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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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IMPACT SYSTEMS, INC.
(NAME OF SUBJECT COMPANY)
IMPACT SYSTEMS, INC.
(NAMES OF PERSON(S) FILING STATEMENT)
COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS OF SECURITIES)
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452913 10 6
(CUSIP NUMBER OF CLASS OF SECURITIES)
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KENNETH P. OSTROW
PRESIDENT AND CHIEF EXECUTIVE OFFICER
IMPACT SYSTEMS, INC.
14600 WINCHESTER BOULEVARD
LOS GATOS, CALIFORNIA 95030
(408) 379-0910
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON
BEHALF OF THE PERSON(S) FILING STATEMENT)
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WITH COPIES TO:
ARTHUR F. SCHNEIDERMAN, ESQ.
BLAIR W. STEWART, JR., ESQ.
SELIM DAY, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(650) 493-9300
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Impact Systems, Inc., a California
corporation (the "Company"). The address of the principal executive offices of
the Company is 14600 Winchester Boulevard, Los Gatos, California 95030. The
title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (this "Schedule 14D-9"
or the "Statement") relates is the common stock, without par value, of the
Company (the "Common Stock"). Unless the context otherwise requires, as used
herein the term "Shares" shall mean shares of Common Stock.
ITEM 2. TENDER OFFER OF PURCHASER.
This Statement relates to the cash tender offer (the "Offer") described in
the Tender Offer Statement on Schedule 14D-1, dated December 18, 1997 (as
amended or supplemented, the "Schedule 14D-1"), filed by Voith Sulzer Paper
Technology North America Inc., a Delaware corporation ("Parent"), and its wholly
owned subsidiary, Voith Sulzer Acquisition Corp., a California corporation ( the
"Purchaser"), with the Securities and Exchange Commission (the "SEC"), relating
to an offer to purchase all of the issued and outstanding Shares at $2.75 per
Share, net to the seller in cash, upon the terms and subject to the conditions
set forth in the Purchaser's Offer to Purchase, dated December 18, 1997 (the
"Offer to Purchase"), and in the related Letter of Transmittal (which together
with any amendments or supplements thereto constitute the "Offer Documents").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
December 11, 1997 (the "Merger Agreement"), by and among Parent, the Purchaser
and the Company. Pursuant to the Merger Agreement, as soon as practicable after
completion of the Offer and satisfaction or waiver, if permissible, of all
conditions to the Merger Agreement, the Purchaser will be merged with and into
the Company (the "Merger"), and the Company will become a wholly owned
subsidiary of Parent (the "Surviving Corporation"). At the effective time of the
Merger (the "Effective Time"), each Share issued and outstanding immediately
prior to the Effective Time (other than Shares held by Parent, the Purchaser,
any wholly owned subsidiary of Parent or the Purchaser, in the treasury of the
Company or by any wholly owned subsidiary of the Company and other than Shares
held by shareholders who will have properly exercised their dissenters' rights,
if any, under California law) will be converted into the right to receive $2.75
in cash or any greater amount paid pursuant to the Offer (the "Offer Price")
without interest. The Merger Agreement is summarized in Item 3 of this Schedule
14D-9.
The Offer Documents indicate that the principal executive offices of Parent
and the Purchaser are located at 2200 North Roemer Road, Appleton, Wisconsin
54913.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and certain of its executive officers, directors
or affiliates are described in the Company's Proxy Statement, dated September 9,
1997, relating to its October 15, 1997 Annual Meeting of Shareholders (the
"Proxy Statement"), under the headings "Security Ownership," "Director
Compensation," "Executive Officer Compensation," "Option Grants in Last Fiscal
Year," "Option Exercises and Holdings," "Severance Agreements," and "Certain
Transactions -- Working Agreement." A copy of such portions of the Proxy
Statement has been filed as Exhibit 13 to this Schedule 14D-9 and is
incorporated herein by reference.
Stock Option
The Merger Agreement provides that the Company will take all actions
necessary so that, immediately prior to the Effective Time, (i) each outstanding
option to purchase Shares granted under the Company's Discount Stock Option
Plan, 1995 Incentive Stock Option Plan, 1985 Incentive Stock Option Plan and
1982 Incentive Stock Option Plan (collectively, the "Option Plans"), whether or
not then exercisable or vested, will become fully exercisable and vested, (ii)
each option which is then outstanding will be cancelled and (iii) in
consideration of such cancellation, and except to the extent that Parent or the
Purchaser and the holder of any
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option otherwise agree immediately following consummation of the Merger, the
Company will promptly pay to such holders of options an amount in respect
thereof equal to the product of (x) the excess of $2.75 over the exercise price
thereof and (y) the number of Shares subject thereto.
Certain Agreements and Plans
Parent requested, as an inducement for Parent and the Purchaser to enter
into the Merger Agreement, that the Company modify or terminate certain existing
agreements with affiliates of the Company, as well as enter into several new
arrangements. These arrangements are described below.
The Company has entered into an employment agreement with Kenneth P.
Ostrow, President and Chief Executive Officer of the Company. Under the
employment agreement, Mr. Ostrow is entitled to an initial, annual base salary
of $400,000 with guaranteed increases of at least three percent (3%) per year
for the term of his employment, which ends on September 30, 2001. In addition,
Mr. Ostrow is entitled to a guaranteed bonus of $650,000 payable on September
30, 2001, is eligible for a discretionary bonus as determined by the Board of
Directors, will participate in the Incentive Bonus Plan and is entitled to
certain other fringe benefits. Mr. Ostrow may also serve on the boards of
directors of other companies and may perform consulting services not
inconsistent with his obligations to the Company, provided that such activities
do not exceed 10% of his business time and do not detract from his primary
responsibilities to the Company. If Mr. Ostrow's employment is involuntarily
terminated for other than just cause or as a result of (i) a five percent (5%)
or greater reduction in his base compensation, (ii) a reduction in his overall
benefits (other than salary or bonus), (iii) a material breach by the Company of
any material provision of his employment agreement, (iv) a material diminution
of his responsibilities, authority or duties, (v) the relocation of his base of
employment to a location more than 25 miles from his present place of employment
or (vi) the discontinuation of certain other benefits prior to the end of the
term of his employment agreement, he will be entitled to severance payments
equivalent to all unpaid amounts he would be entitled to receive under the
employment agreement as if he had continued in the employ of the Company for the
remainder of the term of the employment agreement, and he will continue to be
entitled to receive the insurance coverage provided to him and his dependents
prior to his termination for a certain period. Furthermore, if Mr. Ostrow's
employment is terminated for death or just cause, he will be entitled to receive
the guaranteed bonus of $650,000 plus up to an additional $150,000 depending on
the date of termination.
The Company has also entered into a new employment agreement with each of
Robert M. Gorski, Chief Financial Officer of the Company and John F. Lynch, III,
Vice President, Operations of the Company. Under these employment agreements,
Mr. Gorski and Mr. Lynch are entitled to an initial, annual base salary of
$250,000 and $175,000, respectively, with guaranteed increases of at least three
percent (3%) per year for the terms of their employment, which end on September
30, 2001. In addition, Mr. Gorski and Mr. Lynch are entitled to a guaranteed
bonus under the Incentive Bonus Plan of $400,000 and $290,000, respectively,
payable on September 30, 2001, they are eligible for an annual bonus to be
determined by the Compensation Committee of the Board of Directors, and they are
eligible to participate in the Company's employee benefit plans. If either Mr.
Gorski's or Mr. Lynch's employment is involuntarily terminated for other than
just cause or as a result of (i) a five percent (5%) or greater reduction in his
base compensation, (ii) a reduction in his overall benefits (other than salary
or bonus), (iii) a material breach by the Company of any material provision of
his employment agreement, (iv) a material diminution of his responsibilities,
authority or duties or (v) the relocation of his base of employment to a
location more than 25 miles from his present place of employment, such employee
will be entitled to severance payments equivalent to all unpaid amounts they
would be entitled to receive under his employment agreement as if he had
continued in the employ of the Company for the remainder of the term of his
employment agreement and to continue to receive the insurance coverage provided
to him and his dependents prior to his termination for a certain time period
following termination. Pursuant to the employment agreements, both Mr. Gorski's
and Mr. Lynch's General Change in Control Agreements (described in the Company's
Proxy Statement dated September 9, 1997 for its October 15, 1997 Annual Meeting
of Shareholders under the caption "Severance Agreements") will be superseded as
of the Effective Time of the Merger. Messrs. Gorski and Lynch will participate
in the Incentive Bonus Plan described below.
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The employment agreements of Mr. Ostrow, Mr. Gorski and Mr. Lynch will
become effective at the Effective Time. Parent has agreed to assume and perform
the obligations of the Company under the employment agreements of Mr. Ostrow,
Mr. Gorski and Mr. Lynch at the Effective Time.
Incentive Bonus Plan. The Company established a new Bonus Plan to provide
certain employees of the Company who will perform services for the Company after
the Merger with an incentive for continued services to the Company.
The Bonus Plan will be administered by the Company's Board of Directors.
The Bonus Plan will become effective October 1, 1998 and will terminate on the
earlier of (i) September 30, 2002 or (ii) the date on which all amounts due
under the Bonus Plan are paid.
Eligible employees under the Bonus Plan include Mr. Ostrow, Mr. Gorski and
Mr. Lynch and other employees to be designated by the Company's management.
Eligible employees are entitled to receive (i) the Minimum Bonus Amount, as set
forth in the Bonus Plan, and (ii) a pool percentage payment, if any, as
described in the Bonus Plan, (collectively (i) and (ii) are referred to as the
"Bonus Amount"). The determination of the Bonus Pool Amount will be made by
reference to the average Company net earnings before interest, all taxes and
amortization, subject to certain provisions in the Bonus Plan attained in any
consecutive two financial or business years commencing after the Effective Time
and ending on or prior to September 30, 2002. Within three months after the
audited accounts are available, a decision (which will be irrevocable) to select
the prior two year period will be made by Mr. Ostrow or his designee. The Bonus
Amounts may be paid in cash within ninety (90) days of September 30, 2001 but in
no event will the Bonus Amounts be paid more than ninety (90) days after
September 30, 2002; provided, however, that in any event the Minimum Bonus
Amount will be paid within ninety (90) days of September 30, 2001.
Notwithstanding the foregoing, the Minimum Bonus Amount will be due and payable
to an eligible employee immediately following certain specified events. The
Minimum Bonus Amounts for Mr. Ostrow, Mr. Gorski and Mr. Lynch are zero,
$400,000 and $290,000, respectively. Mr. Ostrow, Mr. Gorski and Mr. Lynch will
participate in the Bonus Pool Amount in excess of the aggregate Minimum Bonus
Amounts for all participants ($1,400,000) at the rate of 40%, 10% and 8%,
respectively.
In the event an eligible employee voluntarily terminates his or her
employment with the Company for any reason prior to September 30, 2001, such
eligible employee will not be entitled to any payment under the Bonus Plan. In
the event of the death or permanent disability of an eligible employee prior to
September 30, 2001, the employee, his estate or personal representative will
have the right to receive a pro rata portion of the Minimum Bonus Amount of such
eligible employee. The Minimum Bonus Amount will be due and payable to an
eligible employee in the event (i) the eligible employee's employment is
terminated by the Company or Parent for any reason, (ii) the eligible employee's
base of employment is moved more than 25 miles from its current location, or
(iii) a successor company fails or refuses to assume the Company's obligations
under the Bonus Plan.
Noncompetition Agreement. Parent and Mr. Ostrow entered into a Noncompetion
Agreement on December 11, 1997 which becomes effective at the Effective Time.
Pursuant to the Noncompetition Agreement, Parent has agreed to (i) purchase any
of the shares of the Company owned by Mr. Ostrow pursuant to the Merger
Agreement and (ii) pay Mr. Ostrow $700,000 on the Effective Time, $432,000 on
the first anniversary of the Effective Time and $467,000 on the second
anniversary of the Effective Time. Mr. Ostrow has agreed that during the period
beginning on the Effective Time and continuing for five years thereafter, he
will not enter into the employ of, or render services to, any firm, corporation,
or organization in a capacity that gives him responsibility for that segment of
such entity's business which derives more than ten percent of its annual
revenues from sales of products which directly compete with products which were
offered by the Company at the Effective Time. Mr. Ostrow's agreement not to
compete extends to all of the United States and all other nations outside the
United States in which Parent or the Company engaged in sales or otherwise
conducted business during the two years prior to the Effective Time.
Senior Executive Change of Control Plan. Mr. Ostrow is the only participant
under the Senior Executive Change in Control Plan (the "Senior Plan"). Upon a
change in control, Mr. Ostrow will be entitled to receive a lump sum cash
payment of $500,000 from the Company in the event of a change of control as
defined in the
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Senior Plan. In addition, upon a change in control, Mr. Ostrow will be entitled
to exercise all outstanding stock options which he holds, regardless of whether
such stock options are otherwise exercisable in accordance with their terms. For
purposes of the Senior Plan a change in control is defined to include (i) a
business combination which has been approved by the requisite vote of
shareholders, (ii) the acquisition of 35% or more of the Company's outstanding
voting stock, or (iii) certain changes in the composition of the Company's Board
of Directors.
Merger Agreement
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions of the
Merger Agreement and is qualified in its entirety by reference to the full text
of the Merger Agreement, which is incorporated by reference and a copy of which
has been filed with the SEC as an exhibit to the Schedule 14D-9.
The Offer. The Merger Agreement provides that the Purchaser will, and
Parent will cause the Purchaser to, commence (within the meaning of Rule
14d-2(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) as promptly as practicable, but in any event not later than December 18,
1997, the Offer for any and all outstanding Shares not owned by the Purchaser at
the Offer Price applicable to such Shares, net to the seller in cash. The
initial expiration date for the Offer is the 20th business day from and after
the date the Offer is commenced, including the date of commencement as the first
business day in accordance with Rule 14d-2 under the Exchange Act (the "Initial
Expiration Date"). The obligation of Parent and the Purchaser to accept for
payment or pay for any Shares tendered pursuant to the Offer is subject only to
the satisfaction or waiver of the conditions set forth in the conditions of the
offer contained in Annex I to the Merger Agreement. Without the prior written
consent of the Company, the Purchaser will not (i) decrease the Offer Price or
change the form of consideration payable in the Offer, (ii) decrease the number
of Shares sought to be purchased in the Offer (except as otherwise set forth in
the Merger Agreement, (iii) change the conditions set forth in the conditions of
the Offer, (iv) extend the expiration date of the Offer (except as required by
applicable rules and regulations of the SEC and except that the Purchaser may in
its discretion extend the expiration date of the Offer for up to ten business
days after the Initial Expiration Date, and may extend the Offer thereafter for
longer periods (not to exceed 90 calendar days from the date of commencement
(unless, in the Company's sole discretion, the Company requests that the
expiration date of the Offer be further extended, up to a maximum of 120
calendar days) from the date of commencement in the event that any condition to
the Offer is not satisfied or waived), (v) impose additional conditions to the
Offer or (vi) amend any other term of the Offer in any manner adverse to the
holders of any Shares.
Subject to the limitations set forth in clause (iv) above, in the event the
Minimum Condition (as defined in the Conditions of the Offer) is not satisfied
on any scheduled expiration date of the Offer, the Purchaser may either
(i) extend the Offer pursuant to clause (iv) of the preceding sentence or
(ii) amend the Offer to provide that, in the event (x) the Minimum Condition is
not satisfied at the next scheduled expiration date of the Offer (after giving
pro forma effect to the potential issuance of any Shares issuable upon exercise
of the Stock Option Agreement (as defined below)) and (y) the number of Shares
tendered pursuant to the Offer and not withdrawn as of such next scheduled
expiration date is more than 50% of the then outstanding Shares, the Purchaser
must waive the Minimum Condition and amend the Offer to reduce the number of
Shares subject to the Offer to a number of Shares that when added to the Shares
then owned by the Purchaser will equal 49.9999% of the Shares then outstanding
(the "Revised Minimum Number") and, if a greater number of Shares is tendered
into the Offer and not withdrawn, purchase, on a pro rata basis, the Revised
Minimum Number of Shares (it being understood that the Purchaser may, but will
not in any event be required to, accept for payment, or pay for, any Shares if
less than the Revised Minimum Number of Shares are tendered pursuant to the
Offer and not withdrawn at the applicable expiration date).
Subject to the terms of the Offer and the Merger Agreement and the
satisfaction or waiver of all the conditions of the Offer set forth in the
Conditions of the Offer as of any expiration date, the Purchaser will accept for
payment and pay for all Shares validly tendered and not withdrawn pursuant to
the Offer as soon as practicable after such expiration date of the Offer.
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Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties. These include representations and
warranties by the Company with respect to, among other things, (i) organization
and qualification; subsidiaries, (ii) articles of incorporation and by-laws,
(iii) capitalization, (iv) authority, (v) no conflict; required filings and
consents, (vi) SEC reports and financial statements, (vii) information, (viii)
tax matters, (ix) no litigation, (x) compliance with laws and orders, (xi) title
to properties, (xii) labor matters, (xiii) employee benefit plans, (xiv) trade
rights, (xv) material adverse change, (xvi) certain approvals, (xvii) brokers,
(xviii) state takeover statutes; applicability of articles of incorporation;
required vote, and (xix) year 2000 compliance.
Parent and the Purchaser also have made certain representations and
warranties with respect to, among other things, (i) organization and
qualification, (ii) authority, (iii) no conflict; required filings and consents,
(iv) information, (v) financing, (vi) brokers, (vii) purchaser, and (viii) no
share acquisition.
No Solicitation. Pursuant to the Merger Agreement, the Company covenanted
and agreed with, Parent and the Purchaser that neither the Company nor any of
its subsidiaries has any agreement, arrangement or understanding with any
potential acquiror that, directly or indirectly, would be violated, or require
any payments, by reason of the execution, delivery and/or consummation of the
Merger Agreement and the Stock Option Agreement. The Company shall, and shall
use its commercially reasonable best efforts to cause its subsidiaries and their
officers, directors, employees, investment bankers, attorneys and other agents
and representatives of the Company and its subsidiaries to, immediately cease
any existing discussions or negotiations with any person (including a "person"
as defined in Section 13(d)(3) of the Exchange Act) other than Parent or the
Purchaser (a "Third Party") heretofore conducted with respect to any Acquisition
Transaction (as defined below). The Company shall not, and shall use its
commercially reasonable best efforts to cause the subsidiaries and the officers,
directors, employees, investment bankers, attorneys and other agents and
representatives of the Company and its subsidiaries not to, directly or
indirectly, (x) solicit, initiate, continue, facilitate or encourage (including
by way of furnishing or disclosing non-public information) any inquiries,
proposals or offers from any Third Party with respect to, or that could
reasonably be expected to lead to, any acquisition or purchase of a material
portion of the assets or business of, or any significant equity interest in
(including by way of a tender offer), or any amalgamation, merger, consolidation
or business combination with, or any recapitalization or restructuring, or any
similar transaction involving, the Company or any of its subsidiaries (the
foregoing being referred to collectively as an "Acquisition Transaction") or (y)
negotiate, explore or otherwise communicate in any way with any Third Party with
respect to any Acquisition Transaction or enter into, approve or recommend any
agreement, arrangement or understanding requiring the Company to abandon,
terminate or fail to consummate the Offer and/or the Merger or any other
transaction contemplated thereby or by the Stock Option Agreement.
Notwithstanding anything to the contrary in the foregoing, the Company may in
response to an unsolicited written proposal with respect to an Acquisition
Transaction involving the acquisition of all of the Shares (or all or
substantially all of the assets of Company and its subsidiaries) from a Third
Party, (which proposal (A) is not subject to a financing condition and is from a
person that a nationally recognized investment bank advises in writing is
financially capable of consummating such proposal or (B) is subject to
financing, but is from a person that a nationally recognized investment bank
advises in writing is financially capable of achieving such financing to
consummate such proposal), (i) furnish or disclose non-public information to
such Third Party and (ii) negotiate, explore or otherwise communicate with such
Third Party, in each case only if (A) after being advised in writing by its
outside counsel with respect to its fiduciary obligations to the Company's
shareholders under applicable law, the Board of Directors determines in good
faith that taking such action is necessary in the exercise of its fiduciary
obligations under applicable law (the proposal with respect to an Acquisition
Transaction meeting such requirements being a "Superior Proposal"), (B) prior to
furnishing or disclosing any non-public information to, or entering into
discussions or negotiations with, such Third Party, the Company receives from
such Third Party an executed confidentiality agreement with terms no less
favorable in the aggregate to Company than those contained in the
confidentiality agreement between Parent and the Company, but which
confidentiality agreement shall not provide for any exclusive right to negotiate
with the Company or any payments by the Company and (C) the Company advises
Parent of all such non-public information delivered to such Third Party
concurrently with such delivery; provided, however, that the Company will not,
and will cause its affiliates not to, enter into a definitive agreement with
respect to a Superior Proposal unless the
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Company first complies with the immediately following paragraph, including the
last sentence thereof, and then unless (A) the Company concurrently terminates
the Merger Agreement in accordance with the terms thereof, pays any amounts
required under Article VIII of the Merger Agreement and (B) such agreement
permits the Company, subject to the fiduciary duties of the Board of Directors,
to terminate it if it receives a Superior Proposal, such termination and related
provisions to be on terms no less favorable to the Company, including as to fees
and reimbursement of expenses, as those contained in the Merger Agreement.
The Merger Agreement provides that the Company will promptly (but in any
event within one business day of the Company becoming aware of same) advise
Parent of the receipt by the Company, any of the subsidiaries or any of the
Company's bankers, attorneys or other agents or representatives of any inquires
or proposals relating to an Acquisition Transaction and any actions taken
pursuant to the immediately preceding paragraph. The Company shall promptly (but
in any event within three business days of the Company becoming aware of same)
provide Parent with a copy of any such inquiry or proposal in writing and a
written statement with respect to any such inquiries or proposals not in
writing, which statement shall include the identity of the parties making such
inquiries or proposal and the material terms thereof; provided, however, that
the Company shall not be obligated to provide a copy of, or a written statement
with respect to, any such inquiry if, after being advised in writing by its
outside legal counsel with respect to its fiduciary obligations, the Board of
Directors determines that not providing such copy or written statement is
necessary to allow the Board of Directors to fulfill its fiduciary duties to the
Company's shareholders under applicable law. The Company will, from time to
time, promptly (but in any event within one business day of the Company becoming
aware of same) inform Parent of the status and content of and material
developments (including the calling of meetings of the Board of Directors to
take action with respect to such Acquisition Transaction) with respect to any
discussions regarding any Acquisition Transaction with a Third Party; provided,
however, that the Company will not be obligated to make such disclosure if,
after being advised in writing by its outside legal counsel with respect to its
fiduciary obligations, the Board of Directors determines that not providing such
disclosure is necessary to allow the Board of Directors to fulfill its fiduciary
duties to the Company's shareholders under applicable law. For the avoidance of
doubt, the Company agrees that it will not enter into any agreement with respect
to a Superior Proposal unless and until Parent has been given the opportunity at
least six business days prior to the entering into such agreement to match the
terms of such agreement.
Shareholders' Meeting. The Merger Agreement provides that if required by
the Company's articles of incorporation and/or applicable law in order to
consummate the Merger, the Company, acting through its Board of Directors, will,
in accordance with applicable law: (i) duly call, give notice of, convene and
hold a special meeting of the Company's shareholders as soon as practicable
following the acceptance for payment of and payment for Shares by the Purchaser
pursuant to the Offer for the purpose of considering and taking action upon the
Merger Agreement; (ii) prepare and file with the SEC a preliminary proxy
statement relating to the Merger and the Merger Agreement and use its
commercially reasonable best efforts (x) to obtain and furnish the information
required to be included by the SEC in the proxy statement (as hereinafter
defined) and, after the consultation with Parent, to respond promptly to any
comments made by the SEC with respect to the preliminary proxy statement and,
subject to compliance with SEC rules and regulations, to cause a definitive
proxy statement to be mailed to the Company's shareholders and (y) to obtain the
necessary approvals of the Merger and the Merger Agreement by the Company's
shareholders; and (iii) subject to the fiduciary obligations of the Board of
Directors under applicable law, include in the definitive proxy statement the
recommendation of the Board of Directors that the Company's shareholders vote in
favor of the approval of the Merger and the adoption of the Merger Agreement.
Parent agreed that it will (i) vote, or cause to be voted, all of the
Shares then owned by it, the Purchaser or any of its other subsidiaries in favor
of the approval of the Merger and the adoption of the Merger Agreement and (ii)
take or cause to be taken all additional corporate actions necessary for the
Purchaser to adopt and approve the Merger Agreement and the transactions
contemplated thereby.
In the event that Parent, the Purchaser or any other subsidiary of Parent
acquires at least 90% of the outstanding Shares pursuant to the Offer (including
as a result of the exercise of the Stock Option Agreement) and prior
transactions, all parties to the Merger Agreement agree to take all necessary
and appropriate action to cause the Merger to become effective as soon as
practicable after the acceptance for
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payment of and payment for Shares by the Purchaser pursuant to the Offer without
a meeting of shareholders, in accordance with Section 1110 of the General
Corporation Laws of the State of California (the "GCL").
Board Representation. The Merger Agreement provides that, subject to
compliance with applicable law, promptly upon the payment by the Purchaser for
Shares pursuant to the Offer, and from time to time thereafter, the Purchaser
will be entitled to designate such number of directors, rounded up to the next
whole number, on the Board of Directors of the Company as is equal to the
product of the total number of directors on the Board of Directors of the
Company (determined after giving effect to the directors elected pursuant to
this sentence) multiplied by the percentage that the aggregate number of Shares
beneficially owned by the Purchaser or its affiliates bears to the total number
of Shares then outstanding, and the Company will, subject to compliance with
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, upon
request of the Purchaser, promptly take all actions necessary to cause the
Purchaser's designees to be so elected, including, if necessary, seeking the
resignations of one or more existing directors; provided, however, that prior to
the Effective Time the Board of Directors of the Company will always have at
least two members who are neither officers, directors, shareholders or designees
of the Purchaser or any of its affiliates ("Purchaser Insiders"); and provided
further, however, that the Purchaser will be entitled to designate a number of
directors equal to or greater than 50% of the total number of directors only if
the Purchaser acquires 90% or more of the outstanding Shares pursuant to the
Offer. If the number of directors who are not Purchaser Insiders is reduced
below two for any reason prior to the Effective Time, then the remaining
directors who are not Purchaser Insiders (or if there is only one director who
is not a Purchaser Insider, the remaining director who is not a Purchaser
Insider) will be entitled to designate a person (or persons) to fill such
vacancy (or vacancies) who is not an officer, director, shareholder or designee
of the Purchaser or any of its affiliates and who will be a director not deemed
to be a Purchaser Insider for all purposes of the Merger Agreement. The
Company's obligation to appoint the Purchaser's designees to the Board of
Directors of the Company will be subject to Section 14(f) of the Exchange Act
and Rule 14f-1 thereunder. The Company will promptly take all actions required
pursuant to such Section and Rule in order to fulfill its obligations. From and
after the election or appointment of the Purchaser's designees and prior to the
effective time of the Merger, any amendment or termination of the Merger
Agreement by the Company, any extension by the Company of the time for the
performance of any of the obligations or other acts of Parent or the Purchaser
or waiver of any of the Company's rights under the Merger Agreement, or any
other action taken by the Board of Directors in connection with the Merger
Agreement, will require the concurrence of a majority of the directors of the
Company then in office who are not Purchaser Insiders.
Consideration to be Paid in the Merger. The Merger Agreement provides that,
at the effective time of the Merger, by virtue of the Merger and without any
action on the part of the holders thereof, each Share issued and outstanding
immediately prior to the effective time of the Merger (other than any Shares
held by Parent, the Purchaser, any wholly owned subsidiary of Parent or the
Purchaser, in the treasury of the Company or by any wholly owned subsidiary of
the Company, which Shares, by virtue of the Merger and without any action on the
part of the holder thereof, shall be canceled and retired and will cease to
exist with no payment being made with respect thereto, and other than Dissenting
Shares (as defined in the Merger Agreement), shall be converted into the right
to receive $2.75. At the effective time of the Merger, the shares of common
stock, no par value, of the Purchaser issued and outstanding immediately prior
to the effective time of the Merger will, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into and become the
number of validly issued, fully paid and nonassessable shares of common stock,
no par value, of the surviving corporation in the Merger equal to the number of
Shares outstanding on a fully diluted basis immediately prior to the effective
time of the Merger.
Company Option Plans. The Merger Agreement provides that the Company will
take all actions necessary so that, immediately prior to the Effective Time, (A)
each outstanding option to purchase Common Shares granted under the Company's
Option Plans, whether or not then exercisable or vested, will become fully
exercisable and vested, (B) each option which is then outstanding will be
cancelled and (C) in consideration of such cancellation, and except to the
extent that Parent or the Purchaser and the holder of any option otherwise agree
immediately following consummation of the Merger, the Company will promptly pay
to such holders of options an amount in respect thereof equal to the product of
(1) the excess of the Merger
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<PAGE> 9
Price over the exercise price thereof and (2) the number of Shares subject
thereto (such payment to be net of taxes required by law to be withheld with
respect thereto); provided that the foregoing will be subject to the obtaining
of any necessary consents of holders of options, it being agreed that the
Company and Parent will use their commercially reasonable best efforts to obtain
any such consents.
Indemnification and Insurance. The Merger Agreement provides as follows:
(a) The Purchaser and Parent agree that until six years from the date the
Shares are purchased by Parent or the Purchaser in the Offer (the "Acceptance
Date"), the Purchaser will maintain all rights to indemnification now existing
in favor of the directors, officers, employees, fiduciaries and agents of the
Company as provided in the Company's Amended and Restated Articles of
Incorporation and Bylaws or otherwise in effect under any agreement on the date
of the Merger Agreement and that the Amended and Restated Articles of
Incorporation and Bylaws of the Purchaser will not be amended to reduce or limit
the rights of indemnity afforded to the present and former directors and
officers of the Company, or the ability of the Purchaser to indemnify them, nor
to hinder, delay or make more difficult the exercise of such rights of indemnity
or the ability to indemnify.
(b) The Purchaser will at all times exercise the powers granted to it by
its Amended and Restated Articles of Incorporation, its Bylaws, and by
applicable law to indemnify and hold harmless to the fullest extent possible
present or former directors, officers, employees, fiduciaries and agents of the
Company against any threatened or actual claim, action, suit, proceeding or
investigation made against them arising from their service in such capacities
(or service in such capacities for another enterprise at the request of the
Company) prior to, and including the Acceptance Date for at least six years from
the Acceptance Date. Parent will assume and perform the obligations of the
Purchaser under this section of the Merger Agreement, provided, that any
indemnified party shall make a good faith effort (which shall not include any
requirement to bring any suit, claim, action, or other proceeding) to cause the
Purchaser to perform its obligations under this section of the Merger Agreement
before requesting Parent to assume and perform such obligations.
(c) Should any threatened or actual claim, action, suit, proceeding or
investigation be made against any present or former director, officer, employee,
fiduciary or agent of the Company, arising from his services as such, within six
years from the effective time of the Merger, the indemnification provisions of
the Merger Agreement will continue in effect until the final disposition of all
such claims.
(d) Any indemnified party wishing to claim indemnification under the
indemnification provisions of the Merger Agreement, upon learning of any such
action, suit, claim, proceeding or investigation, will notify Parent and the
Purchaser within 15 days thereof; provided, however, that any failure so to
notify Parent and the Purchaser of any obligation to indemnify such indemnified
party or of any other obligation imposed by this section of the Merger Agreement
will not affect such obligations except to the extent Parent and/or the
Purchaser is actually prejudiced thereby. Parent and the Purchaser will be
entitled to assume the defense of any such action, suit, claim, proceeding or
investigation with counsel of its choice, unless there is, under applicable
standards of professional conduct, a conflict of any significant issue between
the positions of Parent and the Purchaser, on the one hand, and the indemnified
parties, on the other, in which event the indemnified parties as a group may
retain one law firm to represent them with respect to such matter. Neither
Parent or the Purchaser, on the one hand, nor the indemnified parties, on the
other hand, may settle any such action, suit, claim, proceeding or investigation
without the prior written consent of the other party, which consent may not be
unreasonably withheld or delayed.
(e) In addition to the foregoing, Parent will cause the Purchaser to honor
in accordance with their terms any indemnification agreements in existence on
the date of the Merger Agreement between the Company and any present or former
director, officer, employee, fiduciary or agent of the Company.
(f) The parties agree that the indemnification provisions of the Merger
Agreement will not require Parent or the Purchaser to maintain directors' and
officers' insurance coverage in favor of the Company's present and former
directors and officers.
(g) Notwithstanding anything in the Merger Agreement to the contrary, in
the event the Merger Agreement is terminated in accordance with its terms before
the consummation of the Merger, the
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<PAGE> 10
Purchaser's and Parent's obligations under the indemnification provisions of the
Merger Agreement shall cease upon such termination.
Conditions to the Merger. Pursuant to the Merger Agreement, the respective
obligations of Parent, the Purchaser and the Company to consummate the Merger if
the Offer is consummated are subject to the satisfaction or waiver in writing by
each party hereto at or before the Effective Time of each of the following
conditions: (a) the Company's shareholders will have duly approved the
transactions contemplated by the Merger Agreement, to the extent required
pursuant to the requirements of the Company's articles of incorporation and
applicable law; (b) the Purchaser will have accepted for payment and paid for
Shares pursuant to the Offer in accordance with the terms of the Merger
Agreement; provided, that this condition will be deemed to have been satisfied
with respect to Parent and the Purchaser if the Purchaser fails to accept for
payment or pay for Shares pursuant to the Offer in violation of the terms of the
Offer; (c) the consummation of the Merger will not be restrained, enjoined or
prohibited by any order, judgment, decree, injunction or ruling of a court of
competent jurisdiction or any governmental entity, and there will not have been
any statute, rule or regulation enacted, promulgated or deemed applicable to the
Merger by any governmental entity that prevents the consummation of the Merger;
(d) no Material Adverse Change in the Company (as defined below) will have
occurred and be in effect at the Effective Time; provided, that this condition
will be deemed to have been satisfied with respect to the Company if Parent
agrees to waive satisfaction thereof. The term "Material Adverse Change in the
Company" means a change in the business of the Company as a result of an
extraordinary event outside of the ordinary course of business which would be
materially adverse to the Company's sales or profits. Notwithstanding the
foregoing, a Material Adverse Change in the Company does not include (i) any
change in the Company's business because of any defect or deficiency in the
Company's existing product line occurring in the ordinary course of business and
that can be remedied in the ordinary course of business, (ii) any loss by the
Company of orders from, or sales to, direct competitors of Parent, or (iii) the
loss of orders or sales due to general market conditions in the paper industry.
Conduct of Business of the Company. Except as required by the Merger
Agreement or with the prior written consent of Parent, during the period from
the date of the Merger Agreement to the Effective Time, the Company will and
will cause each of its subsidiaries to conduct its operations only in the
ordinary course of business consistent with past practice and will use its best
efforts and will cause each of its subsidiaries to use its best efforts, to
preserve intact the business organization of the Company and each of its
subsidiaries, to keep available the services of its and their present officers
and key employees and to preserve the goodwill of those having business
relationships with it. Without limiting the generality to the foregoing, and
except as otherwise required by the Merger Agreement, the Company will not, and
will not permit any of its subsidiaries to, prior to the Effective Time, without
the prior written consent of Parent: (a) adopt any amendment to its charter or
by-laws or comparable organizational documents; (b) except for issuances of
capital stock of its subsidiaries to the Company, or to a wholly owned
subsidiary of the Company, issue, reissue or sell or authorize the issuance,
reissuance or sale of additional shares of capital stock of any class, or shares
convertible into capital stock of any class, or any rights, warrants or options
to acquire any convertible shares or capital stock, other than the issuance of
Shares, pursuant to options outstanding on the date of the Merger Agreement or
pursuant to the Stock Option Agreement; (c) declare, set aside or pay any
dividend or other distribution (whether in cash, shares or property or any
combination thereof) in respect of any class or series of its capital stock
other than between any of the Company and any subsidiary which is wholly owned
by the Company; (d) split, combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem or purchase or otherwise acquire, any
shares of its capital stock, or any of its other shares; (e) except for (A)
increases in salary, wages and benefits of non-executive officers or employees
of the Company or its subsidiaries in the ordinary course of business consistent
with past practice, (B) increases in salary, wages and benefits granted to
officers and employees of the Company or its subsidiaries in conjunction with
new hires, promotions or other changes in job status in the ordinary course of
business consistent with past practice, or (C) increases in salary, wages and
benefits to employees of the Company or its subsidiaries pursuant to collective
bargaining agreements entered into in the ordinary course of business consistent
with past practice, (i) increase the compensation or fringe benefits payable or
to become payable to its directors, officers or key employees (whether from the
Company or any of its subsidiaries), or (ii) pay any benefit not required by any
existing plan or arrangement (including, without limitation, the granting of
stock options, stock appreciation
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<PAGE> 11
rights, shares of restricted stock or performance units), or (iii) grant any
severance or termination pay to (except pursuant to existing agreements, plans
or policies and as required by such agreements, plans or polices), or (iv) enter
into any employment or severance agreement with, any director, officer or other
key employee of the Company or any of its subsidiaries or (iv) establish, adopt,
enter into, or amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock or employee plans/agreements for
the benefit or welfare of any directors, officers or current or former
employees, except in each case to the extent required by applicable law or
regulation; (f) acquire, sell, lease or dispose of any assets (other than
inventory) which are material to the Company and its subsidiaries, taken as a
whole, or enter into any commitment to do any of the foregoing or enter into any
material commitment or transaction outside the ordinary course of business
consistent with past practice; (g) (i) incur, assume or pre-pay any long-term
debt or incur or assume any short-term debt, except that the Company and its
subsidiaries may incur, assume or pre-pay debt in the ordinary course of
business consistent with past practice under existing lines of credit, (ii) pay,
discharge, settle or satisfy as other claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise, other than
in the ordinary course of business consistent with past practice, (iii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person, or (iv) make
any loans, advances or capital contributions to, or investments in, any other
person except in the ordinary course of business consistent with past practice
and except for loans, advances, capital contributions or investments between any
subsidiary wholly owned by the Company and the Company or another subsidiary
wholly owned by the Company; (h) make any tax election that would have a
material effect on the tax liability of the Company or the subsidiaries or
settle or compromise any tax liability of the Company or the subsidiaries that
would materially affect the aggregate tax liability of the Company or the
subsidiaries; (i) except in the ordinary course of business consistent with past
practice, enter into, modify, amend or terminate any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license which is material to the Company and the
subsidiaries or waive, release or assign any material rights or claims; or
(j) agree in writing or otherwise to take any of the foregoing actions.
Termination. The Merger Agreement may be terminated and the Merger
contemplated thereby may be abandoned at any time prior to the effective time of
the Merger, whether or not approval thereof by the Company's shareholders has
been obtained: (a) by the mutual written consent of Parent, the Purchaser and
the Company prior to the date on which Parent's designees constitute a majority
of the Board of Directors of the Company; or (b) by the Company if the Company
is not in material breach of any of its representations, warranties, covenants
or arrangements contained in the Merger Agreement and the Stock Option Agreement
and if (i) the Purchaser fails to commence the Offer as provided in the Merger
Agreement, (ii) the Purchaser has not accepted for payment and paid for Shares
pursuant to the Offer in accordance with the terms thereof on or before April
30, 1998 or (iii) the Purchaser fails to purchase validly tendered Shares in
violation of the terms of the Offer or the Merger Agreement; or (c) by Parent or
the Company if the Offer expires or is terminated or withdrawn pursuant to its
terms without any Shares being purchased thereunder; provided, however, that
Parent may terminate the Merger Agreement pursuant to this provision (c) upon
the termination or withdrawal of the Offer only if Parent's or the Purchaser's
termination or withdrawal of the Offer is not in violation of the terms of the
Merger Agreement or the Offer; or (d) by Parent or the Company if any court or
other governmental entity has issued, enacted, entered, promulgated or enforced
any order, judgment, decree, injunction, or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
judgment, decree injunction, ruling or other action has become final and
nonappealable; or (e) by the Company if, prior to the purchase of Shares
pursuant to the Offer in accordance with the terms of the Merger Agreement, (i)
there has occurred, on the part of Parent or the Purchaser, a material breach of
any representation, warranty, covenant or agreement contained in the Merger
Agreement which is not curable or, if curable, is not cured within seven
business days after written notice of such breach is given by the Company to the
party committing the breach or (ii) the Company (A) enters into a definitive
agreement with respect to a Superior Proposal as permitted under, and after
complying with the provisions of the Merger Agreement, and (B) pays any
termination fee and agrees to pay any other amounts required pursuant to the
Merger Agreement; or (f) by Parent if, prior to the purchase of Shares pursuant
to the Offer in accordance with the terms of the Merger Agreement, (i) there has
occurred, on the part of the Company, a
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<PAGE> 12
breach of any representation, warranty, covenant or agreement contained in the
Merger Agreement which individually, or in the aggregate, if not cured would be
reasonably likely to have a material adverse effect on the Company and which is
not curable or, if curable, is not cured within the later of (x) seven business
days after written notice of such breach is given by Parent to the Company and
(y) the satisfaction of all conditions to the Offer not related to such breach
or (ii) the Board of Directors of the Company or committee thereof has withdrawn
or modified (or has resolved to withdraw or modify), in a manner adverse to
Parent, its approval or recommendation of the Merger Agreement or any of the
transactions contemplated thereby and the Board of Directors of the Company and
such committee has not fully reinstated such approval or recommendations within
two business days or has not recommended (or resolved to recommend) an
Acquisition Transaction (other than the Offer and Merger) to the Company's
shareholders and at least ten business days has passed since such recommendation
(or resolution); or (g) by Parent if it is not in material breach of its
obligation under the Merger Agreement or under the Offer and no Shares have been
purchased pursuant to the Offer on or before April 30, 1998. In the event of the
termination of the Merger Agreement, the Merger Agreement will become void and
have no effect, without any liability on the part of any party or its directors,
officers or stockholders, except as provided in the Merger Agreement.
Fees and Expenses. The Merger Agreement provides that, except as described
below, whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Offer, the Merger Agreement, the Stock Option Agreement
and the transactions contemplated by the Merger Agreement and the Stock Option
Agreement will be paid by the party incurring such expenses.
In the event the Merger Agreement is terminated pursuant to subsections
(e)(ii), (f)(i) (other than for a termination due to an unintentional breach of
a representation or warranty by the Company) or (f)(ii) of the termination
provisions of the Merger Agreement, then the Company will promptly reimburse
Parent for the documented out-of-pocket fees and expenses (but in no event
greater than $500,000) of Parent and the Purchaser related to the Merger
Agreement, the Stock Option Agreement, the transactions contemplated thereby and
any related financing and in the event the Merger Agreement is terminated
pursuant to subsection (e)(ii), then the Company will promptly pay Parent a
termination fee of $1,200,000 (the "Termination Fee") by wire transfer of same
day funds to an account designated by the Parent as a condition precedent to
such termination.
