<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1999
REGISTRATION NO. 333-_____
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OAK TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3674 77-0161486
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
139 KIFER COURT
SUNNYVALE, CALIFORNIA 94086
(408) 737-0888
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT O. HERSH
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
OAK TECHNOLOGY
139 KIFER COURT
SUNNYVALE, CALIFORNIA 94086
(408) 737-0888
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
ERIC SIMONSON, ESQ. STEPHEN H. FABERMAN, ESQ.
BROBECK, PHLEGER & HARRISON L.L.P. BINGHAM DANA LLP
1633 BROADWAY 150 FEDERAL STREET
47TH FLOOR BOSTON, MASSACHUSETTS 02109
NEW YORK, NEW YORK 10019 TELEPHONE: (617) 951-8000
TELEPHONE: (212) 581-1600 FACSIMILE: (617) 951-8736
FACSIMILE: (212) 586-7878
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At the
effective time of the merger of Xionics Document Technologies, Inc. ("Xionics")
with and into a wholly owned subsidiary of the Registrant, which shall occur as
soon as practicable after the effective date of this Registration Statement and
the satisfaction or waiver of all conditions to the closing of such merger.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(3) FEE(4)
<S> <C> <C> <C> <C>
Common Stock, par value $0.001 per share.... 10,580,000 N/A $51,679,474.22 $13,643.38
</TABLE>
(1) Represents shares of common stock of the Registrant to be issued in
connection with the merger in exchange for shares of the common stock of
Xionics.
(2) Not Applicable.
(3) Computed pursuant to Rule 457(f)(1), based upon the market value of the
securities to be canceled in the merger, consisting of approximately
11,777,187 shares of Xionics common stock at an average of the high and low
prices for such common stock as reported on the Nasdaq National Market on
December 8, 1999, which was $7.3281 per share, less $2.94 per share in cash
consideration to be paid by Oak in the merger.
(4) In accordance with Rule 457(b), the registration fee required to be paid
herewith has been satisfied by the payment of the $15,923.25 previously paid
in connection with the Registrant's preliminary proxy statement filed with
the Commission on Schedule 14A on September 27, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
December 10, 1999
Dear Oak Technology, Inc. ("Oak") Stockholders:
I am writing to you today about our proposed merger with Xionics Document
Technologies, Inc. ("Xionics"). This merger will create a combined company that
will be one of the leading suppliers of imaging processors and embedded software
for the digital office.
In the merger, each share of Xionics common stock outstanding will be
exchanged for 0.8031 shares of the common stock of Oak, plus $2.94 in cash. We
expect to issue approximately 10,580,000 shares of our common stock in
connection with the merger.
You will be asked to vote upon the issuance of shares of Oak common stock to
Xionics stockholders in connection with the merger at Oak's 1999 annual meeting.
In addition, as part of Oak's annual meeting, you will be voting whether or not
to approve an amendment to Oak's restated certificate of incorporation to
increase Oak's authorized shares of common stock, to elect two directors to
Oak's board of directors and to ratify the appointment of KPMG LLP as Oak's
independent public accountants.
We are very excited by the opportunities we envision for the combined
company. Your board of directors has determined that the terms and conditions of
the merger are advisable and in the best interests of Oak and you, and
unanimously recommends that you approve the issuance of the shares of Oak common
stock in connection with the merger. Your board of directors also unanimously
recommends that you vote to approve the other proposals before you.
The accompanying joint proxy statement/prospectus provides detailed
information about the two companies, the merger, the charter amendment, the
director election and the KPMG ratification. Please give all of this information
your careful attention. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE
DISCUSSION IN THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 4 OF THE
JOINT PROXY STATEMENT/ PROSPECTUS.
Your vote is very important regardless of the number of shares you own. To
vote your shares, you may use the enclosed proxy card, grant your proxy by
telephone or the Internet or attend the annual meeting. To approve the issuance
of shares of Oak common stock pursuant to the merger agreement, you MUST vote
"FOR" the proposal by following the instructions stated on the enclosed proxy
card. If you do not vote at all, it will, in effect, count as a vote against the
share issuance. We urge you to vote FOR this proposal, a necessary step in the
merger of Oak and Xionics.
Sincerely,
[sig]
Young K. Sohn
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION OR THE SECURITIES OF
OAK TO BE ISSUED IN THE MERGER, OR DETERMINED IF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated December 10, 1999, and was
first mailed to Oak stockholders on or about December __, 1999.
<PAGE>
OAK TECHNOLOGY, INC.
139 KIFER COURT
SUNNYVALE, CALIFORNIA 94086
(408) 737-0888
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 11, 2000
We will hold the 1999 annual meeting of stockholders of Oak Technology, Inc.
at 9:00 a.m., local time, on Tuesday, January 11, 2000 at the Santa Clara
Marriott Hotel, 2700 Mission College Boulevard, Santa Clara, California to
consider the following proposals:
1. To approve the issuance of shares of common stock, par value $0.001 per
share, of Oak pursuant to a merger agreement by and among Oak, Xionics Document
Technologies, Inc. and Vermont Acquisition Corp., a wholly owned subsidiary of
Oak, under which Xionics will become a wholly owned subsidiary of Oak;
2. To approve an amendment to Oak's restated certificate of incorporation
to authorize an additional 70,000,000 shares of common stock, par value $0.001
per share;
3. To elect two Class II directors to hold office for a three-year term or
until their successors are elected and qualified;
4. To ratify the appointment of KPMG LLP as Oak's independent public
accountants for the fiscal year ending June 30, 2000; and
5. To transact any other business as may properly come before the annual
meeting or any adjournment or postponement of the annual meeting.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE ISSUANCE OF SHARES OF OAK
COMMON STOCK IS ADVISABLE AND IN THE BEST INTERESTS OF OAK AND YOU, AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE THIS ISSUANCE OF OAK COMMON
STOCK. YOUR BOARD OF DIRECTORS ALSO UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO
APPROVE THE OTHER PROPOSALS BEFORE YOU. IN PARTICULAR, THE AMENDMENT TO OAK'S
RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF
COMMON STOCK IS NECESSARY TO EFFECTUATE THE ISSUANCE OF SHARES IN THE MERGER.
We describe the merger and other proposals more fully in the accompanying
joint proxy statement/ prospectus, which we urge you to read.
Only Oak stockholders of record at the close of business on December 6, 1999
are entitled to notice of and to vote at the annual meeting or any adjournment
or postponement.
YOUR VOTE IS IMPORTANT. TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE
ANNUAL MEETING, YOU ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
MAIL IT PROMPTLY IN THE POSTAGE-PAID ENVELOPE PROVIDED, OR CALL THE TOLL-FREE
TELEPHONE NUMBER OR USE THE INTERNET BY FOLLOWING THE INSTRUCTIONS INCLUDED WITH
YOUR PROXY CARD, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON.
YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT
PROXY STATEMENT/PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN VOTED AT THE ANNUAL
MEETING. YOU MAY VOTE IN PERSON AT THE ANNUAL MEETING EVEN IF YOU HAVE RETURNED
A PROXY.
BY ORDER OF THE BOARD OF DIRECTORS
[sig]
Shawn M. Soderberg
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
<PAGE>
[LOGO]
December 10, 1999
Dear Xionics Document Technologies, Inc. ("Xionics") Stockholders:
I am writing to you today about our proposed merger with Oak Technology,
Inc. This merger will create a combined company that will be one of the leading
suppliers of imaging processors and embedded software for the digital office.
In the merger, each share of Xionics common stock will be exchanged for
0.8031 shares of Oak common stock and $2.94 in cash. Oak expects to issue
approximately 10,580,000 shares of its common stock in the merger. Upon
completion of the merger, Xionics stockholders will own approximately 20% of
Oak's outstanding common stock. Oak common stock is traded on the Nasdaq
National Market under the trading symbol "OAKT," and closed at $6.1875 per share
on December 8, 1999. You will be asked to vote on the merger at a special
meeting of Xionics stockholders.
We are very excited by the opportunities we envision for the combined
company. Your board of directors has determined that the terms and conditions of
the merger are advisable and in the best interests of Xionics and you, and
unanimously recommends that you approve the merger agreement and the merger.
Your board of directors has obtained an opinion from its independent financial
advisor, Adams, Harkness & Hill, Inc., to the effect that the consideration to
be received by you in the merger is fair to you from a financial point of view.
The accompanying joint proxy statement/prospectus provides detailed
information about Oak, Xionics and the merger. Please give all of this
information your careful attention. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER
THE DISCUSSION IN THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 4 OF THE
JOINT PROXY STATEMENT/PROSPECTUS.
Your vote is very important regardless of the number of shares you own. To
vote your shares, you may use the enclosed proxy card, grant your proxy by
telephone or the Internet, if you are permitted to do so, or attend the special
meeting. To approve the merger agreement, you MUST vote "FOR" the proposal by
following the instructions stated on the enclosed proxy card. If you do not vote
at all, it will, in effect, count as a vote against the merger. We urge you to
vote FOR this proposal, a necessary step in the merger of Xionics and Oak.
Sincerely,
[sig]
Peter J. Simone
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION OR THE SECURITIES OF
OAK TO BE ISSUED IN THE MERGER, OR DETERMINED IF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated December 10, 1999, and was
first mailed to Xionics stockholders on or about December __, 1999.
<PAGE>
XIONICS DOCUMENT TECHNOLOGIES, INC.
70 BLANCHARD ROAD
BURLINGTON, MASSACHUSETTS 01803
(781) 229-7000
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 11, 2000
We will hold a special meeting of stockholders of Xionics Document
Technologies, Inc. at 12:00 p.m., local time, on Tuesday, January 11, 2000 at
Xionics' offices at 70 Blanchard Road, Burlington, Massachusetts 01803:
1. To consider and vote upon a proposal to approve and adopt the merger
agreement among Oak Technology, Inc., Xionics and Vermont Acquisition Corp., a
wholly owned subsidiary of Oak, under which Xionics will become a wholly owned
subsidiary of Oak, and each outstanding share of Xionics common stock will be
converted into the right to receive 0.8031 shares of Oak common stock and $2.94
in cash; and
2. To transact any other business as may properly come before the special
meeting or any adjournment or postponement of the special meeting.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS ADVISABLE AND IN
THE BEST INTERESTS OF XIONICS AND YOU, AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
TO APPROVE THE MERGER AGREEMENT AND THE MERGER.
We describe the merger more fully in the accompanying joint proxy
statement/prospectus, which we urge you to read.
Only Xionics stockholders of record at the close of business on November 24,
1999 are entitled to notice of and to vote at the special meeting or any
adjournment or postponement.
UNDER DELAWARE LAW, IF YOU DO NOT VOTE IN FAVOR OF THE MERGER, YOU MAY HAVE
A RIGHT TO AN APPRAISAL OF THE VALUE OF YOUR XIONICS STOCK AND RECEIVE CASH IN
EXCHANGE FOR YOUR SHARES. THESE RIGHTS ARE MORE FULLY DESCRIBED ON PAGE 56 OF
THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS.
YOUR VOTE IS IMPORTANT. TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE
SPECIAL MEETING, YOU ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
MAIL IT PROMPTLY IN THE POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING IN PERSON. YOU MAY REVOKE YOUR PROXY IN THE MANNER
DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AT ANY TIME
BEFORE IT HAS BEEN VOTED AT THE SPECIAL MEETING. YOU MAY VOTE IN PERSON AT THE
SPECIAL MEETING EVEN IF YOU HAVE RETURNED A PROXY.
BY ORDER OF THE BOARD OF DIRECTORS
[sig]
Robert L. Lentz
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND SECRETARY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
JOINT PROXY STATEMENT/PROSPECTUS SUMMARY................................................................... 1
The Companies............................................................................................ 1
The Merger............................................................................................... 1
Xionics' Reasons for the Merger; Recommendation of Xionics' Board........................................ 2
Xionics' board of directors recommends that Xionics' stockholders vote for approval of the merger........ 3
Opinion of Financial Advisor to Xionics.................................................................. 3
Interests of Certain Persons in the Merger............................................................... 3
Termination Fee and Expenses............................................................................. 3
No Solicitation.......................................................................................... 3
Anticipated Accounting Treatment......................................................................... 3
Forward-Looking Statements May Prove Inaccurate.......................................................... 3
RISK FACTORS............................................................................................... 4
Risks Related to the Merger.............................................................................. 4
Risks Related to Oak..................................................................................... 6
Risks Related to Xionics................................................................................. 14
Risks Related To The Combined Company.................................................................... 16
FORWARD-LOOKING STATEMENTS................................................................................. 19
TRADEMARKS................................................................................................. 19
OAK SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA........................................................ 20
XIONICS SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA.................................................... 21
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA............................................. 22
COMPARATIVE PER SHARE DATA................................................................................. 23
MARKET PRICE AND DIVIDEND INFORMATION...................................................................... 25
Recent Share Prices...................................................................................... 26
Dividend Information..................................................................................... 26
Number of Stockholders................................................................................... 26
THE XIONICS SPECIAL MEETING................................................................................ 27
Date, Time and Place of the Xionics Special Meeting...................................................... 27
Matters to Be Considered at the Xionics Special Meeting.................................................. 27
Record Date for Voting on the Merger; Stockholders Entitled to Vote...................................... 27
Voting and Revocation of Proxies......................................................................... 27
Stockholder Vote Is Required to Approve the Merger....................................................... 27
Board Recommendation..................................................................................... 28
THE OAK ANNUAL MEETING..................................................................................... 29
Date, Time and Place of the Oak Annual Meeting........................................................... 29
Matters to Be Considered at the Oak Annual Meeting....................................................... 29
Record Date for Voting on the Share Issuance Stockholders Entitled to Vote............................... 29
Voting and Revocation of Proxies......................................................................... 29
Stockholder Vote Is Required to Approve the Share Issuance............................................... 30
Board Recommendation..................................................................................... 30
THE MERGER................................................................................................. 31
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
General.................................................................................................. 31
Background of the Merger................................................................................. 31
Reasons for the Merger................................................................................... 38
Oak's Reasons for the Merger........................................................................... 38
Xionics' Reasons for the Merger........................................................................ 41
Opinion of Adams, Harkness & Hill, Inc., Financial Advisor to Xionics.................................... 44
Public Company Peers Analysis--Xionics................................................................. 45
Public Company Comparables Analysis--Oak............................................................... 47
Transaction Premiums Paid Analysis..................................................................... 48
Stock Performance Analysis............................................................................. 50
Return on Assets Analysis.............................................................................. 50
Break-up analysis of Oak............................................................................... 51
Summary of Valuation Analyses.......................................................................... 51
Interests of Certain Persons in the Merger............................................................. 52
Stock Options Accelerated upon Termination of Employment Following Merger.............................. 53
Indemnification Arrangements............................................................................. 53
Governmental and Regulatory Matters...................................................................... 54
Federal Income Tax Considerations........................................................................ 54
Accounting Treatment..................................................................................... 56
Appraisal Rights......................................................................................... 56
Delisting and Deregistration of Xionics Common Stock..................................................... 57
Listing of Oak Common Stock to Be Issued in the Merger................................................... 57
Restriction on Resales of Oak Common Stock............................................................... 57
THE MERGER AGREEMENT....................................................................................... 58
The Merger............................................................................................... 58
The Effective Time....................................................................................... 58
Directors and Officers of Xionics after the Merger....................................................... 58
Conversion of Shares in the Merger....................................................................... 58
Xionics Stock Option and Stock Purchase Plans............................................................ 58
Employee Benefits........................................................................................ 59
The Exchange Agent....................................................................................... 60
Procedures for Exchanging Stock Certificates............................................................. 60
Distributions with Respect to Unexchanged Shares......................................................... 61
No Fractional Shares..................................................................................... 61
Representations and Warranties........................................................................... 61
Conduct of Business of Xionics Pending the Merger........................................................ 62
No Solicitation.......................................................................................... 63
Director and Officer Indemnification..................................................................... 64
Conditions to the Merger................................................................................. 64
Termination.............................................................................................. 66
Termination Fee and Expenses............................................................................. 66
Amendment Waiver......................................................................................... 67
STOCKHOLDER AGREEMENTS..................................................................................... 68
Stockholder Agreements................................................................................... 68
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS................................................ 69
COMPARISON OF RIGHTS OF SHAREHOLDERS OF OAK AND STOCKHOLDERS OF XIONICS.................................... 75
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INFORMATION REGARDING OAK.................................................................................. 77
INFORMATION REGARDING XIONICS.............................................................................. 79
ELECTION OF OAK DIRECTORS.................................................................................. 83
Directors................................................................................................ 84
Board Meetings And Committees.......................................................................... 85
Director Compensation.................................................................................. 85
OAK STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS............................................ 98
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS.............................................. 99
FUTURE STOCKHOLDER PROPOSALS............................................................................... 100
EXPERTS.................................................................................................... 100
LEGAL MATTERS.............................................................................................. 100
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 100
</TABLE>
APPENDIX A--Agreement and Plan of Merger and Reorganization
APPENDIX B--Opinion of Adams, Harkness & Hill, Inc.
APPENDIX C--Delaware General Corporation Law (Section 262--Appraisal Rights)
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING THE MERGER? HOW WILL I BENEFIT?
A: By combining Oak's hardware and systems expertise in the digital
office market with Xionics' software and systems expertise in embedded software
for the digital office market, the combined company will be able to provide its
customers with a complete solution and thereby gain a larger share of the
products outsourced by the combined company's original equipment manufacturer
customers. In addition, the combined company will have the resources and
technology necessary to position itself as a leading supplier to the digital
office market.
Further, Oak's imaging group and Xionics have maintained a strong working
relationship during the last five years while cross-licensing each other's
intellectual property. They are also in close proximity to each other. This
familiarity, experience and physical proximity should permit a relatively smooth
post-merger integration of the two companies. Accordingly, the merger will make
the combined company a leading supplier of imaging processors and embedded
software for the digital office and offer the customers of the two companies one
of the industry's most integrated and flexible solutions.
Overall, both Oak and Xionics believe that the merger will provide added
value to all of their respective stockholders. However, both Oak and Xionics
note that their goals in the merger are subject to the risks discussed in this
joint proxy statement/prospectus in the section labeled "Risk Factors".
Q: I AM A XIONICS STOCKHOLDER. PLEASE EXPLAIN WHAT I WILL RECEIVE IN THE
MERGER.
A: In the merger, Xionics stockholders will receive $2.94 in cash and
0.8031 shares of Oak common stock for each share of Xionics common stock owned.
For example, if a Xionics stockholder owns 100 shares of Xionics common stock,
that stockholder will receive $294 in cash and 80 shares of Oak common stock in
exchange for their Xionics stock plus an additional cash amount in consideration
for the fractional share.
Oak will not issue fractional shares of common stock. Instead of any
fractional share, Xionics stockholders will receive cash based on the market
price of Oak common stock determined at the time of completion of the merger
(that is, at the effective time as defined in the merger agreement).
The number of shares of Oak common stock to be issued for each share of
Xionics common stock is fixed and will not be adjusted based upon changes in the
value of Oak common stock. As a result, the value of the Oak common stock to be
received in the merger will not be determined at the time stockholders vote on
the merger and will fluctuate up or down as the market price of Oak common stock
fluctuates up or down. The following table reflects the value of the Oak common
stock and cash that stockholders will receive, per share of Xionics common
stock, for various market prices of Oak common stock. The values shown are
purely hypothetical, and the actual market price and the
iv
<PAGE>
corresponding value of the Oak common stock and cash that may be received in the
merger may be more or less than the range of values shown in the table.
<TABLE>
<CAPTION>
MERGER VALUE PER SHARE OF
XIONICS COMMON STOCK
($2.94 PER SHARE PLUS 0.8031 SHARES
MARKET PRICE OF OF
OAK COMMON STOCK OAK COMMON STOCK)
- --------------------- -----------------------------------
<S> <C>
$ 3.00 $ 5.35
4.00 6.15
5.00 6.96
6.00 7.76
7.00 8.56
8.00 9.36
9.00 10.17
</TABLE>
On December 8, 1999, the closing sale price per share of Oak common stock on
The Nasdaq National Market was $6.1875. Neither party will be permitted to
terminate the merger agreement based solely on changes in the value of Oak
common stock prior to the closing of the transaction.
Q: I AM A XIONICS STOCKHOLDER. PLEASE EXPLAIN THE FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER TO ME.
A: Oak and Xionics expect that the merger will qualify as a
reorganization for federal income tax purposes. If the merger qualifies as a
reorganization, Xionics' stockholders will not recognize any gain or loss for
federal income tax purposes upon the exchange of their Xionics common stock for
Oak common stock, although they will recognize gain with respect to the cash
portion of the exchange and any cash received in lieu of a fractional share of
Oak common stock.
Q: WHAT ARE MY RIGHTS IF I DO NOT WANT TO PARTICIPATE IN THE MERGER?
A: Under Delaware law, if a Xionics stockholder does not vote in favor of
the merger, he or she may (a) have a right to an appraisal of the value of
Xionics common stock in connection with the merger and (b) receive cash in
exchange for his or her shares of Xionics common stock. Oak stockholders do not
have any appraisal rights in connection with the merger.
Q: WHAT MUST THE STOCKHOLDERS OF XIONICS AND OAK DO TO APPROVE THE MERGER AND
RELATED TRANSACTIONS?
A: The holders of a majority of the outstanding shares of Xionics common
stock must approve the merger. Xionics stockholders are entitled to cast one
vote per share of Xionics common stock held at the close of business on November
24, 1999. On that date, 11,777,187 shares of Xionics common stock were
outstanding and entitled to vote.
The holders of a majority of the outstanding shares of Oak common stock must
approve the share issuance in connection with the merger. Oak stockholders are
entitled to cast one vote per share of Oak common stock held at the close of
business on December 6, 1999. On that date, 40,881,445 shares of Oak common
stock were outstanding and entitled to vote.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working towards completing the merger as quickly as possible
and, if Xionics stockholders approve the merger, and Oak stockholders approve
the share issuance, we expect to complete the merger as soon as practicable
after completing both the Xionics special meeting and the Oak annual meeting.
v
<PAGE>
Q: I UNDERSTAND THAT XIONICS STOCKHOLDERS VOTE FOR OR AGAINST THE MERGER AT
THE XIONICS SPECIAL MEETING AND OAK STOCKHOLDERS VOTE FOR OR AGAINST THE SHARE
ISSUANCE AND THE OTHER PROPOSALS AT THE OAK ANNUAL MEETING. IF I AM NOT GOING
TO ATTEND MY COMPANY'S MEETING, SHOULD I RETURN MY PROXY CARD INSTEAD?
A: Yes. Just complete, sign and mail your proxy card in the enclosed
return envelope as soon as possible. Returning your proxy card ensures that your
shares will be represented at the appropriate meeting.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A: You should instruct your broker to vote your shares, following the
directions your broker provides. If you do not instruct your broker, your broker
will generally not have the discretion to vote your shares without your
instructions. Because the proposals before you require an affirmative vote of
shares for approval, these so-called "broker non-votes" have the same effect as
votes cast against the proposals.
Q: CAN I CHANGE MY VOTE AFTER I MAIL MY PROXY CARD?
A: Yes. You can change your vote at any time before we vote your proxy at
your meeting. You can do so in several ways:
- First, you can send a written notice to Xionics or Oak, as the case may
be, at the address listed below stating that you would like to revoke your
proxy.
- Second, you can complete a new proxy card and send it to the appropriate
address below, and the new proxy card will automatically replace any
earlier dated proxy card that you returned.
- Third, you can attend the Xionics special meeting or the Oak annual
meeting, as the case may be, and vote in person.
- Fourth, if you instructed a broker to vote your shares, follow your
broker's directions for changing those instructions.
You should send any notice of revocation to your company at the following
address:
<TABLE>
<CAPTION>
<S> <C>
Xionics Document Technologies, Inc. Oak Technology, Inc.
70 Blanchard Road 139 Kifer Court
Burlington, Massachusetts 01803 Sunnyvale, California 94086
Attn: Robert L. Lentz Attn: Shawn M. Soderberg
(781) 229-7000 (408) 737-0888
</TABLE>
Q: I AM A XIONICS STOCKHOLDER. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger closes, Oak will send Xionics stockholders
written instructions for exchanging their Xionics stock certificates for Oak
stock certificates and the cash portion of the merger consideration.
Q: I AM AN OAK STOCKHOLDER. DO I NEED TO SEND IN MY STOCK CERTIFICATES?
A: No. The merger affects Xionics stockholders only. Your stock
certificate will remain the same.
vi
<PAGE>
Q: WHO CAN ANSWER MY QUESTIONS?
A: You should contact:
<TABLE>
<CAPTION>
OAK XIONICS PROXY SOLICITOR
- ---------------------------- ------------------------------------- -----------------------------------------
<S> <C> <C>
Oak Technology, Inc. Xionics Document Technologies, Inc. Corporate Investor Communications, Inc.
139 Kifer Court 70 Blanchard Road 111 Commerce Road
Sunnyvale, California 94086 Burlington, Massachusetts 01803 Carlstadt, New Jersey 07072
Attn: Robert O. Hersh Attn: Robert L. Lentz Attn: James Gill or Charlotte Brown
(408) 737-0888 (781) 229-7000 (201) 896-1900
</TABLE>
vii
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS SUMMARY
The following summary highlights selected information from this joint proxy
statement/prospectus and may not contain all of the information that is
important to you. Even though we have highlighted what we feel is the most
important information for you in this summary and the preceding "Questions and
Answers About the Merger," Oak and Xionics encourage you to read this document
in its entirety for a complete understanding of the transaction.
THE COMPANIES (PAGES 77 AND 79)
OAK TECHNOLOGY, INC.
139 Kifer Court
Sunnyvale, California 94086
Attention: Investor Relations
(408) 737-0888
XIONICS DOCUMENT TECHNOLOGIES, INC.
70 Blanchard Road
Burlington, Massachusetts 01803
Attention: Investor Relations
(781) 229-7000
Oak designs, develops and markets high-performance, integrated
semiconductors and related software for the storage and distribution of digital
content. Oak's imaging group with its Pixel Magic brand of product is a leading
supplier of integrated semiconductors to the digital office market. Oak's
imaging group provides industry leading compression engines, imaging DSPs,
resolution enhancement processors and systems expertise to original equipment
manufacturers to help drive the performance and capabilities of today's most
advanced digital copiers, printers, fax scanners and multifunction peripherals.
Xionics is a provider of digital page processing software and technology for
the digital office market. Xionics also provides other types of embedded
software, such as device drivers, for copiers, fax scanners and multifunction
peripherals.
The combination of Oak with Xionics, with its embedded software portfolio
for the digital office market, complements Oak's integrated semiconductor
portfolio and systems expertise for the digital office market. The transaction
will provide the combined company with the technology base and expertise to
offer complete, fully integrated hardware and software solutions for the digital
office market. With the combination of Xionics and Oak's imaging group, the
combined company will have the ability to optimize an architecture, with
software, language, chips and controller boards, on which original equipment
manufacturers can quickly build high performance, digital office systems.
Xionics' corporate headquarters is based in Burlington, Massachusetts and Oak's
imaging group is based in Andover, Massachusetts, with Oak's corporate
headquarters based in Sunnyvale, California.
THE MERGER (PAGE 31)
Xionics and Oak have entered into a merger agreement which sets forth the
terms and conditions of the proposed combination of Xionics and Oak. The merger
agreement provides that if the merger and the share issuance are approved by
stockholders and all other conditions to the merger are satisfied or waived,
Xionics will merge with and into a subsidiary of Oak. As a stockholder of
Xionics, unless you dissent from the merger and pursue your appraisal rights,
you will become a stockholder of Oak following the merger.
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OAK'S REASON FOR THE MERGER; IDENTIFIED RISKS; RECOMMENDATION OF OAK'S BOARD OF
DIRECTORS (PAGE 38)
Oak's board of directors has determined that the terms of the merger are
fair to, and in the best interests of, Oak and its stockholders. In reaching its
decision, Oak's board of directors identified several potential benefits of the
merger, the most important of which included:
- the ability of the combined company to provide its customers with a
completely integrated software and hardware solution; and
- the ability of the combined company to expand its market opportunity by
having a broader technology base and a greater number of technical
engineers dedicated to developing solutions for the digital office market.
In reaching its decision, Oak's board of directors also identified several
potential negative factors associated with the merger, the most significant of
which included:
- one customer, Hewlett-Packard, accounted for over 60% of Xionics' fiscal
year 1999 revenues;
- the market for Xionics' products is dominated by a few major original
equipment manufacturers; and
- Xionics' embedded printer software competes directly against Adobe
Systems, Inc., which developed the industry-wide accepted PostScript page
description language and has acquired significant brand name image.
OAK'S BOARD OF DIRECTORS RECOMMENDS THAT OAK STOCKHOLDERS VOTE FOR APPROVAL
OF THE ISSUANCE OF OAK COMMON STOCK IN CONNECTION WITH THE MERGER AND THE
INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF OAK COMMON STOCK NECESSARY TO
COMPLETE THE MERGER.
XIONICS' REASONS FOR THE MERGER; IDENTIFIED RISKS; RECOMMENDATION OF XIONICS'
BOARD OF DIRECTORS (PAGE 41)
Xionics' board of directors has determined that the terms of the merger are
fair to, and in the best interests of, Xionics and its stockholders. In reaching
its decision, Xionics' board of directors identified several potential benefits
of the merger, the most important of which included:
- the premium to be paid by Oak and the relative interests of Oak and
Xionics' stockholders in the equity of the combined company;
- the strategic benefits of Xionics' combination with a leading supplier of
high performance, integrated semiconductors for imaging applications,
including the potential to offer a more complete and better-integrated
solution to its customers who are OEM manufacturers of office devices,
such as printers, copiers, scanners and fax machines; and
- the opportunity to participate in the potential growth of the combined
company following the merger.
In reaching its decision, Xionics' board of directors also identified
several potential negative factors associated with the merger, the most
important of which included:
- the risk that, despite the efforts of Oak and Xionics, key technical,
sales and management personnel might not remain employees of the combined
company following the close of the merger;
- the risk that potential benefits sought in the merger might not be fully
realized; and
- the risk to Xionics stockholders that the value to be received in the
merger could decline significantly from that determined as of the date of
the signing of the merger agreement due to the fixed exchange ratio used
in the merger.
2
<PAGE>
XIONICS' BOARD OF DIRECTORS RECOMMENDS THAT XIONICS' STOCKHOLDERS VOTE FOR
APPROVAL OF THE MERGER.
OPINION OF FINANCIAL ADVISOR TO XIONICS (PAGE 44 AND APPENDIX B)
In deciding to approve the merger, Xionics' board of directors considered
the opinion of Adams, Harkness & Hill, Inc., its independent financial advisor,
that, as of the date Oak and Xionics signed the merger agreement, the exchange
ratio was fair, from a financial point of view, to the holders of Xionics common
stock. The full text of the written opinion of Adams, Harkness & Hill, Inc.,
which sets forth assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached as APPENDIX B. You
are urged to read this opinion in its entirety.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 52)
In considering Xionics' board of directors' recommendation that Xionics
stockholders vote to approve the merger, stockholders should note that certain
officers and directors of Xionics have interests in the merger that are
different from, or in addition to, their interests as stockholders. These
interests relate to accelerated vesting of stock options, potential severance
payments and indemnification rights. The aggregate amount of these severance
payments is approximately $836,250. Furthermore, options to purchase 332,701
shares of Xionics common stock held by officers of Xionics will become
immediately exercisable in full as a result of the merger.
TERMINATION FEE AND EXPENSES (PAGE 66)
Oak and Xionics have each agreed, under certain limited circumstances, to
pay the other party a termination fee of $3.1 million in addition to reimbursing
the other party for its out-of-pocket expenses (up to $500,000) if the merger
agreement is terminated.
NO SOLICITATION (PAGE 63)
Xionics has agreed, except in certain limited circumstances, not to initiate
or engage in discussions with another party (other than Oak) regarding a
business combination with that party while the merger is pending.
ANTICIPATED ACCOUNTING TREATMENT (PAGE 56)
Oak will account for the merger under the purchase method of accounting,
which means that Oak will allocate the purchase price to the fair value of net
tangible assets acquired and to intangible assets, which includes goodwill.
Based on a preliminary allocation of the purchase price, Oak expects to allocate
approximately 25% of the purchase price to the fair value of net tangible assets
acquired, approximately 63% to the fair value of intangible assets, including
goodwill to be amortized by Oak over 3 to 5 years, and approximately 12% to
in-process research and development which will be expensed by Oak during the
quarter in which the merger is completed.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 19)
Each of Oak and Xionics has made forward-looking statements in this document
that are subject to risks and uncertainties. Forward-looking statements include
expectations concerning matters that are not historical facts. Words such as
"believes," "expects," "anticipates," or similar expressions, indicate
forward-looking statements. For more information regarding factors that could
cause actual results to differ from these expectations, you should refer to
"Risk Factors" beginning on page 4.
3
<PAGE>
RISK FACTORS
IN DECIDING WHETHER OR NOT TO VOTE IN FAVOR OF THE MERGER OR THE SHARE
ISSUANCE, YOU SHOULD CONSIDER THESE RISK FACTORS. THESE FACTORS SHOULD BE
CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION CONTAINED IN THIS JOINT
PROXY STATEMENT/PROSPECTUS, THE APPENDICES AND EXHIBITS ATTACHED TO THIS
DOCUMENT AND THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS.
If any of the following risks actually occur, the business, financial
condition or results of operations of either or both of Oak and Xionics could be
seriously harmed. In that case, the trading price of Oak common stock could
decline, and you may lose all or part of your investment.
RISKS RELATED TO THE MERGER
IF OAK AND XIONICS FAIL TO EFFECTIVELY INTEGRATE THEIR BUSINESSES, THE
COMBINED COMPANY MAY NOT REALIZE THE EXPECTED BENEFITS OF THE MERGER
In order to realize the benefits of the merger, Oak and Xionics will have to
effectively integrate their operations and their management, technical research
and development, sales and marketing, business development efforts and personnel
and also retain key personnel in this process. If they are not successful in
accomplishing this integration, then the objectives of the merger, including
improved operating results of the combined entity, will not be realized. A key
benefit of the merger is perceived to be Oak's opportunity to transition from
being an integrated circuits provider to a complete solutions provider for the
growing office equipment markets, and thereby, gain a larger share of the
products outsourced by the combined company's original equipment manufacturer,
or OEM, customers. The parties believe that the combined company will have the
resources and technology necessary to be a leading supplier to the digital
office market and will offer one of this industry's most integrated and flexible
platforms. However, if the integration is not successful or is unexpectedly
delayed or more expensive than contemplated by the parties, the combined company
will not realize these benefits to the fullest extent possible. In addition, if
the merger is not consummated, then the attention and effort devoted to the
integration of the two companies will have significantly diverted the attention
of both companies' management from other important issues, and could have an
adverse impact on Oak and Xionics in the future.
THE COSTS OF THE MERGER ARE DIFFICULT TO CALCULATE, AND IF THE EXPECTED
BENEFITS OF THE MERGER DO NOT EXCEED THE COSTS OF THE MERGER, THE COMBINED
FINANCIAL RESULTS OF OAK AND XIONICS COULD SUFFER
Xionics' business and financial structure is different from Oak's. If the
benefits of the merger to Oak stockholders do not exceed the costs associated
with the merger, including the integration costs, which may be difficult to
calculate, and the dilution to Oak's stockholders resulting from the issuance of
shares in connection with the merger, then the financial results of the combined
company, including earnings per share, could be adversely affected.
THE MARKET PRICE OF OAK COMMON STOCK COULD DECLINE AS A RESULT OF THE MERGER
The market price of Oak common stock could decline as a result of the merger
if:
- The integration of Oak and Xionics is unsuccessful or proves to be more
expensive or time-consuming than expected;
- The combined company does not achieve the perceived benefits of the merger
as rapidly or to the extent anticipated by financial analysts; or
- The effect of the merger on the combined company financial results are not
consistent with the expectations of financial analysts.
4
<PAGE>
A DECLINE IN THE MARKET PRICE OF OAK COMMON STOCK WOULD ADVERSELY IMPACT THE
PRICE RECEIVED BY XIONICS STOCKHOLDERS
Each outstanding share of Xionics common stock will be converted into the
right to receive $2.94 in cash and 0.8031 of a share of Oak common stock at the
effective time of the merger. There will be no adjustment of the exchange ratio
based on fluctuations in the price of either Oak common stock or Xionics common
stock. Consequently, the value of the equivalent per share price that you expect
to receive for each share of Xionics common stock exchanged in the merger could
decrease between the date that you submit your proxy and the effective date of
the merger. If the market price for Oak common stock decreases before the
effective time, Xionics' stockholders will not be compensated for that decrease.
Xionics' stockholders voting on the merger are urged to obtain recent market
quotations for Oak common stock and Xionics common stock. We cannot predict or
give any assurances as to the market prices of Oak common stock or Xionics
common stock at any time before or after the effective time of the merger.
IF THE MERGER FAILS TO QUALIFY AS A REORGANIZATION, XIONICS STOCKHOLDERS
WILL RECOGNIZE ADDITIONAL GAINS OR LOSSES ON THEIR XIONICS SHARES
Xionics and Oak have structured the merger to qualify as a reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended. Although
the Internal Revenue Service, or IRS, has not provided a ruling on the matter,
Xionics and Oak will each obtain a legal opinion from their respective counsel
that the merger qualifies as a reorganization. These opinions neither bind the
IRS nor prevent the IRS from adopting a contrary position. If the merger fails
to qualify as a reorganization and the parties decide to proceed with the
merger, you would generally recognize gain or loss on each Xionics share
surrendered in the amount of the difference between your basis in that share and
the fair market value of the Oak shares at the effective time and other
consideration you receive in exchange for that share at the time of the merger.
IF THE MERGER FAILS TO QUALIFY AS A REORGANIZATION, XIONICS WILL RECOGNIZE
GAINS OR LOSSES FROM A DEEMED SALE OF ITS ASSETS
In addition to the recognition of gain or loss by Xionics' stockholders
described in the preceding paragraph, if the merger fails to qualify as a
reorganization, Xionics will recognize taxable gain or loss with respect to a
deemed sale of all its assets to Oak's subsidiary in an amount equal to the
difference between the total fair market value of the consideration furnished by
Oak (the cash paid in the merger, the fair market value of the Oak common stock
issued in the merger at the effective time, and the liabilities of Xionics
assumed by Oak's subsidiary in the merger) and Xionics' aggregate tax basis in
its assets. By reason of the merger, Oak's subsidiary would assume any resulting
tax liability.
THE COMBINED COMPANY'S FUTURE FINANCIAL RESULTS WILL BE ADVERSELY IMPACTED
BY THE COSTS OF THE MERGER AND MAY BE FURTHER ADVERSELY IMPACTED BY THE
ACCOUNTING TREATMENT OF THE MERGER
Based on a preliminary allocation of the purchase price, Oak expects to take
a special charge of approximately $10 million against earnings in the calendar
quarter in which the merger occurs (which is expected to be the first quarter of
2000) in order to write off the cost of in-process research and development
acquired in the merger. The Securities and Exchange Commission has recently
begun disapproving large in-process research and development write-offs. If the
write-off is not as Oak expects, a larger portion of the purchase price to be
paid for Xionics will have to be recorded on Oak's balance sheet as an asset and
amortized over a period of time. This in turn will have an adverse effect on the
combined company's earnings per share throughout the amortization period, as a
small amount of the asset booked will be treated as an expense each quarter. In
addition to the $10 million charge taken, approximately $50 million
(representing the fair value of net intangible assets acquired in the merger)
will be recorded on Oak's balance sheet and amortized over three to five years.
5
<PAGE>
RISKS RELATED TO OAK
OAK HAS EXPERIENCED AND EXPECTS TO CONTINUE TO EXPERIENCE SIGNIFICANT
PERIOD-TO-PERIOD FLUCTUATIONS IN ITS REVENUES AND OPERATING RESULTS, WHICH
MAY RESULT IN VOLATILITY IN THE PRICE OF OAK'S STOCK
Oak's quarterly revenues and operating results have varied significantly in
the past and are likely to vary substantially from quarter to quarter in the
future. Accordingly, you should not rely on period-to-period comparisons as an
indication of future performance. In addition, these variations may cause Oak's
stock price to fluctuate. If quarterly results fail to meet public expectations,
the price of Oak's stock may decline.
Oak's revenues and operating results are affected by a wide variety of
factors, including factors that generally affect everyone in its industry and
factors that are more specific to its business and product lines. The principal
risk Oak faces in its business and one which has had, and is expected to
continue to have, a significant effect on its revenues and operating results, is
its dependence on the optical storage market. Other factors specific to its
business and product lines include the following:
- Oak's ability to diversify its product offerings and the markets for its
products;
- The current market for its products;
- The loss or gain of important customers;
- The timing of significant orders and order cancellations or reschedulings;
- Pricing policy changes by Oak and its competitors and suppliers;
- The potential for significant inventory exposure;
- The timing of the development and introduction of new products or enhanced
versions of existing products;
- Market acceptance of new products;
- Increased competition in product lines;
- Barriers to entry into new product lines; and
- The competitiveness of Oak's customers.
The semiconductor industry historically has been characterized by rapid
technological change and product obsolescence, cyclical market patterns and
seasonal customer demand, significant price erosion, periods of over-capacity
and under-capacity, periods of production shortages, variations in manufacturing
costs, including raw materials, and yields, and significant expenditures for
capital equipment and product development. In addition, the industry has
experienced significant economic downturns at various times, characterized by
diminished product demand and accelerated erosion of product prices. Any
downturns in the industry may cause Oak's business, financial condition and
results of operations to suffer.
Oak has experienced in the past and may in the future experience substantial
period-to-period fluctuations in operating results due to these general
semiconductor industry conditions. The downturns in the industry often occur in
connection with, or in anticipation of, maturing product cycles (of both the
semiconductor companies and their customers) and declines in general economic
conditions. These downturns have been characterized by abrupt fluctuations in
product demand, production over-capacity and subsequent accelerated erosion of
average selling prices, and in some cases have lasted for more than a year. Even
if customers' aggregate demand were not to decline, the availability of
additional capacity can adversely impact pricing levels, which can also depress
revenue levels.
6
<PAGE>
In addition, Oak's quarterly operating results could be materially adversely
affected by legal expenses incurred in connection with, or any judgment or
settlement in, Oak's ongoing stockholder legal proceedings. See "Oak is a
Defendant in Several Lawsuits."
OAK HAS A RECENT HISTORY OF OPERATING LOSSES AND MAY NOT BECOME OR REMAIN
PROFITABLE
Although Oak experienced periods of profitability following its
reincorporation in Delaware in October 1994 in connection with its initial
public offering (Oak was first incorporated in California in 1987), Oak has at
times sustained significant losses since the initial public offering and may not
become profitable in the future. While Oak had net income of $5.9 million in
fiscal 1998, its current loss trend began in calendar year 1998, resulting in an
operating loss of $9.1 million for fiscal 1998 and an operating loss of $61.9
million for fiscal 1999 (in each case before adjustments for non-operating
income or loss, or income tax expense or benefit). Oak's operating losses
generally have been due to Oak's dependence on its optical storage business,
which historically has accounted for approximately 80% of its business. In
fiscal 1998, Oak failed to timely and/or adequately develop its integrated
CD-ROM controller product and second generation CD-RW product. Consequently, for
fiscal 1999, the Company was dependent on mature CD-ROM products and its first
generation CD-RW product for its revenue. These mature products have continued
to decline in both unit sales volume and average sales price in each successive
quarter. Oak expects its next generation CD-RW product to be in initial
production in the second quarter of fiscal 2000 and to reach volume production
in the third quarter of fiscal 2000. Although Oak is currently sampling the
product with five of the top ten CD-RW drive manufacturers, at this time, Oak
cannot accurately predict the level of customer acceptance of the product and
the product's impact on operating results.
Oak anticipates that net revenues for at least the first two quarters of the
fiscal year 2000 will continue to be significantly less than the comparable
periods of the previous fiscal year as Oak completes its transition to its next
generation CD-RW controllers. Oak expects that the average selling prices (ASPs)
for its existing products will continue to decline over time and that ASPs for
each new product will decline significantly over the life of the product. Oak
continues to experience severe price pressure on its CD-ROM controller products
and expects such price erosion to continue. Oak does not believe it can achieve
cost reductions or sales of new products with higher margins which fully offset
the expected price declines of its CD-ROM products and therefore, it expects
gross margin percentages to decline. In addition, given the extremely
competitive nature of the optical storage and consumer market, Oak believes that
gross margins for new products in its optical storage market and consumer market
will be lower than historical levels and that, as a result, gross margins in
general will decline in the future.
If Oak incurs additional losses or fails to achieve profitability in the
future, this will significantly harm Oak's business and may affect the trading
price of Oak common stock.
OAK'S FINANCIAL PERFORMANCE IS HIGHLY DEPENDENT ON THE TIMELY AND SUCCESSFUL
INTRODUCTION OF NEW PRODUCTS
The markets for Oak's products are characterized by evolving industry
standards, rapid technological change and product obsolescence. Oak's financial
performance is highly dependent upon timely and successful execution of next
generation and new products, particularly in light of the continued decline in
sales from Oak's mature CD-ROM and CD-RW products and Oak's failure to timely
develop new products for the optical storage market in fiscal 1998 and 1999, and
the failure to timely and successfully introduce next generation and new
products that achieve market acceptance in the future could seriously damage
Oak's business, financial condition and results of operations. Specifically,
Oak's performance is highly dependent upon the successful development and timely
introduction of its next generation CD-RW controller, MPEG-2 decoder for the DVD
player market, and imaging processing chip for the digital office equipment
market.
7
<PAGE>
In both the optical storage and consumer electronics markets, particularly
DVD, a variety of standards and formats are being proposed, making it difficult
to develop product to market requirements, and making it even more difficult for
the market to develop.
Due to the design complexity of Oak's products, especially with the
increased levels of integration that are required, Oak has experienced delays in
completing development and introduction of new products, particularly in its
products for the optical storage and the digital office equipment markets.
No assurance can be given that Oak will successfully identify new product
opportunities and develop and bring new products to market in a timely manner or
that its products will be selected for design into the products of its targeted
customers. Also, there can be no assurance that the products of Oak's customers
will be successfully introduced into the market. If Oak fails in its new product
development efforts or its products fail to achieve market acceptance, Oak's
revenues will decline and its business, financial condition and results of
operations will be severely damaged.
OAK'S FUTURE REVENUES ARE HIGHLY DEPENDENT ON SALES OF ITS CD-RW CONTROLLER
PRODUCT
Oak's future revenue generation is highly dependent on the successful
introduction of its next generation CD-RW product, although Oak can provide no
assurance that this product will achieve customer acceptance. Although sales of
CD-ROM controller products are expected to continue to account for a portion of
Oak's total revenues for the foreseeable future, Oak expects that sales of its
CD-ROM controller products will continue to decline. Oak is no longer developing
any CD-ROM controllers, but is instead focusing its development efforts on
controllers for CD-RW and DVD drives. If Oak experiences delays in its product
development efforts or fails to achieve market acceptance, Oak will need other
sources of revenue to offset the continued decline in sales of its CD-ROM
controllers. In fiscal 1999, revenue generated from Oak's optical storage CD-ROM
and CD-R/RW businesses declined 73% and 36%, respectively, compared to the
previous year, primarily due to delays in the development of the next-generation
integrated CD-ROM device and CD-RW product. Similarly, in fiscal 1998, revenue
generated from the Oak's optical storage CD-ROM business declined 25% from the
prior year primarily due to delays in the next-generation single chip and
integrated CD-ROM device.
Although Oak was a leading supplier of CD-RW controllers, due to product
delays in its second generation CD-RW product, Oak lost its leadership in this
market. While Oak is currently sampling its next generation CD-RW product, no
assurance can be given this product will be competitive in the marketplace or
accepted by Oak's targeted customers. In addition, even if this product proves
to be competitive and is accepted by targeted customers, there is no assurance
that Oak's customers will be successful.
Oak also faces increased competition in the emerging CD-RW and DVD markets.
Moreover, the current trend toward integrating increased functionality of the
CD-ROM, CD-RW or DVD controller potentially adds to the development and
manufacturing costs of producing the controller. Oak's revenues and gross
margins from its optical storage controller products will be dependent on Oak's
ability to introduce these integrated products in a commercially competitive
manner.
The decrease in the overall level of sales of, and prices for, Oak's CD-ROM
and older generation CD-RW controller product due to introductions of newer
products by competitors, the decline in demand for CD-ROM controller products
generally, product obsolescence and delays in Oak's integrated CD-ROM controller
product and its next generation CD-RW product, have had a material adverse
effect on Oak's business, financial condition and results of operations, and
will continue to have that effect if Oak fails to successfully introduce new
products to the market.
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OAK'S MARKETS ARE INTENSELY COMPETITIVE AND EXPERIENCE RAPID TECHNOLOGICAL
CHANGE
The markets in which Oak competes are intensely competitive and are
characterized by rapid technological change, declining unit average sales prices
and rapid product obsolescence. If the combined company cannot successfully
respond to the technological advances of others or if its new products or
product enhancements do not achieve market acceptance, the combined company's
business, operating results and financial condition could be seriously harmed.
Oak expects competition to increase in the future from existing competitors and
from other companies that may enter Oak's existing or future markets with
solutions that may be less costly or provide higher performance or additional
features. Oak's principal competitors in the optical storage market are
MediaTek, Toshiba and Ricoh, its principal competitors in the terrestrial
segment of the digital broadcast market are Philips, ST Microelectronics,
Siemens and LSI Logic, and its principal competitors in the digital office
market are primarily in-house, captive suppliers; however, Oak expects increased
competition from the merchant market in the future. Many of these competitors
have substantially greater financial, manufacturing, technical, marketing,
distribution and other resources, broader product lines and longer standing
relationships with customers than Oak.
The markets for most of the applications for Oak's products, especially in
the consumer electronics market and the optical storage market, are
characterized by intense price competition. As the markets for these products
mature and competition increases, as has been the trend for the optical storage
and DVD segment of the consumer electronics market, Oak anticipates that average
sales prices on products will decline. If Oak is unable to reduce costs
sufficiently to offset declines in average sales prices or is unable to
successfully introduce new higher performance products with higher average sales
prices, operating results will be materially adversely affected.
There can be no assurance that Oak will be able to compete successfully
against current or future competitors, or that competitive pressures faced by it
and its customers will not result in reduced revenues and profit margins and
otherwise seriously harm its business, financial condition and results of
operations.
OAK MAY BE UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS, WHICH MAY AFFECT ITS ABILITY TO COMPETE
Oak's ability to compete is affected by its ability to protect its
proprietary information. Oak considers its technology to be proprietary and
relies on a combination of patents, trademarks, copyrights, trade secret laws,
confidentiality procedures and licensing arrangements to protect its
intellectual property rights. However, these measures afford only limited
protection. Competitors of Oak may be able to effectively design around Oak's
patents. There can be no assurance that any patents held by Oak will not be
challenged, invalidated or circumvented, or that the rights granted under those
patents will provide competitive advantages to Oak. Moreover, while Oak holds or
has applied for patents relating to the design of its products, some of Oak's
products are based in part on standards, for which Oak does not hold patents or
other intellectual property rights. In addition, the laws of certain foreign
countries in which Oak's products are or may be manufactured or sold, including
various countries in Asia, may not protect Oak's products or intellectual
property rights to the same extent as do the laws of the United States and thus
make the possibility of piracy of Oak's technology and products more likely.
There can be no assurance that the steps taken by Oak to protect its proprietary
information will be adequate to prevent misappropriation of its technology or
that Oak's competitors will not independently develop technologies that are
substantially equivalent or superior to Oak's technology. Moreover, Oak intends
to seek additional international and United States patents on its technology.
There can be no assurance that additional patents will issue from any of Oak's
pending applications or applications in preparation, or be issued in all
countries where Oak's products can be sold, or that any claims allowed from
pending applications or applications in preparation will be of sufficient scope
or strength to provide meaningful protection or any commercial advantage to Oak.
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Oak also generally enters into confidentiality agreements with its employees
and consultants and confidentiality and license agreements with its customers
and potential customers, and limits access to and distribution of the source and
object code of its software and other proprietary information. Under some
circumstances, Oak grants licenses that give its customers limited access to the
source code of Oak's software which increases the likelihood of misappropriation
or misuse of Oak's technology. Accordingly, despite precautions taken by Oak, it
may be possible for unauthorized third parties to copy certain portions of Oak's
technology or to obtain and use information that Oak regards as proprietary.
There can be no assurance that the steps taken by Oak will be adequate to
prevent misappropriation of its technology or to provide an adequate remedy in
the event of a breach or misappropriation by others.
Furthermore, Oak may initiate claims or litigation against third parties for
infringement of Oak's proprietary rights or to establish the validity of Oak's
proprietary rights and in the past has incurred significant legal expenses in
connection with claims of this type initiated by it. Any litigation by or
against Oak could result in significant expense to Oak and divert the efforts of
Oak's technical and management personnel, whether or not that litigation results
in a favorable determination for Oak. In the event of an adverse result in any
litigation, Oak could be required to pay substantial damages, cease the
manufacture, use and sale of infringing products, expend significant resources
to develop non-infringing technology, discontinue the use of certain processes
or obtain licenses to the infringing technology. There can be no assurance that
Oak would be successful in developing new technology or that those licenses
would be available on reasonable terms, or at all, and any development or
license could require expenditures by Oak of substantial time and other
resources.
OAK MAY BE UNABLE TO OBTAIN THIRD PARTY INTELLECTUAL PROPERTY RIGHTS AND/OR
MAY BE LIABLE FOR SIGNIFICANT DAMAGES
Certain technology used in Oak's products is licensed from third parties,
and in connection with these licenses, Oak is required to fulfill
confidentiality obligations and, in some cases, pay royalties. Some of Oak's
products, require various types of copy protection software that Oak must
license from third parties. Should Oak lose its rights to, or be unable to
obtain the necessary copy protection software, Oak would be unable to sell and
market certain of its products. Oak's agreements with third parties often have
no specified term and may be terminated by either party in the event of breach
by the other. Oak's business could be adversely affected by the loss for any
reason of these third-party agreements. Given the trend to include increasing
levels of functionality on a chip, in the future it may be necessary or
desirable for Oak to seek additional licenses to intellectual property rights
held by third parties or purchase products manufactured and/or sold by third
parties with respect to some or all of its product offerings. There can be no
assurance that those licenses or purchases will be available on terms acceptable
to Oak, if at all. The inability of Oak to enter into those license arrangements
on acceptable terms or to maintain its current licenses on acceptable terms
could have a material adverse effect on Oak's business, financial condition and
results of operations.
In addition, the semiconductor industry is characterized by vigorous
protection and pursuit of intellectual property rights, which has resulted in
significant, often protracted and expensive litigation. Oak or its foundries
may, from time to time, be notified of claims that Oak may be infringing patents
or other intellectual property rights owned by third parties. If it is necessary
or desirable, Oak may seek licenses under those patents or other intellectual
property rights. However, there can be no assurance that licenses will be
offered or that the terms of any offered licenses will be acceptable to Oak. The
failure to obtain a license from a third party for technology used by Oak could
cause Oak to incur substantial liabilities and suspend the manufacture of
products or the use by Oak's foundries of processes requiring the technology.
Although patent disputes in the semiconductor industry have often been
settled through cross-licensing arrangements, Oak may not be able in any or
every instance, to settle an alleged patent
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infringement claim through a cross-licensing arrangement. If a successful claim
is made against Oak or its customers and a license is not made available to Oak
on commercially reasonable terms or Oak is required to pay substantial damages
or awards, Oak's business, financial condition and results of operations would
be materially adversely affected.
OAK DEPENDS ON THIRD PARTY FOUNDRIES AND VENDORS TO MANUFACTURE ITS PRODUCT
Oak contracts with independent foundries to manufacture all of its products
and with independent vendors to assemble and test its products. Oak's failure to
adequately manage its relationships with these foundries and vendors could
negatively impact its ability to manufacture and sells its products and its
results of operations.
Oak relies on its foundries to allocate to Oak a portion of their foundry
capacity sufficient to meet its needs to produce products of acceptable quality
and with acceptable manufacturing yield and to deliver products to Oak in a
timely manner. These foundries fabricate products for other companies and some
manufacture products of their own design. If these foundries fail or are unable
to satisfy Oak's product, quality and other requirements, Oak's business,
financial condition and results of operation could suffer.
