuant
to Rule 145 under the Securities Act may be sold under Rule 145 rather than
pursuant to this Prospectus.
All expenses of the registration of the Shares will be paid by the Company,
including, without limitation, Commission filing fees and expenses of compliance
with state securities or "blue sky" laws; provided, however, that the Selling
Stockholders will pay all underwriting discounts and selling commissions, if
any.
There can be no assurance that the Selling Stockholders will sell any or
all of the Shares offered hereby.
LEGAL MATTERS
The validity of the Shares being offered hereby will be passed upon for the
Company by Shearman & Sterling, San Francisco, California.
EXPERTS
The consolidated financial statements and financial statement schedule of
Silicon Graphics, Inc. and its subsidiaries incorporated by reference and
included in the Company's Annual Report on Form 10-K and incorporated by
reference in the Company's Amendment on Form 10-K/A to its Annual Report on Form
10-K for the fiscal year ended June 30, 1996 have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon incorporated by
reference and included therein, and incorporated by reference herein. Such
consolidated financial statements and financial statement schedule are
incorporated by reference herein in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
5
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any information
or to make any representations, other than those contained in this Prospectus,
in connection with the offer made by this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create an implication that there
has been no change in the affairs of the Company since the date hereof. This
Prospectus does not constitute an offer or solicitation by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not authorized to do so or to
anyone to whom it is unlawful to make such offer or solicitation in such
jurisdiction.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information....................... 2
Incorporation of Certain
Documents by Reference.................. 2
The Company................................. 4
The ParaGraph Acquisition................... 4
Use of Proceeds............................. 4
Selling Stockholders........................ 4
Plan of Distribution........................ 5
Legal Matters............................... 5
Experts..................................... 5
</TABLE>
2,969,000 SHARES
SILICON GRAPHICS, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
_________
[ LOGO ]
________
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM NUMBER
---------------
ITEM 14. OTHER EXPENSES OF REGISTRATION AND DISTRIBUTION.
The following table sets forth the estimated expenses of the Registrant in
connection with the offering described in this Registration Statement. All
amounts are estimates except the Securities and Exchange Commission registration
fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.. $26,035
Accountants' fees and expenses....................... 3,500
Legal fees and expenses.............................. 20,000
Printing and engraving expenses...................... 9,500
Blue Sky fees and expenses........................... 3,000
Miscellaneous........................................ 1,965
Total.............................................. 64,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes
Delaware corporations to indemnify directors and officers in certain
circumstances against liabilities, including expenses, incurred while acting in
such capacities; provided, generally, that any such indemnified officer or
director acted in good faith and in a manner he or she reasonably believed to be
in the best interests of the corporation and, in the case of a criminal
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The By-laws of the Company provide for indemnification of directors and officers
to the maximum extent permitted by the DGCL.
In addition, the Company has provided in its Certificate of Incorporation
that it shall eliminate the personal liability of its directors to the fullest
extent permitted by the DGCL, and the Company has entered into Indemnification
Agreements with its executive officers and directors providing for additional
indemnification. The Company has policies of directors' and officers' liability
insurance which insure directors and officers against liabilities which a
director or officer may incur in his or her capacity as such.
<PAGE>
ITEM 16. EXHIBITS
Exhibit
Number Description
- ------ -----------
2.1 Agreement and Plan of Merger and Reorganization among Silicon
Graphics, Inc., ParaGraph Acquisition Corporation, ParaGraph
International, Inc. and certain Principal Shareholders of ParaGraph
International, Inc., dated as of May 14, 1997.
2.2 Agreement to Close and Amendment to Agreement and Plan of Merger and
Reorganization dated as of August 1, 1997 among Silicon Graphics,
Inc., ParaGraph Acquisition Corporation, ParaGraph International, Inc.
and Certain Principal Shareholders of ParaGraph International, Inc.
5.1 Opinion of Shearman & Sterling.
23.1 Consent of Ernst & Young, LLP independent auditors.
23.2 Consent of Shearman & Sterling (contained in Exhibit 5.1 hereto).
24.1 Power of Attorney (contained on Page II-4).
ITEM 17. UNDERTAKINGS.
(a) 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 of 1933;
(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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
II-2
<PAGE>
(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.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished
to the Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference into the
registration statement.
(2) That, for the purpose 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.
(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.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 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.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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 Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that such 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 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 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, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF MOUNTAIN VIEW, STATE OF CALIFORNIA, ON THE 11TH DAY
OF SEPTEMBER, 1997.
SILICON GRAPHICS, INC.
BY: /s/ William M. Kelly
------------------------------
Name: William M. Kelly
Title: Senior Vice President,
Corporate Operations
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of William M. Kelly and Sandra M. Escher,
his or her true and lawful attorney-in-fact and agent, with full power of each
to act alone, with full powers of substitution and resubstitution, for him or
her and in his or her name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, with full power of
each to act alone, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in connection therewith, as fully
for all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or his or
her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------- -------------------------------- ------------------
<S> <C> <C>
/s/ Edward R. McCracken Chairman, Chief Executive September 11, 1997
- -------------------------------- Officer and Director
Edward R. McCracken (Principal Executive Officer)
/s/ Robert R. Bishop Chairman, Silicon Graphics September 11, 1997
- -------------------------------- World Corporation, and
Robert R. Bishop Director
/s/ William M. Kelly Senior Vice President, September 11, 1997
- -------------------------------- Corporate Operations (Principal
William M. Kelly Financial Officer)
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Dennis P. McBride Vice President, Controller September 11, 1997
- -------------------------------- (Principal Accounting Officer)
Dennis P. McBride
/s/ Allen F. Jacobson Director September 11, 1997
- --------------------------------
Allen F. Jacobson
/s/ C. Richard Kramlich Director September 11, 1997
- --------------------------------
C. Richard Kramlich
/s/ Robert A. Lutz Director September 11, 1997
- --------------------------------
Robert A. Lutz
/s/ James A. McDivitt Director September 11, 1997
- --------------------------------
James A. McDivitt
/s/ Lucille Shapiro Director September 11, 1997
- --------------------------------
Lucille Shapiro
/s/ Robert B. Shapiro Director September 11, 1997
- --------------------------------
Robert B. Shapiro
/s/ James G. Treybig Director September 11, 1997
- --------------------------------
James G. Treybig
</TABLE>
II-5
<PAGE>
SILICON GRAPHICS, INC.
REGISTRATION STATEMENT ON FORM S-3
----------------------------------
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C>
2.1 Agreement and Plan of Merger and Reorganization among Silicon
Graphics, Inc., ParaGraph Acquisition Corporation, ParaGraph
International, Inc. and certain principal shareholders of ParaGraph
International, Inc., dated as of May 14, 1997......................
2.2 Agreement to Close and Amendment to Agreement and Plan of Merger
and Reorganization.................................................
5.1 Opinion of Shearman & Sterling.....................................
23.1 Consent of Ernst & Young, LLP independent auditors.................
23.2 Consent of Counsel (contained in Exhibit 5.1 hereto)...............
24.1 Power of Attorney (contained on Page II-4).........................
</TABLE>
<PAGE>
EXHIBIT 2.1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among
SILICON GRAPHICS, INC.,
PARAGRAPH ACQUISITION CORPORATION,
PARAGRAPH INTERNATIONAL, INC.
and
THE PRINCIPAL SHAREHOLDERS
LISTED ON SCHEDULE I HERETO
----------
Dated as of May 14, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS
<S> <C>
SECTION 1.01. Certain Defined Terms....................................... 1
ARTICLE II
THE MERGER
SECTION 2.01. The Merger.................................................. 14
SECTION 2.02. Effective Time.............................................. 15
SECTION 2.03. Effect of the Merger........................................ 15
SECTION 2.04. Articles of Incorporation; Bylaws........................... 15
SECTION 2.05. Directors and Officers...................................... 15
SECTION 2.06. Effect on Capital Stock..................................... 16
SECTION 2.07. Dissenting Shares........................................... 17
SECTION 2.08. Surrender of Securities..................................... 18
SECTION 2.09. No Further Ownership Rights in Company Securities........... 20
SECTION 2.10. Lost, Stolen or Destroyed Certificates...................... 20
SECTION 2.11. Taking of Necessary Action; Further Action.................. 20
SECTION 2.12. Tax-Free Reorganization..................................... 20
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRINCIPAL SHAREHOLDERS
SECTION 3.01. Organization, Authority and Qualification of the Company.... 21
SECTION 3.02. Capital Stock of the Company; Ownership of the Capital
Stock....................................................... 21
SECTION 3.03. Subsidiaries................................................ 22
SECTION 3.04. Books and Records........................................... 24
SECTION 3.05. No Conflict................................................. 24
SECTION 3.06. Governmental Consents and Approvals......................... 24
SECTION 3.07. Financial Information, Books and Records.................... 24
SECTION 3.08. No Undisclosed Liabilities.................................. 25
SECTION 3.09. Receivables................................................. 25
</TABLE>
<PAGE>
ii
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 3.10. [INTENTIONALLY OMITTED]................................... 25
SECTION 3.11. Conduct in the Ordinary Course; Absence of Certain
Changes, Events and Conditions............................ 25
SECTION 3.12. Litigation................................................ 28
SECTION 3.13. Certain Interests......................................... 29
SECTION 3.14. Compliance with Laws...................................... 30
SECTION 3.15. Environmental Matters..................................... 30
SECTION 3.16. Material Contracts........................................ 31
SECTION 3.17. Intellectual Property..................................... 33
SECTION 3.18. Real Property............................................. 37
SECTION 3.19. Tangible Personal Property................................ 40
SECTION 3.20. Assets.................................................... 41
SECTION 3.21. Customers................................................. 42
SECTION 3.22. Employee Benefit Matters.................................. 42
SECTION 3.23. Labor Matters............................................. 44
SECTION 3.24. Key Employees............................................. 45
SECTION 3.25. Taxes..................................................... 46
SECTION 3.26. Insurance................................................. 48
SECTION 3.27. Full Disclosure........................................... 48
SECTION 3.28. Shareholder Approval Requirements......................... 48
SECTION 3.29. ParaScript Purchase Price................................. 49
SECTION 3.30. Brokers................................................... 49
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
SECTION 4.01. Organization and Authority of Merger Sub.................. 49
SECTION 4.02. No Conflict............................................... 49
SECTION 4.03. Governmental Consents and Approvals....................... 50
SECTION 4.04. Litigation ............................................... 50
SECTION 4.05. SEC Documents: Undisclosed Liabilities................... 50
SECTION 4.06. Absence of Certain Changes or Events...................... 51
SECTION 4.07. Stockholder Approval Requirements......................... 51
SECTION 4.08. Brokers................................................... 51
SECTION 4.09. Capital Stock of Parent and Merger Sub.................... 51
</TABLE>
<PAGE>
iii
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
ARTICLE V
ADDITIONAL AGREEMENTS
<S> <C>
SECTION 5.01. Conduct of Business Prior to the Effective Time............ 52
SECTION 5.02. Access to Information...................................... 56
SECTION 5.03. Confidentiality............................................ 56
SECTION 5.04. Regulatory and Other Authorizations; Notices and Consents.. 57
SECTION 5.05. Notice of Developments..................................... 57
SECTION 5.06. No Solicitation or Negotiation............................. 58
SECTION 5.07. Securities Filings......................................... 58
SECTION 5.08. [INTENTIONALLY OMITTED].................................... 59
SECTION 5.09. New York Stock Exchange Listing............................ 59
SECTION 5.10. Shelf Registration......................................... 59
SECTION 5.11. Employee Benefits.......................................... 59
SECTION 5.12. Agreement of the Principal Shareholders and the Voting
Shareholders to Vote Shares................................ 60
SECTION 5.13. Broker for Acquisition of Parent Treasury Shares........... 60
SECTION 5.14. Restricted Stock Purchase Agreements....................... 60
SECTION 5.15. Agreement Amendment Proposal............................... 60
SECTION 5.16. Further Action............................................. 61
ARTICLE VI
CONDITIONS TO CLOSING
SECTION 6.01. Conditions to Obligations of the Company
SECTION 6.02. Conditions to Obligations of Parent and Merger Sub......... 62
</TABLE>
<PAGE>
iv
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
ARTICLE VII
INDEMNIFICATION
<S> <C> <C>
SECTION 7.01. Survival of Representations and Warranties................. 64
SECTION 7.02. Indemnification............................................ 65
ARTICLE VIII
TERMINATION AND WAIVER
SECTION 8.01. Termination................................................ 66
SECTION 8.02. Effect of Termination...................................... 67
SECTION 8.03. Waiver..................................................... 67
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Expenses................................................... 68
SECTION 9.02. Notices.................................................... 68
SECTION 9.03. Public Announcements....................................... 68
SECTION 9.04. Headings................................................... 68
SECTION 9.05. Severability............................................... 69
SECTION 9.06. Entire Agreement........................................... 69
SECTION 9.07. Assignment................................................. 69
SECTION 9.08. No Third Party Beneficiaries............................... 69
SECTION 9.09. Amendment.................................................. 69
SECTION 9.10. Governing Law.............................................. 69
SECTION 9.11. Counterparts............................................... 70
SECTION 9.12. Specific Performance....................................... 70
SECTION 9.13. Liquidated Damages......................................... 70
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of May 14,
1997 (as amended, restated, supplemented or otherwise modified from time to
time, this "AGREEMENT"), among SILICON GRAPHICS, INC., a corporation organized
and existing under the laws of the State of Delaware ("PARENT"), PARAGRAPH
ACQUISITION CORPORATION, a corporation organized and existing under the laws of
the State of Delaware and a direct wholly owned subsidiary of Parent ("MERGER
SUB"), PARAGRAPH INTERNATIONAL, INC., a corporation organized and existing under
the laws of the State of California (the "COMPANY"), and the holders of capital
stock of the Company listed on Schedule I hereto (collectively, the "PRINCIPAL
----------
SHAREHOLDERS");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the boards of directors of Parent, Merger Sub and the Company
have each determined that it is in the best interests of their respective
shareholders for Parent to acquire the Company upon the terms and subject to the
conditions set forth herein; and
WHEREAS, in furtherance of such acquisition, the boards of directors
of Parent, Merger Sub and the Company have each approved the merger (the
"MERGER") of Merger Sub with and into the Company in accordance with the General
Corporation Law of the State of Delaware and the General Corporation Law of the
State of California and upon the terms and subject to the conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing and the respective
agreements, covenants, representations and warranties hereinafter set forth and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. Unless the context otherwise
requires, the following terms, when used in this Agreement, shall have the
respective meanings specified below:
"ACQUISITION DOCUMENTS" shall mean this Agreement, the exhibits to
this Agreement, the Company Disclosure Schedule, the Parent Disclosure Schedule
and any certificate, 1995 Financial Statement, Draft 1996 Financial Statement,
1996 Financial Statement, Interim Financial Statement, report or other document
delivered pursuant to this Agreement or in connection with the transactions
contemplated hereby.
<PAGE>
2
"ACTION" shall mean any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any Governmental Authority.
"AFFILIATE" shall mean, with respect to any specified person, any
other person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
person.
"AGREEMENT" shall have the meaning specified in the preamble to this
Agreement.
"AGREEMENT OF MERGER" shall mean the agreement of merger, in form and
substance reasonably satisfactory to Parent and the Company, to be filed with
the Secretary of State of the State of California in order to effect the Merger.
"AGREEMENTS NOT TO COMPETE" shall mean the agreements not to compete,
substantially in the form attached hereto as Exhibit 1.01(a), to be executed and
---------------
delivered prior to the Effective Time by Parent, the Company or a Subsidiary and
the employees specified in Schedule II hereto.
-----------
"AGREEMENTS NOT TO SOLICIT" shall mean the agreements not to solicit,
substantially in the form attached hereto as Exhibit 1.01(b), to be executed and
---------------
delivered prior to the Effective Time by Parent, the Company or a Subsidiary and
the employees specified in Schedule III hereto.
------------
"ANCILLARY AGREEMENTS" shall mean the Agreements Not to Compete and
the Agreements Not to Solicit.
"ASSETS" shall have the meaning specified in Section 3.20.
"AUDITED BALANCE SHEET" shall mean (i) until the 1996 Financial
Statements shall have been delivered to Parent pursuant to Section 3.07, the
draft audited consolidated balance sheet (including the related notes and
schedules thereto) of the Company, dated as of December 31, 1996 and included in
the Draft 1996 Financial Statements, and (ii) after the 1996 Financial
Statements shall have been delivered to Parent pursuant to Section 3.07, the
audited consolidated balance sheet (including the related notes and schedules
thereto) of the Company, dated as of December 31, 1996 and included in the 1996
Financial Statements.
"BUSINESS" shall mean the business of developing, marketing and
supporting computer software and all other business of the Company and the
Subsidiaries as such business is currently conducted.
"BUSINESS DAY" shall mean any day that is not a Saturday, a Sunday or
other
<PAGE>
3
day on which banks are required or authorized by Law to be closed in San
Francisco, California.
"CERTIFICATE OF MERGER" shall mean the certificate of merger, in form
and substance reasonably satisfactory to Parent and the Company, to be filed
with the Secretary of State of the State of Delaware in order to effect the
Merger.
"CODE" shall mean the Internal Revenue Code of 1986, as amended
through the date hereof.
"COMPANY" shall have the meaning specified in the preamble to this
Agreement.
"COMPANY CAPITAL STOCK" shall mean the Company Common Stock and the
Company Preferred Stock.
"COMPANY COMMON STOCK" shall mean the common stock, no par value, of
the Company.
"COMPANY DISCLOSURE SCHEDULE" shall mean the Disclosure Schedule of
the Company attached hereto, dated as of the date hereof, and forming a part of
this Agreement.
"COMPANY EQUITY INCENTIVE PLAN" shall mean the ParaGraph
International, Inc. 1996 Equity Incentive Plan, adopted April 5, 1996.
"COMPANY PREFERRED STOCK" shall mean the series A preferred stock, no
par value, of the Company.
"COMPANY SECURITIES" shall mean the Company Capital Stock, the Company
Stock Options and the Company Warrants.
"COMPANY STOCK OPTIONS" shall mean all options to purchase Company
Capital Stock issued and outstanding at the Effective Time.
"COMPANY WARRANTS" shall mean all warrants to purchase Company Capital
Stock issued and outstanding at the Effective Time.
"CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") shall mean, with respect to the relationship between or among two
or more persons, the possession, directly or indirectly, or as trustee, personal
representative or executor, of the power to direct or cause the direction of the
affairs or management of a person, whether through the ownership of voting
securities, as trustee, personal representative or executor, by
<PAGE>
4
contract or otherwise, including, without limitation, the ownership, directly or
indirectly, of securities having the power to elect a majority of the board of
directors or similar body governing the affairs of such person.
"DISNEY WARRANT" shall mean the warrant, dated as of December 16,
1996, issued by the Company in the name of Disney Online, Inc., a corporation
organized under the laws of California.
"DISSENTING SHARES" shall mean any shares of capital stock of the
Company held by a holder who has exercised dissenters' rights for such shares in
accordance with the General Corporation Law of the State of California and who,
as of the Effective Time, has not effectively withdrawn or lost such dissenters'
rights.
"DRAFT 1996 FINANCIAL STATEMENTS" shall mean the draft audited
consolidated balance sheet of the Company as at, and the related draft audited
consolidated statements of income, shareholders' equity and cash flows of the
Company for the fiscal year ended as of, December 31, 1996, delivered by the
Company to Parent prior to the date hereof, together with all related notes and
schedules thereto, accompanied by the draft report thereon of Coopers & Lybrand
LLP, independent certified public accountants of the Company.
"EFFECTIVE TIME" shall mean the later of the time of the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware and
the time of the filing of the Agreement of Merger with the Secretary of State of
the State of California, or such later mutually agreed time as may be set forth
in the Certificate of Merger and the Agreement of Merger, at which time the
Merger shall be consummated.
"ENCUMBRANCE" shall mean any security interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, preferential arrangement or restriction of any kind,
including, without limitation, any restriction on the use, voting, transfer,
receipt of income or other exercise of any attributes of ownership.
"ENVIRONMENTAL CLAIMS" shall mean any action, suit, demand, demand
letter, claim, lien, notice of non-compliance or violation, notice of liability
or potential liability, investigation, proceeding, consent order or consent
agreement relating in any way to any Environmental Law, Environmental Permit or
Hazardous Materials.
"ENVIRONMENTAL LAW" shall mean any Law, now or hereafter in effect and
as amended, and any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent decree or judgment, relating to
pollution or protection of the environment, health, safety or natural resources,
including, without limitation, those relating
<PAGE>
5
to the use, handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Materials.
"ENVIRONMENTAL PERMIT" shall mean any permit, approval, identification
number, license or other authorization required under any applicable
Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCHANGE AGENT" shall mean a bank or trust company, if any,
designated by Parent for purposes of acting as exchange agent hereunder.
"EXCHANGE AGENT AGREEMENT" shall mean the exchange agent agreement, if
any, entered into between Parent and the Exchange Agent.
"EXCHANGE RATIO" shall mean:
(i) in the event that the Parent Treasury Share Value is
greater than or equal to the Purchase Price, the number of shares of Parent
Common Stock equal to the quotient of the Per Share Purchase Price divided
by the Parent Common Stock Repurchase Cost; and
(ii) in the event that the Parent Treasury Share Value is less
than the Purchase Price, the number of shares of Parent Common Stock equal
to:
(A) the quotient of (1) the aggregate number of Parent
Treasury Shares held by Parent at the Effective Time, divided by (2)
the Fully Diluted Shares, plus
(B) the quotient of (1) the quotient of (x) the Parent
Market Value Difference, divided by (y) the Fully Diluted Shares,
divided by (2) the Parent Common Stock Market Value.
"EXPENSES" shall mean, with respect to any party hereto, all
reasonable costs and expenses, including, without limitation, all fees and
disbursements of counsel, financial advisors, financing sources, accountants,
experts and consultants to such party and its affiliates, incurred by such party
or on its behalf in connection with or related to the authorization,
preparation, negotiation and execution of, and performance of its obligations
pursuant to, this Agreement, and the transactions contemplated hereby.
<PAGE>
6
"FOREIGN BENEFIT PLAN" shall mean any Plan that is not subject to
United States Law.
"FULLY DILUTED SHARES" shall mean the sum of (i) the aggregate number
of shares of Company Common Stock issued and outstanding at the Effective Time;
(ii) the aggregate number of shares of Company Common Stock issuable upon
conversion of all of the shares of Company Preferred Stock issued and
outstanding at the Effective Time; (iii) the aggregate number of shares of
Company Common Stock issuable upon exercise of the entire vested portion of all
of the Company Stock Options that shall have become vested as of the Effective
Time; and (iv) the aggregate number of shares of Company Common Stock issuable
upon conversion of all of the shares of Company Preferred Stock issuable upon
exercise of all of the Company Warrants.
"GOVERNMENTAL AUTHORITY" shall mean any national, federal, state,
municipal or local or other government, governmental, regulatory or
administrative authority, agency or commission or any court, tribunal, or
judicial or arbitral body.
"GOVERNMENTAL ORDER" shall mean any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Authority.