In the event that (i) any person will have publicly disclosed a proposal
regarding an Acquisition Transaction and (ii) following such disclosure, either
(x) April 30, 1998 occurs without the Revised Minimum Number being satisfied or
the requisite shareholder approval of the Merger being obtained (other than as a
result of a material breach hereof by Parent or the Purchaser that has not been
cured within the time period set forth in the Merger Agreement) or (y) the
Company breaches (prior to the time that the designees of the Purchaser
constitute a majority of the Board of Directors of the Company) any of its
material obligations set forth in the Merger Agreement and does not cure such
breach within the time period set forth thereunder or (z) the Merger Agreement
is terminated pursuant to subsections (f)(ii) and (iii) of the termination
provisions of the Merger Agreement not later than 12 months after any such
termination the Company will have entered into an agreement for an Acquisition
Transaction, or an Acquisition Transaction will have been consummated, then the
Company will promptly, but in no event later than immediately prior to, and as a
condition of, entering into such definitive agreement, or, if there is no such
definitive agreement then immediately upon consummation of the Acquisition
Transaction, pay Parent a termination fee of $1,200,000 which amount will be
payable by wire transfer of same day funds to an account designated by the
Parent. Notwithstanding anything to the contrary contained therein, in no event
will the Company be obligated to pay more than one Termination Fee in accordance
with the Merger Agreement.
Employee Benefit Arrangements. Parent has agreed that the Company will
honor and, from and after the Effective Time, Parent will cause the Surviving
Corporation to honor, all employee plans or agreements to which the Company or
any of its Subsidiaries is presently a party which have been disclosed in the
Merger Agreement; provided, however, that this shall not limit or restrict the
Surviving Corporation's right on or after the Effective Time to amend, modify or
terminate any employee plans or agreements in accordance with the terms thereof
and applicable law.
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The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including the approval of the Merger Agreement by the
requisite vote, if any, of the shareholders of the Company. Under the GCL, if
the Purchaser acquires, pursuant to the Offer, the Stock Option (as defined
below) or otherwise, at least 90% of the Shares then outstanding, the Purchaser
will be able to effect the Merger, without a vote of the Company's shareholders.
In such event, Parent, the Purchaser and the Company have agreed in the Merger
Agreement to take all necessary and appropriate action to cause the Merger to
become effective as soon as practicable after such acquisition, without a
meeting of the Company's shareholders. Under the GCL, the Merger may not be
accomplished for cash paid to the Company's shareholders if the Purchaser or
Parent owns directly or indirectly more than 50% but less than 90% of the then
outstanding Shares, unless either all the shareholders consent or the
Commissioner of Corporations of the State of California approves, after a
hearing, the terms and conditions of the Merger and the fairness thereof.
If the Stock Option is exercised by the Purchaser (resulting in the
Purchaser acquiring 90% or more of the Outstanding Shares), Parent will be able
to effect a short-form merger under the GCL, subject to the terms and conditions
of the Merger Agreement. In the event that more than 50% of the Shares then
outstanding are tendered pursuant to the Offer and not withdrawn, but less than
90% of the Shares then outstanding on a fully diluted basis are acquired by the
Purchaser pursuant to the Offer and the Stock Option, to reduce the number of
shares of Common Stock subject to the Offer to the Revised Minimum Number and,
if a greater number of Shares is tendered into the Offer and not withdrawn,
purchase, on a pro rata basis, the Revised Minimum Number of Shares (it being
understood that the Purchaser shall not in any event be required to accept for
payment, or pay for, any Shares if less than the Revised Minimum Number of
Shares are tendered pursuant to the Offer and not withdrawn at the expiration of
the Offer). In such event, the Purchaser would own upon consummation of the
Offer 49.9999% of the Shares then outstanding and would thereafter solicit the
approval of the Merger Agreement by a vote of the shareholders of the Company.
Under such circumstances, a significantly longer period of time would be
required to effect the Merger.
Pursuant to the Stock Option Agreement, the Company granted to the
Purchaser an irrevocable option (the "Stock Option") to purchase that number of
Shares (the "Option Shares") equal to the number of Shares that, when added to
the number of Shares owned by the Purchaser and its affiliates following the
consummation of the Offer, would constitute 90% of the Shares then outstanding
on a fully diluted basis (assuming the issuance of the Option Shares) at a cash
purchase price per Option Share equal to the Offer Price, provided that the
Stock Option will not be exercisable if the number of Shares subject thereto
exceeds the number of authorized Shares available for issuance.
The Stock Option may be exercised by the Purchaser, in whole but not in
part, at any one time after the occurrence of the Option Exercise Event (as
defined below) and prior to the Option Termination Date (as defined below). The
Option Exercise Event will occur upon the Purchaser's acceptance for payment
pursuant to the Offer of Shares constituting more than 50% but less than 90% of
the Shares then outstanding on a fully diluted basis. The Option Termination
Date will occur upon the earliest to occur of (i) the Effective Time, (ii) the
date which is ten business days after the Option Exercise Event, and (iii) the
termination of the Merger Agreement, provided, that notwithstanding the
occurrence of the Option Termination Date, the Purchaser will be entitled to
purchase the Option Shares if it has exercised the Stock Option in accordance
with the terms of the Option Agreement prior to the Option Termination Date.
Stockholder Agreements
The following is a summary of the material terms of the Stockholders
Agreements. This summary is not a complete description of the terms and
conditions of the Stockholders Agreements and is qualified in its entirety by
reference to the full text of the Stockholders Agreements, which is incorporated
by reference and copies have been filed with the SEC as exhibits to the Schedule
14D-9.
Contemporaneously with the execution of the Merger Agreement, Parent
entered into a Stockholders Agreement (the "Stockholders Agreements") with each
of Elsag International N.V. and Kenneth P. Ostrow (each a "Selling Stockholder"
and together the "Selling Stockholders").
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<PAGE> 14
The Stockholders Agreements provide that the Selling Stockholders will
validly tender (or cause the record owner of such shares to validly tender), and
not to withdraw, pursuant to and in accordance with the terms of the Offer, not
later than the fifth business day after commencement of the Offer, an aggregate
of approximately 29% of the Shares as well as any Shares acquired by the Selling
Stockholders in any capacity after the date of the Stockholders Agreements.
Under the Stockholders Agreements, the Selling Stockholders also granted to
Parent an irrevocable option to purchase the Selling Stockholders' Shares at the
Offer Price if either:
(i) the Merger Agreement is terminated under one of the following four
ways:
(a) by Parent or the Company if the Offer expires or is terminated or
withdrawn pursuant to its terms without any Shares being purchased
thereunder; provided, however, that Parent may terminate the Merger
Agreement upon the termination or withdrawal of the Offer only if Parent's
or the Purchaser's termination or withdrawal of the Offer is not in
violation of the terms of the Merger Agreement or the Offer;
(b) by the Company if, prior to the purchase of Shares pursuant to the
Offer in accordance with the terms of the Merger Agreement, the Company (x)
enters into a definitive agreement with respect to a Superior Proposal and
(y) pays any termination fee and agrees to pay any other amounts required;
(c) by Parent if, prior to the purchase of Shares pursuant to the
Offer in accordance with the terms of the Merger Agreement, (x) there shall
have occurred, on the part of the Company, a breach of any representation,
warranty, covenant or agreement contained in the Merger Agreement which
individually, or in the aggregate, if not cured would be reasonably likely
to have a material adverse effect on the Company and which is not curable
or, if curable, is not cured within the later of (A) seven business days
after written notice of such breach is given by Parent to the Company and
(B) the satisfaction of all conditions to the Offer not related to such
breach or (y) the Board of Directors of the Company or committee thereof
shall have withdrawn or modified (or shall have resolved to withdraw or
modify), in a manner adverse to Parent, its approval or recommendation of
the Merger Agreement or any of the transactions contemplated hereby and the
Board of Directors of the Company and such committee shall not have fully
reinstated such approval or recommendations within two business days or
shall have recommended (or resolved to recommend) an acquisition
transaction (other than the Offer and Merger) to the shareholders of the
Company and at least ten business days shall have passed since such
recommendation (or resolution); or
(d) by Parent if it is not in material breach of its obligation under
the Merger Agreements or under the Offer and no Shares shall have been
purchased pursuant to the Offer on or before April 30, 1998; or
(ii) the Merger Agreement is terminated by the Company if the Company
is not in material breach of any of its representations, warranties,
covenants or arrangements contained in the Merger Agreement and the Stock
Option Agreement and if the Purchaser will not have accepted for payment
and paid for Shares pursuant to the Offer in accordance with the terms
thereof on or before April 30, 1998 and (x) the selling Stockholder will
have breached the agreements or (y) at the time of such termination the
Minimum Condition shall not have been satisfied.
Then, the securities option shall, in any such case, become exercisable, in
whole but not in part, upon the first to occur of any such event and remain
exercisable in whole but not in part until the date which is 90 days after the
date of the occurrence of such event (the "90 Day Period"), so long as: (i) all
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended ("HSR Act") required for the purchase of the Securities upon such
exercise shall have expired or been waived and any other conditions under the
other antitrust laws shall have been satisfied and (ii) there will not be in
effect any preliminary injunction or other order issued by any Governmental
Entity prohibiting the exercise of the securities option pursuant to the
Stockholders Agreements.
In the event the Option Securities are acquired by the Purchaser pursuant
to the exercise of the option, the Selling Stockholders will be entitled to
receive, and the Purchaser will promptly pay to the Selling
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Stockholders, upon any subsequent disposition, transfer or sale ("Sale") of the
Securities an amount per share in cash equal to 50% of the difference between
the net proceeds received per share in the sale and the purchase price. The
Purchaser will only effect any sale in an arms' length bona fide transaction to
an unaffiliated third party.
The Selling Stockholders will, at any meeting of the stockholders of the
Company, however called, or in connection with any written consent of the
stockholders of the Company, vote (or cause to be voted) all Securities then
held of record or beneficially owned by the Selling Stockholder, (i) in favor of
the Merger, the execution and delivery by the Company of the Merger Agreement
and the Stock Option Agreement and the approval of the terms thereof and each of
the other actions contemplated by the Merger Agreement, the Stock Option
Agreement and the Stockholder Agreements and any actions required in furtherance
thereof; and (ii) against any proposal relating to an acquisition transaction
and against any action or agreement that would impede, frustrate, prevent or
nullify the Stockholder Agreements, or result in a breach in any respect of any
covenant, representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement or the Stock Option Agreement or which would
result in any of the conditions set forth in the Merger Agreement not being
fulfilled.
Indemnification
The Company's articles of incorporation provide that liability of the
directors of the Company for monetary damages shall be eliminated to the fullest
extent permissible under California law and that the Company is authorized to
provide indemnification of agents in excess of the indemnification otherwise
permitted under the California Corporations Code subject to certain limitations
under the California Corporations Code.
The Company's bylaws provide that the Company shall indemnify directors and
officers against expenses, judgments, fines, settlements or other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that such person is or was an agent of the corporation. The
Company's bylaws provide that the Company will have the power to indemnify each
of its employees and agents against expenses, judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any proceeding
arising by reason of the fact that such person is or was an agent of the
Company.
The Company has previously entered into indemnification agreements with
each person who as of December 18, 1997, was a director or executive officer of
the Company. The indemnification agreements generally provide: (I) for
indemnification if an indemnitee is or was a party or is threatened to be made a
party to any threatened, pending or completed action or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that the indemnitee is or was a
director, officer, employee or agent of the Company, by reason of any action or
inaction on the part of the indemnitee while an officer or director or by reason
of the fact that the indemnitee is or was serving at the request of the Company
as a director, officer, employee or agent of another entity, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) actually and reasonably incurred by the indemnitee in
connection with such action or proceeding if the indemnitee acted in good faith
and in a manner the indemnitee reasonably believed to be in the best interests
of the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the indemnitee's conduct was unlawful and (ii) for
the advancement of all expenses incurred by an indemnitee as well as the
reimbursement by such indemnitee of any such advances to the Company if it is
determined that the indemnitee is not entitled to such indemnification.
Indemnitees' rights under the indemnification agreements are not exclusive of
any other rights they may have under California law, the Company's bylaws or
otherwise. A copy of the form of Indemnification Agreement has been filed as an
exhibit to this Schedule 14D-9 and is incorporated herein by reference in its
entirety.
14
<PAGE> 16
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Board of Directors.
The Board of Directors of the Company has unanimously (a) approved the
Merger Agreement, the Stock Option Agreement, the Offer and the Merger and
the other transactions contemplated thereby, (b) determined that the Offer
Price to be received by the Company's shareholders pursuant to the Offer
and the Merger is fair to the shareholders and (c) recommends that the
Company's shareholders tender their Shares pursuant to the Offer.
(b) Background of the Offer; Reasons for the Recommendation.
Background. In June 1997, representatives of Parent contacted the Company's
President and Chief Executive Officer to convey Parent's interest in exploring a
possible strategic cooperation with the Company. The parties subsequently
scheduled a meeting and, on July 22 and 23, 1997, representatives of Parent met
with representatives of the Company, including the Company's President and Chief
Executive Officer, Chief Financial Officer and Vice President, Operations. At
these meetings the Company's representatives presented an overview of the
Company's products and capabilities. At the conclusion of these meetings,
Parent's representatives indicated that Parent was interested in pursuing an
equity investment in the Company. Although the Company was not then considering
a sale or other extraordinary corporate transaction, the Company's
representatives agreed to continue discussions.
On August 1, 1997, Parent and the Company entered into a confidentiality
agreement under which Parent was furnished with certain financial and business
information concerning the Company. In the period from August through October
1997, representatives of the Company held various discussions with
representatives of the Company in which representatives of the Company responded
to various questions from representatives of Parent.
At a meeting between representatives of the Company and Parent on September
22, 1997, Parent's representatives conveyed Parent's willingness to explore the
possible acquisition of the Company at an indicated price range of $2.20 to
$2.25 per share, subject to certain conditions including the retention of key
personnel. The representative of the Company indicated that he did not believe
that the Company would be interested in pursuing any transaction at the $2.20 to
$2.25 per share price level. Parent's representatives indicated that such
representatives were not authorized by Parent to discuss a higher price level.
At a meeting between representatives of the Company and Parent on October
10, 1997, a representative of Parent indicated to a representative of the
Company that Parent would consider increasing its indicated acquisition price to
$2.75 per share, subject to Parent's due diligence review.
On October 15, 1997, a meeting of the Board of Directors of the Company was
held during which the Company's President and Chief Executive Officer informed
the Board of Directors of discussions relating to a possible business
combination. The Board of Directors discussed these recent developments. No
decisions with respect to a business combination were reached at this meeting
other than to continue discussions with Parent as well as other third parties.
Thereafter, the Company furnished to Parent and Parent's legal counsel
additional non-public business and financial information.
In mid November, the Company's legal counsel received from Parent's legal
counsel a draft of the Merger Agreement, Stockholders Agreement and Stock Option
Agreement.
From time to time during October and November 1997, representatives of
Parent and the Company as well as Parent's and the Company's respective legal
advisors continued discussions. In addition, during this period, the Company's
management kept the Board of Directors of the Company informed of these
discussions.
On December 8, 1997, the Board of Directors of the Company met to discuss
the status of discussions between Parent and the Company. The principal terms of
the proposed transactions were reviewed and discussed, including the Merger
Agreement, the Stockholder's Agreement and the Stock Option Agreement. The Board
of Directors of the Company also discussed the possibility of a business
combination with other
15
<PAGE> 17
third parties. The Board of Directors of the Company instructed the Company's
President and Chief Executive Officer to enter into negotiations with Parent
with respect to the Merger.
From December 8, 1997 through the evening of December 11, 1997,
representatives of the Company and the Company's legal advisors met with
representatives of Parent and Parent's legal advisors to negotiate the terms of
the Merger Agreement and the Stock Option Agreement. These negotiations
culminated on December 11, 1997 in the Company and Parent agreeing upon a form
of definitive Merger Agreement and Stock Option Agreement, subject to approval
by the Company's Board of Directors, certain shareholders of the Company and
Parent agreeing upon a form of definitive Stockholder's Agreement and the
Company and Parent agreeing upon the form of definitive employment agreements
for the Company's President and Chief Executive Officer, Chief Financial Officer
and Vice President, Operations as well as certain other employee benefit matters
to address the Parent's requirements for the retention of these and other key
personnel.
On December 11, 1997, the Board of Directors of the Company met and
reviewed and discussed the Merger Agreement, the Stock Option Agreement, the
Stockholders Agreement as well as employee benefit matters. The Board of
Directors of the Company, exercising its fiduciary duties, then voted and
unanimously approved the Merger Agreement, the Stock Option Agreement, the
Merger and the Offer and the other transactions contemplated thereby, and,
recommended that the shareholders of the Company tender their shares pursuant to
the Offer.
On December 11, 1997, the Merger Agreement, the Stockholder's Agreement,
the Stock Option Agreement and the other employee benefit agreements were
executed and, on December 12, 1997, the transaction was publicly announced.
Factors Considered by the Board. In approving the Merger Agreement and the
transactions contemplated thereby and recommending that the shareholders of the
Company tender their shares pursuant to the Offer, the Board of Directors of the
Company considered a number of factors, including:
(1) the financial and other terms of the Offer, the Merger, the
Merger Agreement and the related transaction agreements;
(2) that the $2.75 per Share tender offer price represents a premium
of 57% over the closing price of the Shares on Nasdaq ("Nasdaq") on
December 11, 1997, the last full trading day prior to the public
announcement of the execution of the Merger Agreement;
(3) history of the price of the Shares on Nasdaq over the last 18
months ;
(4) the view of the Board of Directors, based in part upon the
presentation of Management to the Board of Directors on December 11, 1997,
regarding the unlikelihood of a superior offer arising;
(5) the Company's existing competitive and market position, including
the Company's ability effectively to compete with companies having
significantly greater financial resources than the Company;
(6) the Company's long-term and short-term capital needs, especially
in light of the Company's competitive and market position as described
above;
(7) the provisions of the Merger Agreement, including the provision
allowing the Company to respond to unsolicited written inquiries concerning
an acquisition of the Company, and the provisions which permit the Company
to terminate the Merger Agreement upon payment to Purchaser of a break-up
fee in the amount set forth in the description of the Merger Agreement, in
the event that the Board of Directors determines to withdraw its
recommendation that stockholders accept the Offer based on the Board of
Directors' determination that such action is necessary to comply with its
fiduciary duties under applicable law;
(8) the fact that Parent's and the Purchaser's obligations under the
Offer were not subject to any financing condition;
(9) Parent's financial condition and ability to cause the Purchaser
to meet its obligations under the Merger Agreement;
16
<PAGE> 18
(10) the alternatives available to the Company in light of the
consideration proposed to be received for the Shares pursuant to the Offer
and the Merger, including continuing to maintain the Company as an
independent company and not engaging in any extraordinary transaction or
engaging in an extraordinary transaction, such as a self tender offer or
other transaction designed to increase the trading prices for the Shares;
(11) the failure of any other potential bidders to submit a proposal
having terms more favorable than the terms proposed by Parent;
(12) legal matters relating to the Offer and the Merger, including the
review provided for under the HSR Act with respect to the antitrust
implications of the Offer and the terms of the Offer and the Merger
Agreement related thereto;
(13) the willingness of certain stockholders of the Company to enter
into the Stockholders Agreement, pursuant to which, among other things,
such stockholders agreed to tender the Shares owned by them for purchase by
the Purchaser pursuant to the Offer;
(14) the familiarity of the Board of Directors with the business,
results of operations, properties and financial condition of the Company
and the nature of the industry in which it operates; and
(15) the discussions held by the Company with two other companies
regarding potential business combination transactions with the Company as
described below.
The foregoing discussion of the information and factors considered and
given weight by the Board of Directors is not intended to be exhaustive. In view
of the variety of factors considered in connection with its evaluation of the
Merger Agreement and the Offer, the Board of Directors did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination. In addition,
individual members of the Board of Directors may have given different weights to
different factors.
The Company held discussions with two other companies about potential
business combination transactions. The first company (the "First Bidder")
contacted the Company in August 1997. After preliminary discussions regarding a
range of acquisition prices, no further negotiations were held with the First
Bidder. The second company (the "Second Bidder") contacted the Company in
October 1997. The parties executed a confidentiality agreement in early November
1997. Certain confidential information was provided by the Company, and an
evaluation was made by the Second Bidder. After indications of valuation by the
Second Bidder, the Company indicated to the Second Bidder that their proposed
valuations were unacceptably low. In late November 1997, the Second Bidder
informed the Company that it would not be able to increase the valuation. No
further meetings were held.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Neither the Company nor any person acting on its behalf has or currently
intends to employ, retain or compensate any person to make solicitations or
recommendations to the shareholders of the Company on its behalf with respect to
the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the past sixty (60) days, no transactions in the Shares have
been effected by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate or subsidiary of the Company, except as
follows: on October 15, 1997, the Company granted 15,000, 10,000 and 5,000
incentive stock options at $1.8125 per share to Mr. Ostrow, Mr. Gorski and Mr.
Lynch, respectively pursuant to the 1995 Option Plan, and granted 8,276
non-qualified stock options at $.18125 to each of Mr. Cusimano and Mr. Zaharna
pursuant to the Discount Option Plan, all as part of its customary annual option
grant program.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, all of the Company's executive
officers, directors and affiliates who own Shares presently intend to tender all
of their Shares to Purchaser pursuant to the Offer.
17
<PAGE> 19
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as set forth herein, no negotiation is being undertaken or is
underway by the Company in response to the Offer which relates to or would
result in (i) an extraordinary transaction such as a merger or reorganization,
involving the Company or any subsidiary thereof; (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary
thereof; (iii) a tender offer for or other acquisition of securities by or of
the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as set forth herein, there are no transactions, Board of
Directors resolutions, agreements in principle or signed contracts in response
to the Offer that relate to or would result in one or more of the events
referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Short Form Merger. Under the GCL, if Purchaser acquires, pursuant to the
Offer, the Stock Option or otherwise, at least 90% of the outstanding shares of
Common Stock, the Purchaser will be able to effect the Merger after consummation
of the Offer without a vote of the Company's shareholders. However, if the
Purchaser does not acquire at least 90% of the Common Stock pursuant to the
Offer or otherwise and a vote of the Company's shareholders is required under
California Law, a significantly longer period of time will be required to effect
the Merger.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
1 Agreement and Plan of Merger, dated December 11, 1997, by and among Voith Sulzer
Paper Technology North America Inc., Voith Sulzer Acquisition Corp., and Impact
Systems, Inc.
2 Stock Option Agreement, dated December 11, 1997, by and among Voith Sulzer Paper
Technology North America Inc., Voith Sulzer Acquisition Corp., and Impact Systems,
Inc.
3 Stockholder Agreement, dated December 11, 1997, among Voith Sulzer Paper Technology
North America Inc., Voith Sulzer Acquisition Corp., and Elsag International N.V.
4 Stockholder Agreement, dated December 11, 1997, among Voith Sulzer Paper Technology
North America Inc., Voith Sulzer Acquisition Corp., and Kenneth P. Ostrow
5 Letter to Shareholders of Impact Systems, Inc., dated December 18, 1997
6 Press Release issued on December 12, 1997
7 Senior Executive Change in Control Plan as amended and restated December 11, 1997
8 Incentive Bonus Plan of Impact Systems, Inc. adopted December 11, 1997
9 Noncompetition Agreement, dated December 11, 1997, by and between Voith Sulzer
Paper Technology North America, Inc. and Kenneth P. Ostrow
10 Employment Agreement, dated December 11, 1997, by and between Impact Systems, Inc.
and Kenneth P. Ostrow
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
11 Employment Agreement, dated December 11, 1997, by and between Impact Systems, Inc.
and Robert M. Gorski
12 Employment Agreement, dated December 11, 1997 by and between Impact Systems, Inc.
and John F. Lynch, III
13 Information under the captions "Security Ownership," "Director Compensation,"
"Executive Officer Compensation," "Option Grants in Last Fiscal Year," "Option
Exercises and Holdings," "Severance Agreements," and "Certain
Transactions -- Working Agreement," as set forth in the Company's Proxy Statement,
dated September 9, 1997, for its 1997 Annual Meeting of Shareholders
14 Form of Indemnification Agreement
</TABLE>
19
<PAGE> 21
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
By: /s/ KENNETH P. OSTROW
------------------------------------
Name: Kenneth P. Ostrow
Title: President and Chief
Executive Officer
Dated: December 18, 1997
20
<PAGE> 22
SCHEDULE I
IMPACT SYSTEMS, INC.
14600 WINCHESTER BOULEVARD
LOS GATOS, CALIFORNIA 95030
------------------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about December 18, 1997 as
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") to holders of the common stock of Impact Systems, Inc. (the
"Company"). Capitalized terms used and not otherwise defined herein shall have
the meaning set forth in the Schedule 14D-9. You are receiving this Information
Statement in connection with the possible election of persons designated by
Voith Sulzer Acquisition Corp. (the "Purchaser"), a wholly owned subsidiary of
Voith Sulzer Paper Technology North America Inc. (the "Parent"), to the Board of
Directors of the Company (the "Board"). Such designation is to be made pursuant
to an Agreement and Plan of Merger dated December 11, 1997 (the "Merger
Agreement") by and among Parent, the Purchaser and the Company.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action.
Pursuant to the Merger Agreement, the Purchaser commenced a cash tender
offer (the "Offer") on December 18, 1997. The Offer is scheduled to expire at
12:00 midnight on January 20, 1998, unless the Offer is extended. Following the
successful completion of the Offer, upon approval by a shareholder vote, if
required, Purchaser will be merged with and into the Company (the "Merger").
The following information is based on the Company's Proxy Statement dated
September 9, 1997, and, except as indicated, such information is given as of
such date.
The information contained in this Information Statement (including
information incorporated by reference) concerning Parent, the Purchaser and the
Purchaser Designees (as defined below) has been furnished to the Company by
either Parent or the Purchaser and the Company assumes no responsibility for the
accuracy or completeness of such information.
GENERAL INFORMATION REGARDING THE COMPANY
GENERAL
The Common Stock, no par value per share (the "Common Stock"), is the only
class of voting securities of the Company outstanding. Each share of Common
Stock entitles its record holder to one vote. As of December 10, 1997, there
were 10,511,576 shares of Common Stock outstanding (exclusive of treasury
shares) and 1,201,102 shares reserved for issuance upon the exercise of certain
options outstanding.
THE PURCHASER DESIGNEES
Pursuant to the Merger Agreement and subject to compliance with applicable
law, promptly upon the payment by the Purchaser for Shares pursuant to the
Offer, and from time to time thereafter, the Purchaser will be entitled to
designate such number of directors, rounded up to the next whole number, on the
Board (the "Purchaser Designees"), equal to the product of the total number of
directors on the Board multiplied by the percentage that the aggregate number of
Shares beneficially owned by the Purchaser or its affiliates bears to the total
number of Shares then outstanding. The foregoing notwithstanding, the Merger
Agreement further provides that at least two directors who are neither officers,
directors, stockholders or designees of the Purchaser or any of its affiliates
("Purchaser Insiders") shall continue to serve on the Board until the
effectiveness of the Merger; provided, however, that the Purchaser shall be
entitled to designate a number of directors equal to or greater than 50% of the
total number of directors only if the Purchaser acquires 90% or more of the
outstanding Shares pursuant to the Offer. The Company has agreed to take all
action necessary to effect the election of the Purchaser Designees to the Board.
I-1
<PAGE> 23
The Purchaser has informed the Company that it will choose the Purchaser
Designees from the list of persons set forth in the following table. The
following table sets forth the name, age, citizenship, present principal
occupation or employment and five-year employment history for each of the
persons who may be designated by the Purchaser as the Purchaser Designees.
Unless otherwise indicated below, the business address of each such person is
Voith Sulzer Paper Technology North America Inc., 2200 N. Roemer Road, Appleton,
Wisconsin 54913.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME AND AGE 5-YEAR EMPLOYMENT HISTORY; DIRECTORSHIPS
- ------------------------------------- ------------------------------------------------------
<S> <C>
R. Raymond Hall, Jr.(48)............. Executive Vice President-Service Division of Parent,
990 N. Main St. (1994 to present); Member of the Board of Management
Monroe, Ohio 45050 and the Board of Directors of various other
Citizenship: United States Voith-related organizations (1994 to present);
President of Voith Holdings Ltd. and TriStar
Industries Ltd. (through October 1997); President of
Sulzer Papertec, Inc. (1992-1994);
Paul Bouthilet(51)................... Chief Financial Officer of Parent (since October
Citizenship: United States 1997); Vice President Finance of Parent (through
October 1997) Chief Financial Officer of various
Voith-related organizations (1989-1994)
Mark Zimmermann(36).................. Head of Planning and Organization of Voith Sulzer
Sankt Poltner StraBe 43 Papiertechnik GmbH & Co. KG, Heidenheim, Germany
D-89522 Heidenheim, Germany (April 1996 to present); Strategic Development Manager
Citizenship: Switzerland of Sulzer AG (1992-March 1996)
</TABLE>
The Purchaser has advised the Company that to the best knowledge of the
Purchaser, none of the Purchaser Designees currently is a director of, or holds
any position with, the Company, and except as disclosed in the Offer to
Purchase, none of the Purchaser Designees beneficially owns any securities (or
rights to acquire any securities) of the Company or has been involved in any
transactions with the Company or any of its directors, executive officers or
affiliates that are required to be disclosed pursuant to the rules of the
Commission, except as may be disclosed in the Offer to Purchase. The Purchaser
has also informed the Company that certain Purchaser Designees and/or their
respective associates may also be directors or officers of other companies and
organizations that have engaged in transactions with the Company or its
subsidiaries in the ordinary course of business since March 31, 1996, and that
the Purchaser believes that the interest of such persons in such transactions is
not of material significance. None of the Purchaser Designees has any family
relationship with any director or executive officer of the Company.
The Purchaser has advised the Company that each of the persons listed in
the table above has consented to act as a director, and that none of such
persons has during the last five years been convicted in a criminal proceeding
(excluding traffic violations and similar misdemeanors) or was a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was, or is, subject to a judgment, decree or
final order enjoining future violations of, or prohibiting activities subject
to, federal or state securities laws or finding any violation of such laws or is
involved in any other legal proceeding which is required to be disclosed under
Item 401(f) of Regulation S-K promulgated by the Securities and Exchange
Commission (the "SEC").
I-2
<PAGE> 24
THE CURRENT MEMBERS OF THE BOARD OF THE COMPANY
The names of the current directors, their ages as of October 15, 1997 and
certain other information about them are set forth below. As indicated above,
some of the current directors may resign effective immediately following the
purchase of shares by Parent pursuant to the Offer.
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED A POSITION WITH THE COMPANY OR
NAME OF DIRECTOR AGE DIRECTOR PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
- ------------------------- ---- ---------- -------------------------------------------------
<S> <C> <C> <C>
Kenneth P. Ostrow 55 1980 Mr. Ostrow, a founder of the Company, has been an
officer and director of the Company from its
inception in 1980. Prior to founding the Company,
Mr. Ostrow was with Measurex in senior sales,
service and marketing capacities. Mr. Ostrow
holds a B.A. in Mechanical Engineering from Ohio
State University and a M.B.A. from Northeastern
University.
Joseph J. Cusimano 57 1991 Mr. Cusimano was elected a director of the
Company in November 1991. Mr. Cusimano is
President of Honematic Machine Corporation in
Boylston, Massachusetts. Prior to that, he had
been a Corporate Vice President of Norton Company
in Worcester, Massachusetts in charge of its
Superabrasives and Abrasives, Asia Operations.
Mr. Cusimano joined Norton Company in 1966 and
held several positions within the company prior
to his appointment as Marketing Vice President,
Abrasives, Europe, in 1986. In early 1988, Mr.
Cusimano was appointed Divisional Vice President
of Seeded-Gel Products, and in early 1989 he was
elected a Corporate Vice President, Chemical
Process Products.
M. N. Zaharna 55 1992 Mr. Zaharna was elected a director of the Company
in July 1992. Mr. Zaharna was appointed to the
Board of Directors as a representative of Elsag
International N.V., the parent company of Elsag
Bailey, Inc. and a wholly owned subsidiary of
Elsag Bailey Process Automation N.V. (NYSE:EBY).
M. N. Zaharna is Group Executive Vice President
and Chief Operating Officer of Elsag Bailey
Process Automation N.V. Mr. Zaharna has served as
Senior Group Vice President-Americas, Pacific and
the Far East and Group Vice President-Strategic
Marketing and Technology for the Elsag Bailey
group of companies since 1992. Mr. Zaharna has
been with Bailey for over 25 years, serving in
numerous key management positions, including
Executive Vice President and Chief Operating
Officer of Bailey Controls Company.
</TABLE>
Each of the directors has been engaged in the principal occupation(s)
described above during the past five (5) years. There are no family
relationships among any of the directors or executive officers of the Company.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board held a total of two meetings during the fiscal year ended March
31, 1997. During the 1997 fiscal year no director attended fewer than 75% of the
aggregate of all meetings of the Board and the committees, if any, on which such
director served. The Board has an audit committee. The Board has no compensation
or nominating committee or any other committee performing those functions.
The Audit Committee of the Board reviews and evaluates the Company's
accounting principles and its system of internal accounting controls. The Audit
Committee currently consists of Joseph J. Cusimano and M. N. Zaharna.
I-3
<PAGE> 25
The Company currently does not pay any cash compensation to directors for
service on the Company's Board. Outside directors are, however, eligible to
participate in the Company's Discount Stock Option Plan (the "Discount Option
Plan"). Each non-employee director will receive an option to purchase on an
annual basis $15,000 worth of discount stock options ("DSOs"), the number
determined by reference to the closing Nasdaq price of the Company's stock on
the date of grant or 5,000 DSOs, whichever is greater. The options are
exercisable upon vesting at 10% of the fair market value on the date of grant.
Options granted to non-employee directors vest in full on the first anniversary
of the date of grant and expire if not exercised within five years from date of
grant.
During the fiscal year which ended March 31, 1997, the Company granted
options to purchase 5,000 shares under its Discount Option Plan exercisable at
$0.20 per share to each of its Outside Directors, Messrs. Cusimano and Zaharna.
This option was not exercisable by either Mr. Cusimano or Mr. Zaharna during the
fiscal year.
EXECUTIVE OFFICERS OF THE COMPANY
The following individuals currently serve as executive officers of the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
------------------------------------- --- -------------------------------------
<S> <C> <C>
Kenneth P. Ostrow.................... 55 President, Chief Executive Officer
and Chairman
Robert M. Gorski..................... 45 Vice President, Finance, Chief
Financial Officer and Secretary
John F. Lynch, III................... 56 Vice President, Operations
</TABLE>
See "Directors of the Company" above for background information on Mr.
Ostrow.
Mr. Gorski joined the Company in April 1988 as Vice President, Finance and
Administration, Chief Financial Officer and Assistant Secretary. Prior to
joining the Company, he was in senior finance capacities with computer
manufacturers, Amdahl Corporation and Kaypro Corporation, and Price Waterhouse.
He holds a B.S. in Business Administration from the University of Illinois and
is a Certified Public Accountant.
Mr. Lynch joined the Company in December 1982 as Vice President, Midwestern
Sales and is currently Vice President, Operations. Prior to joining the Company,
he was a Vice President of Measurex Corporation and served in various senior
sales, marketing, and service capacities. He holds a B.S. in Chemical
Engineering from the University of Mississippi and a M.B.A. from the Harvard
Business School.
EXECUTIVE COMPENSATION
The following table sets forth all compensation received for services
rendered to the Company in all capacities for each of the three executive
officers of the Company (collectively, the "Named Officers") for the fiscal
years ended March 31, 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM COMPENSATION AWARDS
COMPENSATION --------------------------------
------------------ RESTRICTED NUMBER OF SHARES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK AWARD UNDERLYING OPTIONS
- ------------------------------------- ----- -------- ------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Kenneth P. Ostrow,................... 1997 $230,230 $ 0 -- 15,000
President & Chief Executive Officer 1996 $224,700 $83,590(1) -- 15,000
1995 $213,400 $85,860 -- 15,000
Robert M. Gorski,.................... 1997 $153,034 $ 0 -- 15,000
Vice President, Finance, Chief 1996 $147,210 $36,506(1) -- 15,000
Financial Officer & Secretary 1995 $147,210 $46,598 -- 15,000
John F. Lynch III,................... 1997 $139,749 $ 0 -- 15,000
Vice President, Operations......... 1996 $136,005 $41,345(1) -- 15,000
1995 $135,381 $30,350 -- 15,000
</TABLE>
- ---------------
(1) Earned in fiscal 1996 but paid in fiscal 1997.
I-4
<PAGE> 26
GRANTS OF STOCK OPTIONS
The following table sets forth certain information with respect to stock
options granted to each of the Named Officers during the fiscal year ended March
31, 1997. In accordance with the rules of the SEC, also shown below is the
potential realizable value over the term of the option (the period from the
grant date to the expiration date) based on assumed rates of stock appreciation
of 5% and 10%, compounded annually. These amounts are based on certain assumed
rates of appreciation and do not represent the Company's estimate of future
stock price. Actual gains, if any, on stock option exercises will be dependent
on the future performance of the Common Stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
-------------------------------------------------------------- STOCK
% OF TOTAL PRICE APPRECIATION
NUMBER OF SHARES OPTIONS GRANTED EXERCISE FOR OPTION TERM
UNDERLYING TO EMPLOYEES IN PRICE EXPIRATION -------------------
NAME OPTIONS GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
- ----------------------- ---------------- ---------------- ---------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Kenneth P. Ostrow...... 15,000(1) 17.7% $ 2.00 10/16/06 $18,867 $47,812
Robert M. Gorski....... 15,000(1) 17.7% 2.00 10/16/06 18,867 47,812
John F. Lynch III...... 15,000(1) 17.7% 2.00 10/16/06 18,867 47,812
</TABLE>
- ---------------
(1) Options granted under the Company's 1995 Incentive Stock Option Plan
typically have a 10-year term, vest over a four-year period of employment
and have an exercise price equal to market value on the date of grant.
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to option exercises
in fiscal 1997 by the Named Officers and the value of such officers' unexercised
options at March 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR-END(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth P. Ostrow............ 0 0 351,250 33,750 $ 306,875 $ 9,375
Robert M. Gorski............. 0 0 141,250 33,750 $ 90,624 $ 0
John F. Lynch III............ 0 0 96,250 33,750 $ 63,438 $ 0
</TABLE>
- ---------------
(1) Market value of underlying securities on the exercise date, minus the
exercise price.
(2) Value is based on the last reported sale price of the Company's Common Stock
on Nasdaq of $1.4375 per share on March 31, 1997 (the last trading day for
fiscal 1997), minus the exercise price.
I-5
<PAGE> 27
CERTAIN TRANSACTIONS
SEVERANCE PLAN
The Company has established a senior change of control plan and a general
change of control plan (the "Senior Plan" and the "General Plan") pursuant to
which its officers may become entitled to certain special severance benefits in
connection with certain changes in control of the Company. The Senior Plan is
applicable to Mr. Ostrow and the General Plan is applicable to Mr. Gorski and
Mr. Lynch.
In the case of the Senior Plan upon a change of control:
(i) all outstanding options at the time held by the officer under the
Option Plan will immediately accelerate and become fully exercisable for
all the option shares, and
(ii) the Company will make a cash lump sum payment to the officer in
an amount equal to $500,000, and
In the case of the General Plan upon a change in control and the
involuntary termination of the officer, the Company will make a lump sum payment
to the officer equal to the minimum of:
(i) six times one-twelfth of the officer's annualized compensation, or
(ii) one-twelfth of the officer's annualized compensation times the
number of years of continuous employment not to exceed nine.
A change in control is defined under each agreement to include (i) a
business combination which has been approved by the requisite vote of
shareholders, (ii) the acquisition of 30% (35% in the case of the Senior Plan)
or more of the Company's outstanding voting stock, (iii) a change in the
composition of the Company's Board as a result of which fewer than a majority of
directors are incumbent directors who either (a) have been Board members since
the adoption of the plan or (b) are elected or nominated for election to the
Board with the affirmative votes of at least a majority of the incumbent
directors at the time of such election or nomination.
Involuntary termination is defined in the General Plan as the officer's
discharge (other than for cause) or other termination of employment, whether
voluntary or involuntary, following a 15% or more reduction in the officer's
compensation or level of responsibilities or a change in the officer's job
location without his or her consent. Termination for cause includes any
involuntary termination triggered by the officer's intentional misconduct.
TRANSACTIONS WITH ELSAG BAILEY AND AFFILIATED ENTITIES
M.N. Zaharna, a director of the Company, is the Group Executive Vice
President and Chief Operating Officer of Elsag Bailey Process Automation N.V. In
fiscal 1993, the Company entered into an agreement with Elsag Bailey, Inc.
("Bailey") which serves as the framework for cross-OEM agreements with Bailey, a
wholly owned subsidiary of Elsag International N.V. ("Elsag International"), the
Company's largest shareholder. The cross-OEM agreement covers both hardware and
software. Elsag Bailey Process Automation N.V., which ultimately owns and
controls both Elsag International and Bailey, owns 22.9% of the Company's
outstanding Common Stock at March 31, 1997. Bailey acts as an OEM for the
Company's Unity(TM) Distributed Control System and related software, its
complete line of cross-direction actuators and related software, drying systems,
and the "Advantage Plus(TM)" line of scanners and sensors.
During fiscal 1997, the Company recorded revenue of approximately
$2,568,000 on sales to Bailey and Elsag Bailey (Canada) Inc. ("Bailey Canada"),
both of which are subsidiaries to Elsag International. During fiscal 1996, the
Company recorded revenue of $300,000 to Bailey. There were no sales during
fiscal 1995 to Bailey or its affiliates.
For fiscal 1996, and 1997, the Company purchased $213,000, and $540,000,
respectively, in hardware and software from Bailey or Bailey Canada.
I-6
<PAGE> 28
At March 31, 1996 the Company had a net outstanding receivable of $441,000
from Elsag Bailey and Bailey Canada, and a liability of $42,000 in customer
deposits received from an Elsag International subsidiary in Europe. At March 31,
1997 the Company had a net outstanding receivable of $13,000 from Bailey.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Kenneth P. Ostrow
(President and Chief Executive Officer). Under the employment agreement, Mr.
Ostrow is entitled to an initial, annual base salary of $400,000 with guaranteed
increases of at least three percent (3%) per year for the term of his
employment, which ends on September 30, 2001. In addition, Mr. Ostrow is
entitled to a guaranteed bonus of $650,000 payable on September 30, 2001, is
eligible for a discretionary bonus as determined by the Board, may participate
in the Incentive Bonus Plan and is entitled to certain other fringe benefits. If
Mr. Ostrow's employment is terminated under certain circumstances, he would be
entitled to certain severance payments.