Oak also relies on third-party subcontractors to assemble and test its
products. The failure of any of these subcontractors to meet Oak's production
requirements could cause Oak's business, financial condition and operating
results to suffer.
Oak's reliance on independent manufacturers and third party assembly and
testing vendors involves a number of additional risks, including:
- The loss of any foundry as a supplier;
- Inability in a period of increased demand for Oak's products to expand
foundry capacity;
- Inability to obtain timely and adequate deliveries from current or future
suppliers;
- Delays in shipments of Oak's products;
- Disruption of operations at any of Oak's manufacturing facilities;
- Product defects and the difficulty of detecting and remedying product
defects;
- The unavailability of, or interruption in access to, certain process
technologies; and
- Reduced control over delivery schedules, quality assurance and costs.
As Oak generally does not use multiple services of supply for its products,
the consequences of these factors occurring is magnified.
OAK'S FAILURE TO ACCURATELY FORECAST DEMAND FOR ITS PRODUCTS COULD
NEGATIVELY IMPACT ITS RESULTS OF OPERATIONS
Under its foundry agreements, Oak is required to place non-cancelable orders
and purchase its products on an approximately three-month rolling basis. Oak's
customers, on the other hand, generally place purchase orders with Oak less than
four weeks prior to delivery that may be rescheduled or under certain
circumstances may be cancelled, without significant penalty. This limits Oak's
ability to react to fluctuations in demand for its products. If Oak
overestimates the product necessary to fill orders, it will build excess
inventories which could harm its gross margins and operating results. If Oak
underestimates the product necessary to fill orders, it may not be able to
obtain an adequate supply of products which could harm its revenues.
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Product supply and demand fluctuations common to the semiconductor industry
are historically characterized by periods of manufacturing capacity shortages
immediately followed by periods of overcapacity, which are caused by the
addition of manufacturing capacity in large increments. The industry has moved
from a period of capacity shortages in 1995 to what has been a period of excess
capacity for approximately the last twelve months, although capacity has
recently tightened. During a period of industry overcapacity, profitability can
drop sharply as factory utilization declines and high fixed costs of operating a
wafer fabrication facility are spread over a lower net revenue base. No
assurance can be given that Oak can or will achieve timely, cost-effective
access to that capacity when needed.
OAK DERIVES A LARGE PORTION OF ITS REVENUES FROM INTERNATIONAL SALES,
DEPENDS ON FOREIGN SUBCONTRACTORS AND IS SUBJECT TO THE RISKS OF DOING
BUSINESS IN FOREIGN COUNTRIES
A large portion of Oak's revenues are derived from international sales.
International sales, principally to Japan, Korea, Singapore and Europe,
accounted for approximately 86% and 92% of Oak's net revenues in fiscal 1999 and
1998, respectively. Of this amount, Japan accounted for 52% and 38% of Oak's net
revenues in fiscal 1999 and 1998, respectively; Korea accounted for 10% and 20%
for fiscal 1999 and 1998, respectively; Singapore accounted for 10% and 11% for
fiscal 1999 and 1998, respectively; and Europe accounted for 11% and 9% for
fiscal 1999 and 1998, respectively. Oak also depends on foreign subcontractors
for the manufacture of its products. Most of Oak's foreign sales and purchases
are negotiated in US dollars, although invoicing is often done in local
currency. As a result, Oak may be subject to the risks of currency fluctuations
in the foreign countries in which it does business.
Oak also is subject to other risks of conducting business outside of the
United States. These risks include:
- Unexpected changes in, or impositions of, foreign legislative or
regulatory requirements;
- Delays resulting from difficulty in obtaining export licenses for certain
technology;
- Tariffs, quotas and other trade barriers and restrictions;
- Longer payment cycles;
- Greater difficulty in collecting accounts receivable;
- Potentially adverse taxes and adverse tax consequences;
- The burdens of complying with a variety of foreign laws;
- Political, social and economic instability;
- Potential hostilities;
- Changes in diplomatic and trade relationships; and
- Fluctuations in foreign currencies
Oak's significant investment in foundry capacity in Taiwan is a prime
example of its exposure to these types of risks. Due to this investment, Oak is
subject to the risk of political instability in Taiwan, including the potential
for conflict between Taiwan and the People's Republic of China. In addition, the
fact that China is the primary market for Oak's consumer DVD and cable and
satellite products is another example. Any political or economic instability in
China could significantly reduce the demand for these products.
Recently Taiwan experienced a severe earthquake. Oak did not incur any
significant damage to its own facilities located in Taipei; however, its primary
wafer manufacturer, Taiwan Semiconductor Manufacturing Company, experienced a
disruption in operations for several weeks. To date, Oak has not experienced any
material delays of its wafer deliveries from its primary manufacturer.
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While these factors or the impact of these factors are difficult to
forecast, any one or more of these factors could adversely affect Oak's
operations in the future or require Oak to modify its current business
practices.
OAK DEPENDS ON A LIMITED NUMBER OF CUSTOMERS FOR A SUBSTANTIAL PORTION OF
ITS REVENUES, AND A LOSS OF, OR A SIGNIFICANT REDUCTION IN PURCHASES BY,
CURRENT MAJOR CUSTOMERS WOULD SIGNIFICANTLY REDUCE ITS REVENUES
Oak has derived a substantial portion of its net revenues from a limited
number of customers and expects this concentration to continue. For fiscal years
1999 and 1998, sales to Oak's top ten customers accounted for approximately 70%
and 81%, respectively, of Oak's net revenues. Two customers accounted for over
10% of revenues in fiscal 1999, compared to three customers in fiscal 1998. One
of these two customers accounted for 16.5% of Oak's revenues in fiscal 1999 and
the other 16.7% of Oak's revenues in fiscal 1999. At June 30, 1999, one
international customer accounted for approximately 40% of accounts receivable.
In addition, Oak has experienced significant changes from year to year in the
composition of its major customer base, including the loss in the past year of a
customer responsible for approximately 16% of Oak's sales in fiscal year 1999,
and Oak believes this pattern will continue. Customers generally purchase Oak's
products pursuant to short-term purchase orders, and Oak has no long term
purchase agreements with any of its customers. The loss of, or significant
reduction in purchases by, current major customers of Oak would significantly
reduce its revenues.
OAK IS A DEFENDANT IN SEVERAL LAWSUITS
Oak and various of its current and former officers and directors are parties
to several class action lawsuits filed on behalf of all persons who purchased or
acquired Oak common stock for the period from July 27, 1995 to May 22, 1996,
alleging state and federal securities law and other violations. Additionally,
various of Oak's current and former officers and directors are defendants in
three consolidated derivative actions which allege a breach of fiduciary duty
and a claim under California securities laws. Based on its current information,
Oak believes the class actions and derivative suits to be without merit and will
defend its position vigorously. Although it is reasonably possible Oak may incur
losses upon resolution of these claims, an estimate of loss or range of loss
cannot be made. No provision for any liability that may result upon adjudication
has been made in Oak's financial statements. Oak is also a party to various
other legal proceedings, including a number of patent-related matters. In the
opinion of management, these legal proceedings will not result in any material
liability to Oak. In connection with these matters, however, management time has
been, and will continue to be, expended and Oak has incurred, and expects to
continue to incur, substantial legal and other expenses.
OAK MUST CONTINUE TO MAKE SIGNIFICANT CAPITAL INVESTMENTS, AND THE INABILITY
TO RAISE THE ADDITIONAL CAPITAL NECESSARY TO FUND THESE INVESTMENTS ON
ACCEPTABLE TERMS COULD SERIOUSLY HARM OAK'S BUSINESS
In order to remain competitive, Oak must continue to make investments in new
facilities and capital equipment, and significant amounts of capital additions
could be required in subsequent years. Additionally, in order to obtain an
adequate supply of wafers, especially wafers manufactured using advanced process
techniques, Oak has entered into and will continue to consider various possible
transactions, including various "take or pay" contracts that commit Oak to
purchase specified quantities of wafers over extended periods. Manufacturing
arrangements such as these may require substantial capital investment, which may
require Oak to seek additional financing. Oak believes that existing liquid
resources and funds generated from operations, if any, combined with its ability
to borrow funds will be adequate to meet its operating and capital requirements
and obligations into the foreseeable future. Oak believes that the level of a
company's financial resources is an important factor in its
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industry. Accordingly, Oak may from time to time seek additional equity or debt
financing. There can be no assurance that those funds will be available on terms
acceptable to Oak when needed. Any future equity financing will also lead to
dilution to existing shareholders.
RISKS RELATED TO XIONICS
XIONICS DEPENDS ON HEWLETT-PACKARD FOR A SIGNIFICANT PORTION OF ITS
REVENUES, AND THE LOSS OF OR A SIGNIFICANT REDUCTION IN ORDERS FROM
HEWLETT-PACKARD WOULD SIGNIFICANTLY REDUCE ITS REVENUES
Xionics derived 66% of its revenue from Hewlett-Packard in fiscal 1999.
Therefore, any significant disruption or deterioration of its relationship with
Hewlett-Packard would significantly reduce its revenues. Xionics has met all of
its obligations necessary to secure the right to receive ongoing payments from
Hewlett-Packard under a 1996 agreement with Hewlett-Packard under which Xionics
provides PostScript-compatible page description language ("PDL") software to
Hewlett-Packard, and is also current in performing its obligations under various
other agreements it has with Hewlett-Packard, including performing the material
development obligations under a 1998 agreement with Hewlett-Packard. However,
there can be no assurance that Xionics will continue to meet all of its
obligations in the future. Hewlett-Packard has the right to terminate each of
its agreements with Xionics if Xionics breaches its obligations under that
agreement and does not cure that breach within 30 days. In addition, competitors
of Xionics, including Adobe Systems Inc., Peerless Systems Corporation, and
Electronics for Imaging, Inc., are continuously engaged in efforts to expand
their business relationships with Hewlett-Packard at Xionics' expense, and are
likely to continue those efforts in the future. There can be no assurance that
one or more of Xionics' competitors will not be successful in competing with
Xionics for some or all of Hewlett-Packard's business. Further, although
Hewlett-Packard has shown a strong tendency to outsource embedded systems
software and development for its printer products over the past several years,
there can be no assurance that this trend will continue or that
Hewlett-Packard's internal development groups will not compete successfully for
some or all of this outsourced business in the future. Finally, any adverse
change in Hewlett-Packard's business, results of operations or financial
condition could in turn seriously harm Xionics' business, results of operations
and financial condition.
XIONICS' PRODUCTS AND SERVICES ARE INCORPORATED INTO THE PRODUCTS OF THIRD
PARTIES, AND THE SUCCESS OF ITS PRODUCTS AND SERVICES DEPENDS ON THE
SUCCESS OF THE PRODUCTS OF THESE THIRD PARTIES
The markets for Xionics' products and services are characterized by rapidly
changing technology, evolving industry standards and needs, and frequent new
product introductions. Xionics currently derives substantially all of its
revenue from the licensing of technology, including royalty streams derived from
OEMs shipments of office devices containing Xionics' products, and the sale of
related products and services to manufacturers of office devices. Xionics
anticipates that these sources of revenue will continue to account for
substantially all of its revenue for the foreseeable future. In order to assure
that Xionics will derive future royalty streams from the shipment of OEM
devices, Xionics and its OEMs are required to develop and release in a regular
and timely manner new office products with increased speed, enhanced output
resolutions, reduced memory requirements, multiple functions, and network
connectivity. Xionics' OEMs are under tremendous pressure to continually shorten
the development cycles of these products, leading to increased complexity and
cost of development to Xionics and its OEMs. Xionics' success will depend on,
among other things:
- market acceptance of Xionics' technology and the office devices of
Xionics' OEMs;
- the ability of Xionics and its OEMs to meet industry changes and market
demands in a timely manner;
- achievement of new design wins by Xionics;
- successful implementation of Xionics' technology in new office devices
being developed by its OEMs; and
- successful marketing of those devices by the OEMs.
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Any failure by Xionics or its OEMs to anticipate or respond adequately to
the rapidly changing technology and evolving industry standards and needs in the
market for office devices could result in a loss of competitiveness or revenue,
which could seriously harm Xionics' business, results of operations and
financial condition.
XIONICS' FUTURE SUCCESS DEPENDS ON THE TIMELY AND SUCCESSFUL INTRODUCTION OF
NEW PRODUCTS
Given the short product life cycles in the market for office devices, any
delay or unanticipated difficulty associated with new product development or
introduction could result in reduced revenues and seriously harm Xionics'
business. Xionics has in the past experienced delays in the development of
certain of its products and in the implementation of those products in its
customers' office devices. There can be no assurance that Xionics will not
experience similar, or more severe, delays in the future. Prior delays have
resulted from numerous factors such as changing OEM product specifications,
difficulties in allocating engineering personnel among competing projects, other
resource limitations, difficulties with independent contractors, changing market
or competitive requirements and unanticipated engineering complexity. There can
be no assurance that these or other factors will not contribute to future
delays, that OEMs will tolerate those delays, or that delayed office devices,
once introduced, will meet with market acceptance or success.
COMPETITION WITHIN XIONICS' MARKETS MAY REDUCE SALES OF ITS PRODUCTS
The market for Xionics' products and services is intensely competitive, and
Xionics has numerous competitors, including not only other suppliers of
outsourced products and services such as Peerless Systems Corporation and
Electronics for Imaging, Inc., but also its OEM customers' own internal
development groups as well. Xionics' page description language interpreter
products compete directly with those of Adobe Systems, Inc., and its controller
designs compete with those of Electronics for Imaging, Inc., Both of these
companies are substantially larger than Xionics and have significantly greater
resources and name recognition than Xionics. Similarly, its printer drivers
compete with driver products from a small number of companies, including Adobe
and Software 2000 Limited; certain OEM internal driver development groups; and
generic drivers offered by Microsoft with Windows-Registered Trademark-
operating system. Both Peerless and Electronics for Imaging, Inc. are
sublicensees of Adobe's products that compete with those of Xionics. In
addition, Xionics' OEM customers compete fiercely with one another, and with
other manufacturers of office devices, for market share in a market
characterized by rapid development cycles, short product life cycles, and
ever-increasing consumer demand for greater performance and functionality at
reduced prices. There can be no assurance that Xionics or its OEMs will be able
to compete successfully against their respective current or future competitors,
or that competitive pressures faced by Xionics and its OEMs will not result in
reduced revenues and market share or seriously harm Xionics' business.
XIONICS' FUTURE SUCCESS DEPENDS ON THE CONTINUED MARKET TREND BY OEM
CUSTOMERS OF OUTSOURCING THEIR PRODUCT DEVELOPMENT WORK
The future growth of the market for Xionics' products and services is highly
dependent on OEMs' continuing to outsource an increasing portion of their
product development work. While the trend toward outsourcing on the part of
Xionics' OEM customers has accelerated in recent years, any reversal of this
trend could significantly reduce Xionics' revenues and seriously harm its
business. Similarly, significant market trends leading to changes in the way
Xionics' competitors do business may enable them to compete more effectively
against Xionics than they have in the past. For example, in response to market
demand, Adobe Systems, Inc. has recently begun licensing the source code of its
PostScript page description language interpreters to certain development
partners, including competitors of Xionics, thus adopting for the first time a
marketing strategy which Xionics has long used to differentiate itself from its
competitors. These changes, if they enable competitors to compete
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more effectively for business from Xionics' customers, could significantly
reduce Xionics' revenues and seriously harm its business.
XIONICS' FUTURE SUCCESS WILL DEPEND ON ITS ABILITY TO SUCCESSFULLY DEVELOP
NEW TECHNOLOGIES THAT ACHIEVE MARKET ACCEPTANCE
A substantial portion of Xionics' recent development effort has been
directed at the development of new embedded imaging technologies, including
next-generation PDLs and drivers, the XipChip family of application-specific
integrated circuits ("ASICs"), other foundation technology for multifunction
peripherals ("MFPs"), and embedded digital color copier technology. While
Xionics has substantial experience in certain of these areas, it has limited
experience in others. Xionics' future success will depend to a significant
degree on its ability to complete development of these technologies and have
them deployed in OEMs' office devices. This success will be dependent in part on
the ability of Xionics' OEMs to develop new products that provide the
functionality, performance, speed, and connectivity demanded by the market at
acceptable prices, and to convince end users to adopt new generations of
products for office and desktop use. There can be no assurance that the market
for MFP, color imaging and other products will develop or continue to expand as
currently anticipated by Xionics, that Xionics' OEM customers will choose
Xionics' technology for use in their printers, MFPs, color copiers or other
devices, that Xionics' OEM customers will be successful in developing or
introducing such devices, or that these products will gain market acceptance.
The failure of any of these events to occur could significantly reduce Xionics'
revenues and seriously harm its business. Likewise, there can be no assurance
that future changes in the technological or marketing direction of industry
leaders such as Microsoft Corporation or Intel Corporation--for example, the
possibility that Microsoft may include native print rendering capability in
future versions of its personal computer operating systems--will not render
Xionics' key products such as printer languages, interpreters and drivers
obsolete or reduce market demand for them. Any of these developments could also
significantly reduce Xionics' revenues and seriously harm its business.
XIONICS DERIVES A SIGNIFICANT PORTION OF ITS REVENUES FROM OEM CUSTOMERS IN
ASIA, AND ADVERSE ECONOMIC CONDITIONS IN ASIA MAY SERIOUSLY HARM ITS
BUSINESS
Xionics has several significant OEM customers in Japan, South Korea, and
other parts of Asia. These customers accounted for approximately 30% of Xionics'
revenues in fiscal year 1998 and approximately 20% of its revenues in fiscal
year 1999. Although the adverse economic circumstances recently prevailing in
Japan and elsewhere in Asia have begun to show signs of abating, they could
still affect these customers' willingness or ability to do business with Xionics
in the future or their success in developing and launching document imaging
devices containing Xionics' products, which in turn could significantly reduce
Xionics' revenues and seriously harm its business.
RISKS RELATED TO THE COMBINED COMPANY
THE COMBINED COMPANY MAY MAKE FUTURE ACQUISITIONS OR ENTER INTO JOINT
VENTURES THAT MAY NOT BE SUCCESSFUL
In the future, the combined company may acquire additional businesses,
products and technologies, or enter into joint venture arrangements, that could
complement or expand its business. Acquisitions involve numerous risks
including:
- Difficulties in integration of the operations, technologies, and products
of the acquired companies;
- Diverting management's attention from normal daily operations of the
business;
- Entering markets in which there is limited direct prior experience and
where competitors have stronger market positions;
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- Coordination of sales, marketing and research and development; and
- Potential loss of key employees of the combined company.
In addition, investments in emerging technology present risks of loss of
value of one or more of the investments due to failure of the technology to gain
the predicted market acceptance. Also, any future acquisitions could require the
combined company to issue dilutive equity securities, incur debt or contingent
liabilities, amortize goodwill and other intangibles, or write-off in-process
research and development and other acquisition-related expenses. Further, the
combined company may not be able to integrate acquired businesses, products or
technologies with its existing operations. If the combined company is unable to
fully integrate an acquired business, product or technology, it may not receive
the intended benefits of that acquisition.
THE COMBINED COMPANY WILL DEPEND ON THE RECRUITMENT OF NEW SKILLED
EMPLOYEES, AND IF IT IS NOT ABLE TO ATTRACT AND HIRE NEW PERSONNEL, ITS
BUSINESS COULD BE SERIOUSLY HARMED
The combined company's future success is dependent in part upon its ability
to attract and retain qualified employees, especially highly skilled engineering
and technical employees. The current labor market, both in the geographical
areas where the combined company will operate and in the high-technology
industry in general, is such that the number of open positions in these
disciplines far exceeds the supply of personnel qualified to fill them. As a
result, the combined company will have to continually compete with other
high-technology employers for this limited pool of available employees. There
can be no assurance that the combined company will be able to attract or retain
the employees it needs to execute against its current or future business plans.
Any failure to do so could seriously damage the combined company's business,
results of operations and financial condition.
THE COMBINED COMPANY WILL DEPEND ON KEY PERSONNEL TO MANAGE ITS BUSINESS,
AND THE LOSS OF ANY KEY PERSONNEL COULD SERIOUSLY HARM ITS BUSINESS
The combined company's future performance depends, to a significant degree,
on the retention and contribution of members of Oak's and Xionics' senior
management as well as other key personnel including highly skilled engineering
and technical employees. Specifically, it is important for the combined company
to retain the services of Young K. Sohn, Oak's current president and chief
executive officer. Oak is in the process of recruiting replacements for certain
senior management positions as well as additional senior management and
technical personnel. Competition for these people is intense because of this
limited number of candidates and the growth of high-tech companies, and there
can be no assurance that the combined company will be able to attract and retain
qualified replacements or additional senior managers and technical personnel.
Moreover, none of Xionics' key technical or senior management personnel are
bound by long-term employment arrangements. Arrangements to cover a transition
period after completion of the merger are currently being discussed for the
chief executive officer and chief financial officer of Xionics. There is no
assurance that the combined company will be able to find suitable replacements
for any senior management personnel who may leave the combined company.
YEAR 2000 RISKS MAY AFFECT THE COMBINED COMPANY
The "Year 2000 Issue" is the result of computer programs being written using
two digits rather than four to define the applicable year. Both Oak and Xionics
are dependent, to a significant extent, on computer technology with
date-sensitive functions. If the combined company's computer programs with
date-sensitive functions are not Year 2000 compliant, it could experience
systems failures or miscalculations causing incorrect reporting and disruptions
of operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities. The
issue spans both information technology and non-information technology systems
that
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use date data. In addition to Oak's and Xionics' own systems, both rely,
directly and indirectly, on external systems of their customers, suppliers,
creditors, financial organizations, utilities providers and government entities,
both domestic and international.
If the combined company fails to satisfactorily resolve Year 2000 issues
related to its products in a timely manner, it could be exposed to liability to
third parties. Moreover, the combined company's software and firmware may be
commingled with that of its customers or other vendors when that software and
firmware is incorporated in the customers' products, and the combined company
may have no knowledge of the Year 2000 readiness of that third parties' software
and firmware. Therefore, the combined company cannot anticipate the degree to
which it could be the subject of claims or complaints regarding Year 2000
issues.
If the combined company or the third parties with which it would have
relationships were to cease or not successfully complete its or their Year 2000
remediation efforts, the combined company would encounter disruptions to its
business that could have a material adverse effect on its business, financial
condition and results of operations. The combined company could be materially
and adversely impacted by widespread economic or financial market disruption or
by Year 2000 computer system failures at third parties with which it has
relationships.
The Year 2000 evaluation is on-going, however, and both Oak and Xionics
expect that new and different information will become available to us as our
evaluation progresses. As a result, we are not currently able to assess whether
the Year 2000 problem will have a materially adverse effect on operations as a
combined company, outside of the context of a "worst-case" event. In the worst
case, the combined company or its key customers and/or suppliers on which the
combined company would depend may be unable to produce reliable information or
process routine transactions. Further, in the worst case, the combined company
or parties on which it depends, may, for an extended period of time, be
incapable of conducting critical business activities, which could include
manufacturing and shipping products, invoicing customers and paying vendors.
Should a worst-case event actually occur, the business, operations and financial
condition of the combined company would be seriously damaged.
PROVISIONS IN OAK'S CHARTER DOCUMENTS AND RIGHTS PLAN COULD MAKE IT MORE
DIFFICULT TO ACQUIRE OAK AND MAY REDUCE THE MARKET PRICE OF OAK'S STOCK
Oak's board of directors has the authority to issue up to 2,000,000 shares
of preferred stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without any further
vote or action by the stockholders. The rights of the holders of common stock,
including former stockholders of Xionics, may be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that may
be issued in the future. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change of control of the combined company
without further action by the stockholders and may adversely affect the voting
and other rights of the holders of common stock. Oak has no present plans to
issue shares of preferred stock. Further, certain provisions of Oak's charter
documents, including provisions eliminating the ability of stockholders to take
action by written consent and limiting the ability of stockholders to raise
matters at a meeting of stockholders without giving advance notice, may have the
effect of delaying or preventing changes in control or management of the
combined company, which could have an adverse effect on the market price of the
stock. In addition, Oak's charter documents do not permit cumulative voting and
provide that its board of directors will be divided into three classes, each of
which serves for a staggered three-year term, which may also make it more
difficult for a third-party to gain control of the board of directors.
In addition, 400,000 shares of Oak's preferred stock are designated as
series A junior participating preferred stock under a rights plan, commonly
referred to as a "poison pill". Under certain circumstances involving a proposed
change-in-control of Oak, the rights related to the series A junior
18
<PAGE>
participating preferred stock may be triggered, the effect of which may delay or
prevent a third party from gaining control of or acquiring the combined company.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This document, including information incorporated by reference, contains
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that involve
risks and uncertainties, such as statements concerning: growth and future
operating results; future customer benefits attributable to Xionics' or Oak's
products; developments in Xionics' or Oak's markets and strategic focus; new
products and product enhancements; potential acquisitions and the integration of
acquired businesses, products and technologies; strategic relationships; and
future economic, business and regulatory conditions. Forward-looking statements
relate to expectations concerning matters that are not historical facts. Words
such as "projects," "believes," "anticipates," "plans," "expects," "estimates,"
"intends," and similar words and expressions are intended to identify
forward-looking statements. Although each of Xionics and Oak believes that these
forward-looking statements are reasonable, neither can assure you that these
expectations will prove to be correct. Important discussion regarding factors
that could cause actual results to differ materially from these expectations is
disclosed in this joint proxy statement/prospectus in the "Risk Factors" section
beginning on page 4 and elsewhere throughout this document. All forward-looking
statements attributable to Xionics or Oak are subject to these risk factors as
well as others which management may not be able to anticipate at the present
time. None of Xionics, Oak or the combined company undertakes any obligation to
update any forward-looking statements.
TRADEMARKS
This document contains trademarks of Xionics and Oak, and may contain
trademarks of others.
19
<PAGE>
OAK SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data should be read
in conjunction with Oak's consolidated financial statements and related notes
thereto and Oak's "Management Discussion and Analysis of Financial Condition and
Results of Operations" incorporated by reference in this joint proxy
statement/prospectus from Oak's Annual Report on Form 10-K/A for the fiscal year
ended June 30, 1999. The selected data presented below for the three month
periods ended September 30, 1999 and 1998 are derived from Oak's unaudited
consolidated financial statements incorporated by reference elsewhere in this
document. The consolidated statements of operations data and cash flows for
years ended June 30, 1997, 1998 and 1999, and the consolidated balance sheet
data at June 30, 1998 and 1999, are derived from the consolidated financial
statements of Oak that have been audited by KPMG LLP, independent public
accountants, and are incorporated by reference in this document from Oak's
Annual Report on Form 10-K/A for the fiscal year ended June 30, 1999. The
consolidated statements of operations data and cash flows for years ended June
30, 1995 and 1996, and the consolidated balance sheet data at June 30, 1995,
1996 and 1997, are derived from the unaudited consolidated financial statements
of Oak that are not included or incorporated by reference in this joint proxy
statement/prospectus. Historical results are not necessarily indicative of the
results to be expected in the future. Amounts shown are in thousands, except per
share data.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1998 1999
--------- --------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues................ $ 110,982 $ 247,984 $ 167,395 $ 157,106 $ 71,051 $ 19,697 $ 10,142
Gross profit................ 54,616 109,485 94,181 74,548 31,432 10,466 9,501
Operating expenses:
Research and
development............. 14,646 30,718 34,660 49,658 51,107 13,134 12,139
Selling, general and
administrative.......... 10,530 16,783 21,673 30,905 35,109 8,394 7,463
Acquisition related
expenses................ -- 4,837 5,000 1,323 7,161 7,161 --
Restructuring charges..... -- -- -- 1,766 -- -- --
Operating income (loss)..... 29,440 57,147 32,848 (9,104) (61,946) (19,188) (14,511)
Net income (loss)........... $ 21,222 $ 37,133 $ 23,719 $ 5,947 $ (50,669) $ (14,179) $ (12,186)
Diluted income (loss) per
share..................... $ 0.67 $ 0.87 $ 0.55 $ 0.14 $ (1.24) $ (0.35) $ (0.30)
Shares used in diluted per
share calculations........ 31,474 42,614 42,757 42,493 40,819 40,928 41,086
STATEMENT OF CASH FLOWS
DATA:
Net cash provided by (used
for) operating
activities................ $ 22,530 $ 30,716 $ 65,350 $ 12,215 $ (12,729) $ 7,453 $ (3,731)
Net cash used for investing
activities................ (29,515) (119,711) (24,133) (28,957) (23,929) 15,213 (2,045)
Net cash provided by (used
in) financing
activities................ 129,326 8,793 1,458 (11,064) (3,511) (1,045) (161)
<CAPTION>
SEPTEMBER
30,
1999
-----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments.... $ 150,943 $ 113,284 $ 145,269 $ 117,225 $ 133,203 $ 126,883
Working capital............. 156,258 134,686 168,168 144,314 150,936 139,917
Total assets................ 193,953 256,308 287,595 261,411 203,841 190,069
Long-term debt, excluding
current portion........... 2,227 2,858 2,496 27 5 --
Total stockholders'
equity.................... $ 162,643 $ 210,827 $ 238,697 $ 241,208 $ 189,422 $ 176,689
</TABLE>
20
<PAGE>
XIONICS SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data should be read
in conjunction with Xionics' consolidated financial statements and related notes
thereto and Xionics' "Management Discussion and Analysis of Financial Condition
and Results of Operations" incorporated by reference in this joint proxy
statement/prospectus from Xionics' Annual Report on Form 10-K/A for the fiscal
year ended June 30, 1999. The selected data presented below for the three month
periods ended September 30, 1999 and 1998 are derived from Xionics' unaudited
consolidated financial statements incorporated elsewhere in this document. The
consolidated statements of operations data and cash flows for years ended June
30, 1997, 1998 and 1999, and the consolidated balance sheet data at June 30,
1998 and 1999, are derived from the consolidated financial statements of Xionics
that have been audited by Arthur Andersen LLP, independent public accountants,
and are incorporated by reference in this document from Xionics' Annual Report
on Form 10-K/A for the fiscal year ended June 30, 1999. The consolidated
statements of operations data and cash flows for years ended June 30, 1995 and
1996, and the consolidated balance sheet data at June 30, 1995, 1996 and 1997,
are derived from the unaudited consolidated financial statements of Xionics that
are not included or incorporated by reference in this joint proxy statement/
prospectus. Historical results are not necessarily indicative of the results to
be expected in the future. Amounts shown are in thousands, except per share
data.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1998 1999
--------- --------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................... $ 4,758 $ 13,172 $ 29,179 $ 29,101 $ 31,403 $ 7,251 $ 8,981
Gross profit...................... 4,164 11,883 25,530 17,846 21,656 5,020 6,228
Operating expenses:
Research and development........ 3,834 8,125 13,428 15,544 12,198 3,312 2,862
Selling, general and
administrative................ 3,311 5,720 7,144 6,996 7,104 1,568 1,946
Acquisition related expenses.... 3,492 -- 5,400 -- -- -- --
Nonrecurring charges............ -- -- -- 6,690 -- -- --
Operating income (loss)........... (6,472) (1,962) (442) (11,384) 2,354 140 1,419
Net income (loss)................. $ (6,025) $ (1,533) $ 852 $ (16,252) $ 2,817 $ 279 $ 1,448
Diluted income (loss) per share... $ (4.54) $ (1.01) $ 0.07 $ (1.37) $ 0.22 $ 0.02 $ 0.11
Shares used in diluted per share
calculations.................... 1,327 1,518 12,081 11,831 12,815 12,924 12,630
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used for)
operating activities............ $ (549) $ 429 $ (2,247) $ (1,821) $ 9,875 $ (1,697) $ 5,013
Net cash used for investing
activities...................... (154) (1,712) (8,408) (5,375) (941) (272) (823)
Net cash provided by (used in)
financing activities............ 1,079 2,172 29,383 1,595 (3,859) (278) (70)
<CAPTION>
SEPTEMBER
30,
1999
-----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments.......... $ 1,226 $ 2,760 $ 20,844 $ 15,243 $ 20,318 $ 24,438
Working capital (deficit)......... (2,365) (28,343) 26,872 15,766 15,361 16,846
Total assets...................... 6,888 9,110 42,297 33,933 34,713 37,440
Long-term debt, excluding current
portion......................... 4,849 2,658 -- 575 -- --
Total stockholders' equity........ $ (5,377) $ (6,570) $ 35,278 $ 19,519 $ 19,057 $ 21,011
</TABLE>
21
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following selected unaudited pro forma combined condensed financial data
is derived from the Unaudited Pro Forma Combined Condensed Financial Statements
and notes thereto included elsewhere in this joint proxy statement/prospectus,
which show results as if Oak and Xionics had been combined as of the beginning
of the period shown, and should be read in conjunction with such Unaudited Pro
Forma Combined Condensed Financial Statements and notes thereto.
The selected pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the consolidated operating results or
financial position that would have occurred had the merger been completed at the
beginning of the periods presented, nor is it necessarily indicative of future
operating results or financial position.
The unaudited pro forma combined results should be read in conjunction with
the historical consolidated financial statements and notes thereto set forth
elsewhere in this joint proxy statement/ prospectus and other financial
information pertaining to Oak and Xionics including "Risk Factors" and the
consolidated financial statements and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of Oak
and Xionics incorporated by reference in this joint proxy statement/prospectus.
Amounts shown are in thousands, except per share data.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JUNE 30, 1999 SEPTEMBER 30, 1999
------------- -------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA (UNAUDITED):
Net revenues.................................................................. $ 102,359 $ 19,123
Gross profit.................................................................. 53,088 11,298
Operating expenses:
Research and development.................................................... 63,305 15,001
Selling, general and administrative......................................... 42,213 9,409
In-process research and development expenses................................ 7,161 --
Amortization of goodwill and other intangible assets........................ 12,222 3,008
Operating loss................................................................ (71,813) (16,120)
Net loss...................................................................... $ (60,073) $ (13,746)
Diluted loss per share........................................................ $ (1.20) $ (0.27)
Shares used in diluted per share calculations................................. 50,213 50,480
BALANCE SHEET DATA (UNAUDITED):
Cash, cash equivalents and short-term investments............................. $ 119,130 $ 117,320
Working capital............................................................... 132,705 122,562
Total assets.................................................................. 252,538 241,139
Long-term debt, excluding current portion..................................... 5 --
Total stockholders' equity.................................................... $ 224,473 $ 212,130
</TABLE>
22
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables reflect (a) the historical net income (loss) and book
value per share of Oak and Xionics common stock in comparison with the unaudited
pro forma net income (loss) and book value per share after giving effect to the
merger, (b) the equivalent historical net income (loss) and book value per share
attributable to 0.8031 of a share of Oak common stock which will be received for
each share of Xionics common stock in the merger and (c) the equivalent pro
forma combined net income (loss) and book value per share attributable to one
share of Xionics common stock.
The historical book value per share is computed by dividing shareholders'
equity by the number of shares of common stock outstanding at the end of each
period. The pro forma combined book value per share is computed by dividing pro
forma shareholder's equity by the pro forma number of shares of Oak common stock
outstanding after the issuance of Oak common stock in exchange for the
outstanding shares of Xionics common stock in the merger.
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon conversion of convertible preferred
stock (using the if-converted method) and shares issuable upon the exercise of
stock options and warrants (using the treasury stock method). Common equivalent
shares are excluded from the computations if their effect is antidilutive.
The pro forma combined basic and diluted net loss per share is computed
using the weighted average number of shares of common stock outstanding after
the issuance of Oak common stock in exchange for the outstanding shares of
Xionics common stock in the merger. Common equivalent shares are excluded from
the computations if their effect is antidilutive.
The equivalent pro forma combined per Xionics share is calculated by
multiplying the pro forma combined share amounts by the exchange ratio of 0.8031
shares of Oak common stock for each share of Xionics common stock.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
OAK PER SHARE DATA JUNE 30, 1999 SEPTEMBER 30, 1999
- ------------------------------------------------------ ----------------- ---------------------
<S> <C> <C>
OAK HISTORICAL PER COMMON SHARE:
Net income (loss) per common share--basic............. $ (1.24) $ (0.35)
Net income (loss) per common share--diluted........... $ (1.24) $ (0.35)
Book value per share.................................. $ 4.64 $ 4.31
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
XIONICS PER SHARE DATA JUNE 30, 1999 SEPTEMBER 30, 1999
- ------------------------------------------------------ ------------------- ---------------------
<S> <C> <C>
XIONICS HISTORICAL PER COMMON SHARE:
Net income (loss) per common share--basic............. $ 0.23 $ 0.12
Net income (loss) per common share--diluted........... $ 0.22 $ 0.11
Book value per share.................................. $ 1.66 $ 1.66
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
OAK AND XIONICS PER SHARE DATA JUNE 30, 1999 SEPTEMBER 30, 1999
- ------------------------------------------------------ ----------------- ---------------------
<S> <C> <C>
OAK AND XIONICS PRO FORMA COMBINED:
Net income (loss) per Oak share--basic................ $ (1.20) $ (0.27)
Net income (loss) per Oak share--diluted.............. $ (1.20) $ (0.27)
Book value per Oak share.............................. $ 4.47 $ 4.20
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
XIONIC EQUIVALENT PER SHARE DATA:
Net income (loss) per equivalent Xionics
share--basic............................. $ (0.96) $ (0.22)
Net income (loss) per equivalent Xionics
share--diluted........................... $ (0.96) $ (0.22)
Book value per equivalent Xionics share.... $ 3.59 $ 3.37
</TABLE>
24
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
Oak's common stock is traded on The Nasdaq National Market under the symbol
"OAKT." The following table sets forth the range of high and low closing sales
prices reported on The Nasdaq National Market for Oak common stock for the
periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
YEAR ENDING JUNE 30, 1997
First Quarter.............................................................. $ 11.00 $ 5.50
Second Quarter............................................................. $ 13.75 $ 8.69
Third Quarter.............................................................. $ 14.56 $ 9.50
Fourth Quarter............................................................. $ 10.50 $ 7.56
YEAR ENDING JUNE 30, 1998
First Quarter.............................................................. $ 12.00 $ 9.31
Second Quarter............................................................. $ 11.50 $ 6.03
Third Quarter.............................................................. $ 7.56 $ 5.59
Fourth Quarter............................................................. $ 6.44 $ 4.25
YEAR ENDING JUNE 30, 1999
First Quarter.............................................................. $ 4.63 $ 2.00
Second Quarter............................................................. $ 4.81 $ 1.88
Third Quarter.............................................................. $ 4.18 $ 3.00
Fourth Quarter............................................................. $ 4.56 $ 2.91
DATE PRECEDING PUBLIC ANNOUNCEMENT
July 29, 1999 (Closing Price).............................................. $ 3.94
</TABLE>
Xionics' common stock is traded on The Nasdaq National Market under the
symbol "XION." The following table sets forth the range of high and low closing
sales prices reported on The Nasdaq National Market for Xionics common stock for
the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
YEAR ENDING JUNE 30, 1997
First Quarter............................................................ $ 15.00 $ 14.25
Second Quarter........................................................... $ 15.25 $ 12.00
Third Quarter............................................................ $ 21.25 $ 12.00
Fourth Quarter........................................................... $ 15.75 $ 10.75
YEAR ENDING JUNE 30, 1998
First Quarter............................................................ $ 18.00 $ 10.25
Second Quarter........................................................... $ 19.63 $ 3.19
Third Quarter............................................................ $ 6.38 $ 3.47
Fourth Quarter........................................................... $ 7.75 $ 4.00
YEAR ENDING JUNE 30, 1999
First Quarter............................................................ $ 5.00 $ 3.06
Second Quarter........................................................... $ 4.88 $ 2.13
Third Quarter............................................................ $ 3.59 $ 2.69
Fourth Quarter........................................................... $ 4.47 $ 2.94
DATE PRECEDING PUBLIC ANNOUNCEMENT
July 29, 1999 (Closing Price)............................................ $ 5.06
</TABLE>
25
<PAGE>
RECENT SHARE PRICES
The following table sets forth the closing sales prices per share of Oak
common stock on The Nasdaq National Market and the closing sales prices per
share of Xionics common stock on The Nasdaq National Market, on (1) July 29,
1999, the last full trading date prior to the public announcement of the merger,
and (2) December 8, 1999, the latest practicable trading day before the printing
of this joint proxy statement/prospectus. The equivalent Xionics per share price
as of any given date, including the dates indicated, is determined by
multiplying the price of one share of Oak common stock as of that date by 0.8031
and adding $2.94, the exchange ratio set forth in the merger agreement plus the
cash portion of the merger consideration, and represents what the value of one
share of Xionics common stock would have been if the merger had been consummated
on or prior to that day.
<TABLE>
<CAPTION>
OAK XIONICS EQUIVALENT
COMMON COMMON XIONICS PER
STOCK STOCK SHARE PRICE
----------- ----------- -------------
<S> <C> <C> <C>
July 29, 1999................................................................... $ 3.94 $ 5.06 $ 6.10
December 8, 1999................................................................ $ 6.19 $ 7.50 $ 7.91
</TABLE>
No assurance can be given as to the market prices of Oak common stock or
Xionics common stock at any time before the closing of the merger or as to the
market price of Oak common stock at any time after the merger. The exchange
ratio is fixed and will not be adjusted to compensate Xionics' stockholders for
decreases in the market price of Oak common stock which could occur before the
merger becomes effective. If the market price of Oak common stock decreases or
increases prior to the effective time of the merger, the market value of the Oak
common stock to be received in the merger in exchange for Xionics common stock
will correspondingly decrease or increase. STOCKHOLDERS OF XIONICS ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS OF XIONICS COMMON STOCK AND OAK COMMON STOCK.
DIVIDEND INFORMATION
Neither Oak nor Xionics has ever paid any cash dividends on their stock, and
both anticipate that they will continue to retain any earnings for the
foreseeable future for use in the operation of their respective businesses.
NUMBER OF STOCKHOLDERS
As of December 6, 1999, there were 318 stockholders of record who held
shares of Oak common stock and as of November 24, 1999, there were approximately
2,000 stockholders of record who held shares of Xionics common stock.
26
<PAGE>
THE XIONICS SPECIAL MEETING
DATE, TIME AND PLACE OF THE XIONICS SPECIAL MEETING
The Xionics special meeting will be held on January 11, 2000, at 12:00 noon,
local time, at Xionics' office at 70 Blanchard Road, Burlington, Massachusetts
01803.
MATTERS TO BE CONSIDERED AT THE XIONICS SPECIAL MEETING
At the Xionics special meeting, stockholders of Xionics will be asked to
approve the merger and to transact any other business as may properly come
before the Xionics special meeting or any postponements or adjournments of that
meeting.
RECORD DATE FOR VOTING ON THE MERGER; STOCKHOLDERS ENTITLED TO VOTE
Only stockholders of record of Xionics common stock at the close of business
on November 24, 1999 (the "Xionics record date"), are entitled to notice of and
to vote at the Xionics special meeting. As of the close of business on the
Xionics record date, there were 11,777,187 shares of Xionics common stock
outstanding and entitled to vote, held of record by approximately 2,000
stockholders. Each Xionics stockholder is entitled to one vote for each share of
Xionics common stock held as of the Xionics record date.
VOTING AND REVOCATION OF PROXIES
The Xionics proxy accompanying this document is solicited on behalf of the
Xionics board of directors. Xionics stockholders are requested to complete, date
and sign the accompanying proxy and promptly return it in the accompanying
envelope or otherwise mail it to Xionics. A number of brokerage firms and banks
offer telephone and Internet voting options. If your shares are registered in
street name, check the information forwarded by your bank or broker to see which
options are available to you. Please see the accompanying proxy for more
information.
All properly executed proxies received by Xionics prior to the Xionics
special meeting that are not revoked, will be voted at the Xionics special
meeting in accordance with the instructions indicated on the proxies or, if no
direction is indicated, to approve the merger. Xionics' board of directors does
not presently intend to bring any other business before the Xionics special
meeting and, so far as is known as of the date of this document, no other
matters are to be brought before the Xionics special meeting. As to any other
business that may properly come before the Xionics special meeting, however, it
is intended that proxies, in the form enclosed, will be voted in accordance with
the judgment of the persons voting those proxies. A Xionics stockholder who has
given a proxy may revoke it at any time before it is exercised at the Xionics
special meeting by (1) delivering to the Secretary of Xionics a written notice,
bearing a date later than the date of the proxy, stating that the proxy is
revoked, (2) signing and delivering a proxy relating to the same shares and
bearing a later date than the date of the previous proxy prior to the vote at
the Xionics special meeting or (3) attending the Xionics special meeting and
voting in person.
STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE MERGER
Approval of the merger by Xionics' stockholders is required by the Delaware
General Corporation Law and Xionics' Certificate of Incorporation. This approval
requires the affirmative vote of the holders of a majority of the shares of
Xionics common stock outstanding and entitled to vote at the Xionics special
meeting. Abstentions and broker non-votes are not affirmative votes and,
therefore, will have the same effect as votes against approval of the merger. IN
ADDITION, THE REQUIRED VOTE OF THE STOCKHOLDERS OF XIONICS IS BASED UPON THE
NUMBER OF OUTSTANDING SHARES OF XIONICS COMMON STOCK
27
<PAGE>
RATHER THAN UPON THE SHARES ACTUALLY VOTED IN PERSON OR BY PROXY AT THE XIONICS
SPECIAL MEETING. THEREFORE, IF THE HOLDERS OF ANY XIONICS SHARES FAIL TO EITHER
SUBMIT A PROXY OR VOTE IN PERSON AT THE XIONICS SPECIAL MEETING, THIS FAILURE
WILL HAVE THE SAME EFFECT AS A VOTE AGAINST APPROVAL OF THE MERGER.
On the same day that the merger agreement was signed, directors and certain
executive officers of Xionics who collectively owned approximately 6.2% of
Xionics' outstanding common stock entered into voting agreements with Oak,
agreeing to vote all of their shares of Xionics stock for approval of the
merger.
BOARD RECOMMENDATION
XIONICS' BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND BELIEVES
THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND THAT THE MERGER IS IN
THE BEST INTERESTS OF, XIONICS AND ITS STOCKHOLDERS AND THEREFORE RECOMMENDS
THAT XIONICS STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER.
THE MATTERS TO BE CONSIDERED AT THE XIONICS SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF XIONICS. ACCORDINGLY, XIONICS' STOCKHOLDERS
ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS
DOCUMENT, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY
CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
YOU SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARD. A
transmittal form with instructions for the surrender of certificates for Xionics
common stock will be mailed to you as soon as practicable after completion of
the merger. For more information regarding the procedures for exchanging your
Xionics stock certificates for Oak stock certificates, please see the section
entitled "Procedures for Exchanging Stock Certificates" on page 60 of this joint
proxy statement/prospectus.
28
<PAGE>
THE OAK ANNUAL MEETING
DATE, TIME AND PLACE OF THE OAK ANNUAL MEETING
The 1999 Oak annual meeting will be held on Tuesday, January 11, 2000, at
9:00 a.m., local time, at the Santa Clara Marriott Hotel, 2700 Mission College
Boulevard, Santa Clara, California.
MATTERS TO BE CONSIDERED AT THE OAK ANNUAL MEETING
At the Oak annual meeting, stockholders of Oak will be asked to:
- approve the share issuance in connection with the merger;
- approve the amendment to Oak's restated certificate of incorporation to
authorize an additional 70,000,000 shares of common stock;
- approve the election of two Class II directors for a three-year term or
until their successors are elected and qualified;
- approve the ratification of KPMG LLP, independent public accountants for
the fiscal year ending June 30, 2000; and
- transact any other business as may properly come before the Oak annual
meeting or any postponements or adjournments of that meeting.
RECORD DATE FOR VOTING ON THE SHARE ISSUANCE STOCKHOLDERS ENTITLED TO VOTE
Only stockholders of record of Oak common stock at the close of business on
December 6, 1999 (the "Oak record date"), are entitled to notice of and to vote
at the Oak annual meeting. As of the close of business on the Oak record date,
there were 40,881,445 shares of Oak common stock outstanding and entitled to
vote, held of record by 318 stockholders. Each Oak stockholder is entitled to
one vote for each share of Oak common stock held as of the Oak record date.
VOTING AND REVOCATION OF PROXIES
The Oak proxy accompanying this document is solicited on behalf of Oak's
board of directors. Oak stockholders are requested to complete, date and sign
the accompanying proxy and promptly return it in the accompanying envelope or
otherwise mail it to Oak. Arrangements have been made for you to vote via a
toll-free telephone number or via the internet. Instructions for a stockholder
of record to vote by telephone or the internet are set forth on the enclosed
proxy card. Stockholders may vote telephonically by calling EquiServe at
1-877-779-8683 or may vote via the Internet at the following address on the
World Wide Web: www.eproxyvote.com/oakt. A number of brokerage firms and banks
offer telephone and Internet voting options. These programs differ from the
program provided by EquiServe for shares registered in the name of the
stockholder. If your shares are registered in street name, check the information
forwarded by your bank or broker to see which options are available to you. The
telephone and internet voting procedures are designed to authenticate votes cast
by use of a personal identification number. These procedures, which comply with
Delaware law, enable stockholders to appoint a proxy to vote their shares and to
confirm that their instructions have been properly recorded. Stockholders voting
via the Internet should understand that there may be costs associated with
electronic access, such as usage charges from telephone companies and Internet
access providers, that must be borne by the stockholder. Please see the
accompanying proxy for more information.
All properly executed proxies received by Oak prior to the Oak annual
meeting that are not revoked, will be voted at the Oak annual meeting in
accordance with the instructions indicated on the proxies or, if no direction is
indicated, to approve the share issuance, approve the amendment to Oak's
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restated certificate of incorporation to authorize additional shares of common
stock, approve the election of the Class II director nominees and ratify KPMG
LLP as independent public accountants for the fiscal year ending June 30, 2000.
Oak's board of directors does not presently intend to bring any other business
before the Oak annual meeting and, so far as is known as of the date of this
document, no other matters are to be brought before the Oak annual meeting. As
to any other business that may properly come before the Oak annual meeting,
however, it is intended that proxies, in the form enclosed, will be voted in
accordance with the judgment of the persons voting those proxies. An Oak
stockholder who has given a proxy may revoke it at any time before it is
exercised at the Oak annual meeting by (1) delivering to the Secretary of Oak a
written notice, bearing a date later than the date of the proxy, stating that
the proxy is revoked, (2) signing and delivering a proxy relating to the same
shares and bearing a later date than the date of the previous proxy prior to the
vote at the Oak annual meeting, (3) by using the telephone or internet voting
procedures or (4) attending the Oak annual meeting and voting in person.
STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE SHARE ISSUANCE AND OTHER PROPOSALS
Approval of the issuance of the shares of Oak common stock by Oak's
stockholders is required by the rules and regulations of the Nasdaq National
Market on which the shares of Oak common stock are traded. This approval
requires the affirmative vote of the holders of a majority of the shares of Oak
common stock represented in person or by proxy at the 1999 Oak annual meeting.
Abstentions and broker non-votes are counted as present for purposes of
determining whether a quorum exists but will have the same effect as votes
against approval of the share issuance. Furthermore, for Oak to effect the share
issuance in connection with the merger, Oak stockholders must approve the
amendment to Oak's restated certificate of incorporation. There can be no
assurance that the merger will be consummated unless both these proposals are
approved.
Approval of the amendment to Oak's restated certificate of incorporation
authorizing 40,000,000 additional shares of common stock requires the
affirmative vote of the holders of a majority of Oak's outstanding common stock.
Abstentions and broker non-votes will have the same effect as votes against
approval of the amendment.
With respect to the proposal to elect two Class II directors, the two
nominees receiving the greatest number of votes will be elected, even if they
receive less than a majority of shares present and entitled to vote. Abstentions
are not counted towards the tabulation of votes cast for the election of
directors.
The affirmative vote of holders of a majority of the shares represented in
person or by proxy at the 1999 Oak annual meeting is required to ratify the
selection of KPMG LLP as independent public accountants for the fiscal year
ended June 30, 2000.
BOARD RECOMMENDATION
OAK'S BOARD OF DIRECTORS HAS APPROVED THE MERGER AND BELIEVES THAT THE TERMS
OF THE MERGER AGREEMENT ARE FAIR TO, AND THAT THE MERGER AND THE SHARE ISSUANCE
ARE IN THE BEST INTEREST OF, OAK AND ITS STOCKHOLDERS AND THEREFORE RECOMMENDS
THAT THE HOLDERS OF OAK CAPITAL STOCK VOTE FOR APPROVAL OF THE SHARE ISSUANCE.
OAK'S BOARD OF DIRECTORS ALSO RECOMMENDS APPROVAL OF THE PROPOSALS TO AMEND
OAK'S RESTATED CERTIFICATE OF INCORPORATION TO AUTHORIZE THE ADDITIONAL SHARES
OF COMMON STOCK, ELECT ITS CLASS II DIRECTOR NOMINEES TO OAK'S BOARD OF
DIRECTORS AND APPROVE KPMG LLP AS OAK'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
FISCAL YEAR ENDING JUNE 30, 2000.
The matters to be considered at the Oak annual meeting are of great
importance to the stockholders of Oak. Accordingly, Oak's stockholders are urged
to read and carefully consider the information presented in this document, and
to complete, date, sign and promptly return the enclosed proxy card in the
enclosed postage-paid envelope.
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THE MERGER
GENERAL
This section of the document describes aspects of the proposed merger that
we consider to be important. The discussion of the merger in this document and
the description of the principal terms of the merger agreement are only
summaries of the material features of the proposed merger. You can obtain a more
complete understanding of the merger by reading the merger agreement, a copy of
which is attached to this document as APPENDIX A. You are encouraged to read the
merger agreement and the other appendices to this document in their entirety.
BACKGROUND OF THE MERGER
During the past eighteen months, under the direction of the Xionics Board of
Directors, senior management of Xionics has undertaken a strategy to expand
Xionics' leadership in providing PDL technologies by improving the functionality
of its products to support color, network connectivity, multi-function
peripheral application and Internet printing capabilities. Xionics' management
believes that opportunities for revenue growth from the licensing of PDL
technologies depends on continued licensing of these technologies by Xionics to
OEMs and the deployment of these technologies in internally-sourced OEM
products. In order to remain competitive, Xionics and its OEMs are required to
develop and release in a regular and timely manner new office products with
increased speed, enhanced output resolutions, reduced memory requirements,
multiple functions, and network connectivity. In particular, Xionics' OEMs are
under tremendous pressure to continually shorten the development cycles of these
products, leading to increased complexity and cost of development.
The Xionics Board of Directors and senior management concluded that in order
for Xionics to increase revenues in the intensely competitive and ever-changing
marketplace, it had to provide more of a complete solution and gain a larger
share of the products outsourced by their OEMs. The Xionics Board of Directors
and senior management recognized that as OEMs outsourced more solutions to
suppliers who, in many cases, were also sublicensors of Xionics' competitors'
PDL and driver technologies, the opportunity to license Xionics' own technology
to these OEMs might diminish. As a result, senior management of Xionics
considered alternatives to improve Xionics' technology offerings and embarked on
a number of initiatives to ensure tighter integration between Xionics' embedded
and driver technologies and OEM's solutions. Xionics' management believed that
working with its OEM partners will permit Xionics to continue to compete in the
manner they historically have competed. However, in order to maximize revenue
growth and stockholder returns, management believes Xionics will need to expand
its operations to support the development and deployment of complete solutions.
Beginning in June 1998, the Xionics Board of Directors directed management
to engage in an effort to expand Xionics' relationships with existing partners
and to create new technology partnerships. Xionics' management contacted several
of Xionics' major competitors and technology partners to discuss possibilities
for partnerships in developing and deploying technologies. Among the
relationships considered by Xionics were cross-licensing opportunities,
distribution agreements and other joint marketing relationships.
Among the entities contacted by Xionics and with whom management of Xionics
had several discussions regarding various joint efforts was Pixel Magic, Inc., a
subsidiary of Oak also known as Oak's imaging group. By combining the strengths
of Xionics' embedded software and Oak's imaging group's Pixel Magic brand of
semiconductor solutions, including image processors, Xionics believed that a
partnership with Oak's imaging group represented an excellent opportunity to
offer Xionics' customers an integrated and flexible platform which would serve
to help Xionics achieve its goal of providing full-solution product
capabilities. Xionics was well acquainted with Oak's imaging group prior to
engaging in these most recent conversations. Since 1993, Xionics and Oak's
imaging group have had business relationships under various separate
technology-license arrangements. Pursuant to these
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arrangements, Oak's imaging group licenses to Xionics certain technology for use
in future solution designs planned by Xionics, and Xionics licenses to Oak's
imaging group certain technology for incorporation by Oak's imaging group in
certain of its solutions. These arrangements permitted each party to obtain
technologies they had not otherwise developed but which were required in order
to provide complete solutions for the digital office market they serve.