"HAZARDOUS MATERIALS" shall mean (i) petroleum and petroleum products,
by products or breakdown products, radioactive materials, asbestos containing
materials and polychlorinated biphenyls, and (ii) any other chemicals, materials
or substances defined or regulated as toxic or hazardous or as a pollutant or
contaminant or as a waste under any applicable Environmental Law.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder.
"INDEMNIFIED PARTY" shall mean Parent, Merger Sub and each of their
respective affiliates and each officer, director, employee, agent, successor and
assign of each such person.
"INDEBTEDNESS" shall mean, with respect to any person (i) all
indebtedness of such person, whether or not contingent, for borrowed money; (ii)
all obligations of such person for the deferred purchase price of property or
services; (iii) all obligations of such person evidenced by notes, bonds,
debentures or other similar instruments; (iv) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property); (v) all obligations of such person as
lessee under leases that have been or should be, in accordance with U.S. GAAP,
recorded as capital leases; (vi) all obligations,
<PAGE>
7
contingent or otherwise, of such person under acceptance, letter of credit or
similar facilities; (vii) all obligations of such person to purchase, redeem,
retire, defease or otherwise acquire for value any capital stock of such person
or any warrants, rights or options to acquire such capital stock, valued, in the
case of redeemable preferred stock, at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends; (viii) all
Indebtedness of others referred to in clauses (i) through (vi) above guaranteed
directly or indirectly in any manner by such person, or in effect guaranteed
directly or indirectly by such person through an agreement (A) to pay or
purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (B) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the holder
of such Indebtedness against loss, (C) to supply funds to or in any other manner
invest in the debtor (including any agreement to pay for property or services
irrespective of whether such property is received or such services are rendered)
or (D) otherwise to assure a creditor against loss; and (ix) all Indebtedness
referred to in clauses (i) through (vi) above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Encumbrance on property (including, without limitation,
accounts and contract rights) owned by such person, even though such person has
not assumed or become liable for the payment of such Indebtedness.
"INITIAL ADVANCE" shall mean the initial advance in the amount of
$1,000,000 under the loan agreement, dated as of January 31, 1997, between the
Company and Parent.
"INTELLECTUAL PROPERTY" shall mean (i) inventions, whether or not
patentable, whether or not reduced to practice, and whether or not yet made the
subject of a pending patent application or applications, (ii) ideas and
conceptions of potentially patentable subject matter, including, without
limitation, any patent disclosures, whether or not reduced to practice and
whether or not yet made the subject of a pending patent application or
applications, (iii) national (including the United States) and multinational
statutory invention registrations, patents, patent registrations and patent
applications (including all reissues, divisions, continuations, continuations-
in-part, extensions and reexaminations) and all rights therein provided by
international treaties or conventions and all improvements to the inventions
disclosed in each such registration, patent or application, (iv) trademarks,
service marks, trade dress, logos, trade names and corporate names, whether or
not registered, including all common law rights, and registrations and
applications for registration thereof, including, without limitation, all marks
registered in the United States Patent and Trademark Office, the trademark
offices of the states and territories of the United States, and the trademark
offices of other nations throughout the world, and all rights therein provided
by international treaties or conventions, (v) copyrights (registered or
otherwise) and registrations and applications for registration thereof, and all
rights therein provided by international treaties or conventions, (vi) moral
rights (including, without limitation, rights of paternity and integrity), and
waivers of such rights by others, (vii) computer software, including,
<PAGE>
8
without limitation, source code, operating systems and specifications, data,
data bases, files, documentation and other materials related thereto, data and
documentation, (viii) trade secrets and confidential, technical and business
information (including ideas, formulas, compositions, inventions, and
conceptions of inventions whether patentable or unpatentable and whether or not
reduced to practice), (ix) whether or not confidential, technology (including
know-how and show-how), manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs, plans,
proposals, technical data, copyrightable works, financial, marketing and
business data, pricing and cost information, business and marketing plans and
customer and supplier lists and information, (x) copies and tangible embodiments
of all of the foregoing, in whatever form or medium, (xi) all rights to obtain
and rights to apply for patents, and to register trademarks and copyrights, and
(xii) all rights to sue or recover and retain damages and costs and attorneys'
fees for past, present and future infringement of any of the foregoing.
"INTERIM FINANCIAL STATEMENTS" shall mean the unaudited consolidated
balance sheet of the Company as at, and the related consolidated statements of
income, shareholders' equity and cash flows of the Company for the period ended
as of, March 31, 1997, together with all related notes and schedules thereto,
certified by the chief financial officer of the Company.
"IRS" shall mean the Internal Revenue Service of the United States.
"LAW" shall mean any national, federal, state, municipal or local or
other statute, law, ordinance, regulation, rule, code, order, other requirement
or rule of law.
"LEASED REAL PROPERTY" shall mean all real property leased by the
Company or any Subsidiary, as tenant, together with, to the extent leased by the
Company or any Subsidiary, all buildings and other structures, facilities or
improvements currently or hereafter located thereon, all fixtures, systems,
equipment and items of personal property of the Company or any Subsidiary
attached or appurtenant thereto, and all easements, licenses, rights and
appurtenances relating to the foregoing.
"LEASED TANGIBLE PERSONAL PROPERTY" shall mean all machinery,
equipment, tools, dies, molds, parts, supplies, furniture, furnishings,
fixtures, personalty, vehicles, rolling stock and other tangible personal
property leased by the Company or any Subsidiary, as lessee.
"LIABILITIES" shall mean any and all debts, liabilities and
obligations of any nature whatsoever, whether accrued or fixed, absolute or
contingent, matured or unmatured, known or unknown or determined or
determinable, including, without limitation, those arising under any Law
(including, without limitation, any Environmental Law), Action or
<PAGE>
9
Governmental Order and those arising under any contract, agreement, arrangement,
commitment or undertaking.
"LICENSED INTELLECTUAL PROPERTY" shall mean all Intellectual Property
licensed or sublicensed by the Company or any Subsidiary, as licensee.
"LOSSES" shall have the meaning specified in Section 7.02.
"MATERIAL ADVERSE EFFECT" shall mean any change in or effect on the
Business, the Company or any Subsidiary that, individually or in the aggregate
with any other changes in or effects on the Business, the Company or any
Subsidiary (i) is materially adverse to the business, operations, assets or
Liabilities, results of operations or financial condition of the Business (as
such business is currently conducted and as such business is proposed to be
conducted following the Merger), the Company or any material Subsidiary or (ii)
would adversely affect the ability of the Surviving Corporation to operate or
conduct the Business in the manner in which it is currently operated or
conducted by the Company and the Subsidiaries.
"MATERIAL CONTRACTS" shall have the meaning specified in Section
3.16(a).
"MERGER" shall have the meaning specified in the recitals to this
Agreement.
"MERGER SUB" shall have the meaning specified in the preamble to this
Agreement.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan within the
meaning of Section 3(37) or 4001(a)(3) of ERISA.
"MULTIPLE EMPLOYER PLAN" shall mean a single employer pension plan
within the meaning of Section 4001(a)(15) of ERISA for which the Company could
incur liability under Section 4063 or 4064 of ERISA.
"NET EXERCISE ADJUSTMENT FACTOR" shall mean (i) with respect to any
Company Stock Option, the quotient of (A) the Per Share Purchase Price less the
exercise price per share of Company Common Stock issuable upon exercise of such
Company Stock Option divided by (B) the Per Share Purchase Price, and (ii) with
respect to any Company Warrant, the quotient of (A) the Per Share Purchase Price
less the exercise price per share of Company Common Stock issuable upon exercise
of such Company Warrant or upon conversion of any Company Preferred Stock
issuable upon exercise of such Company Warrant divided by (B) the Per Share
Purchase Price.
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10
"1995 FINANCIAL STATEMENTS" shall mean the audited consolidated
balance sheet of the Company as at, and the related audited consolidated
statements of income, shareholders' equity and cash flows of the Company for the
fiscal year ended as of, December 31, 1995, together with all related notes and
schedules thereto, accompanied by the report thereon of Coopers & Lybrand LLP,
independent certified public accountants of the Company.
"1996 FINANCIAL STATEMENTS" shall mean the audited consolidated
balance sheet of the Company as at, and the related audited consolidated
statements of income, shareholders' equity and cash flows of the Company for the
fiscal year ended as of, December 31, 1996, together with all related notes and
schedules thereto, accompanied by the report thereon of Coopers & Lybrand LLP,
independent certified public accountants of the Company.
"NYSE" shall mean the New York Stock Exchange, Inc.
"OWNED INTELLECTUAL PROPERTY" shall mean all Intellectual Property
owned by the Company or any Subsidiary.
"OWNED TANGIBLE PERSONAL PROPERTY" shall mean all machinery,
equipment, tools, dies, molds, parts, supplies, furniture, furnishings,
fixtures, personalty, vehicles, rolling stock and other tangible personal
property owned by the Company or any Subsidiary.
"PARASCRIPT INTEREST" shall mean all of the Company's ownership
interest in ParaScript LLC.
"PARASCRIPT LICENSE AMENDMENT" shall mean the amendment to the
ParaGraph International Technology Software and License Agreement, dated April
25, 1996, between the Company and ParaScript LLC to be entered into between the
Company and ParaScript LLC amending such license agreement, which amendment
shall be on the terms described in the memorandum attached hereto as Exhibit
-------
1.01(c).
- -------
"PARASCRIPT LLC" shall mean ParaScript LLC, a limited liability
company organized under the laws of Wyoming.
"PARASCRIPT PURCHASE PRICE" shall mean the purchase price for the
ParaScript Interest under the ParaScript Sale Agreement.
"PARASCRIPT SALE" shall mean the sale of the ParaScript Interest by
the Company to Aron Katz (or any designee of Aron Katz reasonably acceptable to
the Company and to Parent) pursuant to the ParaScript Sale Agreement.
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11
"PARASCRIPT SALE AGREEMENT" shall mean the limited liability company
interest purchase agreement to be entered into between the Company and Aron Katz
(or any designee of Aron Katz reasonably acceptable to the Company and to
Parent), providing for the sale of the ParaScript Interest by the Company to
Aron Katz (or any such designee), on the terms and conditions set forth in the
form of such agreement attached hereto as Exhibit 1.01(d).
---------------
"PARASCRIPT VALUATION" shall mean the dollar value of the ParaScript
Interest as determined by the valuation to be performed prior to the Effective
Time by an investment bank or other financial institution selected by Parent and
the Company.
"PARENT" shall have the meaning specified in the preamble to this
Agreement.
"PARENT COMMON STOCK" shall mean the common stock, par value $.001 per
share, of Parent.
"PARENT COMMON STOCK MARKET VALUE" shall mean the average of the
closing prices of the Parent Common Stock on the NYSE, as reported by The Wall
Street Journal for the 10 trading days ending two trading days prior to the
Effective Time.
"PARENT COMMON STOCK REPURCHASE COST" shall mean the quotient of the
Parent Treasury Share Value divided by the aggregate number of Parent Treasury
Shares held by Parent at the Effective Time.
"PARENT DISCLOSURE SCHEDULE" shall mean the Disclosure Schedule of the
Parent attached hereto, dated as of the date hereof, and forming a part of this
Agreement.
"PARENT MARKET VALUE DIFFERENCE" shall mean the Purchase Price less
the Parent Treasury Share Value.
"PARENT SEC DOCUMENTS" shall mean all reports, schedules, forms,
statements and other documents required to be filed with the SEC by Parent.
"PARENT TREASURY SHARES" shall mean the shares of Parent Common Stock,
if any, acquired by Parent after the date hereof for the purpose of distributing
such shares pursuant to the Merger; provided, that, to the extent Parent shall
acquire after the date hereof and prior to the Effective Time shares of Parent
Common Stock in excess of the number of Parent Treasury Shares to be delivered
pursuant to the Merger, the Parent Treasury Shares shall consist of the earliest
acquired shares of Parent Common Stock acquired after the date hereof.
<PAGE>
12
"PARENT TREASURY SHARE VALUE" shall mean the aggregate cost, including
brokerage costs and other transaction fees, to Parent of acquiring the Parent
Treasury Shares.
"PER SHARE PURCHASE PRICE" shall mean the quotient of the Purchase
Price divided by the Fully Diluted Shares.
"PERMITTED ENCUMBRANCES" shall mean such of the following as to which
no enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (i) liens for taxes, assessments and governmental charges or
levies not yet due and payable which are not in excess of US$50,000 in the
aggregate; (ii) Encumbrances imposed by Law, such as materialmen's, mechanics',
carriers', workmen's and repairmen's liens and other similar liens arising in
the ordinary course of business securing obligations that (A) are not overdue
for a period of more than 30 days and (B) are not in excess of US$5,000 in the
case of a single property or US$50,000 in the aggregate at any time; (iii)
pledges or deposits to secure obligations under workers' compensation laws or
similar legislation or to secure public or statutory obligations; and (iv) minor
survey exceptions, reciprocal easement agreements and other customary
encumbrances on title to real property that (A) were not incurred in connection
with any Indebtedness, (B) do not render title to the property encumbered
thereby unmarketable and (C) do not, individually or in the aggregate,
materially adversely affect the value or use of such property for its current
and anticipated purposes.
"PERSON" shall mean any individual, partnership, firm, corporation,
joint venture, association, trust, unincorporated organization or other entity,
as well as any syndicate or group that would be deemed to be a person under
Section 13(d)(3) of the Exchange Act.
"PLANS" shall mean (i) all employee benefit plans (as defined in
Section 3(3) of ERISA) and all bonus, stock option, stock purchase, restricted
stock, incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, severance or other benefit plans, programs or
arrangements, and all employment, termination, severance or other contracts or
agreements, whether legally enforceable or not, to which the Company or any
Subsidiary is a party, with respect to which the Company or any Subsidiary has
any obligation or which is or was at any time maintained for the benefit of, or
relating to any employee or former employee of the Company, any Subsidiary or
any trade or business (whether or not incorporated) which is a member of a
controlled group including the Company and its Subsidiaries or which is or was
at the time under common control with the Company or any of its Subsidiaries
within the meaning of Section 414 of the Code; (ii) each employee benefit plan
for which the Company or any Subsidiary could incur liability under Section 4069
of ERISA in the event such plan has been or were to be terminated; (iii) any
plan in respect of which the Company or any Subsidiary could incur liability
under Section 4212(c) of ERISA; and (iv) any contracts, arrangements or
understandings between
<PAGE>
13
the Company or any of its affiliates and any employee of the Company or of any
Subsidiary, including, without limitation, any contracts, arrangements or
understandings relating to the sale of the Company.
"PRINCIPAL SHAREHOLDERS" shall have the meaning specified in the
preamble to this Agreement.
"PURCHASE PRICE" shall mean $48,300,000 less the aggregate amount of
the Initial Advance outstanding at the Effective Time, together with all accrued
interest thereon.
"R&D ASSOCIATES WARRANT" shall mean the Company's obligation to issue
to R&D Associates, LLC, warrants to purchase Company Preferred Stock, as more
particularly set forth in those certain term sheets dated July 30, 1996 (two
separate term sheets) and September 18, 1996.
"RECEIVABLES" shall mean any and all accounts receivable, notes and
other amounts receivable by the Company or any Subsidiary from third parties,
including, without limitation, customers and employees, arising from the conduct
of the Business or otherwise prior to the Effective Time, whether or not in the
ordinary course, together with all unpaid financing charges accrued thereon.
"REGULATIONS" shall mean the Treasury Regulations (including Temporary
Regulations) promulgated by the United States Department of Treasury with
respect to the Code or other federal tax statutes.
"RESTRICTED STOCK PURCHASE AGREEMENTS" shall mean, collectively, (i)
that certain Restricted Stock Purchase Agreement, dated as of September 13,
1996, between the Company and Gregory Slayton, as amended by that certain
Separation Agreement, dated as of May 9, 1997, (ii) that certain Restricted
Stock Purchase Agreement, dated as of September 13, 1996, between the Company
and Stephen Ardron, as amended by that certain Separation Agreement, dated as of
May 9, 1997, (iii) that certain Restricted Stock Purchase Agreement, dated as of
September 13, 1996, between the Company and Howard Maierhoffer; (iv) that
certain Restricted Stock Purchase Agreement, dated as of September 13, 1996,
between the Company and Regis McKenna; and (v) that certain Restricted Stock
Purchase Agreement, dated as of September 13, 1996, between the Company and
Stepan Pachikov.
"SEC" shall mean the United States Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SUBSIDIARIES" shall mean any and all corporations,
<PAGE>
14
partnerships, joint ventures, associations and other entities controlled by the
Company directly or indirectly through one or more intermediaries, as more
particularly described in the Company Disclosure Schedule.
"SURVIVING CORPORATION" shall mean the Company, as the surviving
corporation of the Merger.
"TANGIBLE PERSONAL PROPERTY" shall mean the Leased Tangible Personal
Property and the Owned Tangible Personal Property.
"TAX" or "TAXES" shall mean any and all taxes, fees, levies, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, loss, damage, liability, expense, additions to tax and
additional amounts or costs incurred or imposed with respect thereto) imposed by
any government or taxing authority, including,without limitation, (i) taxes or
other charges on or with respect to income, franchises, concessions, windfall or
other profits, gross receipts, property, sales, use, capital, gains, capital
stock or shares, payroll, employment, social security, workers' compensation,
unemployment compensation, or net worth; (ii) taxes or other charges in the
nature of excise, withholding, ad valorem, stamp, transfer, value added, or
gains taxes; (iii) license, registration and documentation fees; and (iv)
customs duties, tariffs, and similar charges.
"U.S. GAAP" shall mean United States generally accepted accounting
principles and practices as in effect from time to time and applied consistently
throughout the periods involved.
"VOTING SHAREHOLDERS" shall mean Gregory Slayton and Stephen Ardron.
"WITHHOLDING AMOUNT" shall mean, with respect to any person, the
aggregate amount of withholding taxes, if any, required under applicable Law to
be withheld by the Company and/or Parent in connection with the transactions
contemplated by this Agreement.
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. At the Effective Time, and upon the terms
and subject to the conditions of this Agreement, the General Corporation Law of
the State of Delaware and the General Corporation Law of the State of
California, Merger Sub shall be merged with and into the Company, the separate
corporate existence of Merger Sub shall cease, and the Company shall continue as
the surviving corporation.
<PAGE>
15
SECTION 2.02. Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by (i) filing the Certificate of
Merger with the Secretary of State of the State of Delaware, in such form as
required by, and executed in accordance with the relevant provisions of, the
General Corporation Law of the State of Delaware, and (ii) filing the Agreement
of Merger with the Secretary of State of the State of California, in such form
as required by, and executed in accordance with the relevant provisions of, the
General Corporation Law of the State of California.
SECTION 2.03. Effect of the Merger. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of the
General Corporation Law of the State of Delaware and the General Corporation Law
of the State of California. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time all the property, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
SECTION 2.04. Articles of Incorporation; Bylaws. (a) Unless
otherwise determined by Parent prior to the Effective Time, at the Effective
Time the articles of incorporation of the Company, as in effect immediately
prior to the Effective Time, shall be amended and restated in their entirety in
form and substance reasonably satisfactory to Parent and the Company and, as so
amended and restated, shall be the articles of incorporation of the Surviving
Corporation until thereafter amended as provided by the General Corporation Law
of the State of California and such articles of incorporation.
(b) The bylaws of the Company, as in effect immediately prior to the
Effective Time, shall be amended and restated in their entirety in form and
substance reasonably satisfactory to Parent and the Company and, as so amended
and restated, shall be the bylaws of the Surviving Corporation until thereafter
amended as provided by the General Corporation Law of the State of California,
the articles of incorporation of the Surviving Corporation and such bylaws.
SECTION 2.05. Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the articles of
incorporation and bylaws of the Surviving Corporation, and the officers of
Merger Sub immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
<PAGE>
16
SECTION 2.06. Effect on Capital Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Merger Sub or
the Company or the holders of any of the following securities:
(a) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than any such shares to be
cancelled pursuant to Section 2.06(f) or constituting Dissenting Shares) and
all rights in respect thereof shall be cancelled and extinguished and be
converted automatically into the right to receive, upon surrender of the
certificate representing such share of Company Common Stock in the manner
provided in Section 2.08, the number of shares of Parent Common Stock equal to
the Exchange Ratio.
(b) Each share of Company Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any such shares to be
cancelled pursuant to Section 2.06(f) or constituting Dissenting Shares) and all
rights in respect thereof shall be cancelled and extinguished and be converted
automatically into the right to receive, upon surrender of the certificate
representing such share of Company Preferred Stock in the manner provided in
Section 2.08, the number of shares of Parent Common Stock equal to the product
of the number of shares of Company Common Stock issuable upon conversion of such
share of Company Preferred Stock multiplied by the Exchange Ratio.
(c) Each wholly or partially vested Company Stock Option and all
rights in respect thereof shall be cancelled and extinguished and be converted
automatically into the right to receive, upon surrender of the certificate or
agreement representing such Company Stock Option in the manner provided in
Section 2.08, the number of shares of Parent Common Stock (rounded down to the
nearest whole share of Parent Common Stock) equal to the product of (1) the
number of shares of Company Common Stock issuable upon the exercise of the
vested portion of such Company Stock Option multiplied by (2) the Net Exercise
Adjustment Factor multiplied by (3) the Exchange Ratio.
(d) The unvested portion of each Company Stock Option and all rights
in respect thereof shall, in accordance with the Company Equity Incentive Plan,
be cancelled and extinguished without any conversion thereof.
(e) Each Company Warrant and all rights in respect thereof shall be
cancelled and extinguished and be converted automatically into the right to
receive, upon surrender of the certificate or agreement representing such
Company Warrant in the manner provided in Section 2.08, the number of shares of
Parent Common Stock (rounded down to the nearest whole share of Parent Common
Stock) equal to the product of (1) the number of shares of Company Common Stock
issuable upon exercise of such Company Warrant or upon conversion of any Company
Preferred Stock issuable upon exercise of such Company
<PAGE>
17
Warrant multiplied by (2) the Net Exercise Adjustment Factor multiplied by (3)
the Exchange Ratio.
(f) Each share of Company Common Stock held in the treasury of the
Company and each share of Company Common Stock owned by Parent or any direct or
indirect wholly owned subsidiary of Parent or of the Company immediately prior
to the Effective Time shall be cancelled and extinguished without any conversion
thereof.
(g) The Exchange Ratio shall be appropriately adjusted to reflect
fully the effect of any stock split, reverse stock split, stock dividend
(including any dividend or distribution of securities convertible into Company
Common Stock), reorganization, recapitalization or other like change with
respect to Company Capital Stock occurring after the date hereof and prior to
the Effective Time.
(h) No fraction of a share of Parent Common Stock shall be issued,
but in lieu thereof each holder of shares of Company Common Stock who would
otherwise be entitled to a fraction of a share of Parent Common Stock (after
aggregating all fractional shares of Parent Common Stock to be received by such
holder) shall receive from Parent an amount of cash (rounded to the nearest
whole cent) equal to the product of such fraction multiplied by the Parent
Common Stock Market Value.