The Company has also entered into an employment agreement with each of
Robert M. Gorski (Chief Financial Officer) and John F. Lynch, III (Vice
President, Operations). Under these employment agreements, Mr. Gorski and Mr.
Lynch are entitled to an initial, annual base salary of $250,000 and $175,000,
respectively, with guaranteed increases of at least three percent (3%) per year
for the terms of their employment, which end on September 30, 2001. In addition,
Mr. Gorski and Mr. Lynch are entitled to a guaranteed bonus of $400,000 and
$290,000, respectively, payable on September 30, 2001, they are eligible for an
annual bonus to be determined by the Board or any Compensation Committee, and
they are eligible to participate in the Company's employee benefit plans. If
either Mr. Gorski's or Mr. Lynch's employment is terminated under certain
circumstances, either employee would be entitled to certain severance payments.
INCENTIVE BONUS PLAN
The Company established an Incentive Bonus Plan (the "Bonus Plan") to
provide certain employees of the Company who will perform continuing services to
the Company. Under the Bonus Plan, certain employees ("Eligible Employees"),
including Messrs. Ostrow, Gorski and Lynch, will be entitled to receive a bonus
payment tied to the Company's average net earnings before interest, taxes and
amortization, subject to certain provisions, attained in any two consecutive
financial or business years. Mr. Gorski and Mr. Lynch have guaranteed minimum
bonuses of $400,000 and $290,000, respectively, subject to certain terms and
conditions of the Bonus Plan.
I-7
<PAGE> 29
SECURITY OWNERSHIP
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock as of August
15, 1997, by (a) each director of the Company, (b) the Company's Chief Executive
Officer and each of the other executive officers, (c) all directors and
executive officers of the Company as a group, and (d) each beneficial owner of
5% or more of the outstanding shares of the Company's Common Stock. Except as
otherwise indicated, each person has sole voting and investment power with
respect to all shares shown as beneficially owned, subject to community property
laws where applicable.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIAL OWNER (1) BENEFICIALLY OWNED BENEFICIALLY OWNED
- ------------------------------------------------------------ ------------------ ------------------
<S> <C> <C>
Elsag Bailey Process Automation N.V.(2)..................... 2,378,900 22.7%
Schiphol Boulevard 157,
1118 BG Luchthaven Schiphol,
The Netherlands
Kenneth P. Ostrow(3)........................................ 1,019,734 9.7
14600 Winchester Boulevard
Los Gatos, CA 95030
Joseph J. Cusimano(4)....................................... 43,461 *
M. N. Zaharna(5)(6)......................................... 10,000 *
Robert M. Gorski(7)......................................... 141,250 1.3
John F. Lynch, III(8)....................................... 126,250 1.2
All directors and executive officers as a group (5 1,340,695 12.8
persons)(5)(9)............................................
</TABLE>
- ---------------
* Represents less than 1% of the outstanding Common Stock.
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and the information
contained in the footnotes hereunder.
(2) All 2,378,900 shares held of record by Elsag International N.V. which is
ultimately owned and controlled by Elsag Bailey Process Automation N.V.
(3) Includes 351,250 shares issuable upon exercise of options exercisable within
60 days of August 15, 1997.
(4) Excludes 1,500 shares beneficially owned by children of Mr. Cusimano, as to
which Mr. Cusimano disclaims beneficial ownership. Includes 10,000 shares
issuable upon exercise of options exercisable within 60 days of August 15,
1997.
(5) Excludes 2,378,900 shares beneficially owned by Elsag Bailey Process
Automation N.V., as to which Mr. Zaharna disclaims beneficial ownership. Mr.
Zaharna is currently the Group Executive Vice President and Chief Operating
Officer of Elsag Bailey Process Automation N.V.
(6) Consists of 10,000 shares issuable upon exercise of options exercisable
within 60 days of August 15, 1997.
(7) Consists of 141,250 shares issuable upon exercise of options exercisable
within 60 days of August 15, 1997.
(8) Includes 96,250 shares issuable upon exercise of options exercisable within
60 days of August 15, 1997.
(9) Includes 608,750 shares issuable upon exercise of options exercisable within
60 days of August 15, 1997.
I-8
<PAGE> 30
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons beneficially owning more than 10% of the
outstanding Common Stock of the Company to file reports of ownership and changes
in ownership with the SEC. Officers, directors and greater than 10% holders of
Common Stock are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file during its most recent fiscal year.
Based solely on copies of such forms furnished as provided above, or
written representations that no Forms 5 were required, the Company believes that
through the date hereof, all Section 16(a) filing requirements applicable to its
officers, directors and owners of greater than 10% of its Common Stock were
complied with.
I-9
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT INDEX
- ------- -----------------------------------------------------------------------------------
<C> <S>
1 Agreement and Plan of Merger, dated December 11, 1997, by and among Voith Sulzer
Paper Technology North America Inc., Voith Sulzer Acquisition Corp., and Impact
Systems, Inc.
2 Stock Option Agreement, dated December 11, 1997, by and among Voith Sulzer Paper
Technology North America Inc., Voith Sulzer Acquisition Corp., and Impact Systems,
Inc.
3 Stockholder Agreement, dated December 11, 1997, among Voith Sulzer Paper Technology
North America Inc., Voith Sulzer Acquisition Corp., and Elsag International N.V.
4 Stockholder Agreement, dated December 11, 1997, among Voith Sulzer Paper Technology
North America Inc., Voith Sulzer Acquisition Corp., and Kenneth P. Ostrow
5 Letter to Shareholders of Impact Systems, Inc., dated December 18, 1997
6 Press Release issued on December 12, 1997
7 Senior Executive Change in Control Plan as amended and restated December 11, 1997
8 Incentive Bonus Plan of Impact Systems, Inc. adopted December 11, 1997
9 Noncompetition Agreement, dated December 11, 1997, by and between Voith Sulzer
Paper Technology North America, Inc. and Kenneth P. Ostrow
10 Employment Agreement, dated December 11, 1997, by and between Impact Systems, Inc.
and Kenneth P. Ostrow
11 Employment Agreement, dated December 11, 1997, by and between Impact Systems, Inc.
and Robert M. Gorski
12 Employment Agreement, dated December 11, 1997 by and between Impact Systems, Inc.
and John F. Lynch, III
13 Information under the captions "Security Ownership," "Director Compensation,"
"Executive Officer Compensation," "Option Grants in Last Fiscal Year," "Option
Exercises and Holdings," "Severance Agreements," and "Certain
Transactions -- Working Agreement," as set forth in the Company's Proxy Statement,
dated September 9, 1997, for its 1997 Annual Meeting of Shareholders
14 Form of Indemnification Agreement
</TABLE>
<PAGE> 1
EXHIBIT 1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated December 11, 1997 (this "Agreement"),
by and among Voith Sulzer Paper Technology North America Inc., a Delaware
company ("Parent"), Voith Sulzer Acquisition Corp., a California corporation and
a wholly-owned subsidiary of Parent (the "Purchaser"), and Impact Systems, Inc.,
a California corporation (the "Company").
WHEREAS, as a condition and inducement to Parent's willingness to enter
into this Agreement, Parent has entered into Stockholder Agreements, dated the
date hereof, with certain holders of capital stock of the Company (the
"Stockholder Agreements"); and
WHEREAS, the respective Boards of Directors of Parent, the Purchaser and
the Company have approved the acquisition of the Company by the Purchaser on the
terms and subject to the conditions set forth in this Agreement; and
WHEREAS, in furtherance of such acquisition, Parent proposes to cause the
Purchaser to make a tender offer (as it may be amended from time to time as
permitted under this Agreement, the "Offer") to purchase all of the issued and
outstanding shares of common stock, no par value per share, of the Company (the
"Common Shares" or "Shares") at a price per Common Share of $2.75 net to the
seller in cash (such price, as it may hereafter be increased, the "Offer
Price"); and
WHEREAS, the Board of Directors of the Company has approved this Agreement,
the Offer and the Merger (as hereinafter defined), has determined that the Offer
and the Merger are fair and in the best interests of the Company's shareholders
(the "Shareholders"), and is recommending that the Shareholders accept the Offer
and tender all their Shares; and
WHEREAS, the respective Boards of Directors of Parent, the Purchaser and
the Company have approved the merger of the Purchaser with and into the Company,
as set forth below (the "Merger"), in accordance with the General Corporation
Law of the State of California (the "GCL") and upon the terms and subject to the
conditions set forth in this Agreement, whereby each issued and outstanding
Share not owned directly or indirectly by Parent, the Purchaser or the Company
will be converted into the right to receive the Offer Price in cash; and
WHEREAS, as a further inducement to Parent to enter into this Agreement,
Parent, the Purchaser and the Company have entered into a Stock Option
Agreement, dated the date hereof (the "Stock Option Agreement"), pursuant to
which the Company has granted to the Purchaser an option to purchase newly
issued Common Shares under certain circumstances; and
WHEREAS, Parent, the Purchaser and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and the Merger and also to prescribe various conditions to the Offer and
the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, Parent,
the Purchaser and the Company agree as follows.
ARTICLE I
THE OFFER
SECTION 1.01 The Offer.
(a) So long as none of the events set forth in clauses (a) through (g) of
Annex I hereto shall have occurred or exist, the Purchaser shall, and Parent
shall cause the Purchaser to, commence (within the meaning of Rule 14d-2(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as
<PAGE> 2
promptly as practicable after the date hereof, but in any event not later than
December 18, 1997, the Offer for any and all outstanding Shares not owned by the
Purchaser at the Offer Price applicable to such Shares, net to the seller in
cash. The initial expiration date for the Offer shall be the twentieth business
day from and after the date the Offer is commenced, including the date of
commencement as the first business day in accordance with Rule 14d-2 under the
Exchange Act (the "Initial Expiration Date"). As promptly as practicable, the
Purchaser shall file with the Securities and Exchange Commission (the "SEC") the
Purchaser's Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1" and
together with the documents therein pursuant to which the Offer will be made,
and with any supplements or amendments thereto, the "Offer Documents"), which
shall contain (as an exhibit thereto) the Purchaser's Offer to Purchase (the
"Offer to Purchase") which shall be mailed to the holders of Shares with respect
to the Offer. The obligation of Parent and the Purchaser to accept for payment
or pay for any Shares tendered pursuant to the Offer will be subject only to the
satisfaction or waiver of the conditions set forth in Annex I hereto. Without
the prior written consent of the Company, the Purchaser shall not (i) decrease
the Offer Price or change the form of consideration payable in the Offer, (ii)
decrease the number of Shares sought to be purchased in the Offer (except as
otherwise set forth in Section 1.01(b) hereof), (iii) change the conditions set
forth in Annex I, (iv) extend the expiration date of the Offer (except as
required by applicable rules and regulations of the SEC and except that
Purchaser may in its discretion extend the expiration date of the Offer for up
to 10 business days after the Initial Expiration Date, and may extend the Offer
thereafter for longer periods (not to exceed 90 calendar days from the date of
commencement (unless, in the Company's sole discretion, the Company requests
that the expiration date of the Offer be further extended, up to a maximum of
120 calendar days) from the date of commencement in the event that any condition
to the Offer is not satisfied or waived) (v) impose additional conditions to the
Offer, or (vi) amend any other term of the Offer in any manner adverse to the
holders of any Shares.
(b) Subject to the limitations set forth in clause (iv) of Section 1.01(a),
in the event the Minimum Condition (as defined in Annex I) is not satisfied on
any scheduled expiration date of the Offer, the Purchaser may either (i) extend
the Offer pursuant to clause (iv) of the last sentence of Section 1.01(a) or
(ii) amend the Offer to provide that, in the event (x) the Minimum Condition is
not satisfied at the next scheduled expiration date of the Offer (after giving
pro forma effect to the potential issuance of any Common Shares issuable upon
exercise of the Stock Option Agreement) and (y) the number of Common Shares
tendered pursuant to the Offer and not withdrawn as of such next scheduled
expiration date is more than 50% of the then outstanding Common Shares, the
Purchaser must waive the Minimum Condition and amend the Offer to reduce the
number of Common Shares subject to the Offer to a number of Shares that when
added to the Shares then owned by the Purchaser will equal 49.9999% of the
Common Shares then outstanding (the "Revised Minimum Number") and, if a greater
number of shares is tendered into the Offer and not withdrawn, purchase, on a
pro rata basis, the Revised Minimum Number of Common Shares (it being understood
that the Purchaser may, but shall not in any event be required to, accept for
payment, or pay for, any Common Shares if less than the Revised Minimum Number
of Shares are tendered pursuant to the Offer and not withdrawn at the applicable
expiration date).
(c) Subject to the terms of the Offer and this Agreement and the
satisfaction or waiver of all the conditions of the Offer set forth in Annex I
hereto as of any expiration date, the Purchaser will accept for payment and pay
for all Shares validly tendered and not withdrawn pursuant to the Offer as soon
as practicable after such expiration date of the Offer.
(d) The Offer Documents will comply in all material respects with the
provisions of applicable federal securities laws and, on the date filed with the
SEC and on the date first published, sent or given to the Shareholders, shall
not 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 made therein, in light of the circumstances under which they were
made, not misleading, except that no representation is made by Parent or the
Purchaser with respect to information supplied by the Company in writing for
inclusion in the Offer Documents. No representation, warranty or covenant is
made or shall be made herein by the Company with respect to information
contained in the Offer Documents other than information supplied by the Company
in writing expressly for inclusion in the Offer Documents. Each of Parent and
the Purchaser, on the one hand,
- 2 -
<PAGE> 3
and the Company, on the other hand, agrees promptly to correct any information
provided by it for use in the Offer Documents if and to the extent that it shall
have become false or misleading in any material respect and the Purchaser
further agrees to take all steps necessary to cause the Offer Documents as so
corrected to be filed with the SEC and to be disseminated to the Shareholders,
in each case as and to the extent required by applicable federal securities
laws. Each of Parent and the Purchaser, on the one hand, and the Company, on the
other hand, agrees to give a reasonable opportunity to review and comment upon
any Offer Document to be filed with the SEC prior to any such filing and to
provide in writing any comments each may receive from the SEC or its staff with
respect to the Offer Documents promptly after the receipt of such comments.
SECTION 1.02 Company Actions.
(a) The Company shall file with the SEC, simultaneously with the filing by
Parent and Purchaser of the Schedule 14D-1, and mail to the holders of Shares a
Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the
Offer (together with any amendments or supplements thereto, the "Schedule
14D-9"). The Schedule 14D-9 will set forth, and the Company hereby represents,
that the Board of Directors of the Company, at a meeting duly called and held,
has (i) determined that the Offer and the Merger are fair to and in the best
interests of the Company and the Shareholders, (ii) approved the Offer and the
Merger in accordance with Section 1101 of the GCL and approved this Agreement
and the Stock Option Agreement, and (iii) resolved to recommend acceptance of
the Offer by the Shareholders; provided, however, that such recommendation may
be withdrawn, modified or amended to the extent that the Board of Directors of
the Company determines in good faith by a majority vote that it is necessary
under applicable Law (as hereinafter defined) to do so in the exercise of its
fiduciary duties to the Shareholders but only after receipt of written advice of
the Company's outside legal counsel with respect to the fiduciary obligations of
the Board of Directors.
(b) The Schedule 14D-9 will comply in all material respects with the
provisions of applicable federal securities laws and, on the date filed with the
SEC and on the date first published, sent or given to the Shareholders, shall
not 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 made therein, in light of the circumstances under which they were
made, not misleading, except that no representation is made by the Company with
respect to information supplied by Parent or the Purchaser in writing for
inclusion in the Schedule 14D-9. Each of the Company, on the one hand, and
Parent and the Purchaser, on the other hand, agree promptly to correct any
information provided by either of them for use in the Schedule 14D-9 if and to
the extent that it shall have become false or misleading, and the Company
further agrees to take all steps necessary to cause the Schedule 14D-9 as so
corrected to be filed with the SEC and to be disseminated to the Shareholders,
in each case as and to the extent required by applicable federal securities law.
(c) In connection with the Offer, the Company will furnish the Purchaser
with such information and assistance as the Purchaser or its agents or
representatives may reasonably request in connection with communicating the
Offer to the record and beneficial holders of the Shares, including, without
limitation, its stockholders list, security position listings and non-objecting
beneficial owners list, if any. Subject to the requirements of applicable Law,
and except for such actions as are necessary to disseminate the Offer Documents
and any other documents necessary to consummate the Offer and the Merger, Parent
and the Purchaser and each of their affiliates, associates, partners, employees,
agents and advisors shall hold in confidence the information contained in such
stockholders list, security position listings and non-objecting beneficial
owners list, shall use such information only in connection with the Offer and
the Merger, and, if this Agreement is terminated in accordance with its terms,
shall deliver promptly to the Company all copies of such information (and any
copies, compilations or extracts thereof or based thereon) then in their
possession or under their control.
SECTION 1.03 Directors.
(a) Subject to compliance with applicable Law, promptly upon the payment by
the Purchaser for Shares pursuant to the Offer, and from time to time
thereafter, the Purchaser shall be entitled to designate such number of
directors, rounded up to the next whole number, on the Board of Directors of the
Company as is equal to the product of the total number of directors on the Board
of Directors of the Company (determined
- 3 -
<PAGE> 4
after giving effect to the directors elected pursuant to this sentence)
multiplied by the percentage that the aggregate number of Shares beneficially
owned by the Purchaser or its affiliates bears to the total number of Shares
then outstanding, and the Company shall, subject to compliance with Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, upon request of
the Purchaser, promptly take all actions necessary to cause the Purchaser's
designees to be so elected, including, if necessary, seeking the resignations of
one or more existing directors; provided, however, that prior to the Effective
Time (as defined in Section 2.02) the Board of Directors of the Company shall
always have at least two members who are neither officers, directors,
stockholders or designees of the Purchaser or any of its affiliates ("Purchaser
Insiders"); and provided further, however, that the Purchaser shall be entitled
to designate a number of directors equal to or greater than 50% of the total
number of directors only if the Purchaser acquires 90% or more of the
outstanding Shares pursuant to the Offer. If the number of directors who are not
Purchaser Insiders is reduced below two for any reason prior to the Effective
Time, then the remaining directors who are not Purchaser Insiders (or if there
is only one director who is not a Purchaser Insider, the remaining director who
is not a Purchaser Insider) shall be entitled to designate a person (or persons)
to fill such vacancy (or vacancies) who is not an officer, director, stockholder
or designee of the Purchaser or any of its affiliates and who shall be a
director not deemed to be a Purchaser Insider for all purposes of this
Agreement.
(b) The Company's obligation to appoint the Purchaser's designees to the
Board of Directors of the Company shall be subject to Section 14(f) of the
Exchange Act and Rule 14f-1 thereunder. The Company shall promptly take all
actions required pursuant to such Section and Rule in order to fulfill its
obligations under this Section 1.03 and shall include in the Schedule 14D-9 such
information with respect to the Company and its officers and directors as is
required under such Section and Rule in order to fulfill its obligations under
this Section 1.03. Parent will supply in writing any information with respect to
itself and its officers, directors and affiliates required by such Section and
Rule to the Company.
(c) From and after the election or appointment of the Purchaser's designees
pursuant to this Section 1.03 and prior to the Effective Time, any amendment or
termination of this Agreement by the Company, any extension by the Company of
the time for the performance of any of the obligations or other acts of Parent
or the Purchaser or waiver of any of the Company's rights hereunder, or any
other action taken by the Board in connection with this Agreement, will require
the concurrence of a majority of the directors of the Company then in office who
are not Purchaser Insiders.
ARTICLE II
THE MERGER
SECTION 2.01 The Merger. Upon the terms and subject to the satisfaction or
waiver of the conditions hereof, and in accordance with the applicable
provisions of this Agreement and the GCL, at the Effective Time (as defined in
Section 2.02) the Purchaser shall be merged with and into the Company. Following
the Merger, the separate corporate existence of the Purchaser shall cease and
the Company shall continue as the surviving corporation (the "Surviving
Corporation").
SECTION 2.02 Effective Time; Closing. As soon as practicable after the
satisfaction or waiver of the Second-Step Conditions set forth in Article VII
hereof, the Company shall execute in the manner required by the GCL and file in
the office of the Secretary of State of the State of California an agreement of
merger together with an officer's certificate of the Company and the Purchaser,
and the parties shall take such other and further actions as may be required by
Law to make the Merger effective. The time the Merger becomes effective in
accordance with applicable Law is referred to as the Effective Time. On the
business day immediately preceding such filing, a closing shall be held at the
offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto,
California 94304, unless another date or place is agreed to in writing by the
parties hereto, for the purpose of confirming the satisfaction or waiver, as the
case may be, of the conditions set forth in Article VII.
SECTION 2.03 Effects of the Merger. The Merger shall have the effects set
forth in Section 1107 of the GCL.
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SECTION 2.04 Articles of Incorporation and By-Laws of the Surviving
Corporation.
(a) The articles of incorporation of the Company, as in effect immediately
prior to the Effective Time, shall be the articles of incorporation of the
Surviving Corporation until thereafter amended in accordance with the provisions
thereof and hereof and applicable Law.
(b) The by-laws of the Company in effect at the Effective Time shall be the
by-laws of the Surviving Corporation until thereafter amended in accordance with
the provisions thereof and hereof and applicable Law.
SECTION 2.05 Directors. Subject to applicable Law, the directors of the
Purchaser immediately prior to the Effective Time shall be the initial directors
of the Surviving Corporation and shall hold office until their respective
successors are duly elected and qualified, or their earlier death, resignation
or removal.
SECTION 2.06 Officers. The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation and
shall hold office until their respective successors are duly elected and
qualified, or their earlier death, resignation or removal.
SECTION 2.07 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of the holders thereof, each Share
issued and outstanding immediately prior to the Effective Time (other than any
Shares held by Parent, the Purchaser, any wholly-owned subsidiary of Parent or
the Purchaser, in the treasury of the Company or by any wholly-owned subsidiary
of the Company, which Shares, by virtue of the Merger and without any action on
the part of the holder thereof, shall be canceled and retired and shall cease to
exist with no payment being made with respect thereto, and other than Dissenting
Shares (as defined in Section 3.01)) shall be converted into the right to
receive in cash the Offer Price (the "Merger Price").
SECTION 2.08 Conversion of Purchaser Common Stock. At the Effective Time,
the shares of common stock, no par value, of the Purchaser issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into and become the number of validly issued, fully paid and nonassessable
shares of common stock, no par value, of the Surviving Corporation equal to the
number of Common Shares outstanding on a fully diluted basis immediately prior
to the Effective Time.
SECTION 2.09 Company Option Plans. The Company shall take all actions
necessary so that, immediately prior to the Effective Time, (A) each outstanding
option to purchase Common Shares (an "Option") granted under the Company's
Discount Stock Option Plan, 1995 Incentive Stock Option Plan, 1985 Incentive
Stock Option Plan and 1982 Incentive Stock Option Plan (collectively, the
"Option Plans"), whether or not then exercisable or vested, shall become fully
exercisable and vested, (B) each Option which is then outstanding shall be
cancelled and (C) in consideration of such cancellation, and except to the
extent that Parent or the Purchaser and the holder of any such Option otherwise
agree, immediately following consummation of the Merger, the Company shall
promptly pay to such holders of Options an amount in respect thereof equal to
the product of (1) the excess of the Merger Price over the exercise price
thereof and (2) the number of Common Shares subject thereto (such payment to be
net of taxes required by law to be withheld with respect thereto); provided that
the foregoing shall be subject to the obtaining of any necessary consents of
holders of Options, it being agreed that the Company and Parent will use their
commercially reasonable best efforts to obtain any such consents.
SECTION 2.10 Shareholders' Meeting.
(a) If required by the Company's articles of incorporation and/or
applicable Law in order to consummate the Merger, the Company, acting through
its Board of Directors, shall, in accordance with applicable Law:
(i) duly call, give notice of, convene and hold a special meeting of
the Shareholders (the "Shareholders' Meeting") as soon as practicable
following the acceptance for payment of and payment for Shares by the
Purchaser pursuant to the Offer for the purpose of considering and taking
action upon this Agreement;
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(ii) prepare and file with the SEC a preliminary proxy statement
relating to the Merger and this Agreement and use its commercially
reasonable best efforts (x) to obtain and furnish the information required
to be included by the SEC in the Proxy Statement (as hereinafter defined)
and, after the consultation with Parent, to respond promptly to any
comments made by the SEC with respect to the preliminary proxy statement
and, subject to compliance with SEC rules and regulations, to cause a
definitive proxy statement (the "Proxy Statement") to be mailed to the
Shareholders and (y) to obtain the necessary approvals of the Merger and
this Agreement by the Shareholders; and
(iii) subject to the fiduciary obligations of the Board of Directors
of the Company under applicable Law, include in the Proxy Statement the
recommendation of the Board of Directors of the Company that the
Shareholders vote in favor of the approval of the Merger and the adoption
of this Agreement.
(b) Parent and the Purchaser will furnish to the Company the information
relating to Parent and the Purchaser required under the Exchange Act and the
rules and regulations thereunder to be set forth in the Proxy Statement.
(c) Parent agrees that it will (i) vote, or cause to be voted, all of the
Shares then owned by it, the Purchaser or any of its other subsidiaries in favor
of the approval of the Merger and the adoption of this Agreement and (ii) take
or cause to be taken all additional corporate actions necessary for the
Purchaser to adopt and approve this Agreement and the transactions contemplated
hereby.
SECTION 2.11 Merger Without Meeting of Shareholders. Notwithstanding
Section 2.10, in the event that Parent, the Purchaser or any other subsidiary of
Parent shall have acquired at least 90% of the outstanding Shares pursuant to
the Offer (including as a result of the exercise of the Stock Option Agreement)
and prior transactions, the parties hereto agree to take all necessary and
appropriate action to cause the Merger to become effective as soon as
practicable after the acceptance for payment of and payment for Shares by the
Purchaser pursuant to the Offer without a meeting of Shareholders, in accordance
with Section 1110 of the GCL.
SECTION 2.12 Earliest Consummation. Each party hereto shall use its
commercially reasonable best efforts to consummate the Merger as soon as
practicable. If the conditions set forth in Annex I hereto are satisfied, or
waived, the Purchaser shall consummate the Offer and accept for payment Shares
tendered therein and thereafter effectuate the Merger.
ARTICLE III
DISSENTING SHARES; PAYMENT FOR SHARES
SECTION 3.01 Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, Shares outstanding immediately prior to the Effective Time and
held by a holder who has not voted in favor of the Merger or consented thereto
in writing and who has demanded appraisal for such shares in accordance with
Section 1300 of the GCL, if such Section 1300 provides for appraisal rights for
such Shares in the Merger ("Dissenting Shares"), shall not be converted into the
right to receive the Merger Price as provided in Section 2.07, unless and until
such holder fails to perfect or withdraws or otherwise loses his right to
appraisal and payment under the GCL. If, after the Effective Time, any such
holder fails to perfect or withdraws or loses his right to appraisal, then such
Dissenting Shares shall thereupon be treated as if they had been converted as of
the Effective Time into the right to receive the Merger Price, if any, to which
such holder is entitled, without interest or dividends thereon. The Company
shall give Parent prompt notice of any demands received by the Company for
appraisal of Shares and, prior to the Effective Time, Parent shall have the
right to participate in all negotiations and proceedings with respect to such
demands. Prior to the Effective Time, the Company shall not, except with the
prior written consent of Parent, make any payment with respect to or settle or
offer to settle, any such demands.
SECTION 3.02 Payment for Shares.
(a) Prior to the commencement of the Offer, Purchaser shall appoint a
United States bank or trust company mutually acceptable to the Company and
Parent to act as paying agent (the "Paying Agent") for the
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payment of the Offer Price and the Merger Price. Prior to the payment time
thereof, Parent shall deposit or shall cause to be deposited with the Paying
Agent in a separate fund established for the benefit of the holders of Shares,
for payment in accordance with this Article III, through the Paying Agent (the
"Payment Fund"), immediately available funds in amounts necessary to make the
payments pursuant to the Offer, Section 2.07 and this Section 3.02 to holders
(other than the Company or any subsidiary of the Company or Parent, Purchaser or
any other subsidiary of Parent, or holders of Dissenting Shares). The Paying
Agent shall pay the Offer Price and the Merger Price out of the Payment Fund.
From time to time at or after the Effective Time, Parent shall take all
lawful action necessary to make the appropriate cash payments, if any, to
holders of Dissenting Shares. Prior to the Effective Time, Parent shall enter
into appropriate commercial arrangements to ensure effectuation of the
immediately preceding sentence. The Paying Agent shall invest the Payment Fund
as directed by Parent or the Purchaser in obligations of, or guaranteed by, the
United States of America, in commercial paper obligations rated A-1 or P-1 or
better by Moody's Investor Services or Standard & Poor's Corporation,
respectively, or in certificates of deposit, bank repurchase agreements or
bankers' acceptances of commercial banks with capital exceeding $1 billion, in
each case with maturities not exceeding seven days. Parent shall cause the
Payment Fund to be promptly replenished to the extent of any losses incurred as
a result of the aforementioned investments. All earnings thereon shall inure to
the benefit of the Surviving Corporation. If for any reason (including losses)
the Payment Fund is inadequate to pay the amounts to which holders of Shares
shall be entitled under Section 2.07 and this Section 3.02, Parent shall in any
event be liable for payment thereof. The Payment Fund shall not be used for any
purpose except as expressly provided in this Agreement.
(b) Promptly after the Effective Time, the Paying Agent shall mail to each
record holder of certificates (the "Certificates") that immediately prior to the
Effective Time represented Shares entitled to payment of the Merger Price
pursuant to Section 2.07 (other than Certificates representing Dissenting Shares
and Certificates representing Shares held by Parent or the Purchaser, any
wholly-owned subsidiary of Parent or the Purchaser, in the treasury of the
Company or by any wholly-owned subsidiary of the Company) a form of letter of
transmittal which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Paying Agent and instructions for use in surrendering such
Certificates and receiving the aggregate Merger Price, in respect thereof. Upon
the surrender of each such certificate and subject to applicable withholding,
the Paying Agent shall pay the holder of such Certificate in respect of Shares,
the Merger Price multiplied by the number of Shares formerly represented by such
Certificate, and such Certificate shall forthwith be cancelled. Until so
surrendered, each such Certificate (other than Certificates representing
Dissenting Shares and Certificates representing Shares held by Parent or the
Purchaser, any wholly-owned subsidiary of Parent or the Purchaser, in the
treasury of the Company or by any wholly-owned subsidiary of the Company) shall
represent solely the right to receive the aggregate Merger Price relating
thereto. No interest or dividends shall be paid or accrued on the Merger Price.
If the Merger Price (or any portion thereof) is to be delivered to any person
other than the person in whose name the Certificate formerly representing Shares
is registered, it shall be a condition to such right to receive such Merger
Price, as applicable, that the Certificate so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the person
surrendering such Certificates shall pay to the Paying Agent any transfer or
other taxes required by reason of the payment of the Merger Price to a person
other than the registered holder of the Certificate surrendered, or shall
establish to the satisfaction of the Paying Agent that such tax has been paid or
is not applicable.
(c) Promptly following the date which is 270 days after the Effective Time,
the Paying Agent shall deliver to the Surviving Corporation all cash,
Certificates and other documents in its possession relating to the transactions
described in this Agreement, and the Paying Agent's duties shall terminate.
Thereafter, each holder of a Certificate formerly representing a Share may
surrender such Certificate to the Surviving Corporation and (subject to
applicable abandoned property, escheat and similar laws) receive in
consideration therefor the aggregate Merger Price, without any interest or
dividends thereon.
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any Shares, which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates formerly representing Shares are presented to the Surviving
Corporation or the
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Paying Agent, they shall be surrendered and cancelled in return for the payment
of the aggregate Merger Price relating thereto, as provided in this Article III,
subject to applicable law in the case of Dissenting Shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and the Purchaser as
follows (with such exceptions thereto as are set forth in the disclosure
schedule delivered by the Company to Parent on the date hereof (the "Company
Disclosure Statement")):
SECTION 4.01 Organization and Qualification; Subsidiaries. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. Each of the Company's subsidiaries (the
"Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. The Company
and each of the Subsidiaries has the requisite corporate power and authority to
own, operate or lease its properties and to carry on its business as it is now
being conducted, and is duly qualified or licensed to do business, and is in
good standing, in each jurisdiction in which the nature of its business or the
properties owned, operated or leased by it makes such qualification, licensing
or good standing necessary, except where the failures to have such power or
authority, or the failures to be so qualified, licensed or in good standing,
individually, and in the aggregate, would not have a Material Adverse Effect on
the Company. The term "Material Adverse Effect on the Company", as used in this
Agreement, means any change in or effect on the business, results of operations,
assets or condition (financial or otherwise) of the Company or any of the
Subsidiaries that is materially adverse to the Company and the Subsidiaries
taken as a whole.
SECTION 4.02 Articles of Incorporation and By-Laws. The Company has
heretofore made available to Parent and the Purchaser a complete and correct
copy of the articles of incorporation and the by-laws, each as amended to the
date hereof and a copy of which is set forth in Section 4.02 of the Company
Disclosure Statement, of each of the Company and the Subsidiaries.
SECTION 4.03 Capitalization. The authorized capital stock of the Company
consists of 20,000,000 Common Shares and 2,000,000 shares of preferred stock, no
par value (the "Preferred Stock"). As of the close of business on December 10,
1997, there were 10,511,576 Common Shares issued and no shares of Preferred
Stock issued. The Company has no shares of capital stock reserved for issuance,
except that, as of December 10, 1997, there were 1,201,102 Common Shares
reserved for issuance pursuant to Options granted pursuant to the Option Plans.
Since March 31, 1997, the Company has not issued any shares of capital stock
except pursuant to the exercise of Options outstanding as of such date and in
accordance with their terms. All the outstanding Common Shares are, and all
Common Shares which may be issued pursuant to the exercise of outstanding
Options and pursuant to the Stock Option Agreement will be, when issued in
accordance with the respective terms thereof, duly authorized, validly issued,
fully paid and nonassessable. There are no bonds, debentures, notes or other
indebtedness having general voting rights (or convertible into Shares having
such rights) ("Voting Debt") of the Company or any of the Subsidiaries issued
and outstanding. Except as set forth in this Section 4.03 and except for the
Merger and the Stock Option Agreement, there are no existing options, warrants,
calls, subscriptions or other rights, agreements, arrangements or commitments of
any character, relating to the issued or unissued capital stock of the Company
or any of the Subsidiaries, obligating the Company or any of the Subsidiaries to
issue, transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or Voting Debt of, or other equity interest in, the Company or any
of the Subsidiaries or securities convertible into or exchangeable for such
shares or equity interests or obligations of the Company or any of the
Subsidiaries to grant, extend or enter into any such option, warrant, call,
subscription or other right, agreement, arrangement or commitment. Except (i) as
contemplated by the Merger contemplated by this Agreement, (ii) for the
Company's obligations under the Option Plans and (iii) for the Company's
obligations under the Stock Option Agreement, there are no outstanding
contractual obligations of the Company or any of the Subsidiaries to repurchase,
redeem or otherwise acquire any Common Shares or the capital stock of the
Company or any of the Subsidiaries. Each of the outstanding shares of capital
stock of each of the Subsidiaries is duly authorized, validly issued, fully paid
and nonassessable, and such shares of the Subsidiaries as are
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owned by the Company or by another Subsidiary are owned in each case free and
clear of any lien, claim, option, charge, security interest, limitation,
encumbrance and restriction of any kind (any of the foregoing being a "Lien").
Section 4.03 of the Company Disclosure Statement contains a complete list as of
the date hereof of each Subsidiary and sets forth with respect to each of the
Subsidiaries its name and jurisdiction of organization and, with respect to each
Subsidiary that is not wholly-owned by the Company or another Subsidiary, the
percentage of shares of capital stock or share capital owned by the Company or a
Subsidiary. Except for the capital stock of the Subsidiaries or as set forth in
Section 4.03 of the Company Disclosure Statement, the Company does not own,
directly or indirectly, any capital stock or other ownership interest in any
corporation, partnership, limited liability company, joint venture or other
entity.
SECTION 4.04 Authority. The Company has all necessary corporate power and
authority to execute and deliver this Agreement and the Stock Option Agreement
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Stock Option Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby have been duly and validly authorized and approved by the
Board of Directors of the Company and no other corporate proceedings on the part
of the Company are necessary to authorize or approve this Agreement or the Stock
Option Agreement or to consummate the transactions contemplated hereby or
thereby (other than, with respect to the Merger, the approval and adoption of
the Merger and this Agreement by holders of the Shares to the extent required by
the Company's articles of incorporation and by applicable Law). This Agreement
and the Stock Option Agreement have been duly and validly executed and delivered
by the Company and, assuming the due and valid authorization, execution and
delivery of this Agreement and the Stock Option Agreement by Parent and the
Purchaser, constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their respective terms, except that such
enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to the enforcement of creditors' rights
generally and (ii) is subject to general principles of equity. The Board of
Directors of the Company has, at a meeting of such Board duly held on December
11, 1997, approved and adopted this Agreement, the Stock Option Agreement, the
Offer and the Merger and the other transactions contemplated hereby and thereby,
determined that the Offer Price to be received by the holders of Shares pursuant
to the Offer and the Merger is fair to the holders of the Shares and recommends
that the holders of Shares tender their Shares pursuant to the Offer.
SECTION 4.05 No Conflict; Required Filings and Consents.
(a) None of the execution and delivery of this Agreement or the Stock
Option Agreement by the Company, the consummation by the Company of the
transactions contemplated hereby or thereby or the compliance by the Company
with any of the provisions hereof or thereof will (i) conflict with or violate
the articles of incorporation or by-laws of the Company or the comparable
organizational documents of any of the Subsidiaries, (ii) conflict with or
violate any statute, ordinance, rule, regulation, order, judgment or decree
applicable to the Company or the Subsidiaries, or by which any of them or any of
their respective properties or assets may be bound or affected, or (iii) result
in a violation or breach of or constitute a default (or an event which 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, or result
in any loss of any material benefit, or the creation of any Lien on any of the
property or assets of the Company or any of the Subsidiaries (any of the
foregoing referred to in clause (ii) or this clause (iii) being a "Violation")
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries or any of their respective properties may be bound or affected,
except in the case of the foregoing clauses (ii) or (iii) for any Violation
which, individually and in the aggregate, would not have a Material Adverse
Effect on the Company.
(b) None of the execution and delivery of this Agreement or the Stock
Option Agreement by the Company, the consummation by the Company of the
transactions contemplated hereby or thereby or the compliance by the Company
with any of the provisions hereof or thereof will require any consent, waiver,
approval, authorization or permit of, or registration or filing with or
notification to (any of the foregoing being a "Consent"), any government or
subdivision thereof, or any administrative, governmental or regulatory
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authority, agency, commission, tribunal or body, domestic, foreign or
supranational (a "Governmental Entity"), except for (i) compliance with any
applicable requirements of the Exchange Act, (ii) the filing of an agreement of
merger together with an officer's certificate of the Company and the Purchaser
pursuant to the GCL, (iii) compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and any requirements of any
foreign or supranational Antitrust Laws (as hereinafter defined), (iv) such
filings and approvals as may be required by any applicable state securities,
"blue sky" or takeover Laws, and (v) Consents or filings the failure of which to
obtain or make, individually and in the aggregate, would not have a Material
Adverse Effect on the Company or materially adversely affect the ability of the
Company to consummate the transactions contemplated by this Agreement and the
Stock Option Agreement.
SECTION 4.06 SEC Reports and Financial Statements.
(a) The Company has filed with the SEC all forms, reports, schedules,
registration statements and definitive proxy statements required to be filed by
the Company with the SEC from March 31, 1997 until the date hereof (the "SEC
Reports"). As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Exchange Act or the Securities
Act of 1933, as amended, and the rules and regulations of the SEC promulgated
thereunder applicable, as the case may be, to such SEC Reports, and none of the
SEC Reports contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
(b) The consolidated balance sheets as of March 31, 1997 and 1996 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended March 31, 1997 (including the
related notes and schedules thereto) of the Company contained in the Company's
Form 10-K for the year ended March 31, 1997 included in the SEC Reports present
fairly, in all material respects, the consolidated financial position and the
consolidated results of operations and cash flows of the Company and its
consolidated subsidiaries as of the dates or for the periods presented therein
in conformity with United States generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto).
(c) The consolidated balance sheets and the related statements of income
and cash flows (including in each case the related notes thereto) of the Company
contained in the Forms 10-Q for the periods ended June 30, 1997 and September
30, 1997 and included in the SEC Reports (collectively, the "Quarterly Financial
Statements") have been prepared in accordance with the requirements for interim
financial statements contained in Regulation S-X. The Quarterly Financial
Statements reflect all adjustments, which include only normal recurring
adjustments, necessary to present fairly and do present fairly, in all material
respects, the consolidated financial position, results of operations and cash
flows of the Company for all periods presented therein in conformity with GAAP
applied on a consistent basis during the periods involved.
(d) The Company and the Subsidiaries have no liabilities or obligations of
any nature (whether absolute, accrued, contingent, unmatured, unaccrued,
unliquidated, unasserted, conditional or otherwise) except for liabilities or
obligations (i) reflected or reserved against on the balance sheet as of
September 30, 1997 (including the notes thereto) included in the Quarterly
Financial Statements, (ii) incurred in the ordinary course of business
consistent with past practice since such date, or (iii) as set forth in Schedule
4.06 to the Company Disclosure Statement.
SECTION 4.07 Information. None of the information supplied by the Company
in writing specifically for inclusion or incorporation by reference in (i) the
Offer Documents, (ii) the Schedule 14D-9, (iii) the Proxy Statement or (iv) any
other document to be filed with the SEC or any other Governmental Entity in
connection with the transactions contemplated by this Agreement (the "Other
Filings") will, at the respective times filed with the SEC or other Governmental
Entity and, in addition, in the case of the Proxy Statement, at the date it or
any amendment or supplement is mailed to the Shareholders, at the time of the
Shareholders' Meeting and at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not 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,
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except that no representation is made by the Company with respect to statements
made therein based on information supplied by Parent or the Purchaser in writing
specifically for inclusion in the Proxy Statement.
SECTION 4.08 Tax Matters.
(a) Provision For Taxes. The provision made for taxes on the balance sheet
as of September 30, 1997, which balance sheet is included in the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 (the
"Recent Balance Sheet"), is sufficient for the payment of all federal, state,
foreign, county, local and other income, ad valorem, excise, profits, franchise,
occupation, property, payroll, sales, use, gross receipts and other taxes (and
any interest and penalties) and assessments of the Company and the Subsidiaries,
whether or not disputed, at the date of the Recent Balance Sheet and for all
years and periods prior thereto. Since the date of the Recent Balance Sheet,
neither the Company nor any Subsidiary has incurred any taxes other than taxes
incurred in the ordinary course of business consistent in type and amount with
past practices of the Company and the Subsidiaries.