After June 30, 1998, senior management of Xionics also contacted a number of
potential partners for Xionics to assess their level of interest in entering
into a technology distribution agreement or similar transaction. In one such
instance, in December 1998, senior management of Xionics and a publicly-traded
software company (Company A) pursued detailed discussions regarding a
combination of their two companies. The discussions between Xionics and Company
A contemplated a combination of their two companies through a transaction
structured as a "merger of equals". The parties focused significant attention on
the percentage of stock of Company A that Xionics stockholders would hold after
the proposed combination, which ranged from 35-40%, although no agreement on
this point was ever achieved. The parties discussed that in the proposed merger,
stockholders of Xionics would receive shares of stock of Company A with a value
that represented a premium in a range of less than 10% to approximately 30% over
the average stock trading prices of Xionics during the period in which the
parties conducted these discussions depending on the percentage of stock to be
held by Xionics stockholders after the transaction. Furthermore, Xionics and
Company A never reached an agreement with respect to any particular exchange
ratio to be used in the proposed combination. The average trading price of
Xionics common stock in the period during which Xionics and Company A conducted
these discussions was approximately $3.375. Initial transaction documentation
was prepared by counsel for Xionics and Company A and the companies conducted
due diligence investigations of each other. In connection with these
discussions, Xionics engaged the services of Adams, Harkness & Hill, Xionics'
investment banking firm, whose relationship with Xionics is described in more
detail below, to provide financial advice regarding the possible transaction.
However, in January 1999, the executive management of Xionics and Company A
terminated discussions because of disagreements over pricing and other factors.
The proposed combination discussed by Xionics with Company A was ultimately
rejected by the Xionics Board of Directors on the recommendation of Xionics
management.
None of the discussions conducted by management of Xionics regarding a
business combination, including the discussions described in the preceding
paragraph, ever resulted in a definitive agreement or binding offer to combine
with, or acquire, Xionics. Xionics' management ultimately concluded, based on
the failure to reach agreement with Company A and the reactions from these other
organizations, that continued discussions were not likely to produce a business
combination or other transaction on satisfactory terms or create better value
for Xionics stockholders than continuing as an independent entity.
In April 1999, Xionics and Oak's imaging group renewed their discussions to
enter into redistribution arrangements which would permit Xionics to utilize
Oak's imaging group technologies in Xionics products. These discussions followed
several months of periodic conversations between management of Oak's imaging
group and Xionics to determine other areas where the companies could work closer
together to develop more comprehensive solutions incorporating each other's
technologies. The negotiation of these redistribution arrangements continued
through the Spring of 1999.
On June 9, 1999, Young Sohn, Oak's chief executive officer, who had only
recently joined Oak in March 1999, and Peter Besen, vice president and general
manager of Oak's imaging group, met with Peter J. Simone, president and chief
executive officer of Xionics, and Robert L. Lentz, senior vice president and
chief financial officer of Xionics, at Xionics' headquarters in Burlington,
Massachusetts. The purpose of this meeting was primarily to introduce Mr. Sohn
to Xionics and to continue discussions regarding the redistribution arrangements
which had not yet been finalized. In addition, the parties also discussed the
possibility of entering into a joint marketing relationship under which Xionics
would use or recommend Oak's imaging group technologies. At this meeting,
Xionics and Oak also
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entered into a customary confidentiality agreement pursuant to which the parties
agreed to exchange limited financial, technological and other information
concerning their companies in connection with their discussions regarding the
redistribution agreement, joint marketing efforts and other unspecified business
opportunities.
During a business trip to California principally concerning other matters,
Mr. Simone met with Mr. Sohn again on June 11, 1999, to follow up on the earlier
meeting. At this meeting, the two chief executives expressed their commitment to
work together to complete the redistribution arrangements and to pursue other
mutually-beneficial business opportunities.
On June 23, 1999, Messrs. Sohn, Besen, Simone and Lentz met at Oak's imaging
group's offices in Andover, Massachusetts. At this meeting, the parties
continued to discuss the redistribution arrangements, as well as other business
opportunities. It was at this meeting that Mr. Sohn first proposed the
possibility of Oak and Xionics entering into a business combination transaction.
Although the parties discussed in broad terms the possibility of a business
combination, there were no discussions regarding the price or specific structure
of any transaction, and there was no definitive agreement or understanding
regarding future discussions. Mr. Simone indicated to Mr. Sohn that he would
consider and discuss with other members of Xionics' senior management team and
the Xionics Board of Directors the various matters discussed during this
meeting.
On June 28, 1999, Messrs. Simone and Lentz met again with Mr. Sohn at Oak's
headquarters in Sunnyvale, California. At this meeting, Messrs. Simone, Lentz
and Sohn again discussed the possibility of a business combination transaction
between Xionics and Oak. The parties did not, however, have any specific
discussions regarding pricing or structure of any transaction. The parties did
discuss the strategic advantages of a combined company, including the fit
between Xionics and Oak's imaging group, the strong working relationship that
already existed between Xionics and Oak's imaging group and the fact that a
combination of Xionics and Oak would increase the ability of the combined
company to provide full solutions to the printer market. In addition, Mr. Sohn
discussed Oak's business plan, financial prospects, market strategy and the
status of Oak's optical storage business.
On July 1, 1999, a special telephonic meeting of the Xionics Board of
Directors was held during which Mr. Simone reviewed for the first time with the
full Xionics Board of Directors the discussions held to date between he and Mr.
Sohn regarding a possible business combination. Mr. Simone described the
background of Xionics' relationship with Oak's imaging group, reviewed the
composition of Oak's management team, including Mr. Sohn's background, and the
discussions regarding a possible business combination between Oak and Xionics.
Mr. Simone also reviewed with the Xionics Board of Directors the results of his
conversations with other potential partners during the prior year. At this time,
at the direction of the Xionics Board of Directors, Mr. Simone engaged the
services of Adams, Harkness & Hill, Xionics' investment banking firm, to assist
Xionics in its consideration of a possible combination transaction with Oak and
the alternatives to that transaction, such as pursuing additional discussions
with other potential partners or remaining an independent stand-alone company.
Adams, Harkness & Hill had been regularly engaged by Xionics since Xionics
completed its initial public offering in 1996 to assist in the consideration by
Xionics of various alternatives to maximize shareholder value. At the conclusion
of this meeting, the Xionics Board of Directors directed senior management to
continue to engage in conversations with Oak regarding a possible business
combination and to continue to seek and obtain more information regarding Oak's
businesses. The Xionics Board of Directors also determined that Dr. Paul Low,
Chairman of the Xionics Board of Directors, should visit Oak to conduct further
due diligence related to Oak's optical business. Dr. Low was selected because of
his knowledge and expertise in the businesses in which Oak is engaged.
On July 3, 1999, in a telephone conference call between Messrs. Simone,
Lentz, Sohn and Robert O. Hersh, Oak's chief financial officer, Mr. Sohn
presented a broad outline of the terms of a business combination between Oak and
Xionics. During this and subsequent telephone conversations, a
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number of topics were discussed, including the structure of the transaction, a
range of prices at which the combination might be effected, as well as the form
of consideration which might be paid to stockholders of Xionics. Specifically,
the parties contemplated that Xionics would be merged either directly with Oak
or with a subsidiary of Oak and that Xionics stockholders would exchange their
shares of Xionics common stock for the transaction consideration. Messrs. Simone
and Sohn discussed whether this transaction consideration would consist of all
cash, all Oak stock or a combination of Oak stock and cash. In addition, the
parties also discussed whether the exchange ratio in the combination would be
fixed. Representatives of Adams, Harkness & Hill also participated in several of
these conversations. Representatives of Intellectual Capital Advisors, an
investment banking firm engaged by Oak to advise it on the merger, also
participated in several of these conversations on behalf of Oak.
The discussions between Oak and Xionics regarding price and the form of
consideration to be received by Xionics stockholders were conducted primarily in
the period commencing on July 2nd until the end of the week of July 19th. On
July 1, 1999, the business day immediately preceding these initial discussions,
the closing prices of Oak common stock and Xionics common stock on the Nasdaq
National Market were $3.75 per share and $4.469 per share, respectively. An
initial proposal from Oak contemplated a transaction in which stockholders of
Xionics would receive shares of Oak common stock in exchange for their shares of
Xionics common stock. The exchange ratio proposed by Oak did not reflect a
premium relative to the trading price of Xionics stock, meaning that Xionics
stockholders would receive shares of Oak common stock having a value
substantially equal to the then current trading price of Xionics common stock.
After Xionics' management rejected this proposal, on July 2, 1999, Oak formally
proposed a consideration structure which contemplated that stockholders of
Xionics would receive a combination of Oak common stock and cash in exchange for
their shares. This proposal contemplated that approximately 50% of the
consideration would be paid in cash and the remainder in stock based on an
exchange ratio fixed at closing. However, the proposal similarly provided that
Xionics stockholders would not receive consideration reflecting a premium
relative to the trading price of Xionics common stock. Based on the then current
Xionics common stock trading price of $4.469, this proposal would have entitled
stockholders of Xionics to receive approximately 0.59 shares of Oak common stock
and $2.23 in cash for each share of Xionics common stock. On July 2, 1999, the
closing price of Oak common stock was $3.78. Xionics management indicated to
Oak's management that this revised proposal was not acceptable and that any
proposal would have to reflect the receipt of consideration which reflected a
premium to the trading price of Xionics common stock.
Xionics and Oak held additional discussions on July 2nd, during which Oak
presented a new proposal to Xionics. This revised proposal continued to
contemplate that Xionics stockholders would receive a combination of Oak common
stock and cash in the merger. Oak proposed a fixed exchange ratio in which
Xionics stockholders would receive approximately $2.46 in cash and 0.6501 shares
of Oak common stock in exchange for their shares of Xionics common stock. This
proposal reflected a 10% premium over the then current trading price of Xionics
common stock of approximately $4.469 per share. Xionics management countered
that the total consideration still reflected a premium which was too low under
the circumstances. After discussion between the parties, Oak presented a
counteroffer to Xionics which proposed that stockholders continue to receive
total consideration consisting of cash and shares of Oak common stock, however,
Oak had increased the premium to 22.5%, with Xionics stockholders receiving
$2.74 in cash and 0.724 shares of Oak common stock. At this time, the parties
suspended price negotiations in order to conduct preliminary due diligence
investigations of the businesses of each company.
After continued discussion regarding the appropriateness of the premium to
be received by Xionics stockholders, during which Xionics management sought
greater total consideration, Oak increased the total consideration to reflect a
25% premium over the twenty (20) day average trading price of Xionics common
stock prior to the date of the announcement of the merger. Under this proposal,
Xionics stockholders would receive 51% of the total consideration in Oak common
stock and 49% of the total
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consideration in cash. The share price and exchange ratio were computed based on
the twenty (20) day average trading price of Xionics common stock prior to the
date of the announcement of the merger. This proposal was tentatively accepted
by Xionics subject to the negotiation of satisfactory transaction documentation
and completion of due diligence. With the advice of Adams, Harkness & Hill,
Xionics management concluded that the premium provided Xionics stockholders with
fair consideration in light of the cash portion of the purchase price and the
potential that Oak common stock would rise in value after the merger.
Although Oak and Xionics had reached a tentative understanding as to the
price and form of consideration in the merger by the end of this period, no
binding agreement had been reached as significant substantive issues remained to
be resolved between the parties, including the treatment of Xionics stock
options, employee benefit matters, and the financial penalties which might be
imposed on a party seeking to withdraw from the transaction. Prior to the
announcement of the merger, Oak and Xionics revisited the price discussions
several times to address concerns raised by the parties regarding the tax
treatment of the merger. In particular, Xionics management sought to ensure that
the proportion of Oak common stock and cash to be received in the merger would
permit the receipt of shares of Oak common stock in the merger to be tax-free to
Xionics stockholders. Finally, definitive documentation regarding the merger had
yet to be prepared and the parties agreed to conduct due diligence
investigations of their respective businesses.
On July 6, 1999, Dr. Low, Chairman of the Xionics Board of Directors, met
with senior representatives of Oak at Oak's headquarters to discuss Oak's
optical storage business.
On July 7, 1999, a special telephonic meeting of the Xionics Board of
Directors was held at which Mr. Simone reviewed for the Xionics Board of
Directors the status of his discussions to date with Mr. Sohn. Messrs. Simone
and Lentz reviewed with the Xionics Board of Directors the financial terms of
Mr. Sohn's initial proposal as well as the subsequent discussions between
Messrs. Simone and Sohn regarding that proposal. The Xionics Board of Directors
also discussed the future prospects of both Oak and Xionics, the current stock
trading prices of each company, as well as Mr. Simone's previous discussions
with other companies regarding possible business combinations with these
companies. Adams, Harkness & Hill also participated in this meeting and
presented its views with respect to the financial terms discussed with Oak.
Furthermore, Dr. Low discussed with the Xionics Board of Directors his meetings
with senior management of Oak regarding Oak's optical storage business. Finally,
the Xionics Board of Directors also discussed with management of Xionics the
potential synergies between Xionics' business and Oak's imaging group. The
Xionics Board of Directors directed management to consider whether a combination
of Xionics' and Oak's imaging group's businesses could successfully achieve the
synergies discussed, how the management of such a combined imaging business
would be structured and the appropriateness of gathering additional information
concerning Oak's optical storage business. The Xionics Board of Directors also
directed management to continue discussions with Mr. Sohn regarding a possible
business combination with Oak. Finally, the Xionics Board also directed
management to explore the possibility of Xionics acquiring Oak's imaging group
directly from Oak.
Following the July 7(th) Xionics Board of Directors meeting, Mr. Simone
resumed his conversations with Mr. Sohn. It was at this time that Mr. Simone
inquired as to whether Oak would consider selling its imaging group to Xionics.
Mr. Sohn indicated to Mr. Simone that as Oak's imaging group was considered an
integral part of Oak's overall business plan, Oak was not interested in selling
Oak's imaging group to Xionics. Messrs. Simone and Sohn continued their
conversations regarding the business combination between Xionics and Oak. Other
members of senior management of the two companies, as well as representatives of
Adams, Harkness & Hill and Intellectual Capital Advisors also participated in
these conversations. During the period between July 8(th) and July 18(th),
Messrs. Simone and Sohn spoke several times regarding the possible business
combination, although no definitive agreement was reached during this period.
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On July 19, 1999, a special meeting of the Xionics Board of Directors was
held, the purpose of which was to review the current status of senior
management's discussions with Oak regarding the proposed business combination as
well as to address the other matters the Xionics Board of Directors had directed
management to explore at the July 7(th) Xionics Board of Directors meeting. Mr.
Simone informed the Xionics Board of Directors that Oak had rejected Xionics'
proposal to acquire Oak's imaging group and that the discussions between him and
Mr. Sohn had largely centered on the possible business combination between the
two companies. Messrs. Sohn and Besen also attended portions of this Xionics
Board of Directors meeting and Mr. Sohn made a presentation to the Xionics Board
of Directors concerning the possible business combination and the future
prospects of Oak and those of the combined company. Mr. Sohn indicated his
willingness to devote significant management time toward developing and managing
a combined Xionics-Pixel Magic imaging business based in Massachusetts. At the
conclusion of this meeting, the Xionics Board of Directors directed management
to continue its discussions with Oak regarding the possible business
combination. The Xionics Board of Directors also directed management to inform
Xionics' outside legal advisors of the possible business combination.
During the remainder of the week of July 19(th), Messrs. Simone and Lentz
engaged in numerous telephone conversations with Mr. Sohn and other members of
senior management of Oak concerning the proposed terms of the possible business
combination. Adams, Harkness & Hill and Intellectual Capital Advisors
participated in many of these conversations. The discussions between Oak and
Xionics centered around the specific financial terms of the proposed
combination, including the form of consideration to be received by Xionics
stockholders and the range of prices. In addition, due diligence review of the
businesses of each of Oak and Xionics was conducted during this week.
Simultaneously, Oak's outside legal advisors, Brobeck, Phleger & Harrison LLP,
and Xionics' outside legal advisors, Bingham Dana LLP, began to draft and
negotiate the documentation with respect to a possible business combination.
On July 21, 1999, a special telephonic meeting of the Oak Board of Directors
was convened to review the status of discussions with Xionics' management and
information supporting management's proposal to combine with Xionics. Mr. Sohn
presented the business case for combining Xionics with Oak's imaging group,
describing how the complementary technological competencies and their respective
market leadership presented a strategic opportunity to develop more highly
integrated solutions which could cover the entire range of Oak's customers'
product platforms, thereby enlarging the total available market currently served
by Oak. Mr. Sohn also explained how the merger would benefit Oak's customers as
Oak would have visibility into their total product needs and could thereby
better develop products meeting their needs with higher performance based upon a
broad technology base and expanded expertise within the proposed combined
company. Mr. Sohn explained to the Oak Board that expanding Oak's technology
expertise and resources together with close interaction with customers, would
gain Oak a sustainable competitive advantage in the digital office market.
At this meeting, Mr. Hersh and Mr. Richard Marshall, President of
Intellectual Capital Advisors, discussed with the Oak Board of Directors the
financial advantages and risks related to a proposed combination with Xionics,
including comparative market valuations and financial overviews of Xionics'
competitors and average premiums associated with recent transactions involving
related industry software companies. Mr. Hersh presented consolidated pro forma
financial statements for a three-year period assuming the purchase method of
accounting. Mr. Marshall and Mr. Hersh also discussed the proposed structure of
the transaction and target purchase prices, which were agreed to in principal by
the Oak Board of Directors.
On July 23, 1999, a special telephonic meeting of the Xionics Board of
Directors was held, at which, Messrs. Simone and Lentz briefed the Xionics Board
on the current status of their negotiations with Oak. Representatives of Adams,
Harkness & Hill, Bingham Dana LLP and Testa, Hurwitz & Thibeault LLP, special
counsel to the Xionics Board, were also present at this meeting. The Xionics
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Board of Directors discussed at length the financial terms of the proposed
transaction as well as other issues of a nonfinancial nature. Adams, Harkness &
Hill reviewed with the Xionics Board of Directors the financial terms of the
proposed transaction and Bingham Dana LLP reviewed the other terms of the
transaction which had been proposed. The Xionics Board of Directors directed
management to continue to proceed with negotiations and to complete its due
diligence review of Oak's businesses and agreed to convene early the following
week.
Discussions and negotiations between the parties and their respective
financial and legal advisors continued throughout the weekend of July 24-25,
1999 and into the following week. During this period, each party conducted due
diligence, and senior management of Oak and Xionics were then separately briefed
on their findings. Messrs. Simone, Lentz, Sohn and Hersh frequently discussed
the financial and other terms of the possible business combination during this
period.
On July 26, 1999, the Oak Board of Directors held a regular meeting at which
senior management of Oak reviewed the status of their due diligence activities,
which included reports on the strategic benefits of a combination with Xionics
by Mr. Besen, a review of Xionics' financial statements and revenue recognition
policies by Mr. Hersh, a review of Xionics' intellectual property and
significant contracts and agreements by Ms. Shawn Soderberg, Oak's vice
president and general counsel and a review regarding Xionics' employee base and
benefits by Julie Murphy, Oak's vice president of human resources. Mr. Sohn
discussed the integration strategy with the Oak Board of Directors and Mr.
Marshall and Mr. Hersh presented an analysis supporting Oak's valuation of
Xionics and the determination of a range of purchase prices. The Oak Board
discussed the analysis presented and determined in light of the information and
various factors it deemed relevant that a price based on a fixed amount of stock
to be issued in the transaction was appropriate for the merger and would be fair
and in the best interests of Oak and its stockholders.
On July 27, 1999, a special telephonic meeting of the Xionics Board of
Directors was convened to permit management of Xionics to review with the
Xionics Board of Directors the current status of the negotiations with Oak.
Results of management's due diligence review of Oak's businesses and certain
other matters were also discussed with the Xionics Board. Messrs. Simone and
Lentz reported to the Xionics Board of Directors that significant progress had
been made on many of the open issues identified to the Xionics Board of
Directors at the most recent prior Xionics Board meeting. Messrs. Simone and
Lentz noted that significant terms remained subject to further negotiation,
including terms addressing conditions to closing the transaction, the
consequences of Xionics receiving an unsolicited proposal to engage in a
combination or transaction from a third party other than Oak, the consequences
of a termination of the combination, the treatment of Xionics stock options to
be assumed by Oak in the transaction and other non-financial terms. The Xionics
Board of Directors directed management to continue with negotiations with Oak
with a view toward completing the discussions prior to the next
regularly-scheduled Xionics Board meeting to be held on July 29, 1999.
Following this Xionics Board of Directors meeting, Messrs. Simone and Lentz,
together with Adams, Harkness & Hill and Bingham Dana LLP continued discussions
with Oak, Intellectual Capital Advisors and Brobeck, Phleger & Harrison LLP.
Resolution of remaining open issues was achieved during the period between July
27(th) and July 29(th).
On July 29, 1999, the Xionics Board of Directors held a regular meeting at
which senior management of Xionics reviewed its discussions and negotiations
with Oak regarding the possible business combination, as well as the results of
its due diligence investigation of Oak. Senior management and Adams, Harkness &
Hill presented detailed financial information with respect to Oak and the
potential transaction to the Xionics Board of Directors, and Adams, Harkness &
Hill rendered its oral opinion (which was subsequently confirmed in writing)
that, as of that date, the exchange ratio contemplated in the merger agreement
was fair to Xionics stockholders from a financial point of view. Mr. Simone also
reviewed with the Xionics Board of Directors the background of his discussions
with
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Mr. Sohn, Xionics' ongoing relationship with Pixel Magic and his conversations
with and inquiries to other potential business combination partners. Also at
this meeting, the Xionics Board of Directors reviewed with counsel to Xionics
the terms of the merger agreement and the legal standards applicable to its
decision to approve the merger agreement and the transactions contemplated by
that agreement. After questions by and discussion among the members of the
Xionics Board of Directors, and after consideration of the factors described
under "--Reasons for the Merger--XIONICS' REASONS FOR THE MERGER," the Xionics
Board of Directors voted unanimously to approve the merger agreement and the
transactions contemplated by that agreement.
On July 29, 1999, the Oak Board of Directors held a special telephonic
meeting at which senior management of Oak reviewed its discussions and
negotiations with Xionics regarding a business combination, as well as the
results of its due diligence investigation of Xionics. Senior management
presented detailed financial information with respect to Xionics and the
potential transaction to the Oak Board. Intellectual Capital Advisors was not
engaged to, and did not, provide any formal report or opinion as to the fairness
of the merger to the stockholders of Oak from a financial point of view.
Intellectual Capital Advisors supported Oak's management in formulating
negotiation strategies and reviewing documents prepared by Mr. Robert Hersh,
Oak's Chief Financial Officer, with respect to recent acquisitions of similar
companies, projected proforma financial statements of the combined operations of
Oak and Xionics, and analyses of direct competitors' financial data and market
valuations. Also at this meeting, the Oak Board reviewed with counsel to Oak the
terms of the merger agreement and the legal standards applicable to its decision
to approve the merger agreement and the transactions contemplated by that
agreement. After questions by and discussion among the members of the Oak Board,
and after consideration of the factors described under "--Reasons for the
Merger-- OAK'S REASONS FOR THE MERGER," the Oak Board voted unanimously to
approve the merger agreement and the transactions contemplated by that
agreement.
Xionics and Oak entered into the merger agreement on July 29, 1999.
The merger was jointly announced by Oak and Xionics during the early evening
of July 29, 1999.
REASONS FOR THE MERGER
OAK'S REASONS FOR THE MERGER
The Oak Board of Directors has determined that a merger with Xionics is in
the best interests of Oak and its stockholders, customers and employees.
Accordingly, the Oak Board of Directors has approved the merger agreement and
the consummation of the merger and recommends that the Oak stockholders approve
the issuance of Oak common stock in connection with the merger.
In reaching its decision to approve the merger agreement and the
transactions contemplated by that agreement, the Oak Board of Directors
consulted with Oak senior management as well as its legal counsel, independent
public accountants and independent financial advisor. The material factors
considered by the Oak Board of Directors in its deliberations were the
following:
- the Oak Board's familiarity with and review of Xionics' business, results
of operations, financial condition, technology, employee base, customers,
current product offerings, competitive position, earnings and prospects;
- the Oak Board's belief that, while no assurances could be given, the level
of integration risk was relatively low given that the technical projects
currently undertaken by Xionics and Oak were complementary and not
duplicative, both companies had a long-standing working relationship,
Xionics and Oak's imaging group are geographically closely located and the
culture of Xionics and Oak's imaging group is similar;
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- the financial and other terms of the merger agreement including the fact
that it provides for a fixed aggregate price of $79,299,000 with each
share of Xionics stock being converted into and exchangeable for $2.94 in
cash and .8031 shares of Oak common stock and the fact that this fixed
price limits the dilutive effect on Oak's current stockholders because,
regardless of any change in Oak's share price prior to the closing of the
merger, the number of Oak common shares issued in connection with the
merger is fixed at 10.5 million and the aggregate cash consideration is
fixed at $34,390,947.
- the Oak Board's knowledge and analysis of the fundamental changes
occurring in the digital office market, largely fueled by the Internet,
and the expected market growth created by these changes;
- the Oak Board's consideration of alternative options for developing more
highly integrated and complete hardware and software solutions for its
existing and prospective customers, including licensing competing embedded
digital page processing software;
- the Oak Board's determination that Oak's future competitive market
position in the digital office equipment market was dependent both on
developing higher integrated solutions and maintaining control over the
primary hardware and software cost. In this connection, the Oak Board of
Directors considered that licensing arrangements with larger companies
would not afford Oak sufficient assurance that it could control the cost
and development of critical software components;
- the Oak Board's knowledge of Xionics' excellent reputation with major
customers in the office equipment market, including Hewlett-Packard,
Ricoh, Canon and Xerox and its success in securing major design wins and
expanding their business opportunities at these customers against much
larger competitors;
- the Oak Board's conclusion that there is minimal duplication and therefore
potential areas for friction between Oak's and Xionics' engineering teams
as Oak and its expertise and technology are in hardware and systems for
the digital office market and Xionics' engineering team and its expertise
and technology are in software for the digital office market. This lack of
duplication led to the Oak Board's conclusion that the two companies
should be able to quickly optimize their respective technologies into new,
innovative product development initiatives by combining Oak's hardware
expertise with Xionics' software expertise to create complete solutions
for the digital office market;
- the Oak Board's review of data prepared by Oak's management and reviewed
by its financial advisors, Intellectual Capital Advisors, regarding
financial data and market valuations for direct competitors of Xionics and
Oak, and acquisitions over the last 18 months of 15 software companies in
related industries, for which the average premium over market valuation
paid for such companies was 32%. Further, competitors which had achieved
higher revenues and established market name recognition had market
valuations between 4.5 to 7.5 times current annualized revenues. The Board
concluded that the purchase of Xionics would significantly expand Oak's
product offerings and increase its total available market, which is likely
to enhance Oak's future market value;
- the consideration by the Oak Board of Oak's and Xionics' competitive
market positions, potential revenue growth and cost of operations over the
next three years, as well as additional operating efficiencies which could
be achieved by consolidating critical functions, such as sales and
marketing, and eliminating redundant administrative expenses, in
concluding that Oak could achieve higher revenue growth and operating
margins as a result of the acquisition of Xionics. Further, it was
determined that the acquisition would reduce Oak's current cash balances
by less than 15%; and
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- the Oak Board's review of the market conditions and the current business
of Xionics and Oak's imaging group and its determination that the merger
would provide the following benefits:
<TABLE>
<S> <C>
- - COMPLETE SOLUTIONS PROVIDER
Oak's imaging group with its Pixel Magic brand of product is a leading supplier of
integrated semiconductors to the digital office market. Xionics is a leading
provider of embedded software and technology, including digital page processing
software for the digital office market. Accordingly, through the merger, Oak will
enhance its position in the digital office market as a leading supplier of both
embedded software and integrated semiconductors and will have the ability to offer
customers a completely integrated hardware and software solution. By adding the
technology base and expertise of Xionics to its imaging group, Oak will have the
ability to optimize an architecture, with software, language, chips and controller
boards, on which original equipment manufacturers can quickly build high
performance, digital office systems.
- - EXPANSION OF FUNDAMENTAL STRATEGY FOR CONNECTED OFFICE
Distributed printing, widespread connectivity, multifunction peripherals and the
increasing use of color and images are stimulating the demand for high-performance,
cost-effective solutions. Through the merger with Xionics, Oak will have the
technology base, the technical expertise and a sufficient quantity of both
hardware, software and system engineers to develop the technically complex products
demanded by the changing market and to develop them in the time frame needed. In
addition, armed with software, hardware and systems technology and expertise, Oak
will have the ability to develop a completely integrated product, which lowers the
cost for the original equipment manufacturers.
- - ADDITIONAL MARKET OPPORTUNITY
With the digital office market demanding increased performance and faster time to
market, another trend driving demand in this market is the use of outsourcing by
the original equipment manufacturers. Through the merger with Xionics, Oak believes
it can capture a greater percentage of this outsourcing as it will now have the
ability to increase its product offerings by providing both embedded hardware and
software solutions as well as completely integrated platforms. In addition, Oak
believes that by having both a software and hardware technology base and expertise,
additional new opportunities will become available, possibly even through both
Xionics and Oak's current semiconductor customers, that would not have been
available if it could not offer a complete hardware and software solution.
- - SUSTAINABLE COMPETITIVE ADVANTAGE
First, by having both leading-edge software and hardware technology and technical
expertise, Oak believes it will be able to develop a more integrated and flexible
platform than any of its current competition, as they do not have this same broad,
leading technology base, thereby giving Oak a leading technology edge. In addition,
between Oak and Xionics, the two companies currently supply 7 of the top 10
original equipment manufacturers in the digital office market. By serving a
majority of the leading OEMs, Oak will have unique access and an increased
visibility into both their hardware and software needs. This visibility, combined
with Oak's broad technology base and expertise and number of engineers gained by
the combination, should provide Oak with a sustainable competitive advantage.
</TABLE>
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<TABLE>
<S> <C>
- - FINANCIAL BENEFITS
Given Xionics' current and expected future financial performance, the merger will
be accretive to Oak. In addition, as the combination will allow Oak to provide its
customers with a higher performing and complete solution, Oak believes its future
product offerings should command a higher price than it currently obtains for its
semiconductor solutions, and given the larger software component, should improve
overall gross margins.
</TABLE>
Oak's Board also identified and considered the following potential risks
relating to the merger with Xionics:
- one customer, Hewlett-Packard, accounts for over 60% of fiscal year 1999
revenues;
- the market for Xionics' products is dominated by a few major OEMs;
- Xionics' embedded printer software competes directly against Adobe
Systems, Inc., which developed the industry-wide accepted PostScript page
description language and has acquired significant brand name image;
- the success of the business combination will be dependent, to a large
extent, on the ability of the combined company to increase its market
reach by providing highly integrated, cost effective solutions and secure
design wins currently taken by in-house groups within its major OEM
customers;
- the potential negative impact on Oak's digital office business should the
merger not be approved by either the stockholders of Oak or Xionics,
including delays in pursuing new product initiatives and a perceived
weakness in Oak's market leadership position by the public or its
customers; and
- the potential risk that a company like Microsoft could include the
functionality currently provided by Xionics' embedded software in its
operating system.
After due consideration, Oak's Board concluded that the potential benefits
of the merger outweighed the risks outlined above.
XIONICS' REASONS FOR THE MERGER
The Xionics Board has determined that the terms of the merger and the merger
agreement are fair to, and in the best interests of, Xionics and its
stockholders. Accordingly, the Xionics Board has approved the merger agreement
and the consummation of the merger and recommends that Xionics stockholders vote
for approval of the merger agreement and the merger.
In reaching its decision to approve the merger agreement and the
transactions contemplated by that agreement, including the merger, the Xionics
Board consulted with Xionics' senior management as well as its legal counsel,
independent public accountants and independent financial advisor. The material
factors considered by the Xionics Board in its deliberations were the following:
- The Xionics Board's familiarity with and review of Oak's businesses,
results of operations, financial condition, technology, competitive
position, earnings and prospects;
- The Xionics Board's review of certain financial projections of Oak on a
stand-alone basis, which projections were provided to Xionics by the
management of Oak. These projections related to, among other things, Oak
management's estimate of future earnings in the years 2000, 2001 and 2002.
These projections anticipated that Oak would achieve growth in its
revenues and earnings during these years. Although the Xionics Board
considered Oak's recent history of operating losses and fluctuating
revenues and earnings in its analysis of the projections, the Xionics
Board ultimately concluded that the fact that the projections anticipated
material growth for these
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years was reasonable under the circumstances. In particular, the Xionics
Board considered that Oak's shift toward a strategy which focused on
providing an integrated solution for the printer market supported material
growth in future revenues. As described above under "Background of the
Merger", the Xionics Board also regarded future revenue and earnings
growth for Xionics as an independent entity as being dependent on Xionics'
ability to provide a full integrated solution to the printer market. Oak's
shift in focus was represented in its shift toward CD-RW and DVD products
rather than CD-ROM products as well as in Oak's development of its Optical
Storage Business. The Xionics Board also considered anticipated future
design wins with respect to certain Oak products, a review of Oak's
Optical Storage business (including Oak's digital broadcast business, with
respect to which Xionics and Adams, Harkness & Hill ascribed no
significant value and which Oak subsequently has agreed to sell),
including Oak's competitive position in that business, as well as Oak's
other businesses, a detailed review of Oak's products and a detailed
review of Oak's customer base and relationships with its customers. The
Xionics Board ultimately concluded that the strategic direction of the
combined company, of which Xionics would provide a significant
contribution, supported the projections for material growth in revenues
and earnings in the future because the combined company would be better
positioned to provide the full printer solution which both companies
believed would achieve material growh. The combined company's ability to
achieve the growth in revenues anticipated by these projections depends on
various factors, a number of which will be beyond its control. See "Risk
Factors."
- The Xionics Board's knowledge and analysis of the current embedded printer
software industry environment, characterized by evolving trends in
technology and increasing competition;
- The Xionics Board's belief that the combination with Oak presented unique
opportunities to create greater economies of scale, by combining
resources, technology, projects and infrastructure, increasing the ability
of the combined company to provide full solutions to the printer market;
- The review conducted by the Xionics Board of the strategic options
available to Xionics and the assessment of the Xionics Board that none of
these options presented superior opportunities, or were likely to create
greater value for Xionics stockholders, than the prospects presented by
the merger;
- The financial terms of the merger, including the amount of the merger
consideration and the fact that this consideration represented a 25%
premium over prevailing market prices of Xionics common stock as of the
date the merger agreement was signed;
- The Xionics Board's review of the current market conditions and historical
trading information with respect to Oak's and Xionics' common stock;
- The Xionics Board's review of other comparable merger transactions in the
digital office market and related software and hardware industries;
- The Xionics Board's consideration of the prospects for synergy between
Xionics' engineering and product development activities and those of Oak's
existing digital imaging business, embodied in its subsidiary, Pixel
Magic, located in close geographic proximity to Xionics in Massachusetts,
including among other things, by combining efforts to develop
full-solution controller devices for color printers and multifunction
peripherals;
- The opinion of Adams, Harkness & Hill to the Xionics Board that the
exchange ratio was fair, from a financial point of view, to the Xionics
stockholders;
- The expected tax-free treatment to Xionics and the expected partial
tax-free treatment for its stockholders, including that the partial cash
consideration would create a federal income tax liabililty to
stockholders;
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- The terms of the merger agreement as negotiated, including the possibility
that the merger agreement might discourage other parties that might have
an interest in a business combination with Xionics;
- The Xionics Board's consideration and evaluation of the management team of
Oak and its imaging group, including specifically its evaluation of Mr.
Sohn, and the fact that Xionics would be entitled to designate one
representative to serve on the combined company board of directors after
the merger;
- The Xionics Board's consideration of the existing change in control and
other benefits which might become payable to certain senior executive
offices of Xionics upon consummation of the merger. See "Interests of
Certain Persons in the Merger."
- The Xionics Board's belief that, while no assurances could be given, the
level of execution risk in connection with the merger was relatively low
and that the business and financial advantages contemplated in connection
with the merger were likely to be achieved within a reasonable timeframe;
and
- The further effect of the merger on Xionics' constituencies other than its
stockholders, including the customers served by Xionics and its employees,
including management.
The Xionics' Board also identified and considered a variety of potential
negative factors in its deliberations concerning the merger, including, but not
limited to:
- the risk to Xionics stockholders that the value to be received in the
merger could decline significantly from that determined as of the date of
the signing of the merger agreement due to the fixed exchange ratio;
- the loss of control over the future operations of Xionics following the
merger;
- the impact of the loss of Xionics' status as an independent company on
Xionics' stockholders, employees, suppliers and customers;
- the risk that the potential benefits sought in the merger might not be
fully realized;
- the possibility that the merger might not be consummated and the potential
adverse effects of the public announcement of the merger on:
-- Xionics' sales and operating results;
-- Xionics' ability to attract and obtain key employees;
-- the progress of certain strategic initiatives; and
-- Xionics' overall competitive position; and
- the risk that, despite the efforts of Oak and Xionics, key technical,
sales and management personnel might not remain employees of Oak and
Xionics following closing of the merger; and
After due consideration, the Xionics Board concluded that the potential
benefits of the merger outweighed the risks outlined above.
The foregoing discussion of the information and factors considered by the
Xionics Board is not intended to be exhaustive but is believed to include all
material factors considered by the Xionics Board. In view of the complexity and
wide variety of information and factors, both positive and negative, considered
by the Xionics Board, the Xionics Board did not find it practical to quantify,
rank or otherwise assign relative or specific weights to the factors considered.
In addition, the Xionics Board did not reach any specific conclusion with
respect to each of the factors considered, or any aspect of any particular
factor, but, rather, conducted an overall analysis of the factors described
above, including thorough discussions with Xionics' management and legal,
financial and accounting advisors. In considering the factors described above,
individual members of the Xionics Board may have given different weight to
different factors. The Xionics Board considered all these factors as a whole and
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believed the factors supported its decision to approve the merger. After taking
into consideration all of the factors set forth above, the Xionics Board
concluded that the merger was fair to, and in the best interests of, Xionics and
its stockholders and that Xionics should proceed with the merger.
During the time period in which Xionics was engaged in discussions with Oak,
it did not receive any unsolicited offers regarding a possible business
combination with any third parties other than Oak.
OPINION OF ADAMS, HARKNESS & HILL, INC., FINANCIAL ADVISOR TO XIONICS
In connection with the merger, Adams, Harkness & Hill, Inc. provided to
Xionics financial advisory services and a financial fairness opinion. Adams,
Harkness & Hill was selected by the Xionics Board to act as Xionics' financial
advisor based on Adams, Harkness & Hill's qualifications, expertise and
reputation and its knowledge of the business and affairs of Xionics. Adams,
Harkness & Hill served as financial advisor under the terms of a letter
agreement, dated as of July 19, 1999. Pursuant to this letter agreement, Xionics
has agreed to pay Adams, Harkness & Hill a fee equal to 1.4% of the total
consideration to be paid by Oak in the merger. At the meeting of the Xionics
Board on July 29, 1999, Adams, Harkness & Hill rendered its oral opinion,
subsequently confirmed in writing, that, as of July 29, 1999, based upon and
subject to the various considerations set forth in that opinion, the
consideration to be received by Xionics stockholders as described in the merger
agreement was fair from a financial point of view to Xionics stockholders.
THE FULL TEXT OF THE WRITTEN OPINION OF ADAMS, HARKNESS & HILL, DATED JULY
29, 1999, WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW
UNDERTAKEN BY ADAMS, HARKNESS & HILL IN RENDERING ITS OPINION, IS ATTACHED AS
APPENDIX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS. XIONICS STOCKHOLDERS ARE
URGED TO READ THE OPINION CAREFULLY AND IN ITS ENTIRETY. Adams, Harkness &
Hill's opinion is directed to the Xionics Board and addresses only the fairness,
from a financial point of view, of the consideration to be received by Xionics
stockholders as described in the merger agreement to Xionics stockholders as of
the date of the opinion, and does not address any other aspect of the merger nor
constitute a recommendation to any Xionics stockholder as to how to vote at the
Xionics special meeting. The summary of the opinion of Adams, Harkness & Hill
set forth in this joint proxy statement/prospectus is qualified in its entirety
by reference to the full text of that opinion.
In developing its opinion, Adams, Harkness & Hill, among other activities:
- reviewed Xionics' Annual Reports, Reports on Form 10-K and related
financial information for the three fiscal years ended June 30, 1998, and
Xionics' Report on Form 10-Q and the related unaudited financial
information for the nine month period ending March 31, 1999;
- reviewed Oak's Annual Reports, Reports on Form 10-K and related financial
information for the three fiscal years ended June 30, 1998, and Oak's
Report on Form 10-Q and the related unaudited financial information for
the nine month period ended March 31, 1999;
- analyzed certain internal financial statements and other financial and
operating data concerning Xionics and Oak prepared by the respective
management of Xionics and Oak;
- conducted due diligence discussions with members of senior management of
Xionics and Oak, and discussed with members of senior management of
Xionics and Oak their views regarding future business, financial and
operating benefits arising from the merger;
- reviewed the historical market prices and trading activity for Xionics
common stock and Oak common stock and compared this information with
information of other publicly traded companies Adams, Harkness & Hill
deemed to be relevant and comparable to Xionics and Oak;
- compared the results of operations of Xionics and Oak with information of
other companies Adams, Harkness & Hill deemed to be relevant and
comparable to Xionics and Oak;
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- compared the financial terms of the merger with the financial terms of
certain other transactions Adams, Harkness & Hill deemed to be relevant
and comparable to the merger;
- participated in various discussions among representatives of Xionics and
Oak and their respective advisors;
- reviewed the merger agreement; and
- reviewed those other financial studies and analyses and performed those
other investigations and took into account those other matters as Adams,
Harkness & Hill deemed necessary, including its assessment of general
economic, market and monetary conditions.
The following is a summary of the various valuation methodologies used by
Adams, Harkness & Hill in arriving at its opinion regarding the consideration to
be received by Xionics stockholders in the merger. To determine the fairness of
the transaction, Adams, Harkness & Hill employed analyses based on the
following:
- Public company peers;
- Transaction premiums paid;
- Stock performance;
- Return on assets analysis; and
- Break-up analysis of Oak.
PUBLIC COMPANY PEERS ANALYSIS--XIONICS
Adams, Harkness & Hill comprised two groups of publicly traded companies
that it deemed comparable to Xionics based on market focus, product offerings,
business model and/or financial performance. The two groups consisted of:
Embedded Software Companies:
- Inso Corp.;
- Integrated Systems, Inc.;
- Natural MicroSystems Corp.;
- Peerless Systems Corp.;
- Phoenix Technologies, Ltd.; and
- Splash Technology Holdings
Established Independent Software Vendors:
- Adobe Systems, Inc.;
- Cadence Design Systems, Inc.;
- Electronics for Imaging, Inc.;
- Hewlett-Packard Company;
- Lexmark International Group, Inc.;
- Mentor Graphics Corp.;
- Synopsys, Inc.; and
- Wind River System, Inc.
Due to the business focus, purpose and financial characteristics of the
companies in the Established Independent Software Vendors group relative to
those of the companies in the Embedded Software group, Adams, Harkness & Hill
concluded that the Embedded Software companies provided a
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more comparable assessment of the value the public market places on Xionics and
its market segment. Therefore, Adams, Harkness & Hill used the Embedded Software
companies to perform its comparable public company analysis.
Adams, Harkness & Hill compared certain financial information of Xionics
with that of the companies included in the Embedded Software group. This
information included:
- market value;
- enterprise value;
- the ratio of share price to projected calendar 1999 and 2000 earnings per
share;
- the ratio of enterprise value to revenue for the last twelve months;
- long term earnings growth;
- revenue for the last twelve months;
- gross margin for the last twelve months;
- operating margin for the last twelve months; and
- year over year quarterly revenue growth.
The ratios of enterprise value to revenue for the last twelve months and
price to earnings multiples indicate the value public markets place on companies
in a particular market segment. Adams, Harkness & Hill employed an enterprise
value valuation in this analysis because enterprise value provides a market
value based on a company's operations, in contrast to considering the valuation
of a company's operations plus or minus existing cash and debt balances.
Enterprise value has been calculated as:
((market value of equity) + (debt) - (cash, cash equivalents and short-term
investments)).
To determine value using the enterprise value method, the first step is to
calculate a company's market value, which represents the company's value based
on its common stock price per share (Adams, Harkness & Hill used the closing
price on July 28, 1999, for all public company comparable analyses), multiplied
by the number of a company's diluted shares outstanding. The market value is
then adjusted for a company's debt and cash positions by adding the debt balance
and subtracting the cash balance to arrive at an enterprise value.
In order of descending ratios of enterprise value to revenue for the last
twelve months, the Embedded Software companies, including Xionics, ranked as
follows:
- Peerless Systems Corp.;
- Phoenix Technologies, Ltd.;
- Inso Corp.;
- Integrated Systems, Inc.;
- Natural MicroSystems Corp.;
- XIONICS DOCUMENT TECHNOLOGIES, INC.; and
- Splash Technology Holdings, Inc.
In order of descending ratios of share price to projected calendar 1999
earnings per share, the Embedded Software companies, including Xionics, ranked
as follows:
- Phoenix Technologies, Ltd.;
- Peerless Systems Corp.;
- XIONICS DOCUMENT TECHNOLOGIES, INC.;
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- Integrated Systems, Inc.;
- Splash Technology Holdings, Inc.;
- Inso Corp.; and
- Natural MicroSystems Corp.
In order of descending ratios of price to projected calendar 2000 earnings,
the Embedded Software companies, including Xionics, ranked as follows:
- Phoenix Technologies, Ltd.;
- XIONICS DOCUMENT TECHNOLOGIES, INC.;
- Peerless Systems Corp.;
- Integrated Systems, Inc.;
- Splash Technology Holdings, Inc.;
- Inso Corp.; and
- Natural MicroSystems Corp.
The low, high and average financial ratios for the Embedded Software
companies comparables are listed in the table below:
<TABLE>
<CAPTION>
MULTIPLE LOW HIGH AVERAGE
- ------------------------------------------------------------------- ------------------ --------- -----------
<S> <C> <C> <C>
Enterprise Value to Revenue for Last Twelve Months................. 0.3 3.8 1.8
Share Price to Calendar Year 1999 Earnings per share............... NOT MEANINGFUL 24.4 18.4
Share Price to Calendar Year 2000 Earnings per share............... NOT MEANINGFUL 20.3 14.3
</TABLE>
To arrive at Xionics' share price to earnings multiple for calendar year
2000 earnings per share, Adams, Harkness & Hill used Xionics' internal
management projections as external research analysts' projections were not
available.
Adams, Harkness & Hill compared these ranges of multiples to the implied
multiple in the merger consideration as described in the merger agreement of
approximately:
<TABLE>
<S> <C> <C>
- Enterprise Value to Revenue for Last
Twelve Months 1.8x
- Price to Calendar Year 1999 Earnings 22.6x
- Price to Calendar Year 2000 Earnings 19.1x
</TABLE>
PUBLIC COMPANY COMPARABLES ANALYSIS--OAK
Adams, Harkness & Hill compared selected valuation multiples for public
companies deemed comparable to Oak based upon business model, market focus and
product offering, with the multiples computed using closing stock prices on July
28, 1999. Adams, Harkness & Hill reviewed, from a financial point of view,
eleven public companies in the integrated semiconductor industry.
In order of descending ratio of enterprise value to last twelve month
revenues, the Integrated Semiconductor companies, ranked as follows:
- Burr-Brown Corporation;
- NVIDIA Corp.;
47
<PAGE>
- C-Cube Microsystems, Inc.;
- S3, Inc.;
- ESS Technology, Inc.;
- 3Dlabs Inc., Ltd.;
- Trident Microsystems, Inc.;
- 3Dfx Interactive, Inc.;
- Diamond Multimedia Systems, Inc.;
- Oak Technology, Inc.; and
- Cirrus Logic, Inc.
The low, high and average financial ratios for the Integrated Semiconductor
companies are listed in the table below:
<TABLE>
<CAPTION>
MULTIPLE LOW HIGH AVERAGE
- ----------------------------------------------------------------------------------------- --------- --------- -----------
<S> <C> <C> <C>
Enterprise Value to Revenue for Last Twelve Months 0.3 5.5 2.0
Price to Calendar Year 1999 Earnings NMF 59.1 27.1
Price to Calendar Year 2000 Earnings NMF 25.0 14.3
</TABLE>
Adams, Harkness & Hill compared these ranges of multiples to Oak's stand
alone multiples of approximately:
<TABLE>
<S> <C>
- Enterprise Value to Revenue for Last Twelve Months: 0.4
- Price to Calendar Year 1999 Earnings: NMF
- Price to Calendar Year 2000 Earnings: NMF
</TABLE>
TRANSACTION PREMIUMS PAID ANALYSIS
Premiums paid in comparable public seller transactions typically indicate
the amount of consideration acquirers are willing to pay above the seller's
stock price. In this analysis, the value of consideration paid in transactions
involving stock is computed using the buyer's stock price immediately prior to
announcement, while the seller's stock price is measured one trading day, five
trading days, and twenty trading days prior to the announcement of the
transaction. Adams, Harkness & Hill believes that analyzing the transaction
premium based on a stock price 20 trading days prior to the announcement is a
sufficient period of time to indicate a premium based on Xionics' stand alone
market value. Adams, Harkness & Hill reviewed 31 comparable merger and
acquisition transactions involving selected software companies from January 1,
1998 to June 24, 1999.
In order of descending premium paid based on the seller's stock price one
trading day prior to announcement, the selected software transactions used were
the acquisition of:
- C-ATS Software by Misys PLC;
- Computer Language Research, Inc. by Research Institute of America, Inc.;
- Scopus Technology, Inc. by Siebel Systems, Inc.;
- Intersolv, Inc. by Micro Focus Group PLC;
- Peerless Group, Inc. by Jack Henry & Associates, Inc.;
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<PAGE>
- Micronics Computers, Inc. by Diamond Multimedia Systems, Inc.;
- Expert Software, Inc. by Activision, Inc.;
- Powerhouse Technologies, Inc. by Anchor Gaming;
- Dialogic Corp. by Intel Corp.;
- Quarterdeck Corp. by Symantec Corp.;
- Eltron International, Inc. by Zebra Technologies Corp.;
- CyberMedia, Inc. by Network Associates, Inc.;
- QuesTec, Inc by CACI International, Inc.;
- BGS Systems, Inc. by BMC Software, Inc.;
- Quickturn Design Systems, Inc. by Cadence Design Systems, Inc.;
- Broderbund Software, Inc. by Learning Co., Inc.;
- Globalink, Inc. by Lernout & Hauspie Speech N.V.;
- ForeFront Group, Inc. by CBT Group PLC;
- Learning Co., Inc. by Mattel, Inc.;
- FDP Corp. by SunGard Data Systems, Inc.;
- Allied Digital Technologies Co. by an Investor Group;
- AccelGraphics, Inc. by Evans & Sutherland Computer;
- Logic Works, Inc. by PLATINUM technology, Inc.;
- Award Software International, Inc. by Phoenix Technologies Ltd.;
- ATL Products, Inc.(Odetics) by Quantum Corp.;
- Truevision, Inc. by Pinnacle Systems, Inc.;
- Innovative Tech Systems, Inc. by Peregrine Systems, Inc.;
- Xcellenet, Inc. by Sterling Commerce, Inc.;
- Hyperion Software Corp. by Arbor Software Corp.;
- Checkmate Electronics, Inc. by International Verifact, Inc.; and
- Prism Solutions, Inc. by Ardent Software, Inc..
Based upon Adams, Harkness & Hill's analysis of premiums paid in selected
software comparable transactions, the low, high and average premiums (discounts)
paid to sellers' share prices (using the buyer's share price on the day prior to
the announcement date of the transaction to calculate consideration in stock
transactions) for the twenty, five, and one day trading day(s) prior are listed
below:
<TABLE>
<CAPTION>
LOW HIGH AVERAGE
--------- --------- -----------
<S> <C> <C> <C>
Premium Paid--Twenty trading days prior......................... (3.6)% 117.1% 45.1%
Premium Paid--Five trading days prior........................... (6.7)% 93.6% 31.0%
Premium Paid--One trading day prior............................. (31.8)% 71.4% 23.9%
</TABLE>
49
<PAGE>
Adams, Harkness & Hill compared these ranges of implied premium to the
implied premium of the merger consideration as described in the merger agreement
of approximately:
<TABLE>
<S> <C>
- Premium Paid--Twenty trading days prior: 36.5%
- Premium Paid--Five trading days prior: 25.1%
- Premium Paid--One trading day prior: 20.5%
</TABLE>
STOCK PERFORMANCE ANALYSIS
Adams, Harkness & Hill examined the following for both Xionics and Oak:
1) 200-Day stock price performance:
- Xionics stock value had increased 88.7%
- Oak stock value had increased 57.5%
2) Stock price performance since initial public offering:
- Xionics stock value had decreased (56.8)%
- Oak stock value had decreased (43.8)%
3) Stock price performance from January 1, 1998 to the date the merger
agreement was signed compared to the NASDAQ Composite, S&P 500 and Russell
2000 stock indices:
- Xionics stock value had increased 36.1%
- Oak stock value had decreased (39.4)%
- NASDAQ Composite had increased 72.3%
- S&P 500 had increased 40.7%
- Russell 2000 had increased 2.2%
4) Stock price performance from January 1, 1998 to the date the merger
agreement was signed compared to an index of each respective companies'
public company comparables:
- Embedded Software companies, as an index, had decreased (42.3)%
- Integrated Semiconductor companies, as an index, had increased 31.8%
RETURN ON ASSETS ANALYSIS
Adams, Harkness & Hill calculated the estimated return on assets (cost of
equity) Xionics would need to generate in the future to value Xionics, today, at
an amount equivalent to the aggregate value of Oak's offer. To compute the
appropriate return on assets, Adams, Harkness & Hill used projections prepared
by Xionics management for the year ended December 31, 1999, through the year
ended December 31, 2002. Adams, Harkness & Hill then performed a discounted cash
flow calculation, employing a terminal value based on Xionics' earnings before
interest and taxes at December 31, 2002 times earnings before interest and taxes
multiples that range from 7.0 to 10.0.
Based on these assumptions, Adams, Harkness & Hill calculated a return on
assets that ranged from 34.0% to 40.0%, in contrast to the cost of equity, which
Adams, Harkness & Hill calculated for the Embedded Software companies of
approximately 15%.
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<PAGE>
BREAK-UP ANALYSIS OF OAK
To further assess the value of Oak common stock, Adams, Harkness & Hill
performed a break-up analysis of Oak. A break-up analysis consists of an
assessment of cumulative value of individual operations and/or assets if valued
on a stand-alone basis.
Oak is comprised of two main businesses:
- The Imaging Group (Pixel Magic), which provides advanced image processing
silicon and embedded controller solutions in the digital office equipment
market; and
- The Optical Storage Group, which provides optical storage controllers for
high-density storage devices used on PCs, which includes CD-ROM, CD-RW and
DVD drives.
Adams, Harkness & Hill valued each of these businesses based on the ratio of
enterprise value to last twelve months revenue:
- The Imaging Group's valuation was arrived at by multiplying its last
twelve months revenue by an enterprise value to last twelve months revenue
ratio of 1.6x. This ratio was derived from the analysis of the Embedded
Software companies and represents the mean without including the minimum
and maximum multiples from that analysis. The minimum and maximum
multiples were excluded from the mean to provide a more accurate
representation of the Embedded Software companies' average enterprise
value to last twelve months revenue ratio.
- The Optical Storage Group's valuation was arrived at by multiplying its
last twelve months revenue by an enterprise value to last twelve months
revenue ratio of 1.8x. This ratio was derived from the analysis of the
Integrated Semiconductor companies and represents the mean without
including the minimum and maximum multiples from that analysis. The
minimum and maximum multiples were excluded from the mean to provide a
more accurate representation of the Integrated Semiconductor companies'
average enterprise value to last twelve months revenue ratio.