(i) Each share of common stock, par value $.01 per share, of Merger
Sub issued and outstanding immediately prior to the Effective Time shall be
cancelled and extinguished and be converted automatically into the right to
receive one newly and validly issued, fully paid and nonassessable share of
common stock of the Surviving Corporation. Each certificate evidencing
ownership of any such shares shall continue to evidence ownership of such shares
of capital stock of the Surviving Corporation.
(j) Notwithstanding the foregoing, the shares of Parent Common Stock
payable to any person pursuant to any other subsection of this Section 2.06
shall be reduced by the number of shares of Parent Common Stock equal to the
quotient of the Withholding Amount divided by the Parent Common Stock Market
Value.
SECTION 2.07. Dissenting Shares. (a) Notwithstanding any provision
of this Agreement to the contrary, Dissenting Shares shall not be converted into
or represent a right to receive shares of Parent Common Stock pursuant to
Section 2.06, but the holder thereof shall only be entitled to such rights as
are granted by the General Corporation Law of the State of California.
(b) Notwithstanding the provisions of subsection (a), if any holder
of Dissenting Shares shall effectively withdraw or lose (through failure to
perfect or otherwise) such holder's dissenters' rights, then, as of the later of
Effective Time or the occurrence of
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18
such event, such holder's shares shall automatically be converted into and
represent only the right to receive the applicable shares of Parent Common
Stock, without interest thereon, upon surrender of the certificate or
certificates representing such Dissenting Shares.
(c) The Company shall give Parent (i) prompt notice of any written
demands received by the Company to require the Company to purchase shares of
capital stock of the Company, withdrawals of such demands, and any other
instruments served pursuant to the dissenters' rights provisions of the General
Corporation Law of the State of California and received by the Company and (ii)
the opportunity to participate in all negotiations and proceedings with respect
to such demands. The Company shall not, except with the prior written consent of
Parent, voluntarily make any payment with respect to any such demands or offer
to settle or settle any such demands.
SECTION 2.08. Surrender of Securities. (a) Parent shall supply, or
shall cause to be supplied, to or for the account of the Exchange Agent, in
trust for the benefit of the holders of Company Securities (other than
Dissenting Shares), for exchange in accordance with this Section 2.08, through
the Exchange Agent, the certificates evidencing the shares of Parent Common
Stock issuable pursuant to Section 2.06 and the cash payable in lieu of
fractional shares, if any, in each case in exchange for outstanding Company
Securities.
(b) At or prior to the Effective Time, Parent shall make available to
the Exchange Agent for exchange and payment in accordance with this Article II,
through the procedures set forth in the Exchange Agent Agreement, the shares of
Parent Common Stock issuable pursuant to Section 2.06 and the cash payable in
lieu of fractional shares, if any, in each case in accordance with the Exchange
Agent Agreement.
(c) The Surviving Corporation shall, in accordance with the Exchange
Agent Agreement, and in any event, not later than five Business Days after the
Effective Time, cause to be delivered or mailed to each holder of record of
securities (the "SECURITIES") which immediately prior to the Effective Time
represented outstanding Company Securities whose securities were converted into
the right to receive shares of Parent Common Stock pursuant to Section 2.06, (i)
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Securities or shall pass, only upon delivery
of the Securities to the Exchange Agent and shall be in such form and have such
other provisions as Parent may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Securities in exchange for certificates
representing shares of Parent Common Stock issuable pursuant to Section 2.06 and
the cash payable in lieu of fractional shares, if any. Upon surrender of a
Security for cancellation to the Exchange Agent or to such other agent or agents
as may be appointed by Parent, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto, the
holder of such Security shall be entitled to receive in exchange therefor a
certificate
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19
representing the number of whole shares of Parent Common Stock and payment in
lieu of fractional shares, if any, which such holder has the right to receive
pursuant to Section 2.06, and the Security so surrendered shall forthwith be
cancelled. Until so surrendered, each outstanding Security that, prior to the
Effective Time, represented Company Securities will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence the ownership of the number of full shares of Parent Common Stock
into which such Company Securities shall have been so converted, the right to
receive an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 2.06(i).
(d) No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Security with
respect to the shares of Parent Common Stock represented thereby until the
holder of record of such Security shall surrender such Security. Subject to
applicable law, following surrender of any such Security, there shall be paid to
the record holder of the certificates representing whole shares of Parent Common
Stock issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
Parent Common Stock and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to such surrender and a payment date subsequent to such surrender payable
with respect to such shares of Parent Common Stock.
(e) If any certificate for shares of Parent Common Stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it will be a condition of the issuance thereof
that the certificate so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange will have
paid to Parent or any agent designated by it any transfer or other taxes
required by reason of the issuance of a certificate for shares of Parent Common
Stock in any name other than that of the registered holder of the certificate
surrendered, or established to the satisfaction of Parent or any agent
designated by it that such tax has been paid or is not payable.
(f) Notwithstanding anything to the contrary in this Section 2.08,
none of the Exchange Agent, the Surviving Corporation or any party hereto shall
be liable to a holder of Company Securities for any amount properly paid to a
public official pursuant to and in accordance with any applicable abandoned
property, escheat or similar law.
(g) Parent may, in its sole discretion, elect not to designate an
Exchange Agent for purposes of acting as exchange agent hereunder in which event
Parent shall perform all such actions contemplated by the provisions of this
Section 2.08 to be performed
<PAGE>
20
by the Exchange Agent necessary to consummate the transactions contemplated by
this Agreement.
SECTION 2.09. No Further Ownership Rights in Company Securities. All
Parent Common Stock issued in respect of Company Securities in accordance with
the terms hereof shall be deemed to have been issued in full satisfaction of all
rights pertaining to such Company Securities, and there shall be no further
registration of transfers on the records of the Surviving Corporation of Company
Securities 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 cancelled and exchanged as provided in
this Article II.
SECTION 2.10. Lost, Stolen or Destroyed Certificates. In the event
any Security evidencing Company Securities 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 Parent Common Stock issuable pursuant to Section
2.06 and the cash payable in lieu of fractional shares, if any; provided,
however, that Parent may, in its discretion and as a condition precedent to the
issuance and payment 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 Parent or the Exchange
Agent with respect to the certificates alleged to have been lost, stolen or
destroyed.
SECTION 2.11. Taking of Necessary Action; Further Action. If, at any
time after the Effective Time, any such 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 the Company and Parent, the
officers and directors of the Company and Parent are fully authorized in the
name of their respective corporations or otherwise to take, and will take, all
such lawful and necessary action.
SECTION 2.12. Tax-Free Reorganization. The parties hereto intend
that the Merger qualify and be treated as a reorganization within the meaning of
Section 368(a) of the Code, and that this Agreement constitute a "plan of
reorganization."
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21
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRINCIPAL SHAREHOLDERS
As an inducement to Parent and Merger Sub to enter into this
Agreement, the Company and each Principal Shareholder hereby represents and
warrants to Parent and Merger Sub, except as set forth on the Company Disclosure
Schedule, as follows:
SECTION 3.01. Organization, Authority and Qualification of the
Company. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California, and has all necessary
corporate power and authority to enter into this Agreement, to carry out its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The Company is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the properties
owned or leased by it or the operation of its business makes such licensing or
qualification necessary or desirable, except where the failure to be so duly
licensed or qualified and in good standing could not reasonably be expected to
have a Material Adverse Effect. The execution and delivery of this Agreement by
the Company, the performance by the Company of its obligations hereunder and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized and approved by all requisite action on the part of the Company.
This Agreement has been duly executed and delivered by the Company, and
(assuming due authorization, execution and delivery by Parent and Merger Sub)
this Agreement constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
SECTION 3.02. Capital Stock of the Company; Ownership of the Capital
Stock. (a) The authorized capital stock of the Company consists of 33,000,000
shares of Company Common Stock and 15,000,000 shares of Company Preferred Stock.
There is no other capital stock authorized for issuance. As of the date hereof,
(i) 15,500,000 shares of Company Common Stock are issued and outstanding, all of
which are validly issued, fully paid and nonassessable, (ii) 10,000,000 shares
of Company Preferred Stock are issued and outstanding, all of which are validly
issued, fully paid and nonassessable, (iii) no shares of Company Preferred Stock
are reserved for issuance upon exercise of Company Warrants which are issued and
outstanding as of the date hereof, (iv) 3,689,283 shares of Company Common Stock
are reserved for issuance upon exercise of the Company Stock Options which are
issued and outstanding as of the date hereof, and (v) 10,000,000 shares of
Company Common Stock are reserved for issuance upon conversion of shares of
Company Preferred Stock which are issued and outstanding as of the date hereof.
All unvested Company Stock Options will expire under the terms thereof at the
Effective Time. None of the issued and outstanding shares of Company Capital
Stock was issued in violation of any preemptive rights. Except for the Company
Equity Incentive Plan, the Disney Warrant and the R&D
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22
Associates Warrant, there are no options, warrants, convertible securities or
other rights, agreements, arrangements or commitments of any character to which
the Company or any Subsidiary is a party relating to the capital stock of the
Company or obligating the Company to issue or sell any shares of capital stock
of, or any other interest in, the Company. Except as set forth in this
Agreement, there are no outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire any shares of Common Stock or to provide
funds to, or make any investment (in the form of a loan, capital contribution or
otherwise) in, any other person. There are no voting trusts, shareholder
agreements, proxies or other agreements or understandings in effect to which the
Company or any Subsidiary is a party or of which the Company or any Subsidiary
has knowledge with respect to the voting or transfer of any shares of capital
stock of or any other interest in the Company.
(b) The stock register of the Company accurately records (i) the name
of each registered owner of shares of capital stock of the Company and (ii) the
certificate number of each certificate evidencing shares of capital stock issued
by the Company, the number of shares evidenced by each such certificate, the
date of issuance thereof and, in the case of cancellation, the date of
cancellation.
(c) Section 3.02(c) of the Company Disclosure Schedule sets forth the
names of all holders of Company Stock Options granted under the Company Equity
Incentive Plan, the number of vested Company Stock Options held by each such
holder as of the date hereof and the vesting schedule for unvested Company Stock
Options held by each such holder.
SECTION 3.03. Subsidiaries. (a) Section 3.03(a) of the Company
Disclosure Schedule sets forth a true, complete and correct list of all
Subsidiaries, listing for each Subsidiary its name, type of entity, the
jurisdiction and date of its incorporation or organization, its authorized
capital stock, partnership capital or equivalent, the number and type of its
issued and outstanding shares of capital stock, partnership interests or similar
ownership interests and the current ownership of such shares, partnership
interests or similar ownership interests.
(b) Other than the Subsidiaries and the ParaScript Interest, the
Company does not own, beneficially or of record, any direct or indirect equity
or other interest or any right (contingent or otherwise) to acquire the same in
any person. Other than the Subsidiaries and the ParaScript Interest, the
Company is not a member of, nor is any part of the Business conducted through,
any partnership. Except as set forth in Section 3.03(b) of the Company
Disclosure Schedule, the Company is not a participant in any joint venture or
similar arrangement.
(c) Each Subsidiary (i) is duly organized and validly existing under
the laws of its jurisdiction of organization, (ii) has all necessary power and
authority to own,
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23
operate or lease the properties and assets owned, operated or leased by such
Subsidiary and to carry on its business as it has been and is currently
conducted by such Subsidiary and (iii) is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the properties
owned or leased by it or the operation of its business makes such licensing or
qualification necessary or desirable, except where the failure to be so duly
licensed or qualified and in good standing could not reasonably be expected to
have a Material Adverse Effect.
(d) All of the outstanding shares of capital stock of each Subsidiary
that is a corporation are validly issued, fully paid, nonassessable and, except
with respect to wholly owned Subsidiaries, free of preemptive rights and are
owned by the Company, whether directly or indirectly, free and clear of all
Encumbrances.
(e) There are no options, warrants, convertible securities, or other
rights, agreements, arrangements or commitments of any character to which the
Company or any Subsidiary is a party relating to the capital stock of any
Subsidiary or obligating the Company or any Subsidiary to issue or sell any
shares of capital stock of, or any other interest in, any Subsidiary.
(f) All actions taken by each Subsidiary have been duly authorized
and no Subsidiary has taken any action that in any respect conflicts with,
constitutes a default under or results in a violation of any provision of its
charter or bylaws (or similar organizational documents). True, complete and
correct copies of the charter and bylaws (or similar organizational documents),
in each case as in effect on the date hereof, of each Subsidiary have been
delivered by the Company to Parent.
(g) Except as set forth in Section 3.03(g) of the Company Disclosure
Schedule, no Subsidiary is a member of, nor is any part of its business
conducted through, any partnership, nor is any Subsidiary a participant in any
joint venture or similar arrangement.
(h) There are no voting trusts, shareholder agreements, proxies or
other agreements or understandings in effect to which the Company or any
Subsidiary is a party or of which the Company or any Subsidiary has knowledge
with respect to the voting or transfer of any shares of capital stock of or any
other interests in any Subsidiary.
(i) The stock register of each Subsidiary accurately records (i) the
name of each registered owner of shares of capital stock of such Subsidiary and
(ii) the certificate number of each certificate evidencing shares of capital
stock issued by such Subsidiary, the number of shares evidenced each such
certificate, the date of issuance thereof and, in the case of cancellation, the
date of cancellation.
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24
SECTION 3.04. Books and Records. The minute books of the Company and
the Subsidiaries contain true, complete and correct records of all meetings of,
and completely and correctly reflect all other corporate actions taken by, the
shareholders, boards of directors and all committees of the boards of directors
of the Company and the Subsidiaries. True, complete and correct copies of all
such minute books and of the stock register (or equivalent document) of the
Company and each Subsidiary have been provided by the Company to Parent.
SECTION 3.05. No Conflict. Assuming that all consents, approvals,
authorizations and other actions described in Section 3.06 have been obtained
and all filings and notifications listed in Section 3.06 of the Company
Disclosure Schedule have been made, the execution, delivery and performance of
this Agreement by the Company do not and will not (a) violate, conflict with or
result in the breach of any provision of the charter or bylaws (or similar
organizational documents) of the Company or any Subsidiary, (b) conflict with or
violate any Law or Governmental Order applicable to the Company, any Subsidiary
or any of their respective assets, properties or businesses, including, without
limitation, the Business, or (c) except as set forth in Section 3.05(c) of the
Company Disclosure Schedule, conflict with, result in any breach of, constitute
a default (or event which with the giving of notice or lapse of time or both
would become a default) under, require any consent under, or give to others any
rights of termination, amendment, acceleration, suspension, revocation or
cancellation of, or result in the creation of any Encumbrance on any shares of
capital stock of the Company or on any of the assets or properties of the
Company or any Subsidiary pursuant to, any note, bond, mortgage, deed of trust,
indenture, contract, agreement, lease, sublease, license, sublicense, permit,
franchise or other instrument or arrangement to which the Company, the Company
or any Subsidiary is a party or by which any shares of capital stock of the
Company or any of such assets or properties is bound or affected.
SECTION 3.06. Governmental Consents and Approvals. The execution,
delivery and performance of this Agreement by the Company do not and will not
require any consent, approval, authorization or other order of, action by,
filing with or notification to any Governmental Authority, except as described
in Section 3.06 of the Company Disclosure Schedule.
SECTION 3.07. Financial Information, Books and Records. (a) The
Company has delivered to Parent true, complete and correct copies of the 1995
Financial Statements, the Draft 1996 Financial Statements and the Interim
Financial Statements, and the Company will deliver to Parent as soon as
practicable, and in any event within two Business Days, after the delivery to
the Company by Coopers & Lybrand LLP of its report thereon, true, complete and
correct copies of the 1996 Financial Statements. The 1995 Financial Statements,
the Draft 1996 Financial Statements, the 1996 Financial Statements and the
Interim Financial Statements (i) were or, upon their delivery pursuant hereto,
will have been prepared in accordance with the books of account and other
financial records of the
<PAGE>
25
Company, (ii) present or, upon their delivery pursuant hereto, will present
fairly the consolidated financial condition and results of operations of the
Company and the Subsidiaries as of the dates thereof or for the periods covered
thereby, (iii) have been or, upon their delivery pursuant hereto, will have been
prepared in accordance with U.S. GAAP and (iv) include or, upon their delivery
pursuant hereto, will include all adjustments (consisting only of normal
recurring accruals) that are necessary for a fair presentation of the
consolidated financial condition of the Company and the Subsidiaries and the
results of the operations of the Company and the Subsidiaries as of the dates
thereof or for the periods covered thereby.
(b) The books of account and other financial records of the Company
(i) reflect all items of income and expense and all assets and Liabilities
required to be reflected therein in accordance with U.S. GAAP, (ii) are in all
material respects true, complete and correct, and do not contain or reflect any
material inaccuracies or discrepancies and (iii) have been maintained in
accordance with good business and accounting practices.
SECTION 3.08. No Undisclosed Liabilities. Except as set forth in
Section 3.08 of the Company Disclosure Schedule, there are no Liabilities of the
Company or any Subsidiary, other than Liabilities adequately reflected or
reserved against on the Audited Balance Sheet. To the extent required in
accordance with U.S. GAAP, reserves are reflected on the Audited Balance Sheet
against all Liabilities of the Company and the Subsidiaries in amounts that have
been established in accordance with U.S. GAAP.
SECTION 3.09. Receivables. Except to the extent, if any, reserved
for on the Audited Balance Sheet, all Receivables reflected on the Audited
Balance Sheet arose from, and the Receivables existing at the Effective Time
will have arisen from, the bona fide sale of inventory or services to persons
not affiliated with the Company or any Subsidiary and in the ordinary course of
business consistent with past practice and, except as reserved against on the
Audited Balance Sheet, constitute or will constitute, as the case may be, only
valid, undisputed claims of the Company or a Subsidiary not subject to valid
claims of set-off or other defenses or counterclaims other than normal cash
discounts accrued in the ordinary course of business consistent with past
practice. Substantially all Receivables reflected on the Audited Balance Sheet
or arising from the date thereof until the Effective Time (subject to the
reserve for bad debts, if any, reflected on the Audited Balance Sheet) are or
will be good and have been collected or are or will be collectible, without
resort to litigation or extraordinary collection activity, within 90 days of the
Effective Time.
SECTION 3.10. [INTENTIONALLY OMITTED].
SECTION 3.11. Conduct in the Ordinary Course; Absence of Certain
Changes, Events and Conditions. Since December 31, 1996, except as set forth in
Section 3.11 of the Company Disclosure Schedule, the Business has been conducted
in the
<PAGE>
26
ordinary course and consistent with past practice. As amplification and not
limitation of the foregoing, except as set forth in Section 3.11 of the Company
Disclosure Schedule, since December 31, 1996, neither the Company nor any
Subsidiary has:
(i) permitted or allowed any of its properties or assets,
real, personal or mixed (including, without limitation, leasehold interests
and intangible property) to be subjected to any Encumbrance, other than
Permitted Encumbrances and Encumbrances that will be released at or prior
to the Effective Time;
(ii) discharged or otherwise obtained the release of any
Encumbrance or paid or otherwise discharged any Liability, other than
current liabilities reflected on the Audited Balance Sheet and current
liabilities incurred in the ordinary course of business consistent with
past practice since December 31, 1996;
(iii) made any loan to, guaranteed any Indebtedness of or
otherwise incurred any Indebtedness on behalf of any person;
(iv) failed to pay or otherwise discharge when due any
Liability thereof;
(v) redeemed, purchased or otherwise acquired any of its
capital stock or declared, set aside, made or paid any dividends or
distributions (whether in cash, securities or other property) to the
holders of its capital stock or otherwise, other than dividends,
distributions and redemptions declared, made or paid by any Subsidiary
solely to the Company;
(vi) made any material changes in its customary methods of
operations or the customary methods of operations of the Business,
including, without limitation, practices and policies relating to research
and development, licensing, manufacturing, purchasing, inventories,
marketing, selling and pricing;
(vii) merged with, entered into a consolidation with or acquired
an interest of five percent or more in any person or acquired a substantial
portion of the assets or business of any person or any division or line of
business thereof, or otherwise acquired any material assets;
(viii) made any capital expenditure or commitment for any capital
expenditure in excess of US$5,000 individually or US$50,000 in the
aggregate;
(ix) issued any sales orders or otherwise agreed to make any
purchases involving exchanges in value in excess of US$5,000 individually
or US$50,000 in the aggregate;
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27
(x) sold, transferred, leased, subleased, licensed,
sublicensed or otherwise disposed of any properties or assets, real,
personal or mixed (including, without limitation, leasehold interests and
intangible property), other than the sale of inventories in the ordinary
course of business consistent with past practice;
(xi) issued or sold any capital stock, notes, bonds or other
securities, or any option, warrant or other right to acquire the same, of,
or any other interest in, the Company or any Subsidiary;
(xii) entered into any agreement, arrangement or transaction
with any of its directors, officers, employees, shareholders or affiliates,
or with any relative, beneficiary, spouse or affiliate of any such person;
(xiii) (A) granted or announced any increase in the wages,
salaries, compensation, bonuses, incentives, pension or other benefits
payable by it to any of its employees, including, without limitation, any
increase or change pursuant to any Plan or (B) established or increased or
promised to increase any benefits under any Plan, in either case, except as
required by Law;
(xiv) written down or written up (or failed to write down or
write up in accordance with U.S. GAAP) the value of any Receivables or
revalued any of its assets;
(xv) amended, terminated, cancelled or compromised any
material claims or waived any material rights;
(xvi) made any change in any method of accounting or accounting
practice or policy, other than such changes required by U.S. GAAP and set
forth in Section 3.11 of the Company Disclosure Schedule;
(xvii) failed to maintain the Assets in accordance with good
business practice and in good operating condition and repair;
(xviii) allowed any Permit or Environmental Permit that was
issued or relates to it or otherwise relates to any Asset or the Business
to lapse or terminate or failed to renew any such Permit or Environmental
Permit or any insurance policy that is scheduled to terminate or expire
within 45 days of the Effective Time;
(xix) incurred any Indebtedness, in excess of US$5,000
individually or US$50,000 in the aggregate;
<PAGE>
28
(xx) amended, modified or consented to the termination of any
Material Contract or its rights thereunder;
(xxi) amended or restated its charter or bylaws (or similar
organizational documents);
(xxii) terminated, discontinued, closed or disposed of any
plant, facility or other business operation, or laid off any employees
(other than layoffs of fewer than 10 employees in any six-month period in
the ordinary course of business consistent with past practice) or
implemented any early retirement, separation or program providing early
retirement window benefits within the meaning of Section 1.401(a)-4 of the
Regulations or announced or planned any such action or program for the
future;
(xxiii) made any charitable contribution;
(xxiv) disclosed any secret or confidential Intellectual
Property (except by way of issuance of a patent) or permitted to lapse or
go abandoned any Intellectual Property (or any registration or grant
thereof or any application relating thereto) to or under which it has any
right, title, interest or license;
(xxv) made any express or deemed election or settled or
compromised any liability, with respect to Taxes;
(xxvi) suffered any damage, destruction or loss with respect to
any of the Assets which in the aggregate have a replacement cost of more
than US$25,000, whether or not any such damage, destruction or loss shall
have been covered by insurance;
(xxvii) suffered any Material Adverse Effect or suffered any
occurrence which could reasonably be expected to have a Material Adverse
Effect; or
(xxviii) agreed, whether in writing or otherwise, to take any of
the actions specified in this Section 3.11 or granted any options to
purchase, rights of first refusal, rights of first offer or any other
similar rights or commitments with respect to any of the actions specified
in this Section 3.11, except as expressly contemplated by this Agreement.
