<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended April 2, 2000
Commission File Number 0-16852
KOMAG, INCORPORATED
(Registrant)
Incorporated in the State of Delaware
I.R.S. Employer Identification Number 94-2914864
1710 Automation Parkway, San Jose, California 95131
Telephone: (408) 576-2000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ].
On April 2, 2000, 65,901,892 shares of the Registrant's common stock, $0.01
par value, were issued and outstanding.
<PAGE> 2
INDEX
KOMAG, INCORPORATED
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated statements of operations--Three months
ended April 2, 2000 and April 4, 1999................................3
Consolidated balance sheets--April 2, 2000
and January 2, 2000..................................................4
Consolidated statements of cash flows--Three months
ended April 2, 2000 and April 4, 1999................................5
Notes to consolidated financial statements--
April 2, 2000.........................................................6-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........................13-20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................................21
Item 2. Changes in Securities.................................................21
Item 3. Defaults Upon Senior Securities.......................................21
Item 4. Submission of Matters to a Vote of Security Holders...................21
Item 5. Other Information.....................................................21
Item 6. Exhibits and Reports on Form 8-K......................................21
SIGNATURES.........................................................................22
</TABLE>
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PART I. FINANCIAL INFORMATION
KOMAG, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
APR 2 Apr 4
2000 1999
-------- --------
<S> <C> <C>
Net sales to unrelated parties $ 27,407 $ 90,013
Net sales to related party 52,226 -
-------- --------
NET SALES 79,633 90,013
Cost of sales 66,795 89,266
-------- --------
GROSS PROFIT 12,838 747
Operating expenses:
Research, development and engineering 8,549 12,015
Selling, general and administrative 3,645 5,478
Amortization of intangibles 2,555 -
Restructuring charges (1,950) -
-------- --------
12,799 17,493
-------- --------
OPERATING INCOME (LOSS) 39 (16,746)
Other income (expense):
Interest income 982 1,616
Interest expense (6,451) (5,004)
Other, net 375 661
-------- --------
(5,094) (2,727)
-------- --------
Loss before income taxes, minority interest,
and equity in joint venture loss (5,055) (19,473)
Provision for income taxes 376 400
-------- --------
Loss before minority interest and equity in
joint venture loss (5,431) (19,873)
Minority interest in net income (loss) of consolidated subsidiary (137) 251
Equity in net loss of unconsolidated joint venture - (1,402)
-------- --------
NET LOSS $ (5,294) $(21,526)
======== ========
Basic and diluted net loss per share $ (0.08) $ (0.40)
======== ========
Number of shares used in basic and diluted computation 65,902 53,915
======== ========
</TABLE>
See notes to consolidated financial statements.
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KOMAG, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
APR 2 Jan 2
2000 2000
----------- -----------
ASSETS (UNAUDITED) (note)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 38,126 $ 25,916
Short-term investments 33,700 43,610
Accounts receivable (including $26,477 and
$25,971 due from related parties in 2000
and 1999, respectively) less allowances
of $2,490 in 2000 and $2,180 in 1999 40,681 36,494
Inventories:
Raw materials 9,862 7,695
Work-in-process 5,839 4,820
Finished goods 6,161 10,503
----------- -----------
Total inventories 21,862 23,018
Prepaid expenses and deposits 1,135 3,254
Income taxes receivable 815 815
Deferred income taxes 3,767 3,767
----------- -----------
Total current assets 140,086 136,874
Property, Plant and Equipment
Land 7,785 7,785
Buildings 134,471 134,471
Equipment 623,433 630,221
Furniture 10,980 10,980
Leasehold improvements 31,714 36,656
----------- -----------
808,383 820,113
Less allowances for depreciation and amortization (513,074) (506,658)
----------- -----------
Net property, plant and equipment 295,309 313,455
Net Intangible Assets 20,441 22,996
Deposits and Other Assets 2,466 2,546
----------- -----------
$ 458,302 $ 475,871
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 260,000 $ 260,000
Trade accounts payable 22,850 21,474
Accounts payable to related parties 2,257 2,019
Accrued compensation and benefits 9,993 10,048
Other liabilities 17,392 19,615
Income taxes payable 95 109
Restructuring Liability 16,417 25,490
----------- -----------
Total current liabilities 329,004 338,755
Note Payable to Related Party 21,186 21,186
Deferred Income Taxes 20,045 20,045
Other Long-term Liabilities 10,772 13,245
Minority Interest in Consolidated Subsidiary 3,790 3,927
Stockholders' Equity
Preferred stock - -
Common stock 659 659
Additional paid-in capital 445,470 445,384
Accumulated deficit (373,203) (367,909)
Accumulated other comprehensive income 579 579
----------- -----------
Total stockholders' equity 73,505 78,713
----------- -----------
$ 458,302 $ 475,871
=========== ===========
</TABLE>
Note: The balance sheet at January 2, 2000 has been derived from the
audited financial statements at that date.
See notes to consolidated financial statements.
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KOMAG, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
APR 2 Apr 4
2000 1999
-------- --------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (5,294) $(21,526)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 20,597 23,761
Amortization of intangibles 2,555 -
Provision for losses on accounts receivable 317 33
Interest expense on note payable to related party 950 -
Equity in net loss of unconsolidated joint venture - 1,402
(Gain) Loss on disposal of property, plant and equipment (96) 222
Deferred rent 63 148
Minority interest in net income (loss) of consolidated subsidiary (137) 251
Changes in operating assets and liabilities:
Accounts receivable (3,998) (2,127)
Accounts receivable from related parties (506) 365
Inventories 1,156 4,117
Prepaid expenses and deposits 2,119 879
Trade accounts payable 1,376 (1,459)
Accounts payable to related parties 238 (48)
Accrued compensation and benefits (55) (254)
Other liabilities (4,664) 439
Income taxes receivable/payable (14) 11
Restructuring liability (10,867) -
-------- --------
Net cash provided by operating activities 3,740 6,214
INVESTING ACTIVITIES
Acquisition of property, plant and equipment (2,452) (8,915)
Proceeds from short-term investments at maturity 9,910 2,350
Proceeds from disposal of property, plant and equipment 846 -
Deposits and other assets 80 236
-------- --------
Net cash provided by (used in) investing activities 8,384 (6,329)
FINANCING ACTIVITIES
Sale of Common Stock, net of issuance costs 86 318
-------- --------
Net cash provided by financing activities 86 318
Increase in cash and cash equivalents 12,210 203
Cash and cash equivalents at beginning of year 25,916 64,467
-------- --------
Cash and cash equivalents at end of period $ 38,126 $ 64,670
======== ========
</TABLE>
See notes to consolidated financial statements.
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KOMAG, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 2, 2000
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
three-month period ended April 2, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.
The financial statements have been prepared on a going concern basis. The
Report of Independent Auditors on the Company's financial statements for the
year ended January 2, 2000 included in the Company's Annual Report on Form 10-K
contained an explanatory paragraph which indicated substantial doubt about the
Company's ability to continue as a going concern because of cumulative operating
losses and lack of compliance with certain financial covenants of its various
bank agreements. Such non-compliance constitutes an event of default under the
agreements. The Company has not been in payment default under these credit
facilities and has continued to pay all interest charges and other fees
associated with these facilities on their scheduled due dates. Amounts
outstanding under these unsecured credit agreements at April 2, 2000 amounted to
$260 million. To date, the Company's lenders have not accelerated any principal
payments under these facilities. The Company is currently negotiating with its
lenders for amendments to these existing credit facilities. There can be no
assurance that the Company will be able to obtain such amendments to its credit
facilities on commercially reasonable terms. In the event that the Company does
not successfully amend its credit facilities or restructure its debt
obligations, the Company could be required to significantly reduce or possibly
suspend its operations, and/or sell additional securities on terms that would be
highly dilutive to current stockholders of the Company. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
assets and liabilities that may result from the outcome of this uncertainty.
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<PAGE> 7
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended January 2, 2000.
The Company uses a 52-53 week fiscal year ending on the Sunday closest to
December 31. The three-month reporting periods included in this report are
comprised of thirteen weeks.
NOTE 2 - INVESTMENT IN DEBT SECURITIES
The Company invests its excess cash in high-quality, short-term debt and
equity instruments. None of the Company's investments in debt securities have
maturities greater than one year. The following is a summary of the Company's
investments by major security type at amortized cost, which approximates fair
value:
<TABLE>
<CAPTION>
APR 2 Jan 2
(in thousands) 2000 2000
----------- -----------
<S> <C> <C>
Municipal auction rate preferred stock $ 33,700 $ 39,200
Corporate debt securities 11,133 7,339
Mortgage-backed securities 18,692 24,650
----------- -----------
$ 63,525 $ 71,189
----------- -----------
Amounts included in cash and cash equivalents $ 29,825 $ 27,579
Amounts included in short-term investments 33,700 43,610
----------- -----------
$ 63,525 $ 71,189
----------- -----------
</TABLE>
The Company utilizes zero-balance accounts and other cash management tools
to invest all available funds including bank balances in excess of book
balances.
NOTE 3 - INCOME TAXES
The Company's income tax provisions of approximately $0.4 million for the
three-month period ended April 2, 2000 and April 4, 1999 represent foreign
withholding taxes on royalty and interest payments. The Company's wholly-owned
thin-film media operation, Komag USA (Malaysia) Sdn. ("KMS") received a
five-year extension of its initial tax holiday through June 2003 for its first
plant site. KMS has also been granted an additional ten-year tax holiday for its
second and third plant sites in Malaysia. The government determined in the third
quarter of 1999 that earnings from the second and third plant sites will be tax
free through 2001. The remaining period of the ten-year tax holiday will be
reassessed in 2001 based on achieving certain investment criteria.
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<PAGE> 8
NOTE 4 - COMPREHENSIVE LOSS
Comprehensive loss for the three-month periods ended April 2, 2000 and
April 4, 1999 in the accompanying Consolidated Statements of Operations is the
same as the Company's net loss.
Accumulated other comprehensive income at April 2, 2000 and January 2,
2000 in the accompanying Consolidated Balance Sheets consists entirely of
accumulated foreign currency translation adjustments.
NOTE 5 - RESTRUCTURING CHARGES
During the third quarter of 1997, the Company evaluated the size of its
production capacity relative to market demand and implemented a restructuring
plan to close two older Milpitas, California facilities. The Company recorded a
$52.2 million restructuring charge which included $3.9 million for severance
costs associated with approximately 330 terminated employees (all in the U.S.
and predominately all from the manufacturing area), $33.0 million for the
write-down of the net book value of excess equipment that was scrapped and
disposed of leasehold improvements, $10.1 million related to equipment order
cancellations and other equipment-related costs, and $5.2 million for facility
closure costs. Non-cash items included in the restructuring charge totaled
approximately $33.0 million.
In the second quarter of 1998 several customers reduced orders for the
Company's products in response to downward adjustments in their disk drive
production build schedules. Due to the expectation that the media industry's
supply/demand imbalance would extend into 1999, the Company adjusted its
expectations for the utilization of its installed production capacity. Based on
this analysis of the Company's production capacity and its expectations of the
media market over the remaining life of the Company's fixed assets, the Company
concluded that it would not be able to recover the book value of those assets
based on projected undiscounted cash flows. As a result, the Company implemented
a restructuring plan in June 1998 that included a reduction in the Company's
U.S. and Malaysian workforce and the cessation of operations at its oldest San
Jose, California plant. The Company recorded a restructuring charge of $187.8
million which included $4.1 million for severance costs (approximately 170
employees, predominately in the U.S. and approximately 69%, 27% and 4% from the
manufacturing area, engineering area and sales, general and administrative area,
respectively), $5.9 million related to equipment order cancellations and other
equipment related costs, and $2.8 million for facility closure costs. The asset
impairment component of the charge was $175.0 million and effectively reduced
asset valuations to reflect the economic effect of recent industry price erosion
for disk media and the projected under-utilization of the Company's production
equipment and facilities. The fair value of these assets was
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<PAGE> 9
determined based upon the estimated future cash flows to be generated by the
assets, discounted at a market rate of interest (15.8%). The cash component of
the total charge was $12.8 million. Non-cash items in the
restructuring/impairment charge totaled $175.0 million.
The Company incurred lower facility closure costs than anticipated in the
restructuring charges. The oldest Milpitas plant was sublet sooner than
anticipated and the Company reached a lease termination agreement with its
landlord on the second Milpitas plant in the third quarter of 1998. The Company
thereby avoided expected future rent payments and the cost of renovating the
facility to its original lease condition. Additionally, the Company determined
that it would not close its oldest San Jose, California facility at the
expiration of its lease. As a result the Company did not incur costs to restore
the facility to its original lease condition as contemplated in the
restructuring charge. Higher than expected costs for equipment order
cancellations offset the lower facility closure costs. A total of 515 employees
were terminated in the restructuring activities.
The following tables summarize the activity in the restructuring reserves during
the first quarter of 2000:
<TABLE>
<CAPTION>
1997 Restructuring Reserve
Equipment Order
Cancellations And
Other
(in millions) Related Costs
------------------
<S> <C> <C>
Balance at January 2, 2000 $ 1.8
Charged to Reserve (0.8)
------------------
Balance at April 2, 2000 $ 1.0
==================
1998 Restructuring Reserve
Equipment Order
Cancellations And
(in millions) Other Related Costs
-------------------
Balance at January 2, 2000 $ 0.6
Charged to Reserve --
------------------
Balance at April 2, 2000 $ 0.6
==================
</TABLE>
At April 2, 2000, $1.6 million related to these restructuring activities
remained in current liabilities. The Company has made cash payments totaling
approximately $30.2
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<PAGE> 10
million primarily for severance, equipment order cancellations and facility
closure costs. The majority of the remaining liability, primarily for equipment
order cancellations, is expected to be settled through the use of cash by the
end of the second quarter of 2000.
The Company recorded restructuring charges of $4.3 million in the second
quarter of 1999. This restructuring charge related to severance costs associated
with 400 terminated employees all in the U.S. and predominately all from the
manufacturing area. The entire $4.3 million was paid out to the employees during
the second and third quarter of 1999.
During the third quarter of 1999, the Company implemented a restructuring
plan based on an evaluation of the size and location of its existing production
capacity relative to the short-term and long-term market demand outlook. Under
the 1999 restructuring plan, the Company decided to close its U.S. manufacturing
operations in San Jose, California. The restructuring actions resulted in a
charge of $139.3 million and included $98.5 million for leasehold improvements
and equipment write-offs, $17.7 million for future liabilities under
non-cancelable equipment leases associated with equipment no longer being used,
$15.6 million for severance pay associated with approximately 980 terminated
employees (all in the U.S. and predominately all from the manufacturing area),
and $7.5 million in plant closure costs. Non-cash items included in the
restructuring charge totaled approximately $98.5 million.
1999 Restructuring Reserve - Changes During First Quarter of 2000
<TABLE>
<CAPTION>
Liabilities Under
Non-Cancelable Facility
Equipment Closure Severance
(in millions) Leases Costs Costs Total
------------------ ------- --------- ------
<S> <C> <C> <C> <C>
Balance at January 2, 2000 $ 13.8 $ 4.5 $ 4.8 $ 23.1
Adjustment to Reserve -- (2.0) -- (2.0)
Charged to Reserve (2.6) (0.2) (3.5) (6.3)
------------------ ------- --------- ------
Balance at April 2, 2000 $ 11.2 $ 2.3 $ 1.3 $ 14.8
================== ======= ========= ======
</TABLE>
At April 2, 2000, $14.8 million related to the 1999 restructuring
activities remained in current liabilities. During 1999 and the first quarter of
2000, the Company made cash payments totaling $28.3 million, primarily for
severance costs, payments for liabilities under non-cancelable equipment leases
and facility closure costs. Cash outflows of approximately $3.6 million
associated with severance pay and closure costs will occur primarily during the
second quarter of 2000. Cash payments of approximately $11.2 million under the
equipment leases will be made in monthly installments through mid-2002. The
facility closure liability was reduced by approximately $2.0 million in the
first
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<PAGE> 11
quarter of 2000 due to successfully terminating the leases on manufacturing
facilities and subleasing the administrative facility earlier than originally
expected.
NOTE 6 - LOSS PER SHARE
The net loss per share was computed using only the weighted average number
of shares of common stock outstanding during the period. The following table
sets forth the computation of net loss per share.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
APR 2 Apr 4
2000 1999
-------- --------
<S> <C> <C>
(in thousands, except per share amounts)
Numerator: Net loss $ (5,294) $(21,526)
-------- --------
Denominator for basic and diluted
net loss per share -
weighted-average shares 65,902 53,915
-------- --------
Basic and diluted net loss per share $ (0.08) $ (0.40)
-------- --------
</TABLE>
Incremental common shares attributable to the exercise of outstanding
options (assuming proceeds would be used to purchase treasury stock) of 461,954
and 2,077,738 for the three months ended April 2, 2000 and April 4, 1999,
respectively, were not included in the net loss per share computation because
the effect would be antidilutive.
NOTE 7 - USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 8 - LIABILITIES ASSOCIATED WITH PURCHASE
In April 1999, the Company purchased the assets of Western Digital
Corporation's ("WDC") media operation. In conjunction with the purchase, under
purchase accounting rules, the Company recorded liabilities that increased the
amount
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<PAGE> 12
of goodwill recognized. These liabilities included estimated costs of $5.6
million for the closure of the former WDC media operation as well as costs of
$26.5 million related to the remaining lease obligations for equipment taken out
of service due to the closure and $4.7 million of costs for purchase order
cancellations and other costs.
During 1999 and the first quarter of 2000, the Company paid a total of
approximately $17.9 million against liabilities arising from this transaction
including equipment lease obligations $(11.1 million), rent $(1.8 million),
property taxes $(1.3 million) and other liabilities $(3.7 million). Equipment
lease obligations are expected to be paid monthly through mid-2002. At April 2,
2000, the current portion of the equipment lease obligations was approximately
$9.2 million. The majority of the facility closure costs, purchase order
cancellation costs and other liabilities associated with the WDC transaction are
expected to be paid by mid-2000.
NOTE 9 - EQUITY
In March 2000, the Company entered into an agreement with an institutional
investor to sell up to $20.0 million of common stock. The shares of common stock
will be sold pursuant to a private equity line of credit, under which the
Company may exercise "put options" to sell shares for a price equal to 90%, 92%
or 94% of market price depending on the level of the market price at the time of
exercise of the "put option". The shares may be sold periodically in maximum
increments of $1.5 million to $3.5 million over a period of up to thirty months.
Upon signing the agreement, the Company issued warrants to the investor to
acquire 80,000 shares of common stock at an exercise price of $4.6875 per share.
The warrants are exercisable during a three-year period beginning in September
2000.
NOTE 10 - SUBSEQUENT EVENT
In April 2000, the Company entered into a definitive merger agreement with
HMT Technology Corporation (HMT). HMT designs, develops, manufactures and
markets high-performance thin-film disks. Under the terms of the definitive
merger agreement, each issued and outstanding share of HMT stock will be
converted into 0.9094 shares of the Company's common stock. The merger will be
accounted for under purchase accounting and is subject to customary closing
conditions, including regulatory approvals, the approval of both companies'
shareholders and the Company's lenders. The merger is expected to close in the
third quarter of calendar 2000.
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<PAGE> 13
KOMAG, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
The following discussion contains predictions, estimates and other
forward-looking statements that involve a number of risks and uncertainties.
These statements may be identified by the use of words such as "expects,"
"anticipates," "intends," "plans," and similar expressions. The Company's
business is subject to a number of risks and uncertainties. While this
discussion represents the Company's current judgment on the risks facing it and
the future direction of its business, such risks and uncertainties could cause
actual results to differ materially from any future performance suggested
herein. In particular, the actions taken to restructure the Company's U.S.
operations might disrupt its ability to execute against customer obligations and
operational improvement plans. Such failures to execute would jeopardize the
anticipated improvements in the Company's financial performance. The Company
sells a single product into a market characterized by rapid technological change
and sudden shifts in the balance between supply and demand. Further, the Company
is dependent on a limited number of customers, some of whom also manufacture
some or most of their own disks internally. Due to the volume purchase agreement
with Western Digital Corporation ("WDC"), the Company's results continue to
remain highly dependent on the relative success of WDC in the data storage
market. Competition in the market, defined by both technology offerings and
pricing, can be fierce, especially during times of excess available capacity.
Such conditions were prevalent in 1997, 1998, 1999 and 2000. Other factors that
could cause actual results to differ are the following: changes in the industry
supply-demand relationship and related pricing for enterprise and desktop disk
products; timely and successful qualification of next-generation products;
utilization of manufacturing facilities; changes in manufacturing efficiencies,
in particular product yields and material input costs; extensibility of process
equipment to meet more stringent future product requirements; structural changes
within the disk media industry such as combinations, failures, and joint venture
arrangements; vertical integration and consolidation within the Company's
customer base; its dependence on a limited number of customers for sales;
increased competition; timely and successful deployment of new process
technologies into manufacturing; the availability of certain sole-sourced raw
material supplies and retention of key employees. In addition, the Company's
business requires substantial investments for research and development
activities and for physical assets such as equipment and facilities that are
dependent on its access to financial resources. The Company is currently in
default under certain financial covenants contained in its bank facilities and
it cannot assure you that it will be able to negotiate amendments to these
credit facilities on commercially reasonable terms. The Company's ability to
raise additional funding will be dependent upon improving its financial
performance as well as
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<PAGE> 14
the status of its credit facilities. Other risk factors that may affect the
Company's financial performance are listed in the Company's various SEC filings,
including its Form 10-K for the fiscal year ended January 2, 2000 which was
filed on March 31, 2000. The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements which
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
Overview:
Adverse market conditions, which began in mid-1997, continued to impact
the thin-film media market throughout 1998, 1999 and 2000. Demand for disk
drives grew rapidly during the mid-1990s and industry forecasts were for
continued strong growth. The Company and a majority of its competitors (both
independent disk manufacturers and captive disk manufacturers owned by
vertically integrated disk drive customers) committed to expansion programs in
1996 and substantially increased their media manufacturing capacity in 1997. In
1997, the rate of growth in demand for disk drives fell. Disk drive
manufacturers abruptly reduced orders for media from independent suppliers and
relied more heavily on internal capacity to supply a larger proportion of their
media requirements. The media industry's capacity expansion, coupled with the
decrease in the rate of demand growth, resulted in excess media production
capacity.
In addition to adversities caused by the excess supply of media, 1998
was a year of transition for the Company and the disk drive industry to
advanced, magnetoresistive ("MR") media and recording heads. The transition to
MR disk drives led to unprecedented increases in areal density and, therefore,
the amount of data that can be stored on a single disk platter. Increased disk
storage capacity per disk allows drive manufacturers to offer lower-priced disk
drives through the incorporation of fewer components into their disk drives. The
rapid advancement in storage capacity per disk platter has further slowed disk
demand throughout the industry. According to industry market analysts, this
resulting reduction in the average number of disks per drive will likely result
in flat to declining disk demand in 2000. The significant amount of captive
capacity employed by certain disk drive manufacturers also continues to reduce
the market opportunities for independent disk suppliers such as the Company.
Despite the difficult market conditions, the Company believes that its recently
completed restructuring activities and the resulting lower manufacturing costs,
and technological advances such as 50 Gigabits per square inch recording density
and low-cost glass substrates, position the Company to be a successful
competitor.
In April 1999, the Company purchased the assets of WDC's media
operation. Additionally, the Company and WDC signed a volume purchase agreement
under which the Company agreed to supply a substantial portion of WDC's media
needs over the next three years. Under the volume purchase agreement WDC began
to purchase most of its media requirements from the Company after the closing
date. Due to assimilation of the WDC media operation, the Company initially
expected that second quarter 1999 unit
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<PAGE> 15
sales from the combined operations would grow sequentially in the range of
20-35% compared to the Company's first quarter of 1999 results. However, in
response to competitive market conditions the Company's customers reduced the
number of disks per drive to support the delivery of lower priced disk drives to
the rapidly expanding, low-cost segment of the PC market. As a result, actual
unit shipments for the second quarter fell considerably short of these
expectations as customer order reductions (including those from WDC) and
lower-than-expected volumes on certain new product programs restricted
sequential unit sales growth to approximately 10%. These customer actions, the
continuing imbalance between the supply and demand for disk products, and the
lack of new data-intensive applications continue to depress the Company's
financial performance. Due to this weak unit demand the Company closed the
former WDC media operation at the end of June 1999, nearly fifteen months ahead
of the Company's original transition plan.
Following the closure of the former WDC media operation at the end of
June 1999, the Company announced in July 1999 that it would reduce the size of
its U.S. operations further in response to the poor industry conditions. Later
in August 1999, the Company indicated that it would cease volume production of
finished disks in the U.S., close two manufacturing facilities in San Jose,
California, and institute staged work force reductions that would affect 980
people by the end of 1999. These reductions, combined with the June 1999 work
force reduction of 400 people, lowered the employment base at the Company's U.S.
operations from 1,950 people in April 1999 (subsequent to the acquisition of
WDC's media operation) to 539 people by the end of the first quarter of 2000. As
a result of these actions the Company expected to realize cash savings of
approximately $20 million per quarter in U.S. payroll costs. The Company
recorded a restructuring charge of $139.3 million in the third quarter of 1999
for the write-off of equipment and leasehold improvements in the U.S. production
facilities scheduled for closure and for severance pay related to the
reorganization of its U.S. operations.
After completion of the phase out of volume production, the Company's
San Jose site is solely focused on activities related to research, process
development, and product prototyping. Selling, general and administrative
functions also remain in San Jose. The Company's highly automated substrate
manufacturing in Santa Rosa, California continues to produce low-cost aluminum
substrates and perform advanced development work for both aluminum and glass
substrates. The Company's shift of high volume production to its cost-advantaged
Malaysian manufacturing plants has improved the Company's overall cost
structure, resulted in lower unit production costs, and improved the Company's
ability to respond to the continuing price pressures in the disk industry.
Revenue:
Net sales decreased to $79.6 million in the first quarter of 2000, down
12% compared to $90.0 million in the first quarter of 1999. The year-over-year
decrease was primarily due to the net effect of a 19% decrease in the overall
average selling price and a
-15-
<PAGE> 16
7% increase in unit sales volume. Net sales in the first quarters of 2000 and
1999 included $5.1 million and $3.8 million of substrate and single sided disk
sales, respectively. First quarter 2000 unit sales of finished media increased
to 10.8 million disks from 10.1 million disks in the first quarter of 1999. The
severe pricing pressures generated by the continuing imbalance in supply and
demand for thin-film media in the first quarter of 2000 resulted in the
year-over-year decrease in the overall average selling price.
During the first quarter of 2000, sales to WDC and Maxtor Corporation
accounted for approximately 66% and 22%, respectively, of consolidated net
sales. Net sales to each of the Company's other customers were less than 10%
during the first quarter of 2000. The Company expects that it will continue to
derive a substantial portion of its sales from WDC and from a small number of
other customers. The distribution of sales among customers may vary from quarter
to quarter based on the match of the Company's product capabilities with
specific disk drive programs of customers. However, as a result of the April
1999 acquisition of WDC's media operation and related volume purchase agreement,
the Company's sales are expected to be highly dependent upon WDC's performance
in the disk drive industry.
Gross Margin:
The Company recorded a gross margin of 16.1% in the first quarter of 2000
compared to a gross margin of 0.8% in the first quarter of 1999. The improvement
in the gross margin percentage was due to an increase in unit sales volume, a
decline of 14% in unyielded material and running costs per unit, and a reduction
of $18.6 million in fixed manufacturing costs. The Company produced 10.4 million
units in the first quarter of 2000 compared to 10.1 million units in the first
quarter of 1999. The positive effects were partially offset by the effect of the
19% decline in the average selling price.
Operating Expenses:
Research and development ("R&D") expenses decreased to $8.5 million in
the first quarter of 2000 from $12.0 million in the first quarter of 1999.
Decreased R&D staffing and lower facility and equipment costs (primarily due to
the 1999 restructuring activities) accounted for most of the decrease in R&D
expenses. Selling, general and administrative ("SG&A") expenses decreased to
$3.6 million in the first quarter of 2000 from $ 5.5 million in the first
quarter of 1999. The decrease for the three-month period of 2000 relative to the
comparable period of 1999 was primarily due to lower payroll and related
employee costs (primarily due to the 1999 restructuring activities), partially
offset by an increase in bonus expense.
Restructuring Activities
The Company recorded restructuring charges of $4.3 million in the second
quarter of 1999. This restructuring charge primarily related to severance pay
associated with 400 terminated employees (all in the U.S. and predominately all
from the manufacturing
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<PAGE> 17
area). The entire $4.3 million was paid out to the employees during the second
and third quarters of 1999.
During the third quarter of 1999, the Company implemented a restructuring
plan based on an evaluation of the size and location of its existing production
capacity relative to the short-term and long-term market demand outlook. Under
the 1999 restructuring plan, the Company decided to close its U.S. manufacturing
operations in San Jose, California. The restructuring actions resulted in a
charge of $139.3 million and included $98.5 million for leasehold improvements
and equipment write-offs, $17.7 million for future liabilities under
non-cancelable equipment leases associated with equipment no longer being used,
$15.6 million for severance pay associated with approximately 980 terminated
employees (all in the U.S. and predominately all from the manufacturing area),
and $7.5 million in plant closure costs. Non-cash items included in the
restructuring charge totaled approximately $98.5 million.
1999 Restructuring Reserve - Changes During First Quarter of 2000
<TABLE>
<CAPTION>
Liabilities Under
Non-Cancelable Facility
Equipment Closure Severance
(in millions) Leases Costs Costs Total
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance at January 2, 2000 $ 13.8 $ 4.5 $ 4.8 $ 23.1
Adjustment to Reserve -- (2.0) -- (2.0)
Charged to Reserve (2.6) (0.2) (3.5) (6.3)
--------------- --------------- --------------- ---------------
Balance at April 2, 2000 $ 11.2 $ 2.3 $ 1.3 $ 14.8
=============== =============== =============== ===============
</TABLE>
At April 2, 2000, $14.8 million related to the 1999 restructuring
activities remained in current liabilities. During 1999 and the first quarter of
2000, the Company made cash payments totaling $28.3 million. Cash outflows of
approximately $3.6 million associated with severance pay and closure costs will
occur primarily during the second quarter of 2000. Cash payments of
approximately $11.2 million under the equipment leases will be made in monthly
installments through mid-2002. The facility closure liability was reduced by
approximately $2.0 million in the first quarter of 2000 due to successfully
terminating the leases on manufacturing facilities and subleasing the
administrative facility earlier than originally expected.
Interest and Other Income/Expense:
Interest income decreased $0.6 million in the first quarter of 2000
relative to the first quarter of 1999 due to lower average cash and short-term
investment balances in the current year period. Interest expense increased $1.4
million in the first quarter of 2000 compared to the first quarter of 1999. The
increase in interest expense was primarily due
-17-
<PAGE> 18
to $1.0 million of interest expense on the Company's $21.2 million note payable
to WDC. Other income decreased $0.3 million in the first quarter of 2000
compared to the first quarter of 1999. The decrease was primarily due to a
reduction of $0.4 million in royalty income in the first quarter of 2000
compared to the first quarter of 1999.
Income Taxes:
The Company's income tax provision was approximately $0.4 million for the
three-month periods of 2000 and 1999. The income tax provisions for both the
2000 and 1999 periods represent foreign withholding taxes on royalty and
interest payments. The Company's wholly-owned thin-film media operation, Komag
USA (Malaysia) Sdn. ("KMS"), received a five-year extention of its initial tax
holiday through June 2003 for its first plant site. KMS was granted an
additional ten-year tax holiday for its second and third plant sites in
Malaysia. The government has determined that earnings from the second and third
plant sites will be tax free through 2001. The remaining period of the ten-year
tax holiday will be reassessed in 2001 based on achieving certain investment
criteria.
Minority Interest in KMT/Equity in Net Income (Loss) of AKCL:
The minority interest in the net income of consolidated subsidiary
represented Kobe Steel USA Holdings Inc.'s ("Kobe USA's") 20% share of Komag
Material Technology, Inc.'s ("KMT's") net income (loss). KMT recorded a net loss
of $0.7 million and net income of $1.3 million in the first quarter of 2000 and
1999, respectively.
The Company owns a 50% interest in AKCL and records its share of AKCL's
net income (loss) as equity in net income (loss) of unconsolidated joint
venture. The Company recorded a loss of $1.4 million as its equity in AKCL's net
loss in the first quarter of 1999 which reduced the Company's investment in AKCL
down to zero. During 1999 and the first quarter of 2000, the Company did not
record $2.6 million and $4.6 million in losses, respectively, as it would have
reduced the net book value of the investment in AKCL below zero. Assuming AKCL
reports net income in future periods, the Company will record its share of such
income only to the extent by which the income exceeds the losses incurred
subsequent to the date on which the investment balance became zero.
Subsequent event:
In April 2000, the Company entered into a definitive merger agreement
with HMT Technology Corporation (HMT). HMT designs, develops, manufactures and
markets high-performance thin-film disks. Under the terms of the definitive
merger agreement, each issued and outstanding share of HMT stock will be
converted into 0.9094 shares of the Company's common stock. The merger will be
accounted for under purchase accounting and is subject to customary closing
conditions, including regulatory approvals, the approval of both companies'
shareholders and the Company's lenders. The merger is expected to close in the
third quarter of calendar 2000.
-18-
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES:
Cash and short-term investments of $71.8 million at the end of the first
quarter of 2000 increased $2.3 million from the end of the prior fiscal year.
Working capital increased $13.0 million from the end of the prior fiscal year.
Consolidated operating activities provided $3.7 million in cash during the first
three months of 2000. The $5.3 million net loss for the first three months of
2000, net of the non-cash depreciation and amortization charges of $23.2
million, and other non-cash charges totaling $1.1 million, provided $19.0
million of cash. Changes in operating assets and liabilities used $15.2 million
of cash. Accounts receivable increased $4.5 million (due to an increase in sales
and the timing of sales in the first quarter of 2000 compared to the fourth
quarter of 1999) and other liabilities decreased $4.7 million (primarily due to
cash payments for liabilities associated with the purchase of the assets of
WDC's media operation), consuming cash. The net change in the restructuring
liability for the first three months of 2000 used $10.9 million of cash. The
restructuring liability was created due to the restructuring charges recorded in
1997, 1998 and 1999. In addition, the net change in the other operating assets
and liabilities provided $4.9 million of cash. The Company spent $2.5 million on
capital requirements during the first three months of 2000 and other investing
activities provided $0.9 million in cash. Sales of Common Stock under the
Company's stock programs generated $0.1 million.
Current noncancellable capital commitments as of April 2, 2000 total
approximately $2.9 million. Total capital expenditures for 2000 are currently
planned at approximately $20.0 million. The 2000 capital spending plan primarily
includes costs for projects designed to improve yield and productivity as well
as costs for the installation of certain production equipment transferred from
the closed U.S. manufacturing plant to Malaysia.
The Company is in default under certain financial covenants contained in
the Company's bank credit facilities which include the following ratios/tests:
profitability, quick ratio, leverage ratio, tangible net worth, debt coverage,
and debt to capitalization. The Company is not in payment default under these
credit facilities as all interest charges and fees associated with these
facilities have been paid on their scheduled due dates. At the time of the
covenant default the Company had $260.0 million of debt outstanding against a
total borrowing capacity of $345.0 million under the various senior unsecured
credit facilities. As a result of the covenant default, in December 1998, the
Company's lenders withdrew the $85.0 million in unused borrowing capacity. To
date, the lenders have not accelerated any principal payments under the credit
facilities.
The Company is currently negotiating with its lenders for amendments to
the existing credit facilities. There can be no assurance that the Company will
be able to obtain such amendments to its credit facilities on commercially
reasonable terms. If the Company does not successfully amend these credit
facilities, it would remain in technical
-19-
<PAGE> 20
default of its bank loans and the lenders would retain their rights and remedies
under the existing credit agreements. As long as the lenders choose not to
accelerate any principal payments, the Company would continue to operate in
default for the near term. However, the Company will likely need to raise
additional funds to restructure its debt obligations and to operate its business
for the long term.