Due to the historical volatility of Oak's Optical Storage Group, and the
optical storage business in general, Adams, Harkness & Hill applied a range of
enterprise value to last twelve months revenue multiples from 0.0x to 3.6x to
calculate the implied value of Oak's storage business. This multiple range was
determined by valuing the Optical Storage Group at a worse case value of 0.0x
last twelve months revenue, to approximately the highest enterprise value to
last twelve months revenue multiple, of 3.5x, used in calculating the Optical
Storage Group's average multiple of 1.6x, as stated above. The implied value
calculated for Oak's Imaging Group was combined with the implied values of Oak's
Optical Storage Group and Oak's cash balance as follows:
[[Oak's cash + (Imaging Group's LTM Revenue * 1.6)] + Optical Storage
Group's calculated values]
Adams, Harkness & Hill then divided the aggregate values arrived at from
this step by Oak's diluted share count of 40.9 million to arrive at per share
values. The per share values calculated ranged from $4.08 to $8.48.
SUMMARY OF VALUATION ANALYSES
Taken together, the information and analyses employed by Adams, Harkness &
Hill lead to Adams, Harkness & Hill's overall opinion that the consideration to
be received in the merger is fair, from a financial point of view, to Xionics
stockholders.
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<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of Xionics' board of directors with
respect to the merger, stockholders should be aware that some members of
Xionics' board of directors and management have interests in the merger that are
in addition to their interests as a holder of Xionics common stock generally.
Xionics' board of directors was aware of these interests and considered them in
approving the merger.
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
Xionics has previously entered into an employment agreement with its
president and chief executive officer, Peter J. Simone, which provides for the
payment of benefits in the event of a termination of Mr. Simone's employment
following a merger, consolidation, sale or change in control of Xionics. More
specifically, if, within eighteen months after a change in control of Xionics,
Mr. Simone's employment is actually terminated (other than for cause or
disability, each as defined in the employment agreement), he is not the chief
executive officer of the surviving entity and/or the surviving entity is not a
publicly traded corporation, or his responsibilities, compensation or benefits
are materially reduced without his express consent, Mr. Simone is entitled to
receive twelve months' base salary, together with reimbursement of the cost of
his group health and dental plan coverage. In addition, under his employment
agreement, Mr. Simone will have a period of twenty-four months from the date of
any actual or constructive termination to exercise any vested but unexercised
stock options. In addition, the employment agreement provides that Mr. Simone's
unvested stock options become fully exercisable upon the closing of any merger,
consolidation, business combination or other reorganization of Xionics in which
he is not the chief executive officer of the surviving entity, and/or the
surviving entity is not a publicly traded corporation.
Xionics has also previously entered into two letter agreements, dated March
12, 1998 and November 28, 1998, with its senior vice president of finance and
administration and chief financial officer, Robert L. Lentz, which provide for
certain benefits in the event of a change in control of Xionics. More
specifically, under the letter agreements, if, following a merger,
consolidation, business combination or other reorganization, Mr Lentz is not the
chief financial officer of the surviving entity, and/or the surviving entity is
not a publicly traded corporation, or Mr. Lentz is required to relocate to a
facility or location more than twenty-five miles from his residence, Mr. Lentz
will be entitled to receive six months base salary and benefits, including any
earned portion under Xionics' bonus plan. Furthermore all unvested stock options
will become fully exercisable. Additionally, in the event that Mr. Lentz is
actually or constructively terminated following a change in control, he will
have a period of twenty-four months after the termination to exercise all vested
but unexercised options. The letter agreements also provide that Mr. Lentz will
receive six months salary and benefits in the event his employment is terminated
for any other reason, except for cause.
Xionics has also previously entered into a letter agreement, dated April 5,
1999, with its vice president--worldwide sales, John L. Seguin, which provides
for the payment of certain benefits to Mr. Seguin in the event of a change in
control of Xionics. More specifically, the letter agreement provides that, in
the event of an acquisition of Xionics, or, in the event that another company
acquires at least 51% of the outstanding shares of Xionics common stock and
exercises management control, in either case within the first twenty-four months
of Mr. Seguin's employment, and if, as a result of that change of control, Mr.
Seguin's employment is terminated or there is a significant reduction in his
responsibilities or compensation, he will be entitled to receive six months base
salary plus medical benefits, and the unvested balance of 50% of the initial
stock options granted to him will become exercisable. The letter agreement also
provides for severance compensation payable to Mr. Seguin in the event his
employment is terminated for any other reason except for cause during the first
two years of his employment.
52
<PAGE>
Futhermore, Xionics and five (5) other executive officers of Xionics,
besides Messrs. Simone, Lentz and Seguin have entered into letter agreements
providing benefits upon a termination of these executive officers' employment in
connection with a merger, consolidation, sale or change in control of Xionics.
Under these agreements, each executive officer will be entitled to receive six
months' base salary, together with reimbursement of the cost of his/her group
health and dental plan coverage. In addition, each executive officer will have a
period of twenty-four months from the date of his or her termination to exercise
certain vested stock options. Each of these executive officer's employment is
deemed terminated if, within eighteen months after a change in control of
Xionics, that executive officer's employment is actually terminated, his/her
responsibility, compensation or benefits are materially reduced without his/her
express consent, or he/she is required, as a condition of continued employment,
to relocate to a facility or location more than fifty miles from his/her present
location.
The merger will constitute a change in control under each of the foregoing
agreements. Based on certain assumptions described below, the aggregate salary
amounts would be payable to Messrs. Simone, Lentz, Seguin and the five (5) other
executive officers referred to above would be approximately $836,250. This
amount is calculated on the assumptions that the employment of these executives
with Xionics is terminated immediately after the effective time of the merger
and in circumstances entitling them to the maximum benefits under their
agreements.
Oak is currently discussing the terms of employment arrangements for an
interim period of time following the effective time of the merger with Messrs.
Simone and Lentz. The terms of these employment arrangements have not been
agreed to as the date of this joint proxy statement/prospectus.
STOCK OPTIONS ACCELERATED UPON TERMINATION OF EMPLOYMENT FOLLOWING MERGER
As described in the preceding section, Xionics and Messrs. Simone and Lentz
have entered into agreements which provide for the acceleration of certain
unvested stock options in the event that their employment with Xionics is
terminated (either actually or constructively, as discussed above) following a
change in control of Xionics.
<TABLE>
<CAPTION>
OPTION SHARES EXERCISE
NAME ACCELERATED PRICE
- ----------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Peter J. Simone.................................................................... 67,389 $ 3.5625
101,250 3.50
Robert L. Lentz.................................................................... 70,312 3.6563
56,250 3.50
John L. Seguin..................................................................... 37,500 3.2812
</TABLE>
INDEMNIFICATION ARRANGEMENTS
Under the merger agreement, Oak has agreed that, from and after the
effective time of the merger, Oak will cause Xionics to fulfill and honor in all
respects the obligations of Xionics under (1) any indemnification agreements
that exist between Xionics and its officers and directors at the effective time
of the merger and (2) any indemnification provisions under Xionics' certificate
of incorporation or bylaws that are in effect on the date of the merger
agreement. The merger agreement also provides that for a period of six years
after the effective time of this merger, the provisions of the certificate of
incorporation and bylaws of the surviving corporation following the effective
time pertaining to indemnification will not be amended, repealed or otherwise
modified in any manner that would adversely affect the rights of individuals
who, immediately prior to the effective time of the merger, were directors,
officers, employees or agents of Xionics, unless that modification is required
by law. Oak has also agreed to maintain directors' and officers' liability
insurance covering directors and officers of Xionics for a period of six years
after the effective time of the merger.
53
<PAGE>
GOVERNMENTAL AND REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules
of the Federal Trade Commission promulgated thereunder, the merger may not be
consummated until notifications have been given and certain information has been
furnished to the FTC and the Antitrust Division of the United States Department
of Justice and specified waiting period requirements have been satisfied. Oak
and Xionics each filed notification and report forms with the FTC and the
Department of Justice on August 12, 1999, and August 13, 1999, respectively. The
specified waiting period expired on September 3, 1999.
At any time before or after the consummation of the merger, the FTC, the
Department of Justice or any state could take action under applicable antitrust
laws as it deems necessary or desirable. That action could include seeking to
enjoin the consummation of the merger or seeking divestiture of particular
assets or businesses of Oak or Xionics. Private parties may also initiate legal
actions under the antitrust laws under certain circumstances. As of the date of
the mailing of this joint proxy statement/prospectus, neither Oak nor Xionics
are aware of any of these actions having been taken or contemplated.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material federal income tax
considerations of the merger that are generally applicable to holders of Xionics
common stock.
This discussion does not deal with all income tax considerations that may be
relevant to particular Xionics stockholders in light of their particular
circumstances, such as stockholders who are dealers in securities, foreign
persons, banks, insurance companies or tax-exempt entities, stockholders who
hold their shares as part of a hedging, straddle, conversion or other risk
reduction transaction, or stockholders who acquired their shares in connection
with stock option or stock purchase plans or in other employee compensatory
transactions. In addition, the following discussion does not address the tax
consequences of transactions effectuated prior to or after the merger (whether
or not those transactions are in connection with the merger), including
transactions in which shares of Xionics common stock were or are acquired or
shares of Oak common stock were or are sold. Furthermore, no foreign, state or
local tax considerations are addressed in this proxy statement/prospectus. The
discussion is based on federal income tax law in effect as of the date of this
proxy statement/prospectus, which could change at any time, in some cases, with
retroactive effectiveness. ACCORDINGLY, XIONICS' STOCKHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE MERGER AND APPLICABLE TAX RETURN REPORTING
REQUIREMENTS.
It is a condition to the closing of the merger that Oak receive an opinion
from its tax counsel, Brobeck, Phleger & Harrison, LLP, and that Xionics receive
an opinion from its tax counsel, Bingham Dana LLP, each to the effect that the
merger will constitute a "reorganization" within the meaning of Section 368 of
the Internal Revenue Code of 1986.
Bingham Dana LLP has provided an opinion to Xionics, based on the law on the
date of the filing of this joint proxy statement/prospectus, that the merger
will constitute a "reorganization" within the meaning of Section 368 of the
Internal Revenue Code of 1986. The opinion has been filed as an exhibit to the
registration statement of which this joint proxy statement/prospectus is a part.
54
<PAGE>
The material federal income tax consequences of the merger to the Xionics
stockholders, are as follows:
- Holders of Xionics common stock will recognize gain but not loss equal to
the lesser of:
- the excess, if any, of the amount realized (I.E., the fair market value
of the Oak common stock plus the amount of cash received) over the
holder's tax basis in the Xionics common stock; or
- the amount of cash received (excluding cash received in lieu of
fractional shares of Oak common stock)
- A holder of Xionics stock who receives cash in lieu of a fractional share
of Oak common stock will be treated as having received the fractional
share and having sold it to Oak. A holder who holds his or her Xionics
common stock as a capital asset at the time of the merger generally will
recognize capital gain or loss from the sale in an amount equal to the
difference between the amount of cash received and the holder's tax basis
allocable to the fractional share;
- The aggregate tax basis of the Oak common stock received in the merger by
a Xionics stockholder will be the same as the aggregate tax basis of the
Xionics common stock surrendered in exchange for that Oak common stock,
reduced by the cash received and any tax basis allocable to any fractional
share and increased by the amount of realized gain other than gain
realized with respect to any fractional share;
- The holding period of the Oak common stock received in the merger by a
Xionics stockholder will include the period during which the stockholder
held the Xionics common stock surrendered in exchange for that Oak common
stock, so long as the Xionics common stock is held as a capital asset by
that stockholder at the time of the merger; and
- None of Oak, Vermont Acquisition Corp. or Xionics will recognize gain or
loss solely as a result of the merger.
Any gain recognized by a Xionics stockholder will generally constitute
capital gain if that stockholder held his or her Xionics common stock as a
capital asset at the time the merger becomes effective, and any capital gain
will be a long-term capital gain if the holding period for those shares was
greater than one year at the time the merger becomes effective. In the case of
an individual, any capital gain will be subject to a maximum federal income tax
rate of 20% if the holder's holding period of that stock was more than one year
at the time the merger becomes effective.
The opinion of Bingham Dana LLP that the merger qualifies as a
reorganization is subject to the limitations and qualifications referred to in
this document. In addition, the opinion (a) relies upon the truth and accuracy
of representations and covenants set forth in the merger agreement and in
certificates delivered by Oak, Vermont Acquisition Corp. and Xionics, and (b)
assumes that the merger will be consummated in accordance with the terms of the
merger agreement. The parties are not requesting a ruling from the Internal
Revenue Service in connection with the merger. The opinions of counsel referred
to above do not bind the IRS or prevent the IRS from adopting a contrary
position. Oak and Xionics undertake to recirculate these proxy materials and
resolicit proxies in the event that the parties waive the condition to closing
of the merger of receipt of an opinion from its respective tax counsel that the
merger will be a "reorganization" for federal income tax purposes.
A successful IRS challenge to the "reorganization" status of the merger
would result in a Xionics stockholder recognizing gain or loss with respect to
each share of Xionics common stock surrendered equal to the difference between
the stockholder's basis in that share and the fair market value, as of the
effective time of the merger, of the Oak common stock and the cash received in
exchange for that share. In that event, a stockholder's aggregate basis in the
Oak common stock so received would equal its fair market value and his holding
period for that stock would begin the day after the merger.
55
<PAGE>
In addition, if the merger is not a "reorganization," Xionics will recognize
taxable gain or loss with respect to a deemed sale of all of its assets to
Vermont Acquisition Corp. in an amount equal to the difference between the total
fair market value of the consideration furnished by Oak (the cash paid in the
merger, the fair market value of the Oak common stock issued in the merger, and
the liabilities of Xionics assumed by Vermont Acquisition Corp. in the merger)
and Xionics' aggregate tax basis in its assets. By reason of the merger, Oak's
subsidiary would assume any resulting tax liability.
ACCOUNTING TREATMENT
Oak will account for the merger under the purchase method of accounting, in
accordance with generally accepted accounting principles. Under the purchase
method of accounting, Oak will allocate the purchase price of Xionics, including
direct costs of the merger, to the assets acquired and liabilities assumed based
upon their estimated fair values, with the excess purchase consideration
allocated to goodwill. Oak generally amortizes goodwill using the straight-line
method over 3 to 5 years.
APPRAISAL RIGHTS
Under the Delaware General Corporation Law, notwithstanding the approval of
the merger by the requisite number of shares of Xionics, a Xionics stockholder
who does not vote in favor of the merger will be entitled to assert dissenter's
appraisal rights in connection with the merger and obtain payment of the "fair
value" for their shares, provided that the shares were held as of November 24,
1999 and the stockholder complies with the requirements of Section 262 of the
DGCL. Voting for approval of the merger, however, precludes a stockholder from
invoking such appraisal rights.
The following is a summary of the statutory procedures that must be followed
to exercise appraisal rights. This summary is qualified in its entirety by
reference to Section 262, the full text of which is attached to this document as
APPENDIX C and is incorporated into this document by reference. If a stockholder
wishes to assert appraisal rights or to preserve the right to do so, that
stockholder should review Section 262 carefully. Failure to strictly comply with
the procedures set forth in Section 262 may result in the loss of appraisal
rights. If a stockholder is interested in perfecting appraisal rights, that
stockholder should consult legal counsel as to the procedures required to be
followed.
A stockholder electing to exercise appraisal rights must satisfy each of the
following conditions:
- The stockholder must deliver to Xionics, within 20 days after the mailing
date of the Notice of Special Meeting and this joint proxy
statement/prospectus, a written notice of demand of payment of the fair
value for the stockholder's shares; and
- The stockholder must not vote for the approval of the merger agreement.
If the stockholder fails to comply with either of these conditions, the
stockholder will have no appraisal rights with respect to his or her shares and
will receive the merger consideration described in the merger agreement. All
written notices should be addressed to: Xionics Document Technologies, Inc., 70
Blanchard Road, Burlington, Massachusetts 01803, Attention: Robert L. Lentz,
Secretary. All written notices must be executed by, or with the consent of, the
holder of record. The notice must identify the stockholder and indicate the
stockholder's intention to demand payment of the fair value for the
stockholder's shares. In the notice, the stockholder's name should be stated as
it appears on the stockholder's stock certificate(s). If the stockholder's
shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, the stockholder demand must be executed by or for the
fiduciary. If the stockholder owns the shares with another person, such as in a
joint tenancy or tenancy in common, the demand must be executed by or for all
joint owners. An authorized agent, including an agent for two or more joint
owners, may execute the demand for appraisal. However, the agent must identify
the stockholder and any other owners of the shares and expressly disclose the
fact that, in exercising the demand, he or she is acting as agent for the
stockholder and any other owners.
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<PAGE>
If a stockholder is considering seeking appraisal for his or her shares, the
stockholder should note that the fair value of the shares determined under
Section 262 could be more, the same or less than the consideration to be
received pursuant to the merger agreement if the stockholder did not seek
appraisal of their shares. The costs of the appraisal proceeding may be
determined by the Delaware Court of Chancery and allocated among the parties as
the Delaware Court of Chancery deems equitable under the circumstances. Upon
application for appraisal, the Delaware Court of Chancery may order all or a
portion of the expenses incurred by the stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorney's fees
and the fees and expenses of experts, to be charged PRO RATA against the value
of all shares entitled to appraisal. In the absence of such a determination or
assessment, the stockholder will bear his or her own expenses.
A STOCKHOLDER CONTEMPLATING THE EXERCISE OF THE RIGHTS SUMMARIZED ABOVE IN
CONNECTION WITH THE MERGER, IS URGED TO CONSULT WITH LEGAL COUNSEL. THE
DESCRIPTION OF DGCL SECTION 262 CONTAINED IN THIS DOCUMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO APPENDIX C ATTACHED TO THIS DOCUMENT AND THE DGCL.
FAILURE TO FOLLOW PRECISELY ALL OF THE STEPS REQUIRED BY SECTION 262 OF THE DGCL
WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS.
ANY DEMANDS, NOTICES, CERTIFICATES OR OTHER DOCUMENTS REQUIRED TO BE
DELIVERED IN CONNECTION WITH EXERCISE OF APPRAISAL RIGHTS SHOULD BE SENT TO
XIONICS, NOT TO OAK.
Delaware law does not provide appraisal rights to stockholders of a
corporation, such as Oak, that issues shares in connection with a merger but is
not itself a constituent corporation in the merger.
DELISTING AND DEREGISTRATION OF XIONICS COMMON STOCK
If the merger is consummated, Xionics common stock will be delisted from The
Nasdaq National Market and will be deregistered under the Securities Exchange
Act of 1934.
LISTING OF OAK COMMON STOCK TO BE ISSUED IN THE MERGER
It is a condition to the consummation of the merger that the shares of Oak
common stock to be issued in the merger and the shares of Oak common stock to be
reserved for issuance in connection with the assumption of outstanding Xionics
stock options each be approved for listing on The Nasdaq National Market.
RESTRICTION ON RESALES OF OAK COMMON STOCK
The Oak common stock to be issued in the merger will have been registered
under the Securities Act, thereby allowing these shares to be freely traded
without restriction by all former holders of Xionics common stock who are not
"affiliates" of Xionics at the time of the Xionics special meeting and who do
not become "affiliates" of Oak after the merger. Persons who may be deemed to be
affiliates of Oak or Xionics generally include individuals or entities that
control, are controlled by, or are under common control with, that party and may
include certain officers and directors of Oak and Xionics, as well as
significant stockholders.
Shares of Oak common stock received by those stockholders of Xionics who are
deemed to be affiliates of Xionics may be resold without registration under the
Securities Act only as permitted by Rule 145 under the Securities Act or as
otherwise permitted under the Securities Act. This document does not cover
resales of Oak common stock received by any person who may be deemed to be an
affiliate of Oak or Xionics.
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THE MERGER AGREEMENT
THE FOLLOWING IS A BRIEF SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX A TO THIS DOCUMENT AND
INCORPORATED INTO THIS DOCUMENT BY REFERENCE. STOCKHOLDERS OF XIONICS AND OAK
ARE URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY FOR A MORE COMPLETE
DESCRIPTION OF THE MERGER. IN THE EVENT OF ANY DISCREPANCY BETWEEN THE TERMS OF
THE MERGER AGREEMENT AND THE FOLLOWING SUMMARY, THE MERGER AGREEMENT WILL
CONTROL.
THE MERGER
Following the approval and adoption of the merger agreement by the
stockholders of Xionics and approval of the share issuance by Oak and the
satisfaction or waiver of the other conditions to the merger, Xionics will merge
with Vermont Acquisition Corp., a wholly-owned subsidiary of Oak, with Vermont
Acquisition Corp. continuing as the surviving corporation, changing its name to
Xionics Document Technologies, Inc. and remaining a wholly-owned subsidiary of
Oak.
THE EFFECTIVE TIME
As soon as practicable on the closing date of the merger, the parties will
cause the merger to become effective by filing a certificate of merger with the
Secretary of State of the State of Delaware. The time at which the merger
becomes effective is known as the "effective time." The parties anticipate that
this will occur in the fourth calendar quarter of 1999.
DIRECTORS AND OFFICERS OF XIONICS AFTER THE MERGER
At the effective time, the directors of Vermont Acquisition Corp. will
become the new directors of Xionics, and the officers of Vermont Acquisition
Corp. will become the new officers of Xionics. Under the merger agreement,
Xionics has the right to select one individual who will be appointed to the Oak
Board at the effective time.
CONVERSION OF SHARES IN THE MERGER
At the effective time, each share of Xionics common stock will be
automatically canceled and converted into the right to receive 0.8031 shares of
Oak common stock and $2.94 in cash, except that Xionics common stock held
immediately prior to the effective time by Xionics or any wholly-owned
subsidiary of Xionics will be canceled. In addition, the exchange ratio will be
further adjusted to reflect the effect of any stock split, stock dividend,
reorganization, recapitalization, reclassification or other like change with
respect to either Oak common stock or Xionics common stock that may occur on or
after the date of this joint proxy statement/prospectus.
XIONICS STOCK OPTION AND STOCK PURCHASE PLANS
At the effective time, each outstanding option to purchase shares of Xionics
common stock under the Xionics 1993 Stock Option Plan, 1995 Stock Option Plan,
1996 Stock Option Plan and 1996 Directors Stock Option Plan will be assumed by
Oak regardless of whether those options are exercisable. Each Xionics stock
option that is assumed by Oak will continue to have, and be subject to, the same
terms and conditions that were applicable to that option immediately prior to
the effective time, except that:
- the number of shares of Oak common stock issuable upon exercise of the
option will be determined by multiplying the number of shares of Xionics
common stock subject to the Xionics stock option by 1.5748, rounded down
to the nearest whole number and
- the per share exercise price of the option will be determined by dividing
the exercise price of the option immediately prior to the effective time
by 1.5748, rounded up to the nearest cent.
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Except as described in the alternative set forth below, the parties intend
for the Xionics stock options assumed by Oak to qualify as incentive stock
options, as defined in Section 422 of the Internal Revenue Code to the extent
those stock options qualified as incentive stock options prior to the effective
time.
Alternatively, if a holder of a vested option to purchase Xionics common
stock requests, Xionics will consider in conjunction with Oak, if practicable,
paying an amount of cash to the holder equal to the cash that the holder of that
option would have received in an exchange of the underlying option shares (to
the extent the option is exercisable at the effective time of the merger). The
cash received will be in consideration of:
- a reduction in the number of shares underlying the option to that number
of shares of Oak common stock the holder would have received in an
exchange of his or her Xionics shares; and
- no change in the aggregate exercise price from that under the option prior
to assumption by Oak.
In this instance, each Xionics stock option that is assumed by Oak will
continue to have, and be subject to, the same terms and conditions that were
applicable to that option immediately prior to the effective time, except that:
- the number of shares of Oak common stock issuable upon exercise of the
option will be determined by multiplying the number of shares of Xionics
common stock subject to the Xionics stock option by .8031 rounded down to
the nearest whole number;
- the per share exercise price of the Xionics option will be determined by
dividing the exercise price of the option immediately prior to the
effective time by .8031 rounded up to the nearest cent; and
- the stock option will no longer qualify as an incentive stock option even
if it did qualify prior to the effective time.
For example, assume a person held an option to purchase 1,000 shares of
Xionics common stock at an exercise price of $3.00 per share and the option was
fully vested.
Under the normal option assumption, the option would:
- be exercisable for 1,574 shares of Oak common stock; and
- have an exercise price of $1.91 per share
Under the alternative cash option, the holder would receive:
- $2,940; and
- an option to purchase 803 shares of Oak common stock at an individual
exercise price of $3.74 per share and an aggregate exercise price of
approximately $3,000.
Oak has agreed to file a registration statement on Form S-8 for the shares
of Oak common stock issuable with respect to the assumed Xionics stock options
within 10 days after the effective time, and Oak intends to maintain the
effectiveness of the registration statement for so long as any Xionics stock
options or other rights remain outstanding.
EMPLOYEE BENEFITS
GENERAL
In the merger agreement, from and after the effective time of the merger
until the earlier of the first anniversary of the effective time or the date of
the first annual renewal of each Xionics employee
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benefit plan after the effective time, Oak has agreed to provide to employees of
Xionics who remain employed with Oak after the effective time with substantially
similar benefits maintained by Xionics prior to the effective time. From and
after this date, Oak has agreed to provide to all employees of Xionics who
remain employed with Oak at that time with the types and levels of employee
benefits maintained by Oak for its similarly situated employees. Oak has also
agreed to treat, and cause its applicable benefit plans to treat, the service of
Xionics employees with Xionics as service rendered to Oak or any of its
subsidiaries for purposes of eligibility to participate, vesting and for other
appropriate benefits including, but not limited to, applicability of minimum
waiting periods for participation, but not for benefit accrual attributable to
any period before the effective time of the merger.
Oak has also agreed to honor and will cause its subsidiaries to honor in
accordance with their terms all individual employment, termination, severance,
change in control, post-employment and other compensation agreements,
arrangements and plans existing prior to the execution of the merger agreement,
and will not cause any of its subsidiaries to challenge the validity of any
obligation of Xionics under any employment, severance, change in control,
post-employment, consulting, supplemental retirement or other compensation,
contract or arrangement with any current or former director, officer or employee
of Xionics.
EMPLOYEE STOCK PURCHASE PLAN
As provided in the merger agreement, on or prior to the effective time, the
Xionics 1996 Employee Stock Purchase Plan will be terminated and no further
offerings will be conducted.
The merger agreement also provides that Oak will indemnify directors and
officers of Xionics after the effective time of the merger for certain acts
taken by directors and officers prior to the effective time of the merger as
described in the section of this joint proxy statement/prospectus entitled, "THE
MERGER--Indemnification Arrangements."
THE EXCHANGE AGENT
Promptly after the effective time, Oak is required to deposit with a bank or
trust company certificates representing the shares of Oak common stock to be
exchanged for shares of Xionics common stock, and on the closing date, cash to
fund the cash portion of the merger consideration and to pay for fractional
shares and any dividends or distributions to which holders of Xionics common
stock may be entitled to receive under the merger agreement.
PROCEDURES FOR EXCHANGING STOCK CERTIFICATES
Promptly after the effective time, and no later than three days after the
effective time, Oak will cause the exchange agent to mail to the holders of
record of Xionics common stock, (1) a letter of transmittal and (2) instructions
on how to surrender Xionics stock certificates in exchange for certificates
representing shares of Oak common stock, cash representing the cash portion of
the merger consideration and cash for any fractional shares. Holders of Xionics
common stock should not surrender their Xionics stock certificates until they
receive this letter of transmittal from the exchange agent.
Upon surrendering their Xionics stock certificates to the exchange agent for
cancellation, together with the letter of transmittal and any other documents
required by the exchange agent, the holders of Xionics stock certificates will
be entitled to receive a certificate representing that number of whole shares of
Oak common stock which that holder has the right to receive, cash representing
the cash portion of the merger consideration and cash for fractional shares of
Oak common stock. Until surrendered to the exchange agent, each outstanding
Xionics stock certificate will be deemed from and after the effective time to
evidence (1) only the right to receive the number of full shares of Oak
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common stock into which the shares of Xionics common stock have converted; (2)
the right to receive $2.94 in cash; and (3) the right to receive an amount in
cash for any fractional shares.
DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES
Until each Xionics stockholder surrenders his Xionics stock certificate,
that stockholder will not receive any dividends or other distributions declared
or made by Oak after the effective time of the merger. However, once that
stockholder surrenders his or her Xionics stock certificate to the exchange
agent, he or she will receive (1) an Oak stock certificate, (2) cash
representing the cash portion of the merger consideration, (3) cash as payment
for fractional shares, and (4) cash, without interest, as payment for any
dividends or other distributions declared or made by Oak after the effective
time of the merger.
NO FRACTIONAL SHARES
No fractional shares of Oak common stock will be issued in connection with
the merger. Instead, each Xionics stockholder who would be entitled to a
fractional share of Oak common stock will receive cash. The amount of cash to be
received by that Xionics stockholder will be determined by multiplying the
fraction of that share that the stockholder would have received by the average
closing sale price of one share of Oak common stock over the ten trading days
immediately prior to the effective time of the merger.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, Xionics made a number of representations and
warranties in favor of Oak that relate to a number of matters, including:
- Xionics' due organization and good standing;
- Xionics' capital structure and rights or obligations relating to Xionics'
capital stock;
- the authorization, execution, delivery, and enforceability of the merger
agreement;
- the absence of conflict with or violation of any agreement, law, or
charter or bylaw provision and the absence of the need for filings,
consents, approvals or actions in order to consummate the merger;
- documents filed with the Commission;
- the accuracy of information supplied by Xionics;
- the absence of certain material changes, events, litigation or
investigations;
- the filing of tax returns and the payment of taxes;
- Xionics' title to, or valid leasehold interests in, material properties
and assets;
- the disclosure of material contracts;
- Xionics' compliance with laws;
- Xionics' employee benefit plans and labor relations;
- change of control payments to officers and directors of Xionics;
- Xionics' ownership of, or right to use, and non-infringement of others'
rights to, intellectual property;
- approval of the merger by the Xionics board;
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- the payment of broker or advisor fees; and
- the receipt of a fairness opinion of Adams, Harkness & Hill, Inc.
The merger agreement also includes representations and warranties made by
Oak in favor of Xionics that relate to a number of matters, including the
following:
- Oak's organization and good standing of Oak;
- Oak's capital structure of Oak;
- the authorization, execution, delivery, and enforceability of the merger
agreement;
- the absence of conflict with or violation of any agreement, law, or
charter or bylaw provision and the absence of the need for filings,
consents, approvals or actions in order to consummate the merger;
- documents filed with the Commission;
- the accuracy of information supplied by Oak;
- the absence of material changes or events;
- the absence of material litigation or investigations;
- enforceability of material contracts;
- Oak's compliance with laws;
- Oak's employee benefit plans and labor relations;
- Oak's ownership of, or right to use, and non-infringement of others'
rights to, intellectual property;
- approval of the merger by the Oak board;
- the payment of broker or advisor fees; and
- the valid issuance of Oak common stock in the merger.
The representations and warranties of Xionics and Oak will terminate at the
effective time.
CONDUCT OF BUSINESS OF XIONICS PENDING THE MERGER
Xionics has agreed that, during the period from the date of the merger
agreement until the earlier of the termination of the merger agreement or the
effective time, it will carry on its business in the usual, regular and ordinary
course. Xionics is required to preserve intact its current business
organization, keep available the services of its present officers and employees
and preserve its relationships with customers, suppliers, licensors, licensees,
and others having business dealings with it. Xionics has also agreed that, prior
to the effective time or the termination of the merger agreement, without Oak's
consent, it will not:
- accelerate, amend or change the period of exercisability of stock options
or restricted stock, reprice options or authorize cash payments in
exchange for stock options;
- grant severance or termination pay to any officer or employee, except
pursuant to written agreements already in effect or agreed to be executed,
or policies already existing, on the date of the merger agreement, or
adopt any new severance plan;
- terminate, cancel or request any material change in, or agree to any
material change in any material contract or other material license
agreement;
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- declare, set aside or pay any dividends on or make any other distributions
in respect of any capital stock or split, combine or reclassify any
capital stock or issue or authorize the issuance of any other securities;
- purchase, redeem or otherwise acquire any shares of capital stock of
Xionics or its subsidiaries;
- issue, deliver, sell, authorize, pledge, or otherwise encumber any shares
of capital stock, or any securities convertible into shares of capital
stock, other than pursuant to Xionics' stock option plans and stock
purchase plan;
- cause, permit or propose any amendments to its certificate of
incorporation, bylaws or other charter documents or similar governing
instruments of any of its subsidiaries;
- merge or consolidate with any business or corporation, or otherwise
acquire any material assets; or sell, lease, license, encumber or
otherwise dispose of any material properties or assets;
- incur any indebtedness, or guarantee any indebtedness of another person,
issue or sell any debt securities or options, warrants, calls or other
rights to acquire any debt securities of Xionics;
- make or authorize any capital expenditure other than in the ordinary
course of business consistent with past practice that does not exceed
$300,000;
- pay any special bonus or remuneration to any director or employee, or
increase the salaries or wage rates or fringe benefits of its directors,
officers, employees or consultants other than for increases in
compensation paid and bonuses payable to persons who are not directors in
the ordinary course of business consistent with past practice;
- make any material change in accounting methods, principles or practices;
- pay, discharge or satisfy any claims, liabilities or obligations other
than in the ordinary course of business and consistent with past practice
or those set forth in Xionics' 1998 financial statements or as otherwise
contemplated in the merger agreement; or
- make any material tax election or settle or compromise any material tax
liability.
NO SOLICITATION
The merger agreement provides that Xionics will not authorize or permit any
of its officers, directors, employees, accountants, consultants, legal counsel,
agents and other representatives retained by it to:
- solicit or induce the making or announcement of any "acquisition
proposal";
- participate in any discussions regarding, or furnish to any person any
nonpublic information with respect to, or make any proposal that
constitutes or may reasonably be expected to lead to, any "acquisition
proposal";
- engage in discussions with any person with respect to any "acquisition
proposal"; or
- approve or recommend any "acquisition proposal".
However, prior to the approval of the merger agreement by the Xionics
stockholders, the merger agreement does not prohibit Xionics from furnishing
nonpublic information to or entering into discussions with, any person or group
in response to a more favorable offer submitted by that person or group if:
- Xionics has not solicited the more favorable offer;
- based on advise of counsel, the Xionics Board concludes that the action is
required to comply with its fiduciary obligations to Xionics'
stockholders; and
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- prior to furnishing any nonpublic information to, or entering into
discussions with, any person or group, Xionics receives from the person or
group an executed confidentiality agreement containing provisions at least
as restrictive in all material respects as those between Oak and Xionics.
The merger agreement defines an "acquisition proposal" as any bona fide
offer or proposal relating to any transaction other than the transactions
contemplated by the merger agreement involving:
- any acquisition or purchase from Xionics of more than a 33% interest in
the total outstanding voting securities of Xionics;
- any tender offer or exchange offer that, if consummated, would result in
any person or group beneficially owning 33% or more of the total
outstanding voting securities of Xionics;
- any merger, consolidation, business combination or similar transaction
involving Xionics; or
- any sale, lease, exchange, transfer, license other than in the ordinary
course of business, acquisition or disposition or more than 33% of the
assets of Xionics.
Xionics has agreed to promptly advise Oak of any proposal or offer, or any
inquiry or contact with any person with regard to an acquisition proposal, the
material terms and conditions of the acquisition proposal, and the identity of
the person or group making the acquisition proposal.
DIRECTOR AND OFFICER INDEMNIFICATION
From and after the effective time of the merger, Oak will cause the
surviving corporation to fulfill and honor Xionics' obligations under any
indemnification agreements with its directors and officers that existed as of
the effective time of the merger and any indemnification provisions under
Xionics organizational documents that were in effect on the date of the merger
agreement.
The certificate of incorporation and bylaws of the surviving corporation
following the merger will contain provisions relating to exculpation and
indemnification that are at least as favorable to the indemnified directors and
officers as those contained in Xionics' organizational documents that were in
effect on the date of the merger agreement. These indemnification provisions
will not be amended, repealed or otherwise modified for six years after the
effective time of the merger if that modification would adversely affect the
rights of individuals who were directors, officers, employees or agents of
Xionics immediately prior to the effective time of the merger, unless that
modification is required by law.
For six years after the effective time of the merger, Oak will maintain the
directors' and officers' liability insurance currently maintained by Xionics and
covering those persons who are currently covered by Xionics' directors' and
officers' liability policy. However, Oak will not be required to expend in any
one year more than 150% of the annual premium currently paid by Xionics for that
coverage.
CONDITIONS TO THE MERGER
The obligations of Oak and Xionics to effect the merger are subject to the
satisfaction of the following conditions:
- Xionics stockholders approve the merger;
- Oak stockholders approve the share issuance in connection with the merger;
- the Commission declares the registration statement effective and no stop
order suspending the effectiveness of the registration statement has been
issued and no proceeding for that purpose, and no similar proceeding in
respect of this document, has been initiated or threatened in writing by
the Commission;
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- no governmental entity has enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction
or other order which is in effect and which makes the merger illegal or
otherwise prohibits consummation of the merger;
- all waiting periods under the Hart-Scott-Rodino Act relating to the merger
have expired or terminated early;
- Oak and Xionics receive written opinions from tax counsel to the effect
that, the merger will constitute a reorganization within the meaning of
section 368(a) of Internal Revenue Code and the opinions have not been
withdrawn; and
- the shares of Oak common stock to be issued in the merger have been
approved for listing on the Nasdaq National Market.
In addition, the obligation of Xionics to consummate and effect the merger
is subject to the satisfaction of the following conditions, any of which may be
waived by Xionics:
- the representations and warranties of Oak contained in the merger
agreement (a) must be true and correct in all material respects as of the
date of the merger agreement and (b) must be true and correct in all
material respects on and as of the closing date of the merger as if made
on that date, except that representations and warranties that address
matters only as of a particular date must have been true and correct as of
that date;
- all agreements and covenants required by the merger agreement to be
performed or complied with by Oak must be performed or complied with in
all material respects;
- the Oak Board must not have resolved, amended or modified, in any adverse
respect, its approval of the share issuance or its recommendation to Oak's
stockholders; and
- there must not have been a material adverse effect relating to Oak's
business, financial condition or results of operations.
Further, the obligation of Oak to consummate and effect the merger is
subject to the satisfaction of the following conditions, any of which may be
waived by Oak:
- the representations and warranties of Xionics contained in the merger
agreement (a) must have been true and correct in all material respects as
of the date of the merger agreement, and (b) must be true and correct on
and as of the closing date as if made on and as of that date, except that
representations and warranties that address matters only as of a
particular date must have been true and correct as of that date;
- all agreements and covenants required by the merger agreement to be
performed or complied with by Xionics must be performed or complied with
in all material respects;
- the Xionics Board must not have revoked, amended or modified, in any
adverse respect, its approval of the merger or its recommendation to
Xionics' stockholders;
- Xionics' rights plan and all rights issued under that plan must have been
terminated;
- there must not have been a material adverse effect on Xionics' business,
financial condition or results of operations since the execution of the
merger agreement; and
- Oak must have been furnished with evidence satisfactory to it that certain
customers have consented to the merger.
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TERMINATION
The merger agreement may be terminated at any time prior to the effective
time of the merger, whether before or after the approval of the stockholders of
Xionics and Oak has been obtained:
- by mutual consent authorized by the boards of directors of both Oak and
Xionics;
- by either Xionics or Oak if the merger is not consummated by February 15,
2000; although, this right to terminate the merger agreement will not be
available to any party who has been a principal cause of the failure of
the merger to occur by that date;
- by either Xionics or Oak if a governmental entity has issued an order,
decree or ruling or taken any other action which permanently restrains,
enjoins or otherwise prohibits the merger;
- by either Xionics or Oak if the required approval of Xionics' stockholders
or Oak's stockholders is not obtained;
- by Xionics, upon Oak's breach in any material respect of any
representation, warranty, covenant or agreement as set forth in the merger
agreement, or if any representation or warranty of Oak becomes untrue in
any material respect. However, Oak is entitled to cure through reasonable
efforts within 10 days;
- by Oak if the following "triggering events" occur:
- the Xionics Board withdraws or amends in an adverse manner to Oak, its
recommendation of the merger;
- following the public announcement of a third-party acquisition
proposal, the Xionics Board fails to affirm its recommendation of the
merger or fails to recommend against acceptance of the new proposal
within fifteen days of the announcement;
- the Xionics Board approves any other acquisition proposal by a third
party or Xionics enters into any agreement accepting another
acquisition proposal; or
- a tender or exchange offer for Xionics common stock is commenced and
the Xionics Board fails to recommend rejection of the offer; or
- by Oak, upon Xionics' breach in any material respect of any
representation, warranty, covenant or agreement as set forth in the merger
agreement, or if any representation or warrant of Xionics becomes untrue
in any material respect. However, Xionics is entitled to cure through
reasonable efforts within 10 days.
TERMINATION FEE AND EXPENSES
Except as set forth below, all fees and expenses incurred in connection with
the merger agreement and the merger will be paid by the party incurring those
expenses, whether or not the merger is consummated. However, Oak and Xionics
will share equally all fees and expenses, other than attorneys' and accountants
fees and expenses, incurred in relation to the printing and filing of this
document and the registration statement and any amendments or supplements to
these documents and any fees required under the Hart-Scott-Rodino Act.
Under the merger agreement, Xionics is required to pay Oak a termination fee
of $3.1 million plus provide reimbursement to Oak for its out-of-pocket expenses
up to $500,000 if Oak terminates the merger agreement because:
- Xionics intentionally breaches the merger agreement;
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- A "triggering event" (as described above) has occurred; or
- (i) Xionics' stockholders fail to approve the merger agreement, (ii) a
competing transaction was announced or became publicly known at the time
the Xionics stockholders failed to approve the merger agreement, and (iii)
within 12 months of the termination of the merger agreement, Xionics
consummates a competing transaction.
Furthermore, under the merger agreement, Oak is required to pay Xionics a
termination fee of $3.1 million plus provide reimbursement to Xionics for its
out-of-pocket expenses up to $500,000 if Xionics terminates the merger agreement
because Oak intentionally breaches the merger agreement.
Payment of the fees described above will not be in lieu of damages incurred
in the event of a willful or intentional breach of the merger agreement.
AMENDMENT AND WAIVER
Subject to applicable law, the merger agreement may be amended by the
parties at any time by execution of a written instrument signed on behalf of Oak
and Xionics. At any time prior to the effective time of the merger, any party
may, to the extent legally allowed:
- extend the time for performance of any of the obligations or other acts of
the other party to the merger agreement;
- waive any inaccuracies in the representations and warranties made to that
party as contained in the merger agreement or in any document delivered
pursuant to the merger agreement; and
- waive compliance with any of the agreements or conditions for the benefit
of that party as contained in the merger agreement.
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STOCKHOLDER AGREEMENTS
STOCKHOLDER AGREEMENTS
Concurrently with the execution of the merger agreement, the directors and
certain executive officers of Xionics each entered into a voting agreement with
Oak under which these individuals agreed to:
- appear, or cause the holders of record to appear, at any meeting of the
stockholders of Xionics held for the purpose of voting on the merger; and
- vote, or cause the record holder to vote, all of the shares of Xionics
common stock owned, controlled by or subsequently acquired by that
director or executive officer in favor of the merger, the merger agreement
and the transactions contemplated by the merger agreement.
In addition, with respect to all shares owned of record and all shares
acquired by these directors and executive officers at any time prior to the
effective time of the merger, each signing stockholder has appointed Oak as
their irrevocable proxy and lawful attorney to demand that the Secretary of
Xionics call a special meeting of the stockholders of Xionics for the purpose of
considering any action related to the merger and to vote each of their shares as
their proxy in favor of the merger. The stockholder agreements terminate upon
the earlier of the termination of the merger agreement or the effective time of
the merger.
The stockholder agreements also prohibit each signing stockholder from
soliciting additional acquisition proposals from third parties on behalf of
Xionics or from engaging in any discussions with third parties regarding any
acquisition proposal. This prohibition continues for so long as the stockholder
agreements remain effective but does not limit a director's obligations and
duties as a member of the Xionics Board.
As of December 8, 1999, these directors and executive officers beneficially
owned an aggregate of 726,623 shares of Xionics' common stock, which represented
approximately 6.2% of Xionics' outstanding common stock on that date.
68
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
are presented for illustrative purposes only and are not necessarily indicative
of the combined financial position or results of operations for future periods
or the results of operations or financial position that actually would have been
realized had Oak and Xionics been a combined company during the specified
periods. The unaudited pro forma combined condensed financial statements,
including the related notes, are qualified in their entirety by reference to,
and should be read in conjunction with, the historical consolidated financial
statements of Oak and Xionics, including the related notes, incorporated by
reference into this document or included elsewhere in this document.
The following unaudited pro forma combined condensed financial statements
give effect to the proposed merger between Oak and Xionics using the purchase
method of accounting. The pro forma combined condensed financial statements are
based on the respective historical consolidated financial statements and related
notes of Oak and Xionics, which are incorporated by reference into this document
or included elsewhere in this document. The pro forma adjustments are
preliminary and based on management of Oak's estimates of the value of the
tangible and intangible assets acquired. In addition, management of Oak is in
the process of assessing and formulating its integration plans, which may
include employee separations, employee relocations, and other restructuring
actions and has not yet determined the costs, if any, of these plans.
Based on the timing of the closing of the transaction, the finalization of
the integration plans and other factors, the pro forma adjustments may differ
materially from those presented in these pro forma financial statements. A
change in the pro forma adjustments would result in a reallocation of the
purchase price affecting the value assigned to the long-term tangible and
intangible assets or, in some circumstances, result in a charge to the statement
of operations. The effect of these changes on the statement of operations will
depend on the nature and amounts of the assets and liabilities adjusted. See
note (1) to the pro forma combined condensed financial statements.
The unaudited pro forma combined condensed balance sheet assumes that the
merger took place on September 30, 1999, and combined Oak's unaudited September
30, 1999 consolidated balance sheet with Xionics' unaudited September 30, 1999
consolidated balance sheet. The pro forma combined condensed statements of
operations assume the merger took place as of July 1, 1998 and combines Oak's
audited consolidated statement of operations for the year ended June 30, 1999
and unaudited consolidated statement of operations for the three months ended
September 30, 1999, with Xionics' audited statement of operations for the year
ended June 30, 1999 and the unaudited consolidated statement of operations for
the three months ended September 30, 1999.
69
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------ -----------------------------
HISTORICAL PROFORMA
------------------ -----------------------------
OAK XIONICS ADJUSTMENTS COMBINED
-------- -------- ------------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.................. $ 13,563 $ 24,438 $(34,391)(a) $ 3,610
Short-term investments..................... 113,710 113,710
Accounts receivable, net................... 5,421 4,830 (1,000)(b) 9,251
Contract receivable........................ 0 4,000 4,000
Inventories................................ 1,558 -- 1,558
Current portion of foundry deposits........ 5,192 -- 5,192
Deferred tax asset......................... 0 -- --
Prepaid expenses and other current
assets................................... 12,463 7 12,470
-------- -------- ------------- ---------
Total current assets..................... 151,907 33,275 (35,391) 149,791
Property and equipment, net.................. 21,718 1,932 23,650
Foundry deposits............................. 7,760 -- 7,760
Intangible assets............................ 0 -- 23,516(a) 23,516
Goodwill..................................... 0 -- 26,145(a) 26,145
Deferred tax asset........................... 0 1,030 (1,030)(b) --
Other assets................................. 9,074 1,203 10,277
-------- -------- ------------- ---------
Total assets................................. $190,459 $ 37,440 $ 13,240 $ 241,139
-------- -------- ------------- ---------
-------- -------- ------------- ---------
Current liabilities:
Notes payable and current portion of
long-term debt........................... $ 26 $ -- $ -- $ 26
Accounts payable........................... 4,248 1,148 5,396
Accrued expenses........................... 7,092 8,374 1,200(a) 16,666
Deferred revenue........................... 234 6,907 (2,000)(a) 5,141
-------- -------- ------------- ---------
Total current liabilities................ 11,600 16,429 (800) 27,229
Deferred income taxes........................ 1,438 1,438
Other long-term liabilities.................. 342 342
-------- -------- ------------- ---------
Total liabilities........................ 13,380 16,429 (800) 29,009
Stockholders' equity:........................
Common stock............................... 43 130 (118)(a) 55
Additional paid-in capital................. 165,660 47,479 (2,583)(a) 210,556
Retained earnings.......................... 21,847 (22,491) 12,643(a) 11,990
Treasury stock............................. (10,471) (4,107) 4,107(a) (10,471)
Total stockholders' equity............... 177,079 21,011 14,040 212,130
-------- -------- ------------- ---------
Total liabilities and stockholders'
equity................................. $190,459 $ 37,440 $ 13,240 $ 241,139
-------- -------- ------------- ---------
-------- -------- ------------- ---------
</TABLE>
70
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1999
------------------------------------------------
1999 HISTORICAL PROFORMA
----------------- -----------------------------
OAK XIONICS ADJUSTMENTS COMBINED
-------- ------- ------------- ---------
<S> <C> <C> <C> <C>
Net revenues................................. $ 71,051 $31,403 $ (95)(c) $ 102,359
-------- ------- ------------- ---------
Costs and expenses:
Cost of revenues........................... 39,619 9,747 (95)(c) 49,271
Research and development expenses.......... 51,107 12,198 63,305
Selling, general, and administrative
expenses................................. 35,109 7,104 42,213
In-process research and development
expenses................................. 7,161 7,161
Amortization of goodwill and other
intangible assets........................ 12,222(d) 12,222
-------- ------- ------------- ---------
Total cost and expenses.................. 132,996 29,049 12,127 174,172
-------- ------- ------------- ---------
Operating income (loss).................... (61,945) 2,354 (12,222) (71,813)
Non-operating income, net.................... 5,530 753 6,283
-------- ------- ------------- ---------
Income (loss) before income taxes.......... (56,415) 3,107 (12,222) (65,530)
Income taxes (benefit)....................... (5,747) 290 (5,457)
-------- ------- ------------- ---------
Net income (loss).......................... $(50,668) $ 2,817 $(12,222) $ (60,073)
-------- ------- ------------- ---------
-------- ------- ------------- ---------
Proforma net income (loss) per share:
Basic and diluted............................ $ (1.24) $ (1.20)
-------- ---------
-------- ---------
Shares used in computing net income (loss)
per share:
Basic and diluted............................ 40,819 9,394(e) 50,213
-------- ------------- ---------
-------- ------------- ---------
</TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------
HISTORICAL PROFORMA
----------------- -----------------------------
OAK XIONICS ADJUSTMENTS COMBINED
-------- ------- ------------- ---------
<S> <C> <C> <C> <C>
Net revenues................................. $ 10,142 8,981 $ 19,123
-------- ------- ------------- ---------
Costs and expenses:
Cost of revenues........................... 5,071 2,754 7,825
Research and development expenses.......... 12,139 2,862 15,001
Selling, general, and administrative
expenses................................. 7,463 1,946 9,409
Amortization of goodwill and other
intangible assets........................ -- 3,008(d) 3,008
-------- ------- ------------- ---------
Total cost and expenses.................. 24,673 7,562 3,008 35,243
-------- ------- ------------- ---------
Operating income (loss).................... (14,531) 1,419 (3,008) (16,120)
Non-operating income, net.................... 2,345 254 2,599
-------- ------- ------------- ---------
Income (loss) before income taxes.......... (12,186) 1,673 (3,008) (13,521)
Income taxes (benefit)....................... -- 225 225
-------- ------- ------------- ---------
Net income (loss).......................... $(12,186) $ 1,448 $(3,008) $ (13,746)
-------- ------- ------------- ---------
-------- ------- ------------- ---------
Proforma net income (loss) per share:
Basic and diluted............................ $ (0.30) $ (0.27)
-------- ---------
-------- ---------
Shares used in computing net income (loss)
per share:
Basic and diluted............................ 41,086 9,394(e) 50,480
-------- ------------- ---------
-------- ------------- ---------
</TABLE>
71
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
On July 29, 1999, Oak entered into a merger agreement under which all of the
outstanding common stock of Xionics is to be exchanged for cash and common stock
of Oak. Each Xionics stockholder will receive $2.94 cash and .8031 shares of Oak
common stock for each share of Xionics common stock. In addition, Oak will
assume all outstanding options to purchase Xionics common stock. Under the
merger agreement, holders of Xionics options that are exercisable, may elect to
receive an option to purchase 1.5748 shares of Oak common stock or $2.94 cash
and an option to purchase .8031 shares of Oak common stock for each vested
option. Vested and unvested options were valued using the Black-Scholes option
pricing model. The actual number of Oak shares and cash to be issued will depend
upon the choice of vested option holders. Accordingly, the actual allocation of
the purchase price could differ from that presented below.
The pro forma combined condensed balance sheet as of September 30, 1999,
gives effect to the merger as if it had occurred on September 30, 1999.
The following adjustments have been reflected in the unaudited pro forma
combined condensed balance sheet:
(a) To record cash paid and common stock and options issued to Xionics
stockholders and record applicable purchase accounting entries. The fair value
of Oak common stock issued and vested options assumed was determined using the
weighted average market price of Oak common stock two days before and after the
merger was publicly announced. The fair value of all options was determined
using the Black-Scholes model.
Under purchase accounting, the total purchase price will be allocated to
Xionics' assets and liabilities based on their fair values. Allocations are
subject to valuations as of the date of the consummation of the merger. The
amounts and components of the estimated purchase price along with the
preliminary allocation of the estimated purchase price to assets purchased are
as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Cash............................................................... $ 34,391
Common stock....................................................... 36,450
Fair value of Xionics stock options assumed........................ 8,458
---------
Total purchase price............................................. $ 79,299
---------
---------
Fair value of net tangible assets of Xionics....................... $ 19,780
Intangible assets.................................................. 23,516
Goodwill........................................................... 26,145
Purchase of in-process research and development.................... 9,858
---------
Total net tangible and intangible assets acquired................ 79,299
---------
---------
</TABLE>
72
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(1) UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET (CONTINUED)
The actual allocation of the purchase price will depend upon the composition
of Xionic's net assets on the closing date and Oak's evaluation of the fair
value of the net assets as of the date indicated. Consequently, the actual
allocation of the purchase price could differ from that presented above.
<TABLE>
<CAPTION>
<S> <C>
Intangible assets include (in thousands):
Developed Technology..................................................... $ 9,593
Core Technology.......................................................... 9,025
Acquired Workforce....................................................... 2,766
Patents.................................................................. 1,448
Tradename................................................................ 684
---------
$ 23,516
---------
---------
</TABLE>
Based on a preliminary allocation of the purchase price, Oak expects to take
a special charge of approximately $10 million against earnings in the calendar
quarter in which the merger occurs (which is expected to be the first quarter of
2000) in order to write-off the cost of in-process research and development. At
the valuation date, Xionics had several in-process research and development
projects in each of its product groups: languages, drivers, MFPs and its new
Tandem product. The majority of Xionics' research and development activities are
focused on advancing Xionics' products in the areas of increased performance and
color, enabling multifunction peripherals (combining print, copy, scan and fax
capabilities), and providing improved internet printing and network
connectivity. In driver technology, Xionics is working on an integrated
development environment capable of creating customized printer drivers
supporting Microsoft Windows operating systems. Each of these projects has not
yet achieved technological feasibility. As image processing represents a very
specialized market, it is unlikely that Xionics' in-process technology could be
successfully deployed in alternative market applications. Further, it was
determined that there was significant technological risk and substantial future
development expenses relating to each of the products under development.
However, Oak's management believes that Xionics will be successful in completing
development of their in-process products based on their considerable expertise
and know-how in imaging technology. Delays in or failure to complete the
development of in-process products could seriously harm Oak's business, results
of operations and financial condition. Research and development expenses are
expected to remain at or above current levels of approximately $12 million per
year in order to support these on-going development activities. Through
discussions with Xionics technical personnel, it was determined that the
in-process products will utilize some technology from previous products, or
existing know-how. This is referred to as core technology, the value of which is
used to estimate the amount of developed technology that can be leveraged and
utilized in conjunction with the new, in-process technology to develop the
in-process products. The core technology leverage factor ranged from 0% to 35%
and was extracted in order to value the core and in-process technologies
separately. Expected revenues from in-process products are expected to commence
in fiscal year 2000 and will comprise the majority of Xionics' revenues over the
next several years.