(b) Tax Returns Filed. Except as set forth on Schedule 4.08(a) of the
Company Disclosure Statement, all federal, state, foreign, county, local and
other tax returns required to be filed by or on behalf of the Company and the
Subsidiaries have been timely filed and when filed were true and correct in all
material respects, and the taxes shown as due thereon were paid or adequately
accrued. Except as set forth on Schedule 4.08(b) of the Company Disclosure
Statement, neither the Company nor any of the Subsidiaries is the beneficiary of
any extension of time within which to file tax returns. The Company has
delivered to Parent and the Purchaser true and complete copies of all tax
returns or reports filed by the Company and the Subsidiaries for taxable periods
ending on or after December 31, 1991. The Company and each Subsidiary have
withheld and paid all taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, creditor, shareholder,
independent contractor or third party, and have filed all required information
returns.
(c) Tax Audits. The federal and state income tax returns of the Company and
the Subsidiaries have been audited by the Internal Revenue Service and
appropriate state taxing authorities for the periods and to the extent set forth
in Schedule 4.08(c) of the Company Disclosure Statement, and neither the Company
nor any Subsidiary has received from the Internal Revenue Service or from the
tax authorities of any state, county, local or other jurisdiction any (i) notice
of underpayment of taxes or other deficiency which has not been paid or (ii) any
objection to any return or report filed by the Company or the Subsidiaries. No
claim has been made by a tax authority in a jurisdiction where any of the
Company and the Subsidiaries does not file tax returns that the Company or any
Subsidiary is or may be subject to taxation by that jurisdiction. Except as set
forth in Schedule 4.08(c) of the Company Disclosure Statement, neither the
Company nor any of the Subsidiaries has waived any statute of limitations with
respect to taxes, or has agreed to an extension of time with respect to a tax
assessment or deficiency. There are outstanding no agreements or waivers
extending the statutory period of limitations applicable to any taxes.
(d) Consolidated Group. Schedule 4.08(d) of the Company Disclosure
Statement lists every year that the Company or any Subsidiaries were a member of
an affiliated group of corporations that filed a consolidated tax return on
which the statute of limitations does not bar a federal tax assessment, and
lists each corporation that has been part of such group. No affiliated group of
corporations of which the Company or any of the Subsidiaries has been a member
has discontinued filing consolidated returns during the past five years. A copy
of any tax sharing agreement to which the Company or any of the Subsidiaries is
a party has been delivered by the Company to Parent and the Purchaser.
(e) Other. Except as set forth in Schedule 4.08(e) of the Company
Disclosure Statement, neither the Company nor any Subsidiary has (i) filed any
consent or agreement under Section 341(f) of the Internal Revenue Code of 1986,
as amended (the "Code"), (ii) applied for any tax ruling, (iii) entered into a
closing agreement with any taxing authority, (iv) filed an election under
Section 338(g) or Section 338(h)(10) of the Code (nor has a deemed election
under Section 338(e) of the Code occurred), (v) made any payments that will not
be deductible because of Section 280G of the Code, or (vi) been a party to any
tax allocation or tax sharing agreement. The Company is not a "United States
real property holding corporation" within the meaning of Section 897 of the
Code.
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SECTION 4.09 No Litigation. There is no action, suit, arbitration,
proceeding, investigation or inquiry, whether civil, criminal or administrative
("Litigation"), pending or, to the knowledge of the Company or the Subsidiaries,
threatened against the Company or the Subsidiaries, their respective businesses
or any of their assets, nor does the Company or the Subsidiaries know, or have
grounds to know, of any basis for any Litigation that would have, individually
or in the aggregate, a Material Adverse Effect on the Company. Except as set
forth in Schedule 4.09 of the Company Disclosure Statement, neither the Company
nor the Subsidiaries or any of their respective assets which are material to the
conduct of the business of the Company and the Subsidiaries, taken as a whole,
as heretofore conducted are subject to any Order (as hereinafter defined) of any
Governmental Entity.
SECTION 4.10 Compliance With Laws and Orders.
(a) Compliance. The Company and the Subsidiaries are in compliance with all
applicable laws, ordinances, rules or regulations (collectively, "Laws") and
orders, writs, injunctions, judgments, plans or decrees (collectively, "Orders")
of any Governmental Entity, except for such failures to so comply which,
individually and in the aggregate, would not have a Material Adverse Effect on
the Company. The business operations of the Company and the Subsidiaries are not
being conducted in violation of any Law or Order of any Governmental Entity,
except for possible violations which, individually or in the aggregate, would
not have a Material Adverse Effect on the Company.
(b) Licenses and Permits. The Company and the Subsidiaries have all
material licenses, permits, approvals, authorizations and consents of all
Governmental Entities and all certification organizations required for the
conduct of the business of the Company and the Subsidiaries (as presently
conducted and as proposed to be conducted under any existing business plan of
the Company or any Subsidiary) and operation of the facilities of the Company
and the Subsidiaries.
(c) Environmental Matters. The applicable Laws relating to pollution or
protection of the environment or health, including Laws relating to emissions,
discharges, generation, storage, labeling, releases or threatened releases of
pollutants, contaminants, radioactive material, chemicals or industrial, toxic,
hazardous or petroleum or petroleum-based substances, hazardous substances or
wastes ("Waste") into the environment (including, without limitation, ambient
air, surface water, ground water, land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Waste including, without limitation,
the Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery
Act, the Toxic Substances Control Act and the Comprehensive Environmental
Response Compensation Liability Act, as amended, and their state, local and
foreign counterparts are herein collectively referred to as the "Environmental
Laws".
The operations of Company and the Subsidiaries have at all times been
(within the period of any applicable statute of limitations) and are currently
in compliance with all Environmental Laws and there are no conditions and have
been no acts or omissions in connection with the operations of the Company or
the Subsidiaries or with any real property now or ever owned or leased by the
Company or any Subsidiary which would impose liability under any Environmental
Law, including but not limited to liability for Waste disposed on or off-site
prior to the Effective Time.
Except as set forth in Schedule 4.10(c) of the Company Disclosure
Statement, the Company has not received any written notice nor, to the knowledge
of the Company or the Subsidiaries, is there any matter threatened against the
Company or any Subsidiary, with respect to any of their respective facilities of
any material violation of or liability under any Environmental Laws which would
have a Material Adverse Effect on the Company.
SECTION 4.11 Title to Properties. The Company and the Subsidiaries have
good and marketable title to all of their respective assets, business and
properties, including, without limitation, all such properties (tangible and
intangible) reflected in the Recent Balance Sheet, except for inventory disposed
of in the ordinary course of business since the date of such Recent Balance
Sheet, free and clear of all mortgages, Liens, claims, licenses, equities,
options, conditional sales contracts, assessments, levies, easements, covenants,
reservations, restrictions, rights-of-way, exceptions, limitations, charges or
encumbrances of any nature
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whatsoever except those described in Schedule 4.11 of the Company Disclosure
Statement, and, in the case of real property, Liens for taxes not yet due or
which are being contested in good faith by appropriate proceedings (and which
have been sufficiently accrued or reserved against in the Recent Balance Sheet),
municipal and zoning ordinances and easements for public utilities, none of
which interfere with the use of the property as currently utilized. None of the
Company's or any Subsidiary's assets, business or properties are subject to any
restrictions with respect to the transferability thereof.
SECTION 4.12 Labor Matters. Except as set forth in Schedule 4.12 of the
Company Disclosure Statement, neither the Company nor any Subsidiary is a party
to any collective bargaining agreement. The employment agreements that have been
entered into by either the Company or any Subsidiary are set forth in Schedule
4.12 of the Company Disclosure Statement. Except to the extent set forth in
Schedule 4.12 of the Company Disclosure Statement, (a) there is no unfair labor
practice charge or complaint against the Company or the Subsidiaries pending or,
to the knowledge of the Company or the Subsidiaries, threatened; (b) there is no
labor strike, dispute, request for representation, slowdown or stoppage actually
pending or, to the knowledge of Company or the Subsidiaries, threatened against
or affecting the Company or the Subsidiaries nor any secondary boycott with
respect to products of the Company or the Subsidiaries; (c) no question
concerning representation has been raised or, to the knowledge of the Company or
the Subsidiaries, is threatened respecting the employees of the Company or the
Subsidiaries; and (d) there are no administrative charges or court complaints
against the Company or the Subsidiaries concerning alleged employment
discrimination or other employment related matters pending or, to the knowledge
of the Company or the Subsidiaries, threatened before the U.S. Equal Employment
Opportunity Commission or any Governmental Entity.
SECTION 4.13 Employee Benefit Plans.
(a) Disclosure. Schedule 4.13(a) of the Company Disclosure Statement sets
forth all pension, thrift, savings, profit sharing, retirement, incentive bonus
or other bonus, medical, dental, life, accident insurance, benefit, employee
welfare, disability, group insurance, stock purchase, stock option, stock
appreciation, stock bonus, executive or deferred compensation, hospitalization
and other similar fringe or employee benefit plans, programs and arrangements,
and any employment or consulting contracts, "golden parachutes," collective
bargaining agreements, severance agreements or plans, vacation and sick leave
plans, programs, arrangements and policies, including, without limitation, all
"employee benefit plans" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")). The items described in the
foregoing sentence and all employee manuals, and all written or binding oral
statements of policies, practices or understandings relating to employment,
which are provided to, for the benefit of, or relate to, any persons employed by
the Company or any Subsidiary are hereinafter sometimes referred to collectively
as "Employee Plans/Agreements," and each individually as an "Employee
Plan/Agreement." True and correct copies of all the Employee Plans/Agreements,
including all amendments thereto, have heretofore been made available to the
Purchaser. No Employee Plan/Agreement is a "multiemployer plan" (as defined in
Section 4001 of ERISA), and neither the Company nor any Subsidiary has ever
contributed nor been obligated to contribute to any such multiemployer plan.
(b) Terminations, Proceedings, Penalties, etc. With respect to each
employee benefit plan (including, without limitation, the Employee
Plans/Agreements) that is subject to the provisions of Title IV of ERISA and
with respect to which the Company or any Subsidiary or any of their assets may,
directly or indirectly, be subject to any material liability, contingent or
otherwise, or the imposition of any Lien (whether by reason of the complete or
partial termination of any such plan, the funded status of any such plan, any
"complete withdrawal" (as defined in Section 4203 of ERISA) or "partial
withdrawal" (as defined in Section 4205 of ERISA) by any person from any such
plan, or otherwise):
(i) no such plan has been terminated so as to subject, directly or
indirectly, any assets of the Company or any Subsidiary to any liability,
contingent or otherwise, or the imposition of any lien under Title IV of
ERISA;
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<PAGE> 14
(ii) no proceeding has been initiated or, to the knowledge of the
Company or any Subsidiary, threatened by any person (including the Pension
Benefit Guaranty Corporation ("PBGC")) to terminate any such plan;
(iii) no condition or event currently exists or currently is expected
to occur that could subject, directly or indirectly, any assets of the
Company or any Subsidiary to any liability, contingent or otherwise, or the
imposition of any lien under Title IV of ERISA, whether to the PBGC or to
any other person or otherwise on account of the termination of any such
plan;
(iv) if any such plan were to be terminated, or if the Company or any
Subsidiary caused a partial or total withdrawal from any such plan, as of
the Effective Time, no assets of the Company or any Subsidiary would be
subject, directly or indirectly, to any liability, contingent or otherwise,
or the imposition of any Lien under Title IV of ERISA;
(v) no "reportable event" (as defined in Section 4043 of ERISA) has
occurred with respect to any such plan;
(vi) no such plan which is subject to Section 302 of ERISA or Section
412 of the Code has incurred any "accumulated funding deficiency" (as
defined in Section 302 of ERISA and Section 412 of the Code, respectively),
whether or not waived; and
(vii) no such plan is a plan described in Section 413(c) of the Code.
(c) Prohibited Transactions, etc. There have been no "prohibited
transactions" within the meaning of Section 406 or 407 of ERISA or Section 4975
of the Code for which a statutory or administrative exemption does not exist
with respect to any Employee Plan/Agreement. To the knowledge of the Company and
the Subsidiaries, no event or omission has occurred in connection with which the
Company or any Subsidiary or any Employee Plan/Agreement, directly or
indirectly, could be subject to any material liability under ERISA, the Code or
any other Law or Order applicable to any Employee Plan/Agreement.
(d) Full Funding. The funds available under each Employee Plan/Agreement
that is subject to Title IV of ERISA or Section 412 of the Code which is
intended to be a funded plan equal or exceed the amounts required to be paid, or
which would be required to be paid if such Employee Plan/Agreement were
terminated, on account of rights vested or accrued as of the Effective Time
(using the actuarial methods and assumptions then used by the Company's
actuaries in connection with the funding of such Employee Plan/ Agreement).
(e) Controlled Group; Affiliated Service Group; Leased Employees. Other
than the current relationship between the Company and the Subsidiaries, neither
the Company nor any Subsidiary has ever been a member of a controlled group of
corporations as defined in Section 414(b) of the Code or in common control with
any unincorporated trade or business as determined under Section 414(c) of the
Code. Neither the Company nor any Subsidiary is or ever has been a member of an
"affiliated service group" within the meaning of Section 414(m) of the Code.
There are not any leased employees within the meaning of Section 414(n) of the
Code who perform services for the Company or any Subsidiary for which the
Company or any Subsidiary has not materially complied with the terms of the
applicable Employee Plans/Agreements.
(f) Payments and Compliance. With respect to each Employee Plan/Agreement,
(i) all payments currently due and owing from the Company and any Subsidiary to
date have been made and all amounts accrued to date as liabilities of the
Company or any Subsidiary which have not been paid have been recorded on the
books of the Company and the Subsidiaries and are reflected in the Recent
Balance Sheet in accordance with GAAP; (ii) the Company and the Subsidiaries
have materially complied with, and each such Employee Plan/Agreement conforms in
form and operation to, all applicable laws and regulations, including but not
limited to ERISA and the Code, in all material respects and all reports and
information relating to such Employee Plan/Agreement required to be filed with
any Governmental Entity have been timely filed; (iii) all reports and
information relating to each such Employee Plan/Agreement required to be
disclosed or provided to participants or their beneficiaries have been timely
disclosed or provided; (iv) each such Employee Plan/Agreement which is intended
to qualify under Section 401 of the Code has received a favorable
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<PAGE> 15
determination (or, in the case of a standardized plan, the opinion) letter from
the Internal Revenue Service with respect to such qualification, its related
trust has been determined to be exempt from taxation under Section 501(a) of the
Code, and nothing has occurred since the date of such letter that has or is
likely to have a material adverse effect on such qualification or exemption;
(iv) there are no actions, suits or claims pending (other than routine claims
for benefits) or, to the knowledge of the Company or the Subsidiaries,
threatened with respect to such Employee Plan/Agreement; and (v) no Employee
Plan/Agreement is a plan which is established and maintained outside the United
States primarily for the benefit of individuals substantially all of whom are
nonresident aliens.
(g) Post-Retirement Benefits. No Employee Plan/Agreement provides benefits,
including, without limitation, death or medical benefits (whether or not
insured) with respect to current or former employees of the Company or any
Subsidiary beyond their retirement or other termination of service other than
(i) coverage mandated by applicable law, (ii) death or retirement benefits under
any Employee Plan/Agreement that is an employee pension benefit plan, (iii)
deferred compensation benefits accrued as liabilities on the books of the
Company (including the Recent Balance Sheet), (iv) disability benefits under any
Employee Plan/Agreement, (v) benefits arising in connection with a severance or
separation plan, program or arrangement or (vi) conversion rights under ordinary
life insurance policies.
(h) No Triggering of Obligations. Except as set forth on Schedule 4.13(h)
to the Company Disclosure Statement, the consummation of the transactions
contemplated by this Agreement and the Stock Option Agreement will not (i)
entitle any current or former employee of the Company or any Subsidiary to
severance pay, unemployment compensation or any other payment, except as
expressly provided in this Agreement or (ii) accelerate the time of payment or
vesting, or increase the amount of compensation due to any such employee or
former employee.
(i) Future Commitments. Neither the Company nor any Subsidiary has
announced any plan or legally binding commitment to create any additional
Employee Plans/Agreements or to amend or modify any existing Employee
Plan/Agreement, except to the extent necessary or appropriate to comply with
applicable Law.
SECTION 4.14 Trade Rights. Schedule 4.14 of the Company Disclosure
Statement lists all Trade Rights (as defined below) in which the Company or any
Subsidiary has any interest, specifying whether such Trade Rights are owned,
controlled, used or held (under license or otherwise) by the Company or any
Subsidiary, and also indicating which of such Trade Rights are registered. All
Trade Rights shown as registered in Schedule 4.14 of the Company Disclosure
Statement have been properly registered, all pending registrations and
applications have been properly made and filed and all annuity, maintenance,
renewal and other fees relating to registrations or applications are current. In
order to conduct the business of the Company and the Subsidiaries, as such is
currently being conducted or proposed to be conducted under currently existing
business plans, neither the Company nor any Subsidiary requires any Trade Rights
that it does not already have. Neither the Company nor any Subsidiary is
infringing and/or has infringed any Trade Rights of another in the operation of
the business of the Company and the Subsidiaries, nor, to the knowledge of the
Company and the Subsidiaries, is any other person infringing the Trade Rights of
the Company or the Subsidiaries. Neither the Company nor any Subsidiary has
granted any license or made any assignment of any Trade Right listed on Schedule
4.14 of the Company Disclosure Statement, nor does the Company or any Subsidiary
pay any royalties or other consideration for the right to use any Trade Rights
of others. There is no Litigation pending or, to the knowledge of the Company
and the Subsidiaries, threatened to challenge the Company's or any Subsidiary's
right, title and interest with respect to its continued use and right to
preclude others from using any Trade Rights of the Company or any Subsidiary.
All Trade Rights of the Company and the Subsidiaries are valid, enforceable and
in good standing, and, to the knowledge of the Company and the Subsidiaries,
there are no equitable defenses to enforcement based on any act or omission of
the Company or the Subsidiaries. The consummation of the transactions
contemplated hereby or by the Stock Option Agreement will not alter or impair
any Trade Rights owned or used by Company or the Subsidiaries. As used herein,
the term "Trade Rights" shall mean and include: (i) all trademark rights,
business identifiers, trade dress, service marks, trade names and brand names,
all registrations thereof and applications therefor and all goodwill associated
with the foregoing; (ii) all copyrights, copyright registrations and copyright
applications,
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and all other rights associated with the foregoing and the underlying works of
authorship; (iii) all patents and patent applications, and all international
proprietary rights associated therewith; (iv) all contracts or agreements
granting any right, title, license or privilege under the intellectual property
rights of any third party; (v) all inventions, mask works and mask work
registrations, know-how, discoveries, improvements, designs, trade secrets, shop
and royalty rights, employee covenants and agreements respecting intellectual
property and non-competition and all other types of intellectual property; and
(vi) all claims for infringement or breach of any of the foregoing.
SECTION 4.15 Material Adverse Change. Since March 31, 1997, except as
otherwise set forth in the Company's Quarterly Reports on Form 10-Q for the
quarters ended June 30 and September 30, 1997 and except as set forth in
Schedule 4.15 to the Company Disclosure Statement, there has not been any change
in the business of the Company and the Subsidiaries, results of operations,
assets or condition (financial or otherwise) of the Company and the Subsidiaries
that is materially adverse to the Company and the Subsidiaries taken as a whole.
Since March 31, 1997, except as otherwise set forth in the Company's Quarterly
Reports on Form 10-Q for the quarters ended June 30 and September 30, 1997 and
except as set forth in Schedule 4.15 to the Company Disclosure Statement, the
Company and the Subsidiaries have conducted their businesses only in the
ordinary course of business consistent with past practices and there has not
been, directly or indirectly:
(a) any payment or granting by the Company or any of the Subsidiaries of
any increase in compensation to any director or executive officer of the Company
or, except in the ordinary course of business and consistent with past practice,
any employee of the Company or the Subsidiaries;
(b) any granting by the Company or any of the Subsidiaries to any such
director, executive officer or employee of any increase in severance or
termination pay, except as required under employment, severance or termination
agreements or plans in effect prior to the date of this Agreement;
(c) any entry by the Company or any of the Subsidiaries into any
employment, severance or termination agreement with any such director or
executive officer;
(d) any adoption or increase in payments to or benefits under any Employee
Plans/Agreements;
(e) any change in accounting methods, principles or practices by the
Company and the Subsidiaries, except insofar as may have been required by a
change in GAAP;
(f) any declaration, setting aside, or payment of any dividend or any other
distribution in respect of the Company's capital stock; any redemption, purchase
or other acquisition by the Company of any capital stock of the Company, or any
security relating thereto; or any other payment to any shareholder of the
Company as such a shareholder;
(g) any sale, lease or other transfer or disposition of any properties or
assets of the Company or any Subsidiary, except for the sale of inventory items
in the ordinary course of business;
(h) any discharge of any obligation or liability (whether accrued,
absolute, contingent or otherwise), other than in the ordinary course of
business consistent with past practices;
(i) any indebtedness for borrowed money incurred, assumed or guaranteed by
the Company or any Subsidiary, which will not be repaid prior to the Effective
Time; or
(j) any agreement or commitment to do any of the things described in the
preceding clauses (a) through (i).
SECTION 4.16 Certain Approvals. The Board of Directors of the Company has
taken appropriate action such that the provisions of Section 1203 of the GCL
will not apply to any of the transactions contemplated by this Agreement, the
Stock Option Agreement and the Stockholder Agreements.
SECTION 4.17 Brokers. None of the Company, the Subsidiaries, or any of
their respective officers, directors or employees has employed any broker or
finder or incurred any liability for any brokerage fees,
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<PAGE> 17
commission or finder's fees in connection with the transactions contemplated by
this Agreement or the Stock Option Agreement.
SECTION 4.18 State Takeover Statutes; Applicability of Articles of
Incorporation; Required Vote. Except for Section 1101 of the GCL, no California
takeover statute or similar statute applies or purports to apply to the Offer or
the Merger, or to this Agreement, the Stock Option Agreement or the Stockholder
Agreements or the transactions contemplated hereby or thereby. The Board of
Directors of the Company has taken such action as may be necessary to ensure
that the supermajority vote provision of ARTICLE FOUR of the Company's articles
of incorporation is inapplicable to the Offer or the Merger, or to this
Agreement, the Stock Option Agreement or the Stockholders Agreements or the
transactions contemplated hereby or thereby. In the event the Shareholders'
Meeting is required to approve the Merger and the adoption of this Agreement,
the approval by the holders of a majority of the votes entitled to be cast by
all holders of Common Stock is the only vote required to approve the Merger and
the adoption of this Agreement.
SECTION 4.19 Year 2000 Compliance. Except as identified on Schedule 4.19 of
the Company Disclosure Statement, none of the personal property, equipment or
assets owned or utilized by the Company and the Subsidiaries, including but not
limited to computer software, databases, hardware, controls and peripherals,
contains any defect related to the occurrence of the year 2000 or the use of any
date after December 31, 1999 in connection with such property or asset (a "Year
2000 Defect"). Except as identified on Schedule 4.19 of the Company Disclosure
Statement, none of the property or assets owned or utilized by the Company and
the Subsidiaries will fail to perform in any material respect or require any
repair, rewrite, conversion or other adaption because of, or due in any way to,
a Year 2000 Defect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER
Parent and the Purchaser jointly and severally represent and warrant to the
Company as follows:
SECTION 5.01 Organization and Qualification. Parent is a corporation duly
organized, validly existing and in good standing under the laws of Delaware. The
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of California. Each of Parent and the Purchaser has
the requisite corporate power and authority to own, operate or lease its
properties and to carry on its business as it is now being conducted, and is
duly qualified or licensed to do business, and is in good standing, in each
jurisdiction in which the nature of its business or the properties owned,
operated or leased by it makes such qualification, licensing or good standing
necessary, except where the failure to have such power or authority, or the
failure to be so qualified, licensed or in good standing, would not have a
Material Adverse Effect on Parent. The term "Material Adverse Effect on Parent",
as used in this Agreement, means any change in or effect on the business,
operations, financial condition or prospects of Parent or any of its
subsidiaries that would be materially adverse to Parent and its subsidiaries
taken as a whole.
SECTION 5.02 Authority. Each of Parent and the Purchaser has all necessary
corporate power and authority to execute and deliver this Agreement and the
Stock Option Agreement and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Stock Option
Agreement by Parent and the Purchaser and the consummation by Parent and the
Purchaser of the transactions contemplated hereby and thereby have been duly and
validly authorized and approved by the Boards of Directors of Parent and the
Purchaser and by the sole stockholder of the Purchaser and no other corporate
proceedings on the part of Parent or the Purchaser are necessary to authorize or
approve this Agreement or the Stock Option Agreement or to consummate the
transactions contemplated hereby or thereby. Each of this Agreement and the
Stock Option Agreement has been duly executed and delivered by each of Parent
and the Purchaser and, assuming the due and valid authorization, execution and
delivery by the Company, constitutes a valid and binding obligation of each of
Parent and the Purchaser enforceable against each of them in accordance with its
respective terms, except that such enforceability (i) may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to the enforcement of creditors' rights generally and (ii) is subject to general
principles of equity.
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SECTION 5.03 No Conflict; Required Filings and Consents.
(a) None of the execution and delivery of this Agreement or the Stock
Option Agreement by Parent or the Purchaser, the consummation by Parent or the
Purchaser of the transactions contemplated hereby or thereby or the compliance
by Parent or the Purchaser with any of the provisions hereof or thereof will (i)
conflict with or violate the organizational documents of Parent or the
Purchaser, (ii) conflict with or violate any statute, ordinance, rule,
regulation, order, judgment or decree applicable to Parent or the Purchaser, or
any of their subsidiaries, or by which any of them or any of their respective
properties or assets may be bound or affected, or (iii) result in a Violation
pursuant to any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Parent or
the Purchaser, or any of their respective subsidiaries, is a party or by which
any of their respective properties or assets may be bound or affected, except in
the case of the foregoing clauses (ii) and (iii) for any such Violations which
would not have a Material Adverse Effect on Parent or materially adversely
affect the ability of Parent or the Purchaser to consummate the transactions
contemplated by this Agreement and the Stock Option Agreement.
(b) None of the execution and delivery of this Agreement or the Stock
Option Agreement by Parent and the Purchaser, the consummation by Parent and the
Purchaser of the transactions contemplated hereby or thereby or the compliance
by Parent and the Purchaser with any of the provisions hereof or thereof will
require any Consent of any Governmental Entity, except for (i) compliance with
any applicable requirements of the Exchange Act, (ii) the filing of an agreement
of merger together with an officer's certificate of the Company and the
Purchaser pursuant to the GCL, (iii) compliance with the HSR Act and any
requirements of any foreign or supranational Antitrust Laws, and (iv) Consents
or filings the failure of which to obtain or make would not have a Material
Adverse Effect on Parent or materially adversely affect the ability of Parent or
the Purchaser to consummate the transactions contemplated by this Agreement and
the Stock Option Agreement.
SECTION 5.04 Information. None of the information supplied or to be
supplied by Parent and the Purchaser in writing specifically for inclusion in
(i) the Offer Documents, (ii) the Schedule 14D-9, (iii) the Proxy Statement or
(iv) the other filings will, at the respective times filed with the SEC or such
other Governmental Entity and, in addition, in the case of the Proxy Statement
at the date it or any amendment or supplement is mailed to Shareholders, at the
time of the Shareholders' Meeting and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
SECTION 5.05 Financing. Parent or the Purchaser has available the funds
necessary to consummate the Offer and the Merger and the transactions
contemplated hereby on a timely basis.
SECTION 5.06 Brokers. None of Parent, the Purchaser, or any of their
respective subsidiaries, officers, directors or employees, has employed any
broker or finder or incurred any liability for any brokerage fees, commissions
or finder's fees in connection with the transactions contemplated by this
Agreement or the Stock Option Agreement for or with respect to which the Company
is or might be liable.
SECTION 5.07 Purchaser.
(a) Parent owns all of the outstanding stock of Purchaser; at all times
prior to the Merger, no person other than Parent has owned, or will own, any of
the outstanding stock of Purchaser. Purchaser was formed by Parent solely for
the purpose of engaging in the transactions contemplated by this Agreement.
(b) There are not as of the date of this Agreement, and there will not be
at the Effective Time, any outstanding or authorized options, warrants, calls,
rights, commitments or any other agreements of any character which Purchaser is
a party to, or may be bound by, requiring it to issue, transfer, sell, purchase,
redeem or acquire any shares of its capital stock or any securities or rights
convertible into, exchangeable for, or evidencing the right to subscribe for or
acquire, any shares of its capital stock.
(c) As of the date of this Agreement and the Effective Time, except for
obligations incurred in connection with this Agreement or the transactions
contemplated hereby, Purchaser has not and will not have
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incurred, directly or indirectly through any other corporation, any obligations
or liabilities of any kind or engaged in any activities of any type or kind
whatsoever or entered into any arrangement or arrangements with any person or
entity.
(d) Parent will make available, and Purchaser will have, at or before the
date on which Parent or the Purchaser acquires Shares pursuant to the Offer,
adequate funds to accept for payment, purchase and pay for all of the Shares
tendered and not withdrawn pursuant to the Offer.
SECTION 5.08 No Share Acquisition. Neither Parent nor the Purchaser has
acquired any of the Shares during the two year period prior to the date hereof.
ARTICLE VI
COVENANTS
SECTION 6.01 Conduct of Business of the Company. Except as required by this
Agreement or with the prior written consent of Parent, during the period from
the date of this Agreement to the Effective Time, the Company will and will
cause each of the Subsidiaries to conduct its operations only in the ordinary
course of business consistent with past practice and will use its best efforts
and will cause each of the Subsidiaries to use its best efforts, to preserve
intact the business organization of the Company and each of the Subsidiaries, to
keep available the services of its and their present officers and key employees
and to preserve the goodwill of those having business relationships with it.
Without limiting the generality to the foregoing, and except as otherwise
required by this Agreement or as set forth in Section 6.01 of the Company
Disclosure Statement, the Company will not, and will not permit any of the
Subsidiaries to, prior to the Effective Time, without the prior written consent
of Parent:
(a) adopt any amendment to its charter or by-laws or comparable
organizational documents;
(b) except for issuances of capital stock of the Subsidiaries to the
Company, or to a wholly-owned Subsidiary of the Company, issue, reissue or sell
or authorize the issuance, reissuance or sale of additional shares of capital
stock of any class, or shares convertible into capital stock of any class, or
any rights, warrants or options to acquire any convertible shares or capital
stock, other than the issuance of Shares, pursuant to Options outstanding on the
date of this Agreement or pursuant to the Stock Option Agreement;
(c) declare, set aside or pay any dividend or other distribution (whether
in cash, shares or property or any combination thereof) in respect of any class
or series of its capital stock other than between any of the Company and any
Subsidiary which is wholly-owned by the Company;
(d) split, combine, subdivide, reclassify or redeem, purchase or otherwise
acquire, or propose to redeem or purchase or otherwise acquire, any shares of
its capital stock, or any of its other shares;
(e) except for (A) increases in salary, wages and benefits of non-executive
officers or employees of the Company or the Subsidiaries in the ordinary course
of business consistent with past practice, (B) increases in salary, wages and
benefits granted to officers and employees of the Company or the Subsidiaries in
conjunction with new hires, promotions or other changes in job status in the
ordinary course of business consistent with past practice, or (C) increases in
salary, wages and benefits to employees of the Company or the Subsidiaries
pursuant to collective bargaining agreements entered into in the ordinary course
of business consistent with past practice, (i) increase the compensation or
fringe benefits payable or to become payable to its directors, officers or key
employees (whether from the Company or any of the Subsidiaries), or (ii) pay any
benefit not required by any existing plan or arrangement (including, without
limitation, the granting of stock options, stock appreciation rights, shares of
restricted stock or performance units), or (iii) grant any severance or
termination pay to (except pursuant to existing agreements, plans or policies
and as required by such agreements, plans or polices), or (iv) enter into any
employment or severance agreement with, any director, officer or other key
employee of the Company or any of the Subsidiaries or (iv) establish, adopt,
enter into, or amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock or Employee Plans/Agreements for
the benefit or welfare of any directors, officers or current or former
employees, except in each case to the extent required by applicable Law or
regulation;
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(f) acquire, sell, lease or dispose of any assets (other than inventory)
which are material to the Company and the Subsidiaries, taken as a whole, or
enter into any commitment to do any of the foregoing or enter into any material
commitment or transaction outside the ordinary course of business consistent
with past practice;
(g) (i) incur, assume or pre-pay any long-term debt or incur or assume any
short-term debt, except that the Company and the Subsidiaries may incur, assume
or pre-pay debt in the ordinary course of business consistent with past practice
under existing lines of credit, (ii) pay, discharge, settle or satisfy as other
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise, other than in the ordinary course of business
consistent with past practice, (iii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person, or (iv) make any loans, advances or capital
contributions to, or investments in, any other person except in the ordinary
course of business consistent with past practice and except for loans, advances,
capital contributions or investments between any Subsidiary wholly-owned by the
Company and the Company or another Subsidiary wholly-owned by the Company;
(h) make any tax election that would have a material effect on the tax
liability of the Company or the Subsidiaries or settle or compromise any tax
liability of the Company or the Subsidiaries that would materially affect the
aggregate tax liability of the Company or the Subsidiaries;
(i) except in the ordinary course of business consistent with past
practice, enter into, modify, amend or terminate any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license which is material to the Company and the
Subsidiaries or waive, release or assign any material rights or claims; or
(j) agree in writing or otherwise to take any of the foregoing actions.
SECTION 6.02 Information. From the date hereof until the Effective Time,
the Company will, and will cause the Subsidiaries, and each of its and their
respective officers, directors, employees, counsel, advisors and representatives
(collectively, the "Company Representatives") to, provide Parent and the
Purchaser and their respective officers, employees, counsel, advisors and
representatives (collectively, the "Parent Representatives") access, during
normal business hours and upon reasonable notice, to the offices and other
facilities and to the books and records of the Company and the Subsidiaries, and
will permit Parent and the Purchaser to make inspections of such as either of
them may reasonably require (including environmental testing) and will cause the
Company Representatives and the Subsidiaries to furnish Parent, the Purchaser
and the Parent Representatives to the extent available with such other
information with respect to the business of the Company and the Subsidiaries as
Parent and the Purchaser may from time to time reasonably request; provided,
however, that all requests for such access, inspection or information pursuant
to this Section 6.02 shall be made through the President and Chief Executive
Officer of the Company or such other person as he shall designate in writing to
Parent. Unless otherwise required by Law, Parent and the Purchaser will, and
will cause the Parent Representatives to hold any such information in confidence
until such time as such information otherwise becomes publicly available through
no wrongful act of Parent, the Purchaser or the Parent Representative, all as
specifically provided in the confidentiality agreement, dated August 1, 1997,
between Voith Sulzer Papiertechnik GmbH & Co KG and the Company (the
"Confidentiality Agreement").
SECTION 6.03 Commercially Reasonable Best Efforts. Subject to the terms and
conditions herein provided and to applicable legal requirements, each of the
parties hereto agrees to use its commercially reasonable best efforts to take,
or cause to be taken, all action, and to do, or cause to be done, in the case of
the Company, consistent with the fiduciary duties of the Company's Board of
Directors, and to assist and cooperate with the other parties hereto in doing,
as promptly as practicable, all things necessary, proper or advisable under
applicable Laws and regulations to ensure that the conditions set forth in Annex
I and Article VII are satisfied and to consummate and make effective the
transactions contemplated by the Offer, this Agreement and the Stock Option
Agreement.
In addition, if at any time prior to the Effective Time any event or
circumstance relating to either the Company or Parent or the Purchaser or any of
their respective subsidiaries should be discovered by the Company or Parent, as
the case may be, and which should be set forth in an amendment to the Offer
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<PAGE> 21
Documents or Schedule 14D-9, the discovering party will promptly inform the
other party of such event or circumstance. If at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement or the Stock Option Agreement, including the execution of
additional instruments, the proper officers and directors of each party to this
Agreement or the Stock Agreement, as the case may be, shall take all such
necessary action.
SECTION 6.04 Consents.
(a) Each of the parties will use its commercially reasonable best efforts
to obtain as promptly as practicable all Consents of any Governmental Entity or
any other person required in connection with, and waivers of any Violations that
may be caused by, the consummation of the transactions contemplated by the
Offer, the Merger, this Agreement and the Stock Option Agreement.
(b) In furtherance and not in limitation of the foregoing, Parent shall use
its commercially reasonable best efforts to resolve such objections, if any, as
may be asserted with respect to the transactions contemplated by this Agreement
or the Stock Agreement under any antitrust, competition or trade regulatory
laws, rules or regulations of any domestic or foreign government or governmental
authority or any multinational authority ("Antitrust Laws").
(c) Any party hereto shall promptly inform the others of any material
communication from the United States Federal Trade Commission, the Department of
Justice or any other domestic or foreign government or governmental or
multinational authority regarding any of the transactions contemplated by this
Agreement or the Stock Option Agreement. If any party or any affiliate thereof
receives a request for additional information or documentary material from any
such government or authority with respect to the transactions contemplated by
this Agreement or the Stock Option Agreement, then such party will endeavor in
good faith to make, or cause to be made, as soon as reasonably practicable and
after consultation with the other party, an appropriate response in compliance
with such request. Parent will advise the Company promptly in respect of any
understandings, undertakings or agreements (oral or written) which Parent
proposes to make or enter into with the Federal Trade Commission, the Department
of Justice or any other domestic or foreign government or governmental or
multinational authority in connection with the transactions contemplated by this
Agreement or the Stock Option Agreement.
SECTION 6.05 Public Announcements. So long as this Agreement is in effect,
Parent, the Purchaser and the Company agree to use reasonable efforts to consult
with each other before issuing any press release or otherwise making any public
statement with respect to the transactions contemplated by this Agreement or the
Stock Option Agreement.
SECTION 6.06 Employee Benefit Arrangements. Parent agrees that the Company
will honor and, from and after the Effective Time, Parent will cause the
Surviving Corporation to honor, all Employee Plans/Agreements to which the
Company or any of its Subsidiaries is presently a party which have been
disclosed hereunder; provided , however, that nothing contained in this Section
6.06 shall limit or restrict the Surviving Corporation's right on or after the
Effective Time to amend, modify or terminate any Employee Plans/Agreements in
accordance with the terms thereof and applicable Law.
SECTION 6.07 No Solicitation.
(a) The Company represents and warrants to, and covenants and agrees with,
Parent and the Purchaser that neither the Company nor any of the Subsidiaries
has any agreement, arrangement or understanding with any potential acquirer that
directly or indirectly, would be violated, or require any payments, by reason of
the execution, delivery and/or consummation of this Agreement and the Stock
Option Agreement. The Company shall, and shall use its commercially reasonable
best efforts to cause the Subsidiaries and the officers, directors, employees,
investment bankers, attorneys and other agents and representatives of the
Company and the Subsidiaries to, immediately cease any existing discussions or
negotiations with any person (including a "person" as defined in Section
13(d)(3) of the Exchange Act) other than Parent or the Purchaser (a "Third
Party") heretofore conducted with respect to any Acquisition Transaction (as
hereinafter defined). The Company shall not, and shall use its commercially
reasonable best efforts to cause the Subsidiaries and the officers, directors,
employees, investment bankers, attorneys and other agents and representatives of
the
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<PAGE> 22
Company and the Subsidiaries not to, directly or indirectly, (x) solicit,
initiate, continue, facilitate or encourage (including by way of furnishing or
disclosing non-public information) any inquiries, proposals or offers from any
Third Party with respect to, or that could reasonably be expected to lead to,
any acquisition or purchase of a material portion of the assets or business of,
or any significant equity interest in (including by way of a tender offer), or
any amalgamation, merger, consolidation or business combination with, or any
recapitalization or restructuring, or any similar transaction involving, the
Company or any of the Subsidiaries (the foregoing being referred to collectively
as an "Acquisition Transaction"), or (y) negotiate, explore or otherwise
communicate in any way with any Third Party with respect to any Acquisition
Transaction or enter into, approve or recommend any agreement, arrangement or
understanding requiring the Company to abandon, terminate or fail to consummate
the Offer and/or the Merger or any other transaction contemplated hereby or by
the Stock Option Agreement. Notwithstanding anything to the contrary in the
foregoing, the Company may in response to an unsolicited written proposal with
respect to an Acquisition Transaction involving the acquisition of all of the
Shares (or all or substantially all of the assets of the Company and the
Subsidiaries) from a Third Party (which proposal (1) is not subject to a
financing condition and is from a person that a nationally recognized investment
bank advises in writing is financially capable of consummating such proposal or
(2) is subject to financing, but is from a person that a nationally recognized
investment bank advises in writing is financially capable of achieving such
financing to consummate such proposal), (i) furnish or disclose non-public
information to such Third Party and (ii) negotiate, explore or otherwise
communicate with such Third Party, in each case only if (A) after being advised
in writing by its outside counsel with respect to its fiduciary obligations to
the Shareholders under applicable Law, the Board of Directors of the Company
determines in good faith that taking such action is necessary in the exercise of
its fiduciary obligations under applicable Law (the proposal with respect to an
Acquisition Transaction meeting such requirements being a "Superior Proposal"),
(B) prior to furnishing or disclosing any non-public information to, or entering
into discussions or negotiations with, such Third Party, the Company receives
from such Third Party an executed confidentiality agreement with terms no less
favorable in the aggregate to the Company than those contained in the
Confidentiality Agreement, but which confidentiality agreement shall not provide
for any exclusive right to negotiate with the Company or any payments by the
Company and (C) the Company advises Parent of all such non-public information
delivered to such Third Party concurrently with such delivery; provided,
however, that the Company shall not, and shall cause its affiliates not to,
enter into a definitive agreement with respect to a Superior Proposal unless the
Company first complies with Section 6.07(b) hereof, including the last sentence
thereof, and then unless (I) the Company concurrently terminates this Agreement
in accordance with the terms hereof, pays any Termination Fee required under
Section 8.03(b) and agrees to pay any other amounts required under such Section
8.03(b) and (II) such agreement permits the Company, subject to the fiduciary
duties of the Board of Directors, to terminate it if it receives a Superior
Proposal, such termination and related provisions to be on terms no less
favorable to the Company, including as to fees and reimbursement of expenses, as
those contained herein.