SECTION 3.12. Litigation. (a) Except as set forth in Section 3.12(a)
of the Company Disclosure Schedule (which, with respect to each Action listed
therein, sets forth (i) the parties, (ii) the nature of the proceeding, (iii)
the date and method commenced, and (iv) the amount of damages or other relief
sought and, if applicable, paid or granted), there
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29
are no Actions by or against the Company or any Subsidiary (or by or against the
Company or any affiliate thereof and relating to the Business, the Company or
any Subsidiary), or affecting any of the Assets or the Business, pending before,
or, to the best knowledge of the Company after due inquiry, threatened to be
brought by or before, any Governmental Authority.
(b) None of the matters set forth in Section 3.12(a) of the Company
Disclosure Schedule has had or could reasonably be expected to have a Material
Adverse Effect or could reasonably be expected to affect the legality, validity
or enforceability of this Agreement or the consummation of the transactions
contemplated hereby.
(c) Except as set forth in Section 3.12(c) of the Company Disclosure
Schedule, none of the Company or any Subsidiary or any of their respective
assets or properties, including, without limitation, the Assets, is subject to
any Governmental Order, nor, to the best knowledge of the Company after due
inquiry, are there any such Governmental Orders threatened to be imposed by any
Governmental Authority.
SECTION 3.13. Certain Interests. (a) Except as set forth in Section
3.13(a) of the Company Disclosure Schedule, neither the Company nor any
Subsidiary nor, to the knowledge of the Company, any shareholder, officer or
director of the Company or any Subsidiary, any relative or spouse (or relative
of such spouse) who resides with, or is a dependent of, any such shareholder,
officer or director, or any affiliate of any such person:
(i) has any direct or indirect financial interest in any competitor,
material supplier or material customer of the Company or any Subsidiary, or
any other person with which the Company or any Subsidiary has, or has had,
during the last three years, a material business arrangement or
relationship; provided, however, that the ownership of equity securities
representing no more than one percent of the outstanding voting power of
any competitor, supplier or customer, and which are listed on any national
securities exchange or traded actively in the national over-the-counter
market, shall not be deemed to be a "financial interest" so long as the
person owning such securities has no other connection or relationship with
such competitor, supplier or customer; or
(ii) owns, directly or indirectly, in whole or in part, or has any
other interest in any material tangible or intangible property belonging to
or used, held for use or intended to be used by the Company or any
Subsidiary or forming a part of or used, held for use or intended to be
used in connection with, necessary for, or otherwise material to the
conduct of, the business and operations of the Business.
(b) Except as set forth in Section 3.13(b) of the Company Disclosure
Schedule, no officer, director or shareholder of the Company or any Subsidiary,
no relative
<PAGE>
30
or spouse (or relative of such spouse) who resides with, or is a dependent of,
any such officer, director or shareholder, and no affiliate of any such person
has outstanding any Indebtedness to the Company or any Subsidiary.
(c) Except as set forth in Section 3.13(c) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary has any Liability or any other
obligation of any nature whatsoever to any officer, director or shareholder of
the Company or any Subsidiary, to any relative or spouse (or relative of such
spouse) who resides with, or is a dependent of, any such officer, director or
shareholder, or to any affiliate of any such person.
SECTION 3.14. Compliance with Laws. (a) Except as set forth in
Section 3.14(a) of the Company Disclosure Schedule, the Company and the
Subsidiaries have each conducted and continue to conduct the Business in
accordance with all Laws and Governmental Orders applicable to the Company or
any Subsidiary or any of the Assets or the Business, including, without
limitation, all Laws of all applicable jurisdictions relating to export controls
and immigration, and neither the Company nor any Subsidiary is in violation of
any such Law or Governmental Order. None of the Company, any Subsidiary, nor
any officer, director, employee, agent or representative of the Company or any
Subsidiary has furthered or supported any foreign boycott in violation of the
anti-boycott laws and regulations promulgated pursuant to the Export
Administration Act of 1979, as amended.
(b) Section 3.14(b) of the Company Disclosure Schedule sets forth a
brief description of each Governmental Order applicable to the Company or any
Subsidiary or any of their respective assets or properties, including, without
limitation, the Assets and the Business, and no such Governmental Order has had
or could reasonably be expected to have a Material Adverse Effect.
SECTION 3.15. Environmental Matters. (a) Except as set forth in
Section 3.15(a)(i) of the Company Disclosure Schedule, (i) the Company and each
Subsidiary is and has been in compliance with all applicable Environmental Laws;
(ii) the Company and each Subsidiary has obtained all Environmental Permits and
is and has been in compliance with their requirements; (iii) there are no
underground or aboveground storage tanks or any surface impoundments, septic
tanks, pits, sumps or lagoons in which Hazardous Materials are being or have
been treated, stored or disposed on any of the Leased Real Property or, to the
best knowledge of the Company after due inquiry, on any real property formerly
owned, leased or occupied by the Company or any Subsidiary; (iv) to the best
knowledge of the Company after due inquiry, there is no asbestos or asbestos-
containing material on any of the Leased Real Property; (v) neither the Company
nor any Subsidiary has released, discharged or disposed of Hazardous Materials
on any of the Leased Real Property or on any real property formerly owned,
leased or occupied by the Company or the Subsidiaries and, to the best knowledge
of the Company after due inquiry, none of such property is contaminated
<PAGE>
31
with any Hazardous Materials; (vi) neither the Company nor any Subsidiary is
undertaking, or has completed, any investigation or assessment or remedial or
response action relating to any such release, discharge or disposal of or
contamination with Hazardous Materials at any site, location or operation,
either voluntarily or pursuant to the order of any Governmental Authority or the
requirements of any Environmental Law; and (vii) there are no past, pending or
written threats of Environmental Claims against the Company or any Subsidiary or
any of their property, and, to the best knowledge of the Company after due
inquiry, there are no circumstances that can reasonably be expected to form the
basis of any such Environmental Claim, including, without limitation with
respect to any off-site disposal location presently or formerly used by the
Company or any Subsidiary or any of their predecessors.
(b) The Company has provided Parent with copies of any environmental
reports, studies or analyses in its possession or under its control relating to
the Leased Real Property or the operations of the Company and the Subsidiaries.
SECTION 3.16. Material Contracts. (a) Section 3.16(a) of the
Company Disclosure Schedule contains a true, complete and correct list of each
of the following contracts, agreements and commitments (including, without
limitation, oral and informal arrangements to the extent the same are material
to the Business) to which the Company or any the Subsidiary is a party or which
form a part of or are used, held for use or intended to be used in connection
with, necessary for, or otherwise material to the conduct of, the business and
operations of the Business (such contracts and agreements, together with all
contracts, agreements, leases and subleases concerning the management or
operation of any Leased Real Property (including, without limitation, brokerage
contracts) listed in Section 3.18(a) or 3.18(b) of the Company Disclosure
Schedule, and all agreements relating to Intellectual Property set forth in
Section 3.17(a) of the Company Disclosure Schedule, the "MATERIAL CONTRACTS"):
(i) each contract, agreement, invoice, purchase order and other
arrangement for the purchase of inventory, spare parts, other materials or
personal property with any supplier or for the furnishing of services to
the Company, any Subsidiary or otherwise related to the Business under the
terms of which the Company or any Subsidiary could reasonably be expected
to pay or otherwise give consideration of more than US$25,000 in the
aggregate during the calendar year ending December 31, 1997 or over the
remaining term of such contract, and which cannot be cancelled by the
Company or such Subsidiary without penalty or further payment and without
more than 30 days' notice;
(ii) each contract, agreement, invoice, sales order and other
arrangement for the sale of inventory or other personal property or for the
furnishing of services by the Company or any Subsidiary or otherwise
related to the Business under the
<PAGE>
32
terms of which the Company or any Subsidiary could reasonably be expected
to receive consideration of more than US$25,000 in the aggregate during the
calendar year ending December 31, 1997 or over the remaining term of the
contract, and which cannot be cancelled by the Company or such Subsidiary
without penalty or further payment and without more than 30 days' notice;
(iii) each broker, distributor, dealer, manufacturer's
representative, franchise, agency, sales promotion, market research,
marketing consulting and advertising contract, agreement or commitment;
(iv) each contract, agreement or commitment with any present or
former employee, independent contractor or consultant;
(v) each contract, agreement or commitment relating to Indebtedness
of the Company or any Subsidiary;
(vi) each contract, agreement or commitment with any Governmental
Authority;
(vii) each contract, agreement or commitment limiting or purporting
to limit the ability of the Company, any Subsidiary, the Business or any
successor thereto to compete in any line of business or with any person or
in any geographic area or during any period of time;
(viii) each contract, agreement or commitment between or among the
Company or any Subsidiary and the Company or any affiliate of the Company;
(ix) each contract, agreement or commitment providing for benefits
under any Plan;
(x) each contract, agreement or commitment under which the Company
has obtained or will obtain title to any Intellectual Property from a party
other than an employee or consultant of the Company or any Subsidiary;
(xi) each contract, agreement or commitment that materially limits
or restricts, or could reasonably be expected to materially limit and
restrict, the ability of the Company or any Subsidiary or, immediately
after the Effective Time, Parent or any subsidiary thereof, to use, modify,
display, reproduce, distribute, license, sell or provide the Company's or
any Subsidiaries' products or services; and
(xii) each contract, agreement or commitment, whether or not made in
the ordinary course of business, which is material to the Company, any
Subsidiary or the
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33
conduct of the Business or the absence of which could reasonably be
expected to have a Material Adverse Effect.
For purposes of this Section 3.16 and Sections 3.17, 3.18 and 3.19,
the term "LEASE" shall include any and all leases, subleases, sale/leaseback
agreements or similar arrangements.
(b) Except as set forth in Section 3.16(b) of the Company Disclosure
Schedule, each Material Contract (i) is legal, valid and binding on the Company
or Subsidiary party thereto and is in full force and effect, (ii) to the best
knowledge of the Company, is legal, valid and binding on the counterparty to
such Material Contract and (iii) upon consummation of the transactions
contemplated by this Agreement, except to the extent that any consents set forth
in Sections 3.05 and 3.06 of the Company Disclosure Schedule are not obtained,
shall continue in full force and effect without penalty or other adverse
consequence. Neither the Company nor any Subsidiary is in breach of, or default
under, any Material Contract.
(c) Except as set forth in Section 3.16(c) of the Company Disclosure
Schedule, no other party to any Material Contract is in breach thereof or
default thereunder.
(d) Except as set forth in Section 3.16(d) of the Company Disclosure
Schedule, there is no contract, agreement or other arrangement granting any
person any preferential right to purchase any of the properties or assets of the
Company or any Subsidiary.
SECTION 3.17. Intellectual Property. (a) Section 3.17(a)(i) of the
Company Disclosure Schedule contains a true, complete and correct list and a
brief description, including a complete identification of each patent and patent
application and each registration or application for registration thereof, and a
description of any license or sublicense thereof, of all Owned Intellectual
Property and Section 3.17(a)(ii) of the Company Disclosure Schedule contains a
true, complete and correct list and a brief description, including a description
of any license or sublicense thereof, of all Licensed Intellectual Property.
Except as otherwise described in Section 3.17(a)(i) of the Company Disclosure
Schedule, in each case where a registration or patent or application for
registration or patent listed in Section 3.17(a)(i) of the Company Disclosure
Schedule is held by assignment, the assignment has been duly recorded with the
state or national trademark office from which the original registration issued
or before which the application for registration is pending. Except as set
forth in Section 3.17(a)(iii) of the Company Disclosure Schedule, the rights of
the Company or any Subsidiary, as the case may be, in or to such Owned
Intellectual Property or Licensed Intellectual Property do not conflict with or
infringe on the rights of any other person, and neither the Company nor any
Subsidiary has received any claim or written notice from any person, to such
effect.
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34
(b) Except as set forth in Section 3.17(b)(i) of the Company
Disclosure Schedule all of the Owned Intellectual Property is owned by the
Company free and clear of any Encumbrance and neither the Company nor any
Subsidiary has granted any license, sublicense or other right to any other
person with respect to the Owned Intellectual Property or the Licensed
Intellectual Property. Except as set forth in Section 3.17(b) (ii) of the
Company Disclosure Schedule, no Actions have been made or asserted or are
pending, nor, to the best knowledge of the Company after due inquiry, has any
such Action been threatened, against the Company or any Subsidiary either (A)
based upon or challenging or seeking to deny or restrict the use by the Company
or any Subsidiary of any of the Owned Intellectual Property or (B) alleging that
any services provided, or products manufactured or sold by the Company or any
Subsidiary are being provided, manufactured or sold in violation of any patents
or trademarks, or any other rights of any person. To the best knowledge of the
Company after due inquiry, no person is using any Intellectual Property that are
confusingly similar to the Owned Intellectual Property or that infringe upon the
Owned Intellectual Property or upon the rights of the Company or any Subsidiary
therein. The consummation of the transactions contemplated by this Agreement
will not result in the termination or impairment of any of the Owned
Intellectual Property.
(c) With respect to all Licensed Intellectual Property and Owned
Intellectual Property, the registered user provisions of all nations requiring
such registrations have been complied with.
(d) The Company has, or has caused to be, delivered to Parent and
Merger Sub true, complete and correct copies of all of the licenses and
sublicenses for Licensed Intellectual Property listed in Section 3.17(a)(ii) of
the Company Disclosure Schedule and any and all ancillary documents pertaining
thereto (including, without limitation, all amendments, consents and evidence of
commencement dates and expiration dates). With respect to each of such licenses
and sublicenses:
(i) such license or sublicense, together with all ancillary
documents delivered pursuant to the first sentence of this Section 3.17(d),
is legal, valid, binding and enforceable and in full force and effect and
represents the entire agreement between the respective licensor and
licensee with respect to the subject matter of such license or sublicense;
(ii) except as otherwise set forth in Section 3.17(d)(ii) of the
Company Disclosure Schedule, such license or sublicense will not cease to
be legal, valid binding and enforceable and in full force and effect on
terms identical to those currently in effect as a result of the
consummation of the transactions contemplated by this Agreement, nor will
the consummation of the transactions contemplated by this Agreement
constitute a breach or default under such license or sublicense or
otherwise give the licensor or sublicensor a right to terminate such
license or sublicense;
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35
(iii) except as set forth in Section 3.17(d)(iii) of the Company
Disclosure Schedule, with respect to each such license or sublicense (A)
neither the Company nor any Subsidiary has received any notice of
termination or cancellation under such license or sublicense and no
licensor or sublicensor has any right of termination or cancellation under
such license or sublicense except in connection with the default of the
Company or any Subsidiary thereunder, (B) neither the Company nor any
Subsidiary has received any notice of a breach or default under such
license or sublicense, which breach or default has not been cured, and (C)
neither the Company nor any Subsidiary has granted to any other person any
rights, adverse or otherwise, under such license or sublicense;
(iv) none of the Company, any Subsidiary nor, to the best
knowledge of the Company after due inquiry, any other party to such license
or sublicense is in breach or default in any material respect, and, to the
best knowledge of the Company after due inquiry, no event has occurred
that, with notice or lapse of time would constitute such a breach or
default or permit termination, modification or acceleration under such
license or sublicense;
(v) no Actions have been made or asserted or are pending, nor,
to the best knowledge of the Company after due inquiry, has any such Action
been threatened, against the Company or any Subsidiary either (A) based
upon or challenging or seeking to deny or restrict the use by the Company
or any Subsidiary of any of the Licensed Intellectual Property or (B)
alleging that any Licensed Intellectual Property is being licensed,
sublicensed or used in violation of any patents or trademarks, or any other
rights of any person; and
(vi) to the best knowledge of the Company after due inquiry, no
person is using any patents, copyrights, trademarks, service marks, trade
names, trade secrets or similar property that are confusingly similar to
the Licensed Intellectual Property or that infringe upon the Licensed
Intellectual Property or upon the rights of the Company or any Subsidiary
therein.
(e) Except as set forth in Section 3.17(e) of the Company Disclosure
Schedule, the Company is not aware of any reason that could reasonably be
expected to prevent any pending applications to register trademarks, service
marks or copyrights or any pending patent applications from being granted.
(f) The Intellectual Property listed in Sections 3.17(a)(i) and (ii)
of the Company Disclosure Schedule constitutes all of the Intellectual Property
belonging to or used, held for use or intended to be used by the Company or any
Subsidiary or forming a part of or used, held for use or intended to be used in
connection with, necessary for, or otherwise material to the conduct of, the
business and operations of the Business, all such
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36
Intellectual Property is held by the Company free and clear of all Encumbrances
and there are no other items of Intellectual Property that are material to the
Company, any Subsidiary or the Business.
(g) The Company and its Subsidiaries have taken reasonable steps in
accordance with normal industry practice to maintain the confidentiality of its
trade secrets and other confidential Intellectual Property, and, to the
Company's knowledge, there have been no acts or omissions by the Company or its
Subsidiaries, the result of which would be to compromise the rights of the
Company or its Subsidiaries to apply for or enforce appropriate legal protection
of such Intellectual Property.
(h) Substantially all of the Company's and its Subsidiaries'
employees and agents and independent contractors retained by the Company or any
of its Subsidiaries and each of the Company's and its Subsidiaries' officers and
directors has entered into a written agreement with the Company or any of its
Subsidiaries (i) providing that all of the Company's and its Subsidiaries'
Intellectual Property is confidential and proprietary to the Company and its
Subsidiaries, and (ii) obligating to the fullest extent allowed by law the
disclosure and transfer to the Company, in consideration for no more than normal
salary and continued employment or consultant fees, as the case may be, of all
inventions, developments and work product which during the period of his or her
employment or consultancy with the Company or any of its Subsidiaries, as the
case may be, such employee, officer, director or independent contractor made or
makes that related or relate to any subject matter with which such employee's,
officer's, director's or independent contractor's work for the Company or any of
its Subsidiaries was concerned, or, in the case of employees, officers, agents
and directors, are made during such person's period of employment (or
contractual relationship) or in connection therewith. No former employees,
officers, directors or independent contractors of the Company or any of its
Subsidiaries have asserted to the Company any claim to, or, to the Company's
knowledge, have any, valid claim or valid right to, any of the Company's or any
of its Subsidiaries' Intellectual Property used in or necessary for the conduct
of the Company's or its Subsidiaries' business as now conducted. To the
Company's knowledge, no employee, officer, agent or director of the Company or
any of its Subsidiaries is a party to or otherwise bound by any agreement with
or obligated to any other Person (including, any former employer) which
conflicts with any obligation or commitment of such employee to the Company or
any of its Subsidiaries under any agreement to which he or she is a party or
otherwise.
(i) Section 3.17(i) of the Company Disclosure Schedule identifies
each person to whom the Company or any of its Subsidiaries has sold or otherwise
transferred any interest or rights to any Intellectual Property (other than end
user licenses for computer software and related documentation transferred in the
ordinary course of business) or purchased rights in any Intellectual Property,
and the date, if applicable, of each such sale, transfer or purchase.
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37
(j) The Company and each Subsidiary have taken reasonable steps in
accordance with normal industry practice to preserve and maintain reasonably
complete notes and records (including, without limitation, drawings, flow-charts
and prototypes) relating to its know-how, inventions, processes, procedures,
drawings, specifications, designs, plans, written proposals, technical data,
works of authorship and other proprietary technical information, sufficient to
cause such proprietary information to be readily identified, understood and
available.
(k) No Actions have been made or asserted or are pending, nor, to the
best knowledge of the Company after due inquiry, has any such Action been
threatened, against the Company or any Subsidiary either based upon or
challenging or seeking to deny or restrict the transfer by the Company or any
Subsidiary of any of the Owned Intellectual Property or the Licensed
Intellectual Property.
SECTION 3.18. Real Property. (a) Neither the Company nor any
Subsidiary owns or has owned any real property.
(b) Section 3.18(b) of the Company Disclosure Schedule contains a
true, complete and correct list of (i) the street address of each parcel of
Leased Real Property, (ii) the identity of the lessor, lessee and current
occupant (if different from lessee) of each such parcel of Leased Real Property,
(iii) the term (referencing applicable renewal periods) and rental payment terms
of the leases (and any subleases) pertaining to each such parcel of Leased Real
Property and (iv) the current use of each such parcel of Leased Real Property.
(c) Except as described in Section 3.18(c) of the Company Disclosure
Schedule, to the knowledge of the Company, there is no material violation of any
Law (including, without limitation, any building, planning or zoning Law)
relating to any of the Leased Real Property. The Company has made available to
Parent true, complete and correct copies of each lease for each parcel of Leased
Real Property and all of the title insurance policies, title reports, surveys,
certificates of occupancy, environmental reports and audits, appraisals,
permits, other title documents and other documents relating to or otherwise
affecting the Leased Real Property, the operations of the Company or any
Subsidiary thereon or any other uses thereof. Either the Company or a
Subsidiary, as the case may be, is in peaceful and undisturbed possession of
each parcel of Leased Real Property and, to the knowledge of the Company, there
are no contractual or legal restrictions that preclude or restrict the ability
to use the premises for the purposes for which they are currently being used.
All existing water, sewer, steam, gas, electricity, telephone and other
utilities required for the construction, use, occupancy, operation and
maintenance of the Leased Real Property are adequate for the conduct of the
Business as it has been and currently is conducted. To the knowledge of the
Company, there are no material latent defects or material adverse physical
conditions affecting the Leased Real Property or any of the facilities,
buildings, structures, erections, improvements, fixtures, fixed assets and
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38
personalty of a permanent nature annexed, affixed or attached to, located on or
forming part of the Leased Real Property. Except as set forth in Section
3.18(c) of the Company Disclosure Schedule, neither the Company nor any
Subsidiary has subleased any parcel or any portion of any parcel of Leased Real
Property to any other person, nor has the Company or any Subsidiary assigned its
interest under any lease or sublease listed in Section 3.18(b) of the Company
Disclosure Schedule to any third party.
(d) The Company has, or has caused to be, delivered to Parent true,
complete and correct copies of all leases and subleases listed in Section
3.18(b) of the Company Disclosure Schedule and any and all ancillary documents
pertaining thereto (including, without limitation, all amendments, consents for
alterations and documents recording variations and evidence of commencement
dates and expiration dates). With respect to each of such leases and subleases:
(i) such lease or sublease, together with all ancillary
documents delivered pursuant to the first sentence of this Section
3.18(d), is legal, valid, binding and enforceable on the Company and,
to the Company's knowledge, on the other party thereto and in full
force and effect and represents the entire agreement between the
respective landlord and tenant with respect to such property;
(ii) except as otherwise set forth in Section 3.18(d)(ii) of
the Company Disclosure Schedule, such lease or sublease will not cease
to be legal, valid, binding and enforceable and in full force and
effect on terms identical to those currently in effect as a result of
the consummation of the transactions contemplated by this Agreement,
nor will the consummation of the transactions contemplated by this
Agreement constitute a breach or default under such lease or sublease
or otherwise give the landlord a right to terminate such lease or
sublease;
(iii) except as set forth in Section 3.18(d)(iii) of the Company
Disclosure Schedule, with respect to each such lease or sublease (A)
neither the Company nor any Subsidiary has received any notice of
termination or cancellation under such lease or sublease and no lessor
has any right of termination or cancellation under such lease or
sublease except in connection with the default of the Company or any
Subsidiary thereunder, (B) neither the Company nor any Subsidiary has
received any notice of a breach or default under such lease or
sublease, which breach or default has not been cured, and (C) neither
the Company nor any Subsidiary has granted to any other person any
rights, adverse or otherwise, under such lease or sublease; and
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39
(iv) none of the Company, any Subsidiary nor any other party to
such lease or sublease, is in breach or default in any material
respect, and no event has occurred that, with notice or lapse of time
would constitute such a breach or default or permit termination,
modification or acceleration under such lease or sublease.