The valuation of the acquired in-process research and development used by
Oak in making the determination as to the amount of in-process research and
development was supported by valuation studies prepared by an independent
third-party appraiser. The estimated value of in-process research and
development was derived using the "Income Approach," which values an asset based
on future cash flows that could potentially be generated by the asset over its
estimated useful life. The future
73
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(1) UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET (CONTINUED)
cash flows were discounted to their present value utilizing a discount rate of
24%. The amounts of the purchase price technology assigned to the fair values of
in-process research and development and purchased technology represent
management's best estimate. Oak does not anticipate any material changes from
historical pricing, margins and expense levels in its valuation assumptions.
(b) The pro forma financial information includes a pro forma adjustment to
reflect the impact of establishing a valuation allowance against Xionics
deferred tax assets at June 30, 1999. This allowance would have been required
had the companies been combined.
(2) UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
The pro forma combined condensed statements of operations give effect to the
merger as if it had occurred at the beginning of the period presented.
The following adjustments have been reflected in the unaudited pro forma
combined condensed statements of operations:
(c) Adjustment to eliminate intercompany transactions between Oak and Xionics.
(d) Adjustment to record the amortization of goodwill and intangible assets
resulting from the allocation of the Xionics purchase price. The pro forma
adjustment assumes goodwill and other intangible assets will be amortized on a
straight-line basis over an estimated life between 3 and 5 years. The ultimate
lives assigned will be determined at the date of acquisition based on the facts
and circumstances existing at that date. A preliminary determination of useful
lives for each category of intangible asset is as follows: developed technology,
3 years; core technology, 4 years; acquired workforce, 3 years; patents, 5
years; tradename, 5 years.
(e) To reflect the estimated shares to be issued as consideration for the merger
based on the ratio of .8031 shares of Oak common stock for each outstanding
share of Xionics common stock.
74
<PAGE>
DESCRIPTION OF OAK CAPITAL STOCK
Oak is authorized to issue up to 60,000,000 shares of common stock, par
value $0.001 per share, and if Oak's stockholders approve the amendment to Oak's
restated certificate of incorporation, Oak will be authorized to issue up to
100,000,000 shares of Oak common stock. Holders of shares of Oak common stock
are entitled to one vote per share on all matters to be voted on by
stockholders. The holders of Oak common stock are entitled to receive those
dividends, if any, as may be declared from time to time by the Oak Board out of
funds legally available for dividends. Upon liquidation or dissolution of Oak,
the holders of Oak common stock are entitled to share ratably in the
distribution of assets, subject to the rights of the holders of Oak preferred
stock, if any. Holders of Oak common stock have no preemptive rights,
subscription rights or conversion rights. There are no redemption or sinking
fund provisions with respect to the Oak common stock. As of December 6, 1999,
there were approximately 40,881,445 shares of Oak common stock outstanding, held
by approximately 318 holders of record.
In addition, Oak is authorized to issue 2,000,000 shares of preferred stock,
par value $0.001 per share, in one or more series as determined by the Oak
Board. The Oak Board may, without further action by the stockholders of Oak,
issue a series of Oak preferred stock and fix the rights and preferences of
those shares, including the dividend rights, dividend rates, conversion rights,
exchange rights, voting rights, terms of redemption, redemption price or prices,
liquidation preferences, the number of shares constituting any series and the
designation of such series. The rights of the holders of Oak common stock will
be subject to, and may be adversely affected by, the rights of the holders of
any Oak preferred stock issued by Oak in the future. No shares of Oak preferred
stock are currently issued or outstanding, although Oak has designated 400,000
shares of preferred stock as Series A junior participating preferred stock
pursuant to a stockholders rights plan.
You can obtain additional information about Oak's securities through Oak's
filings with the Commission. See "Where You Can Find More Information" on page
100 of this joint proxy statement/prospectus.
COMPARISON OF RIGHTS OF SHAREHOLDERS OF OAK
AND STOCKHOLDERS OF XIONICS
Oak and Xionics are both incorporated in Delaware. Xionics stockholders
receiving Oak common stock in connection with the merger, whose rights are
currently governed by Delaware corporate law, the Xionics certificate of
incorporation and the Xionics bylaws, will, upon consummation of the merger,
automatically become Oak stockholders, and their rights will continue to be
governed by Delaware corporate law, as well as by the Oak restated certificate
of incorporation and Oak bylaws. The following is a summary of the material
differences between the rights of holders of Oak common stock and the rights of
holders of Xionics common stock. The following does not purport to be a complete
description of the differences between the Oak stockholders and the Xionics
stockholders. These differences may be determined in full by reference to the
Oak restated certificate of incorporation, Xionics certificate of incorporation,
Oak bylaws and Xionics bylaws.
<TABLE>
<CAPTION>
XIONICS STOCKHOLDER RIGHTS OAK STOCKHOLDER RIGHTS
------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Governance - The rights of Xionics stockholders - The rights of Oak stockholders are
are governed by the DGCL, the Xionics currently governed by the DGCL, the
certificate of incorporation and the Oak restated certificate of
Xionics bylaws. incorporation and the Oak bylaws.
- Upon completion of the merger, the - Upon completion of the merger, the
rights of Xionics stockholders who rights of Oak stockholders will
become Oak stockholders will continue continue to be governed by the DGCL,
to be governed by the DGCL, as well the Oak restated certificate of
as by the Oak restated certificate of incorporation and the Oak bylaws.
incorporation and the Oak bylaws.
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
XIONICS STOCKHOLDER RIGHTS OAK STOCKHOLDER RIGHTS
------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C> <C>
Authorized Capital Stock - The authorized capital stock of - The authorized capital stock of Oak
Xionics consists of 40 million shares consists of 60 million shares of
of common stock and 10 million shares common stock and 2 million shares of
of preferred stock. preferred stock.
Number of Directors - The Xionics certificate of - The Oak restated certificate of
incorporation provides that the incorporation and the Oak bylaws
number of directors will be as provide that the number of directors
determined by the Xionics board but will be as determined by the Oak
shall not be fewer than three board and will be divided into three
directors and will be divided into classes as equal as possible in
three classes as equal as possible in number with each class serving three
number with each class serving three year terms. The Oak board currently
year terms. The Xionics board consists of six directors.
currently consists of five directors.
Removal of Directors - The Xionics bylaws provide that - The Oak restated certificate of
directors may be removed only for incorporation provides that directors
cause and only by the affirmative may be removed with or without cause
vote of a majority of the shares of by the affirmative vote of a majority
Xionics capital stock entitled to of the shares of Oak capital stock
vote. entitled to vote.
Special Meetings of - The Xionics bylaws provide that - The Oak bylaws provide that special
Stockholders special meetings of stockholders may meetings of stockholders may be
be called only by the Chairman of the called only by the Oak board of
Board of Directors, the President or directors pursuant to a resolution
by a majority of the total number of adopted by a majority of the total
directors which Xionics would have if number of authorized directors
there were no vacancies. (whether or not there are any
vacancies) or by the holders of not
less than 10% of all of the shares of
Oak capital stock entitled to cast
votes at the meeting.
Amendment of Certificate - The Xionics certificate of - The Oak restated certificate of
of Incorporation incorporation may only be amended by incorporation may be amended by the
the affirmative vote of sixty-six and affirmative vote of a majority of the
two thirds (66 2/3%) of the outstanding stock entitled to vote
outstanding shares of Xionics capital thereon at a stockholders meeting and
stock entitled to vote. a majority of the outstanding stock
of each class except that amendments
to certain provisions relating to the
required vote for the amendment of
the Oak bylaws, provisions relating
to the election of directors and
provisions relating to
indemnification of directors require
the affirmative vote of sixty-six and
two-thirds (66 2/3%) of the then
outstanding shares of capital stock
of Oak entitled to vote in the
election of directors.
Amendment of Bylaws - The Xionics certificate of - The Oak bylaws may be amended by the
incorporation may be amended by a directors pursuant to a resolution
majority of the directors or by the adopted by a majority of the total
holders of not less than sixty-six number of authorized directors
and two-thirds percent (66 2/3%) of (whether or not there are any
the voting power of all of the then vacancies) or by the holders of not
outstanding shares of the capital less than sixty-six and two-thirds
stock of Xionics entitled to vote. percent (66 2/3%) of the voting power
of all of the then outstanding shares
of the capital stock of Oak entitled
to vote.
</TABLE>
76
<PAGE>
INFORMATION REGARDING OAK
The following is a brief description of the business of Oak. Additional
information regarding Oak is contained in its filings with the Commission. For
information on how you can obtain copies of these filings, please see the
section entitled "Where You Can Find More Information" on page 100 of this joint
proxy statement/ prospectus.
Oak designs, develops and markets high-performance, integrated
semiconductors and related software to OEMs worldwide who serve the optical
storage, consumer electronics and digital office equipment markets. Oak's
products consist primarily of integrated circuits and supporting software and
firmware all designed to store and distribute digital content, enabling its OEM
customers to deliver cost-effective, powerful systems to the end-user for the
home and enterprise. Oak's mission is to be a leading solution provider for
storing and distributing digital content.
- OPTICAL STORAGE: Oak's Optical Storage Group is a leading provider of
controllers to the optical storage market. Oak's optical storage group has
shipped more than 125 million controllers to date, and its controllers are
in more than 50% of the drives shipped to date. A pioneer in this field
with the first IDE/ATAPI CD-ROM controller, Oak has focused its recent
product development efforts on emerging segments of this industry, namely
CD-RW and DVD drives. Oak's optical group currently has solutions for
CD-ROM, CD-RW and DVD drives. Core competencies include IDE and
alternative interfaces, error correction code (ECC), DSP/servo control,
disc write encoding, wobble servo, write strategy, system design, and
system software and firmware.
- DIGITAL OFFICE EQUIPMENT: Oak's imaging group headquartered in Andover,
Massachusetts, with its Pixel Magic brand of products, is a leading
provider of controllers to the digital office market. Oak's imaging group
designs high-performance, full-FEATURED compression codecs, imaging DSPs,
resolution enhancement solutions and embedded controller board solutions
for the emerging class of digital copiers, printers and multifunction
peripherals. Core competencies include strong expertise in
color/monochrome image processing pipelines, dot modulation and resolution
enhancement technology, and high-speed compression/decompression and
systems expertise.
- CONSUMER ELECTRONICS: Oak's Consumer Group targets opportunities in the
emerging digital consumer entertainment market by developing VALUE-added
integrated circuits and reference design solutions for DVD players and
terrestrial set-top boxes. Core competencies include MPEG decoding,
graphics processing, analog integration, and software expertise at the
microcode, systems and application levels.
On February 2, 1999, Oak announced the appointment of Young K. Sohn to the
office of President and Chief Executive Officer. Mr. Sohn has initiated a
comprehensive review of all aspects of Oak and has put in place a new management
team whose charter is to architect and execute a turnaround plan for Oak.
Although Oak is expected to formally announce its turnaround plan in the second
half of fiscal year 2000, portions of the plan have been announced to date.
First, in July, 1999, Oak announced that it intends to focus on the digital
imaging and optical storage markets as these are both markets in which Oak has a
successful legacy and unique core competencies. Furthermore, with the emergence
of the Internet, both markets are experiencing fundamental change and new growth
which Oak believes it is uniquely positioned to capture. On October 20, 1999,
Oak announced that it was in discussions with larger, semiconductor companies
regarding a sale of its digital broadcast business. A sale of this business will
allow it to focus on its optical storage and imaging businesses. Second, in July
1999, Oak also announced that it intends to be a solutions provider rather than
a semiconductor provider. As a consequence, Oak announced that it was redefining
its product roadmaps so that it would be able to provide completely integrated
hardware and software solutions to its customers in the digital imaging and
optical storage markets. The announcement of the merger with Xionics, a software
company in the imaging market, on July 29, 1999, represented a quantifiable step
towards Oak providing its customers
77
<PAGE>
in the imaging market with a complete solution. To date, Oak has stated that
part of its turnaround strategy is to become the leading supplier of embedded
solutions for the digital imaging market and the leading supplier of CD-RW
solutions for personal computer and consumer applications. It is anticipated
that additional parts of Oak's turnaround strategy will continue to be announced
periodically until the final, formal announcement in the second half of fiscal
year 2000.
Oak's executive offices and its principal marketing, sales and product
development operations are located in Sunnyvale, California. In addition, the
Company has facilities in Andover, Massachusetts; Taipei, Taiwan; Tokyo, Japan;
Bristol, England; Munich, Germany; and Shenzhen, China.
Oak is incorporated in Delaware. The principal executive office of the
Company is located at 139 Kifer Court, Sunnyvale, California 94086 and its
telephone number is (408) 737-0888.
78
<PAGE>
INFORMATION REGARDING XIONICS
Xionics is the leading provider of digital page processing software and
technology for the office market, enabling users to print, scan, copy, process
and transmit documents to computer peripheral devices that perform document
imaging functions. Such devices include printers, copiers, scanners, and fax
machines, as well as MFPs that perform a combination of these imaging functions.
Xionics offers integrated, modular embedded software products, along with
firmware and silicon technology products, intended to provide the performance,
output quality and network connectivity required for today's office market.
Xionics also offers complementary personal computer software products, in
particular printer drivers. Xionics provides standards-based technology around
which its customers--OEMs of peripheral devices--can design and develop
differentiated products. Xionics' technology and expertise is packaged as a
range of products and services, from licenses of core source code to complete
turnkey controller solutions, all designed to help OEMs get their devices to
market quickly and cost-effectively. Xionics markets its solutions directly to
OEMs such as Hewlett-Packard, IBM, QMS, Ricoh, Samsung, GCC, Seiko Epson, Sharp
and Xerox.
Xionics was incorporated in Delaware on December 30, 1992 under the name
Xionics International Holdings, Inc., although a predecessor to the Company was
formed prior to 1985. In May 1995, the company changed its name to Xionics
Document Technologies, Inc. Xionics' executive offices are at 70 Blanchard Road,
Burlington, Massachusetts 01803. Its telephone number is 781-229-7000.
CORE TECHNOLOGIES
INTELLIGENT PERIPHERAL SYSTEM.
At the heart of Xionics' enabling technology for OEMs, and forming the
foundation of Xionics' embedded systems product offerings, is the Intelligent
Peripheral System ("IPS"), a modular, scalable, layered software and hardware
architecture that provides processing and control of document imaging peripheral
devices. IPS was developed based on Xionics' longstanding expertise in the
development of page description language interpreters, and enhanced and extended
into a complete controller architecture for printers and MFPs through Xionics'
intensive investment in research and development over the past several years.
The Intelligent Peripheral System gives OEMs the ability to build high-
performance, network-enabled devices quickly and cost-effectively. As OEMs
increasingly rely on outside suppliers to provide foundation technology for
their document imaging devices, IPS enables Xionics to meet OEMs' outsourcing
needs and capture a significant share of the expanding market for outsourced
technology and engineering services. The Intelligent Peripheral System is
productized in a series of software developer packages and hardware components,
as follows.
PRODUCTS
IPS/2000
IPS/2000, formerly known as IPS-PRINT, is a software developer package that
contains page rendering application components and supporting embedded system
service components needed to build controllers for printers and
multiple-function peripheral devices. (A controller is a printed circuit board
inside the device that contains all of the processing components, circuitry and
firmware necessary to enable it to convert data received from a user's personal
computer into marks on the printed page.) The package includes Xionics'
industry-leading compatible implementations of industry-standard software
interpreters for the PostScript-TM- and PCL PDLs. These include Xionics 5-TM-,
Xionics 5E-TM-, Xionics 5C-TM-, and Xionics 6-TM-, which emulate the PCL family
of PDLs developed and marketed by Hewlett-Packard, and Xionics PS2-TM- and
Xionics PS3-TM-, which are compatible with the PostScript Level 2 and PostScript
Level 3 page description language interpreters from Adobe Systems Inc. Xionics
PS3
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was first released and shipped to customers during the Company's 1999 fiscal
year. Each Xionics PDL interpreter can render color and Asian-font pages as well
as standard monochrome output. IPS/2000 includes patented methods for
significantly reducing the amount of printer memory necessary for rendering
complex pages.
IPS/2000 also includes extensions that allow OEMs to build high-performance,
cost-effective controllers for MFPs. The additional software components include
applications for copy, scan and fax functions plus the extended core system
services needed to support the concurrent operation of multiple functions.
IPS/2000 OPERATING SYSTEM
The IPS/2000 operating system provides a real-time, multitasking core
services system based on a dataflow architecture which permits the direction of
multiple parallel data streams through a system of software-defined and
hardware-executed pipelines. IPS/2000 controls conventional RISC processors in
printer-only configurations, and can control the XipChip family of MFP-oriented
ASICs in multiple-function configurations.
PRINTER DRIVERS.
Xionics offers printer drivers for the PCL6, PCL5E and PostScript Level 2
and 3 page printing environments and the Microsoft Windows 3.1, Windows 95,
Windows 98 and Windows NT 4.0 operating systems. Driver user interfaces may be
customized to match the individual OEM's look and feel, and translated into a
wide variety of human languages, including Asian languages.
XIPCHIP FAMILY OF ASICS.
Xionics has completed development of XipChip 2.0, a downsized version of
XipChip 1.5, which was the first in the Company's family of parallel image data
processing ASICs directed at the processing needs of advanced MFPs. The XipChip
processor family is able to provide the massive bandwidth required to drive
advanced MFPs and provide true concurrent operation of two or more functions
(for example, receiving a fax and making a copy) running simultaneously on the
same MFP device. XipChip 1.5 began shipping in commercial volumes in an OEM's
MFP device in the fourth calendar quarter of 1998, and XipChip 2.0 is expected
to begin shipping in commercial volumes in such a device in fiscal 2000.
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APPROVAL OF AMENDMENT TO
OAK'S RESTATED CERTIFICATE OF INCORPORATION
The present capital structure of Oak authorizes 60,000,000 shares of Oak
common stock and 2,000,000 shares of preferred stock, each having a par value of
$0.001 per share. The Oak Board believes this capital structure is inadequate
for the present and future needs of Oak, including effecting the share issuance
in connection with the merger. Therefore, the Oak Board has unanimously approved
the amendment to Oak's Restated Certificate of Incorporation (the "Certificate")
to increase the authorized number of shares of Oak common stock from 60,000,000
shares to 130,000,000 shares. The Oak Board believes this capital structure more
appropriately reflects the present and future needs of Oak and recommends this
amendment to Oak's stockholders for adoption. The undesignated preferred stock
may be issued from time to time in one or more series with those rights,
preferences and privileges as may be determined by the Oak Board. On December 6,
1999, 40,881,445 shares of common stock were outstanding and no shares of
preferred stock were outstanding. Oak has designated 400,000 shares of preferred
stock as series A junior participating preferred stock pursuant to a
stockholders rights plan.
PURPOSE OF AUTHORIZING ADDITIONAL COMMON STOCK
To consummate the merger, Oak must issue approximately 10.6 million shares
of common stock. Taking into account approximately 43 million shares currently
issued and outstanding and 14.7 million shares reserved for issuance under Oak's
equity incentive programs, approximately 2.3 million shares remain available as
authorized shares for issuance. Without an increase in authorized shares of
common stock, the merger would be impracticable because Oak would not have
enough authorized shares to effect the share issuance. OAK STOCKHOLDERS THAT
APPROVE THE SHARE ISSUANCE IN CONNECTION WITH THE MERGER SHOULD ALSO VOTE TO
APPROVE THE AMENDMENT TO OAK'S CERTIFICATE TO AUTHORIZE ADDITIONAL SHARES OF OAK
COMMON STOCK IN ORDER TO INCREASE THE LIKELIHOOD THAT THE MERGER WILL BE
COMPLETED.
Authorizing an additional 70,000,000 shares of common stock would also give
the Oak Board the express authority, without further action of stockholders, to
issue Oak common stock from time to time as the Oak Board deems necessary. The
Oak Board believes it is necessary to have the ability to issue such additional
shares of Oak common stock for general corporate purposes. Potential uses of the
additional authorized shares may include acquisition transactions, equity
financings, issuance of options pursuant to Oak's stock option plans and
issuances of Oak common stock pursuant to Oak's Employee Stock Purchase Plan
without further action by the stockholders, unless that action were specifically
required by applicable law or rules of any stock exchange on which Oak's
securities may then be listed.
The proposed increase in the authorized number of shares of Oak common stock
could have a number of effects on Oak's stockholders depending upon the exact
nature and circumstances of any actual issuances of authorized but unissued
shares. The increase could have an anti-takeover effect in that additional
shares could be issued (within the limits imposed by applicable law) in one or
more transactions that could make a change in control or takeover of Oak more
difficult. For example, additional shares could be issued by Oak so as to dilute
the stock ownership or voting rights of persons seeking to obtain control of
Oak. Similarly, the issuance of additional shares to certain persons allied with
Oak's management could have the effect of making it more difficult to remove
Oak's current management by diluting the stock ownership or voting rights of
persons seeking to cause that removal. In addition, an issuance of additional
shares by Oak could have an effect on the potential realizable value of a
stockholder's investment. In the absence of a proportionate increase in Oak's
earnings and book value, an increase in the aggregate number of outstanding
shares of Oak caused by the issuance of the additional shares would dilute the
earnings per share and book value per share of all outstanding shares of Oak
common stock. If these factors were reflected in the price per share of Oak
common
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stock, the potential realizable value of a stockholder's investment could be
adversely affected. The common stock carries no preemptive rights to purchase
additional shares.
The proposed amendment to Oak's Certificate was unanimously approved by the
Oak Board on September 27, 1999.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Oak Board recommends a vote FOR the amendment to Oak's Certificate
authorizing 70,000,000 additional shares of Oak common stock.
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ELECTION OF OAK DIRECTORS
GENERAL
Oak has a classified Board of Directors currently consisting of two Class I
directors (Timothy Tomlinson and Young K. Sohn), two Class II directors (Ta-Lin
Hsu and Albert Y. C. Yu), and two Class III directors (Richard B. Black and
David D. Tsang), who serve for three-year terms or until their respective
successors are duly elected and qualified. At each annual meeting of
stockholders, directors are elected for a full term of three years to succeed
those directors whose terms expire on that annual meeting date. The term for
Class I directors expires in 2001, the term for Class III directors expires in
2000, and the term for Class II directors expires on the date of the 1999 Oak
annual meeting. Vacancies on the Oak Board resulting from death, resignation,
retirement, disqualification or other cause (other than removal from office by
vote of the stockholders) may be filled by a majority vote of the directors then
in office, and directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires.
Management's nominee for election by the stockholders as Class II directors
are Ta-Lin Hsu and Albert Y. C. Yu, the current Class II directors. If elected,
the nominees will serve as directors until Oak's annual meeting of stockholders
held with respect to fiscal year 2002, or until their successors are elected and
qualified. If either of these nominees declines to serve, proxies may be voted
for a substitute nominee as Oak may designate.
If a quorum is present and voting, the two nominees for Class II Directors
receiving the highest number of votes "For" will be elected as the Class II
Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF MR. HSU AND
MR. YU.
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DIRECTORS
The following sets forth certain information concerning Oak's current
directors, including the Class II nominees to be elected at this Annual Meeting.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY DIRECTOR SINCE
- ------------------------- --- ---------------------------------------------- ---------------
<S> <C> <C> <C>
CLASS I DIRECTORS WHOSE TERM EXPIRES AT THE 2001 ANNUAL MEETING:
Timothy Tomlinson 49 Director 1988
Young K. Sohn 43 President, Chief Executive Officer and 1998
Director
CLASS II DIRECTOR NOMINEES:
Ta-Lin Hsu 56 Director 1991
Albert Y. C. Yu 58 Director 1999
CLASS III DIRECTORS WHOSE TERM EXPIRES AT THE 2000 ANNUAL MEETING:
Richard B. Black 66 Director 1992
David D. Tsang 57 Chairman of the Board of Directors 1987
</TABLE>
Mr. Tomlinson has been a director of Oak since June 1998. He has been a
partner of Tomlinson Zisko Morosoli & Maser LLP, a law firm, since 1983. Mr.
Tomlinson is also a director of Portola Packaging, Inc., VeriSign, Inc., and
SmartDisk Corporation. Mr. Tomlinson holds a B.A. degree in economics, an
M.B.A., and a J.D. from Stanford University.
Mr. Sohn joined Oak as president and chief executive officer in February
1999. He has also been a director of Oak since January 1998. Prior to joining
Oak, and since January 1993, Mr. Sohn was employed by Quantum Corporation, most
recently as president of its Hard Drive Business. From August 1983 to January
1993, he acted as director of marketing at Intel Corporation. Mr. Sohn currently
serves on the board of directors of PLX Corporation. He holds a B.S. in
electrical engineering from the University of Pennsylvania and an M.S. (M.B.A.)
from Massachusetts Institute of Technology.
Dr. Hsu has been a director of Oak since January 1991. He has been employed
by H&Q Asia Pacific, the parent company of H&Q Taiwan Co., Ltd., since February
1985, most recently as chairman. Dr. Hsu is a director of numerous companies,
including Headway Technologies, ASE Technology Corporation, and Macronix
Corporation as well as many private companies. Dr. Hsu holds a B.S. degree in
physics from National Taiwan University, an M.S. degree in electrophysics from
Polytechnic Institute of Brooklyn, and a Ph.D. in electrical engineering from
the University of California, Berkeley.
Dr. Yu has been a director of Oak since August 1999. He is currently senior
vice president of the microprocessor products group of Intel Corporation, where
he has been employed for the last 23 years. Prior to joining Intel, Dr. Yu was
the head of device physics at Fairchild Semiconductor.
Mr. Black has been a director of Oak since November 1992 and was also a
director from December 1989 to January 1991. He also served as president of Oak
from January 1998 to February 1999, as well as acting president of Oak's optical
storage group from August 1998 to February 1999. Mr. Black is also a director of
Gabelli Funds, Inc., Gabelli Asset Management Inc., Morgan Group Inc., GSI
Lumonics as well as several private companies. Mr. Black holds a B.S. degree in
civil engineering from Texas A&M University and an M.B.A. from Harvard
University.
Mr. Tsang has served as chairman of the board of directors of Oak since
January 1991. He was also president and chief executive officer of Oak from July
1987, when he founded the company, until February 1999, and a director of Oak
since October 1987. Mr. Tsang has also held the positions of chief financial
officer from July 1987 to March 1993 and secretary of Oak from July 1987 to
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December 1994. He also is a director of ASE Test, a semiconductor assembly and
testing company. Prior to joining Oak, Mr. Tsang was the founder and served in
various positions including president, chief executive officer and chairman of
Data Technology Corp., a manufacturer of disk controllers and high density disk
drives, from 1979 to 1987, and co-founded Xebec, a manufacturer of disk
controllers, where he was employed from 1974 to 1979. Mr. Tsang holds a B.S.E.E.
degree in electrical engineering from Brigham Young University and an M.S.
degree in electrical engineering from Santa Clara University. On September 1,
1999 David D. Tsang and certain of his relatives entered into a consent decree
with the Securities and Exchange Commission in connection with an insider
trading investigation. Pursuant to the terms of the settlement, Mr. Tsang
neither admits nor denies the allegation that he provided nonpublic information
to certain relatives. He did not profit personally from any transaction in
question.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended June 30, 1999, the Oak Board held twelve (12)
meetings. Other than Dr. Yu, who was not a director during fiscal 1999, each of
the directors attended at least 75% of the total number of meetings of the Oak
Board and of the committees of the Oak Board on which such director served
during fiscal 1999.
The Oak Board does not have a nominating committee, but does have an audit
committee and a compensation committee.
The audit committee's function is to assist the Oak Board in fulfilling
financial oversight responsibilities and to review, with Oak's independent
auditors, management and the Oak Board, Oak's financial reporting policies and
practices, financial statements and internal financial controls. The audit
committee reviews all matters relating to the independent auditors' relationship
with Oak, including the scope of the annual audit, implementation of audit
procedures and implications of the management letter and assists the Oak Board
in evaluating the performance of the auditors. The audit committee also makes
recommendations with respect to the retention of the independent auditors to the
Oak Board, subject to ratification by the stockholders, and periodically reviews
Oak's accounting policies and internal accounting and financial controls. The
members of the audit committee are Richard Black and Timothy Tomlinson. The
audit committee held two (2) meetings during the fiscal year ended June 30,
1999.
The compensation committee is comprised of two independent, non-employee
directors of Oak, none of whom are former employees of Oak. The compensation
committee was comprised of Young Sohn and Ta-Lin Hsu until Mr. Sohn became an
employee of Oak in February 1999. Effective August of 1999 the compensation
committee was comprised of Ta-Lin Hsu and Albert Yu; (between February and
August the full board acted as the compensation committee). The compensation
committee's primary function is to provide guidance and leadership to the chief
executive officer, the chief financial officer and the VP, Human Resources to
enable them to design an executive compensation program which attracts and
retains executive management. The primary role of the compensation committee is
to review and approve the salary, bonus, stock options and other benefits,
direct or indirect, of Oak's officer group. The compensation committee met
thirteen (13) times during the fiscal year ended June 30, 1999.
DIRECTOR COMPENSATION
Each non-employee director receives an annual retainer of $20,000 and a
quarterly meeting fee of $2,500. In addition, all non-employee directors of Oak
receive up to an additional $2,500 per fiscal quarter if they serve as a
chairman of a committee of the Oak Board or up to an additional $1,500 per
fiscal quarter if they serve as a member (other than chairman) of a committee of
the Oak Board.
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In December 1994, the Oak Board adopted, and in January 1995 Oak's
stockholders approved, the 1994 Directors' Option Plan, which provides for the
automatic grant of options to purchase shares of Common Stock to non-employee
directors of Oak. The maximum number of shares of Common Stock that may be
issued pursuant to options granted under the 1994 Directors' Option Plan is
500,000. The maximum number of shares of Common Stock that may be issued to any
one non-employee director under the 1994 Directors' Option Plan is 80,000.
Pursuant to the terms of the 1994 Directors' Option Plan, each non-employee
director who on or after December 13, 1994 becomes a member of the Oak Board
will automatically be granted an option for 20,000 shares of Common Stock on the
date the non-employee director first joins the Oak Board (the "Initial Grant").
Each year following the date on which the Oak Board adopted the 1994 Directors'
Option Plan, on the date of Oak's annual meeting of stockholders, each
non-employee director will automatically be granted an additional option for
6,000 shares of Common Stock (a "Succeeding Grant"). Each Initial Grant and each
Succeeding Grant will vest as to 24% of the shares on the one-year anniversary
of the date of grant and as to 2% of the shares per month thereafter, so long as
the non-employee director remains a member of the Oak Board. Notwithstanding
anything to the contrary, in the event a non-employee director has not yet
vested as to 24% of an Initial Grant or a Succeeding Grant and such non-employee
director is not re-elected at Oak's annual stockholders' meeting immediately
following such grant, 24% of such grant will accelerate and become immediately
exercisable. The 1994 Directors' Option Plan will terminate in December 2004,
unless sooner terminated by the Oak Board. Under that plan, on November 23,
1998, each of Messrs. Tomlinson, Hsu and Sohn received an option grant for 6,000
shares at an exercise price of $7.875 per share.
Under the 1994 Directors Option Plan, in the event of a change in control
(whether through merger, sale of assets, a tender offer or proxy contest), the
vesting of all options will accelerate, and the options will become immediately
exercisable in full prior to the consummation of the change in control upon
conditions as the Oak Board determines.
On November 23, 1998, Oak's stockholders approved an amendment to the 1994
Stock Option Plan making non-employee board members eligible to receive option
grants under that plan, including those board members who serve on the
compensation committee. In addition the stockholders ratified options for 40,000
shares of common stock granted to each of Messrs. Tomlinson, Hsu and Sohn under
the 1994 Employee Stock Option Plan on July 30, 1998 at an exercise price of
$3.25 per share. In addition, on May 18, 1999, Mr. Black received a grant of
50,000 options under the 1994 Employee Stock Option Plan at an exercise price of
$3.00 per share. Twenty-four percent of the option vests on May 18, 2000 with
the remaining seventy-six percent vesting in 38 equal monthly installments so
long as he remains a member of the Oak Board. Also, on August 1, 1999, in lieu
of an Initial Grant under the 1994 Directors' Option Plan, Dr. Yu received an
option under the 1994 Employee Stock Option Plan for 50,000 shares at an
exercise price of $3.75 per share. Fifty percent of this option vested on August
1, 1999, and the remainder vests in twenty-five successive equal monthly
installments until fully-vested.
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EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information for the fiscal years ended June
30, 1999, June 30, 1998 and June 30, 1997 concerning compensation paid or
accrued by Oak to (i) both the current and former Chief Executive Officer of
Oak, (ii) the four most highly compensated executive officers of Oak whose total
annual salary and bonus for fiscal year 1999 exceeded $100,000 and who were
serving as executive officers as of June 30, 1999, and (iii) two additional
individuals who otherwise would have been included in the table but for the fact
that they were not serving as executive officers as of June 30, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION OPTIONS COMPENSATION
- --------------------------------------- --------- ---------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Young K. Sohn(2) ...................... 1999 $ 151,731 $ 0 $ 2,000,000 2,040,000 $ 56,245
President and Chief 1998 N/A N/A N/A 20,000
Executive Officer 1997 N/A N/A N/A N/A
David D. Tsang(3) ..................... 1999 $ 330,833 $ 0 -- 90,000 $ 5,246
Chairman of the Board and 1998 $ 300,000 $ 0 -- 100,000
former Chief Executive Officer 1997 $ 302,825 $ 180,000 -- 0
Shawn M. Soderberg(4) ................. 1999 $ 203,681 $ 76,000 -- 140,000 $ 2,429
Vice President, General 1998 $ 166,290 $ 61,281 -- 15,000
Counsel and Secretary 1997 $ 149,697 $ 36,593 -- 35,000
Peter D. Besen(5) ..................... 1999 $ 188,810 $ 41,200 $ 250,000 297,500 $ 2,208
General Manager, Digital 1998 $ 139,441 $ 47,819 -- 30,000 2,670
Imaging Group 1997 $ 125,500 $ 3,700 -- 60,000 1,636
Paul H.F. Vroomen(6) .................. 1999 $ 196,076 $ 8,547 -- 212,500 $ 2,663
General Manager, Consumer 1998 $ 145,161 $ 34,797 -- 80,000
Group 1997 N/A N/A N/A N/A
Robert O. Hersh(7) .................... 1999 $ 122,207 $ 48,000 -- 170,000 $ 700
Vice President and Chief 1998 N/A N/A N/A N/A
Financial Officer 1997 N/A N/A N/A N/A
Richard Simone(8) ..................... 1999 $ 213,327 $ 6,000 -- 130,000 $ 104,366
Vice President, Technology 1998 $ 11,195 $ 31,000 -- 0
and Operations 1997 N/A N/A N/A N/A
Richard B. Black(9) ................... 1999 $ 227,789 $ 0 -- 140,000 $ 331,356
Vice-Chairman of the Board 1998 $ 111,376 $ 0 -- 156,000
1997 N/A N/A N/A 6,000
</TABLE>
- ------------------------
(1) The award of any bonus is subject to the discretion of the compensation
committee of the Oak Board and if awarded, will be based upon achievement of
targets established for financial performance and attainment of other annual
goals as determined by the compensation committee. No bonus will be paid for
achievement of any of the designated levels of operating results unless a
specified minimum level of income before income taxes is achieved by Oak.
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(2) Mr. Sohn's current salary rate is $450,000 per annum, and he is eligible in
fiscal 2000 for a performance bonus of between 60% and 120% of his annual
salary. Mr. Sohn served as a director of Oak from January 1998 until
February 1999 when he became President and Chief Executive Officer.
Long-term compensation awards in fiscal 1999 include an option for 40,000
shares granted in July, 1998 while serving as a non-employee director of
Oak, and an option for 2,000,000 shares granted in February 1999 upon
acceptance of the position of chief executive officer and president. Mr.
Sohn was awarded a $2,000,000 loan, for which the payment of principal and
interest are to be forgiven in three equal annual installments over a
three-year period measured from the first anniversary of the loan provided
Mr. Sohn remains an employee of Oak during that term. Mr. Sohn is entitled
to the first installment if he is terminated during his first year. All
other compensation for fiscal 1999 includes $27,000 for director fees,
$29,000 for special committee fees and $245 group term life insurance
premium paid by Oak.
(3) Mr. Tsang served as Chief Executive Officer and President until February
1999 when he resigned from these offices, but he continues to serve Oak as
chairman of the board. His current salary rate is $325,000 per annum, and he
is eligible in fiscal 2000 for a target bonus of between 60% and 90% of his
annual salary. All other compensation for fiscal 1999 includes 401(k)
matching contribution of $2,000 and Oak's payment of $3,240 group term life
insurance premium.
(4) Ms. Soderberg joined Oak in February 1996. Her current salary rate is
$190,000 per annum, and she is eligible in fiscal 2000 for a target bonus of
up to 40% of her annual salary. Long-term compensation awards for fiscal
1999 include options for 20,000 shares originally granted in prior fiscal
years that were repriced in fiscal 1999. All other compensation for fiscal
1999 includes 401(k) matching contribution of $2,000 and Oak's payment of
$929 group term life insurance premium.
(5) Mr. Besen's current salary rate is $180,000 per annum, and he is eligible
for a target bonus of up to 40% of his annual salary. Long-term compensation
awards for fiscal 1999 include options for 90,000 shares originally granted
in prior fiscal years that were repriced in fiscal 1999. Mr. Besen was
awarded a $250,000 loan, for which the payment of principal and interest are
to be forgiven in three equal annual installments over a four-year period
commencing on the second anniversary of the loan. All other compensation for
fiscal 1999 includes 401(k) matching contribution of $2,208.
(6) Mr. Vroomen joined Oak in September of 1997. His current salary rate is
$190,000 per annum, and he is eligible in fiscal 2000 for a target bonus of
up to 40% of his annual salary. Long-term compensation awards include
options for 70,000 shares granted in a prior fiscal year and repriced in
fiscal 1999. All other compensation for fiscal 1999 includes 401(k) matching
contribution of $2,000 and Oak's payment of $663 group term life insurance
premium.
(7) Mr. Hersh joined Oak in November of 1998. His current salary rate is
$190,000 per annum and he is eligible in fiscal 2000 for a target bonus of
up to 40% of his annual salary. All other compensation represents Oak's
payment of $700 group term life insurance premium.
(8) Mr. Simone joined Oak in June 1998 and resigned his position June 23, 1999.
Long-term compensation awards include an option for 70,000 shares granted
and repriced in fiscal 1999. All other compensation for fiscal 1999 includes
a $99,750 severance payment, 401(k) matching contributions of $1,675, and
Oak's payment of $2,940 group term life insurance premium.
(9) Mr. Black served as president of Oak from January 1998 through February
1999, and he now serves as vice-chairman of the board. Long-term
compensation awards include a performance-based option for 90,000 shares
subsequently cancelled without value when Mr. Black ceased serving as
president, and an option for 50,000 shares granted under the 1994 Employee
Stock Option Plan. All other compensation for fiscal 1999 includes Oak's
payment of $186,693 for relocation expenses, $121,356 as severance payment,
$16,500 in director fees, and Oak's payment of $6,804 group term life
insurance premium.
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The following table contains information concerning the stock options
granted to the persons named in the Summary Compensation Table during the fiscal
year ended June 30, 1999. No stock appreciation rights were granted in fiscal
1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE VALUE
PERCENT OF ($) AT ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------------
NAME GRANTED(2) FISCAL YEAR ($/SH)(3) DATE 5% 10%
- -------------------------------- ------------ ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Young K. Sohn................... 40,000(4) 0.3689 $ 3.2500 07/30/08 $ 81,756 $ 207,187
2,000,000(5) 18.4443 $ 3.0000 02/21/09 $ 3,773,368 $ 9,562,455
David D. Tsang.................. 90,000(6) 0.8300 $ 3.2500 08/12/08 $ 183,952 $ 466,170
Shawn M. Soderberg.............. 60,000(6) 0.5533 $ 3.2500 08/12/08 $ 122,634 $ 310,780
20,000(7) 0.1844 $ 3.2500 08/12/08 $ 40,878 $ 103,593
60,000 0.5533 $ 3.0000 05/18/09 $ 113,201 $ 286,874
Peter B. Besen.................. 82,500(6) 0.7608 $ 3.2500 08/12/08 $ 168,622 $ 427,322
90,000(7) 0.8380 $ 3.2500 08/12/08 $ 183,952 $ 466,170
125,000 1.1528 $ 3.0000 05/18/09 $ 235,835 $ 597,653
Paul Vroomen.................... 82,500(6) 0.7608 $ 3.2500 08/12/08 $ 168,622 $ 427,322
80,000(7) 0.7378 $ 3.2500 08/12/08 $ 163,513 $ 414,373
50,000 0.4611 $ 3.0000 05/18/09 $ 94,334 $ 239,061
Robert O. Hersh................. 50,000(4) 0.4611 $ 3.6250 11/16/08 $ 113,987 $ 288,866
60,000(6) 0.5533 $ 3.6250 11/16/08 $ 136,785 $ 346,639
60,000 0.5533 $ 3.0000 05/18/09 $ 113,201 $ 286,874
Richard B. Black................ 90,000(6) 0.8300 $ 3.2500 08/12/08 $ 183,952 $ 466,170
50,000(4) 0.4611 $ 3.0000 05/18/09 $ 94,334 $ 239,061
Richard Simone(1)............... 70,000(7) 0.6455 $ 4.5625 07/01/08 $ 88,237 $ 194,982
60,000(6) 0.5533 $ 3.2500 08/12/08 $ 122,634 $ 310,780
70,000 0.6455 $ 3.2500 08/12/08 $ 143,074 $ 362,576
</TABLE>
- ------------------------
(1) Potential realizable value is based on an assumption that the stock price of
the Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the 10-year option term. These
numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect Oak's estimate of
future stock price growth.
(2) All options except those noted, become vested for (i) 24% of the underlying
shares on the first anniversary of the grant date and (ii) for the balance
of the shares in a series of successive equal monthly installments of 2% of
the remaining option shares measured from the first anniversary of the
vesting commencement date. Each option, unless noted was granted with a term
of ten (10) years.
(3) The exercise price may be paid in (i) cash, (ii) shares of Common Stock held
for the requisite period to avoid a charge tot he Company's earnings for
financial reporting purposes, (iii) through a same-day sale program or (iv)
subject to the discretion of the Plan Administrator, by delivery of a
full-recourse, secured promissory note payable to Oak.
(4) The options all accelerate in full upon a change of control of Oak.
89
<PAGE>
(5) The option is immediately exercisable with rights of repurchase lapsing
monthly at the rate of 2.0833%. In addition, the option will accelerate upon
achievement of certain performance goals and certain terminations of
employment. See "Employment and Change of Control Arrangements" below.
(6) Options noted become fully exercisable on the seventh (7th) anniversary of
the date of grant. These options have vesting acceleration provisions upon
the attainment of certain earnings per share targets. An additional 33 1/3%
of shares become exercisable in the event Oak reports increasing earnings
per share (EPS) for one or more fiscal years equal to or in excess of $.40,
$.80, and $1.20. In the event the EPS for a fiscal year is less than the EPS
for any earlier fiscal year, no additional shares of Common Stock shall
accelerate with respect to such later fiscal year. Options become fully
exercisable in the event of a change of control.
(7) The options noted were granted in prior fiscal years, cancelled and
regranted in fiscal 1999 at fair market value with a restart of vesting.
OPTION EXERCISES AND FISCAL 1999 YEAR-END VALUES
The following table provides certain information concerning exercises of
options to purchase Oak's Common Stock in the fiscal year ended June 30, 1999 by
the persons named in the Summary Compensation Table and sets forth certain
information concerning the number of shares covered by both exercisable and
unexercisable stock options as of June 30, 1999. Also reported are values of
"in-the-money" options that represent the positive spread between the respective
exercise prices of outstanding stock options and the fair market value of Oak's
Common Stock as of June 30, 1999. Oak has not issued any stock appreciation
rights.
AGGREGATE OPTION EXERCISES AND FISCAL 1999 YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED ON VALUE ---------------------------- ------------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Young K. Sohn................. 200,000 $ 0.00 1,840,134(2) 19,966 $ 0.00 $ 1,140,000.00
David D. Tsang................ 0 $ 0.00 38,000 152,000 $ 0.00 $ 33,750.00
Shawn M. Soderberg............ 0 $ 0.00 23,400 146,600 $ 0.00 $ 67,500.00
Peter D. Besen................ 0 $ 0.00 0 297,500 $ 0.00 $ 142,812.50
Paul Vroomen.................. 0 $ 0.00 0 212,500 $ 0.00 $ 92,187.50
Robert O. Hersh............... 0 $ 0.00 0 170,000 $ 0.00 $ 37,500.00
Richard B. Black(3)........... 0 $ 0.00 61,560 156,440 $ 0.00 $ 31,250.00
Richard Simone(4)............. 0 $ 0.00 0 130,000 $ 0.00 $ 48,750.00
</TABLE>
- ------------------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the options at June 30, 1999 (based on the closing
price of $3.625 for Oak's Common Stock on the Nasdaq National Stock Market
on June 30, 1999) and the exercise price of the options.
(2) Includes options to purchase 1,833,334 shares that are immediately
exercisable but unvested and are subject to Oak's right of repurchase.
(3) Mr. Black is Vice-Chairman of the Oak Board and served as President of Oak
from January 1998 through February 1999.
(4) Mr. Simone resigned as Vice President on June 23, 1999.
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<PAGE>
SPECIAL OPTION REGRANT PROGRAM
During the 1999 fiscal year, the compensation committee felt that
circumstances had made it necessary for Oak to implement an option
cancellation/regrant program. Accordingly, on August 12, 1998, all of Oak's
employees (including those executive officers who were new officers for fiscal
1998) were given the opportunity to surrender their outstanding options issued
under the 1988 and 1994 Stock Option Plans with exercise prices in excess of
$3.50 per share could be exchanged at the election of the optionee for a new
option grant for the same number of shares with a lower exercise price of $3.25
per share, the fair market value per share of Oak's Common Stock on the regrant
date. A restart of vesting was imposed, and the new options become exercisable
as follows: twenty-four percent at the end of the first anniversary of the date
of grant and the balance in a series of thirty-eight equal monthly installments.
The compensation committee determined that this program was necessary
because equity incentives are a significant component of the total compensation
package of each Company employee and play a substantial role in Oak's ability to
retain the services of individuals essential to Oak's long-term financial
success. Prior to the implementation of the program, the market price of Oak's
Common Stock had fallen as a result of market factors which adversely impacted
Oak's financial results and which did not necessarily reflect the employees'
contributions to Oak's progress. The compensation committee felt that Oak's
ability to retain key employees would be significantly impaired, unless value
was restored to their options in the form of regranted options at the current
market price of Oak's Common Stock. However, in order for the regranted options
to serve their primary purpose of assuring the continued service of each
optionee, a new vesting schedule was imposed with respect to the regranted
option shares. The new options do not continue to vest in accordance with their
original option vesting schedule, but may only be exercised for twenty-four
percent of the total shares after the optionee has completed one year of service
measured from the regrant date. Thereafter, the options may be exercised for an
additional two percent of the total shares on each monthly anniversary date
until fully vested. Accordingly, an employee or officer who elected to reprice
his or her current options was required to restart the fifty month vesting that
applied to a canceled option.
As a result of the new exercise schedules imposed on the regranted options,
the compensation committee believes that the program strikes an appropriate
balance between the interests of the option holders and those of the
stockholders. The lower exercise prices in effect under the regranted options
make those options valuable once again to the new executive officers and key
employees critical to Oak's financial performance. However, those individuals
will enjoy the benefits of the regranted options only if they in fact remain in
Oak's employ and contribute to Oak's financial success.
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<PAGE>
The following table sets forth information with respect to all repricings of
options held by any executive officer of Oak since February 13, 1995, the date
of Oak's initial public offering.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SECURITIES MARKET PRICE PRICE AT LENGTH OF OPTION
UNDERLYING OF STOCK AT TIME OF TERM REMAINING
OPTIONS TIME OF REPRICING NEW AT DATE OF
REPRICING REPRICED OR REPRICING OR OR EXERCISE REPRICING OR
NAME DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
- -------------------------------- --------- ----------- ------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Peter D. Besen.................. 08/01/96 20,000 $ 6.50 $ 28.50 $ 6.50 4 yrs, 97 days
General Manager, 08/01/96 10,000 $ 6.50 $ 19.38 $ 6.50 4 yrs, 174 days
Digital Imaging Group 08/12/98 20,000 $ 3.25 $ 6.50 $ 3.25 2 yrs, 86 days
08/12/98 10,000 $ 3.25 $ 6.50 $ 3.25 2 yrs, 163 days
08/12/98 30,000 $ 3.25 $ 9.38 $ 3.25 3 yrs, 294 days
08/12/98 30,000 $ 3.25 $ 9.63 $ 3.25 4 yrs, 83 days
Richard Simone (1) ............. 08/12/98 70,000 $ 3.25 $ 4.5625 $ 3.25 4 yrs, 323 days
Vice President,
Technology and Operations
Shawn M. Soderberg ............. 08/01/96 30,000 $ 6.50 $ 25.13 $ 6.50 4 yrs, 212 days
Vice President, 08/12/98 5,000 $ 3.25 $ 13.50 $ 3.25 3 yrs, 203 days
General Counsel & Secretary 08/12/98 15,000 $ 3.25 $ 7.00 $ 3.25 4 yrs, 202 days
Paul H. F. Vroomen ............. 08/12/98 80,000 $ 3.25 $ 10.875 $ 3.25 4 yrs, 21 days
General Manager,
Consumer Group
Ronald E. Wilderink(2) ......... 08/01/96 20,000 $ 6.50 $ 13.81 $ 6.50 3 yrs, 274 days
Vice President,
Corporate Controller
</TABLE>
- ------------------------
(1) Mr. Simone resigned as Vice President on June 23, 1999
(2) Mr. Wilderink resigned as Vice President on August 24, 1998
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee (the "Committee") is comprised of two
independent, non-employee directors of Oak, none of whom are former employees of
Oak. The compensation committee was comprised of Young Sohn and Ta-Lin Hsu until
Mr. Sohn became an employee of Oak in February 1999. Effective August of 1999
the compensation committee was comprised of Ta-Lin Hsu and Albert Yu; (between
February and August the full board performed the functions of the compensation
committee). For a description of transactions between Oak and members of the
compensation committee and entities affiliated with such members, see "Certain
Relationships and Related Transactions."
No executive officer of Oak served on the compensation committee of another
entity or on any other Committee of the Oak Board of another entity performing
similar functions, during the last fiscal year.
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
On February 22, 1999, Oak entered into an employment agreement with Mr. Sohn
in connection with his employment as Oak's President and Chief Executive
Officer. Pursuant to this agreement,
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<PAGE>
Mr. Sohn will be paid an annual base salary of $450,000 and will be eligible to
receive a performance bonus of 60% to 120% of his base salary for each fiscal
year beginning with fiscal 2000 based on the achievement of certain fiscal and
performance based objectives as agreed to with the Oak Board. Mr. Sohn also
executed a promissory note on February 22, 1999 for $2,000,000 with interest
payable at a rate of 4.62% per annum, compounded annually. Oak will forgive the
repayment of principal and accrued interest on the note in three equal annual
installments beginning February 25, 2000 provided Mr. Sohn is continuously
employed with Oak during each year in the three-year note term, but if Mr. Sohn
is terminated during the first year of the three-year term, the first
installment of principal and accrued interest will be forgiven.
Mr. Sohn was granted an option to purchase 2,000,000 shares of the company's
common stock with an exercise price of $3.00 per share. The option shares vest
in 48 equal monthly installments over his 4-year period of service. In the event
that Oak's common stock has an average closing price of at least $20 per share
for a period of 30 consecutive calendar days, Mr. Sohn will vest in 50% of any
unvested shares. In addition, all shares will vest upon a change in control of
Oak (whether by merger, asset sale or sale of stock by the stockholders) or a
dissolution of Oak. If Mr. Sohn's employment is terminated for any reason during
this first year of employment, the number of shares in which he will be vested
will be increased to the greater of (A) 25% of the total option shares or (B)
the number of shares in which he is otherwise vested plus 12.5% of the option
shares. If his employment is terminated without cause after one year, then the
number of shares in which he will be vested will be increased to the number of
shares in which he is otherwise vested plus 12.5% of the option shares. Mr. Sohn
exercised the option on February 22, 1999, subject to Oak's right to repurchase
any shares in which he is not vested upon his termination of employment.
In the event that Mr. Sohn is terminated for any reason during his first
year of employment, he will receive (i) his base salary for a period of 12
months, (ii) 50% of his target performance bonus and (iii) the first installment
of his special bonus (the loan forgiveness). If his employment is terminated
without cause after the first year of employment, Mr. Sohn will receive his base
salary for 6 months and 50% of his target performance bonus. In the event that
Mr. Sohn's employment is terminated without cause or if he resigns for good
reason (including as a result of a decrease in his salary or performance bonus
or a change in his title, authority or responsibilities) within 12 months of a
change in control of Oak, he will receive (i) his base salary for a period of 12
months and (ii) his target performance bonus.
In August of 1998, Oak issued non-qualified stock options that will
accelerate upon a change in control of Oak to Peter Besen, Abel Lo, Shawn
Soderberg, David Tsang, and Paul Vroomen. In November of 1998 and in April 1999,
similar stock options were issued to Robert Hersh and William Housley,
respectively.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The compensation committee (the "Committee") is comprised of two
independent, non-employee directors of Oak, none of whom are former employees of
Oak. The compensation committee was comprised of Young Sohn and Ta-Lin Hsu until
Mr. Sohn became an employee of Oak in February 1999. Effective August of 1999
the compensation committee was comprised of Ta-Lin Hsu and Albert Yu; (between
February and August the full board acted as the compensation committee). The
compensation committee's primary function is to provide guidance and leadership
to the Chief Executive Officer, the Chief Financial Officer and the VP, Human
Resources to enable them to design an executive compensation program which
attracts and retains executive management. The primary role of the Committee is
to review and approve the salary, bonus, stock options and other benefits,
direct or indirect, of Oak's officer group.
93
<PAGE>
Oak has considered the potential impact of Section 162(m) of the Internal
Revenue Code ("Section 162(m)") adopted under the federal Revenue Reconciliation
Act of 1993. Section 162(m) of the Internal Revenue Code disallows a Federal
income tax deduction to publicly held companies for compensation paid to certain
of their executive officers, to the extent that compensation exceeds $1 million
per covered officer in any fiscal year. This limitation applies only to
compensation which is not considered to be performance based. Oak's 1994 Option
Plan has been structured so that any compensation deemed paid in connection with
the exercise of option grants made under the plan will qualify as
performance-based compensation and will not be subject to the $1 million
limitation. Mr. Sohn's option grant and special bonus for fiscal 1999 were
approved by the entire Oak Board and will not qualify as performance-based
compensation. Additional non-performance based compensation paid to Oak's
executive officers for the 2000 fiscal year will exceed the $1 million limit per
officer only by an insubstantial amount for one executive officer, and the
Committee has decided not to take any action at this time to limit or
restructure the elements of cash compensation payable to Oak's executive
officers. Oak's policy is to qualify to the extent reasonable its executive
officers' compensation for deductibility under applicable tax laws.
The compensation program and policies of Oak are designed to enhance
stockholder value by aligning the financial interests of the executive officers
of Oak with those of its stockholders. Oak's compensation program utilizes base
salary, performance based cash bonuses and stock options to motivate executive
officers to achieve Oak's business objectives and to recognize the value
achieved by the executive team for Oak's stockholders.
SALARY
During the fiscal year, the Committee reviews with the Chief Executive
Officer, and approves, with modifications it deems appropriate, an annual salary
plan for Oak's executive officers. In making individual base salary decisions,
the Committee reviews each officer's duties and the contributions the officer
has made to Oak's overall performance. The Committee also compares the salary of
each officer with other officers' salaries, taking into consideration the number
of years employed by Oak, the possibility of future promotions and the extent
and frequency of prior salary adjustments.
INCENTIVE COMPENSATION
The company has continued an executive bonus plan, which is based upon
achievement of targets established for financial performance and attainment of
other annual goals as determined by the Committee. For the purposes of the bonus
calculation under the bonus plan, performance is measured according to
achievement of approved targets in specified categories. If the targeted levels
are met, generally, each participant in the bonus plan may earn a bonus of up to
40% of such executives officer's base salary, with the exception of the Chief
Executive Officer who is eligible to earn a bonus from 60--120% of base salary.
Payment of this performance bonus is based upon the achievement or fiscal and
performance-based objectives as agreed to by the board. If the targeted levels
are exceeded, additional bonuses are earned. The maximum bonus, which can be
earned in any year by an executive under the plan, is 150% of the targeted
bonus. No bonus will be paid for achievement of any of the designated levels of
operating results unless Oak achieves a specified minimum level of income before
income taxes. In addition, regardless of whether targeted performance levels are
met, any award is subject to the discretion of the compensation committee of the
Oak Board. In general, for fiscal year 1999, no executive incentive cash bonuses
were paid in keeping with the performance of the company.