In March 2000, the Company entered into an agreement with an
institutional investor to sell up to $20.0 million of common stock. The shares
of common stock will be sold pursuant to a private equity line of credit, under
which the Company may exercise "put options" to sell shares for a price equal to
90%, 92% or 94% of market depending on the level of the actual market price at
the time of exercise of the "put option". The shares may be sold periodically in
maximum increments of $1.5 million to $3.5 million over a period of up to thirty
months. Upon signing the agreement, the Company issued warrants to the investor
to acquire 80,000 shares of common stock at an exercise price of $4.6875 per
share. The warrants are exercisable during a three-year period beginning in
September 2000.
Over the next several years the Company will need financial resources for
capital expenditures, working capital and research and development. In 2000, the
Company plans to spend approximately $20.0 million on property, plant and
equipment. The Company believes that in order to achieve its long-term growth
objectives and maintain and enhance its competitive position, such additional
financial resources will be required. There can be no assurance that the Company
will be able to secure such financial resources on commercially reasonable
terms. If the Company is unable to obtain adequate financing, it could be
required to significantly reduce or possibly suspend its operations, and/or to
sell additional securities on terms that would be highly dilutive to current
stockholders.
-20-
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings-Not Applicable.
ITEM 2. Changes in Securities-Not Applicable.
ITEM 3. Defaults Upon Senior Securities-
Cumulative losses incurred by the Company has resulted in a
default under certain financial covenants contained in the Company's
various bank credit facilities. The Company currently has $260.0 million
of unsecured bank borrowings outstanding. No additional borrowing
capacity is available as a result of the technical default. The Company
is not in payment default under any of its credit facilities. The
Company is currently negotiating with its lenders for amendments to the
existing credit facilities.
ITEM 4. Submission of Matters to a Vote of Security Holders-Not
Applicable.
ITEM 5. Other Information-Not Applicable.
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 2.1 Agreement and Plan of Reorganization By and Among
Komag, Incorporated, KHM, Inc. and HMT Technology
Corp.
Exhibit 10.21--Private Equity Line of Credit Agreement
Exhibit 27--Financial Data Schedule.
b) Reports on Form 8-K
On March 20, 1999 the Company filed Form 8-K containing the
contents of its press release dated March 16, 2000 entitled
"Komag Announces Strong Q1 Shipments, Revises Upward Fourth
Quarter 1999 Financial Results".
-21-
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
KOMAG, INCORPORATED
(Registrant)
DATE: May 4, 2000 BY: /s/ Thian Hoo Tan
------------------------ -------------------------------
Thian Hoo Tan
President and
Chief Executive Officer
DATE: May 4, 2000 BY: /s/ Edward H. Siegler
------------------------ -------------------------------
Edward H. Siegler
Vice President,
Chief Financial Officer
DATE: May 4, 2000 BY: /s/ Kathleen A. Bayless
------------------------ -------------------------------
Kathleen A. Bayless
Vice President,
Corporate Controller
-22-
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
Exhibit 2.1 Agreement and Plan of Reorganization By and Among Komag,
Incorporated, KHM, Inc. and HMT Technology Corp.
Exhibit 10.21 Private Equity Line of Credit Agreement
Exhibit 27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 2.1
KOMAG, INCORPORATED
MERGER AGREEMENT CONCERNING TRANSACTION INVOLVING
KOMAG, INCORPORATED AND HMT TECHNOLOGY CORP.
[FINAL EXECUTION COPY]
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
KOMAG, INCORPORATED,
KHM, INC.
AND
HMT TECHNOLOGY CORP.
DATED AS OF APRIL 26, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I THE MERGER.............................................................................2
1.1 The Merger........................................................................2
1.2 Effective Time; Closing...........................................................2
1.3 Effect of the Merger..............................................................2
1.4 Certificate of Incorporation and Bylaws of Surviving Corporation..................2
1.5 Board of Directors; Officers......................................................2
1.6 Effect on Capital Stock...........................................................3
1.7 Surrender of Certificates.........................................................4
1.8 No Further Ownership Rights in Company Common Stock...............................5
1.9 Lost, Stolen or Destroyed Certificates............................................5
1.10 Tax and Accounting Consequences...................................................6
1.11 Taking of Necessary Action; Further Action........................................6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................6
2.1 Organization of the Company.......................................................6
2.2 The Company Capital Structure.....................................................7
2.3 Obligations With Respect to Capital Stock.........................................7
2.4 Authority.........................................................................7
2.5 SEC Filings; The Company Financial Statements.....................................8
2.6 Absence of Certain Changes or Events..............................................9
2.7 Taxes............................................................................10
2.8 Company Intellectual Property....................................................11
2.9 Compliance; Permits; Restrictions................................................13
2.10 Litigation.......................................................................13
2.11 Brokers' and Finders' Fees.......................................................13
2.12 Employee Benefit Plans...........................................................14
2.13 Absence of Liens and Encumbrances................................................15
2.14 Environmental Matters............................................................15
2.15 Labor Matters....................................................................16
2.16 Agreements, Contracts and Commitments............................................16
2.17 Statements; Proxy Statement/Prospectus...........................................17
2.18 Board Approval...................................................................18
2.19 State Takeover Statutes..........................................................18
2.20 Fairness Opinion.................................................................18
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.............................18
3.1 Organization of Parent...........................................................18
3.2 Parent Capital Structure.........................................................19
3.3 Obligations With Respect to Capital Stock........................................19
3.4 Authority........................................................................20
3.5 SEC Filings; Parent Financial Statements.........................................21
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
3.6 Absence of Certain Changes or Events.............................................22
3.7 Taxes............................................................................22
3.8 Parent Intellectual Property.....................................................23
3.9 Compliance; Permits; Restrictions................................................24
3.10 Litigation.......................................................................24
3.11 Brokers' and Finders' Fees.......................................................25
3.12 Employee Benefit Plans...........................................................25
3.13 Absence of Liens and Encumbrances................................................26
3.14 Environmental Matters............................................................26
3.15 Labor Matters....................................................................27
3.16 Agreements, Contracts and Commitments............................................27
3.17 Statements; Proxy Statement/Prospectus...........................................28
3.18 Board Approval...................................................................28
3.19 State Takeover Statutes..........................................................29
3.20 Fairness Opinion.................................................................29
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME..................................................29
4.1 Conduct of Business..............................................................29
ARTICLE V ADDITIONAL AGREEMENTS.................................................................32
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings................32
5.2 Meetings of Stockholders.........................................................32
5.3 Access to Information; Confidentiality...........................................34
5.4 No Solicitation..................................................................34
5.5 Public Disclosure................................................................38
5.6 Legal Requirements...............................................................38
5.7 Third Party Consents.............................................................39
5.8 FIRPTA...........................................................................39
5.9 Notification of Certain Matters..................................................39
5.10 Reasonable Efforts and Further Assurances........................................39
5.11 Stock Options; Employee Stock Purchase Plans.....................................40
5.12 Form S-8.........................................................................41
5.13 Indemnification..................................................................41
5.14 Tax-Free Reorganization..........................................................41
5.15 Nasdaq Qualification.............................................................41
5.16 Action by Boards of Directors....................................................41
5.17 The Company Affiliate Agreement..................................................41
5.18 Regulatory Filings; Reasonable Efforts...........................................42
5.19 Board of Directors; Officers.....................................................42
ARTICLE VI CONDITIONS TO THE MERGER.............................................................43
6.1 Conditions to Obligations of Each Party to Effect the Merger.....................43
6.2 Additional Conditions to Obligations of the Company..............................44
6.3 Additional Conditions to the Obligations of Parent and Merger Sub................44
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER...................................................45
7.1 Termination......................................................................45
7.2 Notice of Termination; Effect of Termination.....................................48
7.3 Fees and Expenses................................................................48
7.4 Amendment........................................................................50
7.5 Extension; Waiver................................................................50
ARTICLE VIII GENERAL PROVISIONS.................................................................51
8.1 Non-Survival of Representations and Warranties...................................51
8.2 Notices..........................................................................51
8.3 Interpretation; Knowledge........................................................52
8.4 Counterparts.....................................................................52
8.5 Entire Agreement.................................................................53
8.6 Severability.....................................................................53
8.7 Other Remedies; Specific Performance.............................................53
8.8 Governing Law....................................................................53
8.9 Rules of Construction............................................................53
8.10 Assignment.......................................................................53
8.11 WAIVER OF JURY TRIAL.............................................................54
</TABLE>
-iii-
<PAGE> 5
INDEX OF EXHIBITS
Exhibit A Parent Stock Option Agreement
Exhibit B Company Stock Option Agreement
Exhibit C Parent Voting Agreement
Exhibit D Company Voting Agreement
Exhibit E Company Affiliate Agreement
<PAGE> 6
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and entered
into as of April 26, 2000 among KOMAG, INCORPORATED, a Delaware corporation
("PARENT"), KHM, INC., a Delaware corporation and a wholly-owned subsidiary of
Parent ("MERGER SUB"), and HMT TECHNOLOGY CORP., a Delaware corporation (the
"COMPANY").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law ("DELAWARE LAW"), Parent
and the Company will enter into a business combination transaction pursuant to
which Merger Sub will merge with and into the Company (the "MERGER").
B. The Board of Directors of Parent (i) has determined that the Merger
is consistent with and in furtherance of the long-term business strategy of
Parent and fair to, advisable and in the best interests of, Parent and its
stockholders, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) has determined to
recommend that the stockholders of Parent vote to approve the issuance of shares
of Parent Common Stock (as defined below) to the stockholders of the Company
pursuant to the terms of the Merger.
C. The Board of Directors of the Company (i) has determined that the
Merger is consistent with and in furtherance of the long-term business strategy
of the Company and fair to, advisable and in the best interests of, the Company
and its stockholders, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) has determined to
recommend the adoption of this Agreement by the stockholders of the Company.
D. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's and the Company's willingness to enter into this
Agreement, Parent shall execute and deliver a Stock Option Agreement in favor of
the Company in substantially the form attached hereto as Exhibit A (the "PARENT
STOCK OPTION AGREEMENT") and the Company shall execute and deliver a Stock
Option Agreement in favor of Parent in substantially the form attached hereto as
Exhibit B (the "COMPANY STOCK OPTION AGREEMENT" and, together with the Parent
Stock Option Agreement, the "STOCK OPTION AGREEMENTS"). The Board of Directors
of Parent and the Company have each approved the Stock Option Agreements.
E. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's and the Company's willingness to enter into this
Agreement, certain affiliates of Parent shall enter into a Voting Agreement in
substantially the form attached hereto as Exhibit C (the "PARENT VOTING
AGREEMENTS"), and certain affiliates of the Company shall enter into a Voting
Agreement in substantially the form attached hereto as Exhibit D (the "COMPANY
VOTING AGREEMENTS" and, collectively with the Parent Voting Agreements, the
"VOTING AGREEMENTS").
F. Parent, the Company and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
<PAGE> 7
G. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, 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. The Company as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "SURVIVING CORPORATION."
1.2 Effective Time; Closing. Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be consummated by filing
a Certificate of Merger (the "CERTIFICATE OF MERGER") with the Secretary of
State of Delaware in accordance with the relevant provisions of Delaware Law
(the time of such filing (or such later time as may be agreed in writing by the
parties and specified in the Certificate of Merger) being the "EFFECTIVE TIME")
as soon as practicable on or after the Closing Date (as herein defined). The
closing of the Merger (the "CLOSING") shall take place at the offices of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, at a time and date to be
specified by the parties, which shall be no later than the second business day
after the satisfaction or waiver of the conditions set forth in Article VI, or
at such other time, date and location as the parties hereto agree in writing
(the "CLOSING DATE").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
Delaware Law. 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.
1.4 Certificate of Incorporation and Bylaws of Surviving Corporation.
(a) The Certificate of Incorporation of Merger Sub as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation; provided, however, that the name
of the Surviving Corporation shall be the Company's current name.
(b) The Bylaws of Merger Sub as in effect immediately prior to
the Effective Time shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Board of Directors; Officers. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving
-2-
<PAGE> 8
Corporation shall be the officers of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly appointed.
1.6 Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Merger Sub, the Company or the holders of any of the following
securities, the following shall occur:
(a) Conversion of Company Common Stock. Each share of Common
Stock, $0.001 par value per share, of the Company (the "COMPANY COMMON STOCK")
issued and outstanding immediately prior to the Effective Time (other than any
shares of Company Common Stock to be canceled pursuant to Section 1.6(b)) will
be canceled and extinguished and automatically converted (subject to Sections
1.6(e) and (f)) into 0.9094 (the "EXCHANGE RATIO") shares of Common Stock, par
value $0.01 per share, of Parent (the "PARENT COMMON STOCK") at the Effective
Time.
(b) Cancellation of Parent-Owned Stock. Each share of Company
Common Stock held in the treasury of the Company or owned by Merger Sub, Parent
or any direct or indirect wholly-owned subsidiary of the Company or of Parent
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(c) Stock Options; Employee Stock Purchase Plan. At the Effective
Time, all options to purchase Company Common Stock then outstanding under the
Company's 1995 Management Stock Option Plan, 1995 Stock Option Plan, 1996
Non-Employees Directors' Stock Option Plan and 1996 Equity Incentive Plan
(collectively, the "COMPANY STOCK OPTION PLANS") shall be assumed by Parent in
accordance with Section 5.11 hereof. At the Effective Time, in accordance with
the terms of the Company's Employee Stock Purchase Plan (the "COMPANY ESPP"),
all rights to purchase shares of Company Common Stock under the Company ESPP
shall be converted (in accordance with the Exchange Ratio) into rights to
purchase shares of Parent Common Stock (with the number of shares rounded down
to the nearest whole share and the purchase price rounded up to the nearest
whole cent) and all such converted rights shall be assumed by Parent and the
offering periods in effect under the Company ESPP immediately prior to the
Effective Time shall be continued substantially in accordance with the terms of
the Company ESPP until the end of the offering periods in effect as of the
Effective Time.
(d) Capital Stock of Merger Sub. Each share of Common Stock,
$0.001 par value per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of Common Stock, $0.001 par
value, of the Surviving Corporation. Each stock certificate of Merger Sub
evidencing ownership of any such shares shall continue to evidence ownership of
such shares of capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio and any
other applicable numbers or amounts shall be adjusted to reflect appropriately
the effect of any stock split, reverse stock split, stock dividend (including
any dividend or distribution of securities convertible into Parent Common Stock
or Company Common Stock), extraordinary cash dividends, reorganization,
recapitalization, reclassification, combination, exchange of shares or other
like
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<PAGE> 9
change with respect to Parent Common Stock or Company Common Stock occurring or
having a record date on or after the date hereof and prior to the Effective
Time.
(f) Fractional Shares. No fraction of a share of Parent Common
Stock will be issued by virtue of the Merger, 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), without interest, equal to
the product of (i) such fraction, multiplied by (ii) the closing price of one
share of Parent Common Stock on the trading day immediately prior to the
Effective Time, as reported on the Nasdaq National Market System ("NASDAQ").
(g) 5 3/4% Convertible Subordinated Notes. At the Effective Time,
Parent shall execute and deliver to State Street Bank and Trust Company of
California, N.A., as trustee ("Trustee") pursuant to the indenture, dated as of
January 15, 1997, to which the Company is a party ("Indenture"), a supplemental
indenture in form satisfactory to the Trustee providing that the holder of each
of the Company's outstanding 5 3/4% Convertible Subordinated Notes due 2004
("Company Note") shall have the right to convert such Company Note into Parent
Common Stock, and that as of the Effective Time, the Conversion Price (as
defined in the Indenture) will be divided by the Exchange Ratio, as required by
the Indenture.
1.7 Surrender of Certificates.
(a) Exchange Agent. At or prior to the Effective Time, Parent
shall select an institution reasonably satisfactory to the Company to act as the
exchange agent (the "EXCHANGE AGENT") in the Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I, the shares of Parent Common Stock issuable
pursuant to Section 1.6 in exchange for outstanding shares of Company Common
Stock, and cash in an amount sufficient for payment in lieu of fractional shares
pursuant to Section 1.6(f) and any dividends or distributions to which holders
of shares of Company Common Stock may be entitled pursuant to Section 1.7(d).
(c) Exchange Procedures. Promptly after the Effective Time,
Parent shall cause the Exchange Agent to mail to each holder of record (as of
the Effective Time) of a certificate or certificates (the "CERTIFICATES") which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock whose shares were converted into shares of Parent Common
Stock pursuant to Section 1.6, cash in lieu of any fractional shares pursuant to
Section 1.6(f) and any dividends or other distributions pursuant to Section
1.7(d), (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such form and
have such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Parent Common Stock, cash in lieu of any
fractional shares pursuant to Section 1.6(f) and any dividends or other
distributions pursuant to Section 1.7(d). Upon surrender of Certificates 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 holders of
such Certificates shall be entitled to receive in exchange therefor certificates
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<PAGE> 10
representing the number of whole shares of Parent Common Stock, payment in lieu
of fractional shares which such holders have the right to receive pursuant to
Section 1.6(f) and any dividends or distributions payable pursuant to Section
1.7(d), and the Certificates so surrendered shall forthwith be canceled. Until
so surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, subject to Section 1.7(d) as to the
payment of dividends, to evidence the ownership of the number of full shares of
Parent Common Stock into which such shares of Company Common Stock shall have
been so converted and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 1.6(f) and any
dividends or distributions payable pursuant to Section 1.7(d).
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the date of this
Agreement with respect to Parent Common Stock with a record date after the
Effective Time will be paid to the holders of any unsurrendered Certificates
with respect to the shares of Parent Common Stock represented thereby until the
holders of record of such Certificates shall surrender such Certificates.
Subject to applicable law, following surrender of any such Certificates, the
Exchange Agent shall deliver to the record holders thereof, without interest,
certificates representing whole shares of Parent Common Stock issued in exchange
therefor along with payment in lieu of fractional shares pursuant to Section
1.6(f) hereof and the amount of any such dividends or other distributions with a
record date after the Effective Time payable with respect to such whole shares
of Parent Common Stock.
(e) Transfers of Ownership. If certificates for shares of Parent
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of certificates
for shares of Parent Common Stock in any name other than that of the registered
holders of the Certificates surrendered, or established to the reasonable
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in
this Section 1.8, neither the Exchange Agent, Parent, the Surviving Corporation
nor any party hereto shall be liable to a holder of shares of Parent Common
Stock or Company Common Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in Company Common Stock . All shares of
Parent Common Stock issued in accordance with the terms hereof (including any
cash paid in respect thereof pursuant to Section 1.6(f) and 1.7(d)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares
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of Parent Common Stock, cash for fractional shares, if any, as may be required
pursuant to Section 1.6(f) and any dividends or distributions payable pursuant
to Section 1.7(d); provided, however, that Parent may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against Parent
or the Exchange Agent with respect to the Certificates alleged to have been
lost, stolen or destroyed.
1.10 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368 of the Code. The
parties hereto adopt this Agreement as a "plan of reorganization" within the
meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax
Regulations.
(b) It is also intended by the parties hereto that the Merger
shall qualify for accounting treatment as a purchase transaction.
1.11 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub will take all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub, subject to
the exceptions specifically disclosed in the disclosure letter supplied by the
Company to Parent (the "COMPANY SCHEDULES"), as follows:
2.1 Organization of the Company
(a) The Company and each of its subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; has the corporate power and authority to own,
lease and operate its assets and property and to carry on its business as now
being conducted; and is duly qualified to do business and in good standing
(which respect to jurisdictions which recognize such concept) as a foreign
corporation in each jurisdiction in which the failure to be so qualified would
have a Material Adverse Effect (as defined in Section 8.3) on the Company.
(b) The Company has delivered to Parent a true and complete list
of all of the Company's subsidiaries, indicating the jurisdiction of
incorporation of each subsidiary and the Company's equity interest therein.
(c) The Company has delivered or made available to Parent a true
and correct copy of the Certificate of Incorporation and Bylaws of the Company
and similar governing instruments of each of its material subsidiaries, each as
amended to date, and each such instrument is
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in full force and effect. Neither the Company nor any of its subsidiaries is in
violation of any of the provisions of its Certificate of Incorporation or Bylaws
or equivalent governing instruments.
2.2 The Company Capital Structure. The authorized capital stock of the
Company consists of 100,000,000 shares of Common Stock, par value $0.001 per
share, of which there were 46,196,238 shares issued and outstanding and
9,684,210 shares reserved for conversion of the 5_% Convertible Subordinated
Notes due 2004 as of April 24, 2000, and 9,100,000 shares of Preferred Stock,
par value $0.001 per share, of which no shares are issued or outstanding. All
outstanding shares of Company Common Stock are duly authorized, validly issued,
fully paid and nonassessable and are not subject to preemptive rights created by
statute, the Certificate of Incorporation or Bylaws of the Company or any
agreement or document to which the Company is a party or by which it is bound.
As of April 24, 2000, 5,440,016 shares of Company Common Stock were reserved for
issuance to employees, consultants and non-employee directors pursuant to
Company Stock Option Plans, under which options are outstanding for an aggregate
of 5,311,170 shares and under which 128,846 shares are available for grant as of
April 24, 2000 and 1,023,950 shares of Company Common Stock reserved for
issuance under the Company ESPP. All shares of Company Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and nonassessable.
2.3 Obligations With Respect to Capital Stock. Except as set forth in
Section 2.2, as of March 31, 2000 there are no equity securities, partnership
interests or similar ownership interests of any class of the Company, or any
securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests issued,
reserved for issuance or outstanding. Except for securities the Company owns,
directly or indirectly through one or more subsidiaries, as of March 31, 2000
there are no equity securities, partnership interests or similar ownership
interests of any class of any subsidiary of the Company, or any security
exchangeable or convertible into or exercisable for such equity securities,
partnership interests or similar ownership interests issued, reserved for
issuance or outstanding. Except as set forth in Section 2.2, as of March 31,
2000 there are no options, warrants, equity securities, partnership interests or
similar ownership interests, calls, rights (including preemptive rights),
commitments or agreements of any character to which the Company or any of its
subsidiaries is a party or by which it is bound obligating the Company or any of
its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition, of any shares of capital stock of the Company or any
of its subsidiaries or obligating the Company or any of its subsidiaries to
grant, extend, accelerate the vesting of or enter into any such option, warrant,
equity security, partnership interest or similar ownership interest, call,
right, commitment or agreement. Except for the Company Voting Agreements, there
are no registration rights and, to the knowledge of the Company there are no
voting trusts, proxies or other agreements or understandings with respect to any
equity security of any class of the Company or with respect to any equity
security, partnership interest or similar ownership interest of any class of any
of its subsidiaries.
2.4 Authority.
(a) The Company has all requisite corporate power and authority
to enter into this Agreement and the Stock Option Agreements and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby, and
the execution and delivery of the Stock Option Agreements and the consummation
of the
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transactions contemplated thereby, have been duly authorized by all necessary
corporate action on the part of the Company, subject only to the adoption of
this Agreement by the Company's stockholders and the filing and recordation of
the Certificate of Merger pursuant to Delaware Law. A vote of the holders of at
least a majority of the outstanding shares of Company Common Stock is required
for the Company's stockholders to adopt this Agreement. This Agreement and the
Company Stock Option Agreements have been duly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by Parent
and, if applicable, Merger Sub, constitute the valid and binding obligations of
the Company, enforceable in accordance with their respective terms, except as
enforcement thereof may be limited by bankruptcy and other similar laws and
general principles of equity. The execution and delivery of this Agreement and
the Stock Option Agreements by the Company do not, and the performance of this
Agreement and the Stock Option Agreements by the Company will not, (i) conflict
with or violate the Certificate of Incorporation or Bylaws of the Company or the
equivalent organizational documents of any of its subsidiaries, (ii) subject to
the adoption of this Agreement by Parent's stockholders as contemplated in
Section 5.2 and compliance with the requirements set forth in Section 2.4(b)
below, conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to the Company or any of its subsidiaries or by which its or
any of their respective properties is bound or affected, or (iii) result in any
breach of, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or impair the Company's rights or
alter the rights or obligations of any third party under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of the properties or assets of the
Company or any of its subsidiaries pursuant to, any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or its or any of
their respective properties is bound or affected, except to the extent such
conflict, violation, breach, default, impairment or other effect would not, in
the case of clause (ii) or (iii), individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on the Company.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with any court, administrative agency or
commission or other governmental authority or instrumentality ("GOVERNMENTAL
ENTITY") is required by or with respect to the Company in connection with the
execution and delivery of this Agreement and the Stock Option Agreements or the
consummation of the transactions contemplated hereby or thereby, except for (i)
applicable requirements of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), (ii) the filing and recordation of the Certificate of Merger
with the Secretary of State of Delaware, (iii) applicable requirements of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), (iv) the rules
and regulations of Nasdaq, (v) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws, and the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"), and the laws of any
foreign country and (vi) such other consents, authorizations, filings, approvals
and registrations which, if not obtained or made, would not reasonably be
expected to have a Material Adverse Effect on the Company or Parent or have a
material adverse effect on the ability of the parties to consummate the Merger.
2.5 SEC Filings; The Company Financial Statements.
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(a) The Company has filed all forms, reports and documents the
Company has been required to file with the SEC since January 1, 1998, and has
made available to Parent such forms, reports and documents in the form filed
with the SEC. All such required forms, reports and documents (including those
that the Company may file subsequent to the date hereof) are referred to herein
as the "COMPANY SEC REPORTS." As of their respective dates, the Company SEC
Reports (i) were prepared in accordance with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and regulations of
the SEC thereunder applicable to such Company SEC Reports, and (ii) did not at
the time they were filed (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. None of
the Company's subsidiaries is required to file any forms, reports or other
documents with the SEC.
(b) Each set of consolidated financial statements (including, in
each case, any related notes thereto) contained in the Company SEC Reports (the
"COMPANY FINANCIALS"), including any Company SEC Reports filed after the date
hereof until the Closing, (i) complied as to form in all material respects with
the published rules and regulations of the SEC with respect thereto, (ii) was
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto or, in the case of unaudited interim financial
statements, as may be permitted by the SEC on Form 10-Q under the Exchange Act)
and (iii) fairly presented the consolidated financial position of the Company
and its subsidiaries at the respective dates thereof and the consolidated
results of its operations and cash flows for the periods indicated, except that
the unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not, or are not expected to be,
material in amount. The balance sheet of the Company contained in the Company
SEC Reports as of December 31, 1999 is hereinafter referred to as the "COMPANY
BALANCE SHEET." The operating results for the period ending March 31, 2000 in
the Company's press release dated April 20, 2000 (the "COMPANY PRESS RELEASE")
do not materially differ from the financial statements that will be contained in
the Company's next report on Form 10-K. Except as disclosed in the Company
Financials, neither the Company nor any of its subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise) of a nature required to be
disclosed on a balance sheet or in the related notes to the consolidated
financial statements prepared in accordance with GAAP which are, individually or
in the aggregate, material to the business, results of operations or financial
condition of the Company and its subsidiaries taken as a whole, except
liabilities (i) provided for in the Company Balance Sheet, or (ii) incurred
since the date of the Company Balance Sheet in the ordinary course of business
consistent with past practices and immaterial in the aggregate.
(c) The Company has heretofore furnished to Parent a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by the Company with the SEC
pursuant to the Securities Act or the Exchange Act.
2.6 Absence of Certain Changes or Events. Since the date of the Company
Balance Sheet, there has not been: (i) any Material Adverse Effect on the
Company, (ii) any material change by the Company in its accounting methods,
principles or practices, except as required by GAAP or
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<PAGE> 15
the rules and regulations promulgated by the SEC, or (iii) any revaluation by
the Company of any of its assets, including, without limitation, writing down
the value of capitalized inventory or writing off notes or accounts receivable
other than in the ordinary course of business.
2.7 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement,
"TAX" or "TAXES" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits.
(i) The Company and each of its subsidiaries have timely
filed all federal, state, local and foreign returns, estimates, information
statements and reports ("RETURNS") relating to Taxes required to be filed by the
Company and each of its subsidiaries with any Tax authority, except such Returns
which are not material to the Company. The Company and each of its subsidiaries
have paid all Taxes shown to be due on such Returns.
(ii) The Company and each of its subsidiaries as of the
Effective Time will have withheld with respect to its employees all federal and
state income taxes, Taxes pursuant to the Federal Insurance Contribution Act,
Taxes pursuant to the Federal Unemployment Tax Act and other Taxes required to
be withheld, except such Taxes which are not material to the Company.
(iii) Neither the Company nor any of its subsidiaries has
any material Tax deficiency outstanding, proposed or assessed against the
Company or any of its subsidiaries, nor has the Company or any of its
subsidiaries executed any unexpired waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the
Company or any of its subsidiaries by any Tax authority is presently in
progress, nor has the Company or any of its subsidiaries been notified of any
request for such an audit or other examination.
(v) No material adjustment relating to any Returns filed
by the Company or any of its subsidiaries has been proposed in writing formally
or informally by any Tax authority to the Company or any of its subsidiaries or
any representative thereof.
(vi) Neither the Company nor any of its subsidiaries has
any liability for any material unpaid Taxes which has not been accrued for or
reserved on the Company Balance Sheet in accordance with GAAP, whether asserted
or unasserted, contingent or otherwise, which is material to the Company, other
than any liability for unpaid Taxes that may have accrued since December 31,
1999 in connection with the operation of the business of the Company and its
subsidiaries in the ordinary course.
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(vii) There is no contract, agreement, plan or arrangement
to which the Company or any of its subsidiaries is a party as of the date of
this Agreement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company or any of its
subsidiaries that, individually or collectively, would reasonably be expected to
give rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Code. There is no contract, agreement, plan
or arrangement to which the Company or any of its subsidiaries is a party or by
which it or any of its subsidiaries is bound as of the date of this Agreement to
compensate any individual for excise taxes paid pursuant to Section 4999 of the
Code.
(viii) Neither the Company nor any of its subsidiaries has
filed any consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as defined in Section 341(f)(4) of the Code) owned by the Company or any of its
subsidiaries.
(ix) Neither the Company nor any of its subsidiaries is
party to or has any obligation under any tax-sharing, tax indemnity or tax
allocation agreement or arrangement.
(x) None of the Company's or its subsidiaries' assets are
tax exempt use property within the meaning of Section 168(h) of the Code.
(xi) Neither the Company nor any of its subsidiaries has
constituted either a "distributing corporation" or a "controlled corporation" in
a distribution of stock qualifying for tax-free treatment under Section 355 of
the Code (x) in the two years prior to the date of this Agreement or (y) in a
distribution which could otherwise constitute part of a "plan" or "series or
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
2.8 Company Intellectual Property. For the purposes of this Agreement,
the following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights registrations
and applications therefor, and all other rights corresponding thereto throughout
the world; (iv) all industrial designs and any registrations and applications
therefor throughout the world; (v) all trade names, logos, common law trademarks
and service marks, trademark and service mark registrations and applications
therefor throughout the world; (vi) all databases and data collections and all
rights therein throughout the world; (vii) all moral and economic rights of
authors and inventors, however denominated, throughout the world, and (viii) any
similar or equivalent rights to any of the foregoing anywhere in the world.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, the Company.
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"REGISTERED INTELLECTUAL PROPERTY" means all United States,
international and foreign: (i) patents and patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks; (iii) registered copyrights and applications for
copyright registration; and (iv) any other Intellectual Property that is the
subject of an application, certificate, filing, registration or other document
issued, filed with, or recorded by any state, government or other public legal
authority.
"COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company or any of
its subsidiaries.
(a) Section 2.8(a) of the Company Schedules is a complete and
accurate list of all the Company's issued patents, and the jurisdictions in
which each such patent has been issued or registered.
(b) No Company Intellectual Property or product or service of the
Company or any of its subsidiaries is subject to any judicial proceeding or
outstanding decree, order, judgment or stipulation restricting in any manner the
use, transfer, or licensing thereof by the Company or any of its subsidiaries,
or which may affect the validity, use or enforceability of such Company
Intellectual Property.
(c) The Company owns and has good and exclusive title to, or has
a license for (sufficient for the conduct of its business as currently
conducted), each material item of Company Intellectual Property or other
Intellectual Property used by the Company free and clear of any lien or
encumbrance (excluding licenses and related restrictions); and the Company is
the exclusive owner of all trademarks and trade names used in connection with
the operation or conduct of the business of the Company and its subsidiaries,
including the sale of any products or the provision of any services by the
Company and its subsidiaries.
(d) To the extent that any material Intellectual Property has
been developed or created by a third party for the Company or any of its
subsidiaries, the Company has a written agreement with such third party with
respect thereto and the Company either (i) has obtained ownership by operation
of law or by valid assignment and is the exclusive owner of, or (ii) has
obtained a license (sufficient for the conduct of its business as currently
conducted) to all such third party's Intellectual Property in such work,
material or invention by operation of law or by valid assignment.
(e) To the knowledge of the Company, the operation of the
business of the Company and its subsidiaries as such business currently is
conducted, including the Company's and its subsidiaries' design, development,
manufacture, marketing and sale of the products or services of the Company and
its subsidiaries (including products currently under development), has not, does
not and will not infringe any patent of, or infringe or misappropriate any other
Intellectual Property of, any third party.
(f) Neither the Company nor any of its subsidiaries has received
notice from any third party that the operation of the business of the Company or
any of its subsidiaries or any act,
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<PAGE> 18
product or service of the Company or any of its subsidiaries, infringes or
misappropriates the Intellectual Property of any third party.
(g) The Company and each of its subsidiaries has taken reasonable
steps to protect the Company's and its subsidiaries' rights in the Company's
confidential information and trade secrets that it wishes to protect or any
trade secrets or confidential information of third parties provided to the
Company or any of its subsidiaries, and, without limiting the foregoing, each of
the Company and its subsidiaries has and enforces a policy requiring each
employee and contractor to execute a proprietary information/confidentiality
agreement in reasonable and customary form provided to Parent and all current
and former employees and contractors of the Company and any of its subsidiaries
have executed such an agreement, except where the failure to do so is not
reasonably expected to be material to the Company.
2.9 Compliance; Permits; Restrictions.
(a) Neither the Company nor any of its subsidiaries is, in any
material respect, in conflict with, or in default or violation of (i) any law,
rule, regulation, order, judgment or decree applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected except for any conflicts, defaults or violations that (individually
or in the aggregate) would not cause the Company to lose any material benefit or
incur any material liability, or (ii) any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or its or any of their
respective properties is bound or affected. To the knowledge of the Company, no
investigation or review by any Governmental Entity is pending or threatened
against the Company or its subsidiaries, nor has any Governmental Entity
indicated an intention to conduct the same. There is no material agreement,
judgment, injunction, order or decree binding upon the Company or any of its
subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or materially impairing the conduct of business by the Company as
currently conducted.
(b) The Company and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from governmental authorities which
are material to the operation of the business of the Company (collectively, the
"COMPANY PERMITS"). The Company and its subsidiaries are in compliance in all
material respects with the terms of Company Permits.
2.10 Litigation. As of the date of this Agreement, and except as
disclosed in the Company SEC Documents, there is no action, suit, proceeding,
claim, arbitration or investigation pending, or as to which the Company or any
of its subsidiaries has received any notice of assertion nor, to the Company's
knowledge, is there a threatened action, suit, proceeding, claim, arbitration or
investigation against the Company or any of its subsidiaries which reasonably
would be likely to be material to the Company, or which in any manner challenges
or seeks to prevent, enjoin, alter or delay any of the transactions contemplated
by this Agreement.
2.11 Brokers' and Finders' Fees. Except for fees payable to Salomon
Smith Barney Inc. pursuant to an engagement letter dated October 15, 1999, a
copy of which has been provided to Parent, the Company has not incurred, nor
will it incur, directly or indirectly, any liability for
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<PAGE> 19
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
2.12 Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit
plans, programs, policies, commitments, agreements or other arrangements
(whether or not set forth in a written document and including, without
limitation, all "employee benefit plans" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
covering any active or former employee, director or consultant of the Company
("COMPANY EMPLOYEE" which shall for this purpose mean an employee of the Company
or an Affiliate (as defined below)), any subsidiary of the Company or any trade
or business (whether or not incorporated) which is a member of a controlled
group or which is under common control with the Company within the meaning of
Section 414 of the Code (an "AFFILIATE"), or with respect to which the Company
has or, to its knowledge, may in the future have liability, are listed in
Section 2.12(a) of the Company Schedules (the "COMPANY PLANS"). Company will
provide or make available correct and complete copies of all documents embodying
each Company Plan and all documents relevant to the administration of such Plans
prior to the Closing Date.