(b) The Company shall promptly (but in any event within one business day of
the Company becoming aware of same) advise Parent of the receipt by the Company,
any of the Subsidiaries or any of the Company's bankers, attorneys or other
agents or representatives of any inquiries or proposals relating to an
Acquisition Transaction and any actions taken pursuant to Section 6.07(a). The
Company shall promptly (but in any event within three business days of the
Company becoming aware of same) provide Parent with a copy of any such inquiry
or proposal in writing and a written statement with respect to any such
inquiries or proposals not in writing, which statement shall include the
identity of the parties making such inquiries or proposal and the material terms
thereof; provided, however, that the Company shall not be obligated to provide a
copy of, or a written statement with respect to, any such inquiry if, after
being advised in writing by its outside legal counsel with respect to its
fiduciary obligations, the Board of Directors of the Company determines that not
providing such copy or written statement is necessary to allow the Board of
Directors of the Company to fulfill its fiduciary duties to the Shareholders
under applicable Law. The Company shall, from time to time, promptly (but in any
event within one business day of the Company becoming aware of same) inform
Parent of the status and content of and material developments (including the
calling of meetings of the Board of Directors of the Company to take action with
respect to such Acquisition Transaction) with respect to any discussions
regarding any Acquisition Transaction with a Third Party; provided, however,
that the Company shall not be
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<PAGE> 23
obligated to make such disclosure if, after being advised in writing by its
outside legal counsel with respect to its fiduciary obligations, the Board of
Directors of the Company determines that not providing such disclosure is
necessary to allow the Board of Directors of the Company to fulfill its
fiduciary duties to the Shareholders under applicable Law. For the avoidance of
doubt, the Company agrees that it will not enter into any agreement with respect
to a Superior Proposal unless and until Parent has been given the opportunity at
least six business days prior to the entering into such agreement to match the
terms of such agreement.
(c) The Company has obtained the oral agreement of each member of the Board
of Directors of the Company and of its executive officers that each such person
will comply with the provisions of this Section 6.07.
SECTION 6.08 Notification of Certain Matters. Parent and the Company shall
promptly notify each other of (a) the occurrence or non-occurrence of any fact
or event which would be reasonably likely (i) to cause any representation or
warranty contained in this Agreement or the Stock Option Agreement to be untrue
or inaccurate in any material respect at any time from the date hereof to the
Effective Time or (ii) to cause any material covenant, condition or agreement
hereunder or under the Stock Option Agreement not to be complied with or
satisfied in all material respects and (b) any failure of the Company, Parent or
the Purchaser, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder or under
the Stock Option Agreement in any material respect; provided, however, that no
such notification shall affect the representations or warranties of any party or
the conditions to the obligations of any party hereunder or under the Stock
Option Agreement.
SECTION 6.09 State Takeover Laws. The Company shall, upon the request of
the Purchaser, take all reasonable steps to assist in any challenge by the
Purchaser to the validity or applicability to the transactions contemplated by
this Agreement and the Stock Option Agreement, including the Offer and the
Merger and by the Stockholder Agreements, of any state takeover law.
SECTION 6.10 Indemnification and Insurance.
(a) The Purchaser and Parent agree that until six years from the date the
Shares are purchased by Parent or the Purchaser in the Offer (the "Acceptance
Date"), the Purchaser will maintain all rights to indemnification now existing
in favor of the directors, officers, employees, fiduciaries and agents of the
Company as provided in the Company's Articles of Incorporation and Bylaws or
otherwise in effect under any agreement on the date of this Agreement and that
the Articles of Incorporation and Bylaws of the Purchaser shall not be amended
to reduce or limit the rights of indemnity afforded to the present and former
directors and officers of the Company, or the ability of the Purchaser to
indemnify them, nor to hinder, delay or make more difficult the exercise of such
rights of indemnity or the ability to indemnify.
(b) The Purchaser will at all times exercise the powers granted to it by
its Articles of Incorporation, its Bylaws, and by applicable law to indemnify
and hold harmless to the fullest extent possible present or former directors,
officers, employees, fiduciaries and agents of the Company against any
threatened or actual claim, action, suit, proceeding or investigation made
against them arising from their service in such capacities (or service in such
capacities for another enterprise at the request of the Company) prior to, and
including the Acceptance Date for at least six years from the Acceptance Date.
Parent shall assume and perform the obligations of the Purchaser under this
Section 6.10; provided, that, any indemnified party shall make a good faith
effort (which shall not include any requirement to bring any suit, claim,
action, or other proceeding) to cause the Purchaser to perform its obligations
under this Section 6.10 before requesting Parent to assume and perform such
obligations.
(c) Should any threatened or actual claim action, suit, proceeding or
investigation be made against any present or former director, officer, employee,
fiduciary or agent of the Company, arising from his services as such, within six
years from the Effective Time, the provisions of this Section 6.10 shall
continue in effect until the final disposition of all such claims.
(d) Any indemnified party wishing to claim indemnification under this
Section, upon learning of any such action, suit, claim, proceeding or
investigation, shall notify Parent and the Purchaser within 15 days thereof;
provided, however, that any failure so to notify Parent and the Purchaser of any
obligation to
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<PAGE> 24
indemnify such indemnified party or of any other obligation imposed by this
Section shall not affect such obligations except to the extent Parent and/or the
Purchaser is actually prejudiced thereby. Parent and the Purchaser shall be
entitled to assume the defense of any such action, suit, claim, proceeding or
investigation with counsel of its choice, unless there is, under applicable
standards of professional conduct, a conflict of any significant issue between
the positions of Parent and the Purchaser, on the one hand, and the indemnified
parties, on the other, in which event the indemnified parties as a group may
retain one law firm to represent them with respect to such matter. Neither
Parent or the Purchaser, on the one hand, nor the indemnified parties, on the
other hand, may settle any such action, suit, claim, proceeding or investigation
without the prior written consent of the other party, which consent shall not be
unreasonably withheld or delayed.
(e) In addition to the foregoing, Parent shall cause the Purchaser to honor
in accordance with their terms any indemnification agreements in existence on
the date hereof between the Company and any present or former director, officer,
employee, fiduciary or agent of the Company.
(f) The parties agree that the provisions of this Section 6.10 will not
require Parent or the Purchaser to maintain directors' and officers' insurance
coverage in favor of the Company's present and former directors and officers.
(g) Notwithstanding anything in this Agreement to the contrary, in the
event this Agreement is terminated in accordance with its terms before the
consummation of the Merger, the Purchaser's and Parent's obligations under this
Section 6.10 shall cease upon such termination.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.01 Conditions to Each Party's Obligation to Effect the Merger If
the Offer Shall Have Been Consummated. The respective obligations of Parent, the
Purchaser and the Company to consummate the Merger if the Offer shall have been
consummated are subject to the satisfaction or waiver in writing by each party
hereto at or before the Effective Time, of each of the following conditions (the
"Second-Step Conditions"):
(a) Shareholder Approval. The Shareholders shall have duly approved the
transactions contemplated by this Agreement, to the extent required pursuant to
the requirements of the Company's articles of incorporation and applicable Law.
(b) Purchase of Shares. The Purchaser shall have accepted for payment and
paid for Shares pursuant to the Offer in accordance with the terms hereof;
provided, that this condition shall be deemed to have been satisfied with
respect to Parent and the Purchaser if the Purchaser fails to accept for payment
or pay for Shares pursuant to the Offer in violation of the terms of the Offer.
(c) Injunctions; Illegality. The consummation of the Merger shall not be
restrained, enjoined or prohibited by any order, judgment, decree, injunction or
ruling of a court of competent jurisdiction or any Governmental Entity, and
there shall not have been any statute, rule or regulation enacted, promulgated
or deemed applicable to the Merger by any Governmental Entity that prevents the
consummation of the Merger.
(d) No Material Adverse Change. No Material Adverse Change in the Company
(as defined below) shall have occurred and be in effect at the Effective Time;
provided, that this condition shall be deemed to have been satisfied with
respect to the Company if Parent agrees to waive satisfaction thereof. The term
"Material Adverse Change in the Company," as used in this Section 7.01(d) means
a change in the business of the Company as a result of an extraordinary event
outside of the ordinary course of business which would be materially adverse to
the Company's sales or profits. Notwithstanding the foregoing, a Material
Adverse Change in the Company shall not include (i) any change in the Company's
business because of any defect or deficiency in the Company's existing product
line occurring in the ordinary course of business and that can be remedied in
the ordinary course of business, (ii) any loss by the Company of orders from, or
sales to, direct competitors of Parent or (iii) the loss of orders or sales due
to general market conditions in the paper industry.
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ARTICLE VIII
TERMINATION; AMENDMENTS; WAIVER
SECTION 8.01 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
whether or not approval thereof by the Shareholders has been obtained:
(a) by the mutual written consent of Parent, the Purchaser and the Company
prior to the date on which Parent's designees constitute a majority of the Board
of Directors of the Company; or
(b) by the Company if the Company is not in material breach of any of its
representations, warranties, covenants or arrangements contained in this
Agreement and the Stock Option Agreement and if (i) the Purchaser fails to
commence the Offer as provided in Section 1.01 hereof, (ii) the Purchaser shall
not have accepted for payment and paid for Shares pursuant to the Offer in
accordance with the terms thereof on or before April 30, 1998 or (iii) the
Purchaser fails to purchase validly tendered Shares in violation of the terms of
the Offer or this Agreement; or
(c) by Parent or the Company if the Offer expires or is terminated or
withdrawn pursuant to its terms without any Shares being purchased thereunder;
provided, however, that Parent may terminate this Agreement pursuant to this
Section 8.01(c) upon the termination or withdrawal of the Offer only if Parent's
or the Purchaser's termination or withdrawal of the Offer is not in violation of
the terms of this Agreement or the Offer; or
(d) by Parent or the Company if any court or other Governmental Entity
shall have issued, enacted, entered, promulgated or enforced any order,
judgment, decree, injunction, or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, judgment, decree
injunction, ruling or other action shall have become final and nonappealable; or
(e) by the Company if, prior to the purchase of Shares pursuant to the
Offer in accordance with the terms of this Agreement, (i) there shall have
occurred, on the part of Parent or the Purchaser, a material breach of any
representation, warranty, covenant or agreement contained in this Agreement
which is not curable or, if curable, is not cured within seven business days
after written notice of such breach is given by the Company to the party
committing the breach or (ii) the Company (A) enters into a definitive agreement
with respect to a Superior Proposal as permitted under Section 6.07(a) hereof
and after complying with the provisions of Section 6.07(b) hereof, and (B) pays
any Termination Fee and agrees to pay any other amounts required under Section
8.03(b); or
(f) by Parent if, prior to the purchase of Shares pursuant to the Offer in
accordance with the terms of this Agreement, (i) there shall have occurred, on
the part of the Company, a breach of any representation, warranty, covenant or
agreement contained in this Agreement which individually, or in the aggregate,
if not cured would be reasonably likely to have a Material Adverse Effect on the
Company and which is not curable or, if curable, is not cured within the later
of (x) 7 business days after written notice of such breach is given by Parent to
the Company and (y) the satisfaction of all conditions to the Offer not related
to such breach or (ii) the Board of Directors of the Company or committee
thereof shall have withdrawn or modified (or shall have resolved to withdraw or
modify), in a manner adverse to Parent, its approval or recommendation of this
Agreement or any of the transactions contemplated hereby and the Board of
Directors of the Company and such committee shall not have fully reinstated such
approval or recommendations within two business days or shall have recommended
(or resolved to recommend) an Acquisition Transaction (other than the Offer and
Merger) to the Shareholders and at least ten business days shall have passed
since such recommendation (or resolution); or
(g) by Parent if it is not in material breach of its obligation hereunder
or under the Offer and no Shares shall have been purchased pursuant to the Offer
on or before April 30, 1998.
SECTION 8.02 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 8.01, this Agreement shall forthwith become void
and have no effect, without any liability on the part of any party or its
directors, officers or stockholders, other than the provisions of this Section
8.02, Section 8.03
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<PAGE> 26
and the last sentence of Section 6.02, which shall survive any such termination.
The Stock Option Agreement shall also survive any such termination. Nothing
obtained in this Section 8.02 shall relieve any party from liability for any
breach of this Agreement or the Confidentiality Agreement.
SECTION 8.03 Fees and Expenses.
(a) Except as otherwise provided herein, whether or not the Merger is
consummated, all costs and expenses incurred in connection with the Offer, this
Agreement, the Stock Option Agreement and the transactions contemplated by this
Agreement and the Stock Option Agreement shall be paid by the party incurring
such expenses.
(b) In the event this Agreement is terminated pursuant to
Section 8.01(e)(ii), 8.01(f)(i) (other than for a termination due to an
unintentional breach of a representation or warranty by the Company) or
8.01(f)(ii), then the Company shall promptly reimburse Parent for the documented
out-of-pocket fees and expenses (but in no event greater than $500,000) of
Parent and the Purchaser related to this Agreement, the Stock Option Agreement,
the transactions contemplated hereby and thereby and any related financing and
in the event this Agreement is terminated pursuant to 8.01(e)(ii), then the
Company shall promptly pay Parent a Termination Fee of $1,200,000 by wire
transfer of same day funds to an account designated by the Parent as a condition
precedent to such termination.
(c) In the event that (i) any person shall have publicly disclosed a
proposal regarding an Acquisition Transaction and (ii) following such
disclosure, either (x) April 30, 1998 occurs without the Revised Minimum Number
being satisfied or the requisite stockholder approval of the Merger being
obtained (other than as a result of a material breach hereof by Parent or the
Purchaser that has not been cured within the time period set forth in Article
VIII of this Agreement) or (y) the Company breaches (prior to the time that the
designees of the Purchaser constitute a majority of the Board of Directors of
the Company) any of its material obligations hereunder and does not cure such
breach within the time period set forth in Article VIII of this Agreement or (z)
the Agreement is terminated pursuant to Section 8.01(f)(ii), and (iii) not later
than twelve months after any such termination the Company shall have entered
into an agreement for an Acquisition Transaction, or an Acquisition Transaction
shall have been consummated, then the Company shall promptly, but in no event
later than immediately prior to, and as a condition of, entering into such
definitive agreement, or, if there is no such definitive agreement then
immediately upon consummation of the Acquisition Transaction, pay Parent a
Termination Fee of $1,200,000 which amount shall be payable by wire transfer of
same day funds to an account designated by the Parent. Notwithstanding anything
to the contrary contained herein, in no event shall the Company be obligated to
pay more than one Termination Fee in accordance with this Agreement.
(d) The Company acknowledges that the agreements contained in Section
8.03(b) and (c) are an integral part of the transactions contemplated in this
Agreement and constitute liquidated damages and not a penalty, and that, without
these agreements, Parent and the Purchaser would not enter into this Agreement;
accordingly, if the Company fails to promptly pay the amount due pursuant to
Section 8.03(b) and (c), and, in order to obtain such payment, Parent or the
Purchaser commences a suit that results in a judgment against the Company for
the fee and expenses set forth in Section 8.03(b) and (c), the Company shall pay
to Parent its documented out-of-pocket costs and expenses (including attorneys'
fees) in connection with such suit. No termination of this Agreement pursuant to
Article VIII or otherwise shall prejudice the ability of a non-breaching party
from seeking damages from any other party for any breach of this Agreement,
including, without limitation, attorneys' fees and the right to pursue any
remedy at law or in equity.
SECTION 8.04 Amendment. Subject to Section 1.03(c), this Agreement may be
amended by the Company, Parent and the Purchaser at any time before or after any
approval of this Agreement by the Shareholders but, after any such approval, no
amendment shall be made which decreases the Merger Price or which adversely
affects the rights of the Shareholders hereunder without the requisite
affirmative vote of such Shareholders; provided, however, that this Agreement
shall not be amended after the time, if ever, that the Purchaser's designees
constitute a majority of the Board of Directors of the Company. This Agreement
may not be amended except by an instrument in writing signed on behalf of all
the parties.
- 26 -
<PAGE> 27
SECTION 8.05 Extension; Waiver. Subject to Section 1.03(c), at any time
prior to the Effective Time, the parties hereto may (i) extend the time for the
performance of any of the obligations or other acts of any other party hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein by any other party or in any document, certificate or writing delivered
pursuant hereto by any other party or (iii) waive compliance with any of the
agreements of any other party or with any conditions to its own obligations, it
being understood that the other conditions set forth in Annex I may be waived by
Parent and the Purchaser without the consent of the Company. Any agreement on
the part of any party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Non-Survival of Representations and Warranties. The
representations and warranties made in this Agreement shall not survive beyond
the Effective Time.
SECTION 9.02 Entire Agreement; Assignment.
(a) This Agreement (including the documents and the instruments referred to
herein) and the Confidentiality Agreement constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof and thereof.
(b) Neither this Agreement nor any of the rights, interests or obligations
hereunder may be assigned by any of the parties hereto (whether by operation of
law or otherwise) without the prior written consent of the other party. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns. This Agreement is not intended to confer upon any person other than
Parent, the Purchaser and the Company any rights or remedies hereunder.
SECTION 9.03 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
SECTION 9.04 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or facsimile to the
respective parties as follows:
If to Parent or the Purchaser:
Voith Sulzer Paper Technology North America Inc.
2200 N. Roemer Road
Appleton, Wisconsin 54913
Attention: Paul Bouthilet
Fax: (920) 731-7409
with a copy to:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Ralf R. Boer, Esq.
Fax: (414) 297-4900
If to the Company:
Impact Systems, Inc.
14600 Winchester Boulevard
Los Gatos, California 95030
Attention: Kenneth P. Ostrow
Fax: (408) 379-0910
- 27 -
<PAGE> 28
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94306
Attention: Arthur F. Schneiderman, Esq.
Fax: (650) 493-6811
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 9.05 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 9.06 WAIVER OF JURY TRIAL. EACH PARTY ACKNOWLEDGES AND AGREES THAT
ANY CONTROVERSY OR DISPUTE THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES AND THEREFORE EACH SUCH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE STOCK OPTION AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I)
NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.06.
SECTION 9.07 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 9.08 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 9.09 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, except with respect to
Sections 1.03(c), 2.09, 6.07 and 6.10, nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
SECTION 9.10 Certain Definitions. As used in this Agreement:
(a) the term "affiliate", as applied to any person shall mean any other
person directly or indirectly controlling, controlled by, or under common
control with, that person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that person, whether through the
ownership of voting shares, by contract or otherwise;
(b) the term "person" shall include individuals, corporations,
partnerships, trusts, other entities and groups (which term shall include a
"group" as such term is defined in Section 13(d)(3) of the Exchange Act); and
(c) the term "subsidiary" or "subsidiaries" means, with respect to Parent,
the Company or any other person, any corporation, partnership, joint venture or
other legal entity of which Parent, the Company or such
- 28 -
<PAGE> 29
other person, as the case may be (either alone or through or together with any
other subsidiary), owns, directly or indirectly, stock or other equity interests
the holders of which are generally entitled to more than 50% of the vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
SECTION 9.11 SPECIFIC PERFORMANCE. 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.
- 29 -
<PAGE> 30
ANNEX I
CONDITIONS TO THE OFFER. Notwithstanding any other provisions of the Offer,
the Purchaser shall not be required to accept for payment or pay for any
tendered Shares, unless there are validly tendered and not withdrawn prior to
the expiration date for the Offer that number of Common Shares which, when added
to the Shares owned by the Purchaser, will represent at least 90% of the
outstanding Common Shares on a fully diluted basis (after giving pro forma
effect to the potential issuance of any Shares issuable under the Stock Option
Agreement) on the date of purchase (the "Minimum Condition"); provided, however,
that the Minimum Condition must be waived by the Purchaser and the Revised
Minimum Number may be substituted therefor as contemplated by Section 1.01(b) of
the Merger Agreement. Furthermore, notwithstanding any other provisions of the
Offer, the Purchaser shall not be required to accept for payment or pay for any
tendered Shares until expiration of all applicable waiting periods under the HSR
Act and the satisfaction of conditions under any other applicable Antitrust Laws
and the Purchaser may, subject to the terms of the Merger Agreement, amend the
Offer or postpone the acceptance for payment of tendered Shares if at any time
on or after the date of the Merger Agreement and before the expiration of the
Offer, any of the following events (each, an "Event") shall occur:
(a) any order, preliminary or permanent injunction, decree, judgment or
ruling in any suit, action or proceeding is entered that (i) makes illegal or
otherwise directly or indirectly restrains or prohibits the acquisition by
Parent or the Purchaser of any Shares under the Offer or the making or
consummation of the Offer or the Merger, the performance by the Company of any
of its material obligations under the Merger Agreement or the Stock Option
Agreement or the consummation of any purchase of Shares contemplated by the
Merger Agreement, the Stock Option Agreement or related agreements, (ii)
prohibits or limits the ownership or operation by the Company, Parent or any of
their respective subsidiaries of a material portion of the Business or assets of
the Company and the Subsidiaries, taken as a whole, or Parent and the
Subsidiaries, taken as a whole, or compels the Company or Parent to dispose of
or hold separate any material portion of the Business or assets of the Company
and the Subsidiaries, taken as a whole, or Parent and its subsidiaries, taken as
a whole, as a result of the Offer or the Merger, (iii) imposes material
limitations on the ability of Parent or the Purchaser to acquire or hold, or
exercise full rights of ownership of, any Shares accepted for payment pursuant
to the Offer or acquired pursuant to the Stock Option Agreement, including,
without limitation, the right to vote such Shares on all matters properly
presented to the Shareholders or (iv) prohibits Parent or any of its
subsidiaries from effectively controlling in any material respect the Business
or operation of the Company and the Subsidiaries; or
(b) any Law is enacted, entered, enforced, promulgated or deemed applicable
to the Offer, the Merger or the transactions contemplated by the Stock Option
Agreement, or any other action is taken by any Governmental Entity, other than
the application to the Offer, the Merger or the transactions contemplated by the
Stock Option Agreement of applicable waiting periods under the HSR Act or
applicable conditions under other Antitrust Laws that results, directly or
indirectly, in any of the consequences referred to in clauses (i) through (iv)
of paragraph (a) above; or
(c) (i) the Board of Directors of the Company or any committee thereof
withdraws or modifies in a manner adverse to Parent or the Purchaser its
approval or recommendation of the Offer, the Merger, the Merger Agreement or the
Stock Option Agreement or approves or recommends any Acquisition Transaction, or
(ii) the Company enters into any agreement to consummate any Acquisition
Transaction; or
(d) any of the representations and warranties of the Company set forth in
the Merger Agreement that are qualified as to Material Adverse Effect are not
true and correct, or any such representations and warranties that are not so
qualified are not true and correct in any respect (when taken together with all
other failures of such representations and warranties to be true and correct)
that would have a Material Adverse Effect on the Company, in each case at the
date of the Merger Agreement or at the scheduled expiration of the Offer (as
though made as of such date, except that those representations and warranties
that address matters only as of a particular date shall remain true and correct
as of such date); or
(e) the Merger Agreement shall have been terminated in accordance with its
terms; or
I-1
<PAGE> 31
(f) the Company shall have breached or failed to perform in any material
respect any of its obligations, covenants or agreements under the Merger
Agreement or the Stock Option Agreement and such breach or failure to perform is
not curable or, if curable, is not cured within seven (7) business days after
written notice of such breach or failure is given by Parent to the Company; or
(g) there shall have occurred, and continued to exist, (i) any general
suspension of, or limitation on prices for, trading in securities on the New
York Stock Exchange or the Nasdaq National Market, (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States or Germany, (iii) a commencement of a war, armed hostilities or
other national or international crisis directly involving the United States or
Germany (other than an action involving solely United Nations' personnel or
support of United Nations' personnel), or (iv) in the case of any of the events
described in the foregoing clauses (i) through (iii) existing at the time of the
commencement of the Offer, a material acceleration or worsening thereof.
The foregoing conditions are for the benefit of Parent and the Purchaser and may
be asserted by Parent or the Purchaser regardless of the circumstances giving
rise to any such conditions and may be waived by Parent or the Purchaser in
whole or in part at any time and from time to time in their sole discretion. The
failure by Parent or the Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right shall
be deemed an ongoing right which may be asserted at any time and from time to
time.
The capitalized terms used in this Annex I shall have the meanings set
forth in the Agreement to which it is annexed, except that the term "Merger
Agreement" shall be deemed to refer to the Agreement to which this Annex I is
appended.
I-2
<PAGE> 32
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its respective officer thereunto duly authorized, all
as of the day and year first above written.
VOITH SULZER PAPER TECHNOLOGY
NORTH AMERICA INC.
By: /s/ R. RAY HALL
------------------------------------
Name: R. Ray Hall
Title: Executive Vice President
By: /s/ PAUL BOUTHILET
------------------------------------
Name: Paul Bouthilet
Title: Secretary
VOITH SULZER ACQUISITION CORP.
By: /s/ R. RAY HALL
------------------------------------
Name: R. Ray Hall
Title: President
By: /s/ PAUL BOUTHILET
------------------------------------
Name: Paul Bouthilet
Title: Secretary
IMPACT SYSTEMS, INC.
By: /s/ KENNETH P. OSTROW
------------------------------------
Name: Kenneth P. Ostrow
Title: President
By: /s/ ROBERT M. GORSKI
------------------------------------
Name: Robert M. Gorski
Title: V.P. Finance and Secretary
I-3
<PAGE> 1
EXHIBIT 2
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated December 11, 1997 (this "Agreement"), by and
among Voith Sulzer Paper Technology North America Inc., a Delaware corporation
("Parent"), Voith Sulzer Acquisition Corp., a California corporation and a
wholly-owned subsidiary of Parent (the "Purchaser"), and Impact Systems, Inc., a
California corporation (the "Company").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this Agreement,
Parent, the Purchaser and the Company are entering into an Agreement and Plan of
Merger (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"; capitalized terms used but not defined in this Agreement
shall have the meanings ascribed to them in the Merger Agreement), which
provides, upon the terms and subject to the conditions thereof, for (i) the
commencement by the Purchaser of a tender offer (the "Offer") to purchase all of
the issued and outstanding shares of the common stock, no par value, of the
Company ("Common Stock") at the applicable Offer Price and (ii) the subsequent
merger of the Purchaser with and into the Company (the "Merger"), whereby each
share of Common Stock, other than shares owned directly or indirectly by Parent,
the Purchaser or the Company and other than Dissenting Shares, will be converted
into the right to receive in cash the Offer Price applicable thereto; and
WHEREAS, as a condition to the willingness of Parent and the Purchaser to
enter into the Merger Agreement, Parent and the Purchaser have required that the
Company agree, and in order to induce Parent and the Purchaser to enter into the
Merger Agreement, the Company has agreed, to grant the Purchaser an option to
purchase shares of Common Stock, upon the terms and subject to the conditions of
this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement and in the Merger Agreement, the parties hereto agree as follows:
ARTICLE I
THE TOP-UP STOCK OPTION
SECTION 1.1. Grant of Top-Up Stock Option. Subject to the terms and
conditions set forth herein, the Company hereby grants to the Purchaser an
irrevocable option (the "Top-Up Stock Option") to purchase that number of shares
of Common Stock (the "Top-Up Option Shares") equal to the number of shares of
Common Stock that, when added to the number of shares of Common Stock owned by
the Purchaser and its affiliates immediately following consummation of the
Offer, shall constitute 90% of the shares of Common Stock then outstanding on a
fully diluted basis (assuming the issuance of the Top-Up Option Shares) at a
purchase price per Top-Up Option Share equal to the Offer Price; provided,
however, that the Top-Up Stock Option shall not be exercisable if the number of
shares of Common Stock subject thereto exceeds the number of authorized shares
of Common Stock available for issuance. The Company agrees to provide Parent and
the Purchaser with information regarding the number of shares of Common Stock
available for issuance on an ongoing basis.
SECTION 1.2. Exercise of Top-Up Stock Option. (a) Subject to the conditions
set forth in Section 2.1 and any additional requirements of Law, the Top-Up
Stock Option may be exercised by the Purchaser, in whole but not in part, at any
one time after the occurrence of a Top-Up Exercise Event (as defined below) and
prior to the Top-Up Termination Date (as defined below).
(b) A "Top-Up Exercise Event" shall occur for purposes of this Agreement
upon the Purchaser's acceptance for payment pursuant to the Offer of shares of
Common Stock constituting more than 50% but less than 90% of the shares of
Common Stock then outstanding on a fully diluted basis.
<PAGE> 2
(c) Except as provided in the last sentence of this Section 1.2.(c), the
"Top-Up Termination Date" shall occur for purposes of this Agreement upon the
earliest to occur of:
(i) the Effective Time;
(ii) the date which is ten (10) business days after the occurrence of
Top-Up Exercise Event; and
(iii) the termination of the Merger Agreement.
Notwithstanding the occurrence of the Top-Up Termination Date, the Purchaser
shall be entitled to purchase the Top-Up Option Shares if it has exercised the
Top-Up Stock Option in accordance with the terms hereof prior to such
occurrence, and the occurrence of the Top-Up Termination Date shall not affect
any rights hereunder which by their terms do not terminate or expire prior to or
as of such date.
(d) In the event the Purchaser wishes to exercise the Top-Up Stock Option,
the Purchaser shall send to the Company a written notice (a "Top-Up Exercise
Notice", the date of which notice is referred to herein as the "Top-Up Notice
Date") specifying the denominations of the certificate or certificates
evidencing the Top-Up Option Shares which the Purchaser wishes to receive, the
place for the closing of the purchase and sale pursuant to the Top-Up Stock
Option (the "Top-Up Closing") and a date not earlier then three (3) business
days nor later then ten (10) business days from the Top-Up Notice Date for the
Top-Up Closing (the "Top-Up Closing Date"); provided, however, that (i) if the
Top-Up Closing cannot be consummated by reason of any applicable Laws or Orders,
the period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which such restriction on consummation has expired or
been terminated and (ii) without limiting the foregoing, if prior notification
to or approval of any Governmental Entity is required in connection with such
purchase, the Purchaser and the Company shall promptly file the required notice
or application for approval and shall cooperate in the expeditious filing of
such notice or application, and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which, as the case
may be, (A) any required notification period has expired or been terminated or
(B) any required approval has been obtained, and in either event, any requisite
waiting period has expired or been terminated. The Company shall, within two (2)
business days after receipt of the Top-Up Exercise Notice, deliver written
notice to the Purchaser specifying the number of Top-Up Option Shares and the
aggregate purchase price therefor.
ARTICLE II
CLOSING
SECTION 2.1. Conditions to Closing. The obligation of the Company to
deliver Top-Up Option Shares upon the exercise of the Top-Up Stock Option is
subject to the following conditions:
(a) All waiting periods, if any, under the HSR Act applicable to the
issuance of the Top-Up Option Shares hereunder shall have expired or have been
terminated and the conditions under any other applicable Antitrust Laws shall
have been satisfied; and
(b) There shall be no preliminary or permanent injunction or other final,
non-appealable judgment by a court of competent jurisdiction preventing or
prohibiting the exercise of the Top-Up Stock Option or the delivery of the
Top-Up Option Shares in respect of such exercise.
SECTION 2.2. Closing. (a) At the Top-Up Closing, (i) the Company shall
deliver to the Purchaser a certificate or certificates evidencing the applicable
number of Top-Up Option Shares (in the denominations specified in the Top-Up
Exercise Notice), and (ii) the Purchaser shall purchase each Top-Up Option Share
from the Company at the Top-Up Price. Payment by the Purchaser of the Top-Up
Price for the Top-Up Option Shares shall be made by wire transfer of immediately
available funds to an account designated by the Company.
(b) The Company shall pay all expenses, and any and all Federal, state and
local taxes and other charges, that may be payable in connection with the
preparation, issuance and delivery of stock certificates under this Section 2.2.
- 2 -
<PAGE> 3
(c) Certificates evidencing Top-Up Option Shares delivered hereunder may
include legends legally required including the 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.
It is understood and agreed that the foregoing legend shall be removed by
delivery of substitute certificate(s) without such legend upon the sale of the
Top-Up Option Shares pursuant to a registered public offering or Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"), or any other sale
as a result of which such legend is no longer required.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and the Purchaser
(except as otherwise disclosed in writing on the date hereof) as follows:
SECTION 3.1. Organization; Authority Relative to this Agreement. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of California. The Company has all requisite
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of the
Company. This Agreement has been duly and validly executed and delivered by the
Company and, assuming the due and valid authorization, execution and delivery by
Parent and the Purchaser, constitutes a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, and by general equitable principles.
SECTION 3.2. Authority to Issue Shares. The Company has taken all necessary
corporate action to authorize and reserve and permit it to issue, and at all
times from the date hereof through the Top-Up Termination Date shall have
reserved, all the Top-Up Option Shares issuable pursuant to this Agreement. All
of the shares of Common Stock issuable under the Top-Up Stock Option, upon their
issuance and delivery in accordance with the terms of this Agreement, will be
duly authorized, validly issued, fully paid and nonassessable, will be delivered
free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on the Purchaser's voting
rights, charges, adverse rights and other encumbrances of any nature whatsoever
(other than this Agreement) and will not be subject to any preemptive rights.
SECTION 3.3. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by the Company does not, and the performance by
the Company of its obligations hereunder and the consummation of the
transactions contemplated hereby will not, (i) conflict with or violate the
articles of incorporation or bylaws or equivalent organizational documents of
the Company or any of the Subsidiaries, (ii) assuming that all Consents and
filings described in Section 3.3(b) have been obtained or made, conflict with or
violate any Law applicable to the Company or the Subsidiaries or by which any
property or asset of the Company or the Subsidiaries is bound or affected or
(iii) result in any Violation pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any of the Subsidiaries is a party or by
which the Company or any of the Subsidiaries or any of their respective
properties may be bound or affected.
(b) No Consent of, or filing with, any Governmental Entity is required by
the Company in connection with the execution and delivery of this Agreement, the
performance by the Company of its obligations hereunder or the consummation by
the Company of the transactions contemplated hereby, except for
- 3 -
<PAGE> 4
(i) compliance with the HSR Act and any requirements of any other Antitrust Laws
and (ii) Consents or filings the failure of which to be obtained or made would
not, individually or in the aggregate, prevent or materially delay the
consummation of the transactions contemplated hereby or the performance by the
Company of any of its obligations hereunder.
ARTICLE IV
COVENANTS OF THE COMPANY
SECTION 4.1. Further Action. The Company shall use its best efforts to
take, or cause to be taken, all appropriate action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable Laws to
consummate and make effective the transactions contemplated hereunder,
including, without limitation, using all reasonable efforts to obtain all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of Governmental Entities.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER
Parent and the Purchaser hereby represent and warrant to the Company as
follows:
SECTION 5.1. Organization; Authority Relative to this Agreement. Each of
Parent and the Purchaser is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation. Each
of Parent and the Purchaser has all requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and the Purchaser and the consummation by Parent and
the Purchaser of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Parent and the
Purchaser. This Agreement has been duly and validly executed and delivered by
Parent and the Purchaser and, assuming the due and valid authorization,
execution and delivery by the Company, constitutes a valid and binding
obligation of Parent and the Purchaser, enforceable against each of Parent and
the Purchaser in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally, and by general
equitable principles.
SECTION 5.2. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by Parent and the Purchaser do not, and the
performance by Parent and the Purchaser of their obligations hereunder and the
consummation of the transactions contemplated hereby will not, (i) conflict with
or violate the articles of incorporation or bylaws or equivalent organizational
documents of Parent or the Purchaser, (ii) assuming that all Consents and
filings described in Section 5.2(b) have been obtained or made, conflict with or
violate any Law applicable to Parent or the Purchaser or by which any property
or asset of Parent or the Purchaser is bound or affected or (iii) result in any
Violation pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Parent or the Purchaser is a party or by which Parent or the Purchaser or any of
their respective properties may be bound or affected.
(b) No Consent of, or filing with, any Governmental Entity is required by
Parent or the Purchaser in connection with the execution and delivery of this
Agreement, the performance by Parent or the Purchaser of any of its obligations
hereunder or the consummation by Parent or the Purchaser of the transactions
contemplated hereby, except for (i) compliance with the HSR Act and any
requirements of any other Antitrust Laws and (ii) Consents or filings the
failure of which to be obtained or made would not, individually or in the
aggregate, prevent or materially delay the consummation of the transactions
contemplated hereby or the performance by Parent or the Purchaser of any of
their respective obligations hereunder.
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<PAGE> 5
ARTICLE VI
COVENANTS OF THE PURCHASER
SECTION 6.1. Distribution. The Purchaser shall acquire the Top-Up Option
Shares for investment purposes only (and, only for the purpose of effecting a
short-form merger with the Company) and not with a view to any distribution
thereof in violation of the Securities Act.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 7.2. Waiver. Any party hereto may (a) extend the time for or waive
compliance with the performance of any obligation or other act of any other
party hereto or (b) waive any inaccuracy in the representations and warranties
contained herein or in any document delivered pursuant hereto. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party or parties to be bound thereby. The failure of any party to
this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of those rights.
SECTION 7.3. Fees and Expenses. Except as otherwise provided herein or in
Section 8.03 of the Merger Agreement, all costs, fees and expenses incurred in
connection with this Agreement shall be paid by the party incurring such
expenses.
SECTION 7.4. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or sent by telecopy or by overnight courier (providing
proof of delivery) to the respective parties at their addresses as specified in
Section 9.04 of the Merger Agreement.
SECTION 7.5. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of Law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner to
the fullest extent permitted by applicable Law in order that the transactions
contemplated hereby may be consummated as originally contemplated to the fullest
extent possible.
SECTION 7.6. Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned, in
whole or in part, by operation of law or otherwise, by any of the parties hereto
without the prior written consent of the other parties, except that the
Purchaser may assign, in its discretion, any or all of its rights, interests and
obligations hereunder to Parent or any direct or indirect subsidiary of Parent,
but no such assignment shall relieve the Purchaser of any of its obligations
hereunder. Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by, the parties hereto and
their respective successors and permitted assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement, express
or implied, is intended to confer on any person other than the parties hereto or
their respective successors and permitted assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
SECTION 7.7. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to the principles of conflicts of laws thereof.
SECTION 7.8. ENFORCEMENT. THE PARTIES 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
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<PAGE> 6
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 OF THIS AGREEMENT 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.
SECTION 7.9. Headings. The descriptive headings contained in this Agreement
are included for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 7.10. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) 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 parties, it being understood that all parties need not sign the
same counterpart.
SECTION 7.11. Entire Agreement. This Agreement constitutes the entire
agreement, and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of this
Agreement.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, all as of the
date first written above.
VOITH SULZER PAPER TECHNOLOGY
NORTH AMERICA INC.
By: /s/ R. RAY HALL
------------------------------------
Name: R. Ray Hall
Title: Executive Vice President
By: /s/ PAUL BOUTHILET
------------------------------------
Name: Paul Bouthilet
Title: Secretary
VOITH SULZER ACQUISITION CORP.
By: /s/ R. RAY HALL
------------------------------------
Name: R. Ray Hall
Title: President
By: /s/ PAUL BOUTHILET
------------------------------------
Name: Paul Bouthilet
Title: Secretary
IMPACT SYSTEMS, INC.
By: /s/ KENNETH P. OSTROW
------------------------------------
Name: Kenneth P. Ostrow
Title: President
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<PAGE> 1
EXHIBIT 3
STOCKHOLDER AGREEMENT
AGREEMENT, dated December 11, 1997, among Voith Sulzer Paper Technology
North America Inc., a Delaware corporation ("Parent"), Voith Sulzer Acquisition
Corp., a California corporation and a wholly-owned subsidiary of Parent (the
"Purchaser"), and Elsag International N.V. (the "Stockholder").
W I T N E S S E T H :
WHEREAS, concurrently with the execution and delivery of this Agreement,
Parent, the Purchaser and Impact Systems, Inc., a California corporation (the
"Company"), have entered into an Agreement and Plan of Merger (as such agreement
may hereafter be amended from time to time, the "Merger Agreement"), pursuant to
which the Purchaser will be merged with and into the Company (the "Merger"); and
WHEREAS, in furtherance of the Merger, Parent and the Company desire that
as soon as practicable (and not later than five business days) after the
announcement of the execution of the Merger Agreement, the Purchaser shall
commence a cash tender offer (the "Offer") to purchase at the Offer Price all
outstanding shares of Common Stock (each as defined in Section 1 hereof),
including all of the Securities (as defined in Section 2 hereof) beneficially
owned by the Stockholder; and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent has required that the Stockholder agree, and the Stockholder
has agreed, to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
1. Definitions. For purposes of this Agreement:
(a) "Beneficially Owned" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing. Without duplicative counting of the
same securities by the same holder, securities Beneficially Owned by a Person
(as hereinafter defined) shall include securities Beneficially Owned by all
other Persons with whom such Person would constitute a "group" within the
meaning of Section 13(d)(3) of the Exchange Act.
(b) "Common Stock" shall mean the Common Stock, no par value, of the
Company.
(c) "Offer Price" shall mean cash in the amount of $2.75 per share of
Common Stock or, if greater, the price per share paid by the Purchaser in the
Offer.
(d) "Person" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(e) Capitalized terms used and not defined herein shall have the respective
meanings ascribed to them in the Merger Agreement.
2. Tender of Shares.
(a) In order to induce Parent and the Purchaser to enter into the Merger
Agreement, the Stockholder hereby agrees to validly tender (or cause the record
owner of such shares to validly tender), and not to withdraw, pursuant to and in
accordance with the terms of the Offer, not later than the fifth business day
after commencement of the Offer pursuant to Section 1.01 of the Merger Agreement
and Rule 14d-2 under the Exchange Act, the number of shares of Common Stock set
forth opposite the Stockholder's name on Schedule I hereto (the "Existing
Securities", and together with any shares of Common Stock acquired by the
Stockholder in any capacity after the date hereof and prior to the termination
of this Agreement by means of purchase, dividend, distribution, exercise of
options or other rights to acquire Common Stock or in any other way, the
"Securities"), all of which are Beneficially Owned by the Stockholder. The
Stockholder hereby
<PAGE> 2
acknowledges and agrees that Parent's and the Purchaser's obligation to accept
for payment and pay for the Securities in the Offer, including the Securities
Beneficially Owned by the Stockholder, is subject to the terms and conditions of
the Offer.
(b) The Stockholder hereby permits Parent and the Purchaser to publish and
disclose in the Offer Documents and, if approval of the Company's stockholders
is required under applicable law, the Proxy Statement (including all documents
and schedules filed with the SEC) its identity and ownership of the Securities
and the nature of its commitments, arrangements and understandings under this
Agreement; provided that the Stockholder shall have a right to review and
comment on such disclosure a reasonable time before it is publicly disclosed.
3. Option.
(a) In order to induce Parent and the Purchaser to enter into the Merger
Agreement, the Stockholder hereby grants to Purchaser an irrevocable option (a
"Securities Option") to purchase the Securities (the "Option Securities") at the
Offer Price (the "Purchase Price"). If (i) the Merger Agreement is terminated in
accordance with Section 8.01(c), 8.01(e)(ii), 8.01(f) or 8.01(g) thereof, or
(ii) the Merger Agreement is terminated in accordance with Section 8.01(b)(ii)
thereof and (x) the Stockholder shall have breached the agreements set forth in
Section 2(a) hereof or (y) at the time of such termination the Minimum Condition
shall not have been satisfied, the Securities Option shall, in any such case,
become exercisable, in whole but not in part, upon the first to occur of any
such event and remain exercisable in whole but not in part until the date which
is 90 days after the date of the occurrence of such event (the "90 Day Period"),
so long as: (i) all waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), required for the purchase
of the Securities upon such exercise shall have expired or been waived and any
other conditions under the other Antitrust Laws shall have been satisfied and
(ii) there shall not be in effect any preliminary injunction or other order
issued by any Governmental Entity prohibiting the exercise of the Securities
Option pursuant to this Agreement; provided that if (i) all HSR Act waiting
periods shall not have expired or been waived or the conditions under the other
Antitrust Laws shall not have been satisfied or (ii) there shall be in effect
any such injunction or order, in each case on the expiration of the 90 Day
Period, the 90 Day Period shall be extended until five (5) business days after
the later of (A) the later of the date of expiration or waiver of all HSR Act
waiting periods or the date on which the applicable conditions under the other
Antitrust Laws have been satisfied, and (B) the date of removal or lifting of
such injunction or order. In the event that the Purchaser wishes to exercise the
Securities Option, the Purchaser shall send a written notice (the "Notice") to
the Stockholder identifying the place and date (not less than two (2) nor more
than ten (10) business days from the date of the Notice) for the closing of such
purchase.