STOCK OPTIONS
The Committee believes that equity ownership provides significant additional
motivation to executive officers to maximize value for Oak's stockholders.
Generally the committee grants stock options at the commencement of an executive
officer's employment and, depending upon that officer's
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<PAGE>
performance and the appropriateness of additional awards to retain key
employees, periodically thereafter. In making its determination as to grant
levels, the committee takes into consideration prior grants to such executive,
the number of years such officer has been employed by Oak, grants made in the
broad high tech industry to similarly situated executives, and, in the case of
an initial grant, the sufficiency of such grant to attract the executive to
accept employment with Oak. In fiscal year 1999, executive officers and
technical employees were granted stock options above the market median, to
achieve retention objectives as appropriate to their level of contribution, thus
shifting the emphasis in pay from cash to equity.
CEO COMPENSATION
The committee independently determined the base salary for Mr. Tsang as the
Chief Executive Officer based on the assessment of Oak's performance against its
present goals, Oak's performance within the semiconductor industry, the overall
performance of the Chief Executive Officer, and the compensation levels of
similarly situated chief executive officers. Based upon such assessment, Mr.
Tsang's annual base salary was $325,000. Mr. Tsang has continued to earn this
salary as Oak's chairman of the board and is expected to work with the chief
executive officer on strategic technology initiatives and vendor/customer
relationships. Mr. Tsang is currently eligible in fiscal 2000 to receive a
performance bonus of between 60% to 120% of his annual salary upon achievement
of pre-specified objectives approved by the Oak Board. In addition, Mr. Tsang
received options to purchase 90,000 shares during fiscal 1999. Mr. Tsang did not
earn a cash bonus under Oak's executive bonus plan for fiscal 1999.
Mr. Sohn's compensation was negotiated by the Oak Board in light of the
objectives and assessment mentioned above. Pursuant to his employment agreement
dated February 22, 1999, Mr. Sohn's annual base salary is $450,000. In fiscal
2000, he will be entitled to receive a performance bonus of between 60% to 120%
of his base salary upon achievement of pre-specified objectives, of which the
Oak Board has reviewed. Mr. Sohn also received a special bonus of $2,000,000
(adjusted for inflation), structured as a loan forgiven in three equal annual
installments upon completion of each year of service measured from February 26,
1999. Mr. Sohn is entitled to the first installment if he is terminated during
his first year. Mr. Sohn was also granted an option to purchase 2,000,000 shares
of common stock at an exercise price of $3.00 per share. The option shares vest
monthly over a four-year period, and the vesting will accelerate upon a change
of control of Oak or certain terminations of Mr. Sohn's employment.
compensation committee
Ta-Lin Hsu
Albert Yu
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with his employment arrangement, Mr. Sohn also executed a
promissory note on February 22, 1999 for $2,000,000 with interest payable at a
rate of 4.62% per annum, compounded annually. Oak will forgive the repayment of
principal and accrued interest on the note in three equal annual installments
beginning February 25, 2000 provided Mr. Sohn is continuously employed with Oak
during each year in the three-year note term. Notwithstanding the above, Mr.
Sohn will receive the first installment if he is terminated for any reason
during his first year of employment. Upon Mr. Sohn's termination of service with
Oak after his first year of service, any remaining unforgiven note principal and
accrued interest becomes due and payable. As of September 30, 1999, the balance
owed on this note was $2,055,693, representing $2,000,000 principal and $55,693
accrued interest.
Oak loaned Mr. Besen the principal sum of $250,000 during fiscal 1999. Under
the terms of this loan arrangement, Oak will forgive repayment of the principal
(together with accrued interest at the
95
<PAGE>
rate of 5.82% per annum) in three equal annual installments, with the first such
installment occurring in July 2000. Upon Mr. Besen's termination of service with
Oak, any remaining unforgiven note principal and interest becomes immediately
due and payable. As of September 30, 1999, the balance owed on this note was
$252,631, representing $250,000 principal and $2,631 accrued interest.
Oak has a similar arrangement with William Housley, its general manager of
its Optical Storage Group. Mr. Housley's loan was for the principal sum of
$100,000 paid during fiscal 1999, and the first of his three equal annual
installments for loan forgiveness (together with accrued interest at the rate of
5.82% per annum) occurs in July 2001. Upon Mr. Housley's termination of service
with Oak, any remaining unforgiven note principal and interest becomes
immediately due and payable. As of September 30, 1999, the balance owed on this
note was $101,052, representing $100,000 principal and %1,052 accrued interest.
Mr. Tomlinson is a general partner of Tomlinson Zisko Morosoli & Maser LLP,
a law firm that provides legal services to Oak.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires Oak's
executive officers, directors and persons who beneficially own more than 10% of
Oak's common stock to file initial reports of ownership and reports of changes
in ownership with the Securities and Exchange Commission ("SEC"). Such persons
are required by SEC regulations to furnish Oak with copies of all Section 16(a)
forms filed by such persons.
During fiscal 1999, Mr. Besen did not timely file his Statement of
Beneficial ownership on Form 3, Mr. Sohn filed an amended Form 3 to report an
additional 10,000 shares of Oak common stock, and Mr. Chu failed to report a
holding of an employee stock option on his Form 3.
Except for these three instances and based solely on its review of such
forms furnished to it and written representations from certain reporting
persons, Oak believes that all executives officers, directors and more than 10%
stockholders complied with all filing requirements applicable to them with
respect to transactions during fiscal 1999.
96
<PAGE>
COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the annual percentage change in
the cumulative total return on Oak's Common Stock with the cumulative total
return of the H&Q Semiconductor Sector Index and the Nasdaq Stock Market
Index--U.S. for the period commencing on February 13, 1995 and ending on June
30, 1999.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM FEBRUARY 13, 1995(1) THROUGH JUNE
30, 1999(2)(3)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
OAK NASDAQ STOCK HAMBRECHT &
<S> <C> <C> <C>
TECHNOLOGY, INC. MARKET (U.S.) QUIST SEMICONDUCTORS
02/13/95 $100 $100 $100
6/95 $263 $119 $150
6/96 $134 $152 $112
6/97 $139 $185 $203
6/98 $65 $244 $166
6/99 $52 $349 $352
</TABLE>
- ------------------------
(1) Oak's initial public offering became effective on February 13, 1995 and
trading commenced on February 14, 1995. For purposes of this presentation,
Oak has assumed that its initial offering price of $14.00 would have been
the closing sales price on February 13, 1995, the day prior to commencement
of trading. Oak effected a 2-for-1 split of its Common Stock on March 28,
1996.
(2) June 30, 1999 was the last day of trading for Oak's fiscal year ended June
30, 1999.
(3) Assumes that $100.00 was invested on February 13, 1995 in Oak's Common Stock
at Oak's initial offering price of $14.00 ($7.00 on a post-split basis) and
at the closing sales price for each index on that date and that all
dividends were reinvested. No dividends have been declared on Oak's Common
Stock. Stockholder returns over the indicated period should not be
considered indicative of future stockholder returns.
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<PAGE>
OAK STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information, as of September 30,
1999, with respect to the beneficial ownership of Oak's common stock by (i) all
persons known by Oak to be the beneficial owners of more than 5% of the
outstanding common stock of Oak, (ii) each director and nominee for director of
Oak, (iii) the chief executive officer and the other executive officers named in
the summary compensation table below and (iv) all current executive officers and
directors of Oak as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to the securities. Unless otherwise indicated below, the persons and
entities names in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. The table assumes that all options granted under Oak's 1994
Stock Option Plan ("1994 Option Plan") and Oak's 1994 Outside directors' Stock
Option Plan ("1994 Directors' Option Plan") become exercisable in accordance
with their respective vesting terms. The percentage ownership is based on
41,194,077 shares of common stock outstanding on September 30, 1999. Shares of
Common Stock subject to stock options which are currently exercisable or will
become exercisable within 60 days after September 30, 1999 are deemed
outstanding for computing the percentage of the person or group holding such
options, but are not deemed outstanding for computing the percentage of any
other person or group.
<TABLE>
<CAPTION>
SHARES OWNED
----------------------------------
PERCENTAGE OF
NAME OF BENEFICIAL OWNERS NUMBER OF SHARES CLASS
- --------------------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C>
David D. Tsang................................................................... 4,530,949 11.0%
Young K. Sohn.................................................................... 2,030,800 4.93%
Shawn M. Soderberg............................................................... 37,303 *
Peter B. Besen................................................................... 33,241 *
Paul Vroomen..................................................................... 29,102 *
Robert O. Hersh.................................................................. 12,000 *
Richard B. Black................................................................. 466,109 1.1%
Richard Simone................................................................... 16,800 *
Ta-Lin Hsu....................................................................... 134,360 *
Timothy Tomlinson................................................................ 51,002 *
Albert Y. C. Yu.................................................................. 28,000 *
Executive officers and directors as a group (15 persons)......................... 7,895,676 19.2%
</TABLE>
* Less than 1%
ADDITIONAL INFORMATION. Additional information regarding the beneficial
ownership of shares held by these persons is indicated below. The address of
Messrs. Sohn, Tsang, Vroomen, Hersh, and Simone and Ms. Soderberg is c/o Oak
Technology, Inc., 139 Kifer Court, Sunnyvale, CA 94086. The address of Mr. Besen
is c/o Oak Technology, Inc., 200 Brickstone Square, Andover, MA 01810. The
address of Mr. Black is 10655 N. Upper Meadow Road, Moose, WY 83012. The address
of Mr. Hsu is c/o H&Q Asia Pacific International Trade Bldg., 32nd Fl., 333
Keelung Road, Taipei, Taiwan 10548, Republic of China. The address of Mr.
Tomlinson is c/o Tomlinson Zisko Morosoli & Maser LLP, 200 Page Mill Road, 2nd
Floor, Palo Alto, CA 94306.
Mr. Tsang: 200,000 of these shares are held of record by Mr. Tsang;
3,162,949 of these shares held by Mr. Tsang as Trustee for the Golden Rainbow
Trust; an aggregate of 1,120,000 of these shares held of record by four trusts
for Mr. Tsang's children of which Mr. Tsang's brother and brother-in-law are
trustees; and 48,000 of these shares are subject to options exercisable within
60 days of September 30, 1999. Mr. Tsang is Chairman of the Oak Board of Oak.
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Mr. Sohn: 1,800,000 of these shares are subject to options granted pursuant
to the Executive Stock Option Plan, which options are immediately exercisable
subject to Oak's right of repurchase lapsing over time; and 20,800 of these
shares are subject to options exercisable within 60 days of September 30, 1999.
Mr. Sohn served as a non-employee director until February 26, 1999 when he
joined Oak as President and Chief Executive Officer.
Ms. Soderberg: 32,400 of these shares are subject to options exercisable
within 60 days of September 30, 1999. Ms. Soderberg is Vice President, General
Counsel and Secretary of Oak.
Mr. Besen: 27,000 of these shares are subject to options exercisable within
60 days of September 30, 1999. Mr. Besen is President and General Manager of
Oak's Digital Imaging Group.
Mr. Vroomen: 24,000 of these shares are subject to options exercisable
within 60 days of September 30, 1999. Mr. Vroomen is General Manager of Oak's
Consumer Group.
Mr. Hersh: 12,000 of these shares are subject to options exercisable within
60 days of September 30, 1999. Mr. Hersh joined Oak in November 1998 as Vice
President and Chief Financial Officer.
Mr. Black: 78,360 of these shares are subject to options exercisable within
60 days of September 30, 1999. Mr. Black is Vice-Chairman of the Oak Board and
served Oak as President until February, 1999.
Mr. Simone: 16,800 of these shares are subject to options exercisable within
60 days of September 30, 1999. Mr. Simone was Vice President, Technology and
Operations until his resignation on June 23, 1999.
Dr. Hsu: 24,360 of these shares are subject to options exercisable within 60
days of September 30, 1999. Dr. Hsu is a director of Oak.
Mr. Tomlinson: 24,360 of these shares are subject to options exercisable
within 60 days of September 30, 1999. Mr. Tomlinson is a director of Oak.
Dr. Yu: 28,000 of these shares are subject to options exercisable within 60
days of September 30, 1999. Dr. Yu became a director on August 2, 1999 and
received a stock option for 50,000 shares, of which 25,000 shares were
immediately vested, and the remaining shares vest in 25 equal monthly
installments of 1,000 shares each.
Group: 2,167,280 of these shares are subject to options exercisable within
60 days of September 30, 1999.
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of Oak has selected KPMG LLP as independent public
accountants to audit the financial statements of the Company for the fiscal year
ending June 30, 2000. A representative of KPMG LLP is expected to be present at
the annual meeting with the opportunity to make a statement if the
representative desires to do so, and is expected to be available to respond to
appropriate questions.
The affirmative vote of a majority of the shares represented and voting at
the annual meeting is required for approval of this proposal. In the event the
stockholders fail to ratify the appointment, the Board of Directors will
reconsider its selection. Even if the selection is ratified, the Board of
Directors in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if the Board of
Directors believes that such a change would be in the best interest of Oak and
its stockholders.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF KPMG LLP
AS OAK INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING JUNE 30, 2000.
TRANSACTION OF OTHER BUSINESS
At the date of this joint proxy statement/prospectus, the only business that
the Oak Board intends to present or knows that others will present at the
meeting is as set forth above. If any other matter or matters are properly
brought before the meeting, or any adjournment thereof, it is the intention of
the persons named in the accompanying form of proxy to vote the shares they
represent as the Oak Board may recommend. Discretionary authority with respect
to such other matters is granted by the execution of the accompanying proxy.
FUTURE STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, Xionics' stockholders may
present proper proposals for inclusion in Xionics proxy statement and for
consideration at the next annual meeting of its stockholders by submitting such
proposals to Xionics in a timely manner. In order to be so included for the 2000
annual meeting, in the event the merger has not been consummated prior to the
date of that meeting, stockholder proposals must be received by Xionics no later
than June 17, 2000, and must otherwise comply with the requirements of Rule
14a-8.
In addition, in the event the merger is not consummated, the proxy solicited
by Xionics' board of directors will confer discretionary authority to vote on
any stockholder proposal presented at that meeting, unless Xionics is provided
with notice of such proposal no later than August 31, 2000.
Likewise, Oak stockholders must submit any proposals by June 17, 2000 to be
considered timely for inclusion in the proxy statement for the 2000 annual
meeting, and the proxy solicited by Oak's board of directors will confer
discretionary authority to vote on any stockholder proposal presented at that
meeting unless Oak is provided with notice of such proposal no later than August
31, 2000.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this joint proxy statement/prospectus by reference from
Oak's 1999 Annual Report on Form 10-K, have been incorporated by reference
herein in reliance on the report of KPMG LLP, independent auditors, incorporated
by reference herein, and upon the authority of said firm as experts in auditing
and accounting.
The consolidated financial statements of Xionics Document Technologies, Inc.
incorporated in this joint proxy statement/prospectus by reference to Xionics'
Annual Report on Form 10-K for the year ended June 30, 1999 have been so
incorporated in reliance on the report of Arthur Andersen LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Oak
common stock offered hereby and certain tax matters with respect to the merger
will be passed upon for Oak by Brobeck, Phleger & Harrison LLP, New York, New
York. Certain tax matters with respect to the merger will be passed upon for
Xionics by Bingham Dana LLP, Boston Massachusetts.
WHERE YOU CAN FIND MORE INFORMATION
Oak and Xionics file annual, quarterly and special reports, proxy statements
and other information with the Commission. You may read and copy any reports,
statements or other information filed by
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either company at the Commission's public reference room at 450 Fifth Street, N.
W., Washington, D. C., 20549, or at any of the Commission's other public
reference rooms in New York, New York and Chicago, Illinois. Please call the
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Oak's and Xionics' Commission filings are also available to the public
from commercial document retrieval services and at the web site maintained by
the Commission at http://www.sec.gov.
Oak filed a registration statement to register the Oak common stock to be
issued to Xionics stockholders in the merger. This proxy statement/prospectus is
a part of that registration statement and constitutes a prospectus of Oak in
addition to being a proxy statement of Xionics for the meeting of Xionics
stockholders and a proxy statement of Oak for the meeting of Oak stockholders.
As allowed by the Commission's rules, this proxy statement/prospectus does not
contain all the information you can find in the Oak registration statement or
the exhibits to the registration statement.
The Commission allows Oak and Xionics to "incorporate by reference"
information into this proxy statement/prospectus, which means important
information may be disclosed to you by referring you to another document filed
separately with the Commission. The information of Oak and Xionics incorporated
by reference is deemed to be part of this proxy statement/prospectus, except for
information superseded by information in (or incorporated by reference in) this
proxy statement/prospectus. This proxy statement/prospectus incorporates by
reference the documents set forth below that have been previously filed with the
Commission. The following documents contain important information about Oak and
Xionics, respectively, and each of their respective financial conditions and are
hereby incorporated by reference:
OAK
- Quarterly Report on Form 10-Q for the three-month period ended September
30, 1999 filed with the SEC on November 15, 1999 pursuant to Section 13 of
the Exchange Act;
- Annual Report on Form 10-K for the fiscal year ended June 30, 1999 filed
with the SEC on September 28, 1999 pursuant to Section 13 of the Exchange
Act, as amended on Form 10-K/A filed with the SEC on December 9, 1999;
- Registration Statement No. 000-25298 on Form 8-A filed with the SEC on
December 16, 1994, in which there is described the terms, rights and
provisions applicable to the Company's Common Stock; and
- Registration Statement No. 000-25298 on Form 8-A12G filed with the SEC on
August 21, 1997, together with Amendment No. 1 on Form 8-A12B/A filed with
the SEC on November 25, 1998, in which there is described the terms,
rights and provisions applicable to the Company's Preferred Stock Purchase
Rights.
XIONICS
- Quarterly Report on Form 10-Q for the three-month period ended September
30, 1999 filed with the SEC on November 12, 1999 pursuant to Section 13 of
the Exchange Act;
- Annual Report on Form 10-K for the fiscal year ended June 30, 1999 filed
with the SEC on September 13, 1999 pursuant to Section 13 of the Exchange
Act, as amended on Form 10-K/A filed with the SEC on December 9, 1999; and
- Registration Statement No. 000-20777 on Form 8-A12G filed with the SEC on
September 11, 1996.
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Oak and Xionics are also incorporating by reference additional documents
that they respectively may file with the Commission pursuant to the Exchange Act
between the date of this proxy statement/prospectus and the date of the Oak
annual meeting and the Xionics special meeting.
Oak has supplied all information contained or incorporated by reference in
this proxy statement/prospectus relating to Oak, and Xionics has supplied all
information contained or incorporated by reference in this proxy
statement/prospectus relating to Xionics.
If you are a stockholder, you may have been sent some of the documents
incorporated by reference, but you can obtain any of them through Oak, Xionics
or the Commission. Documents incorporated by reference are available from Oak or
Xionics, as the case may be, without charge, excluding any exhibits which are
not specifically incorporated by reference as exhibits in this proxy
statement/prospectus. Stockholders may obtain documents incorporated by
reference in this proxy statement/prospectus by requesting them in writing or by
telephone from the appropriate party at the following address:
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Oak Technology, Inc. Xionics Document Technologies, Inc.
139 Kifer Court 70 Blanchard Road
Sunnyvale, California 94086 Burlington, Massachusetts 01083
(408) 737-0888 (781) 229-7000
Attention: Shawn M. Soderberg Attention: Robert L. Lentz
</TABLE>
If you would like to request documents from either company, please do so by
January 1, 2000 (10 days prior to the special meeting), to receive them before
the special meeting.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus to vote on the approval of the
merger agreement. Neither Oak nor Xionics has authorized anyone to provide you
with information that is different from what is contained in this proxy
statement/prospectus. This joint proxy statement/prospectus is dated December
10, 1999. You should not assume that the information contained in this proxy
statement/prospectus is accurate as of any other date, and neither the mailing
of this proxy statement/prospectus to Xionics' stockholders nor the issuance of
Oak common stock in the merger shall create any implication to the contrary.
SOLICITATION COSTS
Each of Oak and Xionics will bear the entire cost of solicitation, including
the preparation, assembly, printing and mailing of this joint proxy
statement/prospectus, accompanying proxy and any additional solicitation
materials furnished to its respective stockholders. Copies of solicitation
materials will be furnished to brokerage houses, fiduciaries and custodians
holding shares in their names that are beneficially owned by others so that they
may forward this solicitation material to those beneficial owners. The original
solicitation of proxies by mail may be supplemented by a solicitation by
telephone, telegram or other means by directors, officers or employees of both
Oak and Xionics. No additional compensation will be paid to these individuals
for any such services. Except as described above, Oak and Xionics do not
presently intend to solicit proxies other than by mail.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG
OAK TECHNOLOGY, INC.
VERMONT ACQUISITION CORP.
AND
XIONICS DOCUMENT TECHNOLOGIES, INC.
DATED AS OF JULY 29, 1999
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS.................................................................................... A-1
SECTION 1.01 Certain Defined Terms........................................................... A-1
ARTICLE II THE MERGER.................................................................................... A-4
SECTION 2.01 The Merger...................................................................... A-4
SECTION 2.02 Closing......................................................................... A-4
SECTION 2.03 Effective Time.................................................................. A-5
SECTION 2.04 Effect of the Merger............................................................ A-5
Certificate of Incorporation; Bylaws; Directors and Officers of Surviving
Corporation................................................................... A-5
SECTION 2.05
ARTICLE III CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES........................................... A-5
SECTION 3.01 Conversion of Shares............................................................ A-5
SECTION 3.02 Exchange of Shares Other than Dissenting Shares and Treasury Shares............. A-6
SECTION 3.03 Stock Transfer Books............................................................ A-8
SECTION 3.04 No Fractional Share Certificates................................................ A-8
SECTION 3.05 Options to Purchase Company Common Stock........................................ A-8
SECTION 3.06 Certain Adjustments............................................................. A-9
SECTION 3.07 Dissenters' Rights.............................................................. A-9
SECTION 3.08 Lost, Stolen or Destroyed Certificates.......................................... A-10
SECTION 3.09 Taking of Necessary Action; Further Action...................................... A-10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF COMPANY..................................................... A-10
SECTION 4.01 Organization and Qualification; Subsidiaries.................................... A-10
SECTION 4.02 Certificate of Incorporation and Bylaws......................................... A-11
SECTION 4.03 Capitalization.................................................................. A-11
SECTION 4.04 Authority Relative to This Agreement............................................ A-12
SECTION 4.05 No Conflict; Required Filings and Consents...................................... A-12
SECTION 4.06 Permits; Compliance with Laws................................................... A-12
SECTION 4.07 SEC Filings; Financial Statements............................................... A-13
SECTION 4.08 Absence of Certain Changes or Events............................................ A-13
SECTION 4.09 Employee Benefit Plans; Labor Matters........................................... A-14
SECTION 4.10 Contracts....................................................................... A-16
SECTION 4.11 Litigation...................................................................... A-17
SECTION 4.12 Environmental Matters........................................................... A-17
SECTION 4.13 Intellectual Property........................................................... A-17
SECTION 4.14 Taxes........................................................................... A-20
SECTION 4.15 Insurance....................................................................... A-20
SECTION 4.16 Properties...................................................................... A-21
SECTION 4.17 Affiliates...................................................................... A-21
SECTION 4.18 Opinion of Financial Advisor.................................................... A-21
SECTION 4.19 Brokers......................................................................... A-21
SECTION 4.20 Certain Business Practices...................................................... A-21
SECTION 4.21 Business Activity Restriction................................................... A-22
SECTION 4.22 Certain Tax Matters............................................................. A-22
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB........................................ A-22
SECTION 5.01 Organization and Qualification; Subsidiaries.................................... A-22
SECTION 5.02 Certificate of Incorporation and Bylaws......................................... A-23
</TABLE>
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SECTION 5.03 Capitalization.................................................................. A-23
SECTION 5.04 Authority Relative to This Agreement............................................ A-23
SECTION 5.05 No Conflict; Required Filings and Consents...................................... A-24
SECTION 5.06 Permits; Compliance with Laws................................................... A-24
SECTION 5.07 Absence of Certain Changes or Events............................................ A-24
SECTION 5.08 SEC Filings; Financial Statements............................................... A-25
SECTION 5.09 Contracts....................................................................... A-26
SECTION 5.10 Employee Benefit Plans; Labor Matters........................................... A-26
SECTION 5.11 Litigation...................................................................... A-27
SECTION 5.12 Taxes........................................................................... A-28
SECTION 5.13 Brokers......................................................................... A-28
SECTION 5.14 Certain Business Practices...................................................... A-28
SECTION 5.15 No Prior Activities............................................................. A-28
SECTION 5.16 Intellectual Property........................................................... A-29
SECTION 5.17 Business Activity Restriction................................................... A-29
SECTION 5.18 Certain Tax Matters............................................................. A-29
SECTION 5.19 Parent Common Stock............................................................. A-30
SECTION 5.20 Availability of Funds........................................................... A-30
ARTICLE VI COVENANTS..................................................................................... A-30
SECTION 6.01 Conduct of Business by Company Pending the Closing.............................. A-30
SECTION 6.02 Notices of Certain Events....................................................... A-32
SECTION 6.03 Access to Information; Confidentiality.......................................... A-32
SECTION 6.04 No Solicitation of Transactions................................................. A-33
SECTION 6.05 Control of Operations........................................................... A-33
SECTION 6.06 Further Action; Consents; Filings............................................... A-33
SECTION 6.07 Additional Reports.............................................................. A-34
SECTION 6.08 Employee Retention.............................................................. A-34
SECTION 6.09 Third Party Consents............................................................ A-34
ARTICLE VII ADDITIONAL AGREEMENTS........................................................................ A-35
SECTION 7.01 Registration Statement; Proxy Statement......................................... A-35
SECTION 7.02 Stockholders' Meetings.......................................................... A-36
SECTION 7.03 Directors' and Officers' Indemnification and Insurance.......................... A-36
SECTION 7.04 No Shelf Registration........................................................... A-37
SECTION 7.05 Public Announcements............................................................ A-37
SECTION 7.06 NNM Listing..................................................................... A-37
SECTION 7.07 Blue Sky........................................................................ A-38
SECTION 7.08 Company Stock Options/Registration Statements on Form S-8....................... A-38
SECTION 7.09 Employee Benefit Matters........................................................ A-38
SECTION 7.10 Tax Opinion..................................................................... A-39
SECTION 7.11 Board Representation............................................................ A-39
ARTICLE VIII CONDITIONS TO THE MERGER.................................................................... A-39
SECTION 8.01 Conditions to the Obligations of Each Party to Consummate the Merger............ A-39
SECTION 8.02 Conditions to the Obligations of Company........................................ A-40
SECTION 8.03 Conditions to the Obligations of Parent......................................... A-40
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER............................................................. A-41
SECTION 9.01 Termination..................................................................... A-41
SECTION 9.02 Effect of Termination........................................................... A-42
SECTION 9.03 Amendment....................................................................... A-42
</TABLE>
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SECTION 9.04 Waiver.......................................................................... A-43
SECTION 9.05 Termination Fee; Expenses....................................................... A-43
ARTICLE X GENERAL PROVISIONS............................................................................. A-44
SECTION 10.01 Non-Survival of Representations and Warranties.................................. A-44
SECTION 10.02 Notices......................................................................... A-44
SECTION 10.03 Severability.................................................................... A-45
SECTION 10.04 Assignment; Binding Effect; Benefit............................................. A-45
SECTION 10.05 Incorporation of Exhibits....................................................... A-45
SECTION 10.06 Governing Law................................................................... A-45
SECTION 10.07 Waiver of Jury Trial............................................................ A-45
SECTION 10.08 Headings; Interpretation........................................................ A-45
SECTION 10.09 Counterparts.................................................................... A-46
SECTION 10.10 Entire Agreement................................................................ A-46
</TABLE>
ANNEX A Company Stockholder Agreement
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of July 29, 1999
(as amended, supplemented or otherwise modified from time to time, this
("AGREEMENT"), among OAK TECHNOLOGY, INC., a Delaware corporation ("PARENT"),
XIONICS DOCUMENT TECHNOLOGIES, INC., a Delaware corporation ("COMPANY"), and
VERMONT ACQUISITION CORP., a Delaware corporation and a direct wholly owned
subsidiary of Parent ("MERGER SUB"):
W I T N E S S E T H:
WHEREAS, the boards of directors of Parent and Company have determined that
it is advisable and in the best interests of their respective companies and
stockholders to enter into a business combination by means of the merger of
Company with and into Merger Sub (the "MERGER") and have approved and adopted
this Agreement;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Parent to enter into this Agreement, certain stockholders of
Company have entered into a stockholder agreement (each, a "COMPANY STOCKHOLDER
AGREEMENT") in the form attached hereto as Annex A;
WHEREAS, for United States Federal income tax purposes, it is intended that
the Merger shall qualify as a tax-free reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended (together with the rules and
regulations promulgated thereunder (the "CODE"), and that this Agreement shall
be, and hereby is, adopted as a plan of reorganization for purposes of Section
368 of the Code.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements set forth herein, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 CERTAIN DEFINED TERMS
Unless the context otherwise requires, the following terms, when used in
this Agreement, shall have the respective meanings specified below (such
meanings to be equally applicable to the singular and plural forms of the terms
defined):
"AFFILIATE" shall mean, with respect to any person, any other person that
controls, is controlled by or is under common control with the first person.
"BLUE SKY LAWS" shall mean state securities or "blue sky" laws.
"BUSINESS DAY" shall mean any day on which the principal offices of the SEC
in Washington, D.C. are open to accept filings, or, in the case of determining a
date when any payment is due, any day on which banks are not required or
authorized by law or executive order to close in the City of New York.
"COMPANY COMPETING TRANSACTION" shall mean any of the following involving
Company (other than the Merger):
(i) any merger, consolidation, share exchange, business combination or
other similar transaction;
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(ii) any sale, lease, exchange, transfer or other disposition of 33% or
more of the assets of Company and its subsidiaries, taken as a whole, in a
single transaction or series of transactions;
(iii) any tender offer or exchange offer for 33% or more of the
outstanding voting securities of Company or the filing of a registration
statement under the Securities Act in connection therewith; or
(iv) any person having acquired beneficial ownership or the right to
acquire beneficial ownership of, or any "group" (as such term is defined
under Section 13(d) of the Exchange Act) having been formed which
beneficially owns or has the right to acquire beneficial ownership of, 33%
or more of the outstanding voting securities of Company; or
(v) any public announcement of a proposal, plan or intention to do any
of the foregoing or any agreement to engage in any of the foregoing.
"COMPANY DISCLOSURE SCHEDULE" shall mean the disclosure schedule delivered
by Company to Parent prior to the execution of this Agreement and forming a part
hereof.
"COMPANY ESPP" shall mean the Company's 1996 Employee Stock Purchase Plan.
"COMPANY MATERIAL ADVERSE EFFECT" shall mean any change in or effect on the
business of Company and the Company Subsidiaries that, individually or in the
aggregate (taking into account all other such changes or effects), is, or is
reasonably likely to be, materially adverse to the business, assets,
liabilities, financial condition, prospects or results of operations of Company
and the Company Subsidiaries, taken as a whole, PROVIDED, HOWEVER, that Company
Material Adverse Effect shall not be deemed to include the impact of (a) changes
in generally accepted accounting principles, (b) acts or omissions of Company
taken with the prior written consent of Parent, (c) changes in general economic
conditions in the United States, (d) the effects of the Merger and compliance by
Company with the provisions of this Agreement on the business, financial
condition or results of operations of Company, (e) any change in the market
price or trading volume of Company Common Stock, and (f) any changes or effects
as a result of the announcement of the Merger.
"COMPANY STOCK PLANS" shall mean the Company 1993 Stock Option Plan, the
Company 1995 Stock Option Plan, the Company 1996 Stock Option Plan and the
Company 1996 Directors Stock Option Plan.
"CONFIDENTIALITY AGREEMENT" shall mean the confidentiality agreement, dated
as of June 9, 1999, between Parent and Company.
"DGCL" shall mean the General Corporation Law of the State of Delaware.
"$" shall mean United States Dollars.
"ENCUMBRANCES" shall mean all claims, security interests, liens, pledges,
charges, escrows, options, proxies, rights of first refusal, preemptive rights,
mortgages, hypothecations, prior assignments, title retention agreements,
indentures, security agreements or any other encumbrance of any kind.
"ENVIRONMENTAL LAW" shall mean any Law and any enforceable judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to pollution or protection of the
environment or natural resources, including, without limitation, those relating
to the use, handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Material.
"ENVIRONMENTAL PERMIT" shall mean any permit, approval, identification
number, license or other authorization required under or issued pursuant to any
applicable Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
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"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"EXPENSES" shall mean, with respect to any party hereto, all reasonable
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by such party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of its obligations pursuant to this Agreement and the consummation
of the Merger, the preparation, printing, filing and mailing of the Registration
Statement and the Joint Proxy Statement, the solicitation of stockholder
approvals, the filing of HSR Act notice, if any, and all other matters related
to the transactions contemplated hereby and the closing of the Merger.
"FINAL AVERAGE CLOSING PRICE" shall mean the average closing price of Parent
Common Stock on the ten trading days immediately prior to the date of the
Effective Time.
"GOVERNMENTAL ENTITY" shall mean any United States Federal, state or local
or any foreign governmental, regulatory or administrative authority, agency or
commission or any court, tribunal or arbitral body.
"GOVERNMENTAL ORDER" shall mean any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Entity.
"HAZARDOUS MATERIAL" shall mean (i) any petroleum, petroleum products,
by-products or breakdown products, radioactive materials, friable
asbestos-containing materials or polychlorinated biphenyls or (ii) any chemical,
material or substance defined or regulated as toxic or hazardous or as a
pollutant or contaminant or waste under any applicable Environmental Law.
"HSR ACT" shall mean Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, together with the rules and regulations promulgated thereunder.
"IRS" shall mean the United States Internal Revenue Service.
"LAW" shall mean any Federal, state, foreign or local statute, law,
ordinance, regulation, rule, code, order, judgment, decree, other requirement or
rule of law of the United States or any other jurisdiction, and any other
similar act or law.
"NNM" shall mean the Nasdaq National Market.
"PARENT DISCLOSURE SCHEDULE" shall mean the disclosure schedule delivered by
Parent to Company prior to the execution of this Agreement and forming a part
hereof.
"PARENT MATERIAL ADVERSE EFFECT" shall mean any change in or effect on the
business of Parent and the Parent Subsidiaries that, individually or in the
aggregate (taking into account all other such changes or effects), is, or is
reasonably likely to be, materially adverse to the business, assets,
liabilities, financial condition, prospects or results of operations of Parent
and the Parent Subsidiaries, taken as a whole, provided, however, that Parent
Material Adverse Effect shall not be deemed to include the impact of (a) change
in generally accepted accounting principles, (b) acts or omissions of Parent
taken with the prior written consent of Company, (c) changes in general economic
conditions in the United States, (d) the effects of the Merger and compliance by
Parent with the provisions of this Agreement on the business, financial
condition or results of operations of Parent, (e) any change in the market price
or trading volume of Parent Common Stock, and (f) any changes or effects as a
result of the announcement of the Merger.
"PARENT STOCK PLANS" shall mean Parent's 1988 Employee Stock Option Plan,
1994 Employee Stock Option Plan, 1999 Employee Stock Purchase Plan and 1999
Executive Stock Option Plan.
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"PERMITTED ENCUMBRANCES" shall mean (i) liens for Taxes, assessments and
other governmental charges not yet due and payable, (ii) immaterial unfiled
mechanics', workmen's, repairmen's, warehousemen's, carriers' or other like
liens arising or incurred in the ordinary course of business which are not yet
due and payable and (iii) equipment leases with third parties entered into in
the ordinary course of business.
"PERSON" shall mean an individual, corporation, partnership, limited
partnership, limited liability company, syndicate, person (including, without
limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act),
trust, association, entity or government or political subdivision, agency or
instrumentality of a government.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
"SUBSIDIARY" shall mean, with respect to any person, any corporation,
limited liability company, partnership, joint venture or other legal entity of
which such person (either alone or through or together with any other subsidiary
of such person) owns, directly or indirectly, a majority of the stock or other
equity interests, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
"TAX" shall mean (i) any and all taxes, fees, levies, duties, tariffs,
imposts and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed by any Governmental Entity or taxing authority ("TAXING AUTHORITY"),
including, without limitation, taxes or other charges on or with respect to
income, franchises, windfall or other profits, gross receipts, property, sales,
use, capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value-added or gains taxes;
license, registration and documentation fees; and customers' duties, tariffs and
similar charges; (ii) any liability for the payment of any amounts of the type
described in (i) as a result of being a member of an affiliated, combined,
consolidated or unitary group for any taxable period; and (iii) any liability
for the payment of amounts of the type described in (i) or (ii) as a result of
being a transferee of, or a successor in interest to, any person or as a result
of an express or implied obligation to indemnify any person.
"TAX RETURN" shall mean any return, statement or form (including, without
limitation, any estimated tax reports or return, withholding tax reports or
return and information report or return) required to be filed with respect to
any Taxes.
ARTICLE II
THE MERGER
SECTION 2.1 THE MERGER
Upon the terms and subject to the conditions set forth in this Agreement,
and in accordance with the DGCL, at the Effective Time (as defined in Section
2.03), Company shall be merged with and into Merger Sub. As a result of the
Merger, the separate corporate existence of Company shall cease and Merger Sub
shall continue as the surviving corporation of the Merger as a wholly owned
subsidiary of Parent (the "SURVIVING CORPORATION").
SECTION 2.2 CLOSING
Unless this Agreement shall have been terminated and the Merger herein
contemplated shall have been abandoned pursuant to Section 9.01 and subject to
the satisfaction or waiver of the conditions set forth in Article VIII, the
consummation of the Merger shall take place as promptly as practicable (and in
any event within three business days) after satisfaction or waiver of the
conditions set forth in Article
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VIII, at a closing (the "CLOSING") to be held at the offices of Brobeck, Phleger
& Harrison LLP, 1633 Broadway, 47th Floor, New York, New York 10019, unless
another date, time or place is agreed to by Parent and Company.
SECTION 2.3 EFFECTIVE TIME
At the Closing, the parties shall cause the Merger to be consummated by
filing a certificate of merger (the "CERTIFICATE OF MERGER") with the Secretary
of State of the State of Delaware in such form as required by, and executed in
accordance with the relevant provisions of, the DGCL (the date and time of such
filing, or such later date and time as may be set forth therein, being the
"EFFECTIVE TIME").
SECTION 2.4 EFFECT OF THE MERGER
At the Effective Time, the effect of the Merger shall be as provided in the
applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, except as otherwise
provided herein, all the property, rights, privileges, powers and franchises of
Company and Merger Sub shall vest in Merger Sub as the Surviving Corporation,
and all debts, liabilities and duties of Company and Merger Sub shall become the
debts, liabilities and duties of Merger Sub as the Surviving Corporation.
SECTION 2.5 CERTIFICATE OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS OF
SURVIVING CORPORATION
Unless otherwise agreed by Parent and Company before the Effective Time, at
the Effective Time:
(a) the Certificate of Incorporation and the Bylaws of Merger Sub as in
effect immediately prior to the Effective Time shall be the Certificate of
Incorporation and the Bylaws of the Surviving Corporation, until thereafter
amended as provided by Law and such Certificate of Incorporation or Bylaws;
provided, however, that Article I of the Certificate of Incorporation of the
Surviving Corporation shall be amended to read as follows: "The name of the
corporation is XIONICS DOCUMENT TECHNOLOGIES, INC.";
(b) the officers of Merger Sub immediately prior to the Effective Time
shall serve in their respective offices of the Surviving Corporation from
and after the Effective Time, in each case until their successors are
elected or appointed and qualified or until their resignation or removal;
and
(c) the directors of Merger Sub immediately prior to the Effective Time
shall serve as the directors of the Surviving Corporation from and after the
Effective Time, in each case until their successors are elected or appointed
and qualified or until their resignation or removal.
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 3.1 CONVERSION OF SHARES
At the Effective time, by virtue of the Merger, and without any action on
the part of Parent, Merger Sub, Company or the holders of any of the following
securities:
(a) Each share of Common Stock, $.01 par value per share, of Company
("COMPANY COMMON STOCK") issued and outstanding immediately before the
Effective Time (excluding (i) shares of Company Common Stock, if any, held
by persons who have not voted such shares for approval of the Merger and
with respect to which such persons shall have perfected dissenters' rights
in accordance with the DGCL ("DISSENTING SHARES"), (ii) those held in the
treasury of Company, and (iii) those owned by any wholly owned subsidiary of
Company) and all rights in respect thereof,
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shall, forthwith cease to exist and be converted into and become
exchangeable for $2.94 in cash and .8031 shares of common stock, $.01 par
value, of Parent ("PARENT COMMON STOCK") (such per share amount of
consideration, the "EXCHANGE RATIO").
(b) Each share of Company Common Stock held in the treasury of Company
or owned by any wholly owned subsidiary of Company immediately prior to the
Effective Time shall be canceled and retired and no shares of stock or other
securities of Parent, the Surviving Corporation or any other corporation
shall be issuable, and no payment of other consideration shall be made, with
respect thereto.
(c) Each issued and outstanding share of capital stock of Merger Sub
shall be converted into and become one fully paid and nonassessable share of
common stock of the Surviving Corporation. From and after the Effective
Time, each outstanding certificate theretofore representing shares of Merger
Sub common stock shall be deemed for all purposes to evidence ownership of
and to represent the number of shares of Surviving Corporation common stock
into which such shares of Merger Sub common stock shall have been converted.
Promptly after the Effective Time, the Surviving Corporation shall issue to
Parent a stock certificate representing 100 shares of Surviving Corporation
common stock in exchange for the certificate that formerly represented
shares of Merger Sub common stock, which shall be surrendered by Parent and
cancelled.
SECTION 3.2 EXCHANGE OF SHARES OTHER THAN DISSENTING SHARES AND TREASURY
SHARES
(a) EXCHANGE AGENT. At or prior to the Effective Time, Parent shall enter
into an agreement with a bank or trust company reasonably acceptable to Company
to act as exchange agent for the Merger (the "EXCHANGE AGENT") as may be
designated by Parent.
(b) PARENT TO PROVIDE COMMON STOCK AND CASH. Parent shall make available to
the Exchange Agent for the benefit of the holders of Company Common Stock: (i)
promptly after the Effective Time, Certificates of Parent Common Stock ("PARENT
CERTIFICATES") representing the number of whole shares of Parent Common Stock
issuable pursuant to Section 3.01(a) in exchange for shares of Company Common
Stock outstanding immediately prior to the Effective Time; and (ii) no later
than the Closing, sufficient funds to permit payment of the cash portion of the
consideration to be paid pursuant to Section 3.01(a) plus cash in lieu of
fractional shares pursuant to Section 3.04. All funds deposited with the
Exchange Agent shall be invested as directed by the Surviving Corporation,
provided that such investments shall be in obligations of or guaranteed by the
United States of America or of any agency thereof and backed by the full faith
and credit of the United States of America, or in deposit accounts, certificates
of deposit or banker's acceptances of, repurchase or reverse repurchase
agreements with, or Eurodollar time deposits purchased from, commercial banks
with capital, surplus and undivided profits aggregating in excess of $100
million (based on the most recent financial statements of such bank which are
then publicly available).
(c) EXCHANGE PROCEDURES. The Exchange Agent shall mail to each holder of
record of certificates of Company Common Stock ("COMPANY CERTIFICATES"), whose
shares were converted into the right to receive cash and shares of Parent Common
Stock (and cash in lieu of fractional shares pursuant to Section 3.04) promptly
after the Effective Time (and in any event no later than three business days
after the later to occur of the Effective Time and receipt by Parent of a
complete list from Company of the names and addresses of its holders of record):
(i) a form letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Company Certificates shall pass,
only upon receipt of the Company Certificates by the Exchange Agent, and shall
be in such form and have such other provisions as Parent may reasonably specify,
and which shall be reasonably satisfactory to Company); and (ii) instructions
for use in effecting the surrender of the Company Certificates in exchange for
cash and Parent Certificates (and cash in lieu of fractional shares). Upon
surrender of a Company Certificate for cancellation to the Exchange Agent or to
such other agent or agents as may
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be appointed by Parent, together with such letter of transmittal, duly completed
and validly executed, and such other documents as may be reasonably required by
the Exchange Agent, the holder of such Company Certificate shall be entitled to
receive in exchange therefor $2.94 per share in cash, a Parent Certificate
representing the number of whole shares of Parent Common Stock that such holder
has the right to receive pursuant to this Article III and payment of cash in
lieu of fractional shares which such holder has the right to receive pursuant to
Section 3.04, and the Company Certificate so surrendered shall forthwith be
canceled. Until so surrendered, each outstanding Company Certificate that, prior
to the Effective Time, represented shares of Company Common Stock will be deemed
from and after the Effective Time, for all purposes other than the payment of
dividends and distributions, to evidence the ownership of the number of full
shares of Parent Common Stock into which such shares of Company Common Stock
shall have been so converted and the right to receive an amount in cash equal to
$2.94 per share plus cash in lieu of the issuance of any fractional shares in
accordance with Section 3.04. Notwithstanding any other provision of this
Agreement, no interest will be paid or will accrue on any cash payable to
holders of Company Certificates pursuant to the provisions of this Article III.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other
distributions with respect to Parent Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Company
Certificate with respect to the shares of Parent Common Stock represented
thereby until the holder of record of such Company Certificate shall surrender
such Company Certificate. Subject to the effect of applicable escheat or similar
laws, following surrender of any such Company Certificate, there shall be paid
to the record holder of the Parent Certificates issued in exchange therefor,
without interest, at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
theretofore payable (but for the provisions of this Section 3.02(d)) with
respect to such shares of Parent Common Stock.
(e) TRANSFER OF OWNERSHIP. If any Parent Certificate is to be issued in a
name, or cash paid to a person, other than that in which the Company Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance and/or payment thereof that the Company Certificate so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange will have paid to Parent or any agent designated
by it any transfer or other taxes required by reason of the issuance of a Parent
Certificate for shares of Parent Common Stock in any name other than that of the
registered holder of the Company Certificate surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
(f) TERMINATION OF EXCHANGE AGENT FUNDING. Any portion of funds (including
any interest earned thereon) or Parent Certificates held by the Exchange Agent
which have not been delivered to holders of Company Certificates pursuant to
this Article III within six months after the Effective Time shall promptly be
paid or delivered, as appropriate, to Parent, and thereafter holders of Company
Certificates who have not theretofore complied with the exchange procedures set
forth in and contemplated by this Section 3.02 shall thereafter look only to
Parent (subject to abandoned property, escheat and similar laws) only as general
creditors thereof for their claim for cash, shares of Parent Stock, any cash in
lieu of fractional shares of Parent Common Stock and any dividends or
distributions (with a record date after the Effective Time) with respect to
Parent Common Stock to which they are entitled.
(g) NO LIABILITY. Notwithstanding anything to the contrary in this Section
3.02, none of the Exchange Agent, the Surviving Corporation or any party hereto
shall be liable to any person in respect of any shares of Parent Common Stock or
cash delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
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SECTION 3.3 STOCK TRANSFER BOOKS
At the Effective Time, the stock transfer books of Company shall each be
closed, and there shall be no further registration of transfers of shares of
Company Common Stock thereafter on the records of any such stock transfer books.
In the event of a transfer of ownership of shares of Company Common Stock that
is not registered in the stock transfer records of Company at the Effective
Time, a certificate or certificates representing the number of full shares of
Parent Common Stock into which such shares of Company Common Stock shall have
been converted shall be issued to the transferee together with a cash payment
equal to $2.94 per share plus cash in lieu of fractional shares, if any, in
accordance with Section 3.04 hereof, and a cash payment in the amount of
dividends, if any, in accordance with Section 3.02(d) hereof, if the certificate
or certificates representing such shares of Company Common Stock is or are
surrendered as provided in Section 3.02(c) hereof, accompanied by all documents
required to evidence and effect such transfer and by evidence of payment of any
applicable stock transfer tax.
SECTION 3.4 NO FRACTIONAL SHARE CERTIFICATES
No scrip or fractional share Parent Certificate shall be issued upon the
surrender for exchange of Company Certificates, and an outstanding fractional
share interest shall not entitle the owner thereof to vote, to receive dividends
or to any rights of a stockholder of Parent or of Surviving Corporation with
respect to such fractional share interest. As promptly as practicable following
the Effective Time, Parent shall deposit with the Exchange Agent an amount in
cash sufficient for the Exchange Agent to pay each holder of Company Common
Stock an amount in cash, rounded to the nearest whole cent, equal to the product
obtained by multiplying (i) the fractional share interest to which such holder
would otherwise be entitled (after taking into account all shares of Company
Common Stock held at the Effective Time by such holder) by (ii) the Final
Average Closing Price. As soon as practicable after the determination of the
amount of cash, if any, to be paid to holders of Company Common Stock with
respect to any fractional share interests, the Exchange Agent shall make
available such amounts, net of any required withholding taxes, to such holders
of Company Common Stock, subject to and in accordance with the terms of Section
3.02 hereof.
SECTION 3.5 OPTIONS TO PURCHASE COMPANY COMMON STOCK
(a) At the Effective Time, the Company Stock Plans and each option granted
by Company to purchase shares of Company Common Stock pursuant to the Company
Stock Plans or otherwise listed on Schedule 3.05 of the Company Disclosure
Schedule ("COMPANY STOCK OPTIONS"), which is outstanding and unexercised
immediately prior to the Effective Time, shall be assumed by Parent and
converted into an option or warrant, as the case may be, to purchase shares of
Parent Common Stock in such number and amount and at such exercise price as
provided below and otherwise having the same terms and conditions as in effect
immediately prior to the Effective Time (except to the extent that such terms,
conditions and restrictions may be altered in accordance with their terms as a
result of the Merger contemplated hereby and except that all references in each
such Company Stock Option to Company shall be deemed to refer to Parent):
(i) the number of shares of Parent Common Stock to be subject to the new
option or warrant, as the case may be, shall be equal to the product of (x)
the number of shares of Company Common Stock subject to the original Company
Stock Option immediately prior to the Effective Time and (y) 1.5748 (the
"SHARE EQUIVALENT EXCHANGE RATIO").
(ii) the exercise price per share of Parent Common Stock under the new
option or warrant shall be equal to (x) the exercise price per share of
Company Common Stock in effect under the original Company Stock Option
immediately prior to the Effective Time divided by (y) the Share Equivalent
Exchange Ratio; and
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(iii) in effecting such assumption and conversion, the aggregate number
of shares of Parent Common Stock to be subject to each assumed Company Stock
Option will be rounded down, if necessary, to the next whole share and the
aggregate exercise price shall be rounded up, if necessary, to the next
whole cent.
The adjustments provided herein with respect to any options that are
"incentive stock options" (as defined in Section 422 of the Code) shall be
effected in a manner consistent with the requirements of Section 424(a) of the
Code.
(b) Notwithstanding the arrangements set forth in Section 3.05(a), Company
shall consider, in conjunction with Parent, providing, if practicable, the
following opportunity. If requested by the holder of a Company Stock Option
which is to be assumed by Parent pursuant to Section 3.05(a) and which at the
Effective Time is exercisable to any extent (the Company Common Stock as to
which such Option is then exercisable, the "VESTED SHARES"), Parent would, if
Company directed in its discretion, pay the holder of such Company Stock Option
an amount of cash equal to the cash which the holder would have received on an
exchange of the Vested Shares pursuant to Section 3.01 of this Agreement in
consideration of a reduction in the number of shares covered by the holder's
Company Stock Option as assumed by Parent to the number of shares of Parent
Common Stock the holder would have received on an exchange of the Vested Shares
pursuant to Section 3.01 of this Agreement without any change in the aggregate
exercise price from that under the Company Stock Option prior to assumption.
Appropriate adjustments will be made in the cash to be paid and the aggregate
exercise price so that the exercise price per share of Parent Common Stock under
the Company Stock Option as assumed by Parent and as adjusted pursuant to this
Section does not exceed the fair market value of a share of Parent Common Stock
as of the Effective Time. Any payment pursuant to this Section shall be net of
applicable tax withholdings. Company shall not make any such payment and
adjustment, and instead Section 3.05(a) shall apply exclusively, if the payment
would result in the failure to satisfy the condition to Closing set forth in
Section 8.01(g).
SECTION 3.6 CERTAIN ADJUSTMENTS
If between the date of this Agreement and the Effective Time, (a) the
outstanding shares of Parent Common Stock or Company Common Stock shall be
changed into a different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or any dividend
payable in stock or other securities shall be declared thereon with a record
date within such period, or (b) the number of shares of Company Common Stock on
a fully diluted basis is in excess of that specified in Section 4.03 and
disclosed in Schedule 4.03 of the Company Disclosure Schedule (regardless of
whether such excess is a result of an additional issuance of capital stock
except as otherwise permitted pursuant to this Agreement or a correction to such
Sections), then, in either case, the Exchange Ratio established pursuant to the
provisions of Section 3.01 and the Share Equivalent Exchange Ratio established
pursuant to the provisions of 3.05(a) shall be adjusted accordingly (by the
proportionate adjustment of each of the number of shares of Parent Common Stock
and cash payable or issuable per share of Company Common Stock) to provide
Parent and the stockholders and option holders of Company the same economic
effect as contemplated by this Agreement prior to such reclassification,
recapitalization, split-up, combination, exchange, dividend or increase.
SECTION 3.7 DISSENTERS' RIGHTS
Any Dissenting Shares shall not be converted into, or be exchangeable for,
the right to receive cash and Parent Common Stock but shall instead be converted
into the right to receive such consideration as may be determined to be due with
respect to such Dissenting Shares pursuant to the DGCL unless and until such
holder shall have failed to perfect or shall have effectively withdrawn or lost
his right of appraisal and payment, as the case may be. Company shall give
Parent prompt notice of any Dissenting Shares (and shall also give Parent prompt
notice of any withdrawals of such demands
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for appraisal rights) and Parent shall have the right to direct all negotiations
and proceedings with respect to such demands. Neither Company nor the Surviving
Corporation shall, except with the prior written consent of Parent, voluntarily
make any payments with respect to, or settle or offer to settle, any such demand
for appraisal rights. If, after the Effective Time, any Dissenting Shares shall
lose their status as Dissenting Shares, Parent shall issue and deliver, upon
surrender by such shareholder of certificate or certificates representing shares
of Company Capital Stock, the amount of cash and the number of shares of Parent
Common Stock to which such shareholder would otherwise be entitled pursuant to
this Article III.
SECTION 3.8 LOST, STOLEN OR DESTROYED CERTIFICATES
In the event any Company Certificates shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Company Certificates, upon the making of an affidavit of that fact by
the holder thereof, such cash and shares of Parent Common Stock (and cash in
lieu of fractional shares) as may be required pursuant to Section 3.01,
provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Company Certificates to indemnify Parent against any claim that may be
made against Parent, the Surviving Corporation or the Exchange Agent with
respect to the Company Certificates alleged to have been lost, stolen or
destroyed.
SECTION 3.9 TAKING OF NECESSARY ACTION; FURTHER ACTION
If, at any time after the Effective Time, any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of Company, the officers and directors
of Company are fully authorized in the name of their corporation or otherwise to
take, and will use good faith efforts to take, all such lawful and necessary
action, so long as such action is not inconsistent with this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to Parent and Merger Sub, subject to
the exceptions specifically disclosed in writing in the Company Disclosure
Schedule, all such exceptions to be referenced to a specific representation set
forth in this Article IV, that:
SECTION 4.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES
(a) Each of Company and each directly and indirectly owned Subsidiary of
Company (the "COMPANY SUBSIDIARIES") has been duly organized and is validly
existing and in good standing (to the extent applicable) under the laws of the
jurisdiction of its incorporation or organization, as the case may be, and has
the requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted. Company
and each Company Subsidiary is duly qualified or licensed to do business, and is
in good standing (to the extent applicable), in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that could not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
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(b) Schedule 4.01 of the Company Disclosure Schedule sets forth, as of the
date of this Agreement, a true and complete list of each Company Subsidiary,
together with (i) the jurisdiction of incorporation or organization of each
Company Subsidiary and the percentage of each Company Subsidiary's outstanding
capital stock or other equity interests owned by Company or another Company
Subsidiary and (ii) an indication of whether each Company Subsidiary is a
"SIGNIFICANT SUBSIDIARY" as defined in Regulation S-X under the Exchange Act.