(e) To the knowledge of the Company, there are no condemnation
proceedings or eminent domain proceedings of any kind pending or, to the
knowledge of the Company, threatened against the Leased Real Property.
(f) To the knowledge of the Company, all of the Leased Real Property
is occupied under a valid and current certificate of occupancy or similar
permit, the transactions contemplated by this Agreement will not require the
issuance of any new or amended certificate of occupancy and there are no facts
that could reasonably be expected to prevent the Leased Real Property from being
occupied by the Company or any Subsidiary, as the case may be, after the
Effective Time in the same manner as occupied by the Company or such Subsidiary
immediately prior to the Effective Time.
(g) To the knowledge of the Company, all improvements on the Leased
Real Property constructed by or on behalf of the Company or any Subsidiary or,
to the knowledge of the Company, constructed by or on behalf of any other
person, were constructed in compliance with all applicable Laws (including,
without limitation, any building, planning or zoning Laws) affecting such Leased
Real Property.
(h) To the knowledge of the Company, no improvements on the Leased
Real Property and none of the current uses and conditions thereof violate any
applicable deed restrictions or other applicable covenants, restrictions,
agreements, existing site plan approvals, zoning or subdivision regulations or
urban redevelopment plans as modified by any duly issued variances, and no
permits, licenses or certificates pertaining to the ownership or operation of
all improvements on the Leased Real Property, other than those which are
transferable with the Leased Real Property, are required by any Governmental
Authority having jurisdiction over the Leased Real Property.
(i) To the knowledge of the Company, all improvements on any Leased
Real Property are wholly within the lot limits of such Leased Real Property and
do not encroach on any adjoining premises, and there are no encroachments on any
Leased Real Property by any improvements located on any adjoining premises.
(j) To the knowledge of the Company, except as otherwise set forth in
Section 3.18(j) of the Company Disclosure Schedule, there have been no
improvements of a value in excess of US$10,000 in the aggregate made to or
construction on any Leased Real Property within the applicable period for the
filing of mechanics' liens.
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(k) The rental set forth in each lease or sublease of the Leased
Real Property is the actual rental being paid, and there are no separate
agreements or understandings with respect to the same.
(l) Either the Company or a Subsidiary, as the case may be, has the
full right to exercise any renewal options contained in the leases and subleases
pertaining to the Leased Real Property on the terms and conditions contained
therein and upon due exercise would be entitled to enjoy the use of each Leased
Real Property for the full term of such renewal options.
SECTION 3.19. Tangible Personal Property. (a) Section 3.19(a) of
the Company Disclosure Schedule contains a true, complete and correct list of
each item or distinct group of Tangible Personal Property.
(b) The Company has, or has caused to be, delivered to Parent and
Merger Sub true, complete and correct copies of all leases and subleases for
Leased Tangible Personal Property and any and all material ancillary documents
pertaining thereto (including, without limitation, all amendments, consents and
evidence of commencement dates and expiration dates). With respect to each of
such leases and subleases:
(i) such lease or sublease, together with all ancillary documents
delivered pursuant to the first sentence of this Section 3.19(b), is legal,
valid, binding and enforceable and in full force and effect and represents
the entire agreement between the respective lessor and lessee with respect
to such property;
(ii) except as set forth in Section 3.19(b)(ii) of the Company
Disclosure Schedule, such lease or sublease will not cease to be legal,
valid, binding and enforceable and in full force and effect on terms
identical to those currently in effect as a result of the consummation of
the transactions contemplated by this Agreement, nor will the consummation
of the transactions contemplated by this Agreement constitute a breach or
default under such lease or sublease or otherwise give the lessor a right
to terminate such lease or sublease;
(iii) except as set forth in Section 3.19(b)(iii) of the Company
Disclosure Schedule, with respect to each such lease or sublease (A)
neither the Company nor any Subsidiary has received any notice of
termination or cancellation under such lease or sublease and no lessor has
any right of termination or cancellation under such lease or sublease
except in connection with the default of the Company or any Subsidiary
thereunder, (B) neither the Company nor any Subsidiary has received any
notice of a breach or default under such lease or sublease, which breach or
default has not been cured, and (C) neither the Company nor any Subsidiary
has granted to any other person any rights, adverse or otherwise, under
such lease or sublease; and
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41
(iv) none of the Company, any Subsidiary nor, to the best knowledge
of the Company after due inquiry, any other party to such lease or
sublease, is in breach or default in any material respect, and, to the best
knowledge of the Company after due inquiry, no event has occurred that,
with notice or lapse of time would constitute such a breach or default or
permit termination, modification or acceleration under such lease or
sublease.
(c) Either the Company or a Subsidiary, as the case may be, has the
full right to exercise any renewal options contained in the leases and subleases
pertaining to the Leased Tangible Personal Property on the terms and conditions
contained therein and upon due exercise would be entitled to enjoy the use of
each item of Leased Tangible Personal Property for the full term of such renewal
options.
SECTION 3.20. Assets. (a) Except as set forth in Section 3.20(a) of
the Company Disclosure Schedule, either the Company or a Subsidiary, as the case
may be, owns, leases or has the legal right to use all of the properties and
assets, including, without limitation, the Owned Intellectual Property, the
Licensed Intellectual Property, the Leased Real Property and the Tangible
Personal Property, forming a part of or used, held for use or intended to be
used in connection with, necessary for, or otherwise material to the conduct of,
the business and operations of the Business or otherwise belonging to or used,
held for use or intended to be used by the Company or any Subsidiary and, with
respect to contract rights, is a party to and enjoys the right to the benefits
of all contracts, agreements and other arrangements belonging to or used, held
for use or intended to be used by the Company or any Subsidiary or forming a
part of or used, held for use or intended to be used in connection with,
necessary for, or otherwise material to the conduct of, the business and
operations of the Business (all such properties, assets and rights being the
"ASSETS"). Either the Company or a Subsidiary, as the case may be, has good and
marketable title to, or, in the case of leased or subleased Assets, valid and
subsisting leasehold interests in, all of the Assets, free and clear of all
Encumbrances, except (i) as set forth in Section 3.17, 3.18(a), 3.18(b), 3.19 or
3.20(a) of the Company Disclosure Schedule and (ii) Permitted Encumbrances.
(b) The Assets constitute all of the properties, assets and rights
forming a part of or used, held for use or intended to be used in connection
with, necessary for, or otherwise material to the conduct of, the business and
operations of the Business. At all times since December 31, 1996, the Company
has caused the Assets to be maintained in accordance with good business
practice, and all of the Assets are in good operating condition and repair and
are suitable for the purposes for which they are used and intended.
(c) Following the consummation of the transactions contemplated by
this Agreement, either the Company or a Subsidiary, as the case may be, will
continue to own, with good and marketable title, or lease, under valid and
subsisting leases, or otherwise
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42
retain its respective interest in the Assets, free and clear of any and all
Encumbrances, other than Permitted Encumbrances, and without incurring any
penalty or other adverse consequence, including, without limitation, any
increase in rentals, royalties, or license or other fees imposed as a result of,
or arising from, the consummation of the transactions contemplated by this
Agreement. Immediately after the Effective Time, either the Company or a
Subsidiary, as the case may be, shall own and possess all documents, books,
records, agreements and financial data of any sort belonging to or used, held
for use or intended to be used by the Company or such Subsidiary or forming a
part of or used, held for use or intended to be used in connection with,
necessary for, or otherwise material to the conduct of, the business and
operations of the Business.
SECTION 3.21. Customers. Section 3.21 of the Company Disclosure
Schedule contains a true, complete and correct list of the names and addresses
of each of the 20 most significant customers (by revenue) of the Company and the
Subsidiaries for the 12-month period ended December 31, 1996 and the amount for
which each such customer was invoiced during such period. Except as set forth
in Section 3.21 of the Company Disclosure Schedule, neither the Company nor any
Subsidiary has received any notice or has any reason to believe that any
significant customer of the Company or any Subsidiary has ceased, or will cease,
to use the products, equipment, goods or services of the Company or any
Subsidiary, or has substantially reduced, or will substantially reduce, the use
of such products, equipment, goods or services at any time.
SECTION 3.22. Employee Benefit Matters. (a) Plans and Material
Documents. Section 3.22(a) of the Company Disclosure Schedule contains a true,
complete and correct list of each Plan. Each Plan is in writing and the Company
has furnished Parent and Merger Sub with a true, complete and correct copy of
each Plan and a true, complete and correct copy of each material document
prepared in connection with each such Plan including, without limitation, (i) a
copy of each trust or other funding arrangement, (ii) each summary plan
description and summary of material modifications, (iii) the most recently filed
IRS Form 5500, (iv) the most recently received IRS determination letter for each
such Plan, and (v) the most recently prepared actuarial report and financial
statement in connection with each such Plan. Except as set forth in Section
3.22(a) of the Company Disclosure Schedule, there are no other employee benefit
plans, programs, arrangements or agreements, whether formal or informal, whether
in writing or not, to which the Company or any Subsidiary is a party, with
respect to which the Company or any Subsidiary has any obligation or which are
maintained, contributed to or sponsored by the Company or any Subsidiary for the
benefit of any current or former employee, officer or director of the Company or
any Subsidiary. Neither the Company nor any Subsidiary has any express or
implied commitment, whether legally enforceable or not, (i) to create, incur
liability with respect to or cause to exist any other employee benefit plan,
program or arrangement, (ii) to enter into any contract or agreement to provide
compensation or benefits to any individual or
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43
(iii) to modify, change or terminate any Plan, other than with respect to a
modification, change or termination required by ERISA or the Code.
(b) Absence of Certain Types of Plans. None of the Plans is a
Multiemployer Plan or a Multiple Employer Plan. None of the Plans provides for
the payment of separation, severance, termination or similar-type benefits to
any person or obligates the Company or any Subsidiary to pay separation,
severance, termination or similar-type benefits solely as a result of any
transaction contemplated by this Agreement or as a result of a "change in
control," within the meaning of such term under Section 280G of the Code. None
of the Plans provides for or promises retiree medical, disability or life
insurance benefits to any current or former employee, officer or director of the
Company or any Subsidiary. Except as set forth in Section 3.22(b) of the
Company Disclosure Schedule, each of the Plans is subject only to the laws of
the United States or a political subdivision thereof. No Plan is or has been
subject to Title IV of ERISA.
(c) Compliance with Applicable Law. Each Plan is now and always has
been operated in all material respects in accordance with the requirements of
all applicable Laws, including, without limitation, ERISA and the Code, and all
persons who participate in the operation of such Plans and all Plan
"fiduciaries" (within the meaning of Section 3(21) of ERISA) have always acted
substantially in accordance with the provisions of all applicable Laws,
including, without limitation, ERISA and the Code. Each of the Company and each
Subsidiary has performed all obligations required to be performed by it under,
is not in any respect in default under or in violation of, and has no knowledge
of any default or violation by any party to, any Plan. No Action is pending or
threatened with respect to any Plan (other than claims for benefits in the
ordinary course) and, to the best knowledge of the Company after due inquiry, no
fact or event exists that could give rise to any such Action.
(d) Qualification of Certain Plans. Each Plan which is intended to be
qualified under Section 401(a) or 401(k) of the Code has received a favorable
determination letter from the IRS that it is so qualified and each trust
established in connection with any Plan which is intended to be exempt from
federal income taxation under Section 501(a) of the Code has received a
determination letter from the IRS that it is so exempt, and no fact or event has
occurred since the date of such determination letter from the IRS to adversely
affect the qualified status of any such Plan or the exempt status of any such
trust. Each trust maintained or contributed to by the Company or any Subsidiary
which is intended to be qualified as a voluntary employees' beneficiary
association and which is intended to be exempt from federal income taxation
under Section 501(c)(9) of the Code has received a favorable determination
letter from the IRS that it is so qualified and so exempt, and no fact or event
has occurred since the date of such determination by the IRS to adversely affect
such qualified or exempt status.
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44
(e) Absence of Certain Liabilities and Events. There has been no
prohibited transaction (within the meaning of Section 406 of ERISA or Section
4975 of the Code) with respect to any Plan. Neither the Company nor any
Subsidiary has incurred any liability for any penalty or excise tax arising
under Section 4971, 4972, 4980, 4980B or 6652 of the Code or any material
liability under Section 502 of ERISA, and, to the best knowledge of the Company
after due inquiry, no fact or event exists which could give rise to any such
material liability.
(f) Plan Contributions and Funding. All contributions, premiums or
payments required to be made with respect to any Plan have been made on or
before their due dates. All such contributions have been fully deducted for
income tax purposes and no such deduction has been challenged or disallowed by
any Governmental Authority and, to the best knowledge of the Company after due
inquiry, no fact or event exists which could give rise to any such challenge or
disallowance.
(g) Certain Employee-Benefits Assets. Each of the guaranteed
investment contracts and other funding contracts with any insurance company that
are held by any of the Plans and any annuity contracts purchased by (i) any of
the Plans or (ii) any pension benefit plans (as defined in Section 3(2) of
ERISA) that provided benefits to any current or former employees of the Company
or any Subsidiary was issued by an insurance company which received the highest
rating from each of Duff & Phelps Credit Rating Co., Standard & Poor's Insurance
Rating Services, A.M. Best Company and Moody's Investors Service, as of the date
such contract was issued, the date hereof and the Effective Time.
(h) Americans With Disabilities Act. Except as set forth in Section
3.22(h) of the Company Disclosure Schedule, each of the Company and each
Subsidiary is in compliance with the requirements of the Americans with
Disabilities Act.
(i) Foreign Benefit Plans. In addition to the foregoing, and except
as set forth in Section 3.22(i) of the Company Disclosure Schedule, (i) all
employer and employee contributions to each Foreign Benefit Plan required by law
or by the terms of such Foreign Benefit Plan have been made, or, if applicable,
accrued in accordance with normal accounting practices and a pro rata
contribution for the period from the date hereof to and including the Effective
Time has been made or accrued in accordance with normal accounting principles
and applicable Laws; and (ii) each Foreign Benefit Plan required to be
registered has been registered and has been maintained in good standing with
applicable regulatory authorities, and is now, and since December 31, 1993 has
been, administered in accordance with its terms and in full compliance with all
applicable Laws.
SECTION 3.23. Labor Matters. Except as set forth in Section 3.23 of
the Company Disclosure Schedule, (a) neither the Company nor any Subsidiary is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed
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45
by the Company or any Subsidiary and currently there are no organizational
campaigns, petitions or other unionization activities seeking recognition of a
collective bargaining unit which could affect the Company or any Subsidiary; (b)
there are no controversies, strikes, slowdowns or work stoppages pending or, to
the best knowledge of the Company after due inquiry, threatened between the
Company or any Subsidiary and any of their respective employees, and neither the
Company nor any Subsidiary has experienced any such controversy, strike,
slowdown or work stoppage within the past three years; (c) neither the Company
nor any Subsidiary has breached or otherwise failed to comply with the
provisions of any collective bargaining or union contract and there are no
grievances outstanding against the Company or any Subsidiary under any such
agreement or contract that could reasonably be expected to have a Material
Adverse Effect; (d) there are no unfair labor practice complaints pending
against the Company or any Subsidiary before the National Labor Relations Board
or any other Governmental Authority or any current union representation
questions involving employees of the Company or any Subsidiary that could
reasonably be expected to have a Material Adverse Effect; (e) each of the
Company and each Subsidiary is currently in compliance with all applicable Laws
relating to the employment of labor, including those related to wages, hours,
collective bargaining and the payment and withholding of taxes and other sums as
required by the appropriate Governmental Authority and has withheld and paid to
the appropriate Governmental Authority or is holding for payment not yet due to
such Governmental Authority all amounts required to be withheld from employees
of the Company or any Subsidiary and is not liable for any arrears of wages,
taxes, penalties or other sums for failure to comply with any of the foregoing;
(f) each of the Company and each Subsidiary has paid in full to all of their
respective employees or adequately accrued for in accordance with U.S. GAAP all
wages, salaries, commissions, bonuses, benefits and other compensation due to or
on behalf of such employees; (g) there is no claim with respect to payment of
wages, salary or overtime pay that has been asserted or is now pending or
threatened before any Governmental Authority with respect to any persons
currently or formerly employed by the Company or any Subsidiary; (h) neither the
Company nor any Subsidiary is a party to, or otherwise bound by, any consent
decree with, or citation by, any Governmental Authority relating to employees or
employment practices; (i) there is no charge or proceeding with respect to a
violation of any occupational safety or health standards that has been asserted
or is now pending or threatened with respect to the Company or any Subsidiary;
and (j) there is no charge of discrimination in employment or employment
practices, for any reason, including, without limitation, age, gender, race,
religion or other legally protected category, which has been asserted or is now
pending or threatened before the United States Equal Employment Opportunity
Commission, or any other Governmental Authority in any jurisdiction in which the
Company or any Subsidiary has employed or currently employs any person.
SECTION 3.24. Key Employees. (a) Section 3.24(a) of the Company
Disclosure Schedule contains a true, complete and correct list of the name, the
place of employment, the current annual salary rates, bonuses, deferred or
contingent compensation,
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46
pension, accrued vacation, "golden parachute" and other like benefits paid or
payable (in cash or otherwise) in 1996 and 1997, the date of employment and a
description of the position and job function of each current salaried employee,
officer, director, consultant or agent of the Company or any Subsidiary employed
in the United States of America whose annual compensation exceeded (or, in 1997,
is expected to exceed) US$75,000.
(b) Section 3.24(b) of the Company Disclosure Schedule contains a
true, complete and correct list of the name, the place of employment, the
current annual salary rates, bonuses, deferred or contingent compensation paid
or payable (in cash or otherwise) in 1994, 1995, 1996 and 1997, the date of
employment and a description of the position and job function of each salaried
employee or independent contractor of the Company or any Subsidiary employed in
Russia during such period.
SECTION 3.25. Taxes. (a) Except as set forth with reasonable
specificity in Section 3.25(a) of the Company Disclosure Schedule, (i) All
returns and reports in respect of Taxes required to be filed with respect to the
Company and each Subsidiary (including the consolidated federal income tax
return of the Company and any state Tax return that includes the Company or any
Subsidiary on a consolidated or combined basis) have been timely filed; (ii) all
Taxes required to be shown on such returns and reports or otherwise due have
been timely paid; (iii) all such returns and reports (insofar as they relate to
the activities or income of the Company or any Subsidiary) are true, complete
and correct in all material respects; (iv) no adjustment relating to such
returns has been proposed formally or informally by any Tax authority (insofar
as either relates to the activities or income of the Company or any Subsidiary
or could result in liability of the Company or any Subsidiary on the basis of
joint and/or several liability); (v) there are no pending or, to the best
knowledge of the Company after due inquiry, threatened actions or proceedings
for the assessment or collection of Taxes against the Company or any Subsidiary
or (insofar as either relates to the activities or income of the Company or any
Subsidiary or could result in liability of the Company or any Subsidiary on the
basis of joint and/or several liability) any corporation that was included in
the filing of a return with the Company on a consolidated or combined basis;
(vi) no consent under Section 341(f) of the Code has been filed with respect to
the Company or any Subsidiary; (vii) there are no Tax liens on any assets of the
Company or any Subsidiary; (viii) neither the Company nor any Subsidiary or
affiliate of the Company is a party to any agreement or arrangement that could
reasonably be expected to result, separately or in the aggregate, in the payment
of any "excess parachute payments" within the meaning of Section 280G of the
Code; (ix) no acceleration of the vesting schedule for any property that is
substantially unvested within the meaning of the regulations under Section 83 of
the Code will occur in connection with the transactions contemplated by this
Agreement; (x) the Company and each Subsidiary has not been a member of the
affiliated group (within the meaning of Section 1504(a)(1) of the Code); (xi)
neither the Company nor any Subsidiary has been at any time a member of any
partnership or joint venture or the holder of a beneficial interest in any trust
for any period for which the statute of limitations for any Tax
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47
has not expired; (xii) neither the Company nor any Subsidiary has been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code; and (xiii) neither the Company nor any Subsidiary is subject to any
accumulated earnings tax penalty or personal holding company tax.
(b) Except as set forth with reasonable specificity in Section
3.25(b) of the Company Disclosure Schedule, (i) there are no outstanding waivers
or agreements extending the statute of limitations for any period with respect
to any Tax to which the Company or any Subsidiary may be subject; (ii) neither
the Company nor any Subsidiary (A) has or is projected to have an amount
includible in its income for the current taxable year under Section 951 of the
Code, (B) has been a passive foreign investment company within the meaning of
Section 1296 of the Code, (C) has an unrecaptured overall foreign loss within
the meaning of Section 904(f) of the Code or (D) has participated in or
cooperated with an international boycott within the meaning of Section 999 of
the Code; (iii) neither the Company nor any Subsidiary has any (A) income
reportable for a period ending after the Effective Time but attributable to a
transaction (e.g., an installment sale) occurring in or a change in accounting
method made for a period ending on or prior to the Effective Time which resulted
in a deferred reporting of income from such transaction or from such change in
accounting method (other than a deferred intercompany transaction), or (B)
deferred gain or loss arising out of any deferred intercompany transaction; (iv)
there are no requests for information currently outstanding that could affect
the Taxes of the Company or any Subsidiary; (v) there are no proposed
reassessments of any property owned by the Company or any Subsidiary; (vi)
neither the Company nor any Subsidiary is obligated under any agreement with
respect to industrial development bonds or similar obligations, with respect to
which the excludibility from gross income of the holder for federal income tax
purposes could be affected by the transactions contemplated hereunder; and (vii)
no power of attorney that is currently in force has been granted with respect to
any matter relating to Taxes that could affect the Company or a Subsidiary.
(c) (i) Section 3.25(c) of the Company Disclosure Schedule contains
a true, complete and correct list of all income, franchise and similar tax
Returns (federal, state, local and foreign) filed with respect to each of the
Company and the Subsidiaries for taxable periods ended on or after December 31,
1993, indicates for which jurisdictions Returns have been filed on the basis of
a unitary group, indicates the most recent income, franchise or similar tax
Return for each relevant jurisdiction for which an audit has been completed or
the statute of limitations has lapsed and indicates all tax Returns that
currently are the subject of audit; (ii) the Company has delivered to Parent and
Merger Sub correct and complete copies of all federal, state and foreign income,
franchise and similar tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company or any Subsidiary
since December 31, 1993; and (iii) the Company has delivered to Parent and
Merger Sub a true, complete and correct copy of any tax-sharing or allocation
agreement or
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48
arrangement involving the Company or any Subsidiary and a true, complete and
correct description of any such unwritten or informal agreement or arrangement.