(b) Each Company Plan has been maintained and administered in all
material respects in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations (foreign or
domestic), including but not limited to ERISA and the Code, which are applicable
to such Company Plans. All contributions, reserves or premium payments required
to be made or accrued as of the date hereof to the Company Plans have been
timely made or accrued. Company has performed in all material respects all
obligations required to be performed by it under, is not in default or violation
of, and has no knowledge of any default or violation by any other party to each
Plan. No suit, action or other litigation (excluding claims for benefits
incurred in the ordinary course of Plan activities) has been brought, or to the
knowledge of Company is threatened against or with respect to any such Plan.
There are no audits, inquiries or proceedings pending or to the knowledge of the
Company, threatened by the IRS or U.S. Department of Labor with respect to any
Company Plan. Any Company Plan intended to be qualified under Section 401(a) of
the Code and each trust intended to qualify under Section 501(a) of the Code:
(i) has either obtained a favorable determination, notification, advisory and/or
opinion letter, as applicable, as to its tax-qualified status from the IRS or
still has a remaining period of time under applicable Treasury Regulations or
IRS pronouncements in which to apply for such letter and to make any amendments
necessary to obtain a favorable determination, and (ii) incorporates or has been
amended to incorporate all provisions required to comply with the Tax Reform Act
of 1986 and subsequent legislation.
(c) Neither the Company, any of its subsidiaries, nor any of
their Affiliates has at any time ever maintained, established, sponsored,
participated in, or contributed to any plan subject to Title IV of ERISA or
Section 412 of the Code and at no time has the Company contributed to or been
requested to contribute to any "multiemployer plan," as such term is defined in
ERISA. Neither the Company, any of its subsidiaries, nor any officer or director
of the Company or any of its subsidiaries is subject to any material liability
or penalty under Section 4975 through 4980B of the Code or Title I of ERISA. No
"prohibited transaction," within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 4975 of
the Code
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<PAGE> 20
and Section 408 of ERISA, has occurred with respect to any Company Plan which
could subject the Company or its Affiliates to material liability.
(d) Neither the Company nor any of its subsidiaries is bound by
or subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union. No employee of the Company or
any of its subsidiaries is represented by any labor union or covered by any
collective bargaining agreement and, to the knowledge of the Company, no
campaign to establish such representation is in progress. There is no pending
or, to the knowledge of the Company, threatened labor dispute involving the
Company or any of its subsidiaries and any group of its employees nor has the
Company or any of its subsidiaries experienced any labor interruptions over the
past three (3) years, and the Company and its subsidiaries consider their
relationships with their employees to be good. The Company is in compliance in
all material respects with all applicable material foreign, federal, state and
local laws, rules and regulations respecting employment, employment practices,
terms and conditions of employment and wages and hours.
(e) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, bonus
or otherwise) becoming due to any Company Employee under any Company Plan or
otherwise, (ii) materially increase any benefits otherwise payable under any
Company Plan, or (iii) result in the acceleration of the time of payment or
vesting of any such benefits.
(f) No Company Plan promises or provides retiree medical benefits
to any person except as required by applicable law, and neither Company nor any
of its Affiliates has represented, promised or contracted (whether in oral or
written form) to provide such retiree benefits to any Company Employee or
dependent thereof except as required by law.
2.13 Absence of Liens and Encumbrances. The Company and each of its
subsidiaries has good and valid title to, or, in the case of leased properties
and assets, valid leasehold interests in, all of its material tangible
properties and assets, real, personal and mixed, used in its business, free and
clear of any liens or encumbrances except as reflected in the Company Financials
and except for liens for taxes not yet due and payable and such imperfections of
title and encumbrances, if any, as do not materially detract from the value of
or materially interfere with the present use of the property affected thereby.
2.14 Environmental Matters. Except as would not reasonably be likely to
result in a material liability to the Company (in any individual case or in the
aggregate), (i) neither the Company nor any of its subsidiaries has transported,
stored, used, manufactured, disposed of, released or exposed its employees or
others to any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws, but
excluding office and janitorial supplies (a "HAZARDOUS MATERIAL") in violation
of any law in effect on or before the
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<PAGE> 21
Closing Date, (ii) neither the Company nor any of its subsidiaries has disposed
of, transported, sold, used, released, exposed its employees or others to or
manufactured any product containing a Hazardous Material (collectively,
"HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity and (iii) as a result of the actions of the Company
or any of its subsidiaries or any affiliate of the Company, or, to the Company's
knowledge, as a result of any actions of any third party or otherwise, no
underground storage tank is present in, on or under any property that the
Company or any of its subsidiaries has at any time owned, operated, occupied or
leased and no amount of any Hazardous Material is present under any property and
in the land, ground water and surface water of any property, that the Company or
any of its subsidiaries has at any time owned, operated, occupied or leased.
2.15 Labor Matters. (i) There are no controversies pending or, to the
knowledge of each of the Company and its respective subsidiaries, threatened,
between the Company or any of its subsidiaries and any of their respective
employees, and (ii) as of the date of this Agreement, neither the Company nor
any of its subsidiaries has any knowledge of any strikes, slowdowns, work
stoppages or lockouts, or threats thereof, by or with respect to any employees
of the Company or any of its subsidiaries.
2.16 Agreements, Contracts and Commitments. As of the date of this
Agreement, neither Company nor any of its subsidiaries is a party to or is bound
by:
(a) any employment or consulting agreement, contract or
commitment with any officer or director or higher level employee or member of
the Company's Board of Directors, other than those that are terminable by the
Company or any of its subsidiaries on no more than thirty (30) days' notice
without liability or financial obligation to the Company;
(b) any agreement, contract or commitment containing any covenant
that materially limits the right of the Company or any of its subsidiaries to
engage in any line of business or to compete with any person or granting any
exclusive distribution rights;
(c) any agreement, contract or commitment currently in force
relating to the disposition or acquisition by the Company or any of its
subsidiaries after the date of this Agreement of a material amount of assets not
in the ordinary course of business or pursuant to which the Company has any
material ownership interest in any corporation, partnership, joint venture or
other business enterprise other than the Company's subsidiaries;
(d) any dealer, distributor, joint marketing or development
agreement currently in force under which the Company or any of its subsidiaries
have continuing material obligations to jointly market any product, technology
or service and which may not be canceled without penalty upon notice of ninety
(90) days or less, or any material agreement pursuant to which the Company or
any of its subsidiaries have continuing material obligations to jointly develop
any intellectual property that will not be owned, in whole or in part, by the
Company or any of its subsidiaries and which may not be canceled without penalty
upon notice of ninety (90) days or less;
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<PAGE> 22
(e) any agreement, contract or commitment currently in force to
license any third party to manufacture or reproduce any Company product or
technology or any agreement, contract or commitment currently in force to sell
or distribute any Company products, service or technology except agreements with
distributors or sales representative in the normal course of business cancelable
without penalty upon notice of ninety (90) days or less and substantially in the
form previously provided to Parent;
(f) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit;
(g) any settlement agreement entered into within three (3) years
prior to the date of this Agreement; or
(h) any other agreement, contract or commitment that has a value
of $500,000 or more individually.
Neither the Company nor any of its subsidiaries, nor to the Company's
knowledge any other party to a Company Contract (as defined below), is in
breach, violation or default under, and neither the Company nor any of its
subsidiaries has received written notice that it is in breach, violation or
default under, any of the material terms or conditions of any of the agreements,
contracts or commitments to which the Company or any of its subsidiaries is a
party or by which it is bound that are required to be disclosed in the Company
Schedules (any such agreement, contract or commitment, a "COMPANY CONTRACT") in
such a manner as would permit any other party to cancel or terminate any such
Company Contract, or would permit any other party to seek material damages (for
any or all of such breaches, violations or defaults, in the aggregate).
2.17 Statements; Proxy Statement/Prospectus. None of the information
supplied or to be supplied by the Company for inclusion or incorporation by
reference in the registration statement on Form S-4 to be filed with the SEC by
Parent in connection with the issuance of the Parent Common Stock in or as a
result of the Merger (the "REGISTRATION STATEMENT") will at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. The proxy
statement/prospectus to be sent to the stockholders of the Company and
stockholders of Parent in connection with the meeting of the Company's
stockholders to consider the adoption of this Agreement (the "COMPANY
STOCKHOLDERS' MEETING") and in connection with the meeting of Parent's
stockholders to consider the approval of the issuance of shares of Parent Common
Stock pursuant to the terms of the Merger (the "PARENT STOCKHOLDERS' MEETING")
(such proxy statement/prospectus as amended or supplemented is referred to
herein as the "PROXY STATEMENT") will not, on the date the Proxy Statement is
first mailed to the Company's stockholders or Parent's stockholders, or at the
time of the Company Stockholders' Meeting or the Parent Stockholders' Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not false or
misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Company Stockholders' Meeting or the Parent Stockholders'
Meeting which has become false or misleading. The Proxy Statement will comply as
to form in all material respects
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<PAGE> 23
with the provisions of the Exchange Act and the rules and regulations
thereunder. If at any time prior to the Effective Time, any event relating to
the Company or any of its affiliates, officers or directors is required to be
discovered by the Company which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, the Company shall
promptly inform Parent. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied or to be
supplied by Parent or Merger Sub which is, will be, or is required to be
contained in any of the foregoing documents.
2.18 Board Approval. The Board of Directors of the Company has, as of
the date of this Agreement, (i) determined that the Merger is fair to, advisable
and in the best interests of the Company and its stockholders, (ii) determined
to recommend that the stockholders of the Company adopt this Agreement and (iii)
duly approved the Merger, this Agreement and the transactions contemplated
hereby.
2.19 State Takeover Statutes. The Board of Directors of the Company has
approved the Merger, this Agreement, the Stock Option Agreements, the Parent
Voting Agreement and the transactions contemplated hereby and thereby, and such
approval is sufficient to render inapplicable to the Merger, this Agreement, the
Stock Option Agreements, the Parent Voting Agreement and the transactions
contemplated hereby and thereby the provisions of Section 203 of Delaware Law to
the extent, if any, such section is applicable to the Merger, this Agreement,
the Stock Option Agreements, the Parent Voting Agreement and the transactions
contemplated hereby and thereby. No other state takeover statute or similar
statute or regulation applies to or purports to apply to the Merger, this
Agreement, the Stock Option Agreements, the Parent Voting Agreement or the
transactions contemplated hereby and thereby.
2.20 Fairness Opinion. The Company has received an opinion from
Salomon Smith Barney Inc., dated as of the date hereof, to the effect that as of
the date hereof, the Exchange Ratio is fair to the Company's stockholders (other
than Parent) from a financial point of view and will deliver to Parent a written
confirmation of such opinion as soon as practicable after the date hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company, subject to
the exceptions specifically disclosed in the disclosure letter supplied by
Parent to the Company (the "PARENT SCHEDULES"), as follows:
3.1 Organization of Parent.
(a) Parent and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; has the corporate power and authority to own,
lease and operate its assets and property and to carry on its business as now
being conducted and as proposed to be conducted; and is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect (as
defined in Section 8.3) on Parent.
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<PAGE> 24
(b) Parent has delivered to the Company a true and complete list
of all of Parent's subsidiaries, indicating the jurisdiction of incorporation of
each subsidiary and Parent's equity interest therein.
(c) Parent has delivered or made available to the Company a true
and correct copy of the Certificate of Incorporation and Bylaws of Parent and
similar governing instruments of each of its material subsidiaries, each as
amended to date, and each such instrument is in full force and effect. Neither
Parent nor any of its subsidiaries is in violation of any of the provisions of
its Certificate of Incorporation or Bylaws or equivalent governing instruments.
3.2 Parent Capital Structure. The authorized capital stock of Parent
consists of 150,000,000 shares of Common Stock, par value $0.01 per share, of
which 66,054,041 shares are issued and outstanding as of April 19, 2000 and
1,000,000 shares of Preferred Stock, par value $0.01 per share, of which no
shares are issued or outstanding. The authorized capital stock of Merger Sub
consists of 1,000 shares of Common Stock, par value $0.001 per share, all of
which, as of the date hereof, are issued and outstanding and are held by Parent.
All outstanding shares of Parent Common Stock are duly authorized, validly
issued, fully paid and non-assessable and are not subject to preemptive rights
created by statute, the Certificate of Incorporation or Bylaws of Parent or any
agreement or document to which Parent is a party or by which it is bound. As of
April 2, 2000, 17,138,042 shares of Parent Common Stock were reserved for
issuance to employees, consultants and non-employee directors pursuant to
Parent's 1997 Supplemental Stock Option Plan, Restated 1987 Stock Option Plan
and Komag Material Technology, Inc. Stock Option Plan (the "PARENT STOCK OPTION
PLAN"), under which options are outstanding for 14,011,761 shares and under
which 3,126,281 shares are available for grant as of April 2, 2000. As of April
2, 2000, 7,400,000 shares of Parent Common Stock reserved for issuance under the
1988 Employee Stock Purchase Plan (the "PARENT ESPP"). All shares of Parent
Common Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
would be duly authorized, validly issued, fully paid and nonassessable.
3.3 Obligations With Respect to Capital Stock. Except as set forth in
Section 3.2 as of March 31, 2000, there are no equity securities, partnership
interests or similar ownership interests of any class of Parent, or any
securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests issued,
reserved for issuance or outstanding. Except for securities Parent owns,
directly or indirectly through one or more subsidiaries, as of March 31, 2000
there are no equity securities, partnership interests or similar ownership
interests of any class of any subsidiary of Parent, or any security exchangeable
or convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests issued, reserved for issuance or
outstanding. Except as set forth in Section 3.2, as of March 31, 2000 there are
no options, warrants, equity securities, partnership interests or similar
ownership interests, calls, rights (including preemptive rights), commitments or
agreements of any character to which Parent or any of its subsidiaries is a
party or by which it is bound obligating Parent or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase,
redeem or otherwise acquire, or cause the repurchase, redemption or acquisition,
of any shares of capital stock of Parent or any of its subsidiaries or
obligating Parent or any of its subsidiaries to grant, extend, accelerate the
vesting of or enter into any such option, warrant, equity security, partnership
interest or similar ownership interest, call, right, commitment or agreement.
Except for the Parent Voting Agreements, there are no registration rights and,
to the knowledge of Parent there
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<PAGE> 25
are no voting trusts, proxies or other agreements or understandings with respect
to any equity security of any class of Parent or with respect to any equity
security, partnership interest or similar ownership interest of any class of any
of its subsidiaries.
3.4 Authority.
(a) Parent has all requisite corporate power and authority to
enter into this Agreement and the Stock Option Agreements and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, and the
execution and delivery of the Stock Option Agreements and the consummation of
the transactions contemplated thereby, have been duly authorized by all
necessary corporate action on the part of Parent, subject only to the approval
of the issuance of Parent Common stock in the Merger by Parent's stockholders
and the filing and recordation of the Certificate of Merger pursuant to Delaware
Law. A vote of the holders of at least a majority of the shares of the Parent
Common Stock present at the Parent Stockholders' meeting (defined below) is
required for Parent's stockholders to approve the issuance of Parent Common
Stock in the Merger. This Agreement and the Stock Option Agreements have been
duly executed and delivered by Parent and, assuming the due authorization,
execution and delivery by the Company and, if applicable, Merger Sub, constitute
the valid and binding obligations of Parent, enforceable in accordance with
their respective terms, except as enforcement thereof may be limited by
bankruptcy and other similar laws and general principles of equity. The
execution and delivery of this Agreement and the Stock Option Agreements by
Parent do not, and the performance of this Agreement and the Stock Option
Agreements by Parent will not, (i) conflict with or violate the Certificate of
Incorporation or Bylaws of Parent the equivalent organizational documents of any
of its subsidiaries, (ii) subject to the approval of the issuance of Parent
Common Stock in the Merger by Parent's stockholders as contemplated in Section
5.2 and compliance with the requirements set forth in Section 3.4(b) below,
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to Parent or any of its subsidiaries or by which its or any of their
respective properties is bound or affected, or (iii) result in any breach of, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or impair Parent's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Parent
or any of its subsidiaries pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or any of its subsidiaries is a party
or by which Parent or any of its subsidiaries or its or any of their respective
properties is bound or affected, except to the extent such conflict, violation,
breach, default, impairment or other effect would not, in the case of clause
(ii) or (iii), individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect on Parent.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with any Governmental Entity is required by
or with respect to Parent in connection with the execution and delivery of this
Agreement and the Stock Option Agreements or the consummation of the
transactions contemplated hereby or thereby, except for (i) applicable
requirements of the Securities Act, (ii) the filing and recordation of the
Certificate of Merger with the Secretary of State of Delaware, (iii) applicable
requirements of the Exchange Act, (iv) the rules and regulations of Nasdaq; (v)
such consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under applicable federal and state securities
laws and the HSR Act and the laws of
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<PAGE> 26
any foreign country and (vi) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not reasonably
be expected to have a Material Adverse Effect on Parent or the Company or have a
material adverse effect on the ability of the parties to consummate the Merger.
3.5 SEC Filings; Parent Financial Statements.
(a) Parent has filed all forms, reports and documents Parent has
been required to file with the SEC since January 1, 1998, and has made available
to the Company such forms, reports and documents in the form filed with the SEC.
All such required forms, reports and documents (including those that Parent may
file subsequent to the date hereof) are referred to herein as the "PARENT SEC
REPORTS." As of their respective dates, the Parent SEC Reports (i) were prepared
in accordance with the requirements of the Securities Act or the Exchange Act,
as the case may be, and the rules and regulations of the SEC thereunder
applicable to such Parent SEC Reports, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of Parent's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each set of consolidated financial statements (including, in
each case, any related notes thereto) contained in the Parent SEC Reports (the
"PARENT FINANCIALS"), including any Parent SEC Reports filed after the date
hereof until the Closing, (i) complied as to form in all material respects with
the published rules and regulations of the SEC with respect thereto, (ii) was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited interim financial statements, as may be permitted by the SEC
on Form 10-Q under the Exchange Act) and (iii) fairly presented the consolidated
financial position of Parent and its subsidiaries at the respective dates
thereof and the consolidated results of its operations and cash flows for the
periods indicated, except that the unaudited interim financial statements were
or are subject to normal and recurring year-end adjustments which were not, or
are not expected to be, material in amount. The balance sheet of Parent
contained in the Parent SEC Reports as of January 2, 2000 is hereinafter
referred to as the "PARENT BALANCE SHEET." Except as disclosed in the Parent
Financials, neither Parent nor any of its subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise) of a nature required to be
disclosed on a balance sheet or in the related notes to the consolidated
financial statements prepared in accordance with GAAP which are, individually or
in the aggregate, material to the business, results of operations or financial
condition of Parent and its subsidiaries taken as a whole, except liabilities
(i) provided for in the Parent Balance Sheet, or (ii) incurred since the date of
the Parent Balance Sheet in the ordinary course of business consistent with past
practices and immaterial in the aggregate.
(c) Parent has heretofore furnished to the Company a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Parent with the SEC
pursuant to the Securities Act or the Exchange Act.
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<PAGE> 27
3.6 Absence of Certain Changes or Events. Since the date of the Parent
Balance Sheet, there has not been: (i) any Material Adverse Effect on Parent,
(ii) any material change by Parent in its accounting methods, principles or
practices, except as required by GAAP or the rules and regulations promulgated
by the SEC, or (iii) any revaluation by Parent of any of its assets, including,
without limitation, writing down the value of capitalized inventory or writing
off notes or accounts receivable other than in the ordinary course of business.
3.7 Taxes.
(a) Parent and each of its subsidiaries have timely filed all
Returns relating to Taxes required to be filed by Parent and each of its
subsidiaries with any Tax authority, except such Returns which are not material
to Parent. Parent and each of its subsidiaries have paid all Taxes shown to be
due on such Returns.
(b) Parent and each of its subsidiaries as of the Effective Time
will have withheld with respect to its employees all federal and state income
taxes, Taxes pursuant to the Federal Insurance Contribution Act, Taxes pursuant
to the Federal Unemployment Tax Act and other Taxes required to be withheld,
except such Taxes which are not material to Parent.
(c) Neither Parent nor any of its subsidiaries has any material
Tax deficiency outstanding, proposed or assessed against Parent or any of its
subsidiaries, nor has Parent or any of its subsidiaries executed any unexpired
waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(d) No audit or other examination of any Return of Parent or any
of its subsidiaries by any Tax authority is presently in progress, nor has
Parent or any of its subsidiaries been notified of any request for such an audit
or other examination.
(e) No material adjustment relating to any Returns filed by
Parent or any of its subsidiaries has been proposed in writing formally or
informally by any Tax authority to Parent or any of its subsidiaries or any
representative thereof.
(f) Neither Parent nor any of its subsidiaries has any liability
for any material unpaid Taxes which has not been accrued for or reserved on
Parent Balance Sheet in accordance with GAAP, whether asserted or unasserted,
contingent or otherwise, which is material to Parent, other than any liability
for unpaid Taxes that may have accrued since December 31, 1999 in connection
with the operation of the business of Parent and its subsidiaries in the
ordinary course.
(g) There is no contract, agreement, plan or arrangement to which
Parent or any of its subsidiaries is a party as of the date of this Agreement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of Parent or any of its subsidiaries that,
individually or collectively, would reasonably be expected to give rise to the
payment of any amount that would not be deductible pursuant to Sections 280G,
404 or 162(m) of the Code. There is no contract, agreement, plan or arrangement
to which Parent or any of its subsidiaries is a party or by which it or any of
its subsidiaries is bound as of the date hereof to compensate any individual for
excise taxes paid pursuant to Section 4999 of the Code.
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(h) Neither Parent nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by Parent or any of its
subsidiaries.
(i) Neither Parent nor any of its subsidiaries is party to or has
any obligation under any tax-sharing, tax indemnity or tax allocation agreement
or arrangement.
(j) None of Parent's or its subsidiaries' assets are tax exempt
use property within the meaning of Section 168(h) of the Code.
(k) Neither the Parent nor any of its subsidiaries has
constituted either a "distributing corporation" or a "controlled corporation" in
a distribution of stock qualifying for tax-free treatment under Section 355 of
the Code (x) in the two years prior to the date of this Agreement or (y) in a
distribution which could otherwise constitute part of a "plan" or "series or
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
3.8 Parent Intellectual Property. For the purposes of this Agreement,
the following terms have the following definitions:
"PARENT INTELLECTUAL PROPERTY" shall mean any Intellectual Property that
is owned by, or exclusively licensed to, Parent.
"PARENT REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, Parent or any of its
subsidiaries.
(a) Section 3.8(a) of the Parent Schedules is a complete and
accurate list of all Parent Registered Intellectual Property and specifies,
where applicable, and the jurisdictions in which each such item of Parent
Registered Intellectual Property has been issued or registered.
(b) No Parent Intellectual Property or product or service of
Parent or any of its subsidiaries is subject to any proceeding or outstanding
decree, order, judgment, or stipulation restricting in any manner the use,
transfer, or licensing thereof by Parent or any of its subsidiaries, or which
may affect the validity, use or enforceability of such Parent Intellectual
Property.
(c) Parent owns and has good and exclusive title to, or has a
license for (sufficient for the conduct of its business as currently conducted),
each material item of Parent Intellectual Property or other Intellectual
Property used by Parent free and clear of any lien or encumbrance (excluding
licenses and related restrictions); and Parent is the exclusive owner of all
trademarks and trade names used in connection with the operation or conduct of
the business of Parent and its subsidiaries, including the sale of any products
or the provision of any services by Parent and its subsidiaries.
(d) To the extent that any material Intellectual Property has
been developed or created by a third party for Parent or any of its
subsidiaries, Parent has a written agreement with such third party with respect
thereto and Parent either (i) has obtained ownership of, by operation of law or
by valid assignment and is the exclusive owner of, or (ii) has obtained a
license (sufficient for the
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conduct of its business as currently conducted) to all such third party's
Intellectual Property in such work, material or invention by operation of law or
by valid assignment.
(e) To the knowledge of Parent, the operation of the business of
Parent and its subsidiaries as such business currently is conducted, including
Parent's and its subsidiaries' design, development, manufacture, marketing and
sale of the products or services of Parent and its subsidiaries (including
products currently under development) has not, does not and will not infringe
any patent of, or infringe or misappropriate any other Intellectual Property of,
any third party.
(f) Neither Parent nor any of its subsidiaries has received
notice from any third party that the operation of the business of Parent or any
of its subsidiaries or any act, product or service of Parent or any of its
subsidiaries, infringes or misappropriates the Intellectual Property of any
third party.
(g) Parent and each of its subsidiaries has taken reasonable
steps to protect Parent's and its subsidiaries' rights in Parent's confidential
information and trade secrets that it wishes to protect or any trade secrets or
confidential information of third parties provided to Parent or any of its
subsidiaries, and, without limiting the foregoing, each of Parent and its
subsidiaries has and enforces a policy requiring each employee and contractor to
execute a proprietary information/confidentiality agreement substantially in the
form provided to the Company and all current and former employees and
contractors of Parent and any of its subsidiaries have executed such an
agreement, except where the failure to do so is not reasonably expected to be
material to Parent.
3.9 Compliance; Permits; Restrictions.
(a) Neither Parent nor any of its subsidiaries is, in any
material respect, in conflict with, or in default or violation of (i) any law,
rule, regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which its or any of their respective properties is bound or
affected except for any conflicts, defaults or violations that (individually or
in the aggregate) would not cause Parent to lose any material benefit or incur
any material liability, or (ii) any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or any of its subsidiaries is a party or by which
Parent or any of its subsidiaries or its or any of their respective properties
is bound or affected. To the knowledge of Parent, no investigation or review by
any Governmental Entity is pending or threatened against Parent or its
subsidiaries, nor has any Governmental Entity indicated an intention to conduct
the same. There is no material agreement, judgment, injunction, order or decree
binding upon Parent or any of its subsidiaries which has or could reasonably be
expected to have the effect of prohibiting or materially impairing the conduct
of business by Parent as currently conducted.
(b) Parent and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from governmental authorities which
are material to the operation of the business of Parent (collectively, the
"PARENT PERMITS"). Parent and its subsidiaries are in compliance in all material
respects with the terms of the Parent Permits.
3.10 Litigation. As of the date of this Agreement, and except as
disclosed in the Parent SEC Documents, there is no action, suit, proceeding,
claim, arbitration or investigation pending, or
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as to which Parent or any of its subsidiaries has received any notice of
assertion nor, to Parent's knowledge, is there a threatened action, suit,
proceeding, claim, arbitration or investigation against Parent or any of its
subsidiaries which reasonably would be likely to be material to Parent, or which
in any manner challenges or seeks to prevent, enjoin, alter or delay any of the
transactions contemplated by this Agreement.
3.11 Brokers' and Finders' Fees. Except for fees payable to Chase H&Q
pursuant to an engagement letter dated September 3, 1999, a copy of which has
been provided to the Company, Parent has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
3.12 Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit
plans, programs, policies, commitments, agreements or other arrangements
(whether or not set forth in a written document and including, without
limitation, all "employee benefit plans" within the meaning of Section 3(3) of
ERISA) covering any active or former employee, director or consultant of Parent
("PARENT EMPLOYEE" which shall for this purpose mean an employee of the Company
or any Affiliate (as defined below)), any subsidiary of Parent or any trade or
business (whether or not incorporated) which is an Affiliate, or with respect to
which Parent has or, to its knowledge, may in the future have liability, are
listed in Section 3.12(a) of the Parent Schedules (the "PARENT PLANS"). Parent
will provide or make available correct and complete copies of all documents
embodying each Parent Plan and all documents relevant to the administration of
such Plans prior to the Closing Date.
(b) Each Parent Plan has been maintained and administered in all
material respects in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations (foreign or
domestic), including but not limited to ERISA and the Code, which are applicable
to such Parent Plans. All contributions, reserves or premium payments required
to be made or accrued as of the date hereof to the Parent Plans have been timely
made or accrued. Parent has performed in all material respects all obligations
required to be performed by it under, is not in default or violation of, and has
no knowledge of any default or violation by any other party to each Plan. No
suit, action or other litigation (excluding claims for benefits incurred in the
ordinary course of Plan activities) has been brought, or to the knowledge of
Parent is threatened, against or with respect to any such Plan. There are no
audits, inquiries or proceedings pending or to the knowledge of Parent,
threatened by the IRS or U.S. Department of Labor with respect to any Parent
Plan. Any Parent Plan intended to be qualified under Section 401(a) of the Code
and each trust intended to qualify under Section 501(a) of the Code: (i) has
either obtained a favorable determination, notification, advisory and/or opinion
letter, as applicable, as to its tax-qualified status from the IRS or still has
a remaining period of time under applicable Treasury Regulations or IRS
pronouncements in which to apply for such letter and to make any amendments
necessary to obtain a favorable determination, and (ii) incorporates or has been
amended to incorporate all provisions required to comply with the Tax Reform Act
of 1986 and subsequent legislation.
(c) Neither Parent, any of its subsidiaries, nor any of their
Affiliates has at any time ever maintained, established, sponsored, participated
in, or contributed to any plan subject to Title IV of ERISA or Section 412 of
the Code and at no time has Parent contributed to or been
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requested to contribute to any "multiemployer plan," as such term is defined in
ERISA. Neither Parent, any of its subsidiaries, nor any officer or director of
Parent or any of its subsidiaries is subject to any material liability or
penalty under Section 4975 through 4980B of the Code or Title I of ERISA. No
"prohibited transaction," within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 4975 of
the Code and Section 408 of ERISA, has occurred with respect to any Parent Plan
which could subject Parent or its Affiliates to material liability.
(d) Neither Parent nor any of its subsidiaries is bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union. No employee of Parent or any
of its subsidiaries is represented by any labor union or covered by any
collective bargaining agreement and, to the knowledge of Parent, no campaign to
establish such representation is in progress. There is no pending or, to the
knowledge of Parent, threatened labor dispute involving Parent or any of its
subsidiaries and any group of its employees nor has Parent or any of its
subsidiaries experienced any labor interruptions over the past three (3) years,
and Parent and its subsidiaries consider their relationships with their
employees to be good. Parent is in compliance in all material respects with all
applicable material foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours.
(e) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, bonus
or otherwise) becoming due to any Parent Employee under any Parent Plan or
otherwise, (ii) materially increase any benefits otherwise payable under any
Parent Plan, or (iii) result in the acceleration of the time of payment or
vesting of any such benefits.
(f) No Parent Plan promises or provides retiree medical benefits
to any person except as required by applicable law, and neither Parent nor any
of its Affiliates has represented, promised or contracted (whether in oral or
written form) to provide such retiree benefits to any Parent Employee or
dependent thereof except as required by law.
3.13 Absence of Liens and Encumbrances. Parent and each of its
subsidiaries has good and valid title to, or, in the case of leased properties
and assets, valid leasehold interests in, all of its material tangible
properties and assets, real, personal and mixed, used in its business, free and
clear of any liens or encumbrances except as reflected in the Parent Financials
and except for liens for taxes not yet due and payable and such imperfections of
title and encumbrances, if any, which as do not materially detract from the
value of or materially interfere with the present use of the property affected
thereby.
3.14 Environmental Matters. Except as would not reasonably be likely to
result in a material liability to Parent (in any individual case or in the
aggregate), (i) neither Parent nor any of its subsidiaries has transported,
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Closing Date, (ii) neither Parent nor any of its subsidiaries has engaged in
Hazardous Materials Activities in violation of any rule, regulation, treaty or
statute promulgated by any Governmental Entity in effect prior to or as of the
date hereof to prohibit, regulate or control Hazardous Materials or any
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Hazardous Material Activity and (iii) as a result of the actions of the Parent
or any of its subsidiaries or any affiliate of the Parent or, to the Parent's
knowledge, as a result of any actions of any third party or otherwise, no
underground storage tank is present in, on or under any property that the Parent
or any of its subsidiaries has at any time owned, operated, occupied or leased
and no amount of any Hazardous Material is present under any property and in the
land, ground water and surface water of any property, that the Parent or any of
its subsidiaries has at any time owned, operated, occupied or leased.
3.15 Labor Matters. (i) There are no controversies pending or, to the
knowledge of each of Parent and its respective subsidiaries, threatened, between
Parent or any of its subsidiaries and any of their respective employees, and
(ii) as of the date of this Agreement, neither Parent nor any of its
subsidiaries has any knowledge of any strikes, slowdowns, work stoppages or
lockouts, or threats thereof, by or with respect to any employees of Parent or
any of its subsidiaries.
3.16 Agreements, Contracts and Commitments. As of the date hereof,
neither the Company nor any of its subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or
commitment with any officer or director or higher level employee or member of
Parent's Board of Directors, other than those that are terminable by Parent or
any of its subsidiaries on no more than thirty (30) days' notice without
liability or financial obligation to Parent;
(b) any agreement, contract or commitment containing any covenant
that materially limits the right of Parent or any of its subsidiaries to engage
in any line of business or to compete with any person or granting any exclusive
distribution rights;
(c) any agreement, contract or commitment currently in force
relating to the disposition or acquisition by Parent or any of its subsidiaries
after the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Parent has any material
ownership interest in any corporation, partnership, joint venture or other
business enterprise other than Parent's subsidiaries;
(d) any dealer, distributor, joint marketing or development
agreement currently in force under which Parent or any of its subsidiaries have
continuing material obligations to jointly market any product, technology or
service and which may not be canceled without penalty upon notice of ninety (90)
days or less, or any material agreement pursuant to which Parent or any of its
subsidiaries have continuing material obligations to jointly develop any
intellectual property that will not be owned, in whole or in part, by Parent or
any of its subsidiaries and which may not be canceled without penalty upon
notice of ninety (90) days or less;
(e) any agreement, contract or commitment currently in force to
license any third party to manufacture or reproduce any Parent product or
technology or any agreement, contract or commitment currently in force to sell
or distribute any Parent products, service or technology except agreements with
distributors or sales representative in the normal course of business cancelable
without penalty upon notice of ninety (90) days or less and substantially in the
form previously provided to the Company;
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(f) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit;
(g) any settlement agreement entered into within three (3) years
prior to the date of this Agreement; or
(h) any other agreement, contract or commitment that has a value
of $500,000 or more individually.
Neither Parent nor any of its subsidiaries, nor to Parent's knowledge
any other party to a Parent Contract (as defined below), is in breach, violation
or default under, and neither Parent nor any of its subsidiaries has received
written notice that it is in breach, violation or default under, any of the
material terms or conditions of any of the agreements, contracts or commitments
to which Parent or any of its subsidiaries is a party or by which it is bound
that are required to be disclosed in the Parent Schedules (any such agreement,
contract or commitment, a "PARENT CONTRACT") in such a manner as would permit
any other party to cancel or terminate any such Parent Contract, or would permit
any other party to seek material damages or other remedies (for any or all of
such breaches, violations or defaults, in the aggregate).
3.17 Statements; Proxy Statement/Prospectus. None of the information
supplied or to be supplied by Parent for inclusion or incorporation by reference
in the Registration Statement will at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading. The Proxy Statement, on the date the
Proxy Statement is first mailed to Parent's stockholders and the Company's
stockholders, at the time of the Parent Stockholders' Meeting or the Company
Stockholders' Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not false or misleading, or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Parent Stockholders' Meeting or the Company
Stockholders' Meeting which has become false or misleading. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder. If at any time prior to
the Effective Time, any event relating to Parent or any of its affiliates,
officers or directors is required to be discovered by Parent which should be set
forth in an amendment to the Registration Statement or a supplement to the Proxy
Statement, Parent shall promptly inform the Company. Notwithstanding the
foregoing, Parent makes no representation or warranty with respect to any
information supplied or to be supplied by the Company which is, will be, or is
required to be contained in any of the foregoing documents.
3.18 Board Approval. The Board of Directors of Parent has, as of the
date of this Agreement, (i) determined that the Merger is fair to and in the
best interests of Parent and its stockholders, (ii) determined to recommend that
the stockholders of Parent approve the Issuance of the Shares and (iii) duly
approved the Merger, this Agreement and the transactions contemplated hereby.