Except as set forth in Schedule 4.01 of the Company Disclosure Schedule, neither
Company nor any Company Subsidiary owns an equity interest in any partnership or
joint venture arrangement or other business entity.
SECTION 4.2 CERTIFICATE OF INCORPORATION AND BYLAWS
The copies of Company's certificate of incorporation and bylaws previously
presented to Parent by Company are true, complete and correct copies thereof.
Such certificate of incorporation and bylaws are in full force and effect.
Company is not in violation of any of the provisions of its certificate of
incorporation or bylaws.
SECTION 4.3 CAPITALIZATION
The authorized capital stock of Company consists of 40,000,000 shares of
Company Common Stock and 10,000,000 shares of preferred stock, par value $0.01
per share ("COMPANY PREFERRED STOCK") of which 35,000 shares of Company
Preferred Stock are designated as Series A Junior Participating Preferred Stock
pursuant to the Rights Agreement (as defined in Section 4.04 below). As of the
date hereof, (i) 11,578,076 shares of Company Common Stock are issued and
outstanding, all of which outstanding shares are validly issued, fully paid and
nonassessable, (ii) 1,244,944 shares of Company Common Stock are held in the
treasury of Company, (iii) no shares of Company Common Stock are held by Company
Subsidiaries, (iv) 643,378 shares of Company Common Stock are reserved for
future issuance pursuant to Company Stock Plans, (v) no shares of Company
Preferred Stock are outstanding, and (vi) 200,000 shares of Company Common Stock
are reserved for issuance pursuant to The Company ESPP, of which 174,545 shares
have been issued. The name of each holder of a Company Stock Option, the grant
date of each Company Stock Option, the number of shares of Company Common Stock
for which each Company Stock Option is exercisable, the vesting or exercise
schedule and the exercise price of each Company Stock Option are set forth in
Schedule 4.03 of the Company Disclosure Schedule. Except for shares of Company
Common Stock issuable pursuant to Company Stock Plans and stock option
agreements entered into in connection therewith, and the Company ESPP and as
otherwise set forth in Schedule 4.03 of the Company Disclosure Schedule, there
are no options, warrants or other rights, agreements, arrangements or
commitments of any character to which Company or any Company Subsidiary is a
party or by which Company or any Company Subsidiary is bound relating to the
issued or unissued capital stock of Company or any Company Subsidiary or
obligating Company or any Company Subsidiary to issue or sell any shares of
capital stock of, or other equity interests in, Company or any Company
Subsidiary. All shares of Company Common Stock subject to issuance as aforesaid,
upon issuance prior to the Effective Time on the terms and conditions specified
in the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. There are no outstanding
contractual obligations of Company or any Company Subsidiary to repurchase,
redeem or otherwise acquire any shares of Company Common Stock or any capital
stock of any Company Subsidiary. Each outstanding share of capital stock of each
Company Subsidiary is duly authorized, validly issued, fully paid and
nonassessable and each such share owned by Company or another Company Subsidiary
is free and clear of all Encumbrances. There are no material outstanding
contractual obligations of Company or any Company Subsidiary to provide funds
to, or make any material investment (in the form of a loan, capital contribution
or otherwise) in, any Company Subsidiary or any other entity or person.
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SECTION 4.4 AUTHORITY RELATIVE TO THIS AGREEMENT
Company has all necessary 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 Company and the consummation by Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part of Company are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby (other than, with respect to the Merger, the approval of
this Agreement by the holders of a majority of the outstanding shares of Company
Common Stock entitled to vote with respect thereto at the Company Stockholders'
Meeting (as defined in Section 7.01), and the filing and recordation of the
Certificate of Merger as required by the DGCL). This Agreement has been duly
executed and delivered by Company and, assuming the due authorization, execution
and delivery by the other parties hereto, constitutes the legal, valid and
binding obligation of Company, enforceable against Company in accordance with
its terms except to the extent that enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization or similar laws affecting the
enforcement of creditors' rights generally and by principles of equity regarding
the availability of remedies. The Company has taken all action necessary to
cause the Parent and Merger Sub not to be deemed an "Acquiring Person" under the
Rights Agreement, dated as of April 15, 1998, between the Company and
BankBoston, NA as Rights Agent (the "RIGHTS AGREEMENT"), and to ensure that none
of the execution of this Agreement, nor the consummation of the transactions
contemplated herein, shall result in any rights under the Rights Agreement being
exercisable.
SECTION 4.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS
(a) The execution and delivery of this Agreement by Company do not, and the
performance by Company of its obligations hereunder, and the consummation of the
Merger will not, (i) conflict with or violate any provision of the certificate
of incorporation or bylaws of Company or any equivalent organizational documents
of any Company Subsidiary, (ii) assuming that all filings and notifications
described in Section 4.05(b) have been made, conflict with or violate in any
material respect any Law applicable to Company or any Company Subsidiary or by
which any property or asset of Company or any Company Subsidiary is bound or
affected or (iii) except as otherwise set forth on Schedule 4.05(a) of the
Company Disclosure Schedule, result in any breach of or constitute a default (or
an event which with the giving of notice or lapse of time or both could
reasonably be expected to become a default) under, or give to others any right
of termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of Company or
any Company Subsidiary pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation.
(b) The execution and delivery of this Agreement by Company do not, and the
performance by Company of its obligations hereunder and the consummation of the
Merger will not, require any consent, approval, authorization or permit of, or
filing by Company with or notification by Company to, any Governmental Entity,
except pursuant to applicable requirements of the Exchange Act, the Securities
Act, Blue Sky Laws, the rules and regulations of the NNM, the premerger
notification requirements of the HSR Act, and the filing and recordation of the
Certificate of Merger as required by the DGCL.
SECTION 4.6 PERMITS; COMPLIANCE WITH LAWS
Company and the Company Subsidiaries are in possession of all material
franchises, grants, authorizations, licenses, establishment registrations,
product listings, permits, approvals and orders of any Governmental Entity
necessary for Company or any Company Subsidiary to own, lease and operate its
properties and assets or otherwise to carry on its business as it is now being
conducted (collectively, the "COMPANY PERMITS"), and, as of the date of this
Agreement, none of the Company Permits has been
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suspended or cancelled nor is any such suspension or cancellation pending or, to
the knowledge of Company, threatened. Neither Company nor any Company Subsidiary
is in conflict with, or in default or violation of, (i) any Law applicable to
Company or any Company Subsidiary or by which any property or asset of Company
or any Company Subsidiary is bound or affected or (ii) any Company Permits,
except, in each case, for such conflicts, defaults or violations that could not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. Schedule 4.06 of the Company Disclosure Schedule sets
forth, as of the date of this Agreement, all actions, proceedings,
investigations or surveys pending or, to the knowledge of Company, threatened
against Company or any Company Subsidiary that could reasonably be expected to
result in the suspension or cancellation of any other Company Permit. Except as
set forth in Section 4.06 of the Company Disclosure Schedule, since June 30,
1996, neither Company nor any Company Subsidiary has received from any
Governmental Entity any written notification with respect to possible conflicts,
defaults or violations of Laws.
SECTION 4.7 SEC FILINGS; FINANCIAL STATEMENTS
(a) Company has timely filed all forms, reports, statements and documents
required to be filed by it (A) with the SEC and the NNM since June 30, 1996
(collectively, together with any such forms, reports, statements and documents
Company may file subsequent to the date hereof until the Closing, the "COMPANY
REPORTS") and (B) since June 30, 1996, in all material respects, with any other
Governmental Entities. Each Company Report (i) was prepared in accordance with
the requirements of the Securities Act, the Exchange Act or the rules and
regulations of the NNM, as the case may be, and (ii) did not at the time it was
filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. Each form, report, statement and document referred to in
clause (B) of this paragraph was prepared in all material respects in accordance
with the requirements of applicable Law. No Company Subsidiary is subject to the
periodic reporting requirements of the Exchange Act or required to file any
form, report or other document with the SEC, the NNM, any other stock exchange
or any other comparable Governmental Entity.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the Company Reports was prepared in accordance
with U.S. GAAP applied on a consistent basis throughout the periods indicated
(except as may be indicated in the notes thereto) and each presented fairly the
consolidated financial position of Company and the Company Subsidiaries as at
the respective dates thereof, and their consolidated results of operations,
stockholders' equity and cash flows for the respective periods indicated
therein, except as otherwise noted therein (subject, in the case of unaudited
statements, to normal and recurring immaterial year-end adjustments).
(c) Except as and to the extent set forth or reserved against on the
consolidated balance sheet of Company and the Company Subsidiaries as of June
30, 1998 as reported in the Company Reports, none of Company or any Company
Subsidiary has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be reflected on a
balance sheet or in notes thereto prepared in accordance with U.S. GAAP, except
for liabilities or obligations incurred in the ordinary course of business
consistent with past practice since June 30, 1998.
SECTION 4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except as otherwise set forth on Schedule 4.08 of the Company Disclosure
Schedule, since June 30, 1998, Company and the Company Subsidiaries have
conducted their businesses only in the ordinary course consistent with past
practice and, since such date, there has not been (i) any Company Material
Adverse Effect, (ii) any event that could reasonably be expected to prevent or
materially delay the performance of Company's obligations pursuant to this
Agreement and the consummation of the
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Merger by Company, (iii) any material change by Company in its accounting
methods, principles or practices, (iv) any declaration, setting aside or payment
of any dividend or distribution in respect of the shares of Company Common Stock
or any redemption, purchase or other acquisition of any of Company's securities,
(v) except in the ordinary course of business consistent with past practice, any
increase in the compensation or benefits or establishment of any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable to any executive officers of
Company or any Company Subsidiary, (vi) any issuance or sale of any stock,
notes, bonds or other securities other than pursuant to the exercise of
outstanding securities, or entering into any agreement with respect thereto,
(vii) any amendment to the Company's certificate of incorporation or bylaws,
(viii) other than in the ordinary course of business, any (x) purchase, sale,
assignment or transfer of any material assets, (y) mortgage, pledge or the
institution of any lien, encumbrance or charge on any material assets or
properties, tangible or intangible, except for liens for taxes not yet
delinquent and such other liens, encumbrances or charges which do not,
individually or in the aggregate, have a Company Material Adverse Effect, or (z)
waiver of any rights of material value or cancellation or any material debts or
claims, (ix) any incurrence of any material liability (absolute or contingent),
except for current liabilities and obligations incurred in the ordinary course
of business consistent with past practice, (x) any incurrence of any damage,
destruction or similar loss, whether or not covered by insurance, materially
affecting the business or properties of Company or any Company Subsidiary, or
(xi) any entering into any transaction of a material nature other than in the
ordinary course of business, consistent with past practices.
SECTION 4.9 EMPLOYEE BENEFIT PLANS; LABOR MATTERS
(a) The Company Disclosure Schedule lists each employee benefit fund, plan,
program, arrangement and contract (including, without limitation, any "pension"
plan, fund or program, as defined in Section 3(2) of ERISA, and any "employee
benefit plan", as defined in Section 3(3) of ERISA and any plan, program,
arrangement or contract providing for severance, medical, dental or vision
benefits; life insurance or death benefits; disability benefits, sick pay or
other wage replacement; vacation, holiday or sabbatical; pension or
profit-sharing benefits; stock options or other equity compensation; bonus or
incentive pay or other material fringe benefits), whether written or not
("BENEFIT PLANS"), maintained, sponsored or contributed to or required to be
contributed to by Company or any Company Subsidiary (the "COMPANY BENEFIT
PLANS"). With respect to each Company Benefit Plan, Company has delivered or
made available to Parent a true, complete and correct copy of (i) such Company
Benefit Plan (or, if not written, a written summary of its material terms) and
the most recent summary plan description, if any, related to such Company
Benefit Plan, (ii) each trust agreement or other funding arrangement relating to
such Company Benefit Plan, (iii) the most recent annual report (Form 5500) filed
with the IRS with respect to such Company Benefit Plan (and, if the most recent
annual report is a Form 5500-R, the most recent Form 5500-C filed with respect
to such Company Benefit Plan), (iv) the most recent actuarial report or
financial statement relating to such Company Benefit Plan and (v) the most
recent determination letter, if any, issued by the IRS with respect to such
Company Benefit Plan, or any pending request for such a determination letter.
Neither Company nor any Company Subsidiary nor, to the knowledge of the Company,
any other person or entity, has any express or implied commitment, to modify,
change or terminate any Company Benefit Plan, other than with respect to a
modification, change or termination required by ERISA or the Code.
(b) Each Company Benefit Plan has been administered in all material respects
in accordance with its terms and all applicable laws, including, without
limitation, ERISA and the Code, and all contributions required to be made under
the terms of any of the Company Benefit Plans as of the date of this Agreement
have been timely made or, if not yet due, have been reflected on the most recent
consolidated balance sheet filed or incorporated by reference in the Company
Reports prior to the date
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of this Agreement. With respect to the Company Benefit Plans, no event has
occurred and, to the knowledge of Company, there exists no condition or set of
circumstances in connection with which Company or any Company Subsidiary could
be subject to any material liability (other than for routine benefit
liabilities) under the terms of, or with respect to, such Company Benefit Plans,
ERISA, the Code or any other applicable Law.
(c) Company, on behalf of itself and all of the Company Subsidiaries, hereby
represents that: (i) each Company Benefit Plan which is intended to be qualified
under Section 401(a), 401(k), 401(m) or 4975(e)(6) of the Code has received or
is currently awaiting receipt of a favorable determination letter from the IRS
as to its qualified status under the Code, and each trust established in
connection with any Company Benefit Plan which is intended to be exempt from
federal income taxation under Section 501(a) of the Code has received a
determination letter from the IRS that it is so exempt, and to Company's
knowledge no fact or event has occurred that could adversely affect the
qualified status of any such Company Benefit Plan or the exempt status of any
such trust; (ii) to Company's knowledge there has been no prohibited transaction
(within the meaning of Section 406 of ERISA or Section 4975 of the Code and
other than a transaction that is under a statutory or administrative exemption)
with respect to any Company Benefit Plan that could result in liability to the
Company or any Company Subsidiaries; and (iii) except as set forth in Section
4.09(c) of the Company Disclosure Schedule, each Company Benefit Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without material liability (other than (A) liability
for ordinary administrative expenses typically incurred in a termination event
or (B) if the Company Benefit Plan is a pension benefit plan subject to Part 2
of Title I of ERISA, liability for the accrued benefits as of the date of such
termination (if and to the extent required by ERISA) to the extent that either
there are sufficient assets set aside in a trust or insurance contract to
satisfy such liability or such liability is reflected on the most recent
consolidated balance sheet filed or incorporated by reference in the Company
Reports prior to the date of this Agreement). No suit, administrative
proceeding, action or other litigation has been brought, or to the knowledge of
Company is threatened, against or with respect to any such Company Benefit Plan,
including any audit or inquiry by the IRS or United States Department of Labor
(other than routine benefits claims).
(d) No Company Benefit Plan is a multiemployer pension plan (as defined in
Section 3(37) of ERISA) or other pension plan subject to Title IV of ERISA and
neither the Company, any Company Subsidiary nor any other trade or business
(whether or not incorporated) that is under "common control" with Company or a
Company Subsidiary (within the meaning of Section 4001(b) of ERISA) or with
respect to which Company or any Company Subsidiary could otherwise incur
liability under Title IV of ERISA (a "COMPANY ERISA AFFILIATE") has sponsored or
contributed to or been required to contribute to a multiemployer pension plan or
other pension plan subject to Title IV of ERISA. No material liability under
Title IV of ERISA has been incurred by Company, any Company Subsidiary or any
Company ERISA Affiliate that has not been satisfied in full, and no condition
exists that presents a material risk to Company or any Company Subsidiary of
incurring or being subject (whether primarily, jointly or secondarily) to a
material liability thereunder. None of the assets of Company or any Company
Subsidiary is, or may reasonably be expected to become, the subject of any lien
arising under ERISA or Section 412(n) of the Code.
(e) With respect to each Benefit Plan required to be set forth in the
Company Disclosure Schedule that is subject to Title IV or Part 3 of Title I of
ERISA or Section 412 of the Code, (i) no reportable event (within the meaning of
Section 4043 of ERISA, other than an event that is not required to be reported
before or within 30 days of such event) has occurred or is expected to occur,
(ii) there was not an accumulated funding deficiency (within the meaning of
Section 302 of ERISA or Section 412 of the Code), whether or not waived, as of
the most recently ended plan year of such Benefit Plan; and (iii) there is no
"unfunded benefit liability" (within the meaning of Section 4001(a)(18) of
ERISA).
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(f) Company has scheduled on Schedule 4.09(f) of the Company Disclosure
Schedule and has delivered to Parent true, complete and correct copies of (i)
all current employment agreements with officers and employees and all current
consulting agreements of Company and each Company Subsidiary providing for
annual compensation in excess of $100,000, (ii) all severance plans, agreements,
programs and policies of Company and each Company Subsidiary with or relating to
their respective employees, directors or consultants, and (iii) all plans,
programs, agreements and other arrangements of Company and each Company
Subsidiary with or relating to their respective employees, directors or
consultants which contain "change of control" provisions. Except as set forth in
Schedule 4.09(f) of the Company Disclosure Schedule, no payment or benefit which
may be required to be made by Company or any Company Subsidiary which otherwise
may be required to be made under the terms of any Company Benefit Plan or other
arrangement will constitute an excess parachute payment under Section 280G(b) of
the Code, and the consummation of the transactions contemplated by this
Agreement will not, individually or in conjunction with any other possible event
(including termination of employment), (i) entitle any current or former
employee or other service provider of Company or any Company Subsidiary to
severance benefits or any other payment, compensation or benefit (including
forgiveness of indebtedness), except as expressly provided by this Agreement, or
(ii) accelerate the time of payment or vesting, or increase the amount of
compensation or benefit due any such employee or service provider.
(g) Neither Company nor any Company Subsidiary is a party to any collective
bargaining or other labor union contract applicable to persons employed by
Company or any Company Subsidiary and no collective bargaining agreement is
being negotiated by Company or any Company Subsidiary. As of the date of this
Agreement, there is no labor dispute, strike or work stoppage against Company or
any Company Subsidiary pending or, to the knowledge of Company, threatened which
may interfere with the respective business activities of Company or any Company
Subsidiary. As of the date of this Agreement, to the knowledge of Company, none
of Company, any Company Subsidiary, or any of their respective representatives
or employees has committed any unfair labor practice in connection with the
operation of the respective businesses of Company or any Company Subsidiary, and
there is no charge or complaint against Company or any Company Subsidiary by the
National Labor Relations Board or any comparable Governmental Entity pending or
threatened in writing.
(h) Except as required by Law or as set forth in Section 4.09(h) of the
Company Disclosure Schedule, no Company Benefit Plan provides any of the
following retiree or post-employment benefits to any person: medical, disability
or life insurance benefits. Company and the Company ERISA Affiliates are in
compliance with (i) the requirements of the applicable health care continuation
and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended ("COBRA") and the regulations (including proposed regulations)
thereunder and (ii) the applicable requirements of the Health Insurance
Portability and Accountability Act of 1996, as amended and the regulations
(including the proposed regulations) thereunder.
(i) The Company has the power and authority under the terms of the Company
Stock Plans to effect the assumption of Company Stock Options in the manner
provided in Section 3.05 without the consent of the holder of any such option.
The Company has the power and authority under the terms of the Company ESPP to
terminate that plan prior to the Effective Time (as provided in Section 7.08)
without the consent of any employee.
SECTION 4.10 CONTRACTS
Schedule 4.10 of the Company Disclosure Schedule sets forth a list of each
contract or agreement that is material to the business, assets, liabilities,
financial condition or results of operations of Company and Company Subsidiaries
taken as a whole (each, a "COMPANY MATERIAL CONTRACT"). Except as set forth in
Schedule 4.10 of the Company Disclosure Schedule, neither Company nor any
Company Subsidiary is in material violation of or default under (nor does there
exist any condition which with
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the passage of time or the giving of notice could reasonably be expected to
cause such a material violation of or default under) any Company Material
Contract. Each Company Material Contract is in full force and effect and is a
legal, valid and binding obligation of Company or a Company Subsidiary and, to
the knowledge of Company, each of the other parties thereto, enforceable in
accordance with its terms, except to the extent that enforceability thereof may
be limited by applicable bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and by principles
of equity regarding the availability of remedies.
SECTION 4.11 LITIGATION
There is no suit, claim, action, proceeding or investigation pending or, to
the knowledge of Company, threatened against Company or any Company Subsidiary
that could reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect or materially impair Company's ability to
consummate the transactions contemplated herein. Company is not aware of any
facts or circumstances which could reasonably be expected to result in the
denial of insurance coverage under policies issued to Company and Company
Subsidiaries in respect of such suits, claims, actions, proceedings and
investigations, except in any case as could not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. Neither
Company nor any Company Subsidiary is subject to any outstanding order, writ,
injunction or decree which could reasonably be expected to have, individually or
in the aggregate, a Company Material Adverse Effect or materially impair
Company's ability to consummate the transactions contemplated herein.
SECTION 4.12 ENVIRONMENTAL MATTERS
Except as could not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, (i) Company and the Company
Subsidiaries are in compliance with all applicable Environmental Laws and all
Company Permits required by Environmental Laws; (ii) all past noncompliance of
Company or any Company Subsidiary with Environmental Laws or Environmental
Permits has been resolved without any pending, ongoing or future obligation,
cost or liability; and (iii) neither Company nor any Company Subsidiary has
released a Hazardous Material at, or transported a Hazardous Material to or
from, any real property currently or formerly owned, leased or occupied by
Company or any Company Subsidiary, in violation of any Environmental Law.
SECTION 4.13 INTELLECTUAL PROPERTY
(a) All trademarks, trade names, service marks, trade dress (whether or not
registered), and all goodwill associated with any of the foregoing, patents
(including, without limitation, all U.S. and foreign patents, patent
applications, patent disclosures and any and all divisions, continuations,
continuations-in-part, re-issues, re-examinations and extensions thereof),
Internet domain names, copyrights (whether or not registered), mask works and
any renewal rights therefor, inventions (whether or not patented) technology,
supplier lists, trade secrets, know-how, computer software programs or
applications in both source and object code form, technical documentation of
such software programs, databases, data, registrations and applications for any
of the foregoing and all other tangible or intangible proprietary information or
materials that are or have been used (including without limitation in the
development of) in the Company's business and/or in any product, technology or
process (i) currently being or formerly manufactured, published or marketed by
Company or (ii) previously or currently under development for possible future
manufacturing, publication, marketing or other use by Company are hereinafter
referred to as the "COMPANY INTELLECTUAL PROPERTY."
(b) The Company Disclosure Schedule contains a true and complete list of
Company's patents, patent applications, trademarks, trademark applications,
trade names, service marks, service mark applications, Internet domain names,
Internet domain name applications, copyrights and copyright registrations and
applications, all of the foregoing existing anywhere in the world, owned by
Company.
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Prior to Closing, the Company shall provide a schedule to Parent detailing all
due dates for further filings, maintenance, payments or other actions relating
to the foregoing falling due within twelve (12) months of the Closing. All of
Company's patents, registrations, trademark registrations and copyright
registrations are enforceable and subsisting in all material respects, and
remain in good standing with all fees and filings that are due as of the Closing
having been made as of the Closing.
(c) The Company Intellectual Property consists solely of items and rights
which are: (i) owned by Company; or (ii) in the public domain; or (iii) jointly
owned between Company and a customer or vendor pursuant to the terms of an
agreement between Company and such customer or vendor; or (iv) rightfully used
by Company pursuant to a valid and enforceable license (the "COMPANY LICENSED
INTELLECTUAL PROPERTY"), the parties, date and subject matter of each such
material license agreement and each material agreement in which Company is the
licensee or owner of the subject rights in the agreement being set forth on
Schedule 4.13(c) of the Company Disclosure Schedule. Except as described in
Section 4.13(c) of Company Disclosure Schedule, Company has all rights in
Company Intellectual Property and Company Licensed Intellectual Property
necessary to carry out Company's current activities and Company's future
activities to the extent such future activities are already planned, including
without limitation, to the extent required to carry out such activities, rights
to make, have made, use, import, export, reproduce, modify, adapt, create
derivative works based on, translate, distribute (directly and indirectly),
transmit, display and perform publicly, license, sublicense, rent and lease and,
other than with respect to the Company Licensed Intellectual Property, assign
and sell, the Company Intellectual Property.
(d) The reproduction, manufacturing, distribution, licensing, sublicensing
or sale of any Company Intellectual Property, product, service, work, technology
or process as now used or offered or proposed for use, licensing or sale by
Company and which are material to Company's business does not infringe on any
patent, copyright, trademark, service mark, trade name, trade dress, firm name,
Internet domain name, logo, trade dress, mask work or other proprietary right of
any person and does not constitute a misappropriation of any trade secret.
Except as set forth in Section 4.13(d) of the Company Disclosure Schedule, no
claims (i) challenging the validity, effectiveness or ownership by Company of
any of the Company Intellectual Property, or (ii) to the effect that the use,
distribution, licensing, sublicensing or sale of the Company Intellectual
Property, product, service, work, technology or process as now used or offered
by Company, its agents or the intended use by its customers infringes or will
infringe on any intellectual property or other proprietary right of any person
have been asserted or, to the knowledge of Company, are threatened by any person
or have been made or threatened by any person against the Company or the
Company's distributors, nor are there, to Company's knowledge, any valid grounds
for any bona fide claim of any such kind in all cases, except for those claims
that would not have a Company Material Adverse Effect. Except as set forth in
Section 4.13(d) of the Company Disclosure Schedule, to the knowledge of Company,
there is no unauthorized use, infringement or misappropriation from the Company
of any of the Company Intellectual Property or the Company Licensed Intellectual
Property by any third party, employee or former employee.
(e) Except as set forth in Section 4.13(e) of the Company Disclosure
Schedule, all personnel, including employees, agents, consultants and
contractors, who have contributed to or participated in the conception and
development of Company Intellectual Property, other than the Company Licensed
Intellectual Property, on behalf of Company, have executed nondisclosure
agreements containing substantially the same confidentiality provisions as set
forth in the form set forth on the Company Disclosure Schedule and either (i)
have been a party to an enforceable "work-for-hire" arrangement or agreements
with Company in accordance with applicable national and state law that has
accorded Company full, effective, exclusive and original ownership of, or other
rights in all tangible and intangible property thereby arising sufficient for
the conduct of the Company's business as currently conducted, or (ii) have
executed appropriate instruments of assignment in favor of Company as
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assignee that have conveyed to Company effective and exclusive ownership of, or
other rights in all tangible and intangible property thereby arising.
(f) Except as set forth in Section 4.13(f) of the Company Disclosure
Schedule, Company is not, nor as a result of the execution or delivery of this
Agreement, or performance of Company's obligations hereunder, will Company be,
in violation of any material license, sublicense, agreement or instrument to
which Company is a party or otherwise bound, nor will execution or delivery of
this Agreement, or performance of Company's obligations hereunder, cause the
diminution, termination or forfeiture of any material Company Intellectual
Property, except in all cases for violations, diminutions, terminations or
forfeitures that would not reasonably be expected to have a Company Material
Adverse Effect.
(g) Schedule 4.13(g) of the Company Disclosure Schedule contains a true and
complete list of all of Company's material internally-developed software
programs (the "COMPANY SOFTWARE PROGRAMS"). Except as set forth in the Company
Disclosure Schedule, Company owns full and unencumbered right and good, valid
and marketable title to such Company Software Programs and all material Company
Intellectual Property free and clear of all mortgages, pledges, liens, security
interests, conditional sales agreements or encumbrances.
(h) The source code and system documentation relating to the Company
Software Programs (i) have at all times been maintained in strict confidence,
(ii) have been disclosed by Company only to employees on a need to know basis in
connection with the performance of their duties to Company, and (iii) to the
Company's knowledge, have not been disclosed to any third party except pursuant
to an agreement between Company and such third party.
(i) As of the Closing, all Date Data and Date-Sensitive Systems developed by
the Company are Year 2000 Compliant. "Date Data" means any data of any type that
includes date information or which is otherwise derived from, dependent on or
related to date information. "Date-Sensitive System" means any software,
microcode or hardware system or component, including any electronic or
electronically controlled system or component, that processes any Date Data and
that is installed, in development or on order by the Company or its Subsidiaries
for their internal use, which the Company or any of its Subsidiaries sells,
leases, licenses, assigns or otherwise provides, or the provision or operation
of which the Company or any of its Subsidiaries provides the benefit, to its
customers, vendors, suppliers, affiliates or any other third party. "Year 2000
Compliant" means (i) with respect to Date Data, that such data is in proper
format and accurate for all dates in the twentieth and twenty-first centuries,
and (ii) with respect to Date-Sensitive Systems, that each such system
accurately processes all Date Data, including for the twentieth and twenty-first
centuries, without loss of any functionality or performance, including but not
limited to calculating, comparing, sequencing, storing and displaying such Date
Data (including all leap year considerations), when used as a stand-alone system
or in combination with other software or hardware. The Company has obtained, or
is in the process of using reasonable efforts to obtain, written representations
or assurances from each entity that (x) provides Date Data to it, (y) processes
in any way Date Data for it or otherwise provides any material product or
service to it that is dependent on Year 2000 Compliant Date Data or Year 2000
Compliant Date-Sensitive System, that all of such entity's Date Data and
Date-Sensitive Systems that are used for, or on behalf of it are Year 2000
Compliant.
(j) Except as set forth in the Company Disclosure Schedule, Company does not
owe any outstanding or past due royalties or other payments to third parties in
respect of Company Licensed Intellectual Property. All royalties or other
payments set forth in the Company Disclosure Schedule that have accrued prior to
the Closing have been paid.
(k) To the Company's knowledge, the Company Software Programs contain no
"viruses". For the purposes of this Agreement, "virus" means any computer code
intentionally designed to disrupt, disable or harm in any manner the operation
of any software or hardware.
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SECTION 4.14 TAXES
Except in those instances that would not result in a Company Material
Adverse Effect:
(a) Company and each of Company Subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which Company or
any Company Subsidiary is or has been a member, have properly completed in
all material respects and timely filed all Tax Returns required to be filed
by them and have paid all Taxes shown thereon to be due. Company has
provided adequate accruals in accordance with generally accepted accounting
principles in its June 30, 1998 balance sheet contained in the Company
Reports (the "1998 BALANCE SHEET") for any Taxes that have not been paid,
whether or not shown as being due on any Tax Returns, and Company and the
Company Subsidiaries have no material liability for unpaid Taxes accruing
after June 30, 1998;
(b) there is (i) no material claim for Taxes that is a lien against the
property of Company or any Company Subsidiary or is being asserted against
Company or any Company Subsidiary other than liens for Taxes not yet due and
payable, (ii) no audit of any Tax Return of Company or any Company
Subsidiary being conducted by a Tax Authority; (iii) no extension of the
statute of limitations on the assessment of any Taxes granted by Company or
any Company Subsidiary and currently in effect, and (iv) no agreement,
contract or arrangement to which Company or any Company Subsidiary is a
party that may result in the payment of any amount that would not be
deductible by reason of Section 162(m), Section 280G or Section 404 of the
Code;
(c) without giving effect to the transactions contemplated by this
Agreement, there has been no change in ownership of Company or any Company
Subsidiaries that has caused the utilization of any losses of such entities
to be limited pursuant to Section 382 of the Code, and any loss carryovers
reflected on the 1998 Balance Sheet are properly computed and reflected;
(d) Company and the Company Subsidiaries are not and will not be
required to include any material adjustment in taxable income for Tax period
(or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger;
(e) neither Company nor any Company Subsidiary has filed or will file
any consent to have the provisions of Section 341(f)(2) of the Code (or
comparable provisions of any state Tax laws) apply to Company or any Company
Subsidiary;
(f) neither Company nor any Company Subsidiary is a party to any Tax
sharing or Tax allocation agreement nor does Company or any Company
Subsidiary have any liability or potential liability to another party under
any such agreement;
(g) neither Company nor any Company Subsidiary has filed any disclosures
under Section 6662 or comparable provisions of state, local or foreign law
to prevent the imposition of penalties with respect to any Tax reporting
position taken on any Tax Return;
(h) neither Company nor any Company Subsidiary has ever been a member of
a consolidated, combined or unitary group of which Company was not the
ultimate parent corporation; and
(i) Company and each Company Subsidiary has in its possession receipts
for any Taxes paid to foreign Tax authorities. Neither Company nor any
Company Subsidiary has ever been a "personal holding company" within the
meaning of Section 542 of the Code or a "United States real property holding
corporation" within the meaning of Section 897 of the Code.
SECTION 4.15 INSURANCE
Company has heretofore furnished to Parent a complete and correct list as of
the date hereof of all insurance policies maintained by Company or the Company
Subsidiaries, and has made available to
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Parent complete and correct copies of all such policies, together with all
riders and amendments thereto. All such policies are in full force and effect
and all premiums due thereon have been paid to the date hereof. Company and the
Company Subsidiaries have complied in all material respects with the terms of
such policies.
SECTION 4.16 PROPERTIES
Company and the Company Subsidiaries have good and valid title, free and
clear of all Encumbrances, except for Permitted Encumbrances, to all their
material properties and assets, whether tangible or intangible, real, personal
or mixed, reflected in the Company's consolidated financial statements contained
in the Company's Annual Report on Form 10-K for the period ended June 30, 1998
as being owned by Company and the Company Subsidiaries as of the date thereof,
other than (i) any properties or assets that have been sold or otherwise
disposed of in the ordinary course of business since the date of such financial
statements, (ii) liens disclosed in the notes to such financial statements and
(iii) liens arising in the ordinary course of business after the date of such
financial statements. All buildings, and all fixtures, equipment and other
property and assets that are material to its business on a consolidated basis,
held under leases or sub-leases by Company or any Company Subsidiary are held
under valid instruments enforceable in accordance with their respective terms,
subject to applicable laws of bankruptcy, insolvency or similar laws relating to
creditors' rights generally and to general principles of equity (whether applied
in a proceeding in law or equity). Except where the failure to so maintain would
not have a Company Material Adverse Effect, substantially all of Company's and
the Company Subsidiaries' equipment in regular use has been reasonably
maintained and is in serviceable condition, reasonable wear and tear excepted.
SECTION 4.17 AFFILIATES
Schedule 4.17 of the Company Disclosure Schedule sets forth the names and
addresses of each person who is, in Company's reasonable judgment, an affiliate
(as such term is used in Rule 145 under the Securities Act or under applicable
SEC accounting releases with respect to pooling of interests accounting
treatment) of Company.
SECTION 4.18 OPINION OF FINANCIAL ADVISOR
Adams, Harkness & Hill, Inc. ("COMPANY FINANCIAL ADVISOR") has delivered to
the board of directors of Company its opinion to the effect that the Exchange
Ratio to be received by the holders of shares of Company Common Stock is fair to
such holders from a financial point of view.
SECTION 4.19 BROKERS
(a) No broker, finder or investment banker (other than Company Financial
Advisor) is entitled to any brokerage, finder's or other fee or commission in
connection with the Merger based upon arrangements made by or on behalf of
Company. Company has heretofore made available to Parent true, complete and
correct copies of all agreements between Company and Company Financial Advisor
pursuant to which such firm would be entitled to any payment relating to the
Merger.
(b) Other than as attached hereto as Schedule 4.19(b) of the Company
Disclosure Schedule, there are no other agreements between Company and the
Company Financial Advisor.
SECTION 4.20 CERTAIN BUSINESS PRACTICES
Neither Company nor any Company Subsidiary nor any directors, officers,
agents or employees of Company or any Company Subsidiary (in their capacities as
such) has (i) used any funds for unlawful contributions, gifts, entertainment or
other unlawful expenses relating to political activity or (ii) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or
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domestic political parties or campaigns or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
SECTION 4.21 BUSINESS ACTIVITY RESTRICTION
Except as set forth in Schedule 4.21 of the Company Disclosure Schedule,
there is no non-competition or other similar agreement, commitment, judgment,
injunction, order or decree to which Company or any Company Subsidiary is a
party or subject to that has or could reasonably be expected to have the effect
of prohibiting or impairing the conduct of business by Company. Except as set
forth in Schedule 4.21 of the Company Disclosure Schedule, Company has not
entered into any material agreement under which Company is restricted from
selling, licensing or otherwise distributing any of its technology or products
intended for distribution to, or providing services to, customers or potential
customers or any class of customers, in any geographic area, during any period
of time or in any segment of the market or line of business.
SECTION 4.22 CERTAIN TAX MATTERS
Neither Company nor, to the best knowledge of Company, any of its affiliates
has taken or agreed to take any action (other than actions contemplated by this
Agreement) that could reasonably be expected to prevent this Merger from
constituting a "reorganization" under Section 368 of the Code.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Each of Parent and Merger Sub hereby represents and warrants to Company,
subject to the exceptions specifically disclosed in the Parent Disclosure
Schedule, all such exceptions to be referenced to a specific representation set
forth in this Article V, that:
SECTION 5.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES
(a) Parent and each directly and indirectly owned subsidiary of Parent,
including Merger Sub, (the "PARENT SUBSIDIARIES") has been duly organized and is
validly existing and in good standing (to the extent applicable) under the laws
of the jurisdiction of its incorporation or organization, as the case may be,
and has the requisite corporate power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted. Parent and each Parent Subsidiary,
including Merger Sub, is duly qualified or licensed to do business, and is in
good standing (to the extent applicable), in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that could not
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect.
(b) Schedule 5.01(b) of the Parent Disclosure Schedule sets forth, as of the
date of this Agreement, a true and complete list of each Parent Subsidiary,
together with (i) the jurisdiction of incorporation or organization of each
Parent Subsidiary and the percentage of each Parent Subsidiary's outstanding
capital stock or other equity interests owned by Parent or another Parent
Subsidiary and (ii) an indication of whether each Parent Subsidiary is a
"Significant Subsidiary" as defined in Regulation S-X under the Exchange Act.
Neither Parent nor any Parent Subsidiary owns an equity interest in any
partnership or joint venture arrangement or other business entity that is
material to the business, assets, liabilities, financial condition or results of
operations of Parent and the Parent Subsidiaries, taken as a whole.
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SECTION 5.2 CERTIFICATE OF INCORPORATION AND BYLAWS
The copies of each of Parent's and Merger Sub's certificate of incorporation
and bylaws previously provided to Company by Parent are true, complete and
correct copies thereof. Such certificates of incorporation and bylaws are in
full force and effect. Parent is not in violation of any of the provisions of
its certificate of incorporation or bylaws.
SECTION 5.3 CAPITALIZATION
The authorized capital stock of Parent consists of 60,000,000 shares of
Parent Common Stock and 2,000,000 shares of preferred stock, $0.01 par value per
share ("PARENT PREFERRED STOCK"), of which 400,000 shares of Parent Preferred
Stock are designated as Series A Junior Participating Preferred Stock pursuant
to a rights plan. As of the date hereof (i) 42,924,121 shares of Parent Common
Stock are issued and outstanding, all of which are validly issued, fully paid
and nonassessable, (ii) 2,001,480 shares of Parent Common Stock are held in the
treasury of Parent, (iii) no shares of Parent Common Stock are held by the
Parent Subsidiaries, (iv) 14,220,140 shares of Parent Common Stock are reserved
for future issuance pursuant to outstanding options and warrants to purchase
Parent Common Stock ("PARENT STOCK OPTIONS"), (v) no shares of Parent preferred
stock are issued and outstanding and (vi) 850,190 shares of Parent Common Stock
are reserved for issuance pursuant to the Parent ESPP, of which no shares have
been issued. Except for the shares of Parent Common Stock issuable pursuant to
the Parent Stock Plans and the Parent ESPP, there are no options, warrants or
other rights, agreements, arrangements or commitments of any character to which
Parent is a party or by which Parent is bound relating to the issued or unissued
capital stock of Parent or any Parent Subsidiary or obligating Parent or any
Parent Subsidiary to issue or sell any shares of capital stock of, or other
equity interests in, Parent or any Parent Subsidiary. All shares of Parent
Common Stock subject to issuance as aforesaid, upon issuance prior to the
Effective Time on the terms and conditions specified in the instruments pursuant
to which they are issuable, will be duly authorized, validly issued, fully paid
and nonassessable. There are no outstanding contractual obligations of Parent or
any Parent Subsidiary to repurchase, redeem or otherwise acquire any shares of
Parent Common Stock or any capital stock of any Parent Subsidiary. Each
outstanding share of capital stock of each Parent Subsidiary is duly authorized,
validly issued, fully paid and nonassessable and each such share owned by Parent
or another Parent Subsidiary is free and clear of all security interests, liens,
claims, pledges, options, rights of first refusal, agreements, limitations on
Parent's or such other Parent Subsidiary's voting rights, charges and other
encumbrances of any nature whatsoever. There are no material outstanding
contractual obligations of Parent or any Parent Subsidiary to provide funds to,
or make any material investment (in the form of a loan, capital contribution or
otherwise) in, any Parent Subsidiary or any other person.
SECTION 5.4 AUTHORITY RELATIVE TO THIS AGREEMENT
Each of Parent and Merger Sub has all necessary 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 each of Parent and Merger Sub and the
consummation by Parent and Merger Sub of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action, and no
other corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement or to consummate the transactions contemplated herein
(other than the approval of this Agreement and the issuance of shares of Parent
Common Stock hereunder (the "SHARE ISSUANCE") by the holders of a majority of
the outstanding shares of Parent Common Stock present at the Parent
Stockholders' Meeting (as defined in Section 7.01(a)) and the consent of Parent
as sole shareholder of Merger Sub). This Agreement has been duly executed and
delivered by each of Parent and Merger Sub and, assuming the due authorization,
execution and delivery by Company, constitutes a legal, valid and binding
obligation of
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each of Parent and Merger Sub enforceable against Parent and Merger Sub in
accordance with its terms except to the extent that enforceability thereof may
be limited by applicable bankruptcy, insolvency, reorganization and other
similar laws affecting the enforcement of creditors' rights generally and by
principles or equity regarding the availability of remedies.
SECTION 5.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS
(a) The execution and delivery of this Agreement by Parent and Merger Sub do
not, and the performance by Parent and Merger Sub of their obligations hereunder
and the consummation of the Merger will not, (i) conflict with or violate any
provision of the articles of incorporation or bylaws of Parent or any equivalent
organizational documents of any Parent Subsidiary, (ii) assuming that all
consents, approvals, authorizations and permits described in Section 5.05(b)
have been obtained and all filings and notifications described in Section
5.05(b) have been made, conflict with or violate in any material respect any Law
applicable to Parent or any other Parent Subsidiary or by which any property or
asset of Parent or any Parent Subsidiary is bound or affected or (iii) result in
any breach of or constitute a default (or an event which with the giving of
notice or lapse of time or both could reasonably be expected to become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of Parent or any Parent Subsidiary pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation.
(b) The execution and delivery of this Agreement by Parent and Merger Sub do
not, and the performance by Parent and Merger Sub of their obligations hereunder
and the consummation of the Merger will not, require any consent, approval,
authorization or permit of, or filing by Parent with or notification by Parent
to, any Governmental Entity, except pursuant to applicable requirements of the
Exchange Act, the Securities Act, Blue Sky Laws, the rules and regulations of
the NNM, the premerger notification requirements of the HSR Act, if any, and the
filing and recordation of the Certificate of Merger as required by the DGCL.
SECTION 5.6 PERMITS; COMPLIANCE WITH LAWS
Parent and the Parent Subsidiaries are in possession of all franchises,
grants, authorizations, licenses, establishment registrations, product listings,
permits, approvals and orders of any Governmental Entity necessary for Parent or
any Parent Subsidiary to own, lease and operate its properties and assets or
otherwise to carry on its business as it is now being conducted (collectively,
the "PARENT PERMITS"), and, as of the date of this Agreement, none of the Parent
Permits has been suspended or cancelled nor is any such suspension or
cancellation pending or, to the knowledge of Parent, threatened. Neither Parent
nor any Parent Subsidiary is in conflict with, or in default or violation of,
(i) any Law applicable to Parent or any Parent Subsidiary or by which any
property or asset of Parent or any Parent Subsidiary is bound or affected or
(ii) any Parent Permits, except for such conflicts, defaults or violations that
could not reasonably be expected to have, individually or in the aggregate, a
Parent Material Adverse Effect. Schedule 5.06 of the Parent Disclosure Schedule
sets forth, as of the date of this Agreement, all actions, proceedings,
investigations or surveys pending or, to the knowledge of Parent, threatened
against Parent or any Parent Subsidiary that could reasonably be expected to
result in the suspension or cancellation of any material Parent Permit. Since
June 30, 1996, neither Parent nor any Parent Subsidiary has received from any
Governmental Entity any written notification with respect to possible conflicts,
defaults or violations of Laws.
SECTION 5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except as otherwise set forth on Schedule 5.07 of the Parent Disclosure
Schedule, since June 30, 1998, Parent and the Parent Subsidiaries have conducted
their businesses only in the ordinary course consistent with past practice and,
since such date, there has not been (i) any Parent Material Adverse
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Effect, (ii) any event that could reasonably be expected to prevent or
materially delay the performance of Parent's obligations pursuant to this
Agreement and the consummation of the Merger by Parent, (iii) any material
change by Parent in its accounting methods, principles or practices, (iv) any
declaration, setting aside or payment of any dividend or distribution in respect
of the shares of Parent Common Stock or any redemption, purchase or other
acquisition of any of Parent's securities, (v) except in the ordinary course of
business consistent with past practice, any increase in the compensation or
benefits or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including,
without limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other employee
benefit plan, or any other increase in the compensation payable or to become
payable to any executive officers of Parent or any Parent Subsidiary, (vi) any
issuance or sale of any stock, notes, bonds or other securities other than
pursuant to the exercise of outstanding securities, or entering into any
agreement with respect thereto, (vii) any amendment to the Parent's certificate
of incorporation or bylaws, (viii) other than in the ordinary course of
business, any (x) purchase, sale, assignment or transfer of any material assets,
(y) mortgage, pledge or the institution of any lien, encumbrance or charge on
any material assets or properties, tangible or intangible, except for liens for
taxes not yet delinquent and such other liens, encumbrances or charges which do
not, individually or in the aggregate, have a Parent Material Adverse Effect, or
(z) waiver of any rights of material value or cancellation or any material debts
or claims, (ix) any incurrence of any material liability (absolute or
contingent), except for current liabilities and obligations incurred in the
ordinary course of business consistent with past practice, (x) any incurrence of
any damage, destruction or similar loss, whether or not covered by insurance,
materially affecting the business or properties of Parent or any Parent
Subsidiary, or (xi) any entering into any transaction of a material nature other
than in the ordinary course of business, consistent with past practices.
SECTION 5.8 SEC FILINGS; FINANCIAL STATEMENTS
(a) Parent has timely filed all forms, reports, statements and documents
required to be filed by it (A) with the SEC and the NNM since June 30, 1996
(collectively, together with any such forms, reports, statements and documents
Parent may file subsequent to the date hereof until the Closing, the "PARENT
REPORTS") and (B) since June 30, 1996, in all material respects, with any other
Governmental Entities. Each Parent Report (i) was prepared in accordance with
the requirements of the Securities Act, the Exchange Act or the NNM, as the case
may be, and (ii) did not at the time it was filed contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. Each form,
report, statement and document referred to in clause (B) of this paragraph was
prepared in all material respects in accordance with the requirements of
applicable Law. No Parent Subsidiary is subject to the periodic reporting
requirements of the Exchange Act or required to file any form, report or other
document with the SEC, the NNM, any other stock exchange or any other comparable
Governmental Entity.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the Parent Reports was prepared in accordance
with U.S. GAAP applied on a consistent basis throughout the periods indicated
(except as may be indicated in the notes thereto) and each presented fairly the
consolidated financial position of Parent and the Parent Subsidiaries as at the
respective dates thereof, and their consolidated results of operations,
stockholders' equity and cash flows for the respective periods indicated
therein, except as otherwise noted therein (subject, in the case of unaudited
statements, to normal and recurring immaterial year-end adjustments).
(c) Except as and to the extent set forth or reserved against on the
consolidated balance sheet of Parent and the Parent Subsidiaries as of June 30,
1998 as reported in the Parent Reports, none of Parent or any Parent Subsidiary
has any liabilities or obligations of any nature (whether accrued,
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absolute, contingent or otherwise) that would be required to be reflected on a
balance sheet or in notes thereto prepared in accordance with U.S. GAAP, except
for liabilities or obligations incurred in the ordinary course of business
consistent with past practice since June 30, 1998.
SECTION 5.9 CONTRACTS
Except as set forth in Schedule 5.09 of the Parent Disclosure Schedule,
neither Parent nor any Parent Subsidiary is in material violation of or default
under (nor does there exist any condition which with the passage of time or the
giving of notice could reasonably be expected to cause such a material violation
of or default under) any contract or agreement that is material to the business,
assets, liabilities, financial condition or results of operations of Parent and
Parent Subsidiaries taken as a whole (each, a "PARENT MATERIAL CONTRACT"). Each
Parent Material Contract is in full force and effect and is a legal, valid and
binding obligation of Parent or a Parent Subsidiary and, to the knowledge of
Company, each of the other parties thereto, enforceable in accordance with its
terms, except to the extent that enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by principles of
equity regarding the availability of remedies.
SECTION 5.10 EMPLOYEE BENEFIT PLANS; LABOR MATTERS
(a) The Parent Disclosure Schedule lists each employee benefit fund, plan,
program, and arrangement (including, without limitation, any "pension" plan,
fund or program, as defined in Section 3(2) of ERISA, and any "employee benefit
plan", as defined in Section 3(3) of ERISA and any plan, program or arrangement
providing for severance; medical, dental or vision benefits; life insurance or
death benefits; disability benefits, sick pay or other wage replacement;
vacation, holiday or sabbatical; pension or profit-sharing benefits; stock
options or other equity compensation; bonus or incentive pay or other material
fringe benefits) maintained, sponsored or contributed to or required to be
contributed to by Parent or any Parent Subsidiary (the "PARENT BENEFIT PLANS").
With respect to each Parent Benefit Plan, Parent has delivered or made available
to Company a true, complete and correct copy of a summary of such Parent Benefit
Plan.
(b) Each Parent Benefit Plan has been administered in all material respects
in accordance with its terms and all applicable laws, including, without
limitation, ERISA and the Code, and all contributions required to be made under
the terms of any of the Parent Benefit Plans as of the date of this Agreement
have been timely made or, if not yet due, have been reflected on the most recent
consolidated balance sheet filed or incorporated by reference in the Parent
Reports prior to the date of this Agreement. With respect to the Parent Benefit
Plans, no event has occurred and, to the knowledge of Parent, there exists no
condition or set of circumstances in connection with which Parent or any Parent
Subsidiary could be subject to any material liability (other than for routine
benefit liabilities) under the terms of, or with respect to, such Parent Benefit
Plans, ERISA, the Code or any other applicable Law.
(c) Parent, on behalf of itself and all of the Parent Subsidiaries, hereby
represents that: (i) each Parent Benefit Plan which is intended to be qualified
under Section 401(a), 401(k), 401(m) or 4975(e)(6) of the Code has received or
is currently awaiting receipt of a favorable determination letter from the IRS
as to its qualified status under the Code, and each trust established in
connection with any Parent Benefit Plan which is intended to be exempt from
federal income taxation under Section 501(a) of the Code has received a
determination letter from the IRS that it is so exempt, and to Parent's
knowledge no fact or event has occurred that could adversely affect the
qualified status of any such Parent Benefit Plan or the exempt status of any
such trust; and (ii) to Parent's knowledge there has been no prohibited
transaction (within the meaning of Section 406 of ERISA or Section 4975 of the
Code and other than a transaction that is under a statutory or administrative
exemption) with respect to any Parent Benefit Plan that could result in material
liability to the Parent or any Parent
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Subsidiaries. No suit, administrative proceeding, action or other litigation has
been brought, or to the knowledge of Parent is threatened, against or with
respect to any such Parent Benefit Plan, including any audit or inquiry by the
Internal Revenue Service or United States Department of Labor (other than
routine benefits claims).
(d) No Parent Benefit Plan is a multiemployer pension plan (as defined in
Section 3(37) of ERISA) or other pension plan subject to Title IV of ERISA and
neither the Parent, Parent Subsidiary nor any other trade or business (whether
or not incorporated) that is under "common control" with Parent or a Parent
Subsidiary (within the meaning of Section 4001(b) of ERISA) or with respect to
which Parent or any Parent Subsidiary could otherwise incur liability under
Title IV of ERISA (a "PARENT ERISA AFFILIATE") has sponsored or contributed to
or been required to contribute to a multiemployer pension plan or other pension
plan subject to Title IV of ERISA. No material liability under Title IV of ERISA
has been incurred by Parent, any Parent Subsidiary or any Parent ERISA Affiliate
that has not been satisfied in full, and no condition exists that presents a
material risk to Parent or any Parent Subsidiary of incurring or being subject
(whether primarily, jointly or secondarily) to a material liability thereunder.
None of the assets of Parent or any Parent Subsidiary is, or may reasonably be
expected to become, the subject of any lien arising under ERISA or Section
412(n) of the Code.
(e) With respect to each Parent Benefit Plan required to be set forth in the
Parent Disclosure Schedule that is subject to Title IV or Part 3 of Title I of
ERISA or Section 412 of the Code, (i) no reportable event (within the meaning of
Section 4043 of ERISA, other than an event that is not required to be reported
before or within 30 days of such event) has occurred or is expected to occur,
(ii) there was not an accumulated funding deficiency (within the meaning of
Section 302 of ERISA or Section 412 of the Code), whether or not waived, as of
the most recently ended plan year of such Parent Benefit Plan; and (iii) there
is no "unfunded benefit liability" (within the meaning of Section 4001(a)(18) of
ERISA).
(f) Neither Parent nor any Parent Subsidiary is a party to any collective
bargaining or other labor union contract applicable to persons employed by
Parent or any Parent Subsidiary and no collective bargaining agreement is being
negotiated by Parent or any Parent Subsidiary. As of the date of this Agreement,
there is no labor dispute, strike or work stoppage against Parent or any Parent
Subsidiary pending or, to the knowledge of Parent, threatened which may
interfere with the respective business activities of Parent or any Parent
Subsidiary. As of the date of this Agreement, to the knowledge of Parent, none
of Parent, any Parent Subsidiary, or any of their respective representatives or
employees has committed any unfair labor practice in connection with the
operation of the respective businesses of Parent or any Parent Subsidiary, and
there is no charge or complaint against Parent or any Parent Subsidiary by the
National Labor Relations Board or any comparable Governmental Entity pending or
threatened in writing.
(g) Except as required by Law or as set forth in Schedule 5.10(g) of the
Parent Disclosure Schedule, no Parent Benefit Plan provides any of the following
retiree benefits to any person: medical, disability or life insurance benefits.
To Parent's knowledge, Parent and the Parent ERISA Affiliates are in material
compliance with (i) the requirements of the applicable health care continuation
and notice provisions of COBRA and the regulations (including proposed
regulations) thereunder and (ii) the applicable requirements of the Health
Insurance Portability and Accountability Act of 1996 and the regulations
(including the proposed regulations) thereunder.
SECTION 5.11 LITIGATION
Except as set forth in the Parent Disclosure Schedule, there is no suit,
claim, action, proceeding or investigation pending or, to the knowledge of
Parent, threatened against Parent or any Parent Subsidiary that could reasonably
be expected to have, individually or in the aggregate, a Parent
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Material Adverse Effect or materially impair Parent's ability to consummate the
transactions contemplated herein, and, to the knowledge of Parent, there are no
existing facts or circumstances that could reasonably be expected to result in
such a suit, claim, action, proceeding or investigation. Parent is not aware of
any facts or circumstances which could reasonably be expected to result in the
denial of insurance coverage under policies issued to Parent and Parent
Subsidiaries in respect of such suits, claims, actions, proceedings and
investigations, except in any case as could not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect. Neither
Parent nor any Parent Subsidiary is subject to any outstanding order, writ,
injunction or decree which could reasonably be expected to have, individually or
in the aggregate, a Parent Material Adverse Effect or materially impair Parent's
ability to consummate the transactions contemplated herein.