(d) On the Audited Balance Sheet, adequate reserves and allowances
have been provided to satisfy all Liabilities for Taxes relating to the Company
and the Subsidiaries for periods through the Effective Time (without regard to
the materiality thereof).
SECTION 3.26. Insurance. Section 3.26 of the Company Disclosure
Schedule lists each insurance policy (including policies providing property,
casualty, liability, workers' compensation, and bond and surety arrangements)
under which the Company or any Subsidiary has been an insured, a named insured
or otherwise the principal beneficiary of coverage at any time within the past
five years. With respect to each such insurance policy (i) the policy is legal,
valid, binding and enforceable in accordance with its terms and, except for
policies that have expired under their terms in the ordinary course, is in full
force and effect; (ii) neither the Company nor any Subsidiary is in breach or
default (including any breach or default with respect to the payment of premiums
or the giving of notice), and no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default or permit termination
or modification, under the policy; and (iii) no party to the policy has
repudiated, or given notice of an intent to repudiate, any provision thereof.
At the Effective Time, all insurance policies currently in effect will be
outstanding and in full force and effect, and all premiums thereon will have
been paid in full.
SECTION 3.27. Full Disclosure. The Company is not aware of any facts
which pertain specifically to the Company, any Subsidiary or the Business (as
opposed to facts that pertain generally to companies in the Company's or any
Subsidiary's industry) which could reasonably be expected to have a Material
Adverse Effect on the Company, any Subsidiary or the Business or which are
likely in the future to have a Material Adverse Effect on the Company, any
Subsidiary or the Business and which have not been disclosed in this Agreement,
the Company Disclosure Schedule, the 1995 Financial Statements, the Draft 1996
Financial Statements or the 1996 Financial Statements or otherwise disclosed to
Parent or Merger Sub by the Company in writing. No representation or warranty
of the Company or the Principal Shareholders in this Agreement, nor any
statement or certificate furnished or to be furnished to Parent or Merger Sub
pursuant to this Agreement, or in connection with the transactions contemplated
by this Agreement, contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact necessary to make the
statements contained herein or therein, taken as a whole and in light of the
circumstances under which they were made, not misleading.
SECTION 3.28. Shareholder Approval Requirements. The only actions by
the shareholders of the Company required to approve this Agreement, the Merger
and the other transactions contemplated hereby are the consents of (a) the
Principal Shareholders and
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49
the Voting Shareholders, collectively, as the holders of a majority of the
outstanding shares of the Company Common Stock and (b) the Principal
Shareholders as the holders of a majority of the outstanding shares of the
Company Preferred Stock.
SECTION 3.29. ParaScript Purchase Price. The ParaScript Purchase
Price was determined through good faith arm's-length negotiations between the
Company and Aron Katz.
SECTION 3.30. Brokers. Except for Montgomery Securities, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon any agreement, arrangement or understanding, written or oral, made by
or on behalf of the Company or any Subsidiary. The Company shall be solely
responsible for the fees and expenses of Montgomery Securities.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
As an inducement to the Company to enter into this Agreement, Parent
and Merger Sub hereby represent and warrant to the Company, except as set forth
on the Parent Disclosure Schedule, as follows:
SECTION 4.01. Organization and Authority of Merger Sub. Each of
Parent and Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has all necessary
corporate power and authority to enter into this Agreement, to carry out its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
by Parent and Merger Sub, the performance by Parent and Merger Sub of their
respective obligations hereunder and the consummation by Parent and Merger Sub
of the transactions contemplated hereby have been duly authorized and approved
by all requisite action on the part of Parent and Merger Sub, respectively.
This Agreement has been duly executed and delivered by Parent and Merger Sub,
and (assuming due authorization, execution and delivery by the Company) this
Agreement constitutes a legal, valid and binding obligation of Parent and Merger
Sub, enforceable against Parent and Merger Sub, respectively, in accordance with
its terms.
SECTION 4.02. No Conflict. Assuming the making and obtaining of all
filings, notifications, consents, approvals, authorizations and other actions
referred to in Section 4.03, except as may result from any facts or
circumstances relating solely to the Company, the execution, delivery and
performance of this Agreement by Parent and Merger
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50
Sub do not and will not (i) violate, conflict with or result in the breach of
any provision of the charter or bylaws (or similar organizational documents) of
Parent or Merger Sub, (ii) conflict with or violate any Law or Governmental
Order applicable to Parent or Merger Sub or (iii) conflict with, or result in
any breach of, constitute a default (or event which with the giving of notice or
lapse of time or both would become a default) under, require any consent under,
or give to others any rights of termination, amendment, acceleration,
suspension, revocation or cancellation of, or result in the creation of any
Encumbrance on any of the assets or properties of Parent or Merger Sub pursuant
to, any note, bond, mortgage, deed of trust, indenture, contract, agreement,
lease, sublease, license, permit, franchise or other instrument or arrangement
to which Parent or Merger Sub is a party or by which any of such assets or
properties is bound or affected which could reasonably be expected to have a
material adverse effect on the ability of Parent or Merger Sub to consummate the
transactions contemplated by this Agreement.
SECTION 4.03. Governmental Consents and Approvals. The execution,
delivery and performance of this Agreement by Parent and Merger Sub do not and
will not require any consent, approval, authorization or other order of, action
by, filing with, or notification to, any Governmental Authority, except as set
forth in Section 4.03 of the Parent Disclosure Schedule.
SECTION 4.04. Litigation. Except as set forth in Section 4.04 of the
Parent Disclosure Schedule, no claim, action, proceeding or investigation is
pending or, to the best knowledge of Parent and Merger Sub after due inquiry,
threatened, which seeks to delay or prevent the consummation of, or which could
reasonably be expected to materially adversely affect Parent's or Merger Sub's
ability to consummate, the transactions contemplated by this Agreement.
SECTION 4.05. SEC Documents: Undisclosed Liabilities. Parent has
filed all required reports, schedules, forms, statements and other documents
with the SEC since December 31, 1994 (the "PARENT SEC DOCUMENTS"). As of their
respective dates, the Parent SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC promulgated thereunder applicable
to such Parent SEC Documents, and none of the Parent SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Except
to the extent that information contained in any Parent SEC Document has been
revised or superseded by a later Parent SEC Document, none of the Parent SEC
Documents contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of Parent included in the Parent SEC
Documents comply as to form in all material respects with
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51
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with U.S. GAAP
(except, in the case of unaudited statements, as permitted by Form 10-Q under
the Exchange Act) and fairly present the consolidated financial position of
Parent and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows (or changes in financial
position prior to the approval of Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 95) for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
Except as set forth in the Parent SEC Documents, neither Parent nor any of its
subsidiaries has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) required by U.S. GAAP to be set forth on a
consolidated balance sheet of Parent and its consolidated subsidiaries or in the
notes thereto and reasonably be expected to have a material adverse effect on
Parent and its subsidiaries taken as a whole.
SECTION 4.06. Absence of Certain Changes or Events. Except as
disclosed in any Parent SEC Document, since the date of the most recent audited
financial statements included in the filed Parent SEC Documents there has not
been (i) any declaration, setting aside or payment of any dividend or
distribution (whether in cash, stock or property) with respect to any of
Parent's capital stock except for regular quarterly dividends on Parent's
outstanding preferred stock, (ii) any split, combination or reclassification of
any of its capital stock or any issuance or the authorization of any issuance of
any other securities in respect of, in lieu of or in substitution for shares of
its capital stock, (iii) any damage, destruction or loss, whether or not covered
by insurance, that has or is likely to have a material adverse effect on Parent
and its subsidiaries taken a whole, or (iv) any change in accounting methods,
principles or practices by Parent materially affecting its assets, liabilities,
or business, except insofar as may have been required by a change in U.S. GAAP.
SECTION 4.07. Stockholder Approval Requirements. No action by the
stockholders of Parent is required to approve this Agreement, the Merger or the
other transactions contemplated hereby.
SECTION 4.08. Brokers. Except for Morgan Stanley & Co. Incorporated,
no broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon any agreement, arrangement or understanding, written or
oral, made by or on behalf of Parent or Merger Sub. Parent and Merger Sub shall
be solely responsible for payment of the fees and expenses of Morgan Stanley &
Co. Incorporated.
SECTION 4.09. Capital Stock of Parent and Merger Sub. All of the
outstanding shares of Parent's and Merger Sub's respective capital stock are
duly authorized, validly issued, fully paid and nonassessable. The shares of
Parent Common Stock to be issued in connection with the Merger have been duly
authorized and when issued in
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52
accordance with the terms hereof shall be validly issued, fully paid and
nonassessable and free and clear of any Encumbrances.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Effective Time. (a)
Except as set forth in Section 5.01(a) of the Company Disclosure Schedule,
between the date hereof and the Effective Time, the Company shall not, and shall
not permit any Subsidiary to, conduct the Business other than in the ordinary
course and consistent with the Company's and the Subsidiaries' past practice,
except as expressly permitted by this Agreement. Without limiting the
generality of the foregoing, except as described in Section 5.01(a) of the
Company Disclosure Schedule, the Company shall, and shall cause each Subsidiary
to, (i) continue its advertising and promotional activities, and pricing and
purchasing policies, in accordance with past practice; (ii) not shorten or
lengthen the customary payment cycles for any of its payables or receivables;
(iii) use its reasonable best efforts to (A) preserve intact its business
organization and the business organization of the Business, (B) keep available
to Parent and Merger Sub the services of its employees, (C) continue in full
force and effect without material modification all existing policies or binders
of insurance currently maintained thereby for the Company, the Subsidiaries
and/or the Business, and (D) preserve its current relationships with its
customers, suppliers and other persons with which it has significant business
relationships; (iv) exercise, but only after notice to Parent and receipt of
Parent's prior written approval, any rights of renewal pursuant to the terms of
any of the leases or subleases listed in Section 3.18(b) of the Company
Disclosure Schedule which by their terms would otherwise expire prior to the
Effective Time; and (v) not engage in any practice, take any action, fail to
take any action or enter into any transaction which could cause any
representation or warranty of the Company or the Principal Shareholders to be
untrue, incomplete or incorrect in any material respect or result in a breach in
any material respect of any covenant made by the Company in this Agreement.
(b) Except as set forth in Section 5.01(b) of the Company Disclosure
Schedule, prior to the Effective Time the Company shall not, and shall not
permit any Subsidiary to, without the prior written consent of Parent:
(i) permit or allow any of its assets or properties
(whether tangible or intangible) to be subjected to any Encumbrance,
other than Permitted Encumbrances and Encumbrances that will be
released at or prior to the Effective Time;
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53
(ii) discharge or otherwise obtain the release of any
Encumbrance or pay or otherwise discharge any Liability, other than
current liabilities reflected on the Audited Balance Sheet and current
liabilities incurred in the ordinary course of business consistent
with past practice since December 31, 1996;
(iii) make any loan to, guarantee any Indebtedness of or
otherwise incur any Indebtedness on behalf of any person;
(iv) fail to pay or otherwise discharge when due any
Liability thereof;
(v) redeem, purchase or otherwise acquire any of its
capital stock or declare, set aside, make or pay any dividends or
distributions (whether in cash, securities or other property) to the
holders of its capital stock or otherwise, other than dividends,
distributions and redemptions declared, made or paid by any Subsidiary
solely to the Company;
(vi) make any material changes in its customary methods
of operation, or the customary methods of operation of the Business,
including, without limitation, practices and policies relating to
research and development, licensing, manufacturing, purchasing,
inventories, marketing, selling and pricing;
(vii) merge with, enter into a consolidation with or
acquire an interest of five percent or more in any person or acquire a
substantial portion of the assets or business of any person or any
division or line of business thereof, or otherwise acquire any
material assets;
(viii) make any capital expenditure or commitment for any
capital expenditure in excess of US$5,000 individually or US$50,000 in
the aggregate;
(ix) issue any sales orders or otherwise agree to make
any purchases involving exchanges in value in excess of US$5,000
individually or US$50,000 in the aggregate;
(x) sell, transfer, lease, sublease, license,
sublicense or otherwise dispose of any properties or assets, real,
personal or mixed (including, without limitation, leasehold interests
and intangible assets), other than the sale of inventories in the
ordinary course of business consistent with past practice;
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54
(xi) issue or sell any of its capital stock, notes,
bonds or other securities, or any option, warrant or other right to
acquire the same, or any other interest in it;
(xii) enter into any agreement, arrangement or
transaction with any of its directors, officers, employees,
shareholders or affiliates, or with any relative, beneficiary, spouse
or affiliate of any such person;
(xiii) (A) grant or announce any increase in the wages,
salaries, compensation, bonuses, incentives, pension or other benefits
payable by it to any of its employees, including, without limitation,
any increase or change pursuant to any Plan or (B) establish or
increase or promise to increase any benefits under any Plan, in either
case except as required by Law or any collective bargaining agreement
and involving ordinary increases consistent with its past practices;
(xiv) grant any rights to severance or termination pay
to, or enter into any employment or severance agreement with, any
director, officer or other employee of the Company or any Subsidiaries
or establish, adopt or enter into any employee benefit plan or
agreement that, if previously established, adopted or entered into,
would be defined as a "Plan" hereunder;
(xv) write down or write up (or fail to write down or
write up in accordance with U.S. GAAP) the value of any of its
Receivables or revalue any of its assets;
(xvi) amend, terminate, cancel or compromise any of its
material claims or waive any other of its material rights;
(xvii) make any change in any method of accounting or
accounting practice or policy used thereby;
(xviii) fail to maintain the Assets in accordance with
good business practice and in good operating condition and repair;
(xix) allow any Permit or Environmental Permit that was
issued or relates to it or otherwise relates to any Asset to lapse or
terminate or fail to renew any such Permit or Environmental Permit or
any insurance policy that is scheduled to terminate or expire within
45 calendar days of the Effective Time;
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55
(xx) incur any Indebtedness in excess of US$5,000
individually or US$50,000 in the aggregate;
(xxi) amend, modify or consent to the termination of any
Material Contract or its rights thereunder;
(xxii) amend or restate its charter or bylaws (or similar
organizational documents);
(xxiii) terminate, discontinue, close or dispose of any
plant, facility or other business operation, or lay off any employees,
or implement any early retirement, separation or program providing
early retirement window benefits within the meaning of Section
1.401(a)-4 of the Regulations or announce or plan any such action or
program for the future;
(xxiv) make any charitable contribution;
(xxv) disclose any secret or confidential Intellectual
Property (except by way of issuance of a patent) or permit to lapse or
go abandoned any Intellectual Property (or any registration or grant
thereof or any application relating thereto) to which, or under which,
it has any right, title, interest or license;
(xxvi) make any express or deemed election or settle or
compromise any liability, with respect to its Taxes;
(xxvii) take any action which could reasonably be expected
to result in any damage, destruction or loss with respect to any of
the Assets which in the aggregate have a replacement cost of more than
US$25,000 , whether or not any such potential or actual damage,
destruction or loss shall have been covered by insurance;
(xxviii) take any action which could reasonably be expected
to result in a Material Adverse Effect; or
(xxix) agree, whether in writing or otherwise, to take
any of the actions specified in this Section 5.01 or grant any options
to purchase, rights of first refusal, rights of first offer or any
other similar rights or commitments with respect to any of the actions
specified in this Section 5.01, except as expressly contemplated by
this Agreement.
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56
SECTION 5.02. Access to Information. From the date hereof until the
earlier of the termination of this Agreement and the Effective Time, upon
reasonable notice, the Company shall, and shall cause each Subsidiary and each
officer, director, employee, agent, representative, accountant and counsel of
the Company and each Subsidiary to, (i) afford the officers, employees and
authorized agents, representatives, accountants and counsel of Parent and Merger
Sub reasonable access, during normal business hours, to the offices, properties,
plants, other facilities, books and records of the Company and each Subsidiary
and to those officers, directors, employees, agents, representatives,
accountants and counsel of the Company and of each Subsidiary who have any
knowledge relating to the Company, any Subsidiary or the Business and (ii)
furnish to the officers, employees and authorized agents, representatives,
accountants and counsel of Parent and Merger Sub such additional financial and
operating data and other information regarding the assets, properties and
goodwill of the Company, the Subsidiaries and the Business (or legible copies
thereof) as Parent or Merger Sub may from time to time reasonably request.
SECTION 5.03. Confidentiality. The Company shall, and shall cause
each Subsidiary and each officer, director, employee, agent, representative,
accountant and counsel of the Company and each Subsidiary to, (i) treat and hold
as confidential (and not disclose or provide access to any person to) all
information relating to trade secrets, processes, patent and trademark
applications, product development, price, customer and supplier lists, pricing
and marketing plans, policies and strategies, operations methods, product
development techniques, business acquisition plans, new personnel acquisition
plans and all other confidential information with respect to the Business, the
Company and each Subsidiary; (ii) in the event that the Company or any
Subsidiary or any such agent, representative, affiliate, employee, officer or
director of the Company or any Subsidiary becomes legally compelled to disclose
any such information, provide Parent and Merger Sub with prompt written notice
of such requirement so that Parent, Merger Sub, the Company or any Subsidiary
may seek a protective order or other remedy or waive compliance with this
Section 5.03; and (iii) in the event that such protective order or other remedy
is not obtained, or Parent and Merger Sub waive compliance with this Section
5.03, furnish only that portion of such confidential information which is
legally required to be provided and exercise its reasonable best efforts to
obtain assurances that confidential treatment will be accorded such information.
In addition, with respect to Intellectual Property, any combination of features
shall not be deemed to be within the foregoing exception merely because the
individual features are in the public domain unless the combination itself and
its principle of operation are in the public domain. Remedies at law for any
breach of any person's obligations under this Section 5.03 are inadequate and in
addition thereto Parent and Merger Sub shall be entitled to seek equitable
relief, including injunction and specific performance, in the event of any such
breach, without the necessity of demonstrating the inadequacy of money damages.
(b) Parent and Merger Sub agree that all data and information
furnished by the Company to Parent and Merger Sub in connection with their due
diligence shall be kept
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57
in strict confidence in accordance with the procedures used by Parent and Merger
Sub to protect their own confidential information, which shall be no less than
reasonable care. In the event of the termination of this Agreement, Parent,
Merger Sub and their respective employees, directors and representatives shall
continue to keep all information disclosed to them by the Company confidential
and shall promptly return to the Company or destroy all written information
provided to them by the Company and all notes of employees, directors and
representatives of Parent and Merger Sub relating to the transactions
contemplated hereby.
SECTION 5.04. Regulatory and Other Authorizations; Notices and
Consents. (a) The Company shall use its best efforts to obtain, or cause the
Subsidiaries to obtain, all authorizations, consents, orders and approvals of
all Governmental Authorities and officials that may be or become necessary for
its execution and delivery of, and the performance of its obligations pursuant
to, this Agreement and shall cooperate fully with Parent and Merger Sub in
promptly seeking to obtain all such authorizations, consents, orders and
approvals.
(b) The Company shall, or shall cause the Subsidiaries to, give
promptly such notices to third parties and shall use its, or shall cause the
Subsidiaries to use their, best efforts to obtain such third party consents and
estoppel certificates as Parent or Merger Sub may in its reasonable discretion
deem necessary or desirable in connection with the transactions contemplated by
this Agreement.
(c) Parent and Merger Sub shall cooperate and use all reasonable
efforts to assist the Company in giving such notices and obtaining such consents
and estoppel certificates; provided, however, that neither Parent nor Merger Sub
shall have any obligation to give any guarantee or other consideration of any
nature in connection with any such notice, consent or estoppel certificate or to
consent to any change in the terms of any agreement or arrangement which Merger
Sub in its sole and absolute discretion may deem adverse to the interests of
Merger Sub, the Company, any Subsidiary or the Business.
(d) The Company has no knowledge of any reason why all of the
consents, approvals and authorizations necessary for the consummation of the
transactions contemplated hereby will not be received.
SECTION 5.05. Notice of Developments. (a) Prior to the Effective
Time, the Company shall promptly notify Parent in writing of (i) all events,
circumstances, facts and occurrences arising subsequent to the date of this
Agreement which could reasonably be expected to result in any breach of a
representation or warranty or covenant of the Company in this Agreement or which
could reasonably be expected to have the effect of making any representation or
warranty of the Company or the Principal Shareholders in this Agreement untrue,
incomplete or incorrect in any material respect and (ii) all other material
developments affecting the Assets, Liabilities, business, financial condition,
operations,
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results of operations, customer or supplier relations, employee relations,
projections or prospects of the Company, any Subsidiary or the Business.
(b) Prior to the Effective Time, the Parent and Merger Sub shall
promptly notify the Company in writing of all events, circumstances, facts and
occurrences arising subsequent to the date of this Agreement which could
reasonably be expected to result in any breach of a representation or warranty
or covenant of Parent or Merger Sub in this Agreement or which could reasonably
be expected to have the effect of making any representation or warranty of
Parent or Merger Sub in this Agreement untrue, incomplete or incorrect in any
material respect
SECTION 5.06. No Solicitation or Negotiation. Between the date of
this Agreement and the earlier of (i) the Effective Time and (ii) the
termination of this Agreement, none of the Company, the Subsidiaries nor any of
their respective affiliates, officers, directors, representatives or agents
shall, directly or indirectly, (A) solicit, initiate, consider, encourage or
accept any other proposals or offers from any person (1) relating to any
acquisition or purchase of all or any portion of the capital stock or assets of
the Company or any Subsidiary (other than inventory to be sold in the ordinary
course of business consistent with past practice), (2) to enter into any
business combination with the Company or any Subsidiary or (3) to enter into any
other extraordinary business transaction involving or otherwise relating to the
Company or any Subsidiary, or (B) participate in any discussions, conversations,
negotiations or other communications regarding, or furnish to any other person
any information with respect to, or otherwise cooperate in any way, assist or
participate in, facilitate or encourage any effort or attempt by any other
person to seek to do any of the foregoing. The Company immediately shall cease
and cause to be terminated all existing discussions, conversations, negotiations
and other communications with any persons conducted heretofore with respect to
any of the foregoing. The Company shall notify Parent and Merger Sub promptly
if any such proposal or offer, or any inquiry or other contact with any person
with respect thereto, is made and shall, in any such notice to Parent and Merger
Sub, indicate in reasonable detail the identity of the person making such
proposal, offer, inquiry or contact and the terms and conditions of such
proposal, offer, inquiry or other contact. The Company shall not, and shall
cause the Company and each Subsidiary not to, without the prior written consent
of Parent and Merger Sub, release any person from, or waive any provision of,
any confidentiality or standstill agreement to which the Company or any
Subsidiary is a party.
SECTION 5.07. Securities Filings. Parent and the Company shall make
all necessary filings with respect to the Merger under the Securities Act and
the Exchange Act and the rules and regulations thereunder, under applicable blue
sky or similar securities laws, rules and regulations and shall use all
reasonable efforts to obtain required approvals and clearances with respect
thereto.
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SECTION 5.08. [INTENTIONALLY OMITTED].