(b) In the event the Option Securities are acquired by the Purchaser
pursuant to the exercise of the Securities Option (the "Acquired Securities"),
the Stockholder shall be entitled to receive, and the Purchaser shall promptly
pay to the Stockholder, upon any subsequent disposition, transfer or sale
("Sale") of the Acquired Securities during the term of this Agreement an amount
per share in cash equal to 50% of the difference between the net proceeds
received per share in the Sale and the Purchase Price. The Purchaser shall only
effect any Sale in an arms' length bona fide transaction to an unaffiliated
third party.
4. Additional Agreements.
(a) Voting Agreement. The Stockholder shall, at any meeting of the
stockholders of the Company, however called, or in connection with any written
consent of the stockholders of the Company, vote (or cause to be voted) all
Securities then held of record or Beneficially Owned by the Stockholder, (i) in
favor of the Merger, the execution and delivery by the Company of the Merger
Agreement and the Stock Option Agreement and the approval of the terms thereof
and each of the other actions contemplated by the Merger Agreement, the Stock
Option Agreement and this Agreement and any actions required in furtherance
thereof and hereof; and (ii) against any proposal relating to an Acquisition
Transaction and against any action or agreement that would impede, frustrate,
prevent or nullify this Agreement, or result in a breach in any respect of any
covenant, representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement or the Stock Option Agreement or which would
result in any of the conditions set forth in Annex I to the Merger Agreement or
set forth in Article VII of the Merger Agreement not being fulfilled.
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<PAGE> 3
(b) No Inconsistent Arrangements. The Stockholder hereby covenants and
agrees that, except as contemplated by this Agreement and the Merger Agreement,
it shall not (i) transfer (which term shall include, without limitation, any
sale, gift, pledge (other than a pledge which does not impair the Stockholder's
ability to perform under this Agreement) or other disposition), or consent to
any transfer of, any or all of the Securities or any interest therein, (ii)
enter into any contract, option or other agreement or understanding with respect
to any transfer of any or all of the Securities or any interest therein, (iii)
grant any proxy, power-of-attorney or other authorization in or with respect to
the Securities, (iv) deposit the Securities into a voting trust or enter into a
voting agreement or arrangement with respect to the Securities or (v) take any
other action that would in any way restrict, limit or interfere with the
performance of its obligations hereunder or the transactions contemplated hereby
or by the Merger Agreement or the Stock Option Agreement (including, without
limitation, any action that would cause the Merger to be subject to Section 1101
of the GCL).
(c) Grant of Irrevocable Proxy; Appointment or Proxy.
(i) The Stockholder hereby irrevocably grants to, and appoints, Parent
and Ray Hall and Paul Bouthilet, or either of them, in their respective
capacities as officers or directors of Parent, and any individual who shall
hereafter succeed to any such office or directorship of Parent, and each of
them individually, the Stockholder's proxy and attorney-in-fact (with full
power of substitution), for and in the name, place and stead of the
Stockholder, to vote the Securities, or grant a consent or approval in
respect of the Securities, in favor of the various transactions
contemplated by the Merger Agreement and the Stock Option Agreement (the
"Transactions") and against any proposal relating to an Acquisition
Transaction.
(ii) The Stockholder represents that any proxies heretofore given in
respect of the Stockholder's Securities are not irrevocable, and that any
such proxies are hereby revoked.
(iii) The Stockholder understands and acknowledges that Parent is
entering into the Merger Agreement in reliance upon the Stockholder's
execution and delivery of this Agreement. The Stockholder hereby affirms
that the irrevocable proxy set forth in this Section 4(c) is given in
connection with the execution of the Merger Agreement, and that such
irrevocable proxy is given to secure the performance of the duties of the
Stockholder under this Agreement. The Stockholder hereby further affirms
that the irrevocable proxy is coupled with an interest and may under no
circumstances be revoked. The Stockholder hereby ratifies and confirms all
that such irrevocable proxy may lawfully do or cause to be done by virtue
hereof. Such irrevocable proxy is executed and intended to be irrevocable
in accordance with the provisions of Section 705 of the GCL. A legend
reflecting the foregoing irrevocable proxy shall be placed on the
certificate or certificate representing the Securities.
(d) No Solicitation. The Stockholder hereby agrees, in the capacity as a
stockholder of the Company, that neither the Stockholder nor any affiliates,
representatives or agents shall (and, if the Stockholder is a corporation,
partnership, trust or other entity, the Stockholder shall cause its officers,
directors, partners, and employees, representatives and agents, including, but
not limited to, investment bankers, attorneys and accountants, not to), directly
or indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than Parent, the Purchaser or any of
their respective affiliates or representatives) concerning any proposal relating
to an Acquisition Transaction. The Stockholder will immediately cease any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any proposal relating to an Acquisition Transaction.
The Stockholder will immediately communicate to Parent the terms of any
proposal, discussion, negotiation or inquiry (and will disclose any written
materials received by the Stockholder in connection with such proposal,
discussion, negotiation or inquiry) and the identity of the party making such
proposal or inquiry which it may receive in respect of any such Acquisition
Transaction. Any action taken by the Company or any member of the Board of
Directors of the Company in accordance with Section 6.07 of the Merger Agreement
shall be deemed not to violate this Section 4(d).
(e) Reasonable Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable Laws to consummate and
make effective the
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<PAGE> 4
transactions contemplated by this Agreement. Each party shall promptly consult
with the other and provide any necessary information and material with respect
to all filings made by such party with any Governmental Entity in connection
with this Agreement and the transactions contemplated hereby.
(f) Waiver of Appraisal Rights. The Stockholder hereby waives any rights of
appraisal or rights to dissent from the Merger that it may have.
5. Representations and Warranties of the Stockholder. The Stockholder
hereby represents and warrants to Parent and the Purchaser as follows:
(a) Ownership of Securities. The Stockholder is the record and Beneficial
Owner of the Existing Securities, as set forth on Schedule I. On the date
hereof, the Existing Securities constitute all of the Securities owned of record
or Beneficially Owned by the Stockholder. The Stockholder has sole voting power
and sole power to issue instructions with respect to the matters set forth in
Sections 2, 3 and 4 hereof, sole power of disposition, sole power to demand
appraisal rights and sole power to agree to all of the matters set forth in this
Agreement, in each case with respect to all of the Existing Securities with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) Power; Binding Agreement. The Stockholder has the power and authority
to enter into and perform all of the Stockholder's obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Stockholder will not violate any other agreement to which the Stockholder is a
party including, without limitation, any voting agreement, proxy arrangement,
pledge agreement, shareholders agreement or voting trust. This Agreement has
been duly and validly executed and delivered by the Stockholder and constitutes
a valid and binding agreement of the Stockholder, enforceable against the
Stockholder in accordance with its terms, except that such enforceability (i)
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to the enforcement of creditors' rights generally and (ii)
is subject to general principles of equity. There is no beneficiary or holder of
a voting trust certificate or other interest of any trust of which the
Stockholder is a trustee, or any party to any other agreement or arrangement,
whose consent is required for the execution and delivery of this Agreement or
the consummation by the Stockholder of the transactions contemplated hereby.
(c) No Conflicts. Except for filings under the HSR Act, other applicable
Antitrust Laws and the Exchange Act (i) no filing with, and no permit,
authorization, consent or approval of, any Governmental Entity is necessary for
the execution and delivery of this Agreement by the Stockholder, the
consummation by the Stockholder of the transactions contemplated hereby and the
compliance by the Stockholder with the provisions hereof and (ii) none of the
execution and delivery of this Agreement by the Stockholder, the consummation by
the Stockholder of the transactions contemplated hereby or compliance by the
Stockholder with any of the provisions hereof, except in cases in which any
conflict, breach, default or violation described below would not interfere with
the ability of such Stockholder to perform such Stockholder's obligations
hereunder, shall (A) conflict with or result in any breach of any organizational
documents applicable to the Stockholder, (B) result in a violation or breach of,
or constitute (with or without notice or lapse of time or both) a default (or
give rise to any third party right of termination, cancellation, modification or
acceleration) under, any of the terms, conditions or provisions of any note,
loan agreement, bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or obligation of any
kind to which the Stockholder is a party or by which the Stockholder or any of
its properties or assets may be bound, or (C) violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation applicable to
the Stockholder or any of such Stockholder's properties or assets.
(d) No Liens. Except as permitted by this Agreement, the Existing
Securities and the certificates representing such securities are now, and at all
times during the term hereof will be, held by the Stockholder, or by a nominee
or custodian for the benefit of the Stockholder, free and clear of all Liens,
proxies, voting trusts or agreements, understandings or arrangements or any
other rights whatsoever, except for any such Liens or proxies arising hereunder.
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<PAGE> 5
(e) No Finder's Fees. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial adviser's or other
similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of the Stockholder.
(f) Reliance by Parent. The Stockholder understands and acknowledges that
Parent is entering into, and causing the Purchaser to enter into, the Merger
Agreement in reliance upon the Stockholder's execution and delivery of this
Agreement.
6. Representations and Warranties of Parent and the Purchaser. Each of
Parent and the Purchaser hereby represents and warrants to the Stockholder as
follows:
(a) Power; Binding Agreement. Parent and the Purchaser each has the
corporate power and authority to enter into and perform all of its obligations
under this Agreement. The execution, delivery and performance of this Agreement
by each of Parent and the Purchaser will not violate any other agreement to
which either of them is a party. This Agreement has been duly and validly
executed and delivered by each of Parent and the Purchaser and constitutes a
valid and binding agreement of each of Parent and the Purchaser, enforceable
against each of Parent and the Purchaser in accordance with its terms, except
that such enforceability (i) may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity.
(b) No Conflicts. Except for filings under the HSR Act, other applicable
Antitrust Laws and the Exchange Act, (i) no filing with, and no permit,
authorization, consent or approval of, any Governmental Entity is necessary for
the execution of this Agreement by each of Parent and the Purchaser, the
consummation by each of Parent and the Purchaser of the transactions
contemplated hereby and the compliance by Parent and the Purchaser with the
provisions hereof and (ii) none of the execution and delivery of this Agreement
by each of Parent and the Purchaser, the consummation by each of Parent and the
Purchaser of the transactions contemplated hereby or compliance by each of
Parent and the Purchaser with any of the provisions hereof, except in cases in
which any conflict, breach, default or violation described below would not
interfere with the ability of Parent or the Purchaser to perform their
respective obligations hereunder, shall (A) conflict with or result in any
breach of any organizational documents applicable to either of Parent or the
Purchaser, (B) result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give rise to any third
party right of termination, cancellation, modification or acceleration) under,
any of the terms, conditions or provisions of any note, loan agreement, bond,
mortgage, indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which either of
Parent or the Purchaser is a party or by which either of Parent or the Purchaser
or any of their properties or assets may be bound, or (C) violate any order,
writ, injunction, decree, judgment, order, statute, rule or regulation
applicable to either of Parent or the Purchaser or any of their properties or
assets.
7. Further Assurances. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
8. Stop Transfer. The Stockholder shall not request that the Company
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Securities, unless such transfer
is made in compliance with this Agreement. In the event of a stock dividend or
distribution, or any change in the Common Stock by reason of any stock dividend,
split-up, recapitalization, combination, exchange of shares or the like, the
term "Securities" shall refer to and include the Securities as well as all such
stock dividends and distributions and any shares into which or for which any and
all of the Securities may be changed or exchanged.
9. Termination. The covenants, agreements and proxy contained herein with
respect to the Securities shall terminate upon the earlier of (a) the Effective
Time, (b) the first anniversary of the date hereof, or (c) the termination of
the Merger Agreement pursuant to Section 8.01(a), 8.01(b)(i), 8.01(b)(iii),
8.01(d) or 8.01(e)(i) thereof.
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<PAGE> 6
10. No Limitation. Nothing in this Agreement shall be construed to prohibit
any officer or affiliate of the Stockholder who is or has designated a member of
the Board of Directors of the Company from taking any action solely in his
capacity as a member of the Board of Directors of the Company or from exercising
his fiduciary duties as a member of such Board of Directors.
11. Miscellaneous.
(a) Entire Agreement. This Agreement and the Merger Agreement constitute
the entire agreement between the parties with respect to the subject matter
hereof and supersede all other prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof.
(b) Binding Agreement. This Agreement and the obligations hereunder shall
attach to the Securities and shall be binding upon any person or entity to which
legal or beneficial ownership of the Securities shall pass, whether by operation
of law or otherwise, including, without limitation, the Stockholder's
administrators or successors. Notwithstanding any transfer of Securities, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
(c) Assignment. This Agreement shall not be assigned by operation of law or
otherwise without the prior written consent of the Stockholder or Parent and the
Purchaser, as the case may be, provided that Parent or the Purchaser may assign,
in its respective sole discretion, its rights and obligations hereunder to any
direct or indirect subsidiary of Parent, but no such assignment shall relieve
Parent or the Purchaser of its obligations hereunder if such assignee does not
perform such obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated, except upon the
execution and delivery of a written agreement executed by the parties hereto.
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if given) by hand delivery or telecopy (with a
confirmation copy sent for next day delivery via courier service, such as
Federal Express), or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Stockholder:
c/o Elsag Bailey International N.V.
29801 Euclid Avenue
Wyckliffe, Ohio 44092
Attention: Mark Santo
Telephone No.: (216) 585-8651
Telecopy No.: (216) 585-8821
Copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94304
Attention: David K. Michaels
Telephone No.: (415) 494-0600
Telecopy No.: (415) 494-1417
If to Parent
or the Purchaser:
Voith Sulzer Paper Technology North America Inc.
2200 N. Roemer Road
Appleton, Wisconsin 54913
Attention: Paul Bouthilet
Telephone No.: (920) 731-0769
Telecopy No.: (920) 731-7409
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<PAGE> 7
Copy to:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Ralf R. Boer
Telephone No.: (414) 271-2400
Telecopy No.: (414) 297-4900
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein. Notwithstanding anything to the contrary contained in this
Agreement, neither Parent nor the Purchaser shall be deemed to be the owner, nor
shall Parent or the Purchaser have the power to vote for the election of
directors, with respect to some or all of the Securities for purposes of the
California General Corporation Law until the purchase of, and payment for, such
Securities is actually consummated. The rights of Parent and the Purchaser
hereunder shall be limited as provided in the preceding sentence.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore in the event
of any such breach the aggrieved party shall be entitled to the remedy of
specific performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be entitled, at
law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by any
party shall not preclude the simultaneous or later exercise of any other such
right, power or remedy by such party.
(i) No Waiver. The failure of any party hereto to exercise any rights,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(j) No Third Party Beneficiaries. This Agreement is not intended to be for
the benefit of, and shall not be enforceable by, any person or entity who or
which is not a party hereto.
(k) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of California, without giving effect to
the principles of conflicts of law thereof.
(l) Waiver of Jury Trial. Each party hereto hereby waives any right to a
trial by jury in connection with any action, suit or proceeding brought in
connection with this Agreement.
(m) Descriptive Headings. The descriptive headings used herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
(n) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which, taken together, shall
constitute one and the same agreement.
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<PAGE> 8
IN WITNESS WHEREOF, Parent, the Purchaser and the Stockholder have caused
this Agreement to be duly executed as of the day and year first above written.
VOITH SULZER PAPER TECHNOLOGY
NORTH AMERICA INC.
By: /s/ R. RAY HALL
------------------------------------
Name: R. Ray Hall
Title: Executive Vice President
By: /s/ PAUL BOUTHILET
------------------------------------
Name: Paul Bouthilet
Title: Secretary
VOITH SULZER ACQUISITION CORP.
By: /s/ R. RAY HALL
------------------------------------
Name: R. Ray Hall
Title: President
By: /s/ PAUL BOUTHILET
------------------------------------
Name: Paul Bouthilet
Title: Secretary
ELSAG INTERNATIONAL N.V.
By: /s/ MARK V. SANTO
------------------------------------
Name: Mark V. Santo
Title: Group VP
- 8 -
<PAGE> 9
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
NAME OF STOCKHOLDER BENEFICIALLY OWNED
- ---------------------------------------------------------------------------- ------------------
<S> <C>
Elsag International N.V. ................................................... 2,378,900
</TABLE>
<PAGE> 1
EXHIBIT 4
STOCKHOLDER AGREEMENT
AGREEMENT, dated December 11, 1997, among Voith Sulzer Paper Technology
North America Inc., a Delaware corporation ("Parent"), Voith Sulzer Acquisition
Corp., a California corporation and a wholly-owned subsidiary of Parent (the
"Purchaser"), and Kenneth P. Ostrow (the "Stockholder").
WITNESSETH:
WHEREAS, concurrently with the execution and delivery of this Agreement,
Parent, the Purchaser and Impact Systems, Inc., a California corporation (the
"Company"), have entered into an Agreement and Plan of Merger (as such agreement
may hereafter be amended from time to time, the "Merger Agreement"), pursuant to
which the Purchaser will be merged with and into the Company (the "Merger"); and
WHEREAS, in furtherance of the Merger, Parent and the Company desire that
as soon as practicable (and not later than five business days) after the
announcement of the execution of the Merger Agreement, the Purchaser shall
commence a cash tender offer (the "Offer") to purchase at the Offer Price all
outstanding shares of Common Stock (each as defined in Section 1 hereof),
including all of the Securities (as defined in Section 2 hereof) beneficially
owned by the Stockholder; and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent has required that the Stockholder agree, and the Stockholder
has agreed, to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
1. Definitions. For purposes of this Agreement:
(a) "Beneficially Owned" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing. Without duplicative counting of the
same securities by the same holder, securities Beneficially Owned by a Person
(as hereinafter defined) shall include securities Beneficially Owned by all
other Persons with whom such Person would constitute a "group" within the
meaning of Section 13(d)(3) of the Exchange Act.
(b) "Common Stock" shall mean the Common Stock, no par value, of the
Company.
(c) "Offer Price" shall mean cash in the amount of $2.75 per share of
Common Stock or, if greater, the price per share paid by the Purchaser in the
Offer.
(d) "Person" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(e) Capitalized terms used and not defined herein shall have the respective
meanings ascribed to them in the Merger Agreement.
2. Tender of Shares.
(a) In order to induce Parent and the Purchaser to enter into the Merger
Agreement, the Stockholder hereby agrees to validly tender (or cause the record
owner of such shares to validly tender), and not to withdraw, pursuant to and in
accordance with the terms of the Offer, not later than the fifth business day
after commencement of the Offer pursuant to Section 1.01 of the Merger Agreement
and Rule 14d-2 under the Exchange Act, the number of shares of Common Stock set
forth opposite the Stockholder's name on Schedule I hereto (the "Existing
Securities", and together with any shares of Common Stock acquired by the
Stockholder in any capacity after the date hereof and prior to the termination
of this Agreement by means of purchase, dividend, distribution, exercise of
options or other rights to acquire Common Stock or in any other
<PAGE> 2
way, the "Securities"), all of which are Beneficially Owned by the Stockholder.
The Stockholder hereby acknowledges and agrees that Parent's and the Purchaser's
obligation to accept for payment and pay for the Securities in the Offer,
including the Securities Beneficially Owned by the Stockholder, is subject to
the terms and conditions of the Offer.
(b) The Stockholder hereby permits Parent and the Purchaser to publish and
disclose in the Offer Documents and, if approval of the Company's stockholders
is required under applicable law, the Proxy Statement (including all documents
and schedules filed with the SEC) its identity and ownership of the Securities
and the nature of its commitments, arrangements and understandings under this
Agreement; provided that the Stockholder shall have a right to review and
comment on such disclosure a reasonable time before it is publicly disclosed.
3. Option.
(a) In order to induce Parent and the Purchaser to enter into the Merger
Agreement, the Stockholder hereby grants to Purchaser an irrevocable option (a
"Securities Option") to purchase the Securities (the "Option Securities") at the
Offer Price (the "Purchase Price"). If (i) the Merger Agreement is terminated in
accordance with Section 8.01(c), 8.01(e)(ii), 8.01(f) or 8.01(g) thereof, or
(ii) the Merger Agreement is terminated in accordance with Section 8.01(b)(ii)
thereof and (x) the Stockholder shall have breached the agreements set forth in
Section 2(a) hereof or (y) at the time of such termination the Minimum Condition
shall not have been satisfied, the Securities Option shall, in any such case,
become exercisable, in whole but not in part, upon the first to occur of any
such event and remain exercisable in whole but not in part until the date which
is 90 days after the date of the occurrence of such event (the "90 Day Period"),
so long as: (i) all waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), required for the purchase
of the Securities upon such exercise shall have expired or been waived and any
other conditions under the other Antitrust Laws shall have been satisfied and
(ii) there shall not be in effect any preliminary injunction or other order
issued by any Governmental Entity prohibiting the exercise of the Securities
Option pursuant to this Agreement; provided that if (i) all HSR Act waiting
periods shall not have expired or been waived or the conditions under the other
Antitrust Laws shall not have been satisfied or (ii) there shall be in effect
any such injunction or order, in each case on the expiration of the 90 Day
Period, the 90 Day Period shall be extended until five (5) business days after
the later of (A) the later of the date of expiration or waiver of all HSR Act
waiting periods or the date on which the applicable conditions under the other
Antitrust Laws have been satisfied, and (B) the date of removal or lifting of
such injunction or order. In the event that the Purchaser wishes to exercise the
Securities Option, the Purchaser shall send a written notice (the "Notice") to
the Stockholder identifying the place and date (not less than two (2) nor more
than ten (10) business days from the date of the Notice) for the closing of such
purchase.
(b) In the event the Option Securities are acquired by the Purchaser
pursuant to the exercise of the Securities Option (the "Acquired Securities"),
the Stockholder shall be entitled to receive, and the Purchaser shall promptly
pay to the Stockholder, upon any subsequent disposition, transfer or sale
("Sale") of the Acquired Securities during the term of this Agreement an amount
per share in cash equal to 50% of the difference between the net proceeds
received per share in the Sale and the Purchase Price. The Purchaser shall only
effect any Sale in an arms' length bona fide transaction to an unaffiliated
third party.
4. Additional Agreements.
(a) Voting Agreement. The Stockholder shall, at any meeting of the
stockholders of the Company, however called, or in connection with any written
consent of the stockholders of the Company, vote (or cause to be voted) all
Securities then held of record or Beneficially Owned by the Stockholder, (i) in
favor of the Merger, the execution and delivery by the Company of the Merger
Agreement and the Stock Option Agreement and the approval of the terms thereof
and each of the other actions contemplated by the Merger Agreement, the Stock
Option Agreement and this Agreement and any actions required in furtherance
thereof and hereof; and (ii) against any proposal relating to an Acquisition
Transaction and against any action or agreement that would impede, frustrate,
prevent or nullify this Agreement, or result in a breach in any respect of any
covenant, representation or warranty or any other obligation or agreement of the
Company under the
- 2 -
<PAGE> 3
Merger Agreement or the Stock Option Agreement or which would result in any of
the conditions set forth in Annex I to the Merger Agreement or set forth in
Article VII of the Merger Agreement not being fulfilled.
(b) No Inconsistent Arrangements. The Stockholder hereby covenants and
agrees that, except as contemplated by this Agreement and the Merger Agreement,
it shall not(i) transfer (which term shall include, without limitation, any
sale, gift, pledge (other than a pledge which does not impair the Stockholder's
ability to perform under this Agreement) or other disposition), or consent to
any transfer of, any or all of the Securities or any interest therein, (ii)
enter into any contract, option or other agreement or understanding with respect
to any transfer of any or all of the Securities or any interest therein, (iii)
grant any proxy, power-of-attorney or other authorization in or with respect to
the Securities, (iv) deposit the Securities into a voting trust or enter into a
voting agreement or arrangement with respect to the Securities or (v) take any
other action that would in any way restrict, limit or interfere with the
performance of its obligations hereunder or the transactions contemplated hereby
or by the Merger Agreement or the Stock Option Agreement (including, without
limitation, any action that would cause the Merger to be subject to Section 1101
of the GCL).
(c) Grant of Irrevocable Proxy; Appointment or Proxy.
(i) The Stockholder hereby irrevocably grants to, and appoints, Parent
and Ray Hall and Paul Bouthilet, or either of them, in their respective
capacities as officers or directors of Parent, and any individual who shall
hereafter succeed to any such office or directorship of Parent, and each of
them individually, the Stockholder's proxy and attorney-in-fact (with full
power of substitution), for and in the name, place and stead of the
Stockholder, to vote the Securities, or grant a consent or approval in
respect of the Securities, in favor of the various transactions
contemplated by the Merger Agreement and the Stock Option Agreement (the
"Transactions") and against any proposal relating to an Acquisition
Transaction.
(ii) The Stockholder represents that any proxies heretofore given in
respect of the Stockholder's Securities are not irrevocable, and that any
such proxies are hereby revoked.
(iii) The Stockholder understands and acknowledges that Parent is
entering into the Merger Agreement in reliance upon the Stockholder's
execution and delivery of this Agreement. The Stockholder hereby affirms
that the irrevocable proxy set forth in this Section 4(c) is given in
connection with the execution of the Merger Agreement, and that such
irrevocable proxy is given to secure the performance of the duties of the
Stockholder under this Agreement. The Stockholder hereby further affirms
that the irrevocable proxy is coupled with an interest and may under no
circumstances be revoked. The Stockholder hereby ratifies and confirms all
that such irrevocable proxy may lawfully do or cause to be done by virtue
hereof. Such irrevocable proxy is executed and intended to be irrevocable
in accordance with the provisions of Section 705 of the GCL. A legend
reflecting the foregoing irrevocable proxy shall be placed on the
certificate or certificate representing the Securities.
(d) No Solicitation. The Stockholder hereby agrees, in the capacity as a
stockholder of the Company, that neither the Stockholder nor any affiliates,
representatives or agents shall (and, if the Stockholder is a corporation,
partnership, trust or other entity, the Stockholder shall cause its officers,
directors, partners, and employees, representatives and agents, including, but
not limited to, investment bankers, attorneys and accountants, not to), directly
or indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than Parent, the Purchaser or any of
their respective affiliates or representatives) concerning any proposal relating
to an Acquisition Transaction. The Stockholder will immediately cease any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any proposal relating to an Acquisition Transaction.
The Stockholder will immediately communicate to Parent the terms of any
proposal, discussion, negotiation or inquiry (and will disclose any written
materials received by the Stockholder in connection with such proposal,
discussion, negotiation or inquiry) and the identity of the party making such
proposal or inquiry which it may receive in respect of any such Acquisition
Transaction. Any action taken by the Company or any member of the Board of
Directors of the Company in accordance with Section 6.07 of the Merger Agreement
shall be deemed not to violate this Section 4(d).
- 3 -
<PAGE> 4
(e) Reasonable Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable Laws to consummate and
make effective the transactions contemplated by this Agreement. Each party shall
promptly consult with the other and provide any necessary information and
material with respect to all filings made by such party with any Governmental
Entity in connection with this Agreement and the transactions contemplated
hereby.
(f) Waiver of Appraisal Rights. The Stockholder hereby waives any rights of
appraisal or rights to dissent from the Merger that it may have.
5. Representations and Warranties of the Stockholder. The Stockholder
hereby represents and warrants to Parent and the Purchaser as follows:
(a) Ownership of Securities. The Stockholder is the record and Beneficial
Owner of the Existing Securities, as set forth on Schedule I. On the date
hereof, the Existing Securities constitute all of the Securities owned of record
or Beneficially Owned by the Stockholder. The Stockholder has sole voting power
and sole power to issue instructions with respect to the matters set forth in
Sections 2, 3 and 4 hereof, sole power of disposition, sole power to demand
appraisal rights and sole power to agree to all of the matters set forth in this
Agreement, in each case with respect to all of the Existing Securities with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) Power; Binding Agreement. The Stockholder has the power and authority
to enter into and perform all of the Stockholder's obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Stockholder will not violate any other agreement to which the Stockholder is a
party including, without limitation, any voting agreement, proxy arrangement,
pledge agreement, shareholders agreement or voting trust. This Agreement has
been duly and validly executed and delivered by the Stockholder and constitutes
a valid and binding agreement of the Stockholder, enforceable against the
Stockholder in accordance with its terms, except that such enforceability (i)
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to the enforcement of creditors' rights generally and (ii)
is subject to general principles of equity. There is no beneficiary or holder of
a voting trust certificate or other interest of any trust of which the
Stockholder is a trustee, or any party to any other agreement or arrangement,
whose consent is required for the execution and delivery of this Agreement or
the consummation by the Stockholder of the transactions contemplated hereby.
(c) No Conflicts. Except for filings under the HSR Act, other applicable
Antitrust Laws and the Exchange Act (i) no filing with, and no permit,
authorization, consent or approval of, any Governmental Entity is necessary for
the execution and delivery of this Agreement by the Stockholder, the
consummation by the Stockholder of the transactions contemplated hereby and the
compliance by the Stockholder with the provisions hereof and (ii) none of the
execution and delivery of this Agreement by the Stockholder, the consummation by
the Stockholder of the transactions contemplated hereby or compliance by the
Stockholder with any of the provisions hereof, except in cases in which any
conflict, breach, default or violation described below would not interfere with
the ability of such Stockholder to perform such Stockholder's obligations
hereunder, shall (A) conflict with or result in any breach of any organizational
documents applicable to the Stockholder, (B) result in a violation or breach of,
or constitute (with or without notice or lapse of time or both) a default (or
give rise to any third party right of termination, cancellation, modification or
acceleration) under, any of the terms, conditions or provisions of any note,
loan agreement, bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or obligation of any
kind to which the Stockholder is a party or by which the Stockholder or any of
its properties or assets may be bound, or (C) violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation applicable to
the Stockholder or any of such Stockholder's properties or assets.
(d) No Liens. Except as permitted by this Agreement, the Existing
Securities and the certificates representing such securities are now, and at all
times during the term hereof will be, held by the Stockholder, or by a nominee
or custodian for the benefit of the Stockholder, free and clear of all Liens,
proxies, voting
- 4 -
<PAGE> 5
trusts or agreements, understandings or arrangements or any other rights
whatsoever, except for any such Liens or proxies arising hereunder.
(e) No Finder's Fees. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial adviser's or other
similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of the Stockholder.
(f) Reliance by Parent. The Stockholder understands and acknowledges that
Parent is entering into, and causing the Purchaser to enter into, the Merger
Agreement in reliance upon the Stockholder's execution and delivery of this
Agreement.
6. Representations and Warranties of Parent and the Purchaser. Each of
Parent and the Purchaser hereby represents and warrants to the Stockholder as
follows:
(a) Power; Binding Agreement. Parent and the Purchaser each has the
corporate power and authority to enter into and perform all of its obligations
under this Agreement. The execution, delivery and performance of this Agreement
by each of Parent and the Purchaser will not violate any other agreement to
which either of them is a party. This Agreement has been duly and validly
executed and delivered by each of Parent and the Purchaser and constitutes a
valid and binding agreement of each of Parent and the Purchaser, enforceable
against each of Parent and the Purchaser in accordance with its terms, except
that such enforceability (i) may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity.
(b) No Conflicts. Except for filings under the HSR Act, other applicable
Antitrust Laws and the Exchange Act, (i) no filing with, and no permit,
authorization, consent or approval of, any Governmental Entity is necessary for
the execution of this Agreement by each of Parent and the Purchaser, the
consummation by each of Parent and the Purchaser of the transactions
contemplated hereby and the compliance by Parent and the Purchaser with the
provisions hereof and (ii) none of the execution and delivery of this Agreement
by each of Parent and the Purchaser, the consummation by each of Parent and the
Purchaser of the transactions contemplated hereby or compliance by each of
Parent and the Purchaser with any of the provisions hereof, except in cases in
which any conflict, breach, default or violation described below would not
interfere with the ability of Parent or the Purchaser to perform their
respective obligations hereunder, shall (A) conflict with or result in any
breach of any organizational documents applicable to either of Parent or the
Purchaser, (B) result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give rise to any third
party right of termination, cancellation, modification or acceleration) under,
any of the terms, conditions or provisions of any note, loan agreement, bond,
mortgage, indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which either of
Parent or the Purchaser is a party or by which either of Parent or the Purchaser
or any of their properties or assets may be bound, or (C) violate any order,
writ, injunction, decree, judgment, order, statute, rule or regulation
applicable to either of Parent or the Purchaser or any of their properties or
assets.
7. Further Assurances. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
8. Stop Transfer. The Stockholder shall not request that the Company
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Securities, unless such transfer
is made in compliance with this Agreement. In the event of a stock dividend or
distribution, or any change in the Common Stock by reason of any stock dividend,
split-up, recapitalization, combination, exchange of shares or the like, the
term "Securities" shall refer to and include the Securities as well as all such
stock dividends and distributions and any shares into which or for which any and
all of the Securities may be changed or exchanged.
9. Termination. The covenants, agreements and proxy contained herein with
respect to the Securities shall terminate upon the earlier of (a) the Effective
Time, (b) the first anniversary of the date hereof, or
- 5 -
<PAGE> 6
(c) the termination of the Merger Agreement pursuant to Section 8.01(a),
8.01(b)(i), 8.01(b)(iii), 8.01(d) or 8.01(e)(i) thereof.
10. No Limitation. Nothing in this Agreement shall be construed to prohibit
any officer or affiliate of the Stockholder who is or has designated a member of
the Board of Directors of the Company from taking any action solely in his
capacity as a member of the Board of Directors of the Company or from exercising
his fiduciary duties as a member of such Board of Directors.
11. Miscellaneous.
(a) Entire Agreement. This Agreement and the Merger Agreement constitute
the entire agreement between the parties with respect to the subject matter
hereof and supersede all other prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof.
(b) Binding Agreement. This Agreement and the obligations hereunder shall
attach to the Securities and shall be binding upon any person or entity to which
legal or beneficial ownership of the Securities shall pass, whether by operation
of law or otherwise, including, without limitation, the Stockholder's
administrators or successors. Notwithstanding any transfer of Securities, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
(c) Assignment. This Agreement shall not be assigned by operation of law or
otherwise without the prior written consent of the Stockholder or Parent and the
Purchaser, as the case may be, provided that Parent or the Purchaser may assign,
in its respective sole discretion, its rights and obligations hereunder to any
direct or indirect subsidiary of Parent, but no such assignment shall relieve
Parent or the Purchaser of its obligations hereunder if such assignee does not
perform such obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated, except upon the
execution and delivery of a written agreement executed by the parties hereto.
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if given) by hand delivery or telecopy (with a
confirmation copy sent for next day delivery via courier service, such as
Federal Express), or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Stockholder:
Kenneth P. Ostrow
14600 Winchester Boulevard
Los Gatos, California 95030
Telephone No.: (408) 379-0910
Telecopy No.: (408) 379-7275
If to Parent
or the Purchaser:
Voith Sulzer Paper Technology North America Inc.
2200 N. Roemer Road
Appleton, Wisconsin 54913
Attention: Paul Bouthilet
Telephone No.: (920) 731-0769
Telecopy No.: (920) 731-7409
- 6 -
<PAGE> 7
Copy to:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Ralf R. Boer
Telephone No.: (414) 271-2400
Telecopy No.: (414) 297-4900
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein. Notwithstanding anything to the contrary contained in this
Agreement, neither Parent nor the Purchaser shall be deemed to be the owner, nor
shall Parent or the Purchaser have the power to vote for the election of
directors, with respect to some or all of the Securities for purposes of the
California General Corporation Law until the purchase of, and payment for, such
Securities is actually consummated. The rights of Parent and the Purchaser
hereunder shall be limited as provided in the preceding sentence.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore in the event
of any such breach the aggrieved party shall be entitled to the remedy of
specific performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be entitled, at
law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by any
party shall not preclude the simultaneous or later exercise of any other such
right, power or remedy by such party.
(i) No Waiver. The failure of any party hereto to exercise any rights,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(j) No Third Party Beneficiaries. This Agreement is not intended to be for
the benefit of, and shall not be enforceable by, any person or entity who or
which is not a party hereto.
(k) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of California, without giving effect to
the principles of conflicts of law thereof.
(l) Waiver of Jury Trial. Each party hereto hereby waives any right to a
trial by jury in connection with any action, suit or proceeding brought in
connection with this Agreement.
(m) Descriptive Headings. The descriptive headings used herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
(n) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which, taken together, shall
constitute one and the same agreement.
- 7 -
<PAGE> 8
IN WITNESS WHEREOF, Parent, the Purchaser and the Stockholder have caused
this Agreement to be duly executed as of the day and year first above written.
VOITH SULZER PAPER TECHNOLOGY
NORTH AMERICA INC.
By: /s/ R. RAY HALL
------------------------------------
Name: R. Ray Hall
Title: Executive Vice President
By: /s/ PAUL BOUTHILET
------------------------------------
Name: Paul Bouthilet
Title: Secretary
VOITH SULZER ACQUISITION CORP.
By: /s/ R. RAY HALL
------------------------------------
Name: R. Ray Hall
Title: President
By: /s/ PAUL BOUTHILET
------------------------------------
Name: Paul Bouthilet
Title: Secretary
KENNETH P. OSTROW
By: /s/ KENNETH P. OSTROW
------------------------------------
(signature)
ELSAG INTERNATIONAL. M.V.
By: /s/ MARK V. SANTO
------------------------------------
Name: Mark V. Santo
Title: Group VP
- 8 -
<PAGE> 9
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
NAME OF STOCKHOLDER BENEFICIALLY OWNED
--------------------------------- ---------------------------------
<S> <C>
Kenneth P. Ostrow 668,484
</TABLE>
<PAGE> 1
Exhibit 5
LOGO
December 18, 1997
Dear Shareholders:
On behalf of the Board of Directors of Impact Systems, Inc. (the
"Company"), I am pleased to inform you that on December 11, 1997, the Company
entered into a definitive Agreement and Plan of Merger (the "Merger Agreement")
with Voith Sulzer Paper Technology North America Inc. ("Voith Sulzer") and Voith
Sulzer Acquisition Corp., a wholly owned subsidiary of Voith Sulzer
("Purchaser"), pursuant to which Purchaser has commenced today a tender offer to
purchase all of the outstanding Shares (the "Shares") of the common stock of the
Company at $2.75 per share in cash (the "Offer").
Following the successful completion of the Offer, upon approval by a
shareholder vote, if required, Purchaser will be merged with and into the
Company (the "Merger"), and all shares not purchased pursuant to the Offer will
be converted into the right to receive $2.75 per share in cash without interest
(except any Shares as to which the holder has properly exercised dissenter's
rights of appraisal).
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE OFFER AND MERGER ARE FAIR
AND IN THE BEST INTERESTS OF THE COMPANY'S SHAREHOLDERS AND IS RECOMMENDING THAT
THE SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER ALL OF THEIR SHARES
PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the enclosed
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
which is being filed with the Securities and Exchange Commission.
In addition to the attached Schedule 14D-9, enclosed also is the Offer to
Purchase, dated December 18, 1997, together with related materials, including a
Letter of Transmittal, to be used for tendering your Shares in the Offer. These
documents state the terms and conditions of the Offer and the Merger and provide
instructions as to how to tender your Shares. I urge you to read these documents
carefully in making your decision with respect to tendering your shares pursuant
to the Offer.
Sincerely,
/s/Kenneth P. Ostrow
Kenneth P. Ostrow
President and Chief Executive Officer
14600 Winchester Blvd., Los Gatos, California 95030, Telephone 408-379-0910,
Telefax 408-379-7275
<PAGE> 1
EXHIBIT 6
FOR IMMEDIATE RELEASE
From: Paul M. Bouthilet Robert M. Gorski
Voith Sulzer Paper Technology Impact Systems, Inc.
North America Inc. Vice President and Chief
Chief Financial Officer Financial Officer
2200 N. Roemer Road 14600 Winchester Boulevard
Appleton, Wisconsin 54913 Los Gatos, CA 95030
(920) 731-7724 (408) 379-0910
-JOINT PRESS RELEASE-
VOITH SULZER PAPER TECHNOLOGY NORTH AMERICA INC. SIGNS
DEFINITIVE AGREEMENT TO ACQUIRE IMPACT SYSTEMS, INC.
VOITH SULZER PAPER TECHNOLOGY NORTH AMERICA INC.
TO COMMENCE TENDER OFFER AT $2.75 PER SHARE IN CASH
APPLETON, WISCONSIN AND LOS GATOS, CALIFORNIA, DECEMBER 12, 1997
Voith Sulzer Paper Technology North America Inc. (a paper technology
company specializing in stock preparation, paper machinery and finishing) and
Impact Systems, Inc. (OTC:MPAC) (a paper technology company specializing in
computer based actuator, measurement and control systems) today announced a
definitive merger agreement for Voith Sulzer to acquire all of the outstanding
common stock of Impact at $2.75 per share or approximately $30 million. The
purchase price represents a premium of approximately 57% over the closing price
of Impact's shares at the close of business on December 11, 1997.
The combination of Impact's computer based actuator, measurement and
control systems with the Voith Group's range of paper production and technology
activities will create an integrated global business combined with associated
services.
Mr. Hans Muller, CEO of Voith Sulzer stated:
"We are very pleased about the prospect of Impact joining the Voith
Sulzer family. The newly acquired technology will significantly enhance Voith
Sulzer's capability to offer superior and integrated technology solutions to our
customers in the paper industry worldwide."
Mr. Kenneth P. Ostrow, President and CEO of Impact added:
<PAGE> 2
"We believe combining the capability and technology of Impact with the
strength and size of the Voith Sulzer organization will allow both companies the
ability to provide superior solutions to the paper making industry on a global
basis that Impact could not have done alone."
Under the terms of the merger agreement, Voith Sulzer will promptly
commence a cash tender offer, scheduled to begin on December 18, 1997, for all
outstanding Impact shares at a price of $2.75 per share, net in cash. Shares not
purchased in the tender offer will be acquired in a subsequent merger at the
same price as soon as practicable after completion of the tender offer. The
tender offer is subject to a number of conditions including customary regulatory
approvals. The transaction has been approved by the Boards of Directors of both
companies and is not subject to financing.
Voith Sulzer also entered into agreements with the holders of
approximately 29% of Impact's stock, who agreed to tender their shares to Voith
Sulzer. To the extent not acquired in the tender offer, under certain
circumstances such shareholders have granted Voith Sulzer the option to acquire
such shares.