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3.19 State Takeover Statutes. The Board of Directors of Parent has
approved the Merger, this Agreement, the Stock Option Agreements, and the
Company Voting Agreement and the transactions contemplated hereby and thereby,
and such approval is sufficient to render inapplicable to the Merger, this
Agreement, the Stock Option Agreements, the Company Voting Agreement and the
transactions contemplated hereby and thereby the provisions of Section 203 of
Delaware Law to the extent, if any, such section is applicable to the Merger,
this Agreement, the Stock Option Agreements, the Company Voting Agreement and
the transactions contemplated hereby and thereby. No other state takeover
statute or similar statute or regulation applies to or purports to apply to the
Merger, this Agreement, the Stock Option Agreements, the Company Voting
Agreement or the transactions contemplated hereby and thereby.
3.20 Fairness Opinion. Parent has received a written opinion from Chase
H&Q, dated as of the date hereof, to the effect that as of the date hereof, the
Exchange Ratio is fair to Parent from a financial point of view and will deliver
to the Company a written confirmation copy of such opinion as soon as
practicable after the date hereof.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, the Company (which for the purposes
of this Article IV shall include the Company and each of its subsidiaries) and
Parent (which for the purposes of this Article IV shall include Parent and each
of its subsidiaries) agree, except (i) as required by this Agreement, (ii) in
the case of the Company as provided in Article IV of the Company Schedules and
in the case of Parent as provided in Article IV of the Parent Schedules, or
(iii) to the extent that the other party shall otherwise consent (which consent
shall not be unreasonably withheld or delayed with regard to actions that would
be reasonably necessary to carry on the business of Parent or Company, as
applicable, in the ordinary course, as a standalone entity if the Merger were
not consummated) in writing, to carry on its business in the ordinary course, in
substantially the same manner as heretofore conducted and in compliance with all
applicable laws and regulations, to pay its debts and taxes when due subject to
good faith disputes over such debts or taxes, to pay or perform other material
obligations when due subject to good faith disputes over such obligations, and
use its commercially reasonable efforts consistent with past practices and
policies to preserve intact its present business organization, keep available
the services of its present officers and employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees and
others with which it has business dealings. In addition, except (i) in the case
of the Company as provided in Article IV of the Company Schedules, (ii) in the
case of Parent as provided in Article IV of the Parent Schedules, or (iii) as
required by this Agreement, without the prior written consent (which consent
shall not be unreasonably withheld or delayed with regard to actions that would
be reasonably necessary carry on the business of Parent or Company, as
applicable, in the ordinary course, as a standalone entity if the Merger were
not consummated) of the other, neither the Company nor Parent shall do any of
the following, and neither the Company nor Parent shall permit its subsidiaries
to do any of the following:
(a) Except as required by law or pursuant to the terms of a
Company Plan or a Parent Plan, as the case may be, in effect as of the date
hereof, waive any stock repurchase rights,
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accelerate, amend or change the period of exercisability of options or
restricted stock, or reprice options granted under any employee, consultant or
director stock plans or authorize cash payments in exchange for any options
granted under any of such plans;
(b) Enter into any material partnership arrangements, joint
development agreements or strategic alliances other than in the ordinary course
of business consistent with past practice;
(c) Grant any severance or termination pay to any officer or
employee except pursuant to written agreements outstanding, or policies
existing, on the date hereof and as previously disclosed in writing to the
other, or adopt any new severance plan or amend or modify or alter in any manner
any severance plan, agreement or arrangement existing on the date hereof;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock (other than distributions from a subsidiary (i) of Company
to Company or (ii) of Parent to Parent as the case may be) or split, combine or
reclassify any capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of the Company or its subsidiaries, or
Parent or its subsidiaries, as the case may be, except repurchases of unvested
shares at cost in connection with the termination of the employment relationship
with any employee pursuant to stock option or purchase agreements in effect on
the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber
or propose any of the foregoing with respect to any shares of capital stock or
any securities convertible into shares of capital stock, or subscriptions,
rights, warrants or options to acquire any shares of capital stock or any
securities convertible into shares of capital stock, or enter into other
agreements or commitments of any character obligating it to issue any such
shares or convertible securities, other than (i) the issuance, delivery and/or
sale of shares of Company Common Stock or Parent Common Stock, as the case may
be, pursuant to the exercise of stock options therefor outstanding as of the
date of this Agreement, (ii) the granting of options to purchase shares of
Company Common Stock or Parent Common Stock, as the case may be, to be granted
at fair market value in the ordinary course of business, consistent with past
practice and in accordance with existing stock option plans in an amount not to
exceed options to purchase 500,000 shares in the aggregate, (iii) shares of
Company Common Stock or Parent Common Stock, as the case may be, issuable upon
the exercise of the options referred to in clause (ii), and (iv) shares of
Company Common Stock or Parent Common Stock, as the case may be, issuable to
participants in the Parent ESPP or Company ESPP consistent with the terms
thereof;
(g) Cause, permit or propose any amendments to any charter
document or Bylaw (or similar governing instruments of any subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any equity interest in or a material portion of the assets of,
or by any other manner, any business or any corporation, partnership,
association or other business organization or division
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thereof, or enter into any joint ventures, strategic partnerships or alliances,
other than in the ordinary course of business consistent with past practice;
(i) Adopt a plan of complete or partial liquidation, dissolution,
consolidation, restructuring, recapitalization or other reorganization;
(j) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except sales of inventory in the ordinary course of
business consistent with past practice, except for the sale, lease or
disposition (other than through licensing) of property or assets which are not
material, individually or in the aggregate, to the business of the Company or
Parent, as the case may be;
(k) Incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of the
Company or Parent, as the case may be, enter into any "keep well" or other
agreement to maintain any financial statement condition or enter into any
arrangement having the economic effect of any of the foregoing other than (i) in
connection with the financing of ordinary course trade payables consistent with
past practice or (ii) pursuant to existing credit facilities in the ordinary
course of business;
(l) Adopt or amend any employee benefit plan or employee stock
purchase or employee stock option plan, or enter into any employment contract or
collective bargaining agreement (other than offer letters and letter agreements
entered into in the ordinary course of business consistent with past practice
with employees who are terminable "at will"), pay any special bonus or special
remuneration to any director or employee other than in the ordinary course of
business consistent with past practice, or increase the salaries or wage rates
or fringe benefits (including rights to severance or indemnification) of its
directors, officers, employees or consultants;
(m) Make any individual or series of related payments outside of
the ordinary course of business in excess of $500,000;
(n) Revalue any of its assets or, except as required by GAAP,
make any change in accounting methods, principles or practices;
(o) Engage in any action that could reasonably be expected to
cause the Merger to fail to qualify as a "reorganization" under Section 368(a)
of the Code whether or not otherwise permitted by the provisions of this Article
IV;
(p) Make any tax election that individually or in the aggregate,
is reasonably likely to adversely affect in any material respect the tax
liability or tax attributes of Company or Parent, as the case may be, or settle
or compromise any material tax liability;
(q) Pay, discharge, settle or satisfy any material litigation; or
(r) Agree in writing or otherwise to take any of the actions
described in Section 4.1 (a) through (q) above.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings.
(a) As promptly as practicable after the execution of this
Agreement, the Company and Parent will prepare and file with the SEC the Proxy
Statement, and Parent will prepare and file with the SEC the Registration
Statement in which the Proxy Statement will be included as a prospectus. Each of
the Company and Parent will respond to any comments of the SEC, will use its
respective best efforts to have the Registration Statement declared effective
under the Securities Act as promptly as practicable after such filing and will
cause the Proxy Statement to be mailed to its stockholders at the earliest
practicable time. As promptly as practicable after the date of this Agreement,
the Company and Parent will prepare and file any other filings required under
the Exchange Act, the Securities Act or any other Federal, foreign or Blue Sky
laws relating to the Merger and the transactions contemplated by this Agreement
(the "OTHER FILINGS"). Each party will notify the other promptly upon the
receipt of any comments from the SEC or its staff and of any request by the SEC
or its staff or any other government officials for amendments or supplements to
the Registration Statement, the Proxy Statement or any Other Filing or for
additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government officials, on the other
hand, with respect to the Registration Statement, the Proxy Statement, the
Merger or any Other Filing. Whenever any event occurs which is required to be
set forth in an amendment or supplement to the Proxy Statement, the Registration
Statement or any Other Filing, the Company or Parent, as the case may be, will
promptly inform the other party of such occurrence and cooperate in filing with
the SEC or its staff or any other government officials, and/or mailing to
stockholders of the Company or stockholders of Parent, such amendment or
supplement.
(b) Subject to Sections 5.2(c) and 5.2(d), the Proxy Statement
will also include the recommendations of (i) the Board of Directors of the
Company in favor of adoption of this Agreement, and (ii) the Board of Directors
of Parent in favor of the issuance of shares of Parent Common Stock in the
Merger.
5.2 Meetings of Stockholders.
(a) Promptly after the date hereof, the Company will take all
action necessary in accordance with Delaware Law and its Certificate of
Incorporation and Bylaws to convene the Company Stockholders' Meeting to be held
as promptly as practicable, for the purpose of voting upon this Agreement. The
Company will consult with Parent and use its commercially reasonable efforts to
hold the Company Stockholders' Meeting on the same day as the Parent
Stockholders' Meeting. Promptly after the date hereof, Parent will take all
action necessary in accordance with Delaware Law and its Certificate of
Incorporation and Bylaws to convene the Parent Stockholders' Meeting to be held
as promptly as practicable for the purpose of voting upon the issuance of shares
of Parent Common Stock by virtue of the Merger. Parent will consult with the
Company and will use its commercially reasonable efforts to hold the Parent
Stockholders' Meeting on the same day as the Company Stockholders' Meeting.
Subject to Sections 5.2(c) and 5.2(d), Parent and the Company will each use its
commercially reasonable efforts to solicit from its stockholders proxies in
favor of the adoption and approval of this Agreement and the approval of the
Merger and will take all other
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action necessary or advisable to secure the vote or consent of their respective
stockholders or stockholders required by the rules of Nasdaq or Delaware Law and
all other applicable legal requirements to obtain such approvals.
(b) Subject to Sections 5.2(c) and 5.2(d): (i) the Board of
Directors of the Company shall recommend that the Company's stockholders vote in
favor of and adopt this Agreement at the Company Stockholders' Meeting, and the
Board of Directors of Parent shall recommend that Parent's stockholders vote in
favor of the issuance of shares of Parent Common Stock in the Merger at the
Parent Stockholders' Meeting; (ii) the Proxy Statement shall include a statement
to the effect that the Board of Directors of the Company has recommended that
the Company's stockholders vote in favor of and adopt this Agreement at the
Company Stockholders' Meeting, and a statement to the effect that the Board of
Directors of Parent has recommended that Parent's stockholders vote in favor of
the issuance of shares of Parent Common Stock in the Merger at the Parent
Stockholders' Meeting; and (iii) neither the Board of Directors of the Company,
the Board of Directors of Parent, nor any committee of either shall withdraw,
amend or modify, or propose or resolve to withdraw, amend or modify in a manner
adverse to the other party, the recommendations set forth in subsections
5.2(b)(i) or 5.2(b)(ii).
(c) Nothing in this Agreement shall prevent the Board of
Directors of the Company from withholding, withdrawing, amending or modifying
its recommendation in favor of the Merger if (i) a Company Superior Offer (as
defined below) is made to the Company and is not withdrawn, (ii) neither the
Company nor any of its representatives shall have violated any of the
restrictions set forth in Section 5.4(a), and (iii) the Board of Directors of
the Company concludes in good faith, after consultation with its outside
counsel, that, in light of such Company Superior Offer, the withholding,
withdrawal, amendment or modification of such recommendation is required in
order for the Board of Directors of the Company to comply with its fiduciary
obligations to the Company's stockholders under applicable law. Nothing
contained in this Section 5.2 shall limit the Company's obligation to hold and
convene the Company Stockholders' Meeting (regardless of whether the
recommendation of the Board of Directors of the Company shall have been
withdrawn, amended or modified). For purposes of this Agreement, "COMPANY
SUPERIOR OFFER" shall mean an unsolicited, bona fide written offer made by a
third party to consummate any of the following transactions: (i) a merger,
consolidation, business combination, recapitalization or similar transaction
involving the Company, pursuant to which the stockholders of the Company
immediately preceding such transaction hold less than 50% of the equity interest
in the surviving or resulting entity of such transaction; (ii) a sale or other
disposition by the Company of all or substantially all of its assets, or (iii)
the acquisition by any person or group (including by way of a tender offer or an
exchange offer or issuance by the Company), directly or indirectly, of
beneficial ownership or a right to acquire beneficial ownership of shares
representing in excess of 50% of the voting power of the then outstanding shares
of capital stock of the Company, in each case on terms that the Board of
Directors of the Company determines, in its reasonable judgment (after
consultation with its financial advisor) to be more favorable to the Company
stockholders from a financial point of view than the terms of the Merger;
provided, however, that any such offer shall not be deemed to be a "COMPANY
SUPERIOR OFFER" if any financing required to consummate the transaction
contemplated by such offer is not committed and is not likely in the judgment of
the Company's Board of Directors to be obtained by such third party on a timely
basis.
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(d) Nothing in this Agreement shall prevent the Board of
Directors of Parent from withholding, withdrawing, amending or modifying its
recommendation in favor of the Merger if (i) a Parent Superior Offer (as defined
below) is made to Parent and is not withdrawn, (ii) neither Parent nor any of
its representatives shall have violated any of the restrictions set forth in
Section 5.4(b), and (iii) the Board of Directors of Parent concludes in good
faith, after consultation with its outside counsel, that, in light of such
Parent Superior Offer, the withholding, withdrawal, amendment or modification of
such recommendation is required in order for the Board of Directors of Parent to
comply with its fiduciary obligations to Parent's stockholders under applicable
law. Nothing contained in this Section 5.2 shall limit Parent's obligation to
hold and convene the Parent Stockholders' Meeting (regardless of whether the
recommendation of the Board of Directors of Parent shall have been withdrawn,
amended or modified). For purposes of this Agreement, "PARENT SUPERIOR OFFER"
shall mean an unsolicited, bona fide written offer made by a third party to
consummate any of the following transactions: (i) a merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving Parent, pursuant to which the stockholders of Parent
immediately preceding such transaction hold less than 50% of the equity interest
in the surviving or resulting entity of such transaction; (ii) a sale or other
disposition by Parent of assets (excluding inventory and used equipment sold in
the ordinary course of business) representing in excess of 50% of the fair
market value of Parent's business immediately prior to such sale, or (iii) the
acquisition by any person or group (including by way of a tender offer or an
exchange offer or issuance by Parent), directly or indirectly, of beneficial
ownership or a right to acquire beneficial ownership of shares representing in
excess of 50% of the voting power of the then outstanding shares of capital
stock of the Parent, in each case on terms that the Board of Directors of Parent
determines, in its reasonable judgment (after consultation with its financial
advisor) to be more favorable to the Parent stockholders from a financial point
of view than the terms of the Merger; provided, however, that any such offer
shall not be deemed to be a "Parent Superior Offer" if any financing required to
consummate the transaction contemplated by such offer is not committed and is
not likely in the judgment of Parent's Board of Directors to be obtained by such
third party on a timely basis.
5.3 Access to Information; Confidentiality.
(a) Each party will afford the other party and its accountants,
counsel and other representatives reasonable access during normal business hours
to the properties (including the performance of any soil and ground water
testing thereon), books, records and personnel of the other party during the
period prior to the Effective Time to obtain all information concerning the
business, including the status of product development efforts, properties,
results of operations and personnel of such party, as the other party may
reasonably request. No information or knowledge obtained in any investigation
pursuant to this Section 5.3 will affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
(b) The parties acknowledge that the Company and Parent have
previously executed a Confidentiality Agreement, dated August 31, 1999 (the
"CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will continue in
full force and effect in accordance with its terms.
5.4 No Solicitation.
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(a) Restrictions on the Company.
(i) From and after the date of this Agreement until the
Effective Time or termination of this Agreement pursuant to Article VII, the
Company's and its subsidiaries' officers and directors will not and the Company
and its subsidiaries will not authorize or permit any of their respective
officers, directors, affiliates or employees or any investment banker, attorney
or other advisor or representative retained by any of them, to, directly or
indirectly (i) solicit, initiate, knowingly encourage or knowingly induce the
making, submission or announcement of any Company Acquisition Proposal (as
defined below), (ii) participate in any discussions or negotiations regarding,
or furnish to any person any non-public information with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to, any Company Acquisition
Proposal, (iii) engage in discussions with any person with respect to any
Company Acquisition Proposal, except as to the existence of these provisions,
(iv) subject to Section 5.2(c), approve, endorse or recommend any Company
Acquisition Proposal or (v) enter into any letter of intent or similar document
or any contract, agreement or commitment contemplating or providing for any
Company Acquisition Transaction (as defined below); provided, however, until the
date on which this Agreement is adopted by the required vote of the Company
stockholders, nothing in this Section 5.4(a) or elsewhere in this Agreement
shall prohibit the Company or any of its subsidiaries or any of their respective
officers, directors, affiliates, employees, investment bankers, attorneys or
other advisors or representatives from furnishing nonpublic information
regarding the Company and its subsidiaries to, entering into a confidentiality
agreement with or entering into discussions or negotiating with, any person or
group in response to a Company Superior Offer submitted by such person or group
(and not withdrawn) if (1) neither the Company nor any representative of the
Company and its subsidiaries shall have violated any of the restrictions set
forth in this Section 5.4(a), (2) the Board of Directors of the Company
concludes in good faith, after consultation with its outside legal counsel, that
such action is required in order for the Board of Directors of the Company to
comply with its fiduciary obligations to the Company's stockholders under
applicable law, (3) (x) at least three (3) days prior to furnishing any such
nonpublic information to, or entering into discussions or negotiations with,
such person or group, the Company gives Parent written notice of the identity of
such person or group and of the Company's intention to furnish nonpublic
information to, or enter into discussions or negotiations with, such person or
group and (y) the Company receives from such person or group an executed
confidentiality agreement containing customary limitations on the use and
disclosure of all nonpublic written and oral information furnished to such
person or group by or on behalf of the Company and containing terms no less
favorable to the disclosing party than the terms of the Confidentiality
Agreement, and (4) contemporaneously with furnishing any such nonpublic
information to such person or group, the Company furnishes such nonpublic
information to Parent (to the extent such nonpublic information has not been
previously furnished by the Company to Parent). The Company and its subsidiaries
will immediately cease any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any Company
Acquisition Proposal. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding two sentences by any
officer or director of the Company or any of its subsidiaries or any investment
banker, attorney or other advisor or representative of the Company or any of its
subsidiaries shall be deemed to be a breach of this Section 5.4(a) by the
Company. In addition to the foregoing, the Company shall (i) provide Parent with
at least forty-eight (48) hours prior notice (or such lesser prior notice as
provided to the members of the Company's Board of Directors but in no event less
than eight hours) of any meeting of the Company's Board of Directors at which
the Company's Board of
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Directors is reasonably expected to consider a Company Superior Offer and (ii)
provide Parent with at least three (3) business days prior written notice of a
meeting of the Company's Board of Directors at which the Company's Board of
Directors is reasonably expected to recommend a Company Superior Offer to its
stockholders and together with such notice a copy of the definitive
documentation relating to such Company Superior Offer.
(ii) For purposes of this Agreement, "Company Acquisition
Proposal" shall mean any offer or proposal (other than an offer or proposal by
Parent or any of its affiliates) providing for any Company Acquisition
Transaction. For the purposes of this Agreement, "Company Acquisition
Transaction" shall mean any transaction or series of related transactions other
than the transactions contemplated by this Agreement involving: (A) any
acquisition or purchase from the Company by any person or "group" (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) of more than a 15% interest in the total outstanding voting
securities of the Company or any of its subsidiaries or any tender offer or
exchange offer that if consummated would result in any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) beneficially owning 15% or more of the total outstanding voting
securities of the Company or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction involving the Company
pursuant to which the stockholders of the Company immediately preceding such
transaction hold less than 85% of the equity interests in the surviving or
resulting entity of such transaction or (B) any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of all or substantially
all of the assets of the Company.
(iii) In addition to the obligations of the Company set
forth in paragraph (i) of this Section 5.4(a), the Company as promptly as
practicable, and in any event within twenty-four (24) hours, shall advise Parent
orally and in writing of any request received by the Company for non-public
information which the Company reasonably believes would lead to a Company
Acquisition Proposal or of any Company Acquisition Proposal, the material terms
and conditions of such request, Company Acquisition Proposal or inquiry, and the
identity of the person or group making any such request, Company Acquisition
Proposal or inquiry. The Company will keep Parent informed in all material
respects of the status and details (including material amendments or proposed
amendments) of any such request, Company Acquisition Proposal or inquiry.
(iv) Nothing contained in this Section 5.4(a) or elsewhere
in this Agreement shall prohibit the Company or its Board of Directors from
complying with Rule 14d-9 or Rule 14e-2 under the Exchange Act.
(b) Restrictions on Parent.
(i) From and after the date of this Agreement until the
Effective Time or termination of this Agreement pursuant to Article VII,
Parent's and its subsidiaries' officers and directors will not and Parent and
its subsidiaries will not, nor will they authorize or permit any of their
respective officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by any of them to,
directly or indirectly (i) solicit, initiate, knowingly encourage or induce the
making, submission or announcement of any Parent Acquisition Proposal (as
defined below), (ii) participate in any discussions or negotiations regarding,
or furnish to any person any non-public information with respect to, or take any
other action to facilitate any
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inquiries or the making of any proposal that constitutes or may reasonably be
expected to lead to, any Parent Acquisition Proposal, (iii) engage in
discussions with any person with respect to any Parent Acquisition Proposal,
except as to the existence of these provisions, (iv) subject to Section 5.2(d),
approve, endorse or recommend any Parent Acquisition Proposal or (v) enter into
any letter of intent or similar document or any contract, agreement or
commitment contemplating or providing for any Parent Acquisition Transaction (as
defined below); provided, however, until the date on which the issuance of
Parent Common Stock in the Merger is approved by the required vote of the Parent
stockholders, nothing in this Section 5.4(b) or elsewhere in this Agreement
shall prohibit Parent or any of its subsidiaries or any of their respective
officers, directors, affiliates, employees, investment bankers, attorneys or
other advisors or representatives from furnishing nonpublic information
regarding Parent and its subsidiaries to, entering into a confidentiality
agreement with or entering into discussions or negotiating with, any person or
group in response to a Parent Superior Offer submitted by such person or group
(and not withdrawn) if (1) neither Parent nor any representative of Parent and
its subsidiaries shall have violated any of the restrictions set forth in this
Section 5.4(b), (2) the Board of Directors of Parent concludes in good faith,
after consultation with its outside legal counsel, that such action is required
in order for the Board of Directors of Parent to comply with its fiduciary
obligations to Parent's stockholders under applicable law, (3) (x) at least
three (3) days prior to furnishing any such nonpublic information to, or
entering into discussions or negotiations with, such person or group, Parent
gives the Company written notice of the identity of such person or group and of
Parent's intention to furnish nonpublic information to, or enter into
discussions or negotiations with, such person or group and (y) Parent receives
from such person or group an executed confidentiality agreement containing
customary limitations on the use and disclosure of all nonpublic written and
oral information furnished to such person or group by or on behalf of Parent and
containing terms no less favorable to the disclosing party than the terms of the
Confidentiality Agreement, and (4) contemporaneously with furnishing any such
nonpublic information to such person or group, Parent furnishes such nonpublic
information to the Company (to the extent such nonpublic information has not
been previously furnished by Parent to the Company). Parent and its subsidiaries
will immediately cease any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any Parent
Acquisition Proposal. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding two sentences by any
officer or director of Parent or any of its subsidiaries or any investment
banker, attorney or other advisor or representative of Parent or any of its
subsidiaries shall be deemed to be a breach of this Section 5.4(b) by Parent. In
addition to the foregoing, Parent shall (i) provide the Company with at least
forty eight (48) hours prior notice (or such lesser prior notice as provided to
the members of Parent's Board of Directors but in no event less than eight
hours) of any meeting of Parent's Board of Directors at which Parent's Board of
Directors is reasonably expected to consider a Parent Superior Offer and (ii)
provide the Company with at least three (3) business days prior written notice
of a meeting of Parent's Board of Directors at which Parent's Board of Directors
is reasonably expected to recommend a Parent Superior Offer to its stockholders
and together with such notice a copy of the definitive documentation relating to
such Parent Superior Offer.
(ii) For purposes of this Agreement, "PARENT ACQUISITION
PROPOSAL" shall mean any offer or proposal (other than an offer or proposal by
the Company) or any of its affiliates) providing for any Parent Acquisition
Transaction. For the purposes of this Agreement, "PARENT ACQUISITION
TRANSACTION" shall mean any transaction or series of related transactions other
than the transactions contemplated by this Agreement involving: (A) any
acquisition or purchase from
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Parent by any person or "group" (as defined under Section 13(d) of the Exchange
Act and the rules and regulations thereunder) of more than a 15% interest in the
total outstanding voting securities of Parent or any of its subsidiaries or any
tender offer or exchange offer that if consummated would result in any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) beneficially owning 15% or more of the total outstanding
voting securities of Parent or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction involving Parent
pursuant to which the stockholders of Parent immediately preceding such
transaction hold less than 85% of the equity interests in the surviving or
resulting entity of such transaction; (B) any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of all or substantially
all of the assets of Parent.
(iii) In addition to the obligations of Parent set forth
in paragraph (i) of this Section 5.4(b), Parent as promptly as practicable, and
in any event within twenty-four (24) hours, shall advise the Company orally and
in writing of any request received by Parent for non-public information which
Parent reasonably believes would lead to a Parent Acquisition Proposal or of any
Parent Acquisition Proposal, the material terms and conditions of such request,
Parent Acquisition Proposal or inquiry, and the identity of the person or group
making any such request, Parent Acquisition Proposal or inquiry. Parent will
keep the Company informed in all material respects of the status and details
(including material amendments or proposed amendments) of any such request,
Parent Acquisition Proposal or inquiry.
(iv) Nothing contained in this Section 5.4(b) or elsewhere
in this Agreement shall prohibit Parent or its Board of Directors from complying
with Rule 14d-9 or Rule 14e-2 under the Exchange Act.
5.5 Public Disclosure. Parent and the Company will consult with each
other and agree before issuing any press release or otherwise making any public
statement with respect to the Merger, this Agreement, a Company Acquisition
Proposal or a Parent Acquisition Proposal and will not issue any such press
release or make any such public statement prior to such agreement, except as may
be required by law or any listing agreement with a national securities exchange
or Nasdaq, in which case reasonable efforts to consult with the other party will
be made prior to such release or public statement; provided, however, that no
such consultation or agreement shall be required if, prior to the date of such
release or public statement, either party shall have withheld, withdrawn,
amended or modified in substance adverse to the other party, its recommendation
in favor of the Merger.
5.6 Legal Requirements. Each of Parent, Merger Sub and the Company will
take all reasonable actions necessary or desirable to comply promptly with all
legal requirements which may be imposed on them with respect to the consummation
of the transactions contemplated by this Agreement (including furnishing all
information required in connection with approvals of or filings with any
Governmental Entity, and prompt resolution of any litigation prompted hereby)
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon any of them or
their respective subsidiaries in connection with the consummation of the
transactions contemplated by this Agreement. Each of Parent, Merger Sub and the
Company will take all reasonable steps as may be necessary to avoid any suit,
claim, action investigation or proceeding by any Governmental Entity; provided,
however, that, notwithstanding
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any provision of this Agreement to the contrary, Parent shall not be required to
agree to any divestiture by Parent or the Company or any of Parent's
subsidiaries or affiliates of shares of capital stock or of any business, assets
or property of Parent or its subsidiaries or affiliates or of the Company, its
affiliates, or the imposition of any limitation on the ability of any of them to
conduct their businesses or to own or exercise control of such assets,
properties and stock in any case that could reasonably be expected to have a
material adverse effect on the business, financial condition or results of
operations of Parent and its subsidiaries, including the Surviving Corporation,
taken as a whole following the consummation of the Merger. Parent will use its
commercially reasonable efforts to take such steps as may be necessary to comply
with the securities and blue sky laws of all jurisdictions which are applicable
to the issuance of Parent Common Stock pursuant hereto. The Company will use its
commercially reasonable efforts to assist Parent as may be necessary to comply
with the securities and blue sky laws of all jurisdictions which are applicable
in connection with the issuance of Parent Common Stock pursuant hereto.
5.7 Third Party Consents. As soon as practicable following the date
hereof, Parent and the Company will each use its commercially reasonable efforts
to obtain all material consents, waivers and approvals under any of its or its
subsidiaries' agreements, contracts, licenses or leases required to be obtained
in connection with the consummation of the transactions contemplated hereby.
Parent shall consult with the Company regarding the terms of the Bank Consents
(as defined below).
5.8 FIRPTA. At or prior to the Closing, the Company, if requested by
Parent, shall deliver to the IRS a notice that Company Common Stock is not a
"U.S. Real Property Interest" as defined and in accordance with the requirements
of Treasury Regulation Section 1.897-2(h)(2).
5.9 Notification of Certain Matters. Parent and Merger Sub will give
prompt notice to the Company, and the Company will give prompt notice to Parent,
of the occurrence, or failure to occur, of any event, which occurrence or
failure to occur would be reasonably likely to cause (a) any representation or
warranty contained in this Agreement to be untrue or inaccurate at any time from
the date of this Agreement to the Effective Time, such that the conditions set
forth in Section 6.2(a) or 6.3(a), as the case may be, would not be satisfied as
a result thereof, or (b) any material failure of Parent and Merger Sub or the
Company, as the case may be, or of any officer, director, employee or agent
thereof, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement such that the conditions
set forth in Section 6.2(b) or 6.3(b), as the case may be, would not be
satisfied as a result. Notwithstanding the above, the delivery of any notice
pursuant to this section will not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
5.10 Reasonable Efforts and Further Assurances. Subject to the
respective rights and obligations of Parent and the Company under this
Agreement, each of the parties to this Agreement will use all reasonable efforts
to effectuate the Merger as expeditiously as practicable and the other
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement. Each of Parent, Merger Sub and the
Company will take all reasonable steps as may be necessary to defend any suits,
claims, actions, investigations or proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court of other Governmental Entity
vacated or reversed. Each party hereto, at the reasonable
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request of another party hereto, will execute and deliver such other instruments
and do and perform such other acts and things as may be necessary or desirable
for effecting completely the consummation of the transactions contemplated
hereby.
5.11 Stock Options; Employee Stock Purchase Plans.
(a) Stock Options. At the Effective Time, each outstanding option
to purchase shares of Company Common Stock (each, a "COMPANY STOCK OPTION")
under Company Stock Option Plans, whether or not vested, shall by virtue of the
Merger be assumed by Parent. Parent shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Parent Common Stock for
issuance upon exercise of all Company Stock Options assumed in accordance with
this Section 5.11. Each Company Stock Option so assumed by Parent under this
Agreement will continue to have, and be subject to, the same terms and
conditions of such options immediately prior to the Effective Time (including,
without limitation, any repurchase rights or vesting provisions), except that
(i) each Company Stock Option will be exercisable (or will become exercisable in
accordance with its terms) for that number of whole shares of Parent Common
Stock equal to the product of the number of shares of Company Common Stock that
were issuable upon exercise of such Company Stock Option immediately prior to
the Effective Time multiplied by the Exchange Ratio, rounded down to the nearest
whole number of shares of Parent Common Stock, (ii) the per share exercise price
for the shares of Parent Common Stock issuable upon exercise of such assumed
Company Stock Option will be equal to the quotient determined by dividing the
exercise price per share of Company Common Stock at which such Company Stock
Option was exercisable immediately prior to the Effective Time by the Exchange
Ratio, rounded up to the nearest whole cent and (iii) references to the Company
in the agreement setting forth the terms of each Company Stock Option shall mean
Parent.
(b) ESPP. At the Effective Time, in accordance with the terms of
the Company ESPP, all rights to purchase shares of Company Common Stock under
the Company ESPP shall be converted (in accordance with the Exchange Ratio) into
rights to purchase shares of Parent Common Stock (with the number of shares
rounded down to the nearest whole share and the purchase price as of the
offering date for each offering period in effect as of the Effective Time
rounded up to the nearest whole cent) and all such converted rights shall be
assumed by Parent and the offering periods in effect under the Company ESPP
immediately prior to the Effective Time shall be continued in accordance with
the terms of the Company ESPP until the end of the offering periods in effect as
of the Effective Time. The Company ESPP shall terminate with the exercise of the
last assumed right, and no additional purchase rights shall be granted under the
Company ESPP following the Effective Time except that references to the Company
in the Company ESPP and related documents shall mean Parent (except that the
purchase price as of the offering date for a relevant period shall be determined
with respect to the fair market value of the Company's common stock, as adjusted
hereby). Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for issuance upon
exercise of rights to purchase Shares of Parent Common Stock under the Company
ESPP assumed in accordance with this Section 5.11. Parent agrees that from and
after the Effective Time, the Company employees may participate in the Parent
ESPP, subject to the terms and conditions of the Parent ESPP, and service with
the Company shall be treated as service with the Parent for determining
eligibility of the Company Employees under the Parent ESPP.
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5.12 Form S-8. Parent agrees to file a registration statement on Form
S-8 for the shares of Parent Common Stock issuable with respect to assumed
Company Stock Options or the terms of the Company ESPP as soon as is reasonably
practicable (and in any event within thirty (30) days) after the Effective Time.
5.13 Indemnification.
(a) From and after the Effective Time, the Surviving Corporation
will fulfill and honor in all respects the obligations of the Company pursuant
to any indemnification agreements between the Company and its directors and
officers existing prior to the date hereof. The Certificate of Incorporation and
Bylaws of the Surviving Corporation will contain the provisions with respect to
indemnification and elimination of liability for monetary damages set forth in
the Certificate of Incorporation and Bylaws of the Company, which provisions
will not be amended, repealed or otherwise modified for a period of six (6)
years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who, at the Effective Time, were directors,
officers, employees or agents of the Company, unless such modification is
required by law.
(b) For a period of six years after the Effective Time, Parent
will cause the Surviving Corporation to maintain in effect, to the extent
available, directors' and officers' liability insurance covering those persons
who are currently covered by the Company's directors' and officers' liability
insurance policy on terms comparable to those applicable to the then current
directors and officers of Parent; provided, however, that in no event will
Parent or the Surviving Corporation be required to expend in excess of $450,000
in an annual premium for such coverage (or such coverage as is available for
such annual premium).
(c) This Section 5.13 will survive the consummation of the Merger
at the Effective Time and will be binding on all successors and assigns of the
Surviving Corporation.
5.14 Tax-Free Reorganization. Parent and the Company will each use its
commercially reasonable efforts to cause the Merger to be treated as a
reorganization within the meaning of Section 368 of the Code. Parent and the
Company will each make available to the other party and their respective legal
counsel copies of all returns requested by the other party.
5.15 Nasdaq Qualification. Parent agrees to authorize for trading on
Nasdaq the shares of Parent Common Stock issuable, and those required to be
reserved for issuance, in connection with the Merger, upon official notice of
issuance.
5.16 Action by Boards of Directors. Prior to the Effective Time, the
board of directors of each of Parent and the Company shall comply as applicable
with the provisions of the SEC's no-action letter dated January 12, 1999
addressed to Skadden, Arps, Slate, Meagher and Flom LLP relating to Rule 16b of
the Exchange Act.
5.17 The Company Affiliate Agreement. Set forth in Section 5.17 of the
Company Schedules is a list of those persons who may be deemed to be, in the
Company's reasonable judgment, affiliates of the Company within the meaning of
Rule 145 promulgated under the Securities Act (a "COMPANY AFFILIATE"). The
Company will provide Parent with such information and documents as Parent
reasonably requests for purposes of reviewing such list. The Company will use
its best efforts to deliver or cause to be delivered to Parent as promptly as
practicable on or
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following the date hereof from each Company Affiliate an executed affiliate
agreement in substantially the form attached hereto as Exhibit E (the "COMPANY
AFFILIATE AGREEMENT"), each of which will be in full force and effect as of the
Effective Time. Parent will be entitled to place appropriate legends on the
certificates evidencing any Parent Common Stock to be received by a Company
Affiliate pursuant to the terms of this Agreement, and to issue appropriate stop
transfer instructions to the transfer agent for the Parent Common Stock,
consistent with the terms of the Company Affiliate Agreement.