SECTION 5.09. New York Stock Exchange Listing. Parent shall use all
reasonable efforts to cause the shares of Parent Common Stock issuable to
holders of Company Common Stock pursuant to this Agreement to be authorized for
listing on the NYSE.
SECTION 5.10. Shelf Registration. As promptly as practicable after
the Effective Time, Parent shall file with the SEC a shelf registration
statement for the purpose of permitting resale of the shares of Parent Common
Stock received pursuant hereto by the holders of Company Securities, and shall
use reasonable efforts to have such registration statement declared effective by
the SEC as promptly as practicable. Parent will notify the Company promptly
upon the receipt of any comments from the SEC or its staff or any other
governmental officials for amendments or supplements to such registration
statement or for additional information and will supply the Company with copies
of all correspondence between Parent or any of its representatives, on the one
hand, and the SEC, or its staff or any other governmental officials, on the
other hand, with respect to such registration statement. Subject to the
following, Parent shall use all reasonable efforts to maintain the effectiveness
of such registration statement until the first anniversary of the Effective
Time. Parent shall not be required to maintain the effectiveness of such
registration statement pursuant to this Section 5.10 during the period starting
with the date of filing by Parent of, and ending on a date 120 days following
the effective date of, a registration statement pertaining to a public offering
of securities for the account of Parent. If Parent shall furnish to the former
holders of Company Securities a certificate signed by a duly authorized officer
of Parent stating that in the good faith opinion of the board of directors of
Parent the continued effectiveness of such registration would interfere with any
material transaction then being pursued by Parent, then Parent's obligation to
use all reasonable efforts to maintain the effectiveness of such registration
statement shall be suspended for a period not to exceed 60 days; provided,
however, if the effectiveness of the registration statement is suspended for a
period greater than 60 days pursuant to this Section, Parent's obligation to use
all reasonable efforts to maintain the effectiveness of the registration
statement until the first anniversary of the Effective Time shall be extended by
a period equal to the number of days greater than 60 that the effectiveness of
the registration statement is suspended.
SECTION 5.11. Employee Benefits. Parent shall provide, or cause the
Surviving Corporation, a Subsidiary or another affiliate of Parent to provide,
those persons actively employed by the Company or any Subsidiary immediately
prior to the Effective Time with employee benefits in the aggregate no less
favorable than those provided to similarly situated employees of Parent. It is
the express understanding and intention of the Company and Parent that no
employee of the Company or Parent or any of their subsidiaries or other person
shall be deemed to be a third party beneficiary, or have or acquire any right to
enforce the provisions of this Section 5.11, and that nothing in this Agreement
shall be
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deemed to constitute an employee benefit plan or arrangement of the Company,
Parent or any of their respective subsidiaries.
SECTION 5.12. Agreement of the Principal Shareholders and the Voting
Shareholders to Vote Shares. Within five Business Days of the date hereof, the
Principal Shareholders and the Voting Shareholders (who are signatories to this
Agreement solely for the purposes of agreeing to the provisions of this Section
5.12) shall deliver to the Company and Parent a written consent whereby the
Principal Shareholders and the Voting Shareholders vote all of the shares of
Company Capital Stock held thereby in favor of approval of the Merger Agreement
and the Merger and any matter that could reasonably be expected to facilitate
the Merger. In addition, at every annual or special meeting of the shareholders
of the Company and at every continuation or adjournment thereof, and on every
action or approval by written consent of the shareholders of the Company in lieu
of any such meeting, the Principal Shareholders and the Voting Shareholders (i)
shall vote all of the shares of Company Capital Stock held thereby in favor of
approval of the Merger Agreement and the Merger and any matter that could
reasonably be expected to facilitate the Merger, (ii) shall vote all of the
shares of Company Capital Stock held thereby against any proposal made in
opposition to or competition with consummation of the Merger, (iii) shall not
vote any of the shares of Company Capital Stock held thereby in favor of any
merger, consolidation, sale of assets, reorganization or recapitalization of the
Company with any party other than Parent or its affiliates and (iv) shall vote
all of the shares of Company Capital Stock held thereby against any liquidation
or winding up of the Company.
SECTION 5.13. Broker for Acquisition of Parent Treasury Shares.
Parent shall use Alex, Brown & Sons, Incorporated as broker for Parent's
acquisition of the Parent Treasury Shares.
SECTION 5.14. Restricted Stock Purchase Agreements. Prior to the
Effective Time, the Company shall take all necessary actions to exercise its
Purchase Option (under and as defined in Section 2 of the Restricted Stock
Purchase Agreements) with respect to all shares of Company Common Stock subject
to the Purchase Option under each such Restricted Stock Purchase Agreement.
SECTION 5.15. Agreement Amendment Proposal. In the event that the
ParaScript Valuation exceeds the ParaScript Purchase Price by an amount greater
than or equal to 150 percent of the ParaScript Purchase Price, Parent may at its
option, within five (5) Business Days after receipt of the ParaScript Valuation
propose in writing to the Company such amendments to this Agreement
(collectively, the "Amendment Proposal") as Parent in its reasonable discretion
shall deem appropriate to address any potential additional tax liabilities of
the Company arising from the amount by which the ParaScript Valuation exceeds
the ParaScript Purchase Price. Within five (5) Business Days after receipt by
the Company of the Amendment Proposal, the Company shall accept or reject such
proposal by
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written notice to Parent. The failure of the Company to respond in writing
within such five (5) Business Day period shall be deemed to be a rejection of
the Amendment Proposal. For purposes of this Section 5.15, the Company and
Parent agree that any proposal by Parent to amend this Agreement to reduce the
the Purchase Price by an amount equal to the Company's estimated tax liability
attributable to the amount by which the ParaScript Valuation exceeds the
ParaScript Purchase Price shall be "reasonable".
SECTION 5.16. Further Action. Each of the parties hereto shall use
all reasonable efforts to take, or cause to be taken, all appropriate action, do
or cause to be done all things necessary, proper or advisable under applicable
Law, and execute and deliver such documents, certificates, further assurances
and other papers, as may be required to carry out the provisions of this
Agreement and consummate and make effective the transactions contemplated by
this Agreement, including, but not limited to, all such actions and things and
execution of such documents as reasonably recommended by the parties' respective
Russian counsel and other advisors.
ARTICLE VI
CONDITIONS TO CLOSING
SECTION 6.01. Conditions to Obligations of the Company. The
obligations of the Company to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Effective
Time, of each of the following conditions:
(a) Representations, Warranties and Covenants. The representations
and warranties of Parent and Merger Sub contained in this Agreement shall have
been true, complete and correct when made and shall be true, complete and
correct in all material respects as of the Effective Time, with the same force
and effect as if made as of the Effective Time, other than such representations
and warranties as are made as of another date and except (i) for changes
contemplated by this Agreement and (ii) in such cases where the failure to be so
true, complete and correct would not have, or could not reasonably be expected
to have, a Material Adverse Effect on Parent or Merger Sub. The covenants and
agreements contained in this Agreement to be complied with by Parent and Merger
Sub at or prior to the Effective Time shall have been complied with in all
material respects;
(b) No Proceeding or Litigation. No Action shall have been commenced
by or before any Governmental Authority against the Company, Parent or Merger
Sub, seeking to restrain or materially and adversely alter the transactions
contemplated by this Agreement which, in the reasonable, good faith
determination of the Company, could reasonably be expected to render it
impossible or unlawful to consummate such transactions;
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provided, however, that the provisions of this Section 6.01(b) shall not apply
if the Company shall have solicited or encouraged, directly or indirectly, any
such Action;
(c) Legal Opinion. The Company shall have received from Shearman &
Sterling, counsel to Parent, a legal opinion letter, addressed to the Company
and dated the closing date, in form and substance reasonably satisfactory to
Parent and the Company;
(d) Officers' Certificate. The Company shall have received from the
president and the chief financial officer of each of Parent and Merger Sub a
certificate dated the closing date, in form and substance reasonably
satisfactory to Parent and the Company;
(e) Secretary's Certificate. The Company shall have received from the
secretary of each of Parent and Merger Sub a certificate dated the closing date,
in form and substance reasonably satisfactory to Parent and the Company;
(f) ParaScript Sale. The ParaScript Sale shall have been consummated
substantially on the terms set forth in the ParaScript Sale Agreement;
(g) ParaScript License Amendment. The ParaScript License Amendment
shall have been executed and delivered by the parties thereto; and
(h) New York Stock Exchange Listing. The shares of Parent Common
Stock issuable to the Company's shareholders pursuant to this Agreement shall
have been authorized for listing on the NYSE, upon official notice of issuance.
SECTION 6.02. Conditions to Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment, at or prior
to the Effective Time, of each of the following conditions:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Company contained in this Agreement shall have been true,
complete and correct when made and shall be true, complete and correct in all
material respects as of the Effective Time, with the same force and effect as if
made as of the Effective Time, other than such representations and warranties as
are made as of another date and except (i) for changes contemplated by this
Agreement and (ii) in such cases where the failure to be so true, complete and
correct would not have, or could not reasonably be expected to have, a Material
Adverse Effect on the Business, the Company or any Subsidiary. The covenants
and agreements contained in this Agreement to be complied with by the Company at
or prior to the Effective Time shall have been complied with in all material
respects;
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(b) No Proceeding or Litigation. No Action shall have been commenced
or threatened by or before any Governmental Authority against the Company,
Parent or Merger Sub, seeking to restrain or materially and adversely alter the
transactions contemplated by this Agreement which, in the reasonable, good faith
determination of the Parent or Merger Sub, could reasonably be expected to
render it impossible or unlawful to consummate such transactions or which could
reasonably be expected to have a Material Adverse Effect; provided, however,
that the provisions of this Section 6.02(b) shall not apply if Parent or Merger
Sub shall have solicited or encouraged, directly or indirectly, any such Action;
(c) Legal Opinion. Parent and Merger Sub shall have received from
Wilson, Sonsini, Goodrich & Rosati, counsel to the Company, a legal opinion
letter, addressed to Parent and Merger Sub and dated the closing date, in form
and substance reasonably satisfactory to Parent and the Company;
(d) Officers' Certificate. Parent and Merger Sub shall have received
from the president and the chief financial officer of the Company a certificate
dated the closing date, in form and substance reasonably satisfactory to Parent
and the Company;
(e) Secretary's Certificate. Parent and Merger Sub shall have
received from the secretary of the Company a certificate dated the closing date,
in form and substance reasonably satisfactory to Parent and the Company;
(f) Ancillary Agreements. Each Ancillary Agreement shall have been
executed and delivered by the parties thereto and shall be in full force and
effect at the Effective Time without any event having occurred or then existing
that constitutes, or with the giving of notice or lapse of time or both would
constitute, a default thereunder or breach thereof or would give any party
thereto the right to terminate such agreement;
(g) Consents and Approvals. Parent, Merger Sub and the Company shall
have received, each in form and substance reasonably satisfactory to Parent and
Merger Sub, all authorizations, consents, orders and approvals of all
Governmental Authorities and officials and all third party consents and estoppel
certificates which Parent and Merger Sub reasonably deem necessary or desirable
for the consummation of the transactions contemplated by this Agreement;
(h) No Material Adverse Effect. No event or events shall have
occurred, or shall be reasonably likely to occur, which, individually or in the
aggregate, have had, or could reasonably be expected to have, a Material Adverse
Effect;
(i) Certificate of Non-Foreign Status. Parent and Merger Sub shall
have received a certificate from the Company (which complies with Section 1445
of the Code)
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64
certifying that the Company is note a United States Real Property Holding
Corporation within the meaning of the Foreign Investment in Real Property Tax
Act;
(j) Good Standing; Qualification to Do Business. Parent and Merger
Sub shall have received good standing certificates for the Company and for each
Subsidiary from the secretary of state of the jurisdiction in which each such
entity is incorporated or organized and from the secretary of state in each
other jurisdiction in which the properties owned or leased by any of the Company
or any Subsidiary, or the operation of its business in such jurisdiction,
requires the Company or any Subsidiary to qualify to do business as a foreign
corporation, in each case dated as of a date not earlier than five Business Days
prior to the Effective Time and accompanied by bring-down telegrams or
telecopies dated the closing date;
(k) Shareholder Approvals. The Company shall have received all such
shareholder consents and shall have taken all such actions required of the
Company by the organizational documents of the Company or by Law to effect the
Merger.
(l) Exercise of Dissenters' Rights. The holders of not more than five
percent of the Fully Diluted Shares shall have demanded pursuant to Section 1301
of the General Corporation Law of the State of California that the Company
purchase the shares of Company Capital Stock held thereby at fair market value;
(m) ParaScript Sale. The ParaScript Sale shall have been consummated
substantially on the terms set forth in the ParaScript Sale Agreement; and
(n) ParaScript Valuation. Parent and Merger Sub shall have received
the ParaScript Valuation.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. Survival of Representations and Warranties. The
representations and warranties of the Company and the Principal Shareholders
contained in this Agreement, and all statements made by the Company contained in
the Acquisition Documents, in each case as modified the Company Disclosure
schedule, shall survive the Effective Time until the second anniversary of the
Effective Time. Neither the period of survival nor the liability of the Company
or the Principal Shareholders with respect to the Company's representations and
warranties shall be reduced by any investigation made at any time by or on
behalf of Parent. If Parent shall give the Company and the Principal
Shareholders written notice of a claim prior to the expiration of the applicable
representation
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65
or warranty, then the relevant representation or warranty, as the case may be,
shall survive as to such claim until such claim shall have been finally
resolved.
SECTION 7.02. Indemnification. (a) The Company and each Principal
Shareholder shall indemnify each Indemnified Party with respect to, and hold
each of them harmless from and against, any and all Liabilities, losses,
damages, claims, costs and expenses, interest, awards, judgments and penalties
(including, without limitation, attorneys' and consultants' fees and expenses)
suffered, incurred or sustained by any of them or to which any of them becomes
subject (including, without limitation, any Action brought or otherwise
initiated by any of them) (collectively, "LOSSES"), resulting from, arising out
of or relating to:
(i) any misrepresentation or breach of any warranty made by
the Company or any Principal Shareholder contained in the Acquisition
Documents;
(ii) any breach of any covenant or agreement by the Company
contained in the Acquisition Documents;
(iii) Liabilities of the Company or any Subsidiary not reflected
on the Audited Balance Sheet, whether arising before or after the Effective
Time, arising from or relating to the ownership or actions or inactions of
the Company or any Subsidiary or the conduct of their respective businesses
prior to the Effective Time;
To the extent that the Company's or any Principal Shareholder's
undertakings set forth in this Section 7.02 may be unenforceable, the Company
and each Principal Shareholder shall contribute the maximum amount that it is
permitted to contribute under applicable Law to the payment and satisfaction of
all Losses incurred by Parent, Merger Sub or any other Indemnified Party.
(b) An Indemnified Party shall give the Company and each Principal
Shareholder written notice of any matter which an Indemnified Party has
determined has given or could give rise to a right of indemnification under this
Agreement, within 60 days of such determination, stating the amount of the Loss,
if known, and method of computation thereof, and containing a reference to the
provisions of this Agreement in respect of which such right of indemnification
is claimed or arises.
(c) The indemnification rights of the parties under this Article VII
are independent of and in addition to such rights and remedies as the parties
may have at law or in equity or otherwise for any misrepresentation, breach of
warranty or failure to fulfill any agreement or covenant hereunder on the part
of any party hereto, including, without limitation, the right to seek specific
performance, rescission or restitution, none of which rights or remedies shall
be affected or diminished hereby.
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(d) Notwithstanding any other provision of this Agreement, including,
but not limited to, the foregoing provisions of this Section 7.02, each
Principal Shareholder shall be liable under this Agreement only for Losses
resulting from, arising out of or relating to the circumstances set forth in
clauses (i) and (iii) in Section 7.02(a) above, and in the event of such Losses
(A) Stepan Pachikov shall be liable under this Agreement only if he knew or, in
the exercise of due care in his capacity as a director, officer and significant
shareholder of the Company, should have known, of such circumstances and (B)
Aron Katz shall be liable under this Agreement only if he had actual knowledge,
after reasonable inquiry of senior management of the Company (and in such
inquiry, Aron Katz shall be entitled to rely on the representations of such
senior management to him with respect to the contents of contracts and
agreements that he has not otherwise reviewed), of such circumstances. Each
Principal Shareholder's liability under this Section 7.02 shall be joint and
several and the maximum amount of such liability shall be as set forth on
Schedule 7.02(d).
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ARTICLE VIII
TERMINATION AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated by
written notice of termination at any time prior to the Effective Time:
(a) by Parent or Merger Sub if (i) an event or condition shall
occur that results in, or could reasonably be expected to result in, a
Material Adverse Effect; (ii) any representation or warranty of the Company
or the Principal Shareholders contained in this Agreement shall not have
been true, complete and correct in all material respects when made; (iii)
the Company shall not have complied in all material respects with any
covenant or agreement contained in this Agreement to be complied with by
it; (iv) the Company or any Subsidiary shall make a general assignment for
the benefit of creditors, or any proceeding shall be instituted by or
against the Company or any Subsidiary seeking to adjudicate any of them a
bankrupt or insolvent, or seeking liquidation, winding up or
reorganization, arrangement, adjustment, protection, relief or composition
of its debts under any Law relating to bankruptcy, insolvency or
reorganization; or (v) the Company shall reject the Amendment Proposal;
provided, that, if any breach of a representation or warranty pursuant to
subparagraph (ii) above or a covenant or agreement pursuant to subparagraph
(iii) above is curable within 10 Business Days by the Company through the
exercise of its best efforts, Parent shall not have the right to terminate
this Agreement if such breach is cured within such 10 Business Day period;
provided , further, that Parent's termination rights arising under clause
(v) above must be exercised, if at all, within five (5) Business Days
following receipt of the Company's rejection of the Amendment Proposal;
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67
(b) by the Company if (i) any representation or warranty of the
Parent or Merger Sub contained in this Agreement shall not have been true,
complete and correct in all material respects when made; (ii) Parent or
Merger Sub shall not have complied in all material respects with any
covenant or agreement contained in this Agreement to be complied with by
it; or (iii) Parent shall make a general assignment for the benefit of
creditors, or any proceeding shall be instituted by or against Parent
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up or reorganization, arrangement, adjustment, protection, relief
or composition of its debts under any Law relating to bankruptcy,
insolvency or reorganization; provided, that, if any breach of a
representation or warranty pursuant to subparagraph (ii) above or a
covenant or agreement pursuant to subparagraph (iii) above is curable
within 10 Business Days by Parent through the exercise of its best efforts,
the Company shall not have the right to terminate this Agreement if such
breach is cured within such 10 Business Day period
(c) by Parent, Merger Sub or the Company if the Effective Time
shall not have occurred by July 15, 1997; provided, however, that the right
to terminate this Agreement pursuant to this Section 8.01(c) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or shall have resulted in, the
failure of the Effective Time to occur on or prior to such date;
(d) by Parent, Merger Sub or the Company if any Governmental
Authority shall have issued an order, decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other
action shall have become final and nonappealable; or
(e) by the mutual written consent of Parent, Merger Sub and the
Company.
SECTION 8.02. Effect of Termination. In the event of the termination
and abandonment of this Agreement as provided in Section 8.01, this Agreement
shall forthwith become void and there shall be no liability on the part of
either party hereto; provided, however, that Sections 5.03, 8.02, 8.03 and 9.01
shall remain in full force and effect notwithstanding the termination and
abandonment of this Agreement; provided further that nothing herein shall
relieve either party from liability for any breach of this Agreement.
SECTION 8.03. Waiver. Any party hereto may (i) extend the time for
the performance of any of the obligations or other acts of the other party, (ii)
waive any inaccuracies in the representations and warranties of the other party
contained herein or in any document delivered by the other party pursuant hereto
or (iii) waive compliance with any
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of the agreements or conditions of the other party contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party to be bound thereby. Any waiver of any term or condition
shall not be construed as a waiver of any subsequent breach or a subsequent
waiver of the same term or condition, or a waiver of any other term or
condition, of this Agreement. The failure of any party to assert any of its
rights hereunder shall not constitute a waiver of any of such rights.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, whether or not the
Effective Time shall have occurred.
SECTION 9.02. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, or by courier service, cable, telecopy, telegram, or registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties hereto at their addresses set forth on the signature pages to this
Agreement (or at such other address for a party hereto as shall be specified in
a notice given in accordance with this Section 9.02).
SECTION 9.03. Public Announcements. No party to this Agreement shall
make, or cause to be made, any press release or public announcement in respect
of this Agreement or the transactions contemplated hereby or otherwise
communicate with any news media with respect to the subject matter hereof
without the prior written consent of the other party, and the parties shall
cooperate as to the timing and contents of any such press release or public
announcement; provided, however, that such prior written consent (i) shall not
be unreasonably withheld and (ii) shall not be required for releases,
announcements or communications by Parent to the extent obtaining such prior
written consent would prevent the timely and accurate dissemination of
information as required to comply with any applicable Law.
SECTION 9.04. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning, construction or interpretation of this Agreement.
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SECTION 9.05. Severability. If any term or other provision of this
Agreement shall be determined by any court of competent jurisdiction to be
invalid, illegal or unenforceable in whole or in part by reason of any
applicable Law or public policy and such determination shall become final and
nonappealable, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 9.06. Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and thereof and supersede all prior agreements, covenants, representations,
warranties, undertakings and understandings, written or oral, among the parties
hereto with respect to the subject matter hereof and thereof.
SECTION 9.07. Assignment. This Agreement may not be assigned by
operation of law or otherwise without the prior written consent of the other
party (which consent may be granted or withheld in the sole discretion of the
such party); provided, however, that Parent and Merger Sub may assign this
Agreement to any wholly-owned affiliate of Parent without the consent of the
Company.
SECTION 9.08. No Third Party Beneficiaries. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and nothing herein, whether express or implied, is intended to
or shall confer upon any other person any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 9.09. Amendment. This Agreement may not be amended,
restated,supplemented or otherwise modified except (i) by an instrument in
writing signed by, or on behalf of, the each party hereto or (ii) by a waiver in
accordance with Section 8.03.
SECTION 9.10. Governing Law. IN ALL RESPECTS, INCLUDING ALL MATTERS
OF VALIDITY, CONSTRUCTION, EFFECT, PERFORMANCE AND REMEDIES, THIS AGREEMENT AND
THE OBLIGATIONS OF EACH PARTY ARISING HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA
APPLICABLE TO CONTRACTS EXECUTED IN AND TO BE PERFORMED ENTIRELY WITHIN SUCH
STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF
<PAGE>
70
REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA.
SECTION 9.11. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 9.12. Specific Performance. Irreparable damage would occur,
and Parent's and Merger Sub's remedies at law would be inadequate, in the event
any provision of this Agreement was not performed in accordance with the terms
hereof. Without posting any bond, Parent and Merger Sub shall be entitled to
obtain, in addition to any remedy available at law, equitable relief in the form
of specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be available to it.
SECTION 9.13. Liquidated Damages. In the event that the Company
shall breach the covenant set forth in Section 5.06 and this Agreement shall be
terminated as a result of such breach, the Company shall pay to Parent, on
demand, liquidated damages in the amount of $2,500,000 in immediately available
funds. Each party hereto acknowledges that payment of such liquidated damages
is not intended as a forfeiture or penalty, but is a reasonable estimate of the
actual damages that Parent and Merger Sub would incur if the Company were to
breach the covenant set forth in Section 5.06, and that it would be
impracticable and extremely difficult to ascertain the amount of such damages.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
71
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first written above by their respective officers
thereunto duly authorized.