# # #
Impact Systems, Inc. is headquartered in Los Gatos, California and
develops, manufactures, sells and services computer based actuator, measurement
and control systems to reduce variations which occur in the production of all
major types of paper. Impact's products enable paper manufacturers to improve
paper quality, increase production and reduce waste, energy consumption and raw
material costs.
Voith Sulzer Papiertechnik Gmbh & Co KG, a majority owned subsidiary of
J.M. Voith AG, is a leading worldwide supplier of technology and equipment to
the paper industry, headquartered in Heidenheim, Germany.
J.M. Voith AG is a privately held international technology corporation
active in the fields of paper technology, power generation equipment and power
transmission with headquarters in Heidenheim, Germany.
# # #
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<PAGE> 1
EXHIBIT 7
IMPACT SYSTEMS, INC.
SENIOR EXECUTIVE CHANGE OF CONTROL PLAN
(As Amended and Restated December 11, 1997)
Introduction
The Board of Directors of Impact Systems, Inc., a California corporation
("Company"), has evaluated the economic and social impact of an acquisition or
other change of control on its employees. Many employees have invested their
lives in their jobs and have made significant contributions to the growth and
success of the Company. The stress on the employees and their families caused by
the uncertainties of an acquisition or other change of control are widely
recognized. Plant shutdowns, plant relocations, different management, change of
Company culture, and reduced employee benefits all may flow from an acquisition
or other change of control, and all impose costs which must be borne by the
employee and the employee's family.
Because the Board of Directors recognizes that it will no longer have
the power to protect the interests of the employees after an acquisition or
other change of control, the Board believes that it is in the Company's interest
to provide employees with the right to compensation in certain circumstances
following an acquisition or other change of control. Furthermore, the Board
believes a compensation plan of this kind will aid the Company in attracting and
retaining the highly qualified individuals who are essential to its success. The
plan's assurance of fair treatment will reduce the distractions and other
adverse effects on employees' performance which are inherent in an acquisition
or other change of control.
Accordingly, the following plan has been developed and is hereby
adopted.
ARTICLE I.
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan.
As of the Effective Date, the Company hereby establishes a
severance compensation plan to be known as the "Senior Executive Change of
Control Plan" (the "Plan"), as set forth in this document. The purposes of the
Plan are as set forth in the Introduction.
<PAGE> 2
1.2 Applicability of Plan.
The benefits provided by this Plan shall be available to
Employees of the Company who, at or after the Effective Date, meet the
eligibility requirements of Article III.
1.3 Contractual Right to Benefits.
This Plan establishes and vests in each Participant a contractual
right to the benefits to which he or she is entitled hereunder, enforceable by
the Participant against his or her Employer or the Company, or both.
ARTICLE II.
DEFINITIONS AND CONSTRUCTION
2.1 Definitions.
Whenever used in the Plan, the following terms shall have the
meanings set forth below and, when the meaning is intended, the initial letter
of the term is capitalized.
(a) "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(b) "Business Combination" means and includes each and all of the
following occurrences:
(i) A consolidation or merger pursuant to which more than
75% of the Company's voting stock is transferred to different holders,
except for a transaction intended primarily to change the state of the
Company's incorporation.
(ii) More than 75% of the assets of the Company are sold
or otherwise disposed of.
(iii) The Company dissolves or liquidates or effects a
partial liquidation involving more than 75% of its assets.
(c) "Change of Control" of the Company means and includes each
and all of the following occurrences:
(i) A Business Combination which has been approved by the
requisite vote of the shareholders; or
-2-
<PAGE> 3
(ii) Any "person" (as such term is used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) is or
becomes the "beneficial owner" as defined in Rule 13d-3 of the general
rules and regulations under said Act, directly or indirectly, of
securities of the Company representing thirty-five percent (35%) or more
of the total voting power represented by the Company's then outstanding
voting securities; or
(iii) A change in the composition of the Board of
Directors of the Company, as a result of which fewer than a majority of
the Directors are Incumbent Directors. "Incumbent Directors" shall mean
Directors who either (A) are Directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board of
Directors of the Company with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or
nomination is in connection with an actual or threatened proxy contest
relating to the election of Directors to the Company).
For purposes of this Plan, the Board of Directors may, by
resolution, clarify the date as of which a Change of Control shall be
deemed to have occurred.
(d) "Company" means Impact Systems, Inc., a California
corporation, and any successor as provided in Article VII hereof.
(e) "Compensation" of a Participant means and includes all wages,
salary, bonus, and incentive compensation paid by the Employer as consideration
for the Participant's service that are includible in the gross income of the
Participant receiving the same for federal income tax purposes. For purposes of
computing the amount of Payment under Section 4.3, a Participant's
"Compensation" shall be determined with reference to the calendar year
coinciding with or immediately preceding the year in which the Payment becomes
payable.
(f) "Effective Date" as to Employees of an Employer means the
date the Plan is approved by the Board of Directors of that Employer, or such
other date as the Board shall designate in its resolution approving the Plan.
(g) "Employee" means a common law employee of an Employer who, at
the time of a Change of Control, is employed by the Employer on a full-time
basis. For purposes of this Plan, an Employee shall be considered to continue to
be employed on a full-time basis in the case of sick leave, military leave, or
any other leave of absence approved by the Board of Directors of the Company.
(h) "Employer" means the Company or a subsidiary of the Company
which has adopted the Plan pursuant to Article VI hereof.
(i) "Just Cause" means the termination of employment of an
Employee shall have taken place as a result of (i) an act or acts of dishonesty
undertaken by such Employee and intended to result in substantial gain or
personal enrichment of the Employee at the expense of his or her Employer,
-3-
<PAGE> 4
(ii) persistent failure to perform the duties and obligations of such Employee's
employment which are demonstrably willful and deliberate on the Employee's part
and which are not remedied in a reasonable period of time after receipt of
written notice from the Company or (iii) the conviction of such Employee of a
felony.
(j) "Participant" means an Employee who meets the eligibility
requirements of Section 3.1.
(k) "Plan" means the Impact Systems, Inc. Senior Executive
Change of Control Severance Plan.
(l) "Payment" means the payment of compensation as provided in
Article IV hereof.
2.2 Applicable Law
To the extent not preempted by the laws of the United States, the
laws of the State of California shall be the controlling law in all matters
relating to the Plan.
2.3 Severability
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
ARTICLE III.
ELIGIBILITY
A Participant shall cease to be a Participant in the Plan when he or she
ceases to be an Employee of an Employer, unless such Participant is then
entitled to payment of a Payment as provided in the Plan. A Participant entitled
to payment of a Payment shall remain a Participant in this Plan until the full
amount of the Payment has been paid to the Participant.
ARTICLE IV.
PAYMENTS
4.1 Right to Payment
A Participant shall be entitled to receive from the Company a
Payment in the amount provided in Section 4.2 if there has been a Change of
Control of the Company.
-4-
<PAGE> 5
4.2 Amount of Payment
Each Participant entitled to a Payment under this Plan shall
receive from the Company a lump sum cash payment equal to $500,000. Kenneth P.
Ostrow is the only Participant under this Plan and no additional Participants
may be added hereunder. In the event Mr. Ostrow receives a Payment hereunder,
the Plan shall thereafter terminate and cease to exist.
4.3 Time of Payment
The Payment to which a Participant is entitled shall be paid by
the Company to the Participant, in cash and in full, not later than ten (10)
calendar days after the Change of Control.
4.4 Option Acceleration. Upon a Change in Control (but in the case of a
Business Combination, upon shareholder approval), the Participant shall be
entitled to exercise any and all outstanding stock options which the Participant
holds in the Company, regardless of whether such stock options are otherwise
exercisable on their terms.
4.5 Parachute Payments
(a) In the event that the payment and other benefits provided for
in this Agreement or otherwise payable to the Executive (i) constitute
"parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") and (ii) but for this Section 4.5 would be
subject to the excise tax imposed by Section 4999 of the Code, then the
Executive's Payments under Section 4 shall be payable either (i) in full, or
(ii) as to such lesser amount which would result in no portion of such severance
benefits being subject to excise tax under Section 4999 of the Code, whichever
of the foregoing amounts, taking into account the applicable federal, state and
local income taxes and the excise tax imposed by Section 4999, results in the
receipt by the Executive on an after-tax basis, of the greatest amount of
severance benefits under this Agreement, notwithstanding that all or some
portion of such severance benefits may be taxable under Section 4999 of the
Code.
(b) If a reduction in the payments and benefits that would
otherwise be paid or provided to the Executive under the terms of this Agreement
is necessary to comply with the provisions of Section 4.5 (a), the Executive
shall be entitled to select which payments or benefits will be reduced and the
manner and method of any such reduction of such payments or benefits (including
but not limited to the number of options that would vest under Sections 4.4
subject to reasonable limitations (including, for example, express provisions
under the Company's benefit plans) (so long as the requirements of Section 4.5
(a) are met). Within thirty (30) days after the amount of any required reduction
in payments and benefits is finally determined in accordance with the provisions
of Section 4.5 (c), the Executive shall notify the Company in writing regarding
which payments or benefits are to be reduced. If no notification is given by the
Executive, the Company will determine which amounts to reduce. If, as a result
of any reduction required by Section 4.5 (a), amounts previously paid to the
Executive exceed the amount to which the Executive is entitled, the Executive
will promptly return the excess amount to the Company.
-5-
<PAGE> 6
(c) Unless the Company and the Executive otherwise agree in
writing, any determination required under this Section shall be made in writing
by the Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon the Executive and the Company
for all purposes. For purposes of making the calculations required by this
Section, the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Sections 280G and 4999 of the
Code. The Company and the Executive shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section.
ARTICLE V.
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
Neither the provisions of this Plan nor the Payment provided for
hereunder shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee of an Employer, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock purchase plan, or any employment agreement or other plan or arrangement.
5.2 Employment Status
This Plan does not constitute a contract of employment or impose
on the Participant or the Participant's Employer any obligation to retain the
Participant as an Employee, to change the status of the Participant's employment
as an employee at will, or to change the Company's policies regarding
termination of employment.
5.3 Withholding
All Payments paid pursuant to this Plan shall be subject to
regular payroll and withholding taxes.
ARTICLE VI.
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Company, this Plan
may be adopted by any Subsidiary of the Company. Upon such adoption, the
Subsidiary shall become an Employer hereunder and the provisions of the Plan
shall be fully applicable to the Employees of that Subsidiary.
-6-
<PAGE> 7
The term "Subsidiary" means any corporation in which the Company, directly or
indirectly, holds a majority of the voting power of its outstanding shares of
capital stock.
ARTICLE VII.
SUCCESSOR TO COMPANY
7.1 The Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Company, expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Plan, in the same manner and to the same extent that the Company would be
required to perform if no such succession or assignment had taken place. In such
event, the term "Company," as used in this Plan, shall mean the Company as
hereinbefore defined and any successor or assignee to the business or assets
which by reason hereof becomes bound by the terms and provisions of this Plan.
ARTICLE VIII.
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
If a Change of Control has not occurred, this Plan shall expire
fifteen (15) years from the Effective Date designated by the Board of Directors
of the Company, unless sooner terminated as pro vided in Section 8.2, or unless
extended for an additional period or periods by resolution adopted by the Board
of Directors of the Company at any time during the fifteenth year of the Plan.
If a Change of Control occurs, this Plan shall continue in full
force and effect, and shall not terminate or expire until the expiration of one
year after such Change of Control, at which time this Plan shall terminate
except with regard to all Participants who become entitled to Payments
hereunder. This Plan shall continue and be effective with respect to such
Payments until such Participants shall have received such payments in full, at
which time this Plan shall be terminated for all purposes.
8.2 Amendment and Termination
The Plan may be terminated or amended in any respect by
resolution adopted by two-thirds of the Board of Directors of the Company,
unless a Change of Control has previously occurred. If a Change of Control
occurs, the Plan no longer shall be subject to amendment, change, substitution,
deletion, revocation or termination in any respect whatsoever.
8.3 Form of Amendment
-7-
<PAGE> 8
The form of any proper amendment or termination of the Plan shall
be a written instrument signed by a duly authorized officer or officers of the
Company, certifying that the amendment or termination has been approved by the
Board of Directors. A proper amendment of the Plan automatically shall effect a
corresponding amendment to all Participants' rights hereunder. A proper
termination of the Plan automatically shall effect a termination of all
Participants' rights and benefits hereunder.
ARTICLE IX.
LEGAL FEES AND EXPENSES
9.1 The Company shall pay all legal fees, costs of litigation, and other
expenses incurred in good faith by each Participant as a result of the Company's
refusal to make the Payment to which the Participant becomes entitled under this
Plan, or as a result of the Company's contesting the validity, enforceability or
interpretation of the Plan.
ARTICLE X.
PLAN ADMINISTRATION
10.1 The Employer shall have discretionary authority to construe and
interpret the terms of the Plan, and to determine eligibility in the amount and
manner of any payment of benefits hereunder.
10.2 An Employee or former Employee of an Employer who disagrees with
the allotment of benefits under this Plan may file a written appeal with the
designated human resources representative. Any claim relating to this Plan shall
be subject to this appeal process. The written appeal must be filed within sixty
(60) days of the Employee's termination date.
The appeal must state the reason the Employee or former Employee
believes he or she is entitled to different benefits under the Plan. The
designated human resources representative shall review the claim. If the claim
is wholly or partially denied, the designated human resources representative
shall provide the Employee a written notice of the denial, specifying the
reasons the claim was denied. Such notice shall be provided within ninety (90)
days of receiving the written appeal.
10.3 If the appeal of an Employee or former Employee of an Employer is
denied, such Employee or former Employee shall have the right and option to
elect (in lieu of litigation) to have any dispute or controversy arising under
or in connection with the Plan settled by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Participant within
fifty (50) miles from the location of his or her job with an Employer, in
accordance with rules of the American Arbitration Association then in effect.
Judgment may be entered on the award of the arbitrator in any
-8-
<PAGE> 9
court having jurisdiction. All expenses of such arbitration, including the fees
and expenses of the counsel for the Employee or former Employee, shall be borne
by the Company.
-9-
<PAGE> 1
EXHIBIT 8
INCENTIVE BONUS PLAN
1. Purpose of this Plan.
The purpose of this Incentive Bonus Plan (the "Plan") is to
provide certain employees of Impact Systems, Inc. (the "Company") who will
perform services for the Company after the merger of the Company with Voith
Sulzer Acquisition Corp. ("Voith Acquisition"), (the "Merger") with an incentive
for continued services to the Company. In connection with the Merger, the
Company,Voith Sulzer Paper Technology North America Inc. ("Voith") and Voith
Acquisition have entered into the Agreement and Plan of Merger dated as of
December 11, 1997 (the "Merger Agreement"), which provides in part, that Voith
and Voith Acquisition will offer to purchase any and all of the shares of the
Company (the "Tender Offer"). Terms not defined herein shall have the meanings
set forth in the Merger Agreement.
2. Administration of this Plan.
This Plan shall be administered by the Board of Directors of the
Company (the "Board"). The Board shall have all powers necessary to administer
the Plan, but only in accordance with the specific terms hereof.
3. Term of Plan.
This Plan shall become effective October 1, 1998 (the "Effective
Date") and shall terminate on the earlier of (i) September 30, 2002 or (ii) the
date on which all amounts due under the Plan are paid.
4. Eligibility.
Eligible Employees means the persons listed on Exhibit A.
5. Determination of Bonus Amounts.
(a) Subject to the provisions contained in this Plan, Eligible
Employees shall be entitled to receive (i) the Minimum Bonus Amount, as set
forth next to each Eligible Employee's name on Exhibit A hereto, and, (ii) the
Pool Percentage Payment, if any, as described below (collectively (i) and (ii)
shall be referred to as the "Bonus Amount").
(b) The Pool Percentage Payment shall be equal to the product of
the Pool Percentage for each Eligible Employee, as set forth on Exhibit A and
the Bonus Pool Amount, as determined below.
-1-
<PAGE> 2
(c) The Bonus Pool Amount is based on the Company's EBIT and
shall be determined in accordance with the chart set forth on Exhibit B. As used
herein, "EBIT" means the Company's net earnings before interest, all taxes and
amortization, subject to the provisions of this subsection (c).
(i) The following amounts shall be specifically excluded
from the EBIT:
- Any goodwill resulting from the Merger
and its related amortization;
- All bonus amounts payable pursuant to
this Plan and, costs associated with
calculating EBIT and administering the
Plan;
- Any allocated, support, direct or other
costs charged to the Company by Voith;
- Costs incurred by the Company to support
Voith activities or at the request of
Voith; and
- Any costs related to or associated with
V.P. Europe, to be employed as a liaison
between Voith and the Company.
(ii) The transfer price of the Company products and
services sold to Voith by the Company shall be at arms length.
(iii) Products purchased from Voith for use in the
Company's product line shall be at arms length.
(iv) The Company products and services sold by Voith shall
be normalized to the Company's third party customer gross margin levels in
computing EBIT.
(v) The Company shall be given sales and gross margin
credit for projects it identifies for Voith and which are ultimately controlled
by Voith. The Company's sales and gross margin credits will be included in the
EBIT for the year in which the order is recorded.
(vi) To the extent Voith changes the Company's existing
business practices, organization, sales and service territories, products,
pricing strategy, marketing strategy, customer financing vehicles, manufacturing
cost structure, purchasing, sourcing or control strategy, which have the effect
of negatively impacting the Company's EBIT, the Board of Director's will make
the appropriate adjustment in the Bonus Pool.
(vii) Generally accepted accounting principles consistent
with the Company's pre-Merger accounting policies will be applied to the
Company's post-Merger financial statements in
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computing EBIT for all three years. That is, if Voith changes the Company's
accounting policies, EBIT will be computed based upon those pre-merger policies
of the Company.
(viii) EBIT shall be reviewed by a public accounting firm
(the "Accountants"). The Accountants shall certify that EBIT has been determined
in accordance with the Plan.
(d) The determination of the Bonus Pool Amount shall be made by
reference to the average EBIT attained in any consecutive two (2) financial or
business years commencing after the Effective Date and ending on or prior to
September 30, 2002 (the "Bonus Calculation Term"). Within three (3) months after
the audited accounts are available, a decision (which shall be irrevocable) on
the prior two (2) year period shall be made by Kenneth Ostrow or his designee.
6. Payment of Bonus Amounts; Acceleration of Payment.
The Bonus Amounts may be paid in cash within ninety (90) days of
September 30, 2001 but in no event shall the Bonus Amounts be paid more than
ninety (90) days after September 30, 2002; provided, however, that in any event
the Minimum Bonus Amount shall be paid within ninety (90) days of September 30,
2001. Notwithstanding the foregoing, the Minimum Bonus Amount shall be due and
payable to an Eligible Employee immediately following any of these events: (i)
the Eligible Employee's employment is terminated by the Company or Voith for any
reason; (ii) without the Eligible Employee's express written consent, Voith
relocates the Eligible Employee's base of employment more than to change the
location of his job or office, so that he will be based at a location more than
twenty-five (25) miles from Eligible Employee's present place of employment; or
(iii) a successor company fails or refuses to assume the Company's obligation
under this Plan. A pro rata portion of the Minimum Bonus Amount shall be due and
payable to an Eligible Employee immediately following either of these events:
(i) the death of the Eligible Employee; or (ii) the Eligible Employee is
permanently disabled such that he is unable to perform his duties.
7. Voluntary Termination.
In the event an Eligible Employee voluntarily terminates his or
her employment for any reason with the Company prior to September 30, 2001, such
Eligible Employee shall not be entitled to any payment under this Plan.
8. Death of Eligible Employee.
In the event of the death of an Eligible Employee, his estate or
personal representative shall have the right to receive any payments that would
otherwise have been due to such Eligible Employee under this Plan.
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<PAGE> 4
9. Amendment and Termination of this Plan.
Voith, the Company or any successor corporation may not amend,
suspend or terminate this Plan, unless agreed to in a writing signed by Voith,
the Company and any successor corporation and each affected Eligible Employee.
10. Limitations.
Neither this Plan nor the transactions authorized under this Plan
constitute an express or implied promise of continued employment or consultancy
for any period of time whatsoever. The rights and obligations of Voith, the
Company and Eligible Employees hereunder may not be sold, pledged, assigned,
hypothecated, or disposed of in any manner other than by will or by the laws of
descent and distribution, except pursuant to a writing signed by Voith, the
Company and any affected Eligible Employee; provided, however, that Voith or the
Company may assign its rights and obligations under this Plan to a successor
corporation in the event that Voith is not the surviving entity in a merger,
consolidation or reorganization.
11. Governing Law.
This Plan shall be construed in accordance with, and governed in
all respects by, the laws of the State of California, as applied to agreements
entered into, and to be performed entirely in such state, between residents of
such state.
12. Binding Plan.
This Plan shall be binding upon Voith and the Company as
independent obligations of Voith and the Company to each Eligible Employee for
all vested amounts.
13. Legal Fees.
Voith shall pay all reasonable legal fees and expenses incurred
by each Eligible Employee as a result of the Voith's refusal to make the pay the
Bonus Amounts to which the Eligible Employee becomes entitled under this Plan,
or as a result of the Voith's contesting the validity, enforceability or
interpretation of the Plan.
14. Merger.
In the event the Merger Agreement is terminated prior to the
consummation of the Merger, this Plan shall be null and void and no amounts
shall be paid under this Plan.
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EXHIBIT 9
NONCOMPETITION AGREEMENT
This NONCOMPETITION AGREEMENT (the "Agreement"), dated the 11th day of
December, 1997 by and between Voith Sulzer Paper Technology North America Inc.,
a Delaware corporation ("Voith") and Kenneth P. Ostrow (the "Executive").
BACKGROUND
Simultaneously with the execution hereof, Voith and Impact Systems, Inc.
("Impact") are entering into an Agreement and Plan of Merger of even date
herewith (the "Merger Agreement") which provides in part, that Voith and Voith
Sulzer Acquisition Corp. will offer to purchase any and all of the shares of
Common Stock of the Company pursuant to a cash tender offer (the "Tender
Offer").
Executive is an executive of Impact and has been actively involved in the
development and marketing of Impact's products together with its present or
future subsidiaries (collectively, "Impact"). Voith intends to continue the
business of Impact after the Acceptance Date (as defined below), and integrate
such business into Voith's ongoing business. To preserve and protect the assets
of Impact, including Impact's goodwill, customers and trade secrets of which
Executive has, and will, in his role as an employee of Voith, have knowledge,
and to preserve and protect Voith's goodwill and business interests going
forward, and in consideration for Voith's entering into and performing under the
Merger Agreement, Executive has agreed to enter into this Agreement.
Executive and Voith believe the limitations as to time, geographical area
and scope of activity contained in this Agreement hereof are reasonably
necessary to, and no greater than that required to, protect the goodwill and
business interests purchased by Voith.
1. Consideration. In consideration for Executive's performance pursuant to
the terms and conditions of this Agreement, Voith shall (i) purchase any of the
shares of Impact owned by Executive pursuant to the Merger Agreement and (ii)
pay Executive $700,000 on the date the Merger contemplated by the Merger
Agreement is consummated (the "Acceptance Date"); $432,000 on the first
anniversary of the Acceptance Date and $467,000 on the second anniversary of the
Acceptance Date.
2. Noncompete. Executive agrees that during the period beginning on the
Acceptance Date and continuing for five (5) years thereafter, he shall not enter
into the employ of, or render services to, any firm, corporation, or
organization in a capacity that gives him responsibility for that segment of
such entity's business which derives more than ten percent (10%) of its annual
revenues from sales of products which directly compete with products which were
offered by Impact at the Acceptance Date.
3. Geographic Area. The parties acknowledge that the business of Voith,
Impact and their subsidiaries is international in scope. Accordingly, in order
to secure Voith the benefits of the Merger, the parties agree that the
geographical areas in which the restrictions provided for in this Agreement
apply include all cities, counties and states of the United States of America.
In addition, the parties agree that the geographical areas in which the
restrictions provided for in this Agreement apply include all foreign nations
outside the United States of America in which Voith, Impact or any of their
subsidiaries has engaged in sales, or otherwise conducted business or selling
efforts, at any time during the two (2) years prior to the Acceptance Date.
4. Severability. The parties intend that the covenants contained in this
Agreement be construed as a series of separate covenants, one for each county of
each state of the United States and each nation. Except for geographic coverage,
each such separate covenant shall be deemed identical in terms of the covenants
contained in this Agreement. If, in any judicial proceeding, a court shall
refuse to enforce any of the separate covenants (or any part thereof) deemed
included in this Agreement, then such unenforceable covenant (or such part)
shall be deemed eliminated from this Agreement for the purpose of those
proceedings to the extent necessary to permit the remaining separate covenants
(or portions thereof) to be enforced. In the event that the provisions of this
Agreement should ever be deemed to exceed the time or geographic limitations, or
the
<PAGE> 2
scope of these covenants, as permitted by applicable law, then such provisions
shall be reformed to the maximum time or geographic limitations, as the case may
be, permitted by applicable laws.
5. Injunctions. Executive acknowledges that any breach of the covenants of
this Agreement will result in immediate and irreparable injury to Voith and,
accordingly, consents to the application of injunctive relief and such other
equitable remedies for the benefit of Voith as may be appropriate in the event
such a breach occurs or is threatened. The foregoing remedies will be in
addition to all other legal remedies to which Voith may be entitled hereunder,
including, without limitation, monetary damages. Voith shall notify Executive of
any purported breach of the Agreement and Executive shall have a reasonable
period to cure such purported breach.
6. Miscellaneous.
(a) Notices. Any and all notices permitted or required to be given under
this Agreement must be in writing. Notices will be deemed given (i) when
personally received or when sent by facsimile transmission (to the receiving
party's facsimile number), (ii) on the first business day after having been sent
by commercial overnight courier with written verification of receipt, or (iii)
on the third business day after having been sent by registered or certified mail
from a location on the United States mainland, return receipt requested, postage
prepaid, whichever occurs first, at the address set forth below or at any new
address, notice of which will have been given in accordance with this Section
6(a):
If to Voith: Voith Sulzer Paper Technology North America, Inc.
200 N. Roemer Road
Appleton, WI 54913
Attn: Paul Bouthilet
If to Executive, at Executive's address in the personnel records of Voith.
(b) Amendments. This Agreement contains the entire agreement and supersedes
and replaces all prior agreements between Voith and Executive or Impact and
Executive concerning the subject matter hereof. This Agreement may not be
changed or modified in whole or in part except by a writing signed by the party
against whom enforcement of the change or modification is sought.
(c) Successors and Assigns. This Agreement will not be assignable by either
Executive or Voith except that the rights and obligations of Voith under this
Agreement may be assigned to a corporation which becomes the successor to Voith
as the result of a merger or other corporate reorganization and which continues
the business of Voith or any other subsidiary of Voith, provided that, in the
case of a subsidiary, Voith guarantees the performance by such assignee of
Voith's obligations hereunder.
(d) Governing Law. This Agreement shall be construed in accordance with,
and governed in all respects by, the law of California, as applied to agreements
entered into, and to be performed entirely in such state, by residents of such
state.
(e) No Waiver. The failure of either party to insist on strict compliance
with any of the terms of this Agreement in any instance or instances will not be
deemed to be a waiver of any term of this Agreement or of that party's right to
require strict compliance with the terms of this Agreement in any other
instance.
(f) Counterparts. This Agreement may be executed in counterparts which when
taken together will constitute one instrument. Any copy of this Agreement with
the original signatures of all parties appended will constitute an original.
(g) Legal Costs. In the event that Executive sues to enforce his rights
under this Agreement, Voith shall pay Executive all costs to Executive of such
litigation.
(h) Termination. In the event the merger contemplated by the Merger
Agreement is not consummated prior to the termination of the Merger Agreement,
this Agreement shall terminate and no payments shall be due Executive hereunder.
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<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
VOITH SULZER PAPER TECHNOLOGY
NORTH AMERICA INC.
By: /s/ R. RAY HALL
------------------------------------
Title: Executive Vice President
KENNETH P. OSTROW
/s/ KENNETH P. OSTROW
--------------------------------------
(Signature)
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EXHIBIT 10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated December 11, 1997, is
made by and between Impact Systems, Inc., a California corporation (the
"Company"), and Kenneth P. Ostrow (the "Executive").
Recital
A. Simultaneously with the execution hereof, Voith Sulzer Paper Technology North
America Inc. ("Voith") and the Company are entering into an Agreement and Plan
of Merger, of even date herewith (the "Merger Agreement"), which provides in
part, that Voith will offer to purchase any and all of the shares of Common
Stock of the Company (the "Offer") pursuant to a cash tender offer at the Offer
Price (the "Tender Offer"). The date the shares are purchased by Voith in the
Tender Offer pursuant to the terms of the Offer (the "Acceptance Date").
Capitalized terms not otherwise defined herein shall have the meanings set forth
in the Merger Agreement;
B. The Company desires to retain the services of Executive after consumation of
the Tender Offer, on the terms and subject to the conditions set forth in this
Agreement;
C. Simultaneously with the execution hereof, Executive and Voith are entering
into a Noncompetition Agreement (the "Noncompetition Agreement").
NOW, THEREFORE, in consideration of the foregoing recitals and the
respective undertakings of the Company and Executive set forth below, the
Company and Executive agree as follows:
1. Effectiveness of Agreement; Employment.
(a) Effectiveness of Agreement. This Agreement shall become
effective as of the Effective Time. In the event that the Merger is not
consummated, this Agreement shall be null and void.
(b) Duties. The Company agrees to employ the Executive as
President and Chief Executive Officer, and the Executive agrees to perform such
reasonable responsibilities and duties as may be required of him by the Company.
The Executive shall carry out his duties and responsibilities hereunder in a
diligent and competent manner and shall devote the requisite amount of his
business time, attention and energy thereto. Executive shall report directly to
the Board of Directors of the Company (the "Board"). The Company acknowledges
that Executive may serve on the boards of directors of other companies, public
or private, and that Executive may from time to time perform consulting services
for other companies, which board memberships and consulting services are not
inconsistent with Executive's
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<PAGE> 2
obligations under the Noncompetition Agreement, provided, that such board
memberships and consulting services do not exceed 10% of Executive's business
time and do not detract from Executive's primary responsibilities to the
Company.
(c) Term of Employment. Executive's employment shall be for an
initial term beginning the Effective Time and ending September 30, 2001.
2. Compensation and Benefits.
(a) Base Compensation. The Company shall pay the Executive as
compensation for his services a base salary at the annualized rate of $400,000.
The Board of Directors of the Company (the "Board") shall review Executive's
salary annually and, in its discretion, increase Executive's salary; provided,
however, that the Board shall increase Executive's base salary at least three
percent (3%) per year. Such salary shall be subject to applicable tax
withholding and shall be paid periodically in accordance with normal Company
payroll practices in effect as of the Acceptance Date. The annual compensation
specified in this Section 2, together with any increases in such compensation
that the Company may, in its sole discretion, grant from time to time, is
referred to in this Agreement as "Base Compensation."
(b) Bonus. Executive shall receive a bonus (the "Bonus") of
$650,000 which the Company shall pay at the end of the term of this Agreement.
In addition to the Bonus, Executive shall participate in the Incentive Bonus
Plan and shall be eligible for a discretionary bonus as determined by the Board.
(c) Executive Benefits. Executive shall have the benefits,
vacation, sick leave, personal leave, expense reimbursement, executive life
insurance, health plans, automobile, and club membership in lieu of financial
counseling, comparable in value to the benefits provided to Executive by the
Company immediately prior to the Acceptance Date, including use of Company's
facilities, executive secretarial support, and home office equipment for
business use as well as personal use. Executive shall be reimbursed for first
class air travel for company business. Notwithstanding the foregoing, Company
may, in its sole discretion, amend, modify or terminate any employee benefit
plan, fund or arrangement that is provided or made available to all or a
significant percentage of Company employees, and the terms and conditions of any
such plan, fund or program (including any amendment or modification thereto)
shall be applicable to Executive; provided, however, that such amendment,
modification or termination shall not reduce in the aggregate the value of
Executive's benefits pursuant to this Section.
3. Severance Payments.
(a) Payments upon Involuntary Termination. If the Executive's
employment terminates as a result of an Involuntary Termination prior to the end
of the term of this Agreement pursuant to Section 1(c), then the Company shall
pay Executive within thirty (30) days of Executive's termination (including the
Bonus pursuant to Section 2(b)) all amounts Executive is entitled to under
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<PAGE> 3
this Agreement without discount as if he had continued in the employ of the
Company for the remainder of the term of this Agreement. In the event the
Company terminates Executive as defined in Section (e)(i) prior to the first
anniversary of the Agreement, the Company shall pay, in addition to the other
amounts otherwise provided in this Section, (i) an amount sufficient to pay all
taxes (including, but not limited to federal and state income taxes and any
excise taxes), owed by Executive on such payments described in the preceding
sentence above; and (ii) an additional amount sufficient to pay the federal and
state income taxes and any excise taxes arising from the payments made by the
Company to Executive pursuant to (i) above.
(b) Health Benefits After Termination. In the event the Executive
is entitled to severance benefits pursuant to Section 3(a), then in addition to
such severance benefits, the Executive shall receive health, dental and life
insurance coverage as provided to Executive immediately prior to the Executive's
termination ( the "Company-Paid Coverage"). If such coverage included the
Executive's dependents immediately prior to the Executive's termination, such
dependents shall also be covered to the extent covered prior to Executive's
termination. Company-Paid Coverage shall continue until the earlier of (i) the
longer of (A) the term of this agreement pursuant to Section 1(b) or (B) twelve
(12) months following the notice date for the Involuntary Termination, (ii)
eighteen (18) months, or (iii) the date the Executive becomes covered under
another employer's group health, dental and life insurance plans (to the extent
covered under such plans). The Executive's rights under the Consolidated Omnibus
Budget Reconciliation Act of 1985 shall begin at the end of such coverage
period. In the event Executive's health benefits would terminate eighteen (18)
months after termination of Executive's employment, Company shall offer to
Executive a bona fide position within the Company from which the Company cannot
terminate Executive, until the earlier of (i) the longer of (A) the term of this
Agreement, (B) twelve (12) months following the notice date of the Involuntary
Termination or (ii) the date Executive becomes covered under another employer's
group health, dental and life insurance plans. If Executive elects to accept
such offer of employment, such acceptance shall not waive any of Executive's
rights under this Agreement or any other agreement with respect to Executive's
employment.
(c) Miscellaneous. In addition, in the event of Executive's
termination for any reason, (i) the Company shall pay the Executive any unpaid
Base Compensation due for periods prior to the date of Executive's termination;
(ii) the Company shall pay the Executive all of the Executive's accrued and
unused vacation through the date of Executive's termination; (iii) following
submission of proper expense reports by the Executive, the Company shall
reimburse the Executive for all expenses reasonably and necessarily incurred by
the Executive in connection with the business of the Company prior to
termination; and (iv) the Company shall give to Executive all equipment from
Executive's home office. These payments shall be made promptly upon termination
and within the period of time mandated by applicable law. The Company shall pay
for Executive's use of Executive's secretary for the earlier of (A) the term of
this Agreement or (B) the date the Executive becomes employed in a comparable
position to Executive's duties pursuant to Section 1(b).
(d) Voluntary Resignation. If the Executive's employment
terminates by reason of Executive's voluntary resignation, in addition to the
payments provided in Section 3(c), Employee shall be entitled to Company-Paid
Coverage until the earlier of (i) three (3) months following the effective
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<PAGE> 4
date of such voluntary termination, or (ii) the date the Executive becomes
covered under another employer's group health, dental or life insurance plan (to
the extent covered under such plans).
(e) Definition of Involuntary Termination. "Involuntary
Termination" shall mean: (i) termination by the Company of Executive's
employment with the Company other than for Just Cause (as defined below); (ii) a
five percent (5%) or greater reduction in Executive's Base Compensation; (iii) a
significant reduction by the Company in the kind or level of employee benefits
(other than salary and bonus) to which Executive is entitled immediately prior
to such reduction with the result that Executive's overall benefits package
(other than salary and bonus) is reduced; (iv) any material breach by the
Company of any material provision of this Agreement which continues uncured for
thirty (30) days following notice thereof; (v) a material reduction in
Executive's responsibilities, authority or duties with the Company; (vi) the
relocation of Executive's base of employment more than twenty-five (25) miles
from Executive's present place of employment; and (vii) the termination of
Executive's use of Executive's secretary and Company information services
employee for Executive's personal use; provided, that none of the foregoing
shall constitute Involuntary Termination to the extent Executive has agreed
thereto. Executive shall not waive his rights to assert an Involuntary
Termination at any time under the term of this Agreement regardless of when an
Involuntary Termination has occurred.
(f) Termination for Death or Just Cause.
(i) Payment. In the event Executive is terminated for
death or Just Cause, Executive shall receive the bonus pursuant to Section 2(b)
and in addition: (A) if terminated prior to the first anniversary of this
Agreement, the Company shall pay Executive $150,000; (B) if terminated after the
first anniversary but prior to the second anniversary of this Agreement, the
Company shall pay Executive $100,000; and (C) if terminated thereafter, the
Company shall pay Executive $50,000. Following termination of Executive for Just
Cause or death, except as otherwise provided in Section 3(c) or Section 3(f),
Executive shall be entitled to no other payments or benefits hereunder.
(ii) Just Cause. "Just Cause" for termination by
Company of Executive's employment shall mean (A) the willful and continued
failure by Executive to substantially perform his duties with Company (other
than any such failure caused by Executive's incapacity due to physical or mental
illness) after a written demand for substantial performance is delivered to
Executive by the Board, which demand identifies the manner in which the Board
believes that Executive has not substantially performed his duties and sixty
(60) days for Executive to comply with such demand; (B) the willful engaging by
Executive in conduct which is demonstrably and materially injurious to Company
or its subsidiaries and affiliates, monetarily or otherwise; or (C) a
conviction, pleas of nolo contendere, guilty plea or confession by Executive to
an act of fraud, misappropriation or embezzlement, or to a felony.
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4. Confidential Information.
(a) Company Information. Executive agrees at all times during the
term of Executive's employment and thereafter, to hold in strictest confidence,
and not to use, except for the benefit of the Company, or to disclose to any
person, firm or corporation without written authorization of the Board of
Directors of the Company, any Confidential Information of the Company. Executive
understands that "Confidential Information" means any Company proprietary
information, trade secrets or know-how, including, but not limited to, market
research, product plans, products, services, customer lists and customers
(including, but not limited to, customers of the Company to whom Executive
becomes acquainted during the term of Executive's employment), markets,
developments, marketing, finances or other business information disclosed to
Executive by the Company either directly or indirectly in writing, orally or by
drawings or observation of parts or equipment. Executive further understands
that Confidential Information does not include any of the foregoing items which
has become publicly known and made generally available through no wrongful act
of Executive or of others who were under confidentiality obligations as to the
item or items involved.
(b) Third Party Information. Executive recognizes that the
Company has received and in the future will receive from third parties their
confidential or proprietary information subject to a duty on the Company's part
to maintain the confidentiality of such information and to use it only for
certain limited purposes. Executive agrees to hold all such confidential or
proprietary information in the strictest confidence and not to disclose it to
any person, firm or corporation or to use it except as necessary in carrying out
Executive's work for the Company consistent with the Company's agreement with
such third party.
5. Prior Agreements. Executive represents that Executive has not entered
into any agreements, understandings, or arrangements with any person or entity
which would be breached by Executive as a result of, or that would in any way
preclude or prohibit Executive from entering into this Agreement with the
Company or performing any of the duties and responsibilities provided for in
this Agreement.
6. Returning Company Documents. Executive agrees that, at the time of
leaving the employ of the Company, Executive will deliver to the Company (and
will not keep in Executive's possession, recreate or deliver to anyone else) any
and all devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, materials, equipment, other documents or
property, or reproductions of any aforementioned items developed by Executive
pursuant to Executive's employment with the Company or otherwise belonging to
the Company, its successors or assigns.
7. Notices. Any and all notices permitted or required to be given under
this Agreement must be in writing. Notices will be deemed given (i) when
personally received or when sent by facsimile transmission (to the receiving
party's facsimile number), (ii) on the first business day after having been sent
by commercial overnight courier with written verification of receipt, or (iii)
on the third business day after having been sent by registered or certified mail
from a location on the United States mainland,
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<PAGE> 6
return receipt requested, postage prepaid, whichever occurs first, at the
address set forth below or at any new address, notice of which will have been
given in accordance with this Section 7(a):
If to Company: Impact Systems, Inc.
14600 Winchester Blvd.
Los Gatos, CA 95030
Attn: Chief Financial Officer
If to Executive, at Executive's address in the personnel records of
Company.
8. Governing Law. This Agreement shall be construed in accordance with,
and governed in all respects by, the law of California, as applied to agreements
entered into, and to be performed entirely in such state, by residents of such
state.
9. Amendments. This Agreement shall not be changed or modified in whole
or in part except by an instrument in writing signed by each party hereto.
10. Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
11. Successors.
(a) Company's Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this
subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) Executive's Successors. The terms of this Agreement and all
rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representatives, executors,
administrators, successor, heirs, distributees, devisees or legatees.
12. Entire Agreement. This Agreement, Employee's Confidentiality
Agreement and Executive's Noncompetition Agreement with Voith shall supersede
and replace all prior agreements or understandings relating to the subject
matter hereof, and no agreement, representations or understandings (whether oral
or written or whether express or implied) which are not expressly set forth in
these agreements have been made or entered into by either party with respect to
the relevant matter hereof.
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13. Legal Costs. In the event Executive sues to enforce his rights under
this Agreement, Company shall pay all of Executive's costs for such litigation.
14. Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original, but which together shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
IMPACT SYSTEMS, INC.
By: /s/ Kenneth P. Ostrow
----------------------------------------
Title: President
-------------------------------------
KENNETH P. OSTROW
/s/ Kenneth P. Ostrow
-------------------------------------------
(Signature)
[SIGNATURE PAGE OF OSTROW EMPLOYMENT AGREEMENT]
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EXHIBIT 11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of the 11th day of
December, 1997, by and between Impact Systems, Inc., a California corporation
(the "Company"), and Robert M. Gorski, the undersigned executive (the
"Executive").
RECITAL
A. The Company desires to retain the services of Executive, and Executive
desires to be employed by the Company, on the terms and subject to the
conditions set forth in this Agreement;
B. Simultaneously with the execution hereof, Voith Sulzer Paper Technology, Inc.
("Voith") and Company are entering into an Agreement and Plan of Merger of even
date herewith (the "Merger Agreement"), which provides in part, that Voith will
offer to purchase any and all of the shares of Common Stock of the Company
pursuant to a cash tender offer (the "Tender Offer"). Capitalized terms not
otherwise defined herein shall have the meanings set forth in the Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing recital and the
respective undertakings of the Company and Executive set forth below, the
Company and Executive agree as follows:
1. Effectiveness of Agreement; Employment.
(a) Effective of Agreement. This Agreement shall become effective
as of the Effective Time. In the event that the Merger is not consummated, this
Agreement shall be null and void.