5.18 Regulatory Filings; Reasonable Efforts. As soon as may be
reasonably practicable, the Company and Parent each shall execute and file, or
join in the execution and filing of, any application, notification (including,
without limitation, any notification or provision of information, if any, that
may be required under the HSR Act) or any other document that may be necessary
in order to obtain the authorization, approval or consent of any Governmental
Entity, whether federal, state, local or foreign, which may be reasonably
required, or which the other party hereto may reasonably request, in connection
with the consummation of the Merger or any other transactions contemplated by
this Agreement. The Company and Parent shall in good faith use their best
efforts to as expeditiously as possible obtain, and to cooperate with the other
to expeditiously obtain, all such authorizations, approvals and consents. The
Company and Parent each shall promptly (a) supply the other with any information
which may be required in order to effectuate such filings and (b) supply any
additional information which reasonably may be required by the United States
Federal Trade Commission (the "FTC"), the Antitrust Division of the United
States Department of Justice (the "DOJ") or the competition or merger control
authorities of any other jurisdiction and which the parties may reasonably deem
appropriate.
5.19 Board of Directors; Officers.
(a) At or prior to the Effective Time, each of the Company and
Parent agrees to take such action as is necessary to cause the number of
directors comprising the full Board of Directors of Parent to be nine persons,
including (i) six of the current members of Parent's Board of Directors (or, if
fewer than six of the current members of Parent's Board of Directors are
available or willing to serve as a director of Parent after the Effective Time,
such replacement directors as may be nominated by the remaining members of
Parent's Board of Directors in accordance with the Bylaws of Parent) (the
"PARENT DESIGNEES") and (ii) three of the Company's current directors nominated
by the Company (or, if fewer than three of the current members of the Company's
Board of Directors are available or willing to serve as a director of Parent
after the Effective Time, such replacement directors as may be nominated by the
remaining directors of the Company) (the "COMPANY DESIGNEES").
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(b) From and after the Effective Time, and until successors are
duly elected or appointed and qualified in accordance with applicable law, the
following persons (the "PARENT OFFICERS") shall hold the titles indicated at
Parent and shall serve at the pleasure of the Board of Directors of Parent:
Chief Executive Officer T. H. Tan
Chief Operating Officer Ronald J. Buschur
Chief Technical Officer Michael A. Russak
Chief Financial Officer Edward Siegler
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been adopted
by the requisite vote under applicable law by the stockholders of the Company,
and the issuance of shares of Parent Common Stock by virtue of the Merger shall
have been duly approved by the requisite vote under Delaware law, the Parent
Charter Documents and the rules of the National Association of Securities
Dealers, Inc. by the stockholders of Parent.
(b) Registration Statement Effective; Proxy Statement. The SEC
shall have declared the Registration Statement effective. No stop order
suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose, and no similar
proceeding in respect of the Proxy Statement shall have been initiated or
threatened in writing by the SEC.
(c) No Order; HSR Act. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making
the Merger illegal or otherwise prohibiting consummation of the Merger. All
waiting periods, if any, under the HSR Act relating to the transactions
contemplated hereby will have expired or terminated early.
(d) Tax Opinions. Parent and the Company shall each have received
substantially identical written opinions from their counsel, Wilson Sonsini
Goodrich & Rosati, Professional Corporation, and Cooley Godward LLP,
respectively, in form and substance reasonably satisfactory to them, to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and such opinions shall not have been withdrawn;
provided, however, that if the counsel to either Parent or the Company does not
render such opinion or renders but withdraws such opinion, this condition shall
nonetheless be deemed to be satisfied with respect to such party if counsel to
the other party renders and does not withdraw such opinion to such party. The
parties to
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this Agreement agree to make reasonable representations as requested by such
counsel for the purpose of rendering such opinions.
(e) Nasdaq Qualification. The shares of Parent Common Stock
issuable to stockholders of the Company pursuant to this Agreement and such
other shares required to be reserved for issuance in connection with the Merger
shall have been authorized for trading on the Nasdaq upon official notice of
issuance.
6.2 Additional Conditions to Obligations of the Company. The obligation
of the Company to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall have been
true and correct in all material respects as of the date of this Agreement,
except where the failure to be so true and correct would not, in the aggregate,
have a Material Adverse Effect on Parent. In addition, the representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Effective Time except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such particular date), with the same force and
effect as if made on and as of the Effective Time, except in such cases (other
than the representations in Sections 3.2 and 3.3) where the failure to be so
true and correct would not, in the aggregate, have a Material Adverse Effect on
Parent. The Company shall have received a certificate with respect to the
foregoing signed on behalf of Parent by the Chief Executive Officer and the
Chief Financial Officer of Parent; and
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Effective Time, and the Company shall have received a certificate to such
effect signed on behalf of Parent by the Chief Executive Officer and the Chief
Financial Officer of Parent.
(c) Bank Consent. Prior to August 15, 2000, Parent shall have (a)
entered into amendments to the Credit Agreements (as described below) such that
Parent is not, at the time of entering into such amendments, in default under
the Credit Agreements, and (b) obtained all necessary approvals of the Merger
and the transactions contemplated hereby from the lenders party to each of the
following credit agreements: (i) the Amended and Restated Credit Agreement dated
as of June 20, 1997 with Fleet National Bank as agent, (ii) the Credit Agreement
dated as of October 7, 1996 with the Dai Ichi Kangyo Bank, Limited, (iii) the
Credit Agreement dated as of December 15, 1995 with The Industrial Bank of
Japan, Limited, San Francisco Agency ("IBJ") as agent, and (iv) the Credit
Agreement dated as of February 7, 1997 with IBJ as agent (the agreements
described in clauses (i) through (iv) are, collectively, the "CREDIT
AGREEMENTS"), as the Credit Agreements may be amended, modified or restructured
prior to or as of the Closing Date (the "BANK CONSENTS").
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate and effect the Merger
shall be subject to the satisfaction at
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or prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall have been true and
correct in all material respects as of the date of this Agreement, except where
the failure to be so true and correct would not, in the aggregate, have a
Material Adverse Effect on the Company. In addition, the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the Effective Time except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such particular date), with the same force and
effect as if made on and as of the Effective Time, except in such cases (other
than the representations in Sections 2.2 and 2.3)where the failure to be so true
and correct would not, in the aggregate, have a Material Adverse Effect on the
Company. Parent shall have received a certificate with respect to the foregoing
signed on behalf of the Company by the President and the Chief Financial Officer
of the Company; and
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time, and the Parent shall have received a certificate to such effect
signed on behalf of the Company by the President and the Chief Financial Officer
of the Company.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time of the Merger, whether before or after approval of the Merger
by the stockholders of the Company or the approval of the issuance of Parent
Common Stock in connection with the Merger by the stockholders of Parent:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and the Company;
(b) by either the Company or Parent if the Merger shall not have
been consummated by 5:00 p.m. Pacific Time, on October 31, 2000 (the "INITIAL
END DATE"); provided, that if at the Initial End Date the only condition to the
obligation of the parties to effect the Merger that shall not then be satisfied
or waived is that described in the second sentence of Section 6.1(c), then such
date shall be automatically extended to December 31, 2000; provided, however,
that the right to terminate this Agreement under this Section 7.1(b) shall not
be available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Merger to occur on or before such
date and such action or failure to act constitutes a breach of this Agreement;
(c) by either the Company or Parent if a Governmental Entity
shall have issued an order, decree or ruling or taken any other action, in any
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree or ruling is final and
nonappealable;
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(d) by either the Company or Parent if the required approvals of
the stockholders of the Company or the stockholders of Parent contemplated by
this Agreement shall not have been obtained by reason of the failure to obtain
the required vote upon a vote taken at the Company Stockholders' Meeting or the
Parent Stockholders' Meeting, respectively, duly convened therefor or at any
adjournment thereof; provided, however, that the right to terminate this
Agreement under this Section 7.1(d) shall not be available to any party where
the failure to obtain stockholder approval of such party shall have been caused
by the action or failure to act of such party in breach of this Agreement;
(e) by the Company, upon (i) a breach of any representation,
warranty, covenant or agreement on the part of Parent set forth in this
Agreement, or if any representation or warranty of Parent shall have become
untrue, in either case such that the conditions set forth in Section 6.2(a) or
Section 6.2(b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, provided, that if
such inaccuracy in Parent's representations and warranties or breach by Parent
is curable by Parent through the exercise of its commercially reasonable
efforts, then the Company may not terminate this Agreement under this Section
7.1(e) for thirty (30) days after delivery of written notice from the Company to
Parent of such breach, provided Parent continues to exercise commercially
reasonable efforts to cure such breach (it being understood that the Company may
not terminate this Agreement pursuant to this paragraph (e) if such breach by
Parent is cured) or (ii) if the conditions set forth in Section 6.2(c) have not
been met prior to August 15, 2000;
(f) by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this Agreement, or
if any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 6.3(a) or Section
6.3(b) would not be satisfied as of the time of such breach or as of the time
such representation or warranty shall have become untrue, provided, that if such
inaccuracy in the Company's representations and warranties or breach by the
Company is curable by the Company through the exercise of its commercially
reasonable efforts, then Parent may not terminate this Agreement under this
Section 7.1(f) for thirty (30) days after delivery of written notice from Parent
to the Company of such breach, provided the Company continues to exercise
commercially reasonable efforts to cure such breach (it being understood that
Parent may not terminate this Agreement pursuant to this paragraph (f) if such
breach by the Company is cured);
(g) by the Company if a Company Triggering Event (as defined
below) shall have occurred; or
(h) by Parent if a Parent Triggering Event (as defined below)
shall have occurred.
For the purposes of this Agreement, a "COMPANY TRIGGERING EVENT" shall
be deemed to have occurred if: (i) the Board of Directors of Parent or any
committee thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to the Company its recommendation in favor of the
adoption of this Agreement; (ii) Parent shall have failed to include in the
Proxy Statement the recommendation of the Board of Directors of Parent in favor
of the issuance of shares of Parent Common Stock in connection with the Merger;
(iii) Board of Directors of Parent fails to reaffirm its recommendation in favor
of the issuance of shares of Parent Common Stock in connection with the Merger
within ten (10) business days after the Company requests in writing that
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such recommendation be reaffirmed at any time following the announcement of a
Parent Acquisition Offer; (iv) the Board of Directors of Parent or any committee
thereof shall have approved or recommended any Parent Acquisition Offer; (v)
Parent shall have entered into any letter of intent or similar document or any
agreement, contract or commitment accepting any Parent Acquisition Offer; (vi) a
tender or exchange offer relating to securities of Parent constituting an
Acquisition Proposal shall have been commenced by a person unaffiliated with the
Company and Parent shall not have sent to its securityholders pursuant to Rule
14e-2 promulgated under the Securities Act, within ten (10) business days after
such tender or exchange offer is first published sent or given, a statement
disclosing that Parent recommends rejection of such tender or exchange offer; or
(vii) Parent shall have breached in any material respect the provisions of
Section 5.4(b) of this Agreement. For purposes of this Agreement, "PARENT
ACQUISITION OFFER" shall mean any offer or proposal (other than an offer or
proposal by the Company) relating to any transaction or series of related
transactions other than the transactions contemplated by this Agreement
involving: (A) any acquisition or purchase from Parent by any person or "group"
(as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of more than a 50% interest in the total outstanding
voting securities of Parent or any of its subsidiaries or any tender offer or
exchange offer that if consummated would result in any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) beneficially owning 50% or more of the total outstanding voting
securities of Parent or any of its subsidiaries or any merger, consolidation,
business combination or similar transaction involving Parent pursuant to which
the stockholders of Parent immediately preceding such transaction hold less than
50% of the equity interests in the surviving or resulting entity of such
transaction or (B) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of all or substantially all of the assets
of Parent.
(i) For the purposes of this Agreement, a "PARENT TRIGGERING
EVENT" shall be deemed to have occurred if: (i) the Board of Directors of the
Company or any committee thereof shall for any reason have withdrawn or shall
have amended or modified in a manner adverse to Parent its recommendation in
favor of adoption of this Agreement; (ii) the Company shall have failed to
include in the Proxy Statement the recommendation of the Board of Directors of
the Company in favor of adoption of the Agreement; (iii) Board of Directors of
the Company fails to reaffirm its recommendation in favor of adoption of the
Agreement within ten (10) business days after Parent requests in writing that
such recommendation be reaffirmed at any time following the announcement of a
Company Acquisition Proposal; (iv) the Board of Directors of the Company or any
committee thereof shall have approved or recommended any the Company Acquisition
Offer; (v) the Company shall have entered into any letter of intent or similar
document or any agreement, contract or commitment accepting any Company
Acquisition Offer; (vi) a tender or exchange offer relating to securities of the
Company constituting an Acquisition Proposal shall have been commenced by a
person unaffiliated with Parent and the Company shall not have sent to its
securityholders pursuant to Rule 14e-2 promulgated under the Securities Act,
within ten (10) business days after such tender or exchange offer is first
published sent or given, a statement disclosing that the Company recommends
rejection of such tender or exchange offer; or (vii) the Company shall have
breached in any material respect the provisions of Section 5.4(a) of this
Agreement. For purposes of this Agreement, "COMPANY ACQUISITION OFFER" shall
mean any offer or proposal (other than an offer or proposal by Parent) relating
to any transaction or series of related transactions other than the transactions
contemplated by this Agreement involving: (A) any acquisition or purchase from
the Company by any person or "group" (as defined under Section 13(d)
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of the Exchange Act and the rules and regulations thereunder) of more than a 50%
interest in the total outstanding voting securities of the Company or any of its
subsidiaries or any tender offer or exchange offer that if consummated would
result in any person or "group" (as defined under Section 13(d) of the Exchange
Act and the rules and regulations thereunder) beneficially owning 50% or more of
the total outstanding voting securities of the Company or any of its
subsidiaries or any merger, consolidation, business combination or similar
transaction involving the Company pursuant to which the stockholders of the
Company immediately preceding such transaction hold less than 50% of the equity
interests in the surviving or resulting entity of such transaction; (B) any
sale, lease (other than in the ordinary course of business), exchange, transfer,
license (other than in the ordinary course of business), acquisition or
disposition of all or substantially all of the assets of the Company.
7.2 Notice of Termination; Effect of Termination. Any termination of
this Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except (i) as set forth
in this Section 7.2, Section 7.3 and Article 8 (General Provisions), each of
which shall survive the termination of this Agreement, and (ii) nothing herein
shall relieve any party from liability for any willful breach of this Agreement.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, whether
or not the Merger is consummated; provided, however, that Parent and the Company
shall share equally all fees and expenses, other than attorneys' and
accountants' fees and expenses, incurred (i) in relation to the printing and
filing of the Proxy Statement (including any preliminary materials related
thereto) and the Registration Statement (including financial statements and
exhibits) and any amendments or supplements thereto or (ii) for the pre-merger
notification and report forms under the HSR Act.
(b) Company Payments.
(i) the Company shall pay to Parent in immediately
available funds, within two (2) business days after demand by Parent, an amount
equal to $5,000,000 (the "COMPANY TERMINATION FEE") if this Agreement is
terminated by Parent pursuant to Section 7.1(h).
(ii) the Company shall pay Parent in immediately available
funds, within two (2) business days after demand by Parent, an amount equal to
the Company Termination Fee, if this Agreement is terminated by Parent or the
Company, as applicable, pursuant to Section 7.1(b) or Section 7.1(d) as a result
of the Company's failure to obtain the required approvals of the stockholders of
the Company and any of the following shall occur:
(1) if following the date hereof and prior to the
termination of this Agreement, a third party has publicly announced (and not
publicly and irrevocably withdrawn) a Company Acquisition Offer and within the
Applicable Period (as defined below) a Company Acquisition (as defined below) is
consummated; or
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(2) if following the date hereof and prior to the
termination of this Agreement, a third party has publicly announced (and not
publicly and irrevocably withdrawn) a Company Acquisition Offer and within the
Applicable Period the Company enters into an agreement or letter of intent
providing for a Company Acquisition.
(iii) the Company acknowledges that the agreements
contained in this Section 7.3(b) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, Parent would
not enter into this Agreement; accordingly, if the Company fails to pay in a
timely manner the amounts due pursuant to this Section 7.3(b) and, in order to
obtain such payment, Parent commences a lawsuit that results in a judgment
against the Company for the amounts set forth in this Section 7.3(b), the
Company shall pay to Parent its reasonable costs and expenses (including
reasonable attorneys' fees and expenses) in connection with such lawsuit,
together with interest on the amounts set forth in this Section 7.3(b) at the
prime rate of The Chase Manhattan Bank in effect on the date such payment was
required to be made. Payment of the fees described in this Section 7.3(b) shall
not be in lieu of damages incurred in the event of breach of this Agreement. For
the purposes of this Agreement, "COMPANY ACQUISITION" shall mean any of the
following transactions (other than the transactions contemplated by this
Agreement): (i) a merger, consolidation, business combination, recapitalization,
or similar transaction involving the Company pursuant to which the stockholders
of the Company immediately preceding such transaction hold less than 50% of the
aggregate equity interests in the surviving or resulting entity of or Parent
Company involved in such transaction, (ii) a sale or other disposition by the
Company of all or substantially all of its assets or (iii) the acquisition by
any person or group (including by way of a tender offer or an exchange offer or
issuance by the Company), directly or indirectly, of beneficial ownership or a
right to acquire beneficial ownership of shares representing in excess of 50% of
the voting power of the then outstanding shares of capital stock of the Company.
(c) Parent Payments.
(i) Parent shall pay to the Company in immediately
available funds, within two (2) business days after demand by the Company, an
amount equal to $5,000,000 (the "PARENT TERMINATION FEE") if this Agreement is
terminated by the Company pursuant to Section 7.1(g).
(ii) Parent shall pay the Company in immediately available
funds, within two (2) business days after demand by the Company, an amount equal
to the Parent Termination Fee, if this Agreement is terminated by the Company or
Parent, as applicable, pursuant to Section 7.1(b) or Section 7.1(d) as a result
of Parent's failure to obtain the required approvals of the stockholders of
Parent and any of the following shall occur:
(1) if following the date hereof and prior to the
termination of this Agreement, a third party has publicly announced (and not
publicly and irrevocably withdrawn) a Parent Acquisition Offer and within the
Applicable Period a Parent Acquisition (as defined below) is consummated; or
(2) if following the date hereof and prior to the
termination of this Agreement, a third party has publicly announced (and not
publicly and irrevocably withdrawn) a
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Parent Acquisition Offer, and within the Applicable Period Parent enters into an
agreement or letter of intent providing for a Parent Acquisition.
(iii) Parent acknowledges that the agreements contained in
this Section 7.3(c) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, the Company would not enter
into this Agreement; accordingly, if Parent fails to pay in a timely manner the
amounts due pursuant to this Section 7.3(c) and, in order to obtain such
payment, the Company commences a lawsuit that results in a judgment against
Parent for the amounts set forth in this Section 7.3(c), Parent shall pay to the
Company its reasonable costs and expenses (including reasonable attorneys' fees
and expenses) in connection with such lawsuit, together with interest on the
amounts set forth in this Section 7.3(c) at the prime rate of The Chase
Manhattan Bank in effect on the date such payment was required to be made.
Payment of the fees described in this Section 7.3(c) shall not be in lieu of
damages incurred in the event of breach of this Agreement. For the purposes of
this Agreement, "PARENT ACQUISITION" shall mean any of the following
transactions (other than the transactions contemplated by this Agreement): (i) a
merger, consolidation, business combination, recapitalization, or similar
transaction involving Parent pursuant to which the stockholders of Parent
immediately preceding such transaction hold less than 50% of the aggregate
equity interests in the surviving or resulting entity of or Parent Company
involved in such transaction, (ii) a sale or other disposition by Parent all or
substantially all or (iii) the acquisition by any person or group (including by
way of a tender offer or an exchange offer or issuance by Parent), directly or
indirectly, of beneficial ownership or a right to acquire beneficial ownership
of shares representing in excess of 50% of the voting power of the then
outstanding shares of capital stock of Parent.
(d) Applicable Period. For the purposes of this Agreement,
"APPLICABLE PERIOD" shall mean (i) the 12-month period following the termination
of this Agreement if the party with whom the Company (in the case of Section
7.3(b)) or Parent (in the case of Section 7.3(c)) consummates a Company
Acquisition or Parent Acquisition, respectively, or enters into an agreement or
letter of intent providing for a Company Acquisition or Parent Acquisition,
respectively, or an affiliate thereof, has publicly announced and not publicly
and irrevocably withdrawn a Company Acquisition Offer or Parent Acquisition
Offer, respectively, following the date hereof and prior to the termination of
this Agreement or (ii) the 6-month period following the termination of this
Agreement.
7.4 Amendment. Subject to applicable law, this Agreement may be amended
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of the parties hereto.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations,
warranties and pre-closing covenants of the Company, Parent and Merger Sub
contained in this Agreement or in any certificate or instrument delivered
pursuant hereto shall terminate at the Effective Time, and only the covenants
that by their terms survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given on the day of delivery, if delivered
personally or on the second business day after delivery if delivered by
commercial delivery service, or sent via facsimile (receipt confirmed), to the
parties at the following addresses or facsimile numbers (or at such other
address or facsimile numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Komag, Incorporated
1710 Automation Parkway
San Jose, CA 95131
Attention: Chief Executive Officer
Fax No.: (408) 944-9540
with copies to:
Wilson Sonsini Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Alan Austin, Esq. / Kathleen B. Bloch, Esq.
Fax No.: (650) 461-5375
and to:
Wilson Sonsini Goodrich & Rosati, Professional Corporation
One Market Street
Spear Street Tower, Suite 1600
San Francisco, California 94105
Attention: Steve L. Camahort, Esq.
Fax No.: (415) 947-2099
(b) if to the Company, to:
HMT Technology Corp.
1055 Page Avenue
Freemont, CA 94538
Attention: Chief Executive Officer
Fax No.: (510) 623-9570
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<PAGE> 57
with a copy to:
Cooley Godward LLP
3000 El Camino Real
Palo Alto, CA 94306
Attention: James C. Kitch, Esq.
Fax No.: (650) 849-7004
8.3 Interpretation; Knowledge.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
The words "INCLUDE," "INCLUDES" and "INCLUDING" when used herein shall be deemed
in each case to be followed by the words "WITHOUT LIMITATION." The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. When reference is made herein to "THE BUSINESS OF" an entity, such
reference shall be deemed to include the business of all direct and indirect
subsidiaries of such entity. Reference to the subsidiaries of an entity shall be
deemed to include all direct and indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "KNOWLEDGE" means,
with respect to any matter in question, that the executive officers of the
Company or Parent, as the case may be, have actual knowledge of such matter.
(c) For purposes of this Agreement, the term "Material Adverse
Effect" when used in connection with an entity means any change, event,
violation, inaccuracy, circumstance, condition or effect which has had a
material adverse effect on the business, financial condition or results of
operations of such entity and its subsidiaries taken as a whole; provided,
however, that in no event shall any of the following constitute a Material
Adverse Effect or be taken into account in determining whether a Material
Adverse Effect has occurred: (i) a change in the trading prices of either of
Parent's or Company's equity securities between the date hereof and the
Effective Time, in and of itself; (ii) a failure of Parent or Company to meet
the publicly available forecast financial information prepared by equity
research analysts between the date hereof and the Effective Time; (iii) changes,
events, violations, inaccuracies, circumstances, conditions or effects generally
affecting the industry in which either Parent or Company operate or arising from
changes in general business or economic conditions in the United States or in
any jurisdiction in which Parent or Company transacts business; (iv) changes,
events, violations, inaccuracies, circumstances, conditions or effects resulting
from the announcement or pendency of this Agreement or of any of the
transactions contemplated by this Agreement (including, without limitation, any
delays in customer orders or reductions in sales so resulting); and (v) changes
that result directly from the unreasonable delay or withholding of consent by
the other party to actions otherwise prohibited by Section 4.1.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
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<PAGE> 58
8.5 Entire Agreement. This Agreement and the documents and instruments
and other agreements among the parties hereto as contemplated by or referred to
herein, including the Company Schedules and the Parent Schedules (a) constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, it being understood
that the Confidentiality Agreement shall continue in full force and effect until
the Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as set forth herein.
8.6 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity. In
any action at law or suit in equity to enforce this Agreement or the rights of
any of the parties hereunder, the prevailing party in such action or suit shall
be entitled to receive a reasonable sum for its attorneys' fees and all other
reasonable costs and expenses incurred in such action or suit.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the of the parties. Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
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<PAGE> 59
8.11 WAIVER OF JURY TRIAL. EACH OF PARENT, THE COMPANY AND MERGER SUB
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, THE COMPANY OR MERGER SUB
IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
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<PAGE> 60
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed by their duly authorized respective officers, as of the
date first written above.
KOMAG, INCORPORATED
By: /s/ THIAN H. TAN
--------------------------------------
Name: Thian H. Tan
-------------------------------
Title: President and Chief
Executive Officer
------------------------------
HMT TECHNOLOGY CORP.
By: /s/ RONALD J. BUSCHUR
--------------------------------------
Name: Ronald J. Buschur
-------------------------------
Title: President and Chief
Operating Officer
------------------------------
KHM, INC.
By: /s/ EDWARD H. SIEGLER
--------------------------------------
Name: Edward H. Siegler
-------------------------------
Title: Vice President
------------------------------
****REORGANIZATION AGREEMENT****
<PAGE> 61
EXHIBIT A
PARENT STOCK OPTION AGREEMENT
THIS PARENT STOCK OPTION AGREEMENT (this "AGREEMENT") is made and
entered into as of April 26, 2000, among HMT Technology Corp., a Delaware
corporation (the "COMPANY"), and Komag, Incorporated, a Delaware corporation
("PARENT"). Capitalized terms used but not otherwise defined herein will have
the meanings ascribed to them in the Merger Agreement (as defined below).
RECITALS
A. The Company, Merger Sub (as defined below) and Parent have entered
into an Agreement and Plan of Reorganization (the "MERGER AGREEMENT") which
provides for the merger (the "MERGER") of a wholly-owned subsidiary of Parent
("MERGER SUB") with and into the Company. Pursuant to the Merger, all
outstanding capital stock of the Company will be converted into Common Stock of
Parent.
B. As a condition to Parent's willingness to enter into the Merger
Agreement, Parent has requested that the Company agree, and the Company has so
agreed, to grant to Parent an option to acquire shares of the Company's Common
Stock, par value $.01 per share (the "COMPANY SHARES"), upon the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Merger Agreement and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. Grant of Option. Parent hereby grants to the Company an irrevocable
option (the "OPTION") to acquire up to 13,144,754 Parent Shares (the "OPTION
SHARES"), in the manner set forth below by paying cash at a price of $3.0313 per
share (the "EXERCISE PRICE").
2. Exercise of Option; Maximum Proceeds.
(a) The Option may be exercised by the Company in whole or in
part, at any time or from time to time (i) if the Merger Agreement is terminated
pursuant to 7.1(g) thereof or (ii) immediately prior to the occurrence of any
event causing the Parent Termination Fee to become payable pursuant to Section
7.3(c)(ii) thereof (any of the events being referred to herein as an "EXERCISE
EVENT"). In the event the Company wishes to exercise the Option, the Company
will deliver to Parent a written notice (each an "EXERCISE NOTICE") specifying
the total number of Option Shares it wishes to acquire. Each closing of a
purchase of Option Shares (a "CLOSING") will occur on a date and at a time prior
to the termination of the Option designated by the Company in an Exercise Notice
delivered at least two (2) business days prior to the date of such Closing,
which Closing will be held at the principal offices of Parent.
(b) The Option will terminate upon the earliest of (i) the
Effective Time, (ii) twelve (12) months following the date on which the Merger
Agreement is terminated pursuant to Section 7.1(b) or 7.1(d) thereof, if no
event causing the Termination Fee to become payable pursuant
<PAGE> 62
to Section 7.3(c)(ii) of the Merger Agreement has occurred, (iii) six (6) months
following the date on which the Merger Agreement is terminated pursuant to
Section 7.1(h) thereof, (iv) in the event the Merger Agreement has been
terminated pursuant to Section 7.1(b) or 7.1(d) thereof and the Termination Fee
became payable pursuant to Section 7.3(c)(ii) thereof, six (6) months after
payment of the Termination Fee; and (v) the date on which the Merger Agreement
is otherwise terminated; provided, however, that if the Option cannot be
exercised by reason of any applicable government order, judgment or decree or
because the waiting period related to the issuance of the Option Shares under
the HSR Act will not have expired or been terminated, then the Option will not
terminate until the tenth (10th) business day after such impediment to exercise
will have been removed or will have become final and not subject to appeal.
3. Conditions to Closing. The obligation of Parent to issue Option
Shares to the Company hereunder is subject to the conditions that (A) any
waiting period under the HSR Act applicable to the issuance of the Option Shares
hereunder will have expired or been terminated; (B) all material consents,
approvals, orders or authorizations of, or registrations, declarations or
filings with, any Federal, state or local administrative agency or commission or
other Federal state or local governmental authority or instrumentality, if any,
required in connection with the issuance of the Option Shares hereunder will
have been obtained or made, as the case may be; and (C) no preliminary or
permanent injunction or other order by any court of competent jurisdiction
prohibiting or otherwise restraining such issuance will be in effect. It is
understood and agreed that at any time during which the Option is exercisable,
the parties will use their respective commercially reasonable best efforts to
satisfy all conditions to Closing, so that a Closing may take place as promptly
as practicable.
4. Closing. At any Closing, (A) Parent will deliver to the Company a
single certificate in definitive form representing the number of Parent Shares
designated by Company in its Exercise Notice, such certificate to be registered
in the name of the Company and to bear the legend set forth in Section 11
hereof, against delivery of (B) payment by the Company to Parent of the
aggregate purchase price for the Parent Shares so designated and being purchased
by delivery of a certified check or bank check.
5. Representations and Warranties.
(a) By the Parent. Parent represents and warrants to the Company
that (A) Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder; (B) the execution and delivery of this Agreement by Parent and
consummation by Parent of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and no other
corporate proceedings on the part of Parent are necessary to authorize this
Agreement or any of the transactions contemplated hereby; (C) this Agreement has
been duly executed and delivered by Parent and constitutes a legal, valid and
binding obligation of Parent and, assuming this Agreement constitutes a legal,
valid and binding obligation of the Company, is enforceable against Parent in
accordance with its terms; (D) except for any filings required under the HSR
Act, Parent has taken all necessary corporate and other action to authorize and
reserve for issuance and to permit it to issue upon exercise of the Option, and
at all times from the date hereof until the termination of the Option will have
reserved for issuance, a sufficient number of unissued Parent Shares for the
Company to exercise the Option in full and will
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<PAGE> 63
take all necessary corporate or other action to authorize and reserve for
issuance all additional Parent Shares or other securities which may be issuable
pursuant to Section 8(a) upon exercise of the Option, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable; (E) upon delivery of the Parent
Shares and any other securities to the Company upon exercise of the Option, the
Company will acquire such Parent Shares or other securities free and clear of
all material claims, liens, charges, encumbrances and security interests of any
kind or nature whatsoever, excluding those imposed by the Company; (F) the
execution and delivery of this Agreement by Parent do not, and the performance
of this Agreement by Parent will not, (i) conflict with or violate the
Certificate of Incorporation or Bylaws or equivalent organizational documents of
Parent or any of its subsidiaries, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which its or any of their respective properties is bound or
affected or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
impair Parent's or any of its subsidiaries' rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Parent
or any of its subsidiaries pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or any of its subsidiaries is a party
or by which Parent or any of its subsidiaries or its or any of their respective
properties are bound or affected; and (G) the execution and delivery of this
Agreement by Parent does not, and the performance of this Agreement by Parent
will not, require any consent, approval, authorization or permit of, or filing
with, or notification to, any Governmental Entity except pursuant to the HSR
Act.
(b) By Parent. The Option and any Option Shares which Parent may
hereafter acquire are being acquired by Parent for its own account, for
investment and not with a view to the distribution or resale thereof, except in
compliance with the Securities Act of 1933, as amended, and applicable state
securities and blue sky laws. Parent has sufficient knowledge and experience in
investing in securities similar to the Option and to the Option Shares so as to
be able to evaluate the risks and merits of any investment in the Option and in
the Option Shares and is able financially to bear the risks thereof, including a
complete loss of its investment.
6. The Company Put. At the request of and upon notice by the Company
(the "PUT NOTICE"), at any time during the period during which the Option is
exercisable pursuant to Section 2 (the "PURCHASE PERIOD"), Parent (or any
successor entity thereof) will purchase from the Company the Option, to the
extent not previously exercised, at the price set forth in subparagraph (i)
below (as limited by Section 10, below), and the Option Shares, if any, acquired
by the Company pursuant thereto, at the price set forth in subparagraph (ii)
below (as limited by Section 10, below):
(i) The amount, if any, by which the "MARKET/TENDER OFFER
PRICE" for the Parent Shares as of the date the Company gives notice of its
intent to exercise its rights under this Section 6(a) exceeds the Exercise
Price, multiplied by the number of Parent Shares purchasable pursuant to the
Option. "MARKET/TENDER OFFER PRICE" shall mean the highest of: (i) the highest
purchase price per share paid after the date of this Agreement and on or prior
to the delivery of the Put Notice pursuant to any tender or exchange offer made
for shares of Company Common Stock, (ii) the highest price per share paid or to
be paid by any Person for shares of Company Common Stock pursuant to any
agreement contemplating a merger or other business combination transaction
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<PAGE> 64
involving the Company that was entered into after the date of this Agreement and
on or prior to the delivery of the Put Notice or (iii) the average of the
highest bid prices per share of Company Common Stock as quoted on the Nasdaq
National Market (or if Company share of Company Common Stock as quoted on the
Nasdaq National Market (or if Company Common Stock is not quoted on the Nasdaq
National Market, the highest bid price per share of Company Common Stock as
quoted on any other market comprising a part of the Nasdaq Stock Market or, if
the shares of Company Common Stock are not quoted thereon, on the principal
trading market (as defined in Regulation M under the Exchange Act) on which such
shares are traded as reported by a recognized source) during the 20-day period
ending on the date of delivery of the Put Notice. For purposes of determining
the highest price offered pursuant to any Parent Acquisition Proposal which
involves consideration other than cash, the value of such consideration will be
equal to the higher of (x) if securities of the same class of the proponent as
such consideration are traded on any national securities exchange or by any
registered securities association, a value based on the closing sale price or
asked price for such securities on their principal trading market on such date
and (y) the value ascribed to such consideration by the proponent of such Parent
Acquisition Proposal, or if no such value is ascribed, a value determined in
good faith by the Board of Directors of Parent.
(ii) The Exercise Price paid by the Company for Parent
Shares acquired pursuant to the Option plus the amount by which the
Market/Tender Offer Price exceeds the Exercise Price multiplied by the number of
Parent Shares so purchased.
7. Payment and Redelivery of Option or Shares. In the event the Company
exercises its rights under Section 6, Parent will, within five (5) business days
after the Company delivers notice pursuant to Section 6, pay the required amount
to the Company in immediately available funds and the Company will surrender to
Parent the Option and the certificates evidencing the Parent Shares purchased by
the Company pursuant thereto.
8. Registration Rights.
(a) Following the termination of the Merger Agreement and until
such time as all Option Shares issued to Parent may be sold pursuant to Rule
144(d) of the Securities Act of 1933 (the "REGISTRATION PERIOD"), the Company
(sometimes referred to herein as the "HOLDER") may by written notice (a
"REGISTRATION NOTICE") to Parent (the "REGISTRANT") request the Registrant to
register under the Securities Act all or any part of the shares acquired by the
Holder pursuant to this Agreement (such shares requested to be registered, the
"REGISTRABLE SECURITIES") in order to permit the sale or other disposition of
any or all shares of the Registrable Securities that have been acquired by or
are issuable to Holder upon exercise of the Option in accordance with the
intended method of sale or other disposition stated by Holder, including a
"shelf" registration statement under Rule 415 under the Securities Act or any
successor provision. Holder agrees to cause, and to cause any underwriters of
any sale or other disposition to cause, any sale or other disposition pursuant
to such registration statement to be effected on a widely distributed basis so
that upon consummation thereof no purchaser or transferee will own beneficially
more than 5.0% of the then-outstanding voting power of Registrant. Upon a
request for registration, the Registrant will have the option exercisable by
written notice delivered to the Holder within ten (10) business days after the
receipt of the Registration Notice, irrevocably to agree to purchase all or any
part of the Registrable Securities for cash at a price (the "OPTION PRICE")
equal to the product of (i) the number of Registrable Securities so purchased
and (ii) the per share average of the closing sale prices of the Registrant's
Common
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<PAGE> 65
Stock on Nasdaq for the ten (10) trading days immediately preceding the date of
the Registration Notice. Any such purchase of Registrable Securities by the
Registrant hereunder will take place at a closing to be held at the principal
executive offices of the Registrant or its counsel at any reasonable date and
time designated by the Registrant in such notice within ten (10) business days
after delivery of such notice. The payment for the shares to be purchased will
be made by delivery at the time of such closing of the Option Price in
immediately available funds.