SILICON GRAPHICS, INC.
By:______________________________
Name:
Title:
2011 N. Shoreline Boulevard
Mountain View, California 94043-1389
Attention: Sandra Escher
Telephone: (415) 960-1980
Telecopy: (415) 961-0595
PARAGRAPH ACQUISITION
CORPORATION
By:______________________________
Name:
Title:
c/o Silicon Graphics, Inc.
2011 N. Shoreline Boulevard
Mountain View, California 94043-1389
Attention: Sandra Escher
Telephone: (415) 960-1980
Telecopy: (415) 961-0595
<PAGE>
72
PARAGRAPH INTERNATIONAL, INC.
By:______________________________
Name:
Title:
1688 Dell Avenue
Campbell, California 95008
Attention: Stepan Pachikov
Telephone: (408) 364-7700
Telecopy: (408) 374-5466
_________________________________
STEPAN PACHIKOV
c/o ParaGraph International
1688 Dell Avenue
Campbell, California 95008
Telephone: (408) 364-7700
Telecopy: (408) 374-5466
_________________________________
ARON KATZ
c/o Astarte
1035 Pearl Street, 5th Floor
Boulder, Colorado 80302
Telephone: (303) 449-9970
Telecopy: (303) 449-7419
<PAGE>
73
_________________________________
GREGORY SLAYTON
Executing this Agreement solely for the
purposes of Section 5.12
_________________________________
STEPHEN ARDRON
Executing this Agreement solely for the
purposes of Section 5.12
<PAGE>
v
EXHIBITS
EXHIBIT 1.01(a) Form of Agreement Not to Compete
EXHIBIT 1.01(b) Form of Agreement Not to Solicit
EXHIBIT 1.01(c) Terms of ParaScript License Amendment
EXHIBIT 1.01(d) Form of ParaScript Sale Agreement
SCHEDULES
Company Disclosure Schedule
Parent Disclosure Schedule
Schedule I Principal Shareholders
Schedule II Employees to Execute Agreements Not to Compete
Schedule III Employees to Execute Agreements Not to Solicit
Schedule 7.02(d) Indemnification by Principal Shareholders
<PAGE>
SCHEDULE I
PRINCIPAL SHAREHOLDERS
Aron Katz
Stepan Pachikov
<PAGE>
SCHEDULE II
SHAREHOLDERS TO EXECUTE
AGREEMENTS NOT TO COMPETE
Stepan Pachikov
Aron Katz
George Pachikov
<PAGE>
SCHEDULE III
SHAREHOLDERS TO EXECUTE
AGREEMENTS NOT TO SOLICIT
Anton Chizov
Sheila Guberman
Ilia Lossev
Andrei Skaldin
Gregory Slayton
Eduard Talniukin
<PAGE>
SCHEDULE 7.02(d)
INDEMNIFICATION BY PRINCIPAL SHAREHOLDERS
The joint and several liability of each of the Principal Shareholders
under the Agreement is limited to the sum of the following:
(1) the consideration received in the Merger by Stepan Pachikov,
the owner as of the date hereof of 6,708,333 shares of Company Capital
Stock, pursuant to the Agreement in exchange by Stepan Pachikov of all
equity interests in the Company beneficially owned by him as of the
Effective Time; and
(2) the consideration received in the Merger by Aron Katz
indirectly, as the owner as of the date hereof of 88% of the capital stock
of Matrix One LLC (the holder of 10,000,000 shares of Company Capital
Stock), pursuant to the Agreement through the exchange by Matrix One LLC of
all equity interests in the Company beneficially owned by Matrix One LLC as
of the Effective Time.
<PAGE>
AGREEMENT TO CLOSE AND
-----------------------
AMENDMENT TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
------------------------------------------------------------
This Agreement to Close and Amendment to Agreement and Plan of Merger and
-------------------------------------------------------------------------
Reorganization (the "AGREEMENT") is made as of August 1, 1997 by and among
- --------------------------------------------------------------------------
Silicon Graphics, Inc., a Delaware corporation ("PARENT"), ParaGraph Acquisition
- --------------------------------------------------------------------------------
Corporation, a Delaware corporation and a wholly owned subsidiary of Parent
- ---------------------------------------------------------------------------
("MERGER SUB"), ParaGraph International, Inc., a California corporation (the
- ----------------------------------------------------------------------------
"COMPANY"), and the holders of capital stock of the Company listed on Exhibit A
- -------------------------------------------------------------------------------
hereto.
RECITALS
--------
WHEREAS, Parent, Merger Sub and the Company entered into that certain
Agreement and Plan of Merger, dated as of May 14, 1997, as amended by that
certain First Amendment to Agreement and Plan of Merger and Reorganization,
dated as of July 15, 1997 (as amended, the "MERGER AGREEMENT"), pursuant to
which the parties agreed that Merger Sub shall be merged with and into the
Company and that the Company shall continue as the surviving corporation, all on
the terms and conditions more particularly set forth therein;
WHEREAS, the parties wish to set forth the terms and conditions upon which
they shall cause the Merger to be consummated and all other transactions set
forth in, or contemplated by, the Merger Agreement to be completed.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
I. Capitalized Terms. Capitalized terms used herein without definition
-----------------
shall have the meanings ascribed to such terms in the Merger Agreement.
I. Definitions. The following terms, when used in this Agreement, shall
-----------
have the respective meanings specified below.
A. "Export Control License Issuance" shall mean the issuance by the
-------------------------------
Bureau of Export Administration of the United States Department of Commerce of
export control licenses to Parent for those individuals listed on Exhibit B
---------
attached hereto.
A. "Moscow Subsidiary Establishment" shall mean the incorporation in
-------------------------------
Russia by Parent or a subsidiary of Parent of a wholly owned subsidiary that is
legally capable of employing and paying compensation for such employment to the
current employees of "JV ParaGraph" Ltd. J.S.Co., a wholly owned subsidiary of
the Company located at Russian Federation, 117571 Moscow, Prospekt Vernadskogo,
82 (the "PARAGRAPH MOSCOW SUBSIDIARY").
<PAGE>
I. Effective Time. Upon the satisfaction of the conditions to
--------------
obligations of (a) Parent and Merger Sub under Section 6 hereof and (b) the
Company under Section 7 hereof and upon the earlier of (a) September 30, 1997 or
(b) the occurrence of both of the Export Control License Issuance and the Moscow
Subsidiary Establishment, the parties shall cause the Merger to be consummated
pursuant to the procedures set forth in Section 2.02 of the Merger Agreement.
The parties agree that the date set forth in Section 8.01(c) of the Merger
Agreement is hereby deleted and replaced with September 30, 1997. The parties
further agree that the conditions to the obligations of the parties set forth in
Sections 6 and 7 hereof shall be the only conditions to the consummation of the
transactions contemplated by the Merger Agreement.
I. Exchange Ratio. The parties agree that the Exchange Ratio shall be
--------------
equal to the quotient of the Per Share Purchase Price divided by $15.9313.
I. Shelf Registration and New York Stock Exchange Listing.
------------------------------------------------------
A. Filing of Registration Statement. As promptly as practicable after
--------------------------------
the date hereof, and in any event no later than August 11, 1997, Parent shall
file with the SEC a shelf registration statement for the purpose of permitting
the resale of the shares of Parent Common Stock received pursuant hereto by the
holders of Company Securities, and shall use best efforts to have such
registration statement declared effective by the SEC as promptly as practicable
after the Effective Time.
A. No Other Modification. Except as modified by Section 5(a) above,
---------------------
Section 5.10 of the Merger Agreement, setting forth provisions relating to
Parent's obligations with regard to the shelf registration, shall remain in full
force and effect.
A. New York Stock Exchange Listing. As promptly as practicable after the
-------------------------------
date hereof, and in any event no later than August 11, 1997, Parent shall file
with the NYSE an application for listing the shares of Parent Common Stock
issuable to the holders of Company Securities pursuant to the Merger Agreement,
and shall use best efforts to have such shares authorized for listing on the
NYSE, upon official notice of issuance.
I. Conditions to Obligations of Parent and Merger Sub. The obligations
--------------------------------------------------
of Parent and Merger Sub to consummate the transactions contemplated by the
Merger Agreement shall be subject to the fulfillment, at or prior to the
Effective Time, of the following conditions:
A. Representations, Warranties and Covenants. (i) The representations
-----------------------------------------
and warranties of the Company and the Principal Shareholders contained in the
Merger Agreement shall have been true, complete and correct when made and as of
the date hereof, other than such representations and warranties as are made as
of another date and except in such case where the failure to be so true,
complete and correct would
<PAGE>
not have, or could not reasonably be expected to have, a Material Adverse Effect
on the Business, the Company or any Subsidiary.
(ii) The representations and warranties of the Company and the
Principal Shareholders contained in the Merger Agreement shall be true, complete
and correct in all material respects as of the Effective Time, with the same
force and effect as if made as of the Effective Time, other than such
representations and warranties as are made as of another date and except in such
case where the failure to be so true, complete and correct:
(A) would not have, or could not reasonably be expected to
have, a Material Adverse Effect on the Business, the Company or
any Subsidiary;
(B) was proximately caused by any action taken by or at the
direction of, or expressly consented to, either orally or in
writing, by Parent or Merger Sub;
(C) has occurred as a result of (1) any Action brought by any
third party after the date hereof (other than any such Action
described in Section 6.2(b) hereof) or (2) any breach by any
third party after the date hereof; or
(D) with respect to representations and warranties qualified by
the knowledge of the Company, any Subsidiary or the Principal
Shareholders, has occurred solely as a result of knowledge
acquired by the Company, any Subsidiary or any Principal
Shareholder, as applicable, after the date hereof.
(iii) The covenants and agreements contained in the Merger Agreement
to be complied with by the Company at or prior to the Effective Time shall have
been complied with in all material respects, except where the failure to so
comply occurs after the date hereof and:
(A) was not a willful breach by the Company and would not have,
or could not reasonably be expected to have, a Material Adverse
Effect on the Business, the Company or any Subsidiary; or
(B) was proximately caused by any action taken by or at the
direction of, or expressly consented to, either orally or in
writing, by Parent or Merger Sub; or
(C) has occurred as a result of (1) any Action brought by any
third party after the date hereof (other than any such Action
described in
<PAGE>
Section 6.2(b) hereof) or (2) any breach by any
third party after the date hereof.
A. No Proceeding or Litigation. No legal action, suit, arbitration or
---------------------------
administrative proceeding shall have been commenced or threatened in writing by
any national, federal, state or other government (excluding municipal and local
authorities), governmental, regulatory or administrative authority, agency or
commission or any court, tribunal, or judicial or arbitral body against the
Company, Parent or Merger Sub, seeking to restrain or materially and adversely
alter the transactions contemplated by the Merger Agreement which, in the
reasonable, good faith determination of the Parent or Merger Sub, could
reasonably be expected to render it impossible or unlawful to consummate such
transactions or which could reasonably be expected to have a Material Adverse
Effect; provided, however, that the provisions of this Section 6(b) shall not
apply (i) if Parent or Merger Sub shall have solicited or encouraged, directly
or indirectly, any such legal action, suit, arbitration or administrative
proceeding or (ii) such legal action, suit, arbitration or administrative
proceeding is related to the Export Control Licenses or the Moscow Subsidiary
Establishment.
A. Legal Opinion. Parent and Merger Sub shall have received from Latham
-------------
& Watkins, counsel to the Company, a legal opinion letter, addressed to Parent
and Merger Sub and dated the date of the Effective Time, in form and substance
reasonably satisfactory to Parent and the Company.
A. Officers' Certificate. Parent and Merger Sub shall have received from
---------------------
the chief executive officer and chief financial officer of the Company a
certificate dated the date of the Effective Time, in the form of the officers'
certificate attached hereto as Exhibit C;
---------
A. Secretary's Certificate. Parent and Merger Sub shall have received
-----------------------
from the secretary of the Company a certificate dated the date of the Effective
Time, in the form of the secretary's certificate attached hereto as Exhibit D .
---------
A. Company Actions. The Company shall have taken all such actions
---------------
required of the Company by the organizational documents of the Company or by Law
to effect the Merger.
A. Exercise of Dissenters' Rights. The holders of not more than five
------------------------------
percent of the Fully Diluted Shares shall have demanded pursuant to Section 1301
of the General Corporation Law of the State of California that the Company
purchase the shares of Company Capital Stock held thereby at fair market value
A. Delivery of Documents. Parent shall have received the completed and
---------------------
executed originals of all shareholder representation letters and Ancillary
Documents, telefacsimile copies of the signature pages of which were delivered
to the Company to Parent on the date hereof.
<PAGE>
A. Shareholder Approvals. The shareholder consents received by the
---------------------
Company as of the date hereof (copies of which were delivered by the Company to
Parent on the date hereof) shall remain in full force and effect, no shareholder
of the Company providing any such consent shall have revoked the same, and all
such shareholders shall have retained all voting powers with respect to such
shares.
A. Trustee Representation Letter. Parent shall have received a letter of
-----------------------------
representations from the Trustee substantially in the form attached hereto as
Exhibit E.
- ---------
I. Conditions to Obligations of the Company. The obligations of the
----------------------------------------
Company to consummate the transactions contemplated by the Merger Agreement
shall be subject to the fulfillment, at or prior to the Effective Time, of each
of the following conditions, any and all of which the Company may waive at its
sole discretion:
A. Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of Parent and Merger Sub contained in the Merger Agreement shall have
been true, complete and correct when made and shall be true, compete and correct
in all material respects as of the Effective Time, other than such
representations and warranties as are made as of another date and except in such
cases where the failure to be so true, complete and correct would not have, or
could not reasonably be expected to have, a Material Adverse Effect on Parent or
Merger Sub. The covenants and agreements contained in this Agreement to be
complied with by Parent and Merger Sub at or prior to the Effective Time shall
have been complied with in all material respects.
A. No Proceeding or Litigation. No Action shall have been commenced by
---------------------------
or before any Governmental Authority against the Company, Parent or Merger Sub,
seeking to restrain or materially and adversely alter the transactions
contemplated by the Merger Agreement which, in the reasonable, good faith
determination of the Company, could reasonably be expected to render it
impossible or unlawful to consummate such transactions; provided, however, that
the provisions of this Section 7(b) shall not apply if the Company shall have
solicited or encouraged, directly or indirectly, any such Action;
A. Legal Opinion. The Company shall have received from Shearman &
-------------
Sterling, counsel to Parent, a legal opinion letter, addressed to the Company
and dated the date of the Effective Time, in form and substance reasonably
satisfactory to Parent and the Company.
A. Officers' Certificate. The Company shall have received from
---------------------
an authorized officer of each of Parent and Merger Sub a certificate dated the
date of the Effective Time, in the form of the officers' certificates delivered
on the date hereof and attached hereto as Exhibit F
---------
<PAGE>
A. Secretary's Certificate. The Company shall have received from the
-----------------------
secretary or the assistant secretary of each of Parent and Merger Sub a
certificate dated the closing date, in the form of the secretary's certificates
delivered on the date hereof and attached hereto as Exhibit G.
---------
A. New York Stock Exchange Listing. The shares of Parent Common Stock
-------------------------------
issuable to the holders of Company Securities pursuant to the Merger Agreement
shall have been authorized for listing on the NYSE, upon official notice of
issuance.
I. Amendments to the Merger Agreement. (a) The parties agree that the
----------------------------------
stock register referred to in Section 3.02(b) of the Merger Agreement shall be
deemed to be the stock register attached hereto as Exhibit H.
---------
(b) The Company Disclosure Schedule is hereby amended by (i)
deleting the Schedule "Section 3.02(c) -- Vesting Schedules" and replacing the
same with a new Schedule "Section 3.02(c) -- Vesting Schedules," which is
attached to this Agreement as Exhibit I, and (ii) adding the following after
---------
Section 3.17(a)(ii):
"Section 3.17(a)(iii). None."
--------------------
(c) The indemnification obligations of the Company and the Principal
Shareholders set forth in Article VII of the Merger Agreement shall not apply to
Losses resulting from, arising out of or relating to:
(i) any action or event occurring after the date hereof and
prior to the Effective Time which causes or results in the failure of
a representation or warranty made by the Company or any Principal
Shareholder contained in the Acquisition Documents to be true,
complete and correct; provided, however, that the provisions of this
subsection (i) shall not apply if such action or event was
proximately caused by the willful action (other than any action taken
by or at the direction of, or expressly consented to, either orally
or in writing, by Parent or Merger Sub) or intentional
misrepresentation of the Company or Principal Shareholders.
(ii) any breach (other than willful breaches by the Company or
the Principal Shareholders) arising after the date hereof of any
covenant or agreement by the Company contained in the Acquisition
Documents; or
(iii) Liabilities of the Company or any Subsidiary not
reflected on the Audited Balance Sheet, whether arising before or
after the Effective Time,
<PAGE>
arising from or relating to (A) the ownership after the date hereof
or actions or inactions of the Company or any Subsidiary after the
date hereof or (B) the conduct of the respective businesses of the
Company or any Subsidiary from the date hereof until the Effective
Time, except to the extent that the manner of such ownership, such
actions or inactions or such conduct of business is a willful breach
by the Company or the Principal Shareholders of the covenants and
agreements of the Company contained in the Acquisition Documents.
I. Letter of Transmittal and Dissenters' Rights Notice. Not later than
---------------------------------------------------
10 business days after the date of this Agreement, Parent shall cause to be
delivered or mailed (a) the letter of transmittal and instructions referenced in
Section 2.08(c) of the Merger Agreement to the recipients referenced in such
section and (b) the documents referenced in Section 1301(a) of the California
Corporations Code.
10. Assignment of Intellectual Property. Prior to the Effective Time, the
-----------------------------------
Company and Principal Shareholders shall (a) cause all Intellectual Property
owned by or registered in the name of Soviet-American Joint Venture ParaGraph,
Soviet-American JV ParaGraph, Joint Venture ParaGraph, JV ParaGraph and/or such
similar entities to be assigned to, and registered with the applicable
Governmental Authorities in Russia in the name of, "JV ParaGraph Ltd. J.S.Co.",
which assignment shall be in form and substance reasonably acceptable to Parent,
and (b) deliver to Parent copies of all documents and instruments effecting the
same.
11. No Further Modifications. Except as expressly set forth herein, the
------------------------
terms and provisions of the Merger Agreement remain unmodified and in full force
and effect.
12. Miscellaneous.
-------------
A. Severability. If any term or other provision of this Agreement shall
------------
be determined by any court of competent jurisdiction to be invalid, illegal or
unenforceable in whole or in part by reason of any applicable Law or public
policy and such determination shall become final and nonappealable, all other
terms and provisions of this Agreement shall nevertheless remain in full force
and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated too
the greatest extent possible.
<PAGE>
A. Governing Law. In all respects, including all matters of validity,
-------------
construction, effect, performance and remedies, this Agreement and the
obligations of each party arising hereunder shall be governed by, and construed
and enforced in accordance with, the laws of the State of California applicable
to contracts executed in and to be performed entirely within such State, without
regard to the principles thereof regarding conflict of laws, and any applicable
laws of the United States of America.
B. Counterparts. This Agreement may be executed in one or more
------------
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
<PAGE>
In witness whereof, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
SILICON GRAPHICS, INC.
Signature:
Name:
Title:
PARAGRAPH ACQUISITION CORPORATION
Signature:
Name:
Title:
PARAGRAPH INTERNATIONAL, INC.
Signature:
Name:
Title:
<PAGE>
Stephen Ardron
Aron Katz
Stepan Pachikov
Gregory Slayton
<PAGE>
EXHIBIT A
---------
COMPANY SHAREHOLDERS
Stephen Ardron
Aron Katz
Stepan Pachikov
Gregory Slayton
<PAGE>
EXHIBIT B
---------
EXPORT CONTROL LICENSE INDIVIDUALS
<PAGE>
EXHIBIT C
---------
FORM OF OFFICERS' CERTIFICATES
[COMPANY]
<PAGE>
EXHIBIT D
---------
FORM OF SECRETARY'S CERTIFICATE
[COMPANY]
<PAGE>
EXHIBIT E
---------
FORM OF TRUSTEE REPRESENTATION LETTER
<PAGE>
EXHIBIT F
---------
FORM OF OFFICERS' CERTIFICATE
[PARENT/MERGER SUB]
<PAGE>
EXHIBIT G
---------
FORM OF SECRETARY'S CERTIFICATE
[PARENT/MERGER SUB]
<PAGE>
EXHIBIT H
---------
STOCK REGISTER
<PAGE>
EXHIBIT I
---------
SCHEDULE 3.02(C) TO THE COMPANY DISCLOSURE SCHEDULE
<PAGE>
Exhibit 5.1
September 11, 1997
Silicon Graphics, Inc.
2011 North Shoreline Boulevard
Mountain View, CA 94043-1389
Ladies and Gentlemen:
We are acting as special counsel for Silicon Graphics, Inc., a
Delaware corporation (the "Company"), in connection with the filing by the
Company with the Securities and Exchange Commission of a Registration Statement
on Form S-3 (the "Registration Statement") covering the registration under the
Securities Act of 1933, as amended (the "Act"), of shares of the Company's
common stock, par value $.001 per share (the "Shares"), and related Preferred
Share Purchase Rights. The Shares are to be issued by the Company pursuant to
the terms of the Agreement and Plan of Merger and Reorganization dated as of May
14, 1997 (as amended, the "Merger Agreement") between the Company, ParaGraph
Acquisition Corporation, ParaGraph International, Inc., and the principal
shareholders listed therein.
We have examined originals, or copies certified or otherwise
identified to our satisfaction, of such documents and corporate and public
records as we have deemed necessary as a basis for the opinion hereinafter
expressed. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents presented to us as originals and
the conformity to the originals of all documents presented to us as copies. In
rendering our opinion, we have relied as to factual matters upon officers of the
Company and certificates of public officials.
Our opinion express herein is limited to the General Corporation Law
of the State of Delaware.
Based on the foregoing and having regard for such legal considerations
as we deem relevant, we are of the opinion that, when issued and delivered in
accordance with the
<PAGE>
September 11, 1997
terms of the Merger Agreement, the Shares will be validly issued, fully paid and
non-assessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" contained in the prospectus which is included in the Registration
Statement. In giving this consent, we do not thereby concede that we come into
the category of persons whose consent is required by the Act or the General
Rules and Regulations promulgated thereunder.
Very truly yours,
/s/ Shearman & Sterling
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and related Prospectus of Silicon Graphics,
Inc. for the registration of shares of its common stock and to the incorporation
by reference therein of our reports dated July 19, 1996, with respect to the
consolidated financial statements of Silicon Graphics, Inc. incorporated by
reference in its Annual Report (Form 10-K) and its Amendment (Form 10-K/A) to
its Annual Report (Form 10-K) for the year ended June 30, 1996 and the related
financial statement schedule included or incorporated by reference therein,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Palo Alto, California
September 10, 1997