(b) Duties. The Company agrees to employ the Executive as Chief
Financial Officer, and the Executive agrees to perform such reasonable
responsibilities and duties as may be required of him by the Company. The
Executive shall carry out his duties and responsibilities hereunder in a
diligent and competent manner and shall devote the requisite amount of his
business time, attention and energy thereto. Executive shall report directly to
the Chief Executive Officer of the Company.
(c) Term of Employment. Executive's employment shall be for an
initial term beginning the Effective Time and ending September 30, 2001.
2. Compensation and Benefits.
(a) Base Compensation. The Company shall pay the Executive as
compensation for his services a base salary at the annualized rate of $250,000.
The Board of Directors of the Company (the "Board") shall review Executive's
salary annually and, in its discretion, increase Executive's salary; provided,
however, that the Board shall increase Executive's base salary at least three
percent (3%) per year. Such salary shall be subject to applicable tax
withholding and shall be
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<PAGE> 2
paid periodically in accordance with normal Company payroll practices as of the
date hereof. The annual compensation specified in this Section 2, together with
any increases in such compensation that the Company may, in its sole discretion,
grant from time to time, is referred to in this Agreement as "Base
Compensation."
(b) Bonus. Executive shall be eligible for a bonus as determined
annually by the Compensation Committee of the Board. In addition, Executive
shall participate in the Incentive Bonus Plan which shall provide for a
guaranteed bonus of $400,000 payable on September 30, 2001.
(c) Executive Benefits. Executive shall be eligible to
participate in the employee benefit plans which are available or which become
available, to other executives of the Company of a comparable level, subject in
each case to the generally applicable terms and conditions of the plan or
program in question and to the determination of any committee administering such
plan or program; provided, however, that the Company shall provide to Executive
health benefits at least equal to Executive's health benefits immediately prior
to the Effective Time.
(d) Vacation. Executive shall initially be entitled to four (4)
weeks of vacation per year in accordance with the normal vacation policies of
the Company.
(e) Automobile. Executive shall receive a car allowance of $800
per month, plus all repairs, normal maintenance, fuel, oil changes, and car wash
costs.
(f) Life Insurance. The Company will obtain and pay premiums for,
during the term of Executive's employment hereunder, term life insurance for
Executive in the amount of $500,000 plus two (2) times Executive's Base
Compensation, payable to the beneficiary designated by Executive.
(g) Expenses. The Company will pay or reimburse Executive for
reasonable travel, entertainment or other expenses incurred by Executive in the
furtherance of or in connection with the performance of Executive's duties
hereunder in accordance with the Company's established policies; provided,
however, that the Company shall reimburse Executive for all business class
airfare incurred by Executive in the furtherance of or in connection with the
performance of Executive's duties hereunder.
(h) Trade Association and Club Fees. Executive shall be
reimbursed for all fees related to industry trade associations. Club membership
fees shall be reimbursed for an amount not to exceed $1,000 per year.
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<PAGE> 3
3. Severance Payments.
(a) Payments upon Involuntary Termination. If the Executive's
employment terminates as a result of an Involuntary Termination prior to the end
of the term of this Agreement pursuant to Section 1(c), then the Company shall
pay Executive within thirty (30) days of Executive's termination (including the
Bonus pursuant to Section 2(b)) all amounts Executive is entitled to under this
Agreement as if he had continued in the employ of the Company for the remainder
of the term of this Agreement.
(b) Benefits. In the event the Executive is entitled to severance
benefits pursuant to Section 3(a), then in addition to such severance benefits,
the Executive shall receive health, dental and life insurance coverage as
provided to Executive immediately prior to the Executive's termination ( the
"Company-Paid Coverage"). If such coverage included the Executive's dependents
immediately prior to the Executive's termination, such dependents shall also be
covered to the extent covered prior to Executive's termination. Company-Paid
Coverage shall continue until the earlier of (i) the longer of (A) the term of
this agreement pursuant to Section 1(b) or (B) twelve (12) months following the
notice date for the Involuntary Termination, (ii) eighteen (18) months, or (iii)
the date the Executive becomes covered under another employer's group health,
dental and life insurance plans (to the extent covered under such plans). The
Executive's rights under the Consolidated Omnibus Budget Reconciliation Act of
1985 shall begin at the end of such coverage period.
(c) Miscellaneous. In addition, in the event of Employee's
termination for any reason, (i) the Company shall pay the Executive any unpaid
Base Compensation due for periods prior to the date of Executive's termination;
(ii) the Company shall pay the Executive all of the Executive's accrued and
unused vacation through the date of Executive's termination; and (iii) following
submission of proper expense reports by the Executive, the Company shall
reimburse the Executive for all expenses reasonably and necessarily incurred by
the Executive in connection with the business of the Company prior to
termination. These payments shall be made promptly upon termination and within
the period of time mandated by applicable law.
(d) Voluntary Resignation. If the Executive's employment
terminates by reason of Executive's voluntary resignation, in addition to the
payments provided in Section 3(c), Employee shall be entitled to Company-Paid
Coverage until the earlier of (i) three (3) months following the effective date
of such voluntary termination, or (ii) the date the Executive becomes covered
under another employer's group health, dental or life insurance plan (to the
extent covered under such plans).
(e) Definition of Involuntary Termination. "Involuntary
Termination" shall mean: (i) termination by the Company of Executive's
employment with the Company other than for Just Cause (as defined below); (ii) a
five percent (5%) or greater reduction in Executive's Base Compensation; (iii) a
significant reduction by the Company in the kind or level of employee benefits
in the aggregate (other than salary and bonus) to which Executive is entitled
immediately prior to such reduction with the result that Executive's overall
benefits package (other than salary and bonus) is reduced; (iv) any material
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<PAGE> 4
breach by the Company of any material provision of this Agreement which
continues uncured for thirty (30) days following notice thereof; (v) a material
reduction in Executive's responsibilities, authority or duties with the Company;
(vi) the relocation of Executive's base of employment more than twenty-five (25)
miles from Executive's present place of employment; provided, that none of the
foregoing shall constitute Involuntary Termination to the extent Executive has
agreed thereto.
(f) Termination for Death or Just Cause.
(i) Payment. In the event Executive is terminated for
death or Just Cause, Executive shall receive the bonus pursuant to Section 2(b).
Following termination of Executive for Just Cause or death, except as otherwise
provided in Section 3(c) or Section 3(f), Executive shall be entitled to no
other payments or benefits hereunder.
(ii) Just Cause. "Just Cause" for termination by Company
of Executive's employment shall mean (A) the willful and continued failure by
Executive to substantially perform his duties with Company (other than any such
failure caused by Executive's incapacity due to physical or mental illness)
after a written demand for substantial performance is delivered to Executive by
the Board, which demand identifies the manner in which the Board believes that
Executive has not substantially performed his duties and sixty (60) days for
Executive to comply with such demand; (B) the willful engaging by Executive in
conduct which is demonstrably and materially injurious to Company or its
subsidiaries and affiliates, monetarily or otherwise; or (C) a conviction, pleas
of nolo contendere, guilty plea or confession by Executive to an act of fraud,
misappropriation or embezzlement, or to a felony.
4. Confidential Information.
(a) Company Information. Executive agrees at all times during the
term of Executive's employment and thereafter, to hold in strictest confidence,
and not to use, except for the benefit of the Company, or to disclose to any
person, firm or corporation without written authorization of the Board of
Directors of the Company, any Confidential Information of the Company. Executive
understands that "Confidential Information" means any Company proprietary
information, trade secrets or know-how, including, but not limited to, market
research, product plans, products, services, customer lists and customers
(including, but not limited to, customers of the Company to whom Executive
becomes acquainted during the term of Executive's employment), markets,
developments, marketing, finances or other business information disclosed to
Executive by the Company either directly or indirectly in writing, orally or by
drawings or observation of parts or equipment. Executive further understands
that Confidential Information does not include any of the foregoing items which
has become publicly known and made generally available through no wrongful act
of Executive or of others who were under confidentiality obligations as to the
item or items involved.
(b) Third Party Information. Executive recognizes that the
Company has received and in the future will receive from third parties their
confidential or proprietary information subject to
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<PAGE> 5
a duty on the Company's part to maintain the confidentiality of such information
and to use it only for certain limited purposes. Executive agrees to hold all
such confidential or proprietary information in the strictest confidence and not
to disclose it to any person, firm or corporation or to use it except as
necessary in carrying out Executive's work for the Company consistent with the
Company's agreement with such third party.
5. Prior Agreements. Executive represents that Executive has not entered
into any agreements, understandings, or arrangements with any person or entity
which would be breached by Executive as a result of, or that would in any way
preclude or prohibit Executive from entering into this Agreement with the
Company or performing any of the duties and responsibilities provided for in
this Agreement. Executive's General Change in Control Agreement shall be
superseded as of the Acceptance Date and no payment shall be made thereunder as
a result of shares of Common Stock acquired as of the Acceptance Date pursuant
to the Tender Offer.
6. Returning Company Documents. Executive agrees that, at the time of
leaving the employ of the Company, Executive will deliver to the Company (and
will not keep in Executive's possession, recreate or deliver to anyone else) any
and all devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, materials, equipment, other documents or
property, or reproductions of any aforementioned items developed by Executive
pursuant to Executive's employment with the Company or otherwise belonging to
the Company, its successors or assigns.
7. Notices. Any and all notices permitted or required to be given under
this Agreement must be in writing. Notices will be deemed given (i) when
personally received or when sent by facsimile transmission (to the receiving
party's facsimile number), (ii) on the first business day after having been sent
by commercial overnight courier with written verification of receipt, or (iii)
on the third business day after having been sent by registered or certified mail
from a location on the United States mainland, return receipt requested, postage
prepaid, whichever occurs first, at the address set forth below or at any new
address, notice of which will have been given in accordance with this Section
7(a):
If to Company: Impact Systems, Inc.
14600 Winchester Blvd.
Los Gatos, CA 95030
Attn: Chief Executive Officer
If to Executive, at Executive's address in the personnel records of
Company.
8. Governing Law. This Agreement shall be construed in accordance with,
and governed in all respects by, the law of California, as applied to agreements
entered into, and to be performed entirely in such state, by residents of such
state.
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<PAGE> 6
9. Amendments. This Agreement shall not be changed or modified in whole
or in part except by an instrument in writing signed by each party hereto.
10. Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
11. Successors.
(a) Company's Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this
subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) Executive's Successors. The terms of this Agreement and all
rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representatives, executors,
administrators, successor, heirs, distributees, devisees or legatees.
12. Entire Agreement. This Agreement, the Employee Confidentiality
Agreement with Voith, and the Incentive Bonus Plan shall supersede and replace
all prior agreements or understandings relating to the subject matter hereof,
and no agreement, representations or understandings (whether oral or written or
whether express or implied) which are not expressly set forth in these
agreements have been made or entered into by either party with respect to the
relevant matter hereof.
13. Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original, but which together shall constitute one and the
same agreement.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
IMPACT SYSTEMS, INC.
By: /s/ KENNETH P. OSTROW
--------------------------------------
Title: President
-----------------------------------
ROBERT M. GORSKI
/s/ ROBERT M. GORSKI
-----------------------------------------
(Signature)
[SIGNATURE PAGE OF GORSKI EMPLOYMENT AGREEMENT]
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<PAGE> 1
EXHIBIT 12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of the 11th day of
December, 1997, by and between Impact Systems, Inc., a California corporation
(the "Company"), and John F. Lynch, III, the undersigned executive (the
"Executive").
Recital
A. The Company desires to retain the services of Executive, and Executive
desires to be employed by the Company, on the terms and subject to the
conditions set forth in this Agreement;
B. Simultaneously with the execution hereof, Voith Sulzer Paper Technology, Inc.
("Voith") and Company are entering into an Agreement and Plan of Merger of even
date herewith (the "Merger Agreement"), which provides in part, that Voith will
offer to purchase any and all of the shares of Common Stock of the Company
pursuant to a cash tender offer (the "Tender Offer"). Capitalized terms not
otherwise defined herein shall have the meanings set forth in the Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing recital and the
respective undertakings of the Company and Executive set forth below, the
Company and Executive agree as follows:
1. Effectiveness of Agreement; Employment.
(a) Effective of Agreement. This Agreement shall become effective
as of the Effective Time. In the event that the Merger is not consummated, this
Agreement shall be null and void.
(b) Duties. The Company agrees to employ the Executive as Vice
President, Operations, and the Executive agrees to perform such reasonable
responsibilities and duties as may be required of him by the Company. The
Executive shall carry out his duties and responsibilities hereunder in a
diligent and competent manner and shall devote the requisite amount of his
business time, attention and energy thereto. Executive shall report directly to
the Chief Executive Officer of the Company.
(c) Term of Employment. Executive's employment shall be for an
initial term beginning the Effective Time and ending September 30, 2001.
2. Compensation and Benefits.
(a) Base Compensation. The Company shall pay the Executive as
compensation for his services a base salary at the annualized rate of $175,000.
The Board of Directors of the Company (the "Board") shall review Executive's
salary annually and, in its discretion, increase Executive's salary; provided,
however, that the Board shall increase Executive's base salary at least three
percent (3%) per year. Such salary shall be subject to applicable tax
withholding and shall be
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<PAGE> 2
paid periodically in accordance with normal Company payroll practices as of the
date hereof. The annual compensation specified in this Section 2, together with
any increases in such compensation that the Company may, in its sole discretion,
grant from time to time, is referred to in this Agreement as "Base
Compensation."
(b) Bonus. Executive shall be eligible for a bonus as determined
annually by the Compensation Committee of the Board. In addition, Executive
shall participate in the Incentive Bonus Plan which shall provide for a
guaranteed bonus of $290,000 payable on September 30, 2001.
(c) Executive Benefits. Executive shall be eligible to
participate in the employee benefit plans which are available or which become
available, to other executives of the Company of a comparable level, subject in
each case to the generally applicable terms and conditions of the plan or
program in question and to the determination of any committee administering such
plan or program; provided, however, that the Company shall provide to Executive
health benefits at least equal to Executive's health benefits immediately prior
to the Effective Time.
(d) Vacation. Executive shall initially be entitled to four (4)
weeks of vacation per year in accordance with the normal vacation policies of
the Company.
(e) Automobile. Executive shall receive a car allowance of $800
per month, plus all repairs and normal maintenance, fuel, oil changes, and car
wash costs.
(f) Life Insurance. The Company will obtain and pay premiums for,
during the term of Executive's employment hereunder, term life insurance for
Executive in the amount of $500,000 plus two (2) times Executive's Base
Compensation, payable to the beneficiary designated by Executive.
(g) Expenses. The Company will pay or reimburse Executive for
reasonable travel, entertainment or other expenses incurred by Executive in the
furtherance of or in connection with the performance of Executive's duties
hereunder in accordance with the Company's established policies; provided,
however, that the Company shall reimburse Executive for all business class
airfare incurred by Executive in the furtherance of or in connection with the
performance of Executive's duties hereunder.
(h) Trade Association and Club Fees. Executive shall be
reimbursed for all fees related to industry trade associations. Club membership
fees shall be reimbursed for an amount not to exceed $1,000 per year.
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<PAGE> 3
3. Severance Payments.
(a) Payments upon Involuntary Termination. If the Executive's
employment terminates as a result of an Involuntary Termination prior to the end
of the term of this Agreement pursuant to Section 1(c), then the Company shall
pay Executive within thirty (30) days of Executive's termination (including the
Bonus pursuant to Section 2(b)) all amounts Executive is entitled to under this
Agreement as if he had continued in the employ of the Company for the remainder
of the term of this Agreement.
(b) Benefits. In the event the Executive is entitled to severance
benefits pursuant to Section 3(a), then in addition to such severance benefits,
the Executive shall receive health, dental and life insurance coverage as
provided to Executive immediately prior to the Executive's termination ( the
"Company-Paid Coverage"). If such coverage included the Executive's dependents
immediately prior to the Executive's termination, such dependents shall also be
covered to the extent covered prior to Executive's termination. Company-Paid
Coverage shall continue until the earlier of (i) the longer of (A) the term of
this agreement pursuant to Section 1(b) or (B) twelve (12) months following the
notice date for the Involuntary Termination, (ii) eighteen (18) months, or (iii)
the date the Executive becomes covered under another employer's group health,
dental and life insurance plans (to the extent covered under such plans). The
Executive's rights under the Consolidated Omnibus Budget Reconciliation Act of
1985 shall begin at the end of such coverage period.
(c) Miscellaneous. In addition, in the event of Employee's
termination for any reason, (i) the Company shall pay the Executive any unpaid
Base Compensation due for periods prior to the date of Executive's termination;
(ii) the Company shall pay the Executive all of the Executive's accrued and
unused vacation through the date of Executive's termination; and (iii) following
submission of proper expense reports by the Executive, the Company shall
reimburse the Executive for all expenses reasonably and necessarily incurred by
the Executive in connection with the business of the Company prior to
termination. These payments shall be made promptly upon termination and within
the period of time mandated by applicable law.
(d) Voluntary Resignation. If the Executive's employment
terminates by reason of Executive's voluntary resignation, in addition to the
payments provided in Section 3(c), Employee shall be entitled to Company-Paid
Coverage until the earlier of (i) three (3) months following the effective date
of such voluntary termination, or (ii) the date the Executive becomes covered
under another employer's group health, dental or life insurance plan (to the
extent covered under such plans).
(e) Definition of Involuntary Termination. "Involuntary
Termination" shall mean: (i) termination by the Company of Executive's
employment with the Company other than for Just Cause (as defined below); (ii) a
five percent (5%) or greater reduction in Executive's Base Compensation; (iii) a
significant reduction by the Company in the kind or level of employee benefits
in the aggregate (other than salary and bonus) to which Executive is entitled
immediately prior to such reduction with the result that Executive's overall
benefits package (other than salary and bonus) is reduced; (iv) any material
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<PAGE> 4
breach by the Company of any material provision of this Agreement which
continues uncured for thirty (30) days following notice thereof; (v) a material
reduction in Executive's responsibilities, authority or duties with the Company;
(vi) the relocation of Executive's base of employment more than twenty-five (25)
miles from Executive's present place of employment; provided, that none of the
foregoing shall constitute Involuntary Termination to the extent Executive has
agreed thereto.
(f) Termination for Death or Just Cause.
(i) Payment. In the event Executive is terminated for
death or Just Cause, Executive shall receive the bonus pursuant to Section 2(b).
Following termination of Executive for Just Cause or death, except as otherwise
provided in Section 3(c) or Section 3(f), Executive shall be entitled to no
other payments or benefits hereunder.
(ii) Just Cause. "Just Cause" for termination by
Company of Executive's employment shall mean (A) the willful and continued
failure by Executive to substantially perform his duties with Company (other
than any such failure caused by Executive's incapacity due to physical or mental
illness) after a written demand for substantial performance is delivered to
Executive by the Board, which demand identifies the manner in which the Board
believes that Executive has not substantially performed his duties and sixty
(60) days for Executive to comply with such demand; (B) the willful engaging by
Executive in conduct which is demonstrably and materially injurious to Company
or its subsidiaries and affiliates, monetarily or otherwise; or (C) a
conviction, pleas of nolo contendere, guilty plea or confession by Executive to
an act of fraud, misappropriation or embezzlement, or to a felony.
4. Confidential Information.
(a) Company Information. Executive agrees at all times during the
term of Executive's employment and thereafter, to hold in strictest confidence,
and not to use, except for the benefit of the Company, or to disclose to any
person, firm or corporation without written authorization of the Board of
Directors of the Company, any Confidential Information of the Company. Executive
understands that "Confidential Information" means any Company proprietary
information, trade secrets or know-how, including, but not limited to, market
research, product plans, products, services, customer lists and customers
(including, but not limited to, customers of the Company to whom Executive
becomes acquainted during the term of Executive's employment), markets,
developments, marketing, finances or other business information disclosed to
Executive by the Company either directly or indirectly in writing, orally or by
drawings or observation of parts or equipment. Executive further understands
that Confidential Information does not include any of the foregoing items which
has become publicly known and made generally available through no wrongful act
of Executive or of others who were under confidentiality obligations as to the
item or items involved.
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<PAGE> 5
(b) Third Party Information. Executive recognizes that the
Company has received and in the future will receive from third parties their
confidential or proprietary information subject to a duty on the Company's part
to maintain the confidentiality of such information and to use it only for
certain limited purposes. Executive agrees to hold all such confidential or
proprietary information in the strictest confidence and not to disclose it to
any person, firm or corporation or to use it except as necessary in carrying out
Executive's work for the Company consistent with the Company's agreement with
such third party.
5. Prior Agreements. Executive represents that Executive has not entered
into any agreements, understandings, or arrangements with any person or entity
which would be breached by Executive as a result of, or that would in any way
preclude or prohibit Executive from entering into this Agreement with the
Company or performing any of the duties and responsibilities provided for in
this Agreement. Executive's General Change in Control Agreement shall be
superseded as of the Acceptance Date and no payment shall be made thereunder as
a result of shares of Common Stock acquired as of the Acceptance Date pursuant
to the Tender Offer.
6. Returning Company Documents. Executive agrees that, at the time of
leaving the employ of the Company, Executive will deliver to the Company (and
will not keep in Executive's possession, recreate or deliver to anyone else) any
and all devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, materials, equipment, other documents or
property, or reproductions of any aforementioned items developed by Executive
pursuant to Executive's employment with the Company or otherwise belonging to
the Company, its successors or assigns.
7. Notices. Any and all notices permitted or required to be given under
this Agreement must be in writing. Notices will be deemed given (i) when
personally received or when sent by facsimile transmission (to the receiving
party's facsimile number), (ii) on the first business day after having been sent
by commercial overnight courier with written verification of receipt, or (iii)
on the third business day after having been sent by registered or certified mail
from a location on the United States mainland, return receipt requested, postage
prepaid, whichever occurs first, at the address set forth below or at any new
address, notice of which will have been given in accordance with this Section
7(a):
If to Company: Impact Systems Inc.
14600 Winchester Blvd.
Los Gatos, CA 95030
Attn: Chief Executive Officer
If to Executive, at Executive's address in the personnel records of
Company.
8. Governing Law. This Agreement shall be construed in accordance with,
and governed in all respects by, the law of California, as applied to agreements
entered into, and to be performed entirely in such state, by residents of such
state.
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<PAGE> 6
9. Amendments. This Agreement shall not be changed or modified in whole
or in part except by an instrument in writing signed by each party hereto.
10. Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
11. Successors.
(a) Company's Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this
subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) Executive's Successors. The terms of this Agreement and all
rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representatives, executors,
administrators, successor, heirs, distributees, devisees or legatees.
12. Entire Agreement. This Agreement, the Employee Confidentiality
Agreement with Voith, and the Incentive Bonus Plan shall supersede and replace
all prior agreements or understandings relating to the subject matter hereof,
and no agreement, representations or understandings (whether oral or written or
whether express or implied) which are not expressly set forth in these
agreements have been made or entered into by either party with respect to the
relevant matter hereof.
13. Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original, but which together shall constitute one and the
same agreement.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
IMPACT SYSTEMS, INC.
By: /S/ KENNETH P. OSTROW
--------------------------------------
Title: President
-----------------------------------
JOHN F. LYNCH, III
/s/ JOHN F. LYNCH, III
-----------------------------------------
(Signature)
[SIGNATURE PAGE OF LYNCH EMPLOYMENT AGREEMENT]
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EXHIBIT 13
SECURITY OWNERSHIP
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock as of August
15, 1997, by (a) each director of the Company, (b) the Company's Chief Executive
Officer and each of the other executive officers, (c) all directors and
executive officers of the Company as a group, and (d) each beneficial owner of
5% or more of the outstanding shares of the Company's Common Stock. Except as
otherwise indicated, each person has sole voting and investment power with
respect to all shares shown as beneficially owned, subject to community property
laws where applicable.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIAL OWNER (1) BENEFICIALLY OWNED BENEFICIALLY OWNED
- ------------------------------------------------------------ ------------------ ------------------
<S> <C> <C>
Elsag Bailey Process Automation N.V.(2)..................... 2,378,900 22.7%
Schiphol Boulevard 157,
1118 BG Luchthaven Schiphol,
The Netherlands
Kenneth P. Ostrow(3)........................................ 1,019,734 9.7
14600 Winchester Boulevard
Los Gatos, CA 95030
Joseph J. Cusimano(4)....................................... 43,461 *
M. N. Zaharna(5)(6)......................................... 10,000 *
Robert M. Gorski(7)......................................... 141,250 1.3
John F. Lynch, III(8)....................................... 126,250 1.2
All directors and executive officers as a group (5 1,340,695 12.8
persons)(5)(9)............................................
</TABLE>
- ---------------
* Represents less than 1% of the outstanding Common Stock.
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and the information
contained in the footnotes hereunder.
(2) All 2,378,900 shares held of record by Elsag International N.V. which is
ultimately owned and controlled by Elsag Bailey Process Automation N.V.
(3) Includes 351,250 shares issuable upon exercise of options exercisable within
60 days of August 15, 1997.
(4) Excludes 1,500 shares beneficially owned by children of Mr. Cusimano, as to
which Mr. Cusimano disclaims beneficial ownership. Includes 10,000 shares
issuable upon exercise of options exercisable within 60 days of August 15,
1997.
(5) Excludes 2,378,900 shares beneficially owned by Elsag Bailey Process
Automation N.V., as to which Mr. Zaharna disclaims beneficial ownership. Mr.
Zaharna is currently the Group Executive Vice President and Chief Operating
Officer of Elsag Bailey Process Automation N.V.
(6) Consists of 10,000 shares issuable upon exercise of options exercisable
within 60 days of August 15, 1997.
(7) Consists of 141,250 shares issuable upon exercise of options exercisable
within 60 days of August 15, 1997.
(8) Includes 96,250 shares issuable upon exercise of options exercisable within
60 days of August 15, 1997.
(9) Includes 608,750 shares issuable upon exercise of options exercisable within
60 days of August 15, 1997.
DIRECTOR COMPENSATION
The Company currently does not pay any cash compensation to directors for
service on the Company's Board. Outside directors are, however, eligible to
participate in the Company's Discount Stock Option Plan. Each non-employee
director will receive an option to purchase on an annual basis $15,000 worth of
DSOs, the number determined by reference to the closing NASDAQ price of the
Company's stock on the date of grant or 5,000 DSOs, whichever is greater. The
options are exercisable upon vesting at 10% of the fair market value
<PAGE> 2
on the date of grant. Options granted to non-employee directors vest in full on
the first anniversary of the date of grant and expire if not exercised within
five years from date of grant.
During the fiscal year which ended March 31, 1997, the Company granted
options to purchase 5,000 shares under its Discount Option Plan exercisable at
$0.20 per share to each of its Outside Directors, Messrs. Cusimano and Zaharna.
This option was not exercisable by either Mr. Cusimano or Mr. Zaharna during the
fiscal year.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth all compensation received for services
rendered to the Company in all capacities for each of the three executive
officers of the Company (collectively, the "Named Officers") for the fiscal
years ended March 31, 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM COMPENSATION AWARDS
COMPENSATION --------------------------------
------------------ RESTRICTED NUMBER OF SHARES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK AWARD UNDERLYING OPTIONS
- ------------------------------------- ----- -------- ------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Kenneth P. Ostrow,................... 1997 $230,230 $ 0 -- 15,000
President & Chief Executive Officer 1996 $224,700 $83,590(1) -- 15,000
1995 $213,400 $85,860 -- 15,000
Robert M. Gorski,.................... 1997 $153,034 $ 0 -- 15,000
Vice President, Finance, Chief 1996 $147,210 $36,506(1) -- 15,000
Financial Officer & Secretary 1995 $147,210 $46,598 -- 15,000
John F. Lynch III,................... 1997 $139,749 $ 0 -- 15,000
Vice President, Operations......... 1996 $136,005 $41,345(1) -- 15,000
1995 $135,381 $30,350 -- 15,000
</TABLE>
- ---------------
(1) Earned in fiscal 1996 but paid in fiscal 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
options granted to each of the Named Officers during the fiscal year ended March
31, 1997. In accordance with the rules of the SEC, also shown below is the
potential realizable value over the term of the option (the period from the
grant date to the expiration date) based on assumed rates of stock appreciation
of 5% and 10%, compounded annually. These amounts are based on certain assumed
rates of appreciation and do not represent the Company's estimate of future
stock price. Actual gains, if any, on stock option exercises will be dependent
on the future performance of the Common Stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
-------------------------------------------------------------- STOCK
% OF TOTAL PRICE APPRECIATION
NUMBER OF SHARES OPTIONS GRANTED EXERCISE FOR OPTION TERM
UNDERLYING TO EMPLOYEES IN PRICE EXPIRATION -------------------
NAME OPTIONS GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
- ----------------------- ---------------- ---------------- ---------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Kenneth P. Ostrow...... 15,000(1) 17.7% $ 2.00 10/16/06 $18,867 $47,812
Robert M. Gorski....... 15,000(1) 17.7% 2.00 10/16/06 18,867 47,812
John F. Lynch III...... 15,000(1) 17.7% 2.00 10/16/06 18,867 47,812
</TABLE>
- ---------------
(1) Options granted under the Company's 1995 Incentive Stock Option Plan
typically have a 10-year term, vest over a four-year period of employment
and have an exercise price equal to market value on the date of grant.
<PAGE> 3
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to option exercises
in fiscal 1997 by the Named Officers and the value of such officers' unexercised
options at March 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR-END(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth P. Ostrow............ 0 0 351,250 33,750 $ 306,875 $ 9,375
Robert M. Gorski............. 0 0 141,250 33,750 $ 90,624 $ 0
John F. Lynch III............ 0 0 96,250 33,750 $ 63,438 $ 0
</TABLE>
- ---------------
(1) Market value of underlying securities on the exercise date, minus the
exercise price.
(2) Value is based on the last reported sale price of the Company's Common Stock
on the Nasdaq National Market System of $1.4375 per share on March 31, 1997
(the last trading day for fiscal 1997), minus the exercise price.
SEVERANCE AGREEMENTS
The Company has entered into severance agreements (a Senior Plan and a
General Plan) with its officers pursuant to which they may become entitled to
certain special severance benefits in the event their employment is terminated
in connection with certain changes in control of the Company. The Senior Plan is
applicable to Mr. Ostrow and the General Plan is applicable to Mr. Gorski and
Mr. Lynch.
In the case of the Senior Plan:
(i) all outstanding options at the time held by the officer under the
Option Plan will immediately accelerate and become fully exercisable for all the
option shares.
(ii) the Company will make a cash lump sum payment to the officer in an
amount equal to 2.95 times the officer's average W-2 wages from the Company for
the immediately preceding calendar year in which the change in control occurs,
and
(iii) in the event of voluntary termination, an amount equal to 1.5 times
the officer's annual compensation.
In the case of the General Plan, the Company will make a lump sum payment
to the officer equal to the minimum of:
(i) six times one-twelfth of the officer's annualized compensation, or
(ii) one-twelfth of the officer's annualized compensation times the number
of years of continuous employment not to exceed nine.
A change in control is defined under each agreement to include (i) a
business combination which has been approved by the requisite vote of
shareholders, (ii) the acquisition of 30% or more of the Company's outstanding
voting stock, (iii) a change in the composition of the Impact Board as a result
of which fewer than a majority of Directors are Incumbent Directors who either
(a) have been Board members since the beginning of such period or (b) are
elected or nominated for election to the Board with the affirmative votes of at
least a majority of the Incumbent Directors at the time of such election or
nomination.
Involuntary termination is defined in each severance agreement as the
officer's discharge (other than for cause) or other termination of employment,
whether voluntary or involuntary, following a 15% or more
<PAGE> 4
reduction in the officer's compensation or level of responsibilities or a change
in the officer's job location without his or her consent. Termination for cause
includes any involuntary termination triggered by the officer's intentional
misconduct.
CERTAIN TRANSACTION -- WORKING AGREEMENT
In fiscal 1993, the Company entered into an agreement with Elsag Bailey,
Inc. ("Bailey") which serves as the framework for cross-OEM agreements with
Bailey, a wholly-owned subsidiary of Elsag International N.V. ("Elsag
International"), the Company's largest shareholder. Elsag Bailey Process
Automation N.V. ("EBPA") which ultimately owns and controls both Elsag
International and Bailey, owns 22.9% of the Company's outstanding common shares
at March 31, 1997. The cross-OEM agreement covers both hardware and software.
Impact OEM's the Unity(TM) Distributed Control System and related software from
Bailey; Bailey OEM's Impact's complete line of cross-direction actuators and
related software, drying systems, and the "Advantage Plus(TM)" line of scanners
and sensors, which is specifically designed for Distributed Control Systems
(DCS).
During fiscal 1997, the Company recorded revenue of approximately
$2,568,000 on sales to Bailey and Elsag Bailey (Canada) Inc. ("Bailey Canada"),
both of which are subsidiaries to Elsag International. During fiscal 1996, the
Company recorded revenue of $300,000 to Bailey. There were no sales during
fiscal 1995 to Bailey or its affiliates.
For fiscal years ended 1995, 1996 and 1997, the Company purchased $190,000,
$213,000, and $540,000, respectively, in hardware and software from Bailey or
Bailey Canada.
At March 31, 1996 the Company had a net outstanding receivable of $441,000
from Elsag Bailey and Bailey Canada, and a liability of $42,000 in customer
deposits received from an Elsag International subsidiary in Europe. At March 31,
1997 the Company had a net outstanding receivable of $13,000 from Bailey.
<PAGE> 1
EXHIBIT 14
Form
of
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of this day of
, 198 by and between Impact Systems, Inc., a California corporation
(the "Company"), and ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the increasing difficulty in
obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited;
WHEREAS, Indemnitee does not regard the current protection available
as adequate under the present circumstances, and Indemnitee and other officers
and directors of the Company may not be willing to continue to serve as
officers and directors without additional protection; and
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as officers and directors
of the Company and to indemnify its officers and directors so as to provide
them with the maximum protection permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Third Party Proceedings. The Company shall indemnify Indemnitee
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company) by reason of the fact that Indemnitee is or was a director, officer,
employee or agent of the Company, or any subsidiary of the Company, by reason of
any action or inaction on the part of Indemnitee while an officer or director or
by reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) actually and reasonably incurred by Indemnitee in
connection with such action or proceeding if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any action or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that (i) Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in the best interests of the Company, or
(ii) with respect to any criminal action or proceeding, Indemnitee had
reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts
<PAGE> 2
paid in settlement, in each case to the extent actually and reasonably incurred
by Indemnitee in connection with the defense or settlement of such action or
proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the best interests of the Company and its
shareholders, except that no indemnification shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company in the performance of Indemnitee's duty to the Company
and its shareholders unless and only to the extent that the court in which such
action or proceeding is or was pending shall determine upon application that,
in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for expenses and then only to the extent that
the court shall determine.
2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action or proceeding referenced in Section
1(a) or (b) hereof (but not amounts actually paid in settlement of any such
action or proceeding). Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined
that Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advances to be made hereunder shall be paid by the Company to
Indemnitee within twenty (20) days following deliver of a written request
therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
precedent to his right to be indemnified under this Agreement, give the Company
notice in writing as soon as practicable of any claim made against Indemnitee
for which indemnification will or could be sought under this Agreement. Notice
to the Company shall be directed to the Chief Executive Officer of the Company
at the address shown on the signature page of this Agreement (or such other
address as the Company shall designate in writing to the Indemnitee). Notice
shall be deemed received three business days after the date postmarked if sent
by domestic certified or registered mail, properly addressed; otherwise notice
shall be deemed received when such notice shall actually be received by the
Company. In addition, Indemnitiee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) Procedure. Any indemnification provided for in Section 1 shall be made
no later than forty-five (45) days after receipt of the written request of
Indemnitee. If a claim under this Agreement, under any statute, or under any
provision of the Company's Articles of Incorporation or By-laws providing for
indemnification, is not paid in full by the Company within forty-five (45) days
after a written request for payment thereof has first been received by the
Company, Indemnitee may, but need not, at any time thereafter bring an action
against the Company to recover the unpaid amount of the claim and, subject to
Section 12 of this Agreement, Indemnitee shall also be entitled to be paid for
the expenses (including attorneys' fees) of bringing such action. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in connection with any action or proceeding in advance of its
final disposition) that Indemnitee has not met the standards of conduct which
make it permissible under applicable law for the Company to indemnify
Indemnitee for the amount claimed, but the burden of proving such defense shall
be on the Company, and Indemnitee shall be entitled to receive interim payment
of expenses pursuant to Subsection 2(a) unless and until such defenses may be
finally adjudicated by court order or judgment from which no further right of
appeal exists. It is the parties' intention that if the Company contests
Indemnitee's right to indemnification, the question of Indemnitee's right to
indemnification shall be for the court to decide, and neither the failure of
the Company (including its Board of Directors, any committee or subgroup of the
Board of Directors, independent legal counsel, or its shareholders) to have
made a determination that indemnification of Indemnitee is proper in the
circumstances because Indemnitee has met the applicable standard of conduct
required by applicable law, nor an actual determination by the
2
<PAGE> 3
Company (including its Board of Directors, any committee or sub-group of
the Board of Directors, independent legal counsel, or its shareholders)
that Indemnitee has not met such applicable standard of conduct, shall
create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of
a claim pursuant to Section 2(b) hereof, the Company has director and
officer liability insurance in effect, the Company shall give prompt notice
of the commencement of such proceeding to the insurers in accordance with
the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to
pay, on behalf of the Indemnitee, all amounts payable as a result of such
proceeding in accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
under Section 2(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, which
approval shall not be unreasonably withheld, upon the delivery to
Indemnitee of written notice of its election so to do. After delivery of
such notice, approval of such counsel by Indemnitee and the retention of
such counsel by the Company, the Company will not be liable to Indemnitee
under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided that (i)
Indemnitee shall have the right to employ his counsel in any such
proceeding at Indemnitee's expense; and (ii) if (A) the employment of
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such
defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
3. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. Notwithstanding any other provision of this Agreement, the
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the
Company's Articles of Incorporation, the Company's By-laws or by statute.
In the event of any change, after the date of this Agreement, in any
applicable law, statute or rule which expands the right of a California
corporation to indemnify a member of its board of directors or an officer,
such changes shall be, ipso facto, within the purview of Indemnitee's
rights and Company's obligations, under this Agreement. In the event of any
change in any applicable law, statute or rule which narrows the right of a
California corporation to indemnify a member of its Board of Directors or
an officer, such changes, to the extent not otherwise required by such law,
statute or rule to be applied to this Agreement shall have no effect on
this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be
entitled under the Company's Articles of Incorporation, its By-laws, any
agreement, any vote of shareholders or disinterested directors, the
California General Corporation Law, or otherwise, both as to action in
Indemnitee's official capacity and as to action in another capacity while
holding such office. The indemnification provided under this Agreement
shall continue as to Indemnitee for any action taken or not taken while
serving in an indemnified capacity even though he may have ceased to serve
in such capacity at the time of any action or other covered proceeding.
4. Partial Indemnification. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred by him
in the investigation, defense, appeal or settlement of any civil or criminal
action or proceeding, but not, however, for the total amount thereof, the
Company shall
3
<PAGE> 4
nevertheless indemnify Indemnitee for the portion of such expenses, judgments,
fines or penalties to which Indemnitees is entitled.
5. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may
prohibit the Company from indemnifying its directors and officers under this
Agreement or otherwise. Indemnitee understands and acknowledges that the
Company has undertaken or may be required in the future to undertake with the
Securities and Exchange Commission to submit the question of indemnification to
a court in certain circumstances for a determination of the Company's right
under public policy to indemnify Indemnitee.
6. Directors' and Officers' Liability Insurance. The Company shall,
from time to time, make the good faith determination whether or not it is
practicable for the Company to obtain and maintain a policy or policies of
insurance with reputable insurance companies providing the officers and
directors of the Company with coverage for losses from wrongful acts, or to
ensure the Company's performance of its indemnification obligations under this
Agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. In all policies of directors' and officers' liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if Indemnitee is not an officer or
director but is a key employee. Notwithstanding the foregoing, the Company
shall have no obligation to obtain or maintain such insurance if the Company
determines in good faith that such insurance is not reasonably available, if
the premium costs for such insurance are disproportionate to the amount of
coverage provided, if the coverage provided by such insurance is limited by
exclusions so as to provide an insufficient benefit, or if Indemnitee is
covered by similar insurance maintained by a subsidiary or parent of the
Company.
7. Severability. Nothing in this Agreement is intended to require or shall
be construed as requiring the Company to do or fail to do any act in violation
of applicable law. The Company's inability, pursuant to court order, to perform
its obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable as provided in
this Section 7. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any
applicable portion of this Agreement that shall not have been invalidated, and
the balance of this Agreement not so invalidated shall be enforceable in
accordance with its terms.
8. Exceptions. Any other provision herein to the contrary notwithstanding,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Acts. To indemnify Indemnitee for any acts or omissions
or transactions from which a director may not be relieved of liability
under the California General Corporation Law.
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification
under this Agreement or any other statute or law or otherwise as required
under Section 317 of the California General Corporation Law, but such
indemnification or advancement of expenses may be provided by the Company
in specific cases if the Board of Directors has approved the initiation or
bringing of such suit; or
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous;
or
(d) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties, and
4
<PAGE> 5
amounts paid in settlement) which have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company; or
(c) Claims Under Section 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of
1934, as amended, or any similar successor statute.
9. Effectiveness of Agreement. To the extent that the indemnification
permitted under the terms of certain provisions of this Agreement exceeds the
scope of the indemnification provided for in the California General Corporation
Law, such provisions shall not be effective unless and until the Company's
Articles of Incorporation authorize such additional rights of indemnification.
In all other respects, the balance of this Agreement shall be effective as of
the date set forth on the first page and may apply to acts or omissions of
Indemnitee which occurred prior to such date if Indemnitee was an officer,
director, employee or other agent of the Company, or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, at the time such act or
omission occurred.
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that if Indemnitee is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, Indemnitee
shall stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as Indemnitee would have with
respect to such constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants,
or beneficiaries.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms
hereof, Indemnitee shall be entitled to be paid all court costs and expenses,
including reasonable attorneys' fees, incurred by Indemnitee with respect to
such action, unless as a part of such action, a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee as a basis
for such action were not made in good faith or were frivolous. In the event of
an action instituted by or in the name of the Company under this Agreement or
to enforce or interpret any of the terms of this Agreement, Indemnitee shall be
entitled to be paid all court costs and expenses, including attorneys' fees,
incurred by Indemnitee in defense of such action (including with respect to
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action the court determines that each of Indemnitee's material
defenses to such action were made in bad faith or were frivolous.
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<PAGE> 6
14. Notice. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and received by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this
Agreement, or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitees each hereby
irrevocably consent to the jurisdiction of the courts of the State of
California for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be brought only in the state courts of the State of
California.
16. Choice of Law. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of California as
applied to contracts between California residents entered into and to be
performed entirely within California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
IMPACT SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
Address: 1075 East Brokaw Road
San Jose, CA 95131
AGREED TO AND ACCEPTED:
INDEMNITEE:
- ----------------------------
(type name)
- ----------------------------
(signature)
Address
---------------------
---------------------
6