(b) The Registrant will use all reasonable efforts to effect, as
promptly as practicable, the registration under the Securities Act of the
unpurchased Registrable Securities requested to be registered in the
Registration Notice and to keep such registration statement effective for such
period not in excess of 120 calendar days from the day such registration
statement first becomes effective as may be reasonably necessary to effect such
sale or other disposition; provided, however, that the Holder will not be
entitled to more than an aggregate of two (2) effective registration statements
hereunder. The obligations of Registrant hereunder to file a registration
statement and to maintain its effectiveness may be suspended for up to 90
calendar days in the aggregate if the Board of Directors of Registrant shall
have determined that the filing of such registration statement or the
maintenance of its effectiveness would require premature disclosure of material
nonpublic information that would materially and adversely affect Registrant or
otherwise interfere with or adversely affect any pending or proposed offering of
securities of Registrant or any other material transaction involving Registrant.
The Registrant will use all reasonable efforts to cause any Registrable
Securities registered pursuant to this Section 8 to be qualified for sale under
the securities or blue sky laws of such jurisdictions as the Holder may
reasonably request and will continue such registration or qualification in
effect in such jurisdictions; provided, however, that the Registrant will not be
required to qualify to do business in, or consent to general service of process
in, any jurisdiction by reason of this provision. If during the Registration
Period, Registrant effects a registration under the Securities Act of Parent
Common Stock for its own account or for any other stockholders of Registrant
(other than on Form S-4 or Form S-8, or any successor form), it will, in
addition to the Registrant's other obligations under this Section 8, allow
Holder the right to participate in such registration by selling its Registrable
Securities; provided that the Holder participates in the underwriting; provided,
however, that if the managing underwriter of such offering advises the
Registrant in writing that in its opinion the number of shares of Company Stock
requested to be included therein by Holder pro rata (based on the number of
shares intended to be included therein) with the shares intended to be included
therein by Persons other than the Registrant. In connection with any offering,
sale and delivery of Company Common Stock pursuant to a registration effected
pursuant to this Section 8, the Registrant and the Holder shall provide each
other and each underwriter of the offering with customary representations,
warranties and covenants, including covenants of indemnification and
contribution.
(c) The registration rights set forth in this Section 8 are
subject to the condition that the Holder will provide the Registrant with such
information with respect to the Holder's Registrable Securities, the plan for
distribution thereof, and such other information with respect to the Holder as,
in the reasonable judgment of counsel for the Registrant, is necessary to enable
the Registrant to include in a registration statement all facts required to be
disclosed with respect to a registration thereunder.
(d) A registration effected under this Section 8 will be effected
at the Registrant's expense, except for underwriting discounts and commissions
and the fees and expenses of counsel to
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<PAGE> 66
the Holder, and the Registrant will provide to the underwriters such
documentation (including certificates, opinions of counsel and "comfort" letters
from auditors) as are customary in connection with underwritten public offerings
and as such underwriters may reasonably require. In connection with any
registration, the Holder and the Registrant agree to enter into an underwriting
agreement reasonably acceptable to each such party, in form and substance
customary for transactions of this type with the underwriters participating in
such offering.
(e) Indemnification.
(i) The Registrant will indemnify the Holder, each of its
directors and officers and each person who controls the Holder within the
meaning of Section 15 of the Securities Act, and each underwriter of the
Registrant's securities, with respect to any registration, qualification or
compliance which has been effected pursuant to this Agreement, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Registrant of any rule or regulation
promulgated under the Securities Act applicable to the Registrant in connection
with any such registration, qualification or compliance, and the Registrant will
reimburse the Holder and, each of its directors and officers and each person who
controls the Holder within the meaning of Section 15 of the Securities Act, and
each underwriter for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action; provided, that the Registrant will not be liable in
any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or alleged
untrue statement or omission, made in reliance upon and in conformity with
written information furnished to the Registrant by such Holder or director or
officer or controlling person or underwriter seeking indemnification.
(ii) The Holder will indemnify the Registrant, each of its
directors and officers and each underwriter of the Registrant's securities
covered by such registration statement and each person who controls the
Registrant within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Holder of any rule or regulation promulgated under the
Securities Act applicable to the Holder in connection with any such
registration, qualification or compliance, and will reimburse the Registrant,
such directors, officers or control persons or underwriters for any legal or any
other expenses reasonably incurred in connection with investigating, preparing
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information
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furnished to the Registrant by the Holder for use therein; provided, that in no
event will any indemnity under this Section 8(e) exceed the net proceeds of the
offering received by the Holder.
(iii) Each party entitled to indemnification under this
Section 8(e) (the "INDEMNIFIED PARTY") will give notice to the party required to
provide indemnification (the "INDEMNIFYING PARTY") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and will permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom, provided, that counsel for the
Indemnifying Party, who will conduct the defense of such claim or litigation,
will be approved by the Indemnified Party (whose approval will not unreasonably
be withheld), and the Indemnified Party may participate in such defense at such
party's expense; provided, however, that the Indemnifying Party will pay such
expense if representation of the Indemnified Party by counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding, and provided further, however, that the failure of
any Indemnified Party to give notice as provided herein will not relieve the
Indemnifying Party of its obligations under this Section 8(e) unless the failure
to give such notice is materially prejudicial to an Indemnifying Party's ability
to defend such action. No Indemnifying Party, in the defense of any such claim
or litigation will, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnifying Party will be required to indemnify any Indemnified
Party with respect to any settlement entered into without such Indemnifying
Party's prior consent (which will not be unreasonably withheld).
9. Adjustment Upon Changes in Capitalization.
(a) In the event of any change in the Parent Shares by reason of
stock dividends, stock splits, reverse stock splits, mergers (other than the
Merger), recapitalizations, combinations, exchanges of shares and the like, the
type and number of shares or securities subject to the Option, and the Exercise
Price will be adjusted appropriately, and proper provision will be made in the
agreements governing such transaction so that the Company will receive, upon
exercise of the Option, the number and class of shares or other securities or
property that the Company would have received in respect of the Parent Shares if
the Option had been exercised immediately prior to such event or the record date
therefor, as applicable.
(b) Without limiting the parties' relative rights and obligations
under the Merger Agreement, if the number of outstanding shares of Parent Common
Stock increases or decreases after the date of this Agreement (other than
pursuant to an event described in Section 9(a)), the number of shares of Parent
Common Stock subject to the Option (including those Option Shares which may have
already been exercised) will be adjusted so that it equals 19.99% of the number
of shares of Parent Common Stock then issued and outstanding, without giving
effect to any Option Shares.
10. Profit Limitation.
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(a) Notwithstanding any other provision in this Agreement or the
Reorganization Agreement, in no event shall Parent's Total Profit (as defined
below) exceed $6,000,000 (the "MAXIMUM PROFIT") and, if Parent's Total Profit
otherwise would exceed the Maximum Profit, Parent, at its sole discretion, shall
either (i) reduce the number of Option Shares subject to the Option, (ii)
deliver to the Company for cancellation Option Shares (or other securities into
which such Option Shares are converted or exchanged) previously purchased by
Parent, (iii) pay cash to the Company, or (iv) any combination of the foregoing,
so that Parent's actually realized Total Profit shall not exceed the Maximum
Profit after taking into account the foregoing actions.
(b) For purposes of this Agreement, "TOTAL PROFIT" shall mean:
(i) the aggregate amount (before taxes) of (A) any excess of (x) the net cash
amounts or fair market value of any property received by Parent pursuant to a
sale of Option Shares (or securities into which such shares are converted or
exchanged) over (y) the Parent's aggregate purchase price for such Option Shares
(or other securities), plus (B) any amounts received by Parent pursuant to the
repurchase of the Option by the Company pursuant to Section 6, plus (C) any
termination fee paid in cash by the Company and received by Parent pursuant to
the Reorganization Agreement, minus (ii) the amounts of any cash previously paid
by Parent to the Company pursuant to this Section 10 plus the value of the
Option Shares (or other securities) previously delivered by Parent to the
Company for cancellation pursuant to this Section 10.
(c) For purposes of Section 10(a) and clause (ii) of Section
10(b), the value of any Option Shares delivered by Parent to the Company shall
be the Market/Tender Offer Price of such Option Shares.
11. Restrictive Legends. Each certificate representing Option Shares
issued to the Company hereunder will include a legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR
SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS
ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF APRIL
25, 2000, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
It is understood and agreed that (i) the reference to restrictions
arising under the Securities Act in the above legend will be removed by delivery
of substitute certificate(s) without such reference if such Option Shares have
been registered pursuant to the Securities Act, such Option Shares have been
sold in reliance on and in accordance with Rule 144 under the Securities Act or
Holder has delivered to Registrant a copy of a letter from the staff of the SEC,
or an opinion of counsel in form and substance reasonably satisfactory to
Registrant and its counsel, to the effect that such legend is not required for
purposes of the Securities Act and (ii) the reference to restrictions pursuant
to this Agreement in the above legend will be removed by delivery of substitute
certificate(s) without such reference if the Option Shares evidenced by
certificate(s) containing such reference have been sold or transferred in
compliance with the provisions of this Agreement under circumstances that do not
require the retention of such reference.
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12. Listing and HSR Filing. Parent, upon the request of the Company,
will promptly file an application to list the Parent Shares to be acquired upon
exercise of the Option for quotation on Nasdaq and will use its best efforts to
obtain approval of such listing as soon as practicable. Promptly after the date
hereof, each of the parties hereto will promptly file with the Federal Trade
Commission and the Antitrust Division of the United States Department of Justice
all required premerger notification and report forms and other documents and
exhibits required to be filed under the HSR Act to permit the acquisition of the
Parent Shares subject to the Option at the earliest possible date.
13. Binding Effect. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Nothing contained in this Agreement, express or implied, is intended to
confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature whatsoever
by reason of this Agreement. Any shares sold by a party in compliance with the
provisions of Section 8 will, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement and any
transferee of such shares will not be entitled to the rights of such party.
Certificates representing shares sold in a registered public offering pursuant
to Section 8 will not be required to bear the legend set forth in Section 11.
14. Specific Performance. The parties hereto recognize and agree that if
for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party hereto agrees that in addition to
other remedies the other party hereto will be entitled to an injunction
restraining any violation or threatened violation of the provisions of this
Agreement or the right to enforce any of the covenants or agreements set forth
herein by specific performance. In the event that any action will be brought in
equity to enforce the provisions of the Agreement, neither party hereto will
allege, and each party hereto hereby waives the defense, that there is an
adequate remedy at law.
15. Entire Agreement. This Agreement and the Merger Agreement (including
the appendices thereto) constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, between the parties hereto
with respect to the subject matter hereof.
16. Further Assurances. Each party hereto will execute and deliver all
such further documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated hereby.
17. Validity. The invalidity or unenforceability of any provision of
this Agreement will not affect the validity or enforceability of the other
provisions of this Agreement, which will remain in full force and effect. In the
event any Governmental Entity of competent jurisdiction holds any provision of
this Agreement to be null, void or unenforceable, the parties hereto will
negotiate in good faith and will execute and deliver an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision.
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18. Notices. All notices and other communications hereunder will be in
writing and will be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as will be specified by like notice):
(a) if to the Company, to:
HMT Technology Corp.
1055 Page Avenue
Fremont, CA 94538
Attention: Chief Financial Officer
Facsimile: (510) 623-9570
with a copy to:
Cooley Godward LLP
3000 El Camino Real
Palo Alto, CA 94306
Attention: James C. Kitch, Esq.
Facsimile: (650) 849-7004
(b) if to Parent, to:
Komag, Incorporated
1710 Automation Parkway
San Jose, CA 95131
Attention: Chief Executive Officer
Facsimile: (408) 944-9540
with copies to:
Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Alan K. Austin, Esq./Kathleen B. Bloch, Esq.
Facsimile: (650) 461-5375
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and to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
One Market Street
Spear Street Tower, Suite 1600
San Francisco, California 94105
Attention: Steve L. Camahort, Esq.
Facsimile: (415) 947-2099
19. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State.
20. Expenses. Except as otherwise expressly provided herein or in the
Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement will be paid by the party incurring
such expenses.
21. Attorney's Fees. In any action at law or suit in equity to enforce
this Option Agreement or the rights of any of the parties hereunder, the
prevailing party in such action or suit shall be entitled to receive a
reasonable sum for its attorney's fees and all other reasonable costs and
expenses incurred in such action or suit.
22. Amendments; Waiver. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
23. Assignment. Neither of the parties hereto may sell, transfer, assign
or otherwise dispose of any of its rights or obligations under this Agreement or
the Option created hereunder to any other person, without the express written
consent of the other party, except that the rights and obligations hereunder
will inure to the benefit of and be binding upon any successor of a party
hereto.
24. Counterparts. This Agreement may be executed in counterparts, each
of which will be deemed to be an original, but both of which, taken together,
will constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
HMT TECHNOLOGY CORP.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
KOMAG, INCORPORATED
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
[SIGNATURE PAGE TO PARENT STOCK OPTION AGREEMENT]
<PAGE> 73
EXHIBIT B
COMPANY STOCK OPTION AGREEMENT
THIS COMPANY STOCK OPTION AGREEMENT (this "AGREEMENT") is made and
entered into as of April 26, 2000, among Komag, Incorporated, a Delaware
corporation ("PARENT"), and HMT Technology Corp., a Delaware corporation (the
"COMPANY"). Capitalized terms used but not otherwise defined herein will have
the meanings ascribed to them in the Merger Agreement (as defined below).
RECITALS
A. The Company, Merger Sub (as defined below) and Parent have entered
into an Agreement and Plan of Reorganization (the "MERGER AGREEMENT") which
provides for the merger (the "MERGER") of a wholly-owned subsidiary of Parent
("MERGER SUB") with and into the Company. Pursuant to the Merger, all
outstanding capital stock of the Company will be converted into Common Stock of
Parent.
B. As a condition to Parent's willingness to enter into the Merger
Agreement, Parent has requested that the Company agree, and the Company has so
agreed, to grant to Parent an option to acquire shares of the Company's Common
Stock, par value $.001 per share (the "COMPANY SHARES"), upon the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Merger Agreement and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Parent an irrevocable
option (the "OPTION") to acquire up to 9,193,051 Company Shares (the "OPTION
SHARES"), in the manner set forth below by paying cash at a price of $2.7566 per
share (the "EXERCISE PRICE").
2. Exercise of Option; Maximum Proceeds.
(a) The Option may be exercised by Parent, in whole or in part,
at any time or from time to time (i) if the Merger Agreement is terminated
pursuant to 7.1(h) thereof or (ii) immediately prior to the occurrence of any
event causing the Company Termination Fee to become payable pursuant to Section
7.3(b)(ii) thereof (any of the events being referred to herein as an "EXERCISE
EVENT"). In the event Parent wishes to exercise the Option, Parent will deliver
to the Company a written notice (each an "EXERCISE NOTICE") specifying the total
number of Option Shares it wishes to acquire. Each closing of a purchase of
Option Shares (a "CLOSING") will occur on a date and at a time prior to the
termination of the Option designated by Parent in an Exercise Notice delivered
at least two (2) business days prior to the date of such Closing, which Closing
will be held at the principal offices of the Company.
(b) The Option will terminate upon the earliest of (i) the
Effective Time, (ii) twelve (12) months following the date on which the Merger
Agreement is terminated pursuant to Section 7.1(b) or 7.1(d) thereof, if no
event causing the Termination Fee to become payable pursuant
<PAGE> 74
to Section 7.3(b)(ii) of the Merger Agreement has occurred, (iii) six (6) months
following the date on which the Merger Agreement is terminated pursuant to
Section 7.1(h) thereof, (iv) in the event the Merger Agreement has been
terminated pursuant to Section 7.1(b) or 7.1(d) thereof and the Termination Fee
became payable pursuant to Section 7.3(b)(ii) thereof, six (6) months after
payment of the Termination Fee; and (v) the date on which the Merger Agreement
is otherwise terminated; provided, however, that if the Option cannot be
exercised by reason of any applicable government order, judgment or decree or
because the waiting period related to the issuance of the Option Shares under
the HSR Act will not have expired or been terminated, then the Option will not
terminate until the tenth (10th) business day after such impediment to exercise
will have been removed or will have become final and not subject to appeal.
3. Conditions to Closing. The obligation of the Company to issue Option
Shares to Parent hereunder is subject to the conditions that (A) any waiting
period under the HSR Act applicable to the issuance of the Option Shares
hereunder will have expired or been terminated; (B) all material consents,
approvals, orders or authorizations of, or registrations, declarations or
filings with, any Federal, state or local administrative agency or commission or
other Federal state or local governmental authority or instrumentality, if any,
required in connection with the issuance of the Option Shares hereunder will
have been obtained or made, as the case may be; and (C) no preliminary or
permanent injunction or other order by any court of competent jurisdiction
prohibiting or otherwise restraining such issuance will be in effect. It is
understood and agreed that at any time during which the Option is exercisable,
the parties will use their respective commercially reasonable efforts to satisfy
all conditions to Closing, so that a Closing may take place as promptly as
practicable.
4. Closing. At any Closing, (A) the Company will deliver to Parent a
single certificate in definitive form representing the number of Company Shares
designated by Parent in its Exercise Notice, such certificate to be registered
in the name of Parent and to bear the legend set forth in Section 11 hereof,
against delivery of (B) payment by Parent to the Company of the aggregate
purchase price for the Company Shares so designated and being purchased by
delivery of a certified check or bank check.
5. Representations and Warranties.
(a) By the Company. The Company represents and warrants to Parent
that (A) the Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the corporate
power and authority to enter into this Agreement and to carry out its
obligations hereunder; (B) the execution and delivery of this Agreement by the
Company and consummation by the Company of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or any of the transactions contemplated
hereby; (C) this Agreement has been duly executed and delivered by the Company
and constitutes a legal, valid and binding obligation of the Company and,
assuming this Agreement constitutes a legal, valid and binding obligation of
Parent, is enforceable against the Company in accordance with its terms; (D)
except for any filings required under the HSR Act, the Company has taken all
necessary corporate and other action to authorize and reserve for issuance and
to permit it to issue upon exercise of the Option, and at all times from the
date hereof until the
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termination of the Option will have reserved for issuance, a sufficient number
of unissued Company Shares for Parent to exercise the Option in full and will
take all necessary corporate or other action to authorize and reserve for
issuance all additional Company Shares or other securities which may be issuable
pursuant to Section 8(a) upon exercise of the Option, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable; (E) upon delivery of the Company
Shares and any other securities to Parent upon exercise of the Option, Parent
will acquire such Company Shares or other securities free and clear of all
material claims, liens, charges, encumbrances and security interests of any kind
or nature whatsoever, excluding those imposed by Parent; (F) the execution and
delivery of this Agreement by the Company do not, and the performance of this
Agreement by the Company will not, (i) conflict with or violate the Certificate
of Incorporation or Bylaws or equivalent organizational documents of the Company
or any of its subsidiaries, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the Company or any of its
subsidiaries or by which its or any of their respective properties is bound or
affected or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
impair the Company's or any of its subsidiaries' rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of the
Company or any of its subsidiaries pursuant to, any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or its or any of
their respective properties are bound or affected; and (G) the execution and
delivery of this Agreement by the Company does not, and the performance of this
Agreement by the Company will not, require any consent, approval, authorization
or permit of, or filing with, or notification to, any Governmental Entity except
pursuant to the HSR Act.
(b) By Parent. The Option and any Option Shares which Parent may
hereafter acquire are being acquired by Parent for its own account, for
investment and not with a view to the distribution or resale thereof, except in
compliance with the Securities Act of 1933, as amended, and applicable state
securities and blue sky laws. Parent has sufficient knowledge and experience in
investing in securities similar to the Option and to the Option Shares so as to
be able to evaluate the risks and merits of any investment in the Option and in
the Option Shares and is able financially to bear the risks thereof, including a
complete loss of its investment.
6. Parent Put. At the request of and upon notice by Parent (the "PUT
NOTICE"), at any time during the period during which the Option is exercisable
pursuant to Section 2 (the "PURCHASE PERIOD"), the Company (or any successor
entity thereof) will purchase from Parent the Option, to the extent not
previously exercised, at the price set forth in subparagraph (i) below (as
limited by Section 10, below), and the Option Shares, if any, acquired by Parent
pursuant thereto, at the price set forth in subparagraph (ii) below (as limited
by Section 10, below):
(i) The amount, if any, by which the "MARKET/TENDER OFFER
PRICE" for the Company Shares as of the date Parent gives notice of its intent
to exercise its rights under this Section 6(a) exceeds the Exercise Price,
multiplied by the number of Company Shares purchasable pursuant to the Option.
"Market/Tender Offer Price" shall mean the highest of: (i) the highest purchase
price per share paid after the date of this Agreement and on or prior to the
delivery of the
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Put Notice pursuant to any tender or exchange offer made for shares of Company
Common Stock, (ii) the highest price per share paid or to be paid by any Person
for shares of Company Common Stock pursuant to any agreement contemplating a
merger or other business combination transaction involving the Company that was
entered into after the date of this Agreement and on or prior to the delivery of
the Put Notice or (iii) the average of the highest bid prices per share of
Company Common Stock as quoted on the Nasdaq National Market (or if Company
Common Stock is not quoted on the Nasdaq National Market, the highest bid price
per share of Company Common Stock as quoted on any other market comprising a
part of the Nasdaq Stock Market or, if the shares of Company Common Stock are
not quoted thereon, on the principal trading market (as defined in Regulation M
under the Exchange Act) on which such shares are traded as reported by a
recognized source) during the 20-day period ending on the date of delivery of
the Put Notice. For purposes of determining the highest price offered pursuant
to any Company Acquisition Proposal which involves consideration other than
cash, the value of such consideration will be equal to the higher of (x) if
securities of the same class of the proponent as such consideration are traded
on any national securities exchange or by any registered securities association,
a value based on the closing sale price or asked price for such securities on
their principal trading market on such date and (y) the value ascribed to such
consideration by the proponent of such Company Acquisition Proposal, or if no
such value is ascribed, a value determined in good faith by the Board of
Directors of the Company.
(ii) The Exercise Price paid by Parent for the Company
Shares acquired pursuant to the Option plus the amount by which the
Market/Tender Offer Price exceeds the Exercise Price multiplied by the number of
Company Shares so purchased.
7. Payment and Redelivery of Option or Shares. In the event Parent
exercises its rights under Section 6, the Company will, within five (5) business
days after Parent delivers notice pursuant to Section 6, pay the required amount
to Parent in immediately available funds and Parent will surrender to the
Company the Option and the certificates evidencing the Company Shares purchased
by Parent pursuant thereto.
8. Registration Rights.
(a) Following the termination of the Merger Agreement and until
such time as all Option Shares issued to Parent may be sold pursuant to Rule
144(k) of the Securities Act of 1933 (the "REGISTRATION PERIOD"), Parent
(sometimes referred to herein as the "HOLDER") may by written notice (a
"REGISTRATION NOTICE") to the Company (the "REGISTRANT") request the Registrant
to register under the Securities Act all or any part of the shares acquired by
the Holder pursuant to this Agreement (such shares requested to be registered,
the "REGISTRABLE SECURITIES") in order to permit the sale or other disposition
of any or all shares of the Registrable Securities that have been acquired by or
are issuable to Holder upon exercise of the Option in accordance with the
intended method of sale or other disposition stated by Holder, including a
"shelf" registration statement under Rule 415 under the Securities Act or any
successor provision. Holder agrees to cause, and to cause any underwriters of
any sale or other disposition to cause, any sale or other disposition pursuant
to such registration statement to be effected on a widely distributed basis so
that upon consummation thereof no purchaser or transferee will own beneficially
more than 5.0% of the then-outstanding voting power of Registrant. Upon a
request for registration, the Registrant will have the option exercisable
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by written notice delivered to the Holder within ten (10) business days after
the receipt of the Registration Notice, irrevocably to agree to purchase all or
any part of the Registrable Securities for cash at a price (the "OPTION PRICE"
equal to the product of (i) the number of Registrable Securities so purchased
and (ii) the per share average of the closing sale prices of the Registrant's
Common Stock on Nasdaq for the ten (10) trading days immediately preceding the
date of the Registration Notice. Any such purchase of Registrable Securities by
the Registrant hereunder will take place at a closing to be held at the
principal executive offices of the Registrant or its counsel at any reasonable
date and time designated by the Registrant in such notice within ten (10)
business days after delivery of such notice. The payment for the shares to be
purchased will be made by delivery at the time of such closing of the Option
Price in immediately available funds.
(b) The Registrant will use all reasonable efforts to effect, as
promptly as practicable, the registration under the Securities Act of the
unpurchased Registrable Securities requested to be registered in the
Registration Notice and to keep such registration statement effective for such
period not in excess of 120 calendar days from the day such registration
statement first becomes effective as may be reasonably necessary to effect such
sale or other disposition; provided, however, that the Holder will not be
entitled to more than an aggregate of two (2) effective registration statements
hereunder. The obligations of Registrant hereunder to file a registration
statement and to maintain its effectiveness may be suspended for up to 90
calendar days in the aggregate if the Board of Directors of Registrant shall
have determined that the filing of such registration statement or the
maintenance of its effectiveness would require premature disclosure of material
nonpublic information that would materially and adversely affect Registrant or
otherwise interfere with or adversely affect any pending or proposed offering of
securities of Registrant or any other material transaction involving Registrant.
The Registrant will use all reasonable efforts to cause any Registrable
Securities registered pursuant to this Section 8 to be qualified for sale under
the securities or blue sky laws of such jurisdictions as the Holder may
reasonably request and will continue such registration or qualification in
effect in such jurisdictions; provided, however, that the Registrant will not be
required to qualify to do business in, or consent to general service of process
in, any jurisdiction by reason of this provision. If during the Registration
Period, Registrant effects a registration under the Securities Act of the
Company Common Stock for its own account or for any other stockholders of
Registrant (other than on Form S-4 or Form S-8, or any successor form), it will,
in addition to the Registrant's other obligations under this Section 8, allow
Holder the right to participate in such registration by selling its Registrable
Securities; provided that the Holder participates in the underwriting; provided,
however, that, if the managing underwriter of such offering advises the
Registrant in writing that in its opinion the number of shares of Company Stock
requested to be included therein by Holder pro rata (based on the number of
shares intended to be included therein) with the shares intended to be included
therein by Persons other than the Registrant. In connection with any offering,
sale and delivery of Company Common Stock pursuant to a registration effected
pursuant to this Section 8, the Registrant and the Holder shall provide each
other and each underwriter of the offering with customary representations,
warranties and covenants, including covenants of indemnification and
contribution.
(c) The registration rights set forth in this Section 8 are
subject to the condition that the Holder will provide the Registrant with such
information with respect to the Holder's Registrable Securities, the plan for
distribution thereof, and such other information with respect to the Holder as,
in the reasonable judgment of counsel for the Registrant, is necessary to enable
the
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Registrant to include in a registration statement all facts required to be
disclosed with respect to a registration thereunder.
(d) A registration effected under this Section 8 will be effected
at the Registrant's expense, except for underwriting discounts and commissions
and the fees and expenses of counsel to the Holder, and the Registrant will
provide to the underwriters such documentation (including certificates, opinions
of counsel and "comfort" letters from auditors) as are customary in connection
with underwritten public offerings and as such underwriters may reasonably
require. In connection with any registration, the Holder and the Registrant
agree to enter into an underwriting agreement reasonably acceptable to each such
party, in form and substance customary for transactions of this type with the
underwriters participating in such offering.
(e) Indemnification.
(i) The Registrant will indemnify the Holder, each of its
directors and officers and each person who controls the Holder within the
meaning of Section 15 of the Securities Act, and each underwriter of the
Registrant's securities, with respect to any registration, qualification or
compliance which has been effected pursuant to this Agreement, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Registrant of any rule or regulation
promulgated under the Securities Act applicable to the Registrant in connection
with any such registration, qualification or compliance, and the Registrant will
reimburse the Holder and, each of its directors and officers and each person who
controls the Holder within the meaning of Section 15 of the Securities Act, and
each underwriter for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action; provided, that the Registrant will not be liable in
any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or alleged
untrue statement or omission, made in reliance upon and in conformity with
written information furnished to the Registrant by such Holder or director or
officer or controlling person or underwriter seeking indemnification.
(ii) The Holder will indemnify the Registrant, each of its
directors and officers and each underwriter of the Registrant's securities
covered by such registration statement and each person who controls the
Registrant within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Holder of any rule or regulation promulgated under the
Securities Act applicable to the Holder in connection with any such
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<PAGE> 79
registration, qualification or compliance, and will reimburse the Registrant,
such directors, officers or control persons or underwriters for any legal or any
other expenses reasonably incurred in connection with investigating, preparing
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Registrant by the Holder
for use therein; provided, that in no event will any indemnity under this
Section 8(e) exceed the net proceeds of the offering received by the Holder.
(iii) Each party entitled to indemnification under this
Section 8(e) (the "INDEMNIFIED PARTY") will give notice to the party required to
provide indemnification (the "INDEMNIFYING PARTY") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and will permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom, provided, that counsel for the
Indemnifying Party, who will conduct the defense of such claim or litigation,
will be approved by the Indemnified Party (whose approval will not unreasonably
be withheld), and the Indemnified Party may participate in such defense at such
party's expense; provided, however, that the Indemnifying Party will pay such
expense if representation of the Indemnified Party by counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding, and provided further, however, that the failure of
any Indemnified Party to give notice as provided herein will not relieve the
Indemnifying Party of its obligations under this Section 8(e) unless the failure
to give such notice is materially prejudicial to an Indemnifying Party's ability
to defend such action. No Indemnifying Party, in the defense of any such claim
or litigation will, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnifying Party will be required to indemnify any Indemnified
Party with respect to any settlement entered into without such Indemnifying
Party's prior consent (which will not be unreasonably withheld).
9. Adjustment Upon Changes in Capitalization.
(a) In the event of any change in the Company Shares by reason of
stock dividends, stock splits, reverse stock splits, mergers (other than the
Merger), recapitalizations, combinations, exchanges of shares and the like, the
type and number of shares or securities subject to the Option and the Exercise
Price will be adjusted appropriately, and proper provision will be made in the
agreements governing such transaction so that Parent will receive, upon exercise
of the Option, the number and class of shares or other securities or property
that Parent would have received in respect of the Company Shares if the Option
had been exercised immediately prior to such event or the record date therefor,
as applicable.
(b) Without limiting the parties' relative rights and obligations
under the Merger Agreement, if the number of outstanding shares of the Company
Common Stock increases or decreases after the date of this Agreement (other than
pursuant to an event described in Section 9(a)), the number of shares of the
Company Common Stock subject to the Option (including
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<PAGE> 80
those Option Shares which may have already been exercised) will be adjusted so
that it equals 19.99% of the number of shares of the Company Common Stock then
issued and outstanding, without giving effect to any Option Shares.
10. Profit Limitation.
(a) Notwithstanding any other provision in this Agreement or the
Reorganization Agreement, in no event shall Parent's Total Profit (as defined
below) exceed $6,000,000 (the "Maximum Profit") and, if Parent's Total Profit
otherwise would exceed the Maximum Profit, Parent, at its sole discretion, shall
either (i) reduce the number of Option Shares subject to the Option, (ii)
deliver to the Company for cancellation Option Shares (or other securities into
which such Option Shares are converted or exchanged) previously purchased by
Parent, (iii) pay cash to the Company, or (iv) any combination of the foregoing,
so that Parent's actually realized Total Profit shall not exceed the Maximum
Profit after taking into account the foregoing actions.
(b) For purposes of this Agreement, "Total Profit" shall mean:
(i) the aggregate amount (before taxes) of (A) any excess of (x) the net cash
amounts or fair market value of any property received by Parent pursuant to a
sale of Option Shares (or securities into which such shares are converted or
exchanged) over (y) the Parent's aggregate purchase price for such Option Shares
(or other securities), plus (B) any amounts received by Parent pursuant on the
repurchase of the Option by the Company pursuant to Section 6, plus (C) any
termination fee paid in cash by the Company and received by Parent pursuant to
the Reorganization Agreement, minus (ii) the amounts of any cash previously paid
by Parent to the Company pursuant to this Section 10 plus the value of the
Option Shares (or other securities) previously delivered by Parent to the
Company for cancellation pursuant to this Section 10.
(c) For purposes of Section 10(a) and clause (ii) of Section
10(b), the value of any Option Shares delivered by Parent to the Company shall
be the Market/Tender Offer Price of such Option Shares.
11. Restrictive Legends. Each certificate representing Option Shares
issued to Parent hereunder will include a legend in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR
SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS
ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF APRIL
25, 2000, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
It is understood and agreed that (i) the reference to restrictions
arising under the Securities Act in the above legend will be removed by delivery
of substitute certificate(s) without such reference if such Option Shares have
been registered pursuant to the Securities Act, such Option Shares have been
sold in reliance on and in accordance with Rule 144 under the Securities Act or
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<PAGE> 81
Holder has delivered to Registrant a copy of a letter from the staff of the SEC,
or an opinion of counsel in form and substance reasonably satisfactory to
Registrant and its counsel, to the effect that such legend is not required for
purposes of the Securities Act and (ii) the reference to restrictions pursuant
to this Agreement in the above legend will be removed by delivery of substitute
certificate(s) without such reference if the Option Shares evidenced by
certificate(s) containing such reference have been sold or transferred in
compliance with the provisions of this Agreement under circumstances that do not
require the retention of such reference.
12. Listing and HSR Filing. The Company, upon the request of Parent,
will promptly file an application to list the Company Shares to be acquired upon
exercise of the Option for quotation on Nasdaq and will use its best efforts to
obtain approval of such listing as soon as practicable. Promptly after the date
hereof, each of the parties hereto will promptly file with the Federal Trade
Commission and the Antitrust Division of the United States Department of Justice
all required premerger notification and report forms and other documents and
exhibits required to be filed under the HSR Act to permit the acquisition of the
Company Shares subject to the Option at the earliest possible date.
13. Binding Effect. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Nothing contained in this Agreement, express or implied, is intended to
confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature whatsoever
by reason of this Agreement. Any shares sold by a party in compliance with the
provisions of Section 8 will, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement and any
transferee of such shares will not be entitled to the rights of such party.
Certificates representing shares sold in a registered public offering pursuant
to Section 8 will not be required to bear the legend set forth in Section 11.
14. Specific Performance. The parties hereto recognize and agree that if
for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party hereto agrees that in addition to
other remedies the other party hereto will be entitled to an injunction
restraining any violation or threatened violation of the provisions of this
Agreement or the right to enforce any of the covenants or agreements set forth
herein by specific performance. In the event that any action will be brought in
equity to enforce the provisions of the Agreement, neither party hereto will
allege, and each party hereto hereby waives the defense, that there is an
adequate remedy at law.
15. Entire Agreement. This Agreement and the Merger Agreement (including
the appendices thereto) constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, between the parties hereto
with respect to the subject matter hereof.
16. Further Assurances. Each party hereto will execute and deliver all
such further documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated hereby.
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<PAGE> 82
17. Validity. The invalidity or unenforceability of any provision of
this Agreement will not affect the validity or enforceability of the other
provisions of this Agreement, which will remain in full force and effect. In the
event any Governmental Entity of competent jurisdiction holds any provision of
this Agreement to be null, void or unenforceable, the parties hereto will
negotiate in good faith and will execute and deliver an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision.
18. Notices. All notices and other communications hereunder will be in
writing and will be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as will be specified by like notice):
(a) if to Parent, to:
Komag, Incorporated
1710 Automation Parkway
San Jose, CA 95131
Attention: Chief Executive Officer
Facsimile: (408) 944-9540
with copies to:
Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Alan K. Austin, Esq./Kathleen B. Bloch, Esq.
Facsimile: (650) 461-5375
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<PAGE> 83
and to:
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
One Market Street
Spear Street Tower, Suite 1600
San Francisco, California 94105
Attention: Steve L. Camahort, Esq.
Facsimile: (415) 947-2099
(b) if to the Company to:
HMT Technology Corp.
1055 Page Avenue
Fremont, CA 94538
Attention: Peter S. Norris
Facsimile: (510) 623-9570
with a copy to:
Cooley Godward LLP
3000 El Camino Real
Palo Alto, CA 94306
Attention: James C. Kitch, Esq.
Facsimile: (650) 849-7004
19. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State.
20. Expenses. Except as otherwise expressly provided herein or in the
Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement will be paid by the party incurring
such expenses.
21. Attorney's Fees. In any action at law or suit in equity to enforce
this Option Agreement or the rights of any of the parties hereunder, the
prevailing party in such action or suit shall be entitled to receive a
reasonable sum for its attorney's fees and all other reasonable costs and
expenses incurred in such action or suit.
22. Amendments; Waiver. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
23. Assignment. Neither of the parties hereto may sell, transfer, assign
or otherwise dispose of any of its rights or obligations under this Agreement or
the Option created hereunder to
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<PAGE> 84
any other person, without the express written consent of the other party, except
that the rights and obligations hereunder will inure to the benefit of and be
binding upon any successor of a party hereto.
24. Counterparts. This Agreement may be executed in counterparts, each
of which will be deemed to be an original, but both of which, taken together,
will constitute one and the same instrument.
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<PAGE> 85
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
KOMAG, INCORPORATED
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
HMT TECHNOLOGY CORP.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
[SIGNATURE PAGE TO COMPANY STOCK OPTION AGREEMENT]
<PAGE> 86
EXHIBIT C
PARENT VOTING AGREEMENT
THIS VOTING AGREEMENT (this "AGREEMENT") is made and entered into as of
April 26, 2000, among HMT Technology Corp., a Delaware corporation (the
"COMPANY"), and the undersigned stockholder (the "STOCKHOLDER") of Komag,
Incorporated, a Delaware corporation ("PARENT").
RECITALS
A. Parent, a subsidiary of Parent ("MERGER SUB") and the Company have
entered into an Agreement and Plan of Reorganization (the "MERGER AGREEMENT"),
which provides for the merger (the "MERGER") of Merger Sub with and into the
Company. Pursuant to the Merger, all outstanding capital stock of the Company
shall be converted into the right to receive Parent Common Stock, as set forth
in the Merger Agreement (the "SHARE ISSUANCE").
B. Stockholder is the beneficial owner (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of such
number of shares of the outstanding capital stock of Parent and shares subject
to outstanding options and warrants as is indicated on the signature page of
this Agreement.
C. In consideration of the execution of the Merger Agreement by the
Company, Stockholder (in his or her capacity as such) agrees to vote the Shares
(as defined below) and other such shares of capital stock of Parent over which
Stockholder has voting power so as to facilitate consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree
as follows:
1. Certain Definitions. Capitalized terms not defined herein shall have
the meanings ascribed to them in the Merger Agreement. For purposes of this
Agreement:
(a) "EXPIRATION DATE" shall mean the earlier to occur of (i) such
date and time as the Merger Agreement shall have been terminated pursuant to
Article VII thereof, or (ii) such date and time as the Merger shall become
effective in accordance with the terms and provisions of the Merger Agreement.
(b) "PERSON" shall mean any (i) individual, (ii) corporation,
limited liability company, partnership or other entity, or (iii) governmental
authority.
(c) "SHARES" shall mean: (i) all securities of Parent (including
all shares of Parent Common Stock and all options, warrants and other rights to
acquire shares of Parent Common Stock) owned by Stockholder as of the date of
this Agreement; and (ii) all additional securities of Parent (including all
additional shares of Parent Common Stock and all additional options, warrants
and other rights to acquire shares of Parent Common Stock) of which Stockholder
acquires ownership during the period from the date of this Agreement through the
Expiration Date.
(d) "TRANSFER." A Person shall be deemed to have effected a
"TRANSFER" of a security if such person directly or indirectly: (i) sells,
pledges, encumbers, grants an option with respect
<PAGE> 87
to, transfers or disposes of such security or any interest in such security; or
(ii) enters into an agreement or commitment providing for the sale of, pledge
of, encumbrance of, grant of an option with respect to, transfer of or
disposition of such security or any interest therein.
2. Transfer of Shares.
(a) Transferee of Shares to be Bound by this Agreement.
Stockholder agrees that, during the period from the date of this Agreement
through the Expiration Date, Stockholder shall not cause or permit any Transfer
of any of the Shares to be effected unless each Person to which any of such
Shares, or any interest in any of such Shares, is or may be transferred shall
have: (a) executed a counterpart of this Agreement and a proxy in the form
attached hereto as Exhibit A (with such modifications as the Company may
reasonably request); and (b) agreed in writing to hold such Shares (or interest
in such Shares) subject to all of the terms and provisions of this Agreement.
(b) Transfer of Voting Rights. Stockholder agrees that, during
the period from the date of this Agreement through the Expiration Date,
Stockholder shall not deposit (or permit the deposit of) any Shares in a voting
trust or grant any proxy or enter into any voting agreement or similar agreement
in contravention of the obligations of Stockholder under this Agreement with
respect to any of the Shares.
3. Agreement to Vote Shares. At every meeting of the stockholders of
Parent called, and at every adjournment thereof, and on every action or approval
by written consent of the stockholders of Parent, stockholder (in his or her
capacity as such) shall cause the Shares to be voted (to the extent such Shares
have voting rights and are entitled to vote thereon) in favor of the Share
Issuance. Notwithstanding the foregoing, and notwithstanding any other provision
of this Agreement, nothing in this Agreement shall limit or restrict stockholder
from acting in stockholder's capacity as a director or officer of Parent (it
being understood that this Agreement shall apply to stockholder solely in
stockholder's capacity as a stockholder of Parent) or voting in stockholder's
sole discretion on any matter other than those matters referred to in the
foregoing sentence of this Section 3.
4. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to the Company a proxy in the form attached hereto
as Exhibit A (the "PROXY"), which shall be irrevocable to the fullest extent
permissible by law, with respect to the Shares.
5. Representations and Warranties of the Stockholder. Stockholder (i) is
the beneficial owner of the shares of Parent Common Stock indicated on the final
page of this Agreement, free and clear of any liens, claims, options, rights of
first refusal, co-sale rights, charges or other encumbrances; (ii) does not
beneficially own any securities of the Parent other than the shares of Parent
Common Stock and options and warrants to purchase shares of Common Stock of
Parent indicated on the final page of this Agreement; and (iii) has full power
and authority to make, enter into and carry out the terms of this Agreement and
the Proxy.
6. Additional Documents. Stockholder (in his or her capacity as such)
hereby covenants and agrees to execute and deliver any additional documents
necessary or desirable, in the reasonable opinion of the Company, to carry out
the intent of this Agreement.
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<PAGE> 88
7. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
8. Miscellaneous.
(a) Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
(b) Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without prior written consent of the other.
(c) Amendments and Modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
(d) Specific Performance; Injunctive Relief. The parties hereto
acknowledge that the Company shall be irreparably harmed and that there shall be
no adequate remedy at law for a violation of any of the covenants or agreements
of Stockholder set forth herein. Therefore, it is agreed that, in addition to
any other remedies that may be available to the Company upon any such violation,
the Company shall have the right to enforce such covenants and agreements by
specific performance, injunctive relief or by any other means available to the
Company at law or in equity.
(e) Notices. All notices and other communications pursuant to
this Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
If to the Company: HMT Technology Corp.
1055 Page Avenue
Fremont, CA 94538
Facsimile: (510) 623-9570
Attention: Ronald L. Schauer
With a copy to: Cooley Godward LLP
3000 El Camino Real
Palo Alto, CA 94306
Facsimile: (650) 849-7004
Attention: James C. Kitch, Esq.
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<PAGE> 89
If to Stockholder: To the address for notice set forth on the
signature page hereof.
(f) Governing Law. This Agreement shall be governed by the laws
of the State of Delaware, without reference to rules of conflicts of law.
(g) Entire Agreement. This Agreement and the Proxy contain the
entire understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
(h) Officers and Directors. To the extent that Stockholder is or
becomes (during the term hereof) a director or officer of Parent, he or she
makes no agreement or understanding herein in his or her capacity as such
director or officer, and nothing herein will limit or affect, or give rise to
any liability to Stockholder by virtue of, any actions taken by Stockholder in
his or her capacity as an officer or director of Parent in exercising its rights
under the Merger Agreement.
(i) Effect of Headings. The section headings are for convenience
only and shall not affect the construction or interpretation of this Agreement.
(j) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
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<PAGE> 90
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written. The undersigned is executing
this Agreement only in its capacity as a stockholder. Such signature in no way
affects its obligations as an officer or director of Parent.
HMT Technology Corp. STOCKHOLDER
By: By:
------------------------------ -------------------------------------
Signature
Name: Name:
---------------------------- -----------------------------------
Title: Title:
--------------------------- ----------------------------------
----------------------------------------
----------------------------------------
Print Address
----------------------------------------
Telephone
----------------------------------------
Facsimile No.
Share beneficially owned:
___________ Parent Common Shares
___________ Parent Common Shares
issuable upon exercise of outstanding
options or warrants
[SIGNATURE PAGE TO PARENT VOTING AGREEMENT]
<PAGE> 91
EXHIBIT A
IRREVOCABLE PROXY
The undersigned stockholder of Komag, Incorporated, a Delaware
corporation ("PARENT"), hereby irrevocably (to the fullest extent permitted by
law) appoints the directors on the Board of Directors of HMT Technology Corp., a
Delaware corporation (the "COMPANY"), and each of them, as the sole and
exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of Parent that now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of Parent issued or issuable in respect thereof on or after
the date hereof (collectively, the "SHARES") in accordance with the terms of
this Proxy. The Shares beneficially owned by the undersigned stockholder of
Parent as of the date of this Proxy are listed on the final page of this Proxy.
Upon the undersigned's execution of this Proxy, any and all prior proxies given
by the undersigned with respect to any Shares are hereby revoked and the
undersigned agrees not to grant any subsequent proxies with respect to the
Shares until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Parent Voting
Agreement of even date herewith by and among the Company and the undersigned
stockholder (the "VOTING AGREEMENT"), and is granted in consideration of the
Company entering into that certain Agreement and Plan and Reorganization (the
"MERGER AGREEMENT"), by and between Parent, a subsidiary of Parent ("MERGER
SUB") and the Company. The Merger Agreement provides for the merger of Merger
Sub with and into the Company in accordance with its terms (the "MERGER").
Pursuant to the Merger, all outstanding capital stock of the Company shall be
converted into the right to receive Parent Common Stock, as set forth in the
Merger Agreement (the "SHARE ISSUANCE"). As used herein, the term "EXPIRATION
DATE" shall mean the earlier to occur of (i) such date and time as the Merger
Agreement shall have been validly terminated pursuant to Article VII thereof or
(ii) such date and time as the Merger shall become effective in accordance with
the terms and provisions of the Merger Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special or adjourned meeting of stockholders
of Parent and in every written consent in lieu of such meeting in favor of the
Share Issuance.
The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided above. The undersigned stockholder may vote the
Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned. The undersigned is executing this
Proxy only in its capacity as a stockholder. Such signature in no way affects
its obligations as an officer or director of Parent.
<PAGE> 92
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically upon
the Expiration Date.
Dated: , 2000
------------------------------
Signature of Stockholder:
-------------------
Print Name of Stockholder:
------------------
Shares beneficially owned:
__________ Parent Common Shares
__________ Parent Common Shares
issuable upon exercise of
outstanding options or warrants
[SIGNATURE PAGE TO IRREVOCABLE PROXY]
<PAGE> 93
EXHIBIT D
COMPANY VOTING AGREEMENT
THIS VOTING AGREEMENT (this "AGREEMENT") is made and entered into as of
April 26, 2000, among Komag, Incorporated, a Delaware corporation ("PARENT"),
and the undersigned stockholder (the "STOCKHOLDER") of HMT Technology Corp., a
Delaware corporation (the "COMPANY").
RECITALS
A. The Company and Parent have entered into an Agreement and Plan of
Reorganization (the "MERGER AGREEMENT"), which provides for the merger (the
"MERGER") of a subsidiary of Parent with and into the Company. Pursuant to the
Merger, all outstanding capital stock of the Company shall be converted into the
right to receive Parent Common Stock, as set forth in the Merger Agreement.
B. Stockholder is the beneficial owner (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of such
number of shares of the outstanding capital stock of the Company and shares
subject to outstanding options and warrants as is indicated on the signature
page of this Agreement.
C. In consideration of the execution of the Merger Agreement by Parent,
Stockholder (in his or her capacity as such) agrees to vote the Shares (as
defined below) and other such shares of capital stock of the Company over which
Stockholder has voting power so as to facilitate consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree
as follows:
1. Certain Definitions. Capitalized terms not defined herein shall have
the meanings ascribed to them in the Merger Agreement. For purposes of this
Agreement:
(a) "EXPIRATION DATE" shall mean the earlier to occur of (i) such
date and time as the Merger Agreement shall have been terminated pursuant to
Article VII thereof, or (ii) such date and time as the Merger shall become
effective in accordance with the terms and provisions of the Merger Agreement.
(b) "PERSON" shall mean any (i) individual, (ii) corporation,
limited liability company, partnership or other entity, or (iii) governmental
authority.
(c) "SHARES" shall mean: (i) all securities of the Company
(including all shares of the Company Common Stock and all options, warrants and
other rights to acquire shares of the Company Common Stock) owned by Stockholder
as of the date of this Agreement; and (ii) all additional securities of the
Company (including all additional shares of the Company Common Stock and all
additional options, warrants and other rights to acquire shares of the Company
Common Stock) of which Stockholder acquires ownership during the period from the
date of this Agreement through the Expiration Date.
<PAGE> 94
(d) "TRANSFER." A Person shall be deemed to have effected a
"TRANSFER" of a security if such person directly or indirectly: (i) sells,
pledges, encumbers, grants an option with respect to, transfers or disposes of
such security or any interest in such security; or (ii) enters into an agreement
or commitment providing for the sale of, pledge of, encumbrance of, grant of an
option with respect to, transfer of or disposition of such security or any
interest therein.
2. Transfer of Shares.
(a) Transferee of Shares to be Bound by this Agreement.
Stockholder agrees that, during the period from the date of this Agreement
through the Expiration Date, Stockholder shall not cause or permit any Transfer
of any of the Shares to be effected unless each Person to which any of such
Shares, or any interest in any of such Shares, is or may be transferred shall
have: (a) executed a counterpart of this Agreement and a proxy in the form
attached hereto as Exhibit A (with such modifications as Parent may reasonably
request); and (b) agreed in writing to hold such Shares (or interest in such
Shares) subject to all of the terms and provisions of this Agreement.
(b) Transfer of Voting Rights. Stockholder agrees that, during
the period from the date of this Agreement through the Expiration Date,
Stockholder shall not deposit (or permit the deposit of) any Shares in a voting
trust or grant any proxy or enter into any voting agreement or similar agreement
in contravention of the obligations of Stockholder under this Agreement with
respect to any of the Shares.
3. Agreement to Vote Shares. At every meeting of the stockholders of the
Company called, and at every adjournment thereof, and on every action or
approval by written consent of the stockholders of the Company, Stockholder (in
his or her capacity as such) shall cause the Shares to be voted (i) in favor of
the Merger, (ii) in favor of the Merger Agreement, as modified or amended from
time to time in accordance with its terms and with approval of the Board of
Directors of the Company, (iii) in favor of any matter that could reasonably be
expected to facilitate the Merger, and (iv) against any matter that could
reasonably be expected to prevent the Merger. Notwithstanding the foregoing, and
notwithstanding any other provision of this Agreement, nothing in this Agreement
shall limit or restrict stockholder from acting in stockholder's capacity as a
director or officer of Parent (it being understood that this Agreement shall
apply to stockholder solely in stockholder's capacity as a stockholder of
Parent) or voting in stockholder's sole discretion on any matter other than
those matters referred to in the foregoing clauses (i) - (iv) of this Section 3.
4. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to Parent a proxy in the form attached hereto as
Exhibit A (the "PROXY"), which shall be irrevocable to the fullest extent
permissible by law, with respect to the Shares.
5. Representations and Warranties of the Stockholder. Stockholder (i) is
the beneficial owner of the shares of the Company Common Stock and options and
warrants to purchase Company Common Stock indicated on the final page of this
Agreement, free and clear of any liens, claims,
-2-
<PAGE> 95
options, rights of first refusal, co-sale rights, charges or other encumbrances;
(ii) does not beneficially own any securities of the Company other than the
shares of the Company Common Stock and options and warrants to purchase shares
of Common Stock of the Company indicated on the final page of this Agreement;
and (iii) has full power and authority to make, enter into and carry out the
terms of this Agreement and the Proxy.
6. Additional Documents. Stockholder (in his or her capacity as such)
hereby covenants and agrees to execute and deliver any additional documents
necessary or desirable, in the reasonable opinion of Parent, to carry out the
intent of this Agreement.
7. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
8. Miscellaneous.
(a) Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
(b) Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without prior written consent of the other.
(c) Amendments and Modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
(d) Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Parent shall be irreparably harmed and that there shall be no
adequate remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Parent upon any such violation, Parent
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Parent at law
or in equity.
(e) Notices. All notices and other communications pursuant to
this Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
-3-
<PAGE> 96
If to Parent: Komag, Incorporated
1704 Automation Parkway
San Jose, California 95131
Attention: Chief Financial Officer
Facsimile: (408) 946-1126
With copies to: Wilson Sonsini Goodrich & Rosati,
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Facsimile: (650) 461-5375
Attention: Alan K. Austin, Esq.
and to: Wilson Sonsini Goodrich & Rosati
Professional Corporation
One Market Street
Spear Street Tower
San Francisco, California 94105
Facsimile: (415) 947-2099
Attention: Steve L. Camahort, Esq.
If to Stockholder: To the address for notice set forth on the
signature page hereof.
(f) Governing Law. This Agreement shall be governed by the laws
of the State of Delaware, without reference to rules of conflicts of law.
(g) Entire Agreement. This Agreement and the Proxy contain the
entire understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
(h) Officers and Directors. To the extent that Stockholder is or
becomes (during the term hereof) a director or officer of the Company, he or she
makes no agreement or understanding herein in his or her capacity as such
director or officer, and nothing herein will limit or affect, or give rise to
any liability to Stockholder by virtue of, any actions taken by Stockholder in
his or her capacity as an officer or director of the Company in exercising its
rights under the Merger Agreement.
(i) Effect of Headings. The section headings are for convenience
only and shall not affect the construction or interpretation of this Agreement.
(j) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
-4-
<PAGE> 97
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
-5-
<PAGE> 98
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written. The undersigned is executing
this Agreement only in its capacity as a stockholder. Such signature in no way
affects its obligations as an officer or director of the Company.
Komag, Incorporated STOCKHOLDER
By: By:
------------------------------ -------------------------------------
Signature
Name: Name (Print):
---------------------------- ---------------------------
Title: Title:
--------------------------- ----------------------------------
----------------------------------------
----------------------------------------
Print Address
----------------------------------------
Telephone
----------------------------------------
Facsimile No.
Share beneficially owned:
___________ shares of the Company Common
Stock
___________ shares of the Company Common
Stock issuable upon exercise
of outstanding options or
warrants
[SIGNATURE PAGE TO COMPANY VOTING AGREEMENT]
<PAGE> 99
EXHIBIT A
IRREVOCABLE PROXY
The undersigned stockholder of HMT Technology Corp., a Delaware
corporation (the "COMPANY"), hereby irrevocably (to the fullest extent permitted
by law) appoints the directors on the Board of Directors of Komag, Incorporated,
a Delaware corporation ("PARENT") and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of the Company that now are or hereafter may be
beneficially owned by the undersigned, and any and all other shares or
securities of the Company issued or issuable in respect thereof on or after the
date hereof (collectively, the "SHARES") in accordance with the terms of this
Proxy. The Shares beneficially owned by the undersigned stockholder of the
Company as of the date of this Proxy are listed on the final page of this Proxy.
Upon the undersigned's execution of this Proxy, any and all prior proxies given
by the undersigned with respect to any Shares are hereby revoked and the
undersigned agrees not to grant any subsequent proxies with respect to the
Shares until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Company Voting
Agreement of even date herewith by and among Parent and the undersigned
stockholder (the "VOTING AGREEMENT"), and is granted in consideration of Parent
entering into that certain Agreement and Plan of Merger (the "MERGER
AGREEMENT"), by and between Parent, a subsidiary of Parent ("MERGER SUB") and
the Company. The Merger Agreement provides for the merger of Merger Sub with and
into the Company in accordance with its terms (the "MERGER"). As used herein,
the term "EXPIRATION DATE" shall mean the earlier to occur of (i) such date and
time as the Merger Agreement shall have been validly terminated pursuant to
Article VII thereof or (ii) such date and time as the Merger shall become
effective in accordance with the terms and provisions of the Merger Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special or adjourned meeting of stockholders
of the Company and in every written consent in lieu of such meeting (i) in favor
of the Merger, (ii) in favor of the Merger Agreement, as modified or amended
form time to time in accordance with its terms and with approval of the Board of
Directors of the Company, (iii) in favor of any matter that could reasonably be
expected to facilitate the Merger, and (iv) against any matter that could
reasonably be expected to prevent the Merger.
The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided above. The undersigned stockholder may vote the
Shares on all other matters.
<PAGE> 100
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned. The undersigned is executing this
Proxy only in its capacity as a stockholder. Such signature in no way affects
its obligations as an officer or director of the Company.
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically upon
the Expiration Date.
Dated: April 26, 2000
Signature of Stockholder:
--------------------------
Print Name of Stockholder:
-------------------------
Shares beneficially owned:
__________ shares of the Company Common
Stock
__________ shares of the Company Common
Stock issuable upon exercise of outstanding
options or warrants
[SIGNATURE PAGE TO IRREVOCABLE PROXY]
<PAGE> 101
EXHIBIT E
FORM OF COMPANY AFFILIATE AGREEMENT
THIS COMPANY AFFILIATE AGREEMENT (this "AGREEMENT") is made and entered
into as of April 26, 2000, by and between Komag, Incorporated, a corporation
organized under the laws of the State of Delaware ("PARENT"), and the
undersigned stockholder who may be deemed an affiliate ("AFFILIATE") of HMT
Technology Corp., a Delaware corporation (the "COMPANY"). Capitalized terms used
but not otherwise defined herein shall have the meanings ascribed to them in the
Merger Agreement (as defined below).
RECITALS
A. The Company, Merger Sub (as defined below) and Parent have entered
into an Agreement and Plan of Reorganization (the "MERGER AGREEMENT") which
provides for the merger (the "MERGER") of a wholly-owned subsidiary of Parent
("MERGER SUB") with and into the Company. Pursuant to the Merger, all
outstanding capital stock of the Company (the "COMPANY CAPITAL STOCK") shall be
converted into the right to receive Common Stock of Parent (the "PARENT COMMON
STOCK").
B. Affiliate has been advised that Affiliate may be deemed to be an
"affiliate" of the Company, as the term "affiliate" is used for purposes of Rule
145 of the Rules and Regulations of the Securities and Exchange Commission and
of Opinion 16 of the Accounting Principles Board.
C. The execution and delivery of this Agreement by Affiliate is a
material inducement to Parent to enter into the Merger Agreement.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree
as follows:
1. Acknowledgments by Affiliate. Affiliate acknowledges and understands
that the representations, warranties and covenants by Affiliate set forth herein
shall be relied upon by Parent, the Company and their respective affiliates,
counsel and accounting firms, and that substantial losses and damages may be
incurred by these persons if Affiliate's representations, warranties or
covenants are breached. Affiliate has carefully read this Agreement and the
Merger Agreement and has discussed the requirements of this Agreement with
Affiliate's professional advisors, who are qualified to advise Affiliate with
regard to such matters.
2. Beneficial Ownership of the Company Capital Stock. The Affiliate is
the sole record and beneficial owner of the number of shares of the Company
Capital Stock set forth next to its name on the signature page hereto (the
"SHARES"). The Shares are not subject to any claim, lien, pledge, charge,
security interest or other encumbrance or to any rights of first refusal of any
kind. There are no options, warrants, calls, rights, commitments or agreements
of any character, written or oral, to which the Affiliate is party or by which
it is bound obligating the Affiliate to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
Shares or obligating the Affiliate to grant or enter into any such option,
warrant, call, right,
<PAGE> 102
commitment or agreement. The Affiliate has the sole right to transfer such
Shares. The Shares constitute all shares of the Company Capital Stock owned,
beneficially or of record, by the Affiliate. The Shares are not subject to
preemptive rights created by any agreement to which the Affiliate is party. The
Affiliate has not engaged in any sale or other transfer of the Shares in
contemplation of the Merger. All shares of the Company Capital Stock and Parent
Common Stock acquired by Affiliate subsequent to the date hereof (including
shares of Parent Common Stock acquired in the Merger) shall be subject to the
provisions of this Agreement as if held by Affiliate as of the date hereof.
3. Compliance with Rule 145 and the Securities Act.
(a) Affiliate has been advised that (i) the issuance of shares of
Parent Common Stock in connection with the Merger is expected to be effected
pursuant to a registration statement on Form S-4 promulgated under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), and the resale of
such shares shall be subject to restrictions set forth in Rule 145 under the
Securities Act, and (ii) Affiliate may be deemed to be an affiliate of the
Company. Affiliate accordingly agrees not to sell, transfer or otherwise dispose
of any Parent Common Stock issued to Affiliate in the Merger unless (i) such
sale, transfer or other disposition is made in conformity with the requirements
of Rule 145(d) promulgated under the Securities Act, or (ii) such sale, transfer
or other disposition is made pursuant to an effective registration statement
under the Securities Act or an appropriate exemption from registration, or (iii)
Affiliate delivers to Parent a written opinion of counsel, reasonably acceptable
to Parent in form and substance, that such sale, transfer or other disposition
is otherwise exempt from registration under the Securities Act.
(b) Parent shall give stop transfer instructions to its transfer
agent with respect to any Parent Common Stock received by Affiliate pursuant to
the Merger and there shall be placed on the certificates representing such
Common Stock, or any substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 APPLIES AND MAY ONLY BE TRANSFERRED IN
CONFORMITY WITH RULE 145(d) OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IN
ACCORDANCE WITH A WRITTEN OPINION OF COUNSEL, REASONABLY ACCEPTABLE
TO THE ISSUER IN FORM AND SUBSTANCE, THAT SUCH TRANSFER IS EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED."
The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend) and Parent shall so instruct its transfer
agent, if Affiliate delivers to Parent (i) satisfactory written evidence that
the shares have been sold in compliance with Rule 145 (in which case, the
substitute certificate shall be issued in the name of the transferee), or (ii)
an opinion of counsel, in form and substance reasonably satisfactory to Parent,
to the effect that public sale of the shares by the holder thereof is no longer
subject to Rule 145.
-2-
<PAGE> 103
4. Termination. This Agreement shall be terminated and shall be of no
further force and effect in the event of the termination of the Merger Agreement
pursuant to Article VII of the Merger Agreement.
5. Miscellaneous.
(a) Waiver; Severability. No waiver by any party hereto of any
condition or of any breach of any provision of this Agreement shall be effective
unless in writing and signed by each party hereto. In the event that any
provision of this Agreement, or the application of any such provision to any
person, entity or set of circumstances, shall be determined to be invalid,
unlawful, void or unenforceable to any extent, the remainder of this Agreement,
and the application of such provision to persons, entities or circumstances
other than those as to which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and shall continue to
be valid and enforceable to the fullest extent permitted by law.
(b) Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without prior written consent of the other party hereto.
(c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
(d) Injunctive Relief. Each of the parties acknowledge that (i) the
covenants and the restrictions contained in this Agreement are necessary,
fundamental and required for the protection of Parent and the Company and to
preserve for Parent the benefits of the Merger; (ii) such covenants relate to
matters which are of a special, unique, and extraordinary character that gives
each of such covenants a special, unique, and extraordinary value; and (iii) a
breach of any such covenants or any other provision of this Agreement shall
result in irreparable harm and damages to Parent and the Company which cannot be
adequately compensated by a monetary award. Accordingly, it is expressly agreed
that in addition to all other remedies available at law or in equity, Parent and
the Company shall be entitled to the immediate remedy of a temporary restraining
order, preliminary injunction, or such other form of injunctive or equitable
relief as may be used by any court of competent jurisdiction to restrain or
enjoin any of the parties hereto from breaching any such covenant or provision
or to specifically enforce the provisions hereof.
(e) Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of the State of
Delaware without giving effect to any choice or conflict of law provision or
rule (whether of the State of Delaware or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Delaware.
-3-
<PAGE> 104
(f) Entire Agreement. This Agreement, the Merger Agreement and any
other agreements referred to in the Merger Agreement set forth the entire
understanding of Affiliate and Parent relating to the subject matter hereof and
thereof and supersede all prior agreements and understandings between Affiliate
and Parent relating to the subject matter hereof and thereof.
(g) Attorneys' Fees. In the event of any legal actions or proceeding
to enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorneys' fees, whether or not the proceeding results in
a final judgment.
(h) Further Assurances. Affiliate shall execute and/or cause to be
delivered to Parent such instruments and other documents and shall take such
other actions as Parent may reasonably request to effectuate the intent and
purposes of this Agreement.
(i) Third Party Reliance. Counsel to and independent auditors for
Parent and the Company shall be entitled to rely upon this Affiliate Agreement.
(j) Survival. The representations, warranties, covenants and other
provisions contained in this Agreement shall survive the Merger.
(k) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
If to Parent: Komag, Incorporated
17170 Automation Parkway
San Jose, California
Attention: Chief Financial Officer
Facsimile: (408) 944-9255
With a copies to: Wilson Sonsini Goodrich & Rosati,
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Alan K. Austin, Esq.
Facsimile: (650) 461-5375
-4-
<PAGE> 105
and to:
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
One Market Street
Spear Street Tower, Suite 1600
San Francisco, California 94105
Attention: Steve L. Camahort, Esq.
Facsimile: (415) 947-2099
If to Affiliate: To the address for notice set forth on the
signature page hereof.
(l) Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
-5-
<PAGE> 106
IN WITNESS WHEREOF, the parties have caused this Affiliate Agreement to
be duly executed on the day and year first above written.
KOMAG, INCORPORATED AFFILIATE
By: By:
----------------------------- --------------------------------
Name: Affiliate's Address for Notice:
---------------------------
-----------------------------------
Title:
-------------------------- -----------------------------------
Shares beneficially owned:
_______ shares of the Company Common
Stock
_______ shares of the Company Common
Stock issuable upon exercise of
outstanding options and warrants
_______ shares of Parent Common Stock
[SIGNATURE PAGE TO COMPANY AFFILIATE AGREEMENT]
<PAGE> 1
EXHIBIT 10.21
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
BETWEEN
FANCYVIEW INT'L, LTD.
AND
KOMAG, INCORPORATED
PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of March 17, 2000 (the
"Agreement"), between Fancyview Int'l, Ltd. a New York corporation (the
"Investor") and Komag, Incorporated, a corporation organized and existing under
the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Investor from
time to time as provided herein, and Investor shall purchase, up to $20,000,000
(the "Aggregate Purchase Price") of the Common Stock (as defined below); and
WHEREAS, such investments will be made by the Investor as statutory
underwriter of a registered indirect primary offering of such Common Stock by
the Company.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Bid Price" shall mean the closing bid price (as reported by
Bloomberg L.P.) of the Common Stock on the Principal Market on the date in
question.
Section 1.2 "Capital Shares" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.3 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for or give any
right to subscribe for any Capital Shares
1
<PAGE> 2
of the Company or any warrants, options or other rights to subscribe for or
purchase Capital Shares or any such convertible or exchangeable securities.
Section 1.4 "Closing" shall mean one of the closings of a purchase and
sale of the Common Stock pursuant to Section 2.1.
Section 1.5 "Closing Date" shall mean, with respect to a Closing, the
fifth Trading Day following the end of the Valuation Period related to such
Closing, provided all conditions to such Closing have been satisfied on or
before such Trading Day.
Section 1.6 "Commitment Amount" shall mean the up to $20,000,000 which
the Investor has agreed to provide to the Company in order to purchase the Put
Shares pursuant to the terms and conditions of this Agreement.
Section 1.7 "Commitment Period" shall mean the period commencing on the
date of this Agreement and expiring on the earliest to occur of (x) the date on
which the Investor shall have purchased Put Shares pursuant to this Agreement
for an aggregate Purchase Price of $20,000,000, (y) the date this Agreement is
terminated pursuant to Section 2.4, or (z) the date occurring thirty (30) months
from the date of commencement of the Commitment Period.
Section 1.8 "Common Stock" shall mean the Company's common stock, par
value $.01 per share.
Section 1.9 "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2.
Section 1.10 "Effective Date" shall mean the date of this Agreement.
Section 1.11 "Escrow Agent" shall mean the escrow agent designated in
the Escrow Agreement.
Section 1.12 "Escrow Agreement" shall mean the escrow agreement in the
form attached hereto as Exhibit A.
Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.14 "Investment Amount" shall mean the dollar amount to be
invested by the Investor to purchase Put Shares with respect to any Put Date as
notified by the Company to the Investor, all in accordance with Section 2.2
hereof.
Section 1.15 "Market Price" on any given date shall mean the single
lowest closing bid price (as reported by Bloomberg L.P.) of the Common Stock on
any Trading Day during the Valuation Period relating to such date.
Section 1.16 "Material Adverse Effect" shall mean any effect on the
business, Bid Price, operations, properties, or financial condition of the
Company that is material and adverse to the Company and its subsidiaries, taken
as a whole, and/or any condition, circumstance, or situation that would prohibit
or otherwise interfere with the ability of the Company to enter into
2
<PAGE> 3
and perform any of its obligations under this Agreement, the Registration Rights
Agreement or the Escrow Agreement in any material respect.
Section 1.17 "Maximum Put Amount" shall mean the amount shown on the
following table:
<TABLE>
<CAPTION>
MAXIMUM PUT AMOUNT SCHEDULE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STOCK PRICE <50,000-100,000 100,001-150,000 150,001-200,000 200,001-ABOVE
AVG. 30 DAY AVG. 30 DAY AVG. 30 DAY AVG. 30 DAY
VOLUME VOLUME VOLUME VOLUME
- ------------------------------------------------------------------------------------------------------
0.75-3.00 $1,500,000 $2,000,000 $2,000,000 $2,500,000
- ------------------------------------------------------------------------------------------------------
3.01-4.50 $2,000,000 $2,000,000 $2,500,000 $2,500,000
- ------------------------------------------------------------------------------------------------------
4.51-6.00 $2,000,000 $2,500,000 $2,500,000 $3,000,000
- ------------------------------------------------------------------------------------------------------
6.01-7.50 $2,500,000 $2,500,000 $3,000,000 $3,000,000
- ------------------------------------------------------------------------------------------------------
7.51-9.00 $2,500,000 $3,000,000 $3,000,000 $3,500,000
- ------------------------------------------------------------------------------------------------------
9.01-Above $3,000,000 $3,000,000 $3,500,000 $3,500,000
- ------------------------------------------------------------------------------------------------------
</TABLE>
Section 1.18 "Minimum Put Amount" shall mean $250,000.
Section 1.19 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.20 "Outstanding" when used with reference to shares of Common
Stock or Capital Shares (collectively the "Shares"), shall mean, at any date as
of which the number of such Shares is to be determined, all issued and
outstanding Shares; provided, however, that "Outstanding" shall not mean any
such Shares then directly or indirectly owned or held by or for the account of
the Company.
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<PAGE> 4
Section 1.21 "Person" shall mean an individual, a corporation, a
partnership, a limited liability company, an association, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.22 "Principal Market" shall mean the NASDAQ National Market,
the NASDAQ Small-Cap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock. Principal Market shall not include the OTC Bulletin Board
without the express written consent of the Investor.
Section 1.23 "Purchase Price" shall mean with respect to Put Shares,
ninety-four percent (94%) (the "Purchase Price Percentage") of the Market Price
during the Valuation Period related to a Put (or such other date on which the
Purchase Price is calculated in accordance with the terms and conditions of this
Agreement). In the event the Market Price on the date of a Put is $5.00-$7.49
the Purchase Price Percentage shall be ninety-two percent (92%) of the Market
Price during the Valuation Period related to a Put (or such other date on which
the Purchase Price is calculated in accordance with the terms and conditions of
this Agreement). In the event the Market Price on the date of a Put is $7.50 or
greater, the Purchase Price Percentage shall be ninety percent (90%) of the
Market Price during the Valuation Period related to a Put (or such other date on
which the Purchase Price is calculated in accordance with the terms and
conditions of this Agreement). The Purchase Price shall be further reduced by
three percent (3%) for a Put related to a Special Activity if such Put is
exercised pursuant to the seven (7) Trading Day Trading Cushion allowed during a
Special Activity.
Section 1.24 "Put" shall mean each occasion the Company elects to
exercise its right to tender a Put Notice requiring the Investor to purchase
shares of the Company's Common Stock, subject to the terms of this Agreement.
Section 1.25 "Put Date" shall mean the Trading Day during the Commitment
Period that a Put Notice to sell Common Stock to the Investor is deemed
delivered pursuant to Section 2.2(b) hereof.
Section 1.26 "Put Notice" shall mean a written notice to the Investor
setting forth the Investment Amount that the Company intends to sell to the
Investor in the form attached hereto as Exhibit B.
Section 1.27 "Put Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to a Put that has occurred or may occur
in accordance with the terms and conditions of this Agreement.
Section 1.28 "Registrable Securities" shall mean the Put Shares and the
Warrant Shares until (i) all Put Shares and Warrant Shares have been disposed of
pursuant to the Registration Statement, (ii) all Put Shares and Warrant Shares
have been sold under circumstances under which all of the applicable conditions
of Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) all Put Shares and Warrant Shares have been
otherwise transferred to persons who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership
4
<PAGE> 5
for such securities not bearing a restrictive legend or (iv) such time as, in
the opinion of counsel to the Company, all Put Shares and Warrant Shares may be
sold pursuant to Rule 144(k) (or any similar provision then in effect) under the
Securities Act.
Section 1.29 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the sale and resale of
the Registrable Securities annexed hereto as Exhibit C.
Section 1.30 "Registration Statement" shall mean a registration
statement on Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC, such as Form S-1 or SB-2, for which the Company then qualifies and
which counsel for the Company shall deem appropriate, and which form shall be
available for the resale by the Investor of the Registrable Securities to be
registered thereunder in accordance with the provisions of this Agreement, the
Registration Rights Agreement, and in accordance with the intended method of
distribution of such securities), for the registration of the resale by the
Investor of the Registrable Securities under the Securities Act.
Section 1.31 "SEC" shall mean the Securities and Exchange Commission.
Section 1.32 "Securities Act" shall mean the Securities Act of 1933, as
amended.
Section 1.33 "SEC Documents" shall mean the Company's latest Form 10-K
or 10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed
thereafter, and the Proxy Statement for its latest fiscal year as of the time in
question until such time as the Company no longer has an obligation to maintain
the effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
Section 1.34 "Special Activity" shall mean any one time charge the
Company expects to incur for any reason, including, without limitation, in
connection with the acquisition of another business.
Section 1.35 "Trading Cushion" shall mean the mandatory fifteen (15)
Trading Days between Put Dates, unless waived by the Investor. Notwithstanding
the foregoing, in the event the Company gives the Investor fifteen (15) days
notice of Special Activity, the Trading Cushion shall be adjusted to seven (7)
Trading Days for a period of seven (7) consecutive weeks.
Section 1.36 "Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 1.37 "Valuation Event" shall mean an event in which the Company
at any time prior to the end of the Commitment Period takes any of the following
actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend on its Capital Shares or makes any other
distribution of its Capital Shares;
5
<PAGE> 6
(c) issues any additional Capital Shares ("Additional Capital
Shares"), otherwise than as provided in the foregoing Subsections (a) and (b)
above or (d) and (e) below, at a price per share less, or for other
consideration lower, than the Bid Price in effect immediately prior to such
issuance, or without consideration (other than pursuant to this Agreement);
(d) issues any warrants, options or other rights to subscribe for
or purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the closing price of
the Common Stock in effect immediately prior to such issuance, other than in
connection with sales or issuances of Capital Shares of the Company pursuant to
employee stock option, stock incentive or stock bonus plans;
(e) issues any securities convertible into or exchangeable for
Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
convertible or exchangeable securities shall be less than the Bid Price in
effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a dividend in liquidation
or by way of return of capital or other than as a dividend payable out of
earnings or surplus legally available for dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Company's assets (other than under the circumstances provided for in
the foregoing subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Subsections (a)
through (f) hereof, inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a Material Adverse Effect upon
the rights of the Investor at the time of a Put.
Section 1.38 "Valuation Period" shall mean the period of five (5)
trading days beginning two (2) Trading Days immediately before the Trading Day
on which a Put Notice is deemed to be delivered and ending two (2) Trading Days
immediately following such date; provided, however, that if a Valuation Event
occurs during a Valuation Period, a new Valuation Period shall begin on the
Trading Day immediately after the occurrence of such Valuation Event and end on
the fifth (5th) Trading Day thereafter.
Section 1.39 "Warrants" shall mean the 80,000 Common Stock Purchase
Warrants in the form of Exhibit D hereto to be delivered to the Investor at the
initial Closing.
Section 1.40 "Warrant Shares" shall mean the shares of Common Stock
issuable upon exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 Investments.
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<PAGE> 7
(a) Puts. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII hereof), on any
Put Date the Company may make a Put by the delivery of a Put Notice. The number
of Put Shares that the Investor shall receive pursuant to such Put shall be
determined by dividing the Investment Amount specified in the Put Notice by the
Purchase Price for such Valuation Period. The Investment Amount shall be at
least equal to the Minimum Put Amount and not exceed the Maximum Put Amount on
the date of the Put Notice.
(b) Maximum Aggregate Amount of Puts. Anything in this Agreement
to the contrary notwithstanding, unless the Company obtains shareholder approval
of this Agreement pursuant to the applicable corporate governance rules of The
Nasdaq National Market, the Company may not make a Put (or issue any additional
shares under Section 2.5) which results in the issuance of more than 19.9% of
the number of shares of Common Stock issued and outstanding on the effective
date of this Agreement pursuant to all Puts made under the terms of this
Agreement and the exercise of the Warrants.
(c) The Company shall have no obligation to issue any Put Notices
during the Commitment Period.
Section 2.2 Mechanics.
(a) Put Notice. At any time during the Commitment Period, the
Company may deliver a Put Notice to the Investor, subject to the conditions set
forth in Section 7.2; provided, however, that the Investment Amount for each Put
as designated by the Company in the applicable Put Notice shall be neither less
than the Minimum Put Amount nor more than the Maximum Put Amount.
(b) Date of Delivery of Put Notice. A Put Notice shall be deemed
delivered on (i) the Trading Day it is received by facsimile or otherwise by the
Investor if such notice is received prior to 12:00 noon Eastern Time, or (ii)
the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day
which is not a Trading Day. No Put Notice may be deemed delivered on a day that
is not a Trading Day.
Section 2.3 Closings. On or before each Closing Date for a Put the
Investor shall deliver the Investment Amount specified in the Put Notice by wire
transfer of immediately available funds to the Escrow Agent. In addition, on or
prior to the Closing Date, each of the Company and the Investor shall deliver to
the Escrow Agent all documents, instruments and writings required to be
delivered or reasonably requested by either of them pursuant to this Agreement
in order to implement and effect the transactions contemplated herein. Upon
receipt of notice from the Escrow Agent that the Escrow Agent has possession of
the Investment Amount, the Company shall, if possible, deliver the Put Shares to
the Investor's account through the Depository Trust Company DWAC system, per
written account instructions delivered by the Investor to the Company, and if
the Company is not eligible to participate in the DWAC system, to deliver to the
Escrow Agent one or more certificates, as requested by the Investor,
representing the Put Shares to be purchased by the Investor pursuant to Section
2.1 herein, registered in the name of the Investor or, at the Investor's option,
registered in the name of such
7
<PAGE> 8
account or accounts as may be designated by the Investor. Payment of funds to
the Company and delivery of the certificates to the Investor (unless delivered
by DWAC) shall occur out of escrow in accordance with the Escrow Agreement,
provided, however, that to the extent the Company has not paid the fees,
expenses, and disbursements of the Investor's counsel in accordance with Section
13.7, the amount of such fees, expenses, and disbursements shall be paid in
immediately available funds, at the direction of the Investor, to Investor's
counsel with no reduction in the number of Put Shares issuable to the Investor
on such Closing Date.
Section 2.4 Termination of Investment Obligation(a) The obligation of
the Investor to purchase shares of Common Stock shall terminate permanently
(including with respect to a Closing Date that has not yet occurred) in the
event that (i) there shall occur any stop order or suspension of the
effectiveness of the Registration Statement for an aggregate of thirty (30)
Trading Days during the Commitment Period, for any reason other than deferrals
or suspensions in accordance with the Registration Rights Agreement as a result
of corporate developments subsequent to the Effective Date that would require
such Registration Statement to be amended to reflect such event in order to
maintain its compliance with the disclosure requirements of the Securities Act
or (ii) the Company shall at any time fail to comply with the requirements of
Section 6.2, 6.3 or 6.5 or (iii) the Registration Statement shall not have
become effective by August __, 2000.
(b) The Company may terminate this Agreement if the Investor
fails to honor any Put Notice within two (2) Trading Days of the Closing Date
scheduled for such Put, and the Company notifies Investor of such termination.
The Company may also terminate this Agreement at any time upon 10 days written
notice to the investor. Upon such termination, the Company shall maintain the
Registration Statement in effect for such reasonable period, not to exceed
forty-five (45) days, as the Investor may request in order to dispose of any
remaining Put Shares.
Section 2.5 Additional Shares. In the event that (a) within five (5)
Trading Days of any Closing Date, the Company gives notice to the Investor of an
impending "blackout period" in accordance with Section 3(f) of the Registration
Rights Agreement, and (b) the Bid Price on the Trading Day immediately preceding
such "blackout period" (the "Old Bid Price") is greater than the Bid Price on
the first Trading Day following such "blackout period" (the "New Bid Price") the
Company shall issue to the Investor a number of additional shares (the "Blackout
Shares") equal to the difference between (y) the product of the number of
Registrable Securities purchased by the Investor on such most recent Closing
Date and still held by the Investor during such "blackout period" that are not
otherwise freely tradable during such "blackout period" and the Old Bid Price,
divided by the New Bid Price and (z) the number of Registrable Securities
purchased by the Investor on such most recent Closing Date and still held by the
Investor during such "blackout period" that are not otherwise freely tradable
during such "blackout period". If any such issuance would result in the issuance
of a number of shares which exceeds the number set forth in Section 2.1(b), then
in lieu of such issuance, the Company shall pay Investor the closing ask price
of the Blackout Shares on the first Trading Day following the end of the
blackout period in cash within five Trading Days.
Section 2.6 Liquidated Damages. The parties hereto acknowledge and agree
that the obligation to issue Registrable Securities under Section 2.5 above
shall constitute liquidated
8
<PAGE> 9
damages and not penalties. The parties further acknowledge that (a) the amount
of loss or damages likely to be incurred is incapable or is difficult to
precisely estimate, (b) the amounts specified in such Sections bear a reasonable
proportion and are not plainly or grossly disproportionate to the probable loss
likely to be incurred by the Investor in connection with the failure by the
Company to timely cause the registration of the Registrable Securities or in
connection with a "blackout period" under the Registration Rights Agreement, and
(c) the parties are sophisticated business parties and have been represented by
legal and financial counsel and negotiated this Agreement at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company that:
Section 3.1 Intent. The Investor is entering into this Agreement for its
own account and the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it has the capacity to protect
its own interests in connection with this transaction and is capable of
evaluating the merits and risks of an investment in Common Stock. The Investor
acknowledges that an investment in the Common Stock is speculative and involves
a high degree of risk.
Section 3.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4 Not an Affiliate. Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5 Organization and Standing. Investor is a corporation duly
organized, validly existing, and in good standing under the laws of the New
York.
Section 3.6 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (a) violate any provision of any indenture, instrument
or agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound; (b) conflict with or constitute a material default
thereunder; (c) result in the creation or
9
<PAGE> 10
imposition of any lien pursuant to the terms of any such indenture, instrument
or agreement, or constitute a breach of any fiduciary duty owed by Investor to
any third party; or (d) require the approval of any third-party (which has not
been obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which Investor is subject or to which any of
its assets, operations or management may be subject.
Section 3.7 Disclosure; Access to Information. Investor has received and
reviewed all documents, records, books and other publicly available information
pertaining to Investor's investment in the Company that have been requested by
Investor. The Company is subject to the periodic reporting requirements of the
Exchange Act, and Investor has reviewed copies of any such reports that have
been requested by it.
Section 3.8 Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 3.9 Financial Capacity. Investor currently has the financial
capacity to meet its obligations to the Company hereunder, and the Investor has
no present knowledge of any circumstances which could cause it to become unable
to meet such obligations in the future.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and Warrants to the Investor that, except as set forth on
the Disclosure Schedule prepared by the Company and delivered to the Investor:
Section 4.1 Organization of the Company. The Company is a corporation
duly incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. As of the date of this Agreement,
the Company is duly qualified and is in good standing as a foreign corporation
to do business in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those in which the failure so to qualify would not have a Material Adverse
Effect.
Section 4.2 Authority. (i) The Company has the requisite corporate power
and corporate authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement, and the
Warrants and to issue the Put Shares, the Warrants and the Warrant Shares
pursuant to their respective terms, (ii) except as contemplated by Section
2.1(b), the execution, issuance and delivery of this Agreement, the Registration
Rights Agreement, the Escrow Agreement and the Warrants by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, and (iii) this Agreement, the Registration Rights Agreement, the
Escrow Agreement and the Warrants have been duly executed and delivered by the
Company and at the initial Closing shall constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability
10
<PAGE> 11
may be limited by applicable bankruptcy, insolvency, or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application. The Company has duly and
validly authorized and reserved for issuance shares of Common Stock sufficient
in number for the issuance of the Put Shares and for the exercise of the
Warrants
Section 4.3 Capitalization. As of the January 2, 2000, the authorized
capital stock of the Company consists of 150,000,000 shares of Common Stock,
$0.01 par value per share, of which [65,874,918] shares are issued and
outstanding and 1,000,000 shares of preferred stock, par value $0.01 per share,
none of which shares are issued and outstanding. Except as set forth in the
Disclosure Schedule and as of the date of this Agreement, there are no
outstanding Capital Shares Equivalents nor any agreements or understandings
pursuant to which any Capital Shares Equivalents may become outstanding. Except
as set forth in the Disclosure Schedule or the SEC Documents, as of the date of
this Agreement, the Company is not a party to any agreement granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
non-assessable.
Section 4.4 Common Stock. The Company has registered its Common Stock
pursuant to Section 12(b) or (g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company is in
compliance with all requirements for the continued listing or quotation of its
Common Stock, and such Common Stock is currently listed or quoted on, the
Principal Market. As of the date hereof, the Principal Market is the Nasdaq
National Market and the Company has not received any notice regarding, and to
its knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
Section 4.5 SEC Documents. The Company has not provided to the Investor
any information that, according to applicable law, rule or regulation, should
have been disclosed publicly prior to the date hereof by the Company, but which
has not been so disclosed. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act, and
rules and regulations of the SEC promulgated thereunder and the SEC Documents
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not ;misleading. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the
11
<PAGE> 12
Company as of the dates thereof and the results of operations and cash flows for
the periods then ended (subject, in the case of unaudited interim statements, to
normal year-end audit adjustments). Neither the Company nor any of its
subsidiaries has any material indebtedness, obligations or liabilities of any
kind (whether accrued, absolute, contingent or otherwise, and whether due or to
become due) that would have been required to be reflected in, reserved against
or otherwise described in the financial statements or in the notes thereto in
accordance with GAAP, which was not fully reflected in, reserved against or
otherwise described in the financial statements or the notes thereto included in
the SEC Documents or was not incurred in the ordinary course of business
consistent with the Company's past practices since the last date of such
financial statements.
Section 4.6 Valid Issuances. When issued and paid for in accordance with
the terms hereof or of the Warrants, the Put Shares and the Warrant Shares will
be duly and validly issued, fully paid, and non-assessable. Neither the sales of
the Put Shares, the Warrants or the Warrant Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement, the Registration
Rights Agreement, the Escrow Agreement or the Warrants will (i) result in the
creation or imposition by the Company of any liens, charges, claims or other
encumbrances upon the Put Shares, the Warrants or the Warrant Shares or, except
as contemplated herein, any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to subscribe
for or acquire the Capital Shares or other securities of the Company. The Put
Shares, the Warrants and the Warrant Shares shall not subject the Investor to
personal liability to the Company or its creditors by reason of the possession
thereof.
Section 4.7 No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Put Shares, the Warrants and the Warrant Shares, do not and will not (i)
result in a violation of the Company's Articles of Incorporation or By-Laws or
(ii) conflict with, or constitute a material default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument, or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is a
party, or (iii) result in a violation of any federal, state or local law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or by which any material
property or asset of the Company is bound or affected, nor is the Company
otherwise in violation of, conflict with or default under any of the foregoing
(except in each case for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not have, individually or
in the aggregate, a Material Adverse Effect). The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in the
aggregate would not have a Material Adverse Effect. The Company is not required
under any Federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Put Shares or the
Warrants in accordance with the terms hereof (other than any SEC, Principal
Market or state securities filings that may be required to be made by the
Company subsequent to the Effective Date, any registration statement that may be
filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose
12
<PAGE> 13
common stock trades on the Principal Market); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Investor
herein.
Section 4.8 No Material Adverse Change. Since the date of the most
recently filed Form 10-K or Form 10-Q, no Material Adverse Effect has occurred
or exists with respect to the Company, except as disclosed in the SEC Documents.
Section 4.9 No Undisclosed Events or Circumstances. Since the date of
the most recently filed Form 10-K or Form 10-Q, no event or circumstance has
occurred or exists with respect to the Company or its businesses, properties,
prospects, operations or financial condition, that, under applicable law, rule
or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or disclosed
in the SEC Documents.
Section 4.10 Litigation and Other Proceedings. Except as disclosed in
the SEC Documents or the Disclosure Schedule, there are no lawsuits or
proceedings pending or, to the knowledge of the Company, threatened, against the
Company or any subsidiary, nor has the Company received any written or oral
notice of any such action, suit, proceeding or investigation, which could
reasonably be expected to have a Material Adverse Effect. Except as set forth in
the SEC Documents, no judgment, order, writ, injunction or decree or award has
been issued by or, to the knowledge of the Company, requested of any court,
arbitrator or governmental agency which could result in a Material Adverse
Effect.
Section 4.11 No Misleading or Untrue Communication. The Company has not
knowingly made, at any time, any oral communication in connection with the offer
or sale of the same which contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements, in
the light of the circumstances under which they were made, not misleading.
Section 4.12 Insurance. The Company and each subsidiary maintains
property and casualty, general liability, workers' compensation, environmental
hazard, personal injury and other similar types of insurance with financially
sound and reputable insurers that is adequate, consistent with industry
standards and the Company's historical claims experience. The Company has not
received notice from, and has no knowledge of any threat by, any insurer (that
has issued any insurance policy to the Company) that such insurer intends to
deny coverage under or cancel, discontinue or not renew any insurance policy
presently in force.
Section 4.13 Property. Except as disclosed in the Disclosure Schedule
and as of the date of this Agreement and except for real property owned in the
country of Malaysia, neither the Company nor any of its subsidiaries owns any
real property. Each of the Company and its subsidiaries has good and marketable
title to all personal property owned by it, free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not materially interfere with the use made and proposed to
be made of such property by the Company; and to the Company's knowledge any real
property and buildings held under lease by the Company as tenant are held by it
under valid, subsisting and enforceable
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<PAGE> 14
leases with such exceptions as are not material and do not interfere with the
use made and intended to be made of such property and buildings by the Company.
Section 4.14 Intellectual Property. Each of the Company and its
subsidiaries owns or possesses or can obtain on commercially reasonable terms,
adequate and enforceable rights to use all patents, patent applications,
trademarks, trademark applications, trade names, service marks, copyrights,
copyright applications, licenses, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted.
To the Company's knowledge, except as disclosed in the SEC Documents neither the
Company nor any of its subsidiaries is infringing upon or in conflict with any
right of any other person with respect to any Intangibles. Except as disclosed
in the SEC Documents, to the Company's knowledge, no adverse claims have been
asserted by any person to the ownership or use of any Intangibles.
Section 4.15 Internal Controls and Procedures. The Company maintains
books and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company or any subsidiary is a
party or by which its properties are bound are executed with management's
authorization; (ii) the recorded accounting of the Company's consolidated assets
is compared with existing assets at regular intervals; (iii) access to the
Company's consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
generally accepted accounting principles.
Section 4.16 Payments and Contributions. Neither the Company, any
subsidiary, nor, to its knowledge, any of its directors, officers or other
employees has (i) used any Company funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to political
activity; (ii) made any direct or indirect unlawful payment of Company funds to
any foreign or domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or
other similar payment to any person with respect to Company matters.
Section 4.17 No Misrepresentation. The representations and warranties of
the Company contained in this Agreement, any schedule, annex or exhibit hereto
and any agreement, instrument or certificate furnished by the Company to the
Investor pursuant to this Agreement, do not knowingly contain any untrue
statement of a material fact or knowingly omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
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<PAGE> 15
ARTICLE V
COVENANTS OF THE INVESTOR
Investor covenants with the Company that:
Section 5.1 Compliance with Law. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed. Without limiting the generality of the foregoing, the Investor agrees
that it will, whenever required by federal securities laws, deliver the
prospectus included in the Registration Statement to any purchaser of Put Shares
from the Investor.
Section 5.2 Short Sales. The Investor and its affiliates shall not
engage in short sales of the Company's Common Stock as defined under applicable
SEC and NASD regulations during the Commitment Period.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 Registration Rights. The Company shall cause the S-3
Registration Statement underlying the Common Stock to remain effective and in
full force and shall make all necessary amendments to keep such Registration
Statement in effect.
Section 6.2 Listing of Common Stock. The Company hereby agrees to use
its best efforts to maintain the listing of the Common Stock on a Principal
Market, and as soon as practicable (but in any event prior to the commencement
of the Commitment Period) to list the Put Shares. The Company further agrees, if
the Company applies to have the Common Stock traded on any other Principal
Market, it will include in such application the Put Shares and the Warrant
Shares and will take such other action as is necessary or desirable in the
commercially reasonable opinion of the Investor to cause the Common Stock to be
listed on such other Principal Market as promptly as possible. The Company will
take all commercially reasonable action to continue the listing and trading of
its Common Stock on the Principal Market (including, without limitation,
maintaining sufficient net tangible assets) and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the Principal Market and shall provide Investor with copies of any
correspondence to or from such Principal Market which questions or threatens
delisting of the Common Stock, within five Trading Days of the Company's receipt
thereof.
Section 6.3 Exchange Act Registration. The Company will use its
commercially reasonable best efforts to cause its Common Stock to continue to be
registered under Section 12(g) or 12(b) of the Exchange Act, will use its best
efforts to comply in all respects with its reporting and filing obligations
under the Exchange Act, and will not take any action or file any document
(whether or not permitted by Exchange Act or the rules thereunder) to terminate
or suspend such registration or to terminate or suspend its reporting and filing
obligations under said Act.
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<PAGE> 16
Section 6.4 Legends. The certificates evidencing the Common Stock to be
sold to the Investor shall be free of restrictive legends.
Section 6.5 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.6 Additional SEC Documents. During the Commitment Period, the
Company will deliver to the Investor, as and when the originals thereof are
submitted to the SEC for filing, copies of all SEC Documents so furnished or
submitted to the SEC, or else notify the Investor that such documents are
available on the EDGAR system.
Section 6.7 Notice of Certain Events Affecting Registration; Suspension
of Right to Make a Put. The Company will immediately notify the Investor upon
the occurrence of any of the following events in respect of a registration
statement or related prospectus in respect of an offering of Registrable
Securities; (i) receipt of any request for additional information from the SEC
or any other federal or state governmental authority during the period of
effectiveness of the Registration Statement the response to which would require
any amendments or supplements to the registration statement or related
prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) except as can be cured or disclosed by filing
of a report on Form 8-K or other SEC document, the happening of any event that
makes any statement made or incorporated by reference in the Registration
Statement or related prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company
will promptly make available to the Investor any such supplement or amendment to
the related prospectus. The Company shall not deliver to the Investor any Put
Notice during the continuation of any of the foregoing events.
Section 6.8 Expectations Regarding Put Notices. Within ten (10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify the Investor, in
writing, as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Put Notices.
Such notification shall constitute only the Company's good faith estimate and
shall in no way obligate the Company to raise such amount, or any amount, or
otherwise limit its ability to deliver Put Notices. The failure by the Company
to comply with this provision can be cured by the Company's notifying the
Investor, in writing, at any time as to its reasonable expectations with respect
to the current calendar quarter.
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<PAGE> 17
Section 6.9 Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity in which the Company is not the survivor (a "Consolidation
Event") unless the resulting successor or acquiring entity (if not the Company)
assumes by written instrument or by operation of law the obligation to deliver
to the Investor such shares of stock and/or securities as the Investor is
entitled to receive pursuant to this Agreement or concurrent with the
effectiveness of such Consolidation Event, this Agreement is terminated.
ARTICLE VII
CONDITIONS TO DELIVERY OF PUTS
AND CONDITIONS TO CLOSING
Section 7.1 Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock. The obligation hereunder of the Company to issue
and sell the Put Shares to the Investor incident to each Closing is subject to
the satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects as of the date of this Agreement and as of the date of each
such Closing as though made at each Closing.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Investor at or prior to such Closing, and Investor shall
provide a certificate to the Company to such effect.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver
a Put Notice and the Obligation of the Investor to Purchase Put Shares. The
right of the Company to deliver a Put Notice and the obligation of Investor
hereunder to acquire and pay for the Put Shares incident to a Closing is subject
to the satisfaction, on both (i) the date of delivery of such Put Notice and
(ii) the applicable Closing Date (each a "Condition Satisfaction Date"), of each
of the following conditions:
(a) Closing Certificate. All representations and warranties of
the Company contained herein shall remain true and correct in all material
respects as of the Closing Date as though made as of such date and the Company
shall have delivered into escrow an Officer's Certificate signed by its Chief
Executive Officer certifying that all of the Company's representations and
warranties herein remain true and correct in all material respects as of the
Closing Date and that the Company has performed all covenants and satisfied all
conditions to be performed or satisfied by the Company prior to such Closing;
(b) Blue Sky. The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Common Stock
to the Investor and by the Investor or shall have the availability of exemptions
therefrom;
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<PAGE> 18
(c) Delivery of Put Shares. Delivery into escrow or to DTC of the
Put Shares;
(d) Opinion of Counsel. Receipt by the Investor of an opinion of
counsel to the Company, in the form of Exhibit D hereto; and
(e) Transfer Agent. Delivery to the Company's transfer agent of
instructions to such transfer agent in form and substance reasonably
satisfactory to the Investor.
(f) Registration of the Common Stock with the SEC. The
Registration Statement shall have previously become effective and shall remain
effective and available for making resales of the Put Shares by the Investor on
each Condition Satisfaction Date and (i) neither the Company nor the Investor
shall have received notice that the SEC has issued or intends to issue a stop
order with respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
SEC's concerns have been addressed and the Investor is reasonably satisfied that
the SEC no longer is considering or intends to take such action), and (ii) no
other suspension of the use or withdrawal of the effectiveness of the
Registration Statement or related prospectus shall exist.
(g) Authority. The Company shall have satisfied or be in a
position to satisfy all laws and regulations pertaining to the sale and issuance
of the Put Shares.
(h) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement, the Registration Rights Agreement and
the Escrow Agreement to be performed, satisfied or complied with by the Company
at or prior to each Condition Satisfaction Date.
(i) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits or directly and materially adversely affects any of the transactions
contemplated by this Agreement, and no proceeding shall have been commenced that
may have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
(j) Adverse Changes. Since the date of filing of the Company's
most recent SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred.
(k) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock (including, without limitation, the Put Shares) is
not suspended by the SEC or the Principal Market, and the Common Stock
(including, without limitation, the Put Shares) shall have been approved for
listing or quotation on and shall not have been delisted from the Principal
Market. The issuance of shares of Common Stock with respect to the applicable
Closing, if any, shall not violate the shareholder approval requirements of the
Principal Market. The Company shall not have received any notice threatening to
delist the Common Stock from the Principal Market.
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<PAGE> 19
(l) No Knowledge. The Company has no knowledge of any event more
likely than not to have the effect of causing such Registration Statement to be
suspended or otherwise ineffective (which event is reasonably likely to occur
within the thirty (30) Trading Days following the Trading Day on which such
Notice is deemed delivered).
(m) Trading Cushion. The Trading Cushion shall have elapsed since
the next preceding Put Date.
(n) Other. On each Condition Satisfaction Date, the Investor
shall have received and been reasonably satisfied with such other certificates
and documents as shall have been reasonably requested by the Investor in order
for the Investor to confirm the Company's satisfaction of the conditions set
forth in this Section 7.2.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
Section 8.1 Due Diligence Review. The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all SEC Documents and
other filings with the SEC, and all other publicly available corporate documents
and properties of the Company as may be reasonably necessary for the purpose of
such review, and cause the Company's officers, directors and employees to supply
all such publicly available information reasonably requested by the Investor or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2 Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information to the
Investor, advisors to or representatives of the Investor unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the Investor's advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
(b) The Company represents that it does not disseminate
non-public information to any investors who purchase stock in the Company in a
public offering, to money managers or to securities analysts, provided, however,
that notwithstanding anything herein to the contrary,
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<PAGE> 20
the Company will, as hereinabove provided, immediately notify the advisors and
representatives of the Investor and, if any, underwriters, of any event or the
existence of any circumstance (without any obligation to disclose the specific
event or circumstance) of which it becomes aware, constituting non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed, or incorporated by reference, in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein, or
incorporated by reference, in order to make the statements, therein in light of
the circumstances in which they were made, not misleading. Nothing contained in
this Section 8.2 shall be construed to mean that such persons or entities other
than the Investor (without the written consent of the Investor prior to
disclosure of such information) may not obtain non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.
ARTICLE IX
TRANSFER AGENT INSTRUCTIONS
Section 9.1 Transfer Agent Instructions. Upon each Closing, the Company
will issue to the transfer agent for its Common Stock (and to any substitute or
replacement transfer agent for its Common Stock upon the Company's appointment
of any such substitute or replacement transfer agent) instructions to deliver
the Put Shares without restrictive legends to the Escrow Agent, or if the
Transfer Agent is a participant in the DTC DWAC system, directly to the
Investor.
Section 9.2 No Legend or Stock Transfer Restrictions. No legend shall be
placed on the share certificates representing the Put Shares and no instructions
or "stop transfer orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto.
Section 9.3 Investor's Compliance. Nothing in this Article shall affect
in any way the Investor's obligations under any agreement to comply with all
applicable securities laws upon resale of the Put Shares.
ARTICLE X
CHOICE OF LAW
Section 10.1 Governing Law/Arbitration. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
or any Exhibit attached hereto shall be
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<PAGE> 21
submitted to arbitration under the American Arbitration Association (the "AAA")
in New York City, New York, and shall be finally and conclusively determined by
the decision of a board of arbitration consisting of three (3) members
(hereinafter referred to as the "Board of Arbitration") selected as according to
the rules governing the AAA. The Board of Arbitration shall meet on consecutive
business days in New York City, New York, and shall reach and render a decision
in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York. To the extent practical, decisions of the
Board of Arbitration shall be rendered no more than thirty (30) calendar days
following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. The Board of Arbitration shall be authorized and is
directed to enter a default judgment against any party refusing to participate
in the arbitration proceeding within thirty days of any deadline for such
participation. Any decision made by the Board of Arbitration (either prior to or
after the expiration of such thirty (30) calendar day period) shall be final,
binding and conclusive on the parties to the dispute, and entitled to be
enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The prevailing party shall be awarded its costs,
including attorneys' fees, from the non-prevailing party as part of the
arbitration award. Any party shall have the right to seek injunctive relief from
any court of competent jurisdiction in any case where such relief is available.
The prevailing party in such injunctive action shall be awarded its costs,
including attorney's fees, from the non-prevailing party.
ARTICLE XI
ASSIGNMENT
Section 11.1 Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person except by operation of law. Notwithstanding the foregoing, upon the prior
written consent of the Company, which consent shall not unreasonably be withheld
or delayed in the case of an assignment to an affiliate of the Investor, the
Investor's interest in this Agreement may be assigned at any time, in whole or
in part, to any other person or entity (including any affiliate of the Investor)
who agrees to make the representations and warranties contained in Article III
and who agrees to be bound hereby.
ARTICLE XII
NOTICES
Section 12.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation
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<PAGE> 22
generated by the transmitting facsimile machine, at the address or number
designated below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by reputable courier service, fully prepaid, addressed to
such address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be:
If to Komag, Incorporated: 1710 Automation Parkway
San Jose, CA 95131
Attention: Edward H. Siegler, V.P.
and CFO
Telephone: (408) 576-2000
Facsimile: (408) 944-9234
With a copy to: Kathy Bloch, Esq.
(shall not constitute notice) Wilson Sonsini Goodrich & Rosati,
P.C.
650 Page Mill Rd.
Palo Alto, CA 94304
Telephone: (650) 493-9300
Facsimile: (650) 461-5375
If to the Investor: FANCYVIEW INT'L, LTD.
Attention: Dr. Batliner & Partner
Aeustrasse 74
FI-9490
Vaduz, Liechtenstein
Telephone:
Facsimile: 011-4175-2360-405
With a copy to: Joseph A. Smith, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
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<PAGE> 23
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2 Entire Agreement. This Agreement, the Exhibits hereto,
which include, but are not limited to the Escrow Agreement, the Registration
Rights Agreement and the Warrants, set forth the entire agreement and
understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits to this
Agreement are incorporated herein by this reference and shall constitute part of
this Agreement as is fully set forth herein.
Section 13.3 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 13.4 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 13.5 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.
Section 13.6 Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Put Shares and (ii) in the case of
any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form and amount to
the Company (which shall not exceed that required by the Company's transfer
agent in the ordinary course) or (iii) in the case of any such mutilation, on
surrender and cancellation of such certificate, the Company at the Investor's
expense will execute and deliver, in lieu thereof, a new certificate of like
tenor.
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<PAGE> 24
Section 13.7 Fees and Expenses. Each of the Company and the Investors
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the fees, expenses and
disbursements of Investors' counsel in the amount of $10,000 plus $1,500 per
Closing of a Put.
Section 13.8 Brokerage. Each of the parties hereto represents that it
has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other party.
The Company on the one hand, and the Investor, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 13.9 Publicity. The Company agrees that it will not issue any
press release or other public announcement of the transactions contemplated by
this Agreement without the prior consent of the Investor, which shall not be
unreasonably withheld nor delayed by more than two (2) Trading Days from its
receipt of such proposed release; provided, however, that if the Company is
advised by its outside counsel that it is required by law or the applicable
rules of any Principal Market to issue any such press release or public
announcement, then, it may do so without the prior consent of the Investor,
although it shall be required to provide prior notice (which may be by
telephone) to the Investor that it intends to issue such press release or public
announcement. No release shall name the Investor without its express consent.
Section 13.10 Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the initial
Closing set forth in Article I of the Escrow Agreement.
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<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Line of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
KOMAG, INCORPORATED
By:
---------------------------------
Edward H. Siegler, V.P. and CFO
FANCYVIEW INT'L, LTD.
By:
---------------------------------
Name:
Title:
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-03-2000
<PERIOD-END> APR-02-2000
<CASH> 38,126
<SECURITIES> 33,700
<RECEIVABLES> 40,233
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0
0
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</TABLE>