SECTION 5.12 TAXES
Except in those instances that would not result in a Parent Material Adverse
Effect:
(a) Parent and each of Parent Subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which Parent or any
Parent Subsidiary is or has been a member, have properly completed and
timely filed all Tax Returns required to be filed by them and have paid all
Taxes shown thereon to be due;
(b) Parent has provided adequate accruals in accordance with generally
accepted accounting principles in its June 30, 1998 balance sheet contained
in the Parent Reports for any Taxes that have not been paid, whether or not
shown as being due on any Tax Returns; and
(c) Parent and the Parent Subsidiaries have no material liability for
unpaid Taxes accruing after June 30, 1998.
SECTION 5.13 BROKERS
No broker, finder or investment banker (other than I C Advisors (the "PARENT
FINANCIAL ADVISOR")) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger based upon arrangements made by or on
behalf of Parent. Parent has heretofore made available to Company true, complete
and correct copies of all agreements between Parent and Parent Financial Advisor
pursuant to which such firm would be entitled to any payment relating to the
Merger.
SECTION 5.14 CERTAIN BUSINESS PRACTICES
Neither Parent nor any Parent Subsidiary nor any directors, officers, agents
or employees of Parent or any Parent Subsidiary (in their capacities as such)
has (a) used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity or (b) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns or violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended.
SECTION 5.15 NO PRIOR ACTIVITIES
Except for liabilities incurred in connection with its incorporation or
organization, and consummation of this Agreement and the transactions
contemplated hereby, Merger Sub has not incurred any liabilities, and has not
engaged in any business or activities of any type or kind whatsoever or entered
into any agreements or arrangements with any person or entity. Merger Sub is a
wholly owned subsidiary of Parent.
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SECTION 5.16 INTELLECTUAL PROPERTY
(a) All trademarks, trade names, service marks, trade dress, and all
goodwill associated with any of the foregoing, patents, Internet domain names,
copyrights and any renewal rights therefor, technology, supplier lists, trade
secrets, know-how, computer software programs or applications in both source and
object code form, technical documentation of such software programs,
registrations and applications for any of the foregoing and all other tangible
or intangible proprietary information or materials that are or have been used
(including without limitation in the development of) Parent's business and/or in
any product, technology or process (i) currently being or formerly manufactured,
published or marketed by Parent or (ii) previously or currently under
development for possible future manufacturing, publication, marketing or other
use by Parent are hereinafter referred to as the "PARENT INTELLECTUAL PROPERTY."
(b) Parent has all rights in Parent Intellectual Property necessary to carry
out Parent's current activities. Except as set forth in Schedule 5.16(b), no
claims have been asserted or threatened against Parent that challenge the
validity or ownership of any Parent Intellectual Property or allege that the
use, reproduction, manufacturing, distribution, licensing, sublicensing or sale
of Parent Intellectual Property infringes on any intellectual property or
proprietary right of any person or constitutes a misappropriation of any trade
secret. All of Parent's patents, patent applications, registered trademarks and
trademark applications and registered copyrights are in good standing with all
fees and filings due as of the Closing duly made. Parent owns full and
unencumbered rights and good, valid and marketable title to all of Parent's
internally developed software.
(c) The software programs developed by Parent (i) have been designed to
ensure year 2000 compatibility, which includes, but is not limited to, being
able to provide specific dates and calculate spans of dates within and between
twentieth century and twenty-first century, prior to, including and following
January 1, 2000; (ii) operate and will operate in accordance with their
specifications and correctly process day and date calculations for dates prior
and up to December 31, 1999, and on and after January 1, 2000, prior to, during
and after the calendar year 2000; and (iii) shall not end abnormally or provide
invalid or incorrect results as a result of date data, specifically including
date data which represents or references different centuries or more than one
century.
(d) The integrated circuits developed by Parent (i) operate and will operate
in accordance with their specifications and correctly process day and date
calculations for dates prior and up to December 31, 1999, and on and after
January 1, 2000, prior to, during and after the calendar year 2000; and (ii)
shall not end abnormally or provide invalid or incorrect results as a result of
date data, specifically including date data which represents or references
different centuries or more than one century.
SECTION 5.17 BUSINESS ACTIVITY RESTRICTION
Except as set forth in Schedule 5.17 of the Parent Disclosure Schedule,
there is no non-competition or other similar agreement, commitment, judgment,
injunction, order or decree to which Parent or any Parent Subsidiary is a party
or subject to that has or could reasonably be expected to have the effect of
prohibiting or impairing the conduct of business by Parent. Parent has not
entered into any material agreement under which Parent is restricted from
selling, licensing or otherwise distributing any of its technology or products
to, or providing services to, customers or potential customers or any class of
customers, in any geographic area, during any period of time or in any segment
of the market or line of business.
SECTION 5.18 CERTAIN TAX MATTERS
Neither Parent nor, to the best knowledge of Parent, any of its affiliates
has taken or agreed to take any action (other than actions contemplated by this
Agreement) that could reasonably be expected to prevent the Merger from
constituting a "reorganization" under Section 368 of the Code.
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SECTION 5.19 PARENT COMMON STOCK
The shares of Parent Common Stock to be issued pursuant to the Merger, when
issued, will be duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights created by statute, Parent's certificate of
incorporation or bylaws or any agreement which Parent is a party or by which
Parent is bound, and will, when issued, be registered under the Securities Act
and the Exchange Act and registered or exempt from registration under applicable
blue sky laws.
SECTION 5.20 AVAILABILITY OF FUNDS
Parent will have available to it, at the Effective Time, sources of capital
and financing or cash on hand sufficient to pay the cash portion of the
consideration to be paid pursuant to Section 3.01(a) and to pay any other
amounts payable pursuant to this Agreement and to effect the transactions
contemplated hereby.
ARTICLE VI
COVENANTS
SECTION 6.1 CONDUCT OF BUSINESS BY COMPANY PENDING THE CLOSING
Company agrees that, between the date of this Agreement and the Effective
Time, unless Parent shall otherwise agree in writing, or except as set forth in
Section 6.01 of the Company Disclosure Schedule or as otherwise provided for in
this Agreement (x) the respective businesses of Company and the Company
Subsidiaries shall be conducted only in, and Company and the Company
Subsidiaries shall not take any action except in, the ordinary course of
business consistent with past practice and (y) Company shall use all reasonable
efforts to keep available the services of such of the current officers,
significant employees and consultants of Company and the Company Subsidiaries
and to preserve the current relationships of Company and the Company
Subsidiaries with such of the corporate partners, customers, suppliers and other
persons with which Company or any Company Subsidiary has significant business
relations in order to preserve substantially intact its business organization.
Without limitation, neither Company nor any Company Subsidiary shall, between
the date of this Agreement and the Effective Time, except as set forth in
Schedule 6.01 of the Company Disclosure Schedule or as otherwise provided for in
this Agreement, directly or indirectly, do, or agree to do, any of the following
without the prior written consent of Parent:
(a) amend or otherwise change its certificate of incorporation or bylaws
or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee or encumber, or authorize the issuance, sale, pledge, disposition,
grant, transfer, lease, license or encumbrance of, (i) any shares of capital
stock of Company or any Company Subsidiary of any class, or securities
convertible into or exchangeable or exercisable for any shares of such
capital stock, or any options, warrants or other rights of any kind to
acquire any shares of such capital stock, or any other ownership interest
(including, without limitation, any phantom interest), of Company or any
Company Subsidiary, other than the issuance of shares of Company Common
Stock pursuant to the exercise of stock options therefor outstanding as of
the date of this Agreement or the grant after the date hereof of Company
Stock Options, whether or not granted pursuant to any Company Stock Plans,
in the ordinary course of business consistent with past practice (provided,
that such additional amount of Company Common Stock subject to such Company
Stock Options shall not exceed 300,000 shares in the aggregate), and the
issuance of shares of Company Common Stock pursuant to such options, or
except pursuant to the Rights Agreement or (ii) any material property or
assets of Company or any Company Subsidiary except (A) transactions pursuant
to existing contracts, (B) transactions in the ordinary course of business
consistent with past practice
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and (C) shares of Company Common Stock issued pursuant to the Company ESPP
in the ordinary course of business consistent with past practice;
(c) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization or person or any
division thereof, other than the purchase of assets in the ordinary course
of business consistent with past practice; (ii) incur any indebtedness for
borrowed money (other than indebtedness with respect to working capital in
amounts consistent with past practice) or issue any debt securities or
assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person (other than a Company
Subsidiary) for borrowed money or make any loans or advances material to the
business, assets, liabilities, financial condition or results of operations
of Company and the Company Subsidiaries, taken as a whole; (iii) terminate,
cancel or request any material change in, or agree to any material change
in, any Company Material Contract or other material License Agreement (it
being understood that no consent of Parent shall be required for Company to
enter into any enhancement of such agreements or additional agreements in
the ordinary course of business); (iv) make or authorize any capital
expenditure, other than capital expenditures in the ordinary course of
business consistent with past practice that are not, in the aggregate, in
excess of $300,000 for Company and the Company Subsidiaries taken as a
whole; or (v) enter into or amend any contract, agreement, commitment or
arrangement that, if fully performed, would not be permitted under this
Section 6.01(c);
(d) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock, except that any Company Subsidiary may pay dividends or make
other distributions to Company or any other Company Subsidiary;
(e) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock except
repurchases of unvested shares at cost in connection with the termination of
the employment relationship with any employee pursuant to stock option or
purchase agreements in effect on the date hereof;
(f) amend or change the period (or permit any acceleration, amendment or
change) of exercisability of options granted under the Company Stock Plans
or authorize cash payments in exchange for any Company Stock Options granted
under any of such plans;
(g) amend the terms of, repurchase, redeem or otherwise acquire, or
permit any Company Subsidiary to repurchase, redeem or otherwise acquire,
any of its securities or any securities of any Company Subsidiary;
(h) except as set forth in Section 6.08, increase the compensation
payable or to become payable to its directors, officers, consultants or
employees, grant any rights to severance or termination pay to, or enter
into any employment or severance agreement which provides benefits upon a
change in control of Company that would be triggered by the Merger with, any
director, officer, consultant or other employee of Company or any Company
Subsidiary who is not currently entitled to such benefits from the Merger,
establish, adopt, enter into or amend any collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any director, officer, consultant or employee of Company or
any Company Subsidiary, except to the extent required by applicable Law or
the terms of a collective bargaining agreement, or enter into or amend any
contract, agreement, commitment or arrangement between Company or any
Company Subsidiary and any of Company's directors, officers, consultants or
employees, except for increases in compensation paid and bonuses payable to
persons who are not directors of Company in the ordinary course of business
consistent with past practice;
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(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction of claims, liabilities or
obligations (A) in the ordinary course of business and consistent with past
practice or (B) claims, liabilities or obligations reflected on the 1998
Balance Sheet or (C) as otherwise set forth on Schedule 6.01 of the Company
Disclosure Schedule;
(j) except as required by any Governmental Entity, make any material
change with respect to Company's accounting policies, principles, methods or
procedures, including, without limitation, revenue recognition policies,
other than as required by U.S. GAAP;
(k) make any material Tax election or settle or compromise any material
Tax liability; or
(l) authorize or enter into any formal or informal agreement or
otherwise make any commitment to do any of the foregoing or to take any
action which would make any of the representations or warranties of Company
contained in this Agreement untrue or incorrect or prevent Company from
performing or cause Company not to perform its covenants hereunder or result
in any of the conditions to the Merger set forth herein not being satisfied.
SECTION 6.2 NOTICES OF CERTAIN EVENTS
Each of Parent and Company shall give prompt notice to the other of (i) any
notice or other communication from any person alleging that the consent of such
person is or may be required in connection with the Merger; (ii) any notice or
other communication from any Governmental Entity in connection with the Merger;
(iii) any actions, suits, claims, investigations or proceedings commenced or, to
its knowledge, threatened against, relating to or involving or otherwise
affecting Parent or the Parent Subsidiaries or Company or the Company
Subsidiaries, respectively, which, if pending on the date hereof, would have
been required to have been disclosed in this Agreement, or that relate to the
consummation of the Merger; (iv) the occurrence of a default or event that, with
the giving of notice or lapse of time or both, will become a default under any
Parent Material Contract or Company Material Contract, respectively; and (v) any
change that could reasonably be expected to have a Parent Material Adverse
Effect or a Company Material Adverse Effect, respectively, or to delay or impede
the ability of either Parent or Company, respectively, to perform their
respective obligations pursuant to this Agreement and to effect the consummation
of the Merger.
SECTION 6.3 ACCESS TO INFORMATION; CONFIDENTIALITY
(a) Except as required pursuant to any confidentiality agreement or similar
agreement or arrangement to which Parent or Company or any of the Parent
Subsidiaries or the Company Subsidiaries is a party or pursuant to applicable
Law or the regulations or requirements of any stock exchange or other regulatory
organization with whose rules a party hereto is required to comply, from the
date of this Agreement to the Effective Time, Parent and Company shall (and
shall cause the Parent Subsidiaries and Company Subsidiaries, respectively, to)
(i) provide to the other (and its officers, directors, employees, accountants,
consultants, legal counsel, agents and other representatives (collectively,
"REPRESENTATIVES")) access at reasonable times upon prior notice to its and its
subsidiaries' officers, employees, agents, properties, offices and other
facilities and to the books and records thereof, and (ii) furnish promptly such
information concerning its and its subsidiaries' business, properties,
contracts, assets, liabilities and personnel as the other party or its
Representatives may reasonably request. No investigation conducted pursuant to
this Section 6.03 shall affect or be deemed to modify any representation or
warranty made in this Agreement.
(b) The parties hereto shall comply with, and shall cause their respective
Representatives to comply with, all of their respective obligations under the
Confidentiality Agreement with respect to the information disclosed pursuant to
this Section 6.03.
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SECTION 6.4 NO SOLICITATION OF TRANSACTIONS
Company shall not, directly or indirectly, and shall cause its
Representatives not to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing nonpublic information), any inquiries or the
making of any proposal or offer (including, without limitation, any proposal or
offer to its stockholders) that constitutes, or may reasonably be expected to
lead to, any Company Competing Transaction, or enter into or maintain or
continue discussions or negotiate with any person in furtherance of such
inquiries or to obtain a Company Competing Transaction, or agree to or endorse
any Company Competing Transaction, or authorize or permit any of Company's
Representatives or subsidiaries, or any Representative retained by Company's
subsidiaries, to take any such action; provided, however, that nothing contained
in this Section 6.04 shall prohibit the board of directors of Company (i) from
complying with Rule 14d-9 or 14e-2(a) promulgated under the Exchange Act with
regard to a tender or exchange offer not made in violation of this Section 6.04
or (ii) prior to receipt of the approval by the stockholders of Company of this
Agreement and the Merger from providing information (subject to a
confidentiality agreement at least as restrictive, in all material respects, as
the Confidentiality Agreement) in connection with, and negotiating, another
unsolicited, bona fide written proposal regarding a Company Competing
Transaction that (A) Company's board of directors shall have determined in good
faith, after considering applicable state law, based upon the advice of
independent outside counsel of nationally recognized reputation, that such
action is required in order for the board of directors of Company to comply with
its fiduciary duties to Company's stockholders under applicable law, (B) if any
cash consideration is involved, shall not be subject to any financing
contingency, and with respect to which Company's board of directors shall have
determined in the proper exercise of its fiduciary duties to Company's
stockholders that the acquiring party is reasonably capable of consummating such
Company Competing Transaction on the terms proposed, and (C) Company's board of
directors shall have determined in its good faith judgment (based upon the
advice of Company's independent financial advisors of nationally recognized
reputation) that such Company Competing Transaction provides greater value, in
the aggregate, to the stockholders of Company than the Merger (any such Company
Competing Transaction being referred to herein as a "COMPANY SUPERIOR
PROPOSAL"). Company shall notify Parent promptly if any proposal or offer, or
any inquiry or contact with any person with respect thereto, regarding a Company
Competing Transaction is made, such notice to include the identity of the person
making such proposal, offer, inquiry or contact, and the terms of such Company
Competing Transaction. Company immediately shall cease and cause to be
terminated all existing discussions or negotiations with any parties conducted
heretofore with respect to a Company Competing Transaction. Company shall not
release any third party from, or waive any provision of, any confidentiality or
standstill agreement to which it is a party.
SECTION 6.5 CONTROL OF OPERATIONS
Nothing contained in this Agreement shall give Parent, directly or
indirectly, the right to control or direct the operations of Company and the
Company Subsidiaries prior to the Effective Time. Prior to the Effective Time,
Company shall exercise, consistent with the terms and conditions of this
Agreement, complete control and supervision over its operations.
SECTION 6.6 FURTHER ACTION; CONSENTS; FILINGS
(a) Upon the terms and subject to the conditions hereof, each of the parties
hereto shall use all reasonable efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper or
advisable under applicable Law or otherwise to consummate and make effective the
Merger, (ii) obtain from Governmental Entities any consents, licenses, permits,
waivers, approvals, authorizations or orders required to be obtained or made by
Parent or Company or any of their respective subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the Merger and (iii) make all necessary filings, and thereafter
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make any other required or appropriate submissions, with respect to this
Agreement and the Merger required under (A) the rules and regulations of the
NNM, (B) the Securities Act, the Exchange Act and any other applicable Federal
or state securities Laws, (C) the HSR Act, if any, and (D) any other applicable
Law. The parties hereto shall cooperate and consult with each other in
connection with the making of all such filings, including by providing copies of
all such documents to the nonfiling parties and their advisors prior to filing,
and none of the parties shall file any such document if any of the other parties
shall have reasonably objected to the filing of such document. No party shall
consent to any voluntary extension of any statutory deadline or waiting period
or to any voluntary delay of the consummation of the Merger at the behest of any
Governmental Entity without the consent and agreement of the other parties
hereto, which consent shall not be unreasonably withheld or delayed.
(b) Each of Company and Parent will give (or will cause their respective
subsidiaries to give) any notices to third persons, and use, and cause their
respective subsidiaries to use, reasonable efforts to obtain any consents from
third persons necessary, proper or advisable to consummate the transactions
contemplated by this Agreement.
(c) From the date of this agreement until the Effective Time, each of
Company and Parent covenants and agrees that it will not (i) knowingly take any
action that could reasonably be expected to prevent the Merger from constituting
a transaction qualifying under Section 368(a) of the Code; and (ii) take any
action which would make any of the representations or warranties made by it
contained in this Agreement untrue and incorrect or prevent it from performing
or cause it not to perform its covenants hereunder or result in any of the
conditions to the Merger set forth herein not being satisfied.
SECTION 6.7 ADDITIONAL REPORTS
Company and Parent shall each furnish to the other copies of any reports of
the type referred to in Sections 4.07 and 5.06, which it files with the SEC on
or after the date hereof, and Company and Parent, as the case may be, covenant
and warrant that as of the respective dates thereof, such reports will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Any
unaudited consolidated interim financial statements included in such reports
(including any related notes and schedules) will fairly present the financial
position of Company and its consolidated subsidiaries or Parent and its
consolidated subsidiaries, as the case may be, as of the dates thereof and the
results of operations and changes in financial position or other information
including therein for the periods or as of the date then ended (subject, where
appropriate, to normal year-end adjustments), in each case in accordance with
past practice and U.S. GAAP consistently applied during the periods involved
(except as otherwise disclosed in the notes thereto).
SECTION 6.8 EMPLOYEE RETENTION
(a) As promptly as practicable after the date hereof, Company shall offer to
up to 15 employees of Company designated by Parent retention bonuses in an
aggregate amount of not more than $300,000 payable to such employees if they
remain employed by Company at the Effective Time.
(b) Company shall use its best efforts to cause the employees of Company set
forth on Schedule 6.08(b) to agree upon arrangements satisfactory to Parent and
such employees for such employees to remain employed or engaged by the Surviving
Corporation during a post-closing transition period to assist Parent in
integrating the Surviving Corporation with the Parent.
SECTION 6.9 THIRD PARTY CONSENTS
Company shall use its commercially reasonable efforts to obtain the consent
or approval or confirmation or other reasonable comfort of those persons listed
on Schedule 6.09 with respect to the continuing relationship of Company and such
parties under existing contracts and arrangements following the Effective Time.
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ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 REGISTRATION STATEMENT; PROXY STATEMENT
(a) As promptly as practicable after the execution of this Agreement, Parent
and Company shall jointly prepare and shall file with the SEC a document or
documents that will constitute (i) the prospectus forming part of the
registration statement on Form S-4 of Parent (together with all amendments
thereto, the "REGISTRATION STATEMENT"), in connection with the registration
under the Securities Act of Parent Common Stock to be issued to Company's
stockholders pursuant to the Merger and (ii) the joint proxy statement with
respect to the Merger relating to the special meeting of Company's stockholders
to be held to consider approval of this Agreement and the Merger (the "COMPANY
STOCKHOLDERS' MEETING") and of Parent's stockholders (the "PARENT STOCKHOLDERS'
MEETING") to be held to consider approval of the Share Issuance (together with
any amendments thereto, the "JOINT PROXY STATEMENT"). Copies of the Joint Proxy
Statement shall be provided to the NNM in accordance with its rules. With the
cooperation of Company, Parent shall use its best efforts to cause the
Registration Statement to become effective as promptly as practicable after the
date hereof, and, prior to the effective date of the Registration Statement,
Parent shall, with the cooperation of the Company, take all action required
under any applicable Laws in connection with the issuance of shares of Parent
Common Stock pursuant to the Merger. Parent or Company, as the case may be,
shall furnish all information concerning Parent or Company as the other party
may reasonably request in connection with such actions and the preparation of
the Registration Statement and the Joint Proxy Statement. Each of Parent and
Company shall notify the other of the receipt of any comments from the SEC on
the Registration Statement and the Joint Proxy Statement and of any requests by
the SEC for any amendments or supplements thereto or for additional information
and shall provide to each other promptly copies of all correspondence between
Parent, Company or any of their representatives and advisors and the SEC. As
promptly as practicable after the effective date of the Registration Statement,
the Joint Proxy Statement shall be mailed to the stockholders of Company and of
Parent. Each of Parent and Company shall cause the Proxy Statement to comply as
to form and substance as to such party in all material respects with the
applicable requirements of (i) the Exchange Act, (ii) the Securities Act, (iii)
the rules and regulations of the NNM.
(b) The Joint Proxy Statement shall include (i) the approval of the Merger
and the recommendation of the board of directors of Company to Company's
stockholders that they vote in favor of approval of this Agreement and the
Merger, and (ii) the opinion of Company Financial Advisor referred to in Section
4.19 or any updated version thereof. The Joint Proxy Statement shall include the
approval of the Share Issuance and the recommendation of the board of directors
of Parent or Parent's stockholders that they vote in favor of the Share
Issuance.
(c) No amendment or supplement to the Joint Proxy Statement or the
Registration Statement shall be made without the approval of Parent and Company,
which approval shall not be unreasonably withheld or delayed. Each of the
parties hereto shall advise the other parties hereto, promptly after it receives
notice thereof, of the time when the Registration Statement has become effective
or any supplement or amendment has been filed, of the issuance of any stop
order, of the suspension of the qualification of the Parent Common Stock
issuable in connection with the Merger for offering or sale in any jurisdiction,
or of any request by the SEC for amendment of the Proxy Statement or the
Registration Statement or comments thereon and responses thereto or requests by
the SEC for additional information.
(d) None of the information supplied by Company for inclusion or
incorporation by reference in the Registration Statement or the Joint Proxy
Statement shall, at the respective times filed with the SEC or other regulatory
agency and, in addition, (A) in the case of the Joint Proxy Statement, at the
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date it or any amendments or supplements thereto are mailed to stockholders of
Parent and Company, at the time of the Company Stockholders' Meeting, at the
time of the Parent Stockholder's Meeting, and at the Effective Time and (B) in
the case of the Registration Statement, when it becomes effective under the
Securities Act and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time any event or circumstance relating to Company or any Company
Subsidiary, or their respective officers or directors, should be discovered by
Company that should be set forth in an amendment or a supplement to the
Registration Statement or the Joint Proxy Statement, Company shall promptly
inform Parent. All documents that Company is responsible for filing with the SEC
in connection with the Merger will comply as to form in all material respects
with the applicable requirements of the rules and regulations of the Securities
Act and the Exchange Act.
(e) None of the information supplied by Parent for inclusion or
incorporation by reference in the Registration Statement or the Joint Proxy
Statement shall, at the respective times filed with the SEC or other regulatory
agency and, in addition, (A) in the case of the Joint Proxy Statement, at the
date it or any amendments or supplements thereto are mailed to stockholders of
Parent and Company, at the time of Company Stockholders' meeting, at the time of
the Parent Stockholders' Meeting and at the Effective Time and (B) in the case
of the Registration Statement, when it becomes effective under the Securities
Act and at the Effective Time, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. If, at any time prior to the Effective Time, any
event or circumstance relating to Parent or any Parent Subsidiary, or their
respective officers or directors, should be discovered by Parent that should be
set forth in an amendment or a supplement to the Registration Statement or the
Joint Proxy Statement, Parent shall promptly inform Company. All documents that
Parent is responsible for filing with the SEC in connection with the Merger will
comply as to form in all material respects with the applicable requirements of
the rules and regulations of the Securities Act and the Exchange Act.
SECTION 7.2 STOCKHOLDERS' MEETINGS
Company shall call and hold the Company Stockholders' Meeting and Parent
shall call and hold the Parent Stockholders' Meeting as promptly as practicable
after the date hereof for the purpose of voting upon the approval of this
Agreement and the Merger or the Share Issuance, as the case may be, pursuant to
the Joint Proxy Statement, and Company and Parent shall use all reasonable
efforts to hold the Parent Stockholders' Meeting and the Company Stockholders'
Meeting as soon as practicable after the date on which the Registration
Statement becomes effective and, to the extent practicable, such stockholders'
meetings shall be held on the same day. Except as otherwise contemplated by this
Agreement, Company shall use all reasonable efforts to solicit from its
stockholders proxies in favor of the approval of this Agreement and the Merger
pursuant to the Joint Proxy Statement and shall take all other action necessary
or advisable to secure the vote or consent of stockholders required by the DGCL
or applicable other stock exchange requirements to obtain such approval. Except
as otherwise contemplated by this Agreement, Parent shall use all reasonable
efforts to solicit from its stockholders proxies in favor of the Share Issuance
pursuant to the Joint Proxy Statement and shall take all other action necessary
or advisable to secure the consent of stockholders required by NNM or the DGCL
to obtain such approval.
SECTION 7.3 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE
(a) The provisions with respect to indemnification that are set forth in the
certificate of incorporation and bylaws of the Surviving Corporation shall not
be amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would affect adversely
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the rights thereunder of individuals who at or at any time prior to the
Effective Time were directors, officers, employees or agents of Company.
(b) From and after the Effective Time, Parent shall indemnify and hold
harmless each present and former director and officer of Company (the
"INDEMNIFIED PARTIES"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "COSTS") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters relating to their service
as such an officer or director existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that Company would have been permitted under
Delaware law and its charter documents (each as in effect on the date hereof) to
indemnify such Indemnified Parties.
(c) For a period of six years after the Effective Time, Parent shall
maintain in effect the directors' and officers' liability insurance policies
maintained by Company; provided, however, that in no event shall Parent be
required to expend in any one year in excess of 150% of the annual premium
currently paid by Company for such coverage, and provided further, that if the
premium for such coverage exceeds such amount, Parent shall purchase a policy
with the greatest coverage available for such 150% of the annual premium.
(d) If the Surviving Corporation or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then and in each such case, proper provision shall be made so that the
successors and assigns of the Surviving Corporation assume the obligations set
forth in this Section 7.03.
(e) The provisions of this Section 7.03 are intended to be for the benefit
of, and enforceable by, each Indemnified Party and his or her heirs and
representatives, and nothing herein shall affect any indemnification rights that
any Indemnified Party and his or her heirs and representatives may have under
the certificate of incorporation or bylaws of Company or any Company subsidiary,
any contract or applicable law.
SECTION 7.4 NO SHELF REGISTRATION
Parent shall not be required to amend or maintain the effectiveness of the
Registration Statement for the purpose of permitting resale of the shares of
Parent Common Stock received pursuant hereto by the persons who may be deemed to
be "affiliates" of Company within the meaning of Rule 145 promulgated under the
Securities Act.
SECTION 7.5 PUBLIC ANNOUNCEMENTS
The initial press release concerning the Merger shall be a joint press
release and, thereafter, Parent and Company shall consult with each other before
issuing any press release or otherwise making any public statements with respect
to this Agreement or the Merger and shall not issue any such press release or
make any such public statement without the prior written approval of the other,
except to the extent required by applicable Law or the requirements of the rules
and regulations of the NNM, in which case the issuing party shall use all
reasonable efforts to consult with the other party before issuing any such
release or making any such public statement.
SECTION 7.6 NNM LISTING
Prior to the Effective Time, Parent shall file with the NNM a Notification
Form for Listing of Additional Shares with respect to the Parent Common Stock
issued or issuable in connection with the
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Merger and shall use its best efforts to have such Parent Common Stock approved
for quotation on the NNM.
SECTION 7.7 BLUE SKY
Parent shall use its best efforts to obtain prior to the Effective Time all
necessary permits and approvals required under Blue Sky Laws to permit the
distribution of the shares of Parent Common Stock to be issued in accordance
with the provisions of this Agreement.
SECTION 7.8 COMPANY STOCK OPTIONS/REGISTRATION STATEMENTS ON FORM S-8
Parent shall reserve for issuance the number of shares of Parent Common
Stock that will be issuable upon exercise of Company Stock Options assumed
pursuant to Section 3.05 hereof. Within 10 business days after the Effective
Time, Parent shall file with the SEC one or more registration statements on Form
S-8 for the shares of Parent Common Stock issuable with respect to Company Stock
Options and will maintain the effectiveness of such registration statements for
so long as any of such options or other rights remain outstanding. The Company
ESPP shall be terminated prior to the Effective Date. The board of directors of
Parent shall adopt a resolution approving the acquisition by officers and
directors of Company who shall become officers and directors of Parent at the
Effective Time of Parent Common Stock in exchange for shares of Company Common
Stock, and of options of Parent Common Stock upon conversion of Company Stock
Options pursuant to Section 3.05 hereof, in each case pursuant to the
transactions contemplated by this Agreement so that such acquisitions shall be
exempt from the application of Section 16(b) of the Exchange Act, to the extent
permitted thereunder.
SECTION 7.9 EMPLOYEE BENEFIT MATTERS
(a) From and after the Effective Time until the earlier of (i) the first
anniversary of the Effective Time or (ii) the date of the first annual renewal
of each of such benefits after the Effective Time, Parent agrees to provide the
employees of Company (the "COMPANY EMPLOYEES") who remain employed after the
Effective Time (collectively, the "TRANSFERRED COMPANY EMPLOYEES") with
substantially similar benefits as maintained by Company immediately prior to the
Closing; PROVIDED, that this obligation shall not include the Company 401(k)
Plan, the Company ESPP or Company Stock Plans. After such time, Parent shall
provide the Transferred Company Employees with the types and levels of employee
benefits maintained by Parent for similarly situated employees of Parent. Parent
will treat, and cause its applicable benefit plans to treat, the service of
Company Employees with Company or any Company Subsidiary as service rendered to
Parent or any Affiliate of Parent for purposes of eligibility to participate,
vesting and for other appropriate benefits including, but not limited to,
applicability of minimum waiting periods for participation, but not for benefit
accrual (including minimum pension amount) attributable to any period before the
Effective Time. Without limiting the foregoing, Parent shall not treat any
Company Employee as a "new" employee for purposes of any exclusions under any
health or similar plan of Parent for a pre-existing medical condition, and will
make appropriate arrangements with its insurance carrier(s) to ensure such
result.
(b) Following the Effective Time, Parent shall honor in accordance with
their terms all individual employment, termination, severance, change in
control, post-employment and other compensation agreements, arrangements and
plans, which are between Company or any Company Subsidiary and any director,
officer or employee thereof, and Parent will not challenge the validity of any
obligation of Company or any Company Subsidiary under, any employment,
severance, change in control, post-employment, consulting, supplemental
retirement or such other compensation, contract or arrangement with any current
or former director, officer or employee of Company.
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(c) Unless Parent consents otherwise in writing, Company shall take all
action necessary to terminate, or cause to terminate, immediately before the
Effective Time, any Company Benefit Plan that is a 401(k) plan. Notwithstanding
anything to the contrary contained herein, Parent shall have sole discretion
with respect to the determination as to whether or when to terminate, merge or
continue any Company Benefit Plan; provided, however, that Parent shall continue
to maintain the Company Benefit Plans (other than stock based or incentive plans
or 401(k) plans) until Company Employees are permitted to participate in the
Parent's plans.
(d) The provisions of Section 7.09 respecting the Parent's agreement to
honor the contracts, arrangements, commitments and understandings referred to in
Section 7.09(b) are intended to be for the benefit of and enforceable by the
persons referred to therein or the parties to these agreements, respectively,
and their heirs and representatives.
SECTION 7.10 TAX OPINION
Parent and Company shall use their respective best efforts to obtain the tax
opinion that satisfies the condition set forth in Section 8.01(g) and shall use
their respective best efforts to provide such certificates regarding tax matters
as shall be requested and which are customary in transactions of this type.
SECTION 7.11 BOARD REPRESENTATION
Company shall be entitled to designate one individual to Parent's Board of
Directors, who shall be appointed by Parent to serve from the Effective Time and
until his successor shall be duly elected and qualified.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO CONSUMMATE THE
MERGER
The obligations of the parties hereto to consummate the Merger are subject
to the satisfaction or, if permitted by applicable Law, waiver of the following
conditions:
(a) the Registration Statement shall have been declared effective by the
SEC under the Securities Act and no stop order suspending the effectiveness
of the Registration Statement shall have been issued by the SEC and no
proceeding for that purpose shall have been initiated by the SEC and not
concluded or withdrawn;
(b) this Agreement and the Merger shall have been duly approved by the
requisite vote of stockholders of Company in accordance with the DGCL and
the Share Issuance shall have been approved by the required vote of the
stockholders of Parent in accordance with the rules of the NNM;
(c) no order, statute, rule, regulation, executive order, stay, decree,
judgment or injunction shall have been enacted, entered, promulgated or
enforced by any court or Governmental Entity which prohibits or prevents the
consummation of the Merger which has not been vacated, dismissed or
withdrawn prior to the Effective Time. Company and Parent shall use their
reasonable best efforts to have any of the foregoing vacated, dismissed or
withdrawn by the Effective Time;
(d) any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act or any other applicable
competition, merger control or similar Law shall have expired or been
terminated;
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(e) all consents, approvals and authorizations legally required to be
obtained to consummate the Merger shall have been obtained from all
Governmental Entities, except where the failure to obtain any such consent,
approval or authorization could not reasonably be expected to result in a
Parent Material Adverse Effect or a Company Material Adverse Effect;
(f) The shares of Parent Common Stock to be issued in the Merger shall
have been authorized for listing on the NNM, subject to notice of issuance;
and
(g) Parent shall have obtained an opinion from Parent's legal counsel in
form and substance reasonably satisfactory to it, and Company shall have
obtained an opinion from Company's legal counsel in form and substance
reasonably satisfactory to it, substantially to the effect that, if the
Merger is consummated in accordance with the provisions of this Agreement,
under current law, for federal income tax purposes, the Merger will qualify
as a reorganization within the meaning of Section 368(a).
SECTION 8.2 CONDITIONS TO THE OBLIGATIONS OF COMPANY
The obligations of Company to consummate the Merger, or to permit the
consummation of the Merger are subject to the satisfaction or, if permitted by
applicable Law, waiver of the following further conditions:
(a) each of the representations and warranties of Parent contained in
this Agreement shall be true, complete and correct in all material respects
both when made and on and as of the Effective Time as if made at and as of
the Effective Time (other than representations and warranties which address
matters only as of a certain date which shall be true, complete and correct
as of such certain date) and Company shall have received a certificate of
the Chief Executive Officer and Chief Financial Officer of Parent to the
foregoing effect;
(b) Parent shall have performed or complied in all material respects
with all covenants required by this Agreement to be performed or complied
with by it on or prior to the Effective Time and Company shall have received
a certificate of the Chief Executive Officer and Chief Financial Officer of
Parent to that effect;
(c) the board of directors of Parent shall not have resolved, amended or
modified, in any adverse respect, its approval of the Share Issuance or its
recommendation to Parents' stockholders described in Section 7.01(b) hereof;
and
(d) there shall have been no Parent Material Adverse Effect since the
date of this Agreement.
SECTION 8.3 CONDITIONS TO THE OBLIGATIONS OF PARENT
The obligations of Parent to consummate the Merger are subject to the
satisfaction or waiver of the following further conditions:
(a) each of the representations and warranties of Company contained in
this Agreement shall be true, complete and correct in all material respects
both when made and on and as of the Effective Time as if made at and as of
the Effective Time (other than representations and warranties which address
matters only as of a certain date which shall be true, complete and correct
as of such certain date) and Parent shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of Company to the
foregoing effect;
(b) Company shall have performed or complied in all material respects
with all covenants required by this Agreement to be performed or complied
with by it on or prior to the Effective Time and Parent shall have received
a certificate of the Chief Executive Officer and Chief Financial Officer of
Company to that effect;
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(c) there shall have been no Company Material Adverse Effect since the
date of this Agreement;
(d) the Rights Agreement shall have been terminated and all rights
issued thereunder (whether or not exercisable) shall have terminated or been
redeemed;
(e) The board of directors of Company shall not have revoked, amended or
modified, in any adverse respect, its approval of the Merger or its
recommendation to Company's stockholders described in Section 7.01(b)(i);
and
(f) Parent shall have been furnished with evidence satisfactory to it of
the consent or approval of those persons listed on Schedule 8.03(f) whose
consent or approval may be required in connection with the Merger.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 TERMINATION
This Agreement may be terminated and the Merger may be abandoned at any time
prior to the Effective Time, notwithstanding any requisite adoption and approval
of this Agreement, as follows:
(a) by mutual written consent duly authorized by the boards of directors
of each of Parent and Company;
(b) by either Parent or Company, if the Effective Time shall not have
occurred on or before February 15, 2000; provided, however, that the right
to terminate this Agreement under this Section 9.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement shall have caused, or resulted in, the failure of the Effective
Time to occur on or before such date;
(c) by either Parent or Company, if any Governmental Order, writ,
injunction or decree preventing the consummation of the Merger shall have
been entered by any court of competent jurisdiction and shall have become
final and nonappealable;
(d) by Parent, if (i) the board of directors of Company withdraws,
modifies or changes its recommendation of this Agreement or the Merger in a
manner adverse to Parent or its stockholders or shall have resolved to do
so, (ii) the board of directors of Company shall have recommended to the
stockholders of Company a Company Competing Transaction or shall have
resolved to do so, (iii) a Company Competing Transaction shall have been
announced or otherwise publicly known and the board of directors of Company
shall have within fifteen (15) days of announcement (A) failed to recommend
against acceptance of such by its stockholders (including by taking no
position, or indicating its inability to take a position, with respect to
the acceptance of a Company Competing Transaction involving a tender offer
or exchange offer by its stockholders), (B) failed to reconfirm its approval
and recommendation of this Agreement and the transactions contemplated
hereby within 15 business days of the first announcement or other public
knowledge of such Competing Offer or (C) determined that such Company
Competing Transaction was a Company Superior Proposal and to take any of the
actions allowed by clause (ii) of Section 6.04(a), or (iv) the board of
directors of Company resolves to take any of the actions described above;
(e) by Parent or Company, if (i) this Agreement and the Merger shall
fail to receive the requisite votes for approval at the Company
Stockholders' Meeting or any adjournment or
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postponement thereof or (ii) the Share Issuance shall fail to receive the
requisite votes for approval at the Parent Stockholders' Meeting or any
adjournment or postponement thereof;
(f) by Parent, 10 days after receipt by Company of a written notice from
Parent of a breach in any material respect of any representation, warranty,
covenant or agreement on the part of Company set forth in this Agreement, or
if any representation or warranty of Company shall have become untrue,
incomplete or incorrect, in either case such that the conditions set forth
in Section 8.03 would not be satisfied (a "TERMINATING COMPANY BREACH");
provided, however, that if such Terminating Company Breach is curable by
Company through the exercise of its reasonable efforts within 10 days and
for so long as Company continues to exercise such reasonable efforts, Parent
may not terminate this Agreement under this Section 9.01(g); and provided,
further that the preceding proviso shall not in any event be deemed to
extend any date set forth in paragraph (b) of this Section 9.01;
(g) by Company, 10 days after receipt by Parent of a written notice from
Company of a breach in any material respect of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or
if any representation or warranty of Parent shall have become untrue,
incomplete or incorrect, in either case such that the conditions set forth
in Section 8.02 would not be satisfied (a "TERMINATING PARENT BREACH");
provided, however, that if such Terminating Parent Breach is curable by
Parent through the exercise of its reasonable efforts within 10 days and for
so long as Parent continues to exercise such reasonable efforts, Company may
not terminate this Agreement under this Section 9.01(h); and provided,
further that the preceding proviso shall not in any event be deemed to
extend any date set forth in paragraph (b) of this Section 9.01; and
(h) by Company, if the board of directors of Company shall have
recommended to stockholders of Company a Company Competing Transaction or
shall have resolved to do so.
The right of any party hereto to terminate this Agreement pursuant to this
Section 9.01 will remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
SECTION 9.2 EFFECT OF TERMINATION
Except as provided in Section 9.05, in the event of termination of this
Agreement pursuant to Section 9.01, this Agreement shall forthwith become void,
there shall be no liability under this Agreement on the part of any party hereto
or any of its affiliates or any of its or their officers or directors, and all
rights and obligations of each party hereto shall cease; provided, however, that
nothing herein shall relieve any party hereto from liability for the willful or
intentional breach of any of its representations and warranties or the willful
or intentional breach of any of its covenants or agreements set forth in this
Agreement.
SECTION 9.3 AMENDMENT
This Agreement may be amended by the parties hereto by action taken by or on
behalf of their respective boards of directors at any time prior to the
Effective Time; provided, however, that, after the approval of this Agreement by
the stockholders of Company, no amendment may be made that changes the amount or
type of consideration into which Company common stock will be converted pursuant
to this Agreement. This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
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SECTION 9.4 WAIVER
At any time prior to the Effective Time, 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, (b) waive any inaccuracy in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance by the other party with any of the agreements or conditions
contained herein. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby.
SECTION 9.5 TERMINATION FEE; EXPENSES
(a) Except as set forth in this Section 9.05, all Expenses incurred in
connection with this Agreement and the Merger shall be paid by the party
incurring such Expenses, whether or not the Merger is consummated, except that
Parent and Company each shall pay one-half of all Expenses incurred solely for
printing, filing and mailing the Registration Statement and the Proxy Statement
and all SEC and other regulatory filing fees incurred in connection with the
Registration Statement and the Proxy Statement and any fees required to be paid
under the HSR Act.
(b) In the event that (i) Parent shall terminate this Agreement pursuant to
Section 9.01(d), (ii) Parent shall terminate this Agreement due to a Terminating
Company Breach pursuant to Section 9.01(f) and such breach by Company is
intentional, (iii) Parent shall terminate this Agreement pursuant to Section
9.01(e)(i) but only if a Company Competing Transaction shall have been announced
or otherwise publicly known prior to the event giving rise to the termination
pursuant to Section 9.01(e)(i), and within twelve (12) months of such
termination, Company shall have consummated a Competing Company Transaction or
(iv) Company shall have terminated this Agreement pursuant to Section 9.01(h),
then, without limiting any other remedies available to Parent and Merger Sub,
Company shall pay to Parent (the "COMPANY TERMINATION FEE") a sum equal to all
of Parent's Expenses up to $500,000 plus $3.1 million. Notwithstanding the
foregoing, no fee shall be paid pursuant to this Section 9.05(b) if Parent shall
be in material breach of its obligations hereunder. Any Company Termination Fee
shall be paid in same day funds within three Business Days of the date of
termination.
(c) In the event that Company shall terminate this Agreement due to a
Terminating Parent Breach pursuant to Section 9.01(g) and such breach by Parent
is intentional, then, without limiting any other remedies available to Company,
Parent shall pay to Company (the "PARENT TERMINATION FEE") a sum equal to all of
Company's Expenses up to $500,000 plus $3.1 million. Notwithstanding the
foregoing, no fee shall be paid pursuant to this Section 9.05(c) if Company
shall be in material breach of its obligations hereunder. Any Parent Termination
Fee shall be paid in same day funds within three Business Days of the date of
termination.
(d) Parent and Company agree that the agreements contained in Sections
9.05(b) and 9.05(c) above are an integral part of the transaction contemplated
by this Agreement. If Company fails to pay to Parent any fee due under Section
9.05(b), Company shall pay the cash and expenses (including legal fees and
expenses) in connection with any action, including the filing of any lawsuit or
other legal action, taken to collect payment. Similarly, if Parent fails to pay
to Company any fee due under Section 9.05(c), Parent shall pay the cash and
expenses (including legal fees and expenses) in connection with any action,
including the filing of any lawsuit or other action taken to collect payment.
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ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties in this Agreement shall terminate at the
Effective Time or upon the termination of this Agreement pursuant to Section
9.01, as the case may be. This Section 10.01 shall not limit any covenant or
agreement of the parties which by its terms contemplates performance after the
Effective Time.
SECTION 10.2 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
given upon receipt) by delivery in person, by telecopy or facsimile, by
registered or certified mail (postage prepaid, return receipt requested) or by a
nationally recognized courier service to the respective parties at the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 10.02):
<TABLE>
<S> <C>
(a) if to Company:
Xionics Document Technologies, Inc.
70 Blanchard Road
Burlington, MA 01803
Attention: Chief Executive Officer
Telecopier: (781) 229-7121
with a copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02109
Attention: Neil Townsend, Esq.
Telecopier: (617) 951-8736
(b) if to Parent or Merger Sub:
Oak Technology, Inc.
139 Kifer Court
Sunnyvale, CA 94086
Attention: General Counsel
Telecopier: (408) 737-0888
with a copy to:
Brobeck, Phleger & Harrison LLP
1633 Broadway, 47th Floor
New York, NY 10019
Attention: Eric Simonson, Esq.
Telecopier: (212) 586-7878
</TABLE>
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SECTION 10.3 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 Merger 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 Merger may be consummated as originally
contemplated to the fullest extent possible.
SECTION 10.4 ASSIGNMENT; BINDING EFFECT; BENEFIT
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of Law or otherwise) without the prior written consent of the other parties
hereto. Subject to the preceding sentence, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Notwithstanding anything contained in this
Agreement to the contrary, other than Section 7.03 and 7.09, nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto or their respective successors and permitted assigns any
rights or remedies under or by reason of this Agreement.
SECTION 10.5 INCORPORATION OF EXHIBITS
The Parent Disclosure Schedule, the Company Disclosure Schedule and all
Exhibits attached hereto and referred to herein are hereby incorporated herein
and made a part of this Agreement for all purposes as if fully set forth herein.
Parent and Company acknowledge that the Parent Disclosure Schedule and the
Company Disclosure Schedule (i) are qualified in their entirety by reference to
specific provisions of this Agreement and (ii) are not intended to constitute
and shall not be construed as indicating that such matter is required to be
disclosed, nor shall such disclosure be construed as an admission that such
information is material with respect to Parent or Company, as the case may be,
except to the extent required by this Agreement and by applicable law.
SECTION 10.6 GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE OTHER THAN CONFLICT OF LAWS
PRINCIPLES THEREOF DIRECTING THE APPLICATION OF ANY LAW OTHER THAN THAT OF
DELAWARE.
SECTION 10.7 WAIVER OF JURY TRIAL
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY TRANSACTION OR AGREEMENT CONTEMPLATED HEREBY
OR THE ACTIONS OF ANY PARTY HERETO IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE OR ENFORCEMENT HEREOF.
SECTION 10.8 HEADINGS; INTERPRETATION
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the
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parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
SECTION 10.9 COUNTERPARTS
This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed and delivered shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement.
SECTION 10.10 ENTIRE AGREEMENT
This Agreement (including the Exhibits, the Parent Disclosure Schedule and
the Company Disclosure Schedule) and the Confidentiality Agreement constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings among the parties with
respect thereto. No addition to or modification of any provision of this
Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
OAK TECHNOLOGY, INC.
By: /s/ SHAWN M. SODERBERG
--------------------------------------------------
Name: Shawn M. Soderberg
Title: Vice President and General Counsel
XIONICS DOCUMENT TECHNOLOGIES, INC.
By: /s/ PETER J. SIMONE
--------------------------------------------------
Name: Peter J. Simone
Title: President and Chief Executive Officer
VERMONT ACQUISITION CORP.
By: /s/ SHAWN M. SODERBERG
--------------------------------------------------
Name: Shawn M. Soderberg
Title: Vice President and General Counsel
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APPENDIX B
July 29, 1999
Board of Directors
Xionics Documents Technologies, Inc.
70 Blanchard Road
Burlington, MA 01803
Members of the Board:
You have requested our opinion (the "Fairness Opinion"), as investment bankers,
as to the fairness, from a financial point of view, to the shareholders of
Xionics Document Technologies, Inc. (the "Company") of the consideration to be
received by the Company's shareholders in connection with the proposed merger
(the "Merger") of the Company with and into ACQUISITION CORP (X), INC., a wholly
owned subsidiary (the "Merger Sub") of Oak Technology, Inc. ("Oak"), pursuant to
an Agreement and Plan of Merger dated as of July 29, 1999 (the "Merger
Agreement"), by and among the Company, the Merger Sub and Oak. Adams, Harkness &
Hill, Inc. ("AH&H"), as part of its investment banking activities, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
In the Merger, subject to Company shareholder approval each share of the
Company's common stock, par value $.01 per share (the "Common Shares"), issued
and outstanding immediately prior to the effective date of the Merger, other
than shares held in treasury by the Company or held by any subsidiary or
affiliate of Oak or by dissenting shareholders, will be converted into the right
to receive .8031 shares of Oak common stock, $.01 par value, and $2.94 in cash,
upon surrender of the certificate at or subsequent to the effective date of the
Merger.
In developing our Fairness Opinion, we have, among other activities: (i)
reviewed the Company's Annual Reports, Reports on Form 10-K and related
financial information for the three fiscal years ended June 30, 1998, and the
Company's Report on Form 10-Q and the related unaudited financial information
for the nine month period ending March 31, 1999; (ii) reviewed Oak's Annual
Reports, Reports on Form 10-K and related financial information for the three
fiscal years ended June 30, 1998, and Oak's Report on Form 10-Q and the related
unaudited financial information for the nine month period ended March 31, 1999;
(iii) analyzed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of the Company
and Oak; (iv) conducted due diligence discussions with members of senior
management of the Company and Oak, and discussed with members of senior
management of the Company and Oak their views regarding future business,
financial and operating benefits arising from the Merger; (v) reviewed the
historical market prices and trading activity for the Common Shares and compared
them with that of certain publicly traded companies we deemed to be relevant and
comparable to the Company and Oak; (vi) compared the results of operations of
the Company and Oak with that of certain companies we deemed to be relevant and
comparable to the Company and Oak; (vii) compared the financial terms of the
Merger with the financial terms of certain other mergers and acquisitions we
deemed to be relevant and comparable to the Merger; (viii) participated in
certain discussions among representatives of the Company and Oak and their
respective advisors; (ix) reviewed the Merger Agreement; and (x) reviewed such
other financial studies and analyses and performed such other investigations and
took into account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
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Our Fairness Opinion as expressed herein is limited to the fairness, from a
financial point of view, of the proposed consideration and does not address the
Company's underlying business decision to engage in the Merger. Our Fairness
Opinion does not constitute a recommendation to any shareholder of the Company
as to how such shareholder should vote on the Merger. We are expressing no
opinion as to the value of Common Shares at the time of our analysis or at any
time prior to and including the effective date of the Merger. In connection with
our review and in arriving at our Fairness Opinion, we have not independently
verified any information received from the Company, have relied on such
information, and have assumed that all such information is complete and accurate
in all material respects. With respect to any internal forecasts reviewed
relating to the prospects of the Company, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the Company's management as to the future financial performance
and cash requirements of the Company. Our Fairness Opinion is rendered on the
basis of securities market conditions prevailing as of the date hereof and on
the conditions and prospects, financial and otherwise, of the Company as known
to us on the date hereof. We have not conducted, nor have we received copies of,
any independent valuation or appraisal of any of the assets of the Company. In
addition, we have assumed, with your consent, that the terms set forth in the
executed Merger Agreement will not differ materially from the proposed terms
provided to us in the July 29, 1999, draft Merger Agreement.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company with the Securities and Exchange Commission
with respect to the transactions contemplated by the Merger Agreement.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the consideration is fair, from a financial point of view, to the
Company's shareholders.
Sincerely,
ADAMS, HARKNESS & HILL, INC.
By: /s/ James A. Simms
-----------------------------
James A. Simms
Group Head, Mergers & Acquisitions
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APPENDIX C
DELAWARE GENERAL CORPORATION LAW
SECTION 262 -- APPRAISAL RIGHTS
262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely and include what is ordinarily meant by those words and also membership
or membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
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c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of such stockholder's shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of such stockholder's shares. Such demand will
be sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the merger
or consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such
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constituent corporation shall send a second notice before the effective date
of the merger or consolidation notifying each of the holders of any class or
series of stock of such constituent corporation that are entitled to
appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation
may fix, in advance, a record date that shall be not more than 10 days prior
to the date the notice is given, provided, that if the notice is given on or
after the effective date of the merger or consolidation, the record date
shall be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the
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pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware law authorizes corporations to eliminate the personal liability of
directors to corporations and their stockholders for monetary damages for breach
of the directors' "duty of care." While the relevant statute does not change
directors' duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The statute has no effect
on directors' duty of loyalty, acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law, illegal payment of
dividends and approval of any transaction from which a director derives an
improper personal benefit. Oak has adopted provisions in its Restated
Certificate of Incorporation which eliminate the personal liability of its
directors to the company and its stockholders for monetary damages for breach or
alleged breach of their duty of care. The Restated Bylaws of the company provide
for indemnification of its directors, officers, employees and agents to the full
extent permitted by the General Corporation Law of the State of Delaware, the
company's state of incorporation, including those circumstances in which
indemnification would otherwise be discretionary under Delaware law. Section 145
of the General Corporation Law of the State of Delaware provides for
indemnification in terms sufficiently broad to indemnify such individuals, under
certain circumstances, for liabilities (including reimbursement of expenses
incurred) arising under the Securities Act.
In addition, Oak has entered into indemnification agreements with its
directors and certain officers that provide for the maximum indemnification
permitted by law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS--The following Exhibits are filed as part of, or incorporated
by reference into, this report:
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2.01 Agreement and Plan of Merger and Reorganization among Oak Technology,
Inc. Vermont Acquisition Corp. and Xionics Document Technologies, Inc.,
dated as of July 29, 1999(1)
3.01 Oak's Restated Certificate of Incorporation, as amended (2)
3.02 Oak's Restated Bylaws (3)
3.03 Certificate of Correction to the Restated Certificate of Incorporation of
Oak (6)
4.01 Form of Specimen Certificate for Oak's Common Stock (4)
4.02 Amended and Restated Registration Rights Agreement dated as of October
15, 1993 among Oak and various investors (4)
4.03 Oak's Restated Certificate of Incorporation, as Amended (See Exhibit
3.01)
4.04 Oak's Restated Bylaws (See Exhibit 3.02)
4.05 Form of Certificate of Designation of Series A Junior Participating
Preferred Stock of Oak dated August 18, 1997 (19)
4.06 Rights Agreement between Oak and BankBoston, N.A. dated August 19, 1997
(19)
4.07 Amendment to the Rights Agreement between Oak and BankBoston, N.A. dated
November 18, 1998 (5)
5.01 Opinion of Brobeck, Phleger & Harrison LLP regarding the legality of the
securities being issued
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8.01 Opinion of Bingham Dana LLP regarding tax matters
10.01 1988 Stock Option Plan, as amended and related documents (4)*
10.02 1994 Stock Option Plan and related documents (4) and amendment thereto
dated February 1, 1996 (7)*
10.03 1994 Outside Directors' Stock Option Plan and related documents (4)*
10.04 1994 Employee Stock Purchase Plan (4)*
10.05 401(k) Plan and related documents (4) and Amendment Number One and
Supplemental Participation Agreement thereto (8)*
10.06 Lease Agreement dated August 3, 1988 among John Arrillaga, Trustee, or
his Successor Trustee, UTA dated 7/20/77 (John Arrillaga Separate
Property Trust) as amended and Richard T. Peery, Trustee, or his
Successor Trustee, UTA dated 7/20/77 (Richard T. Peery Separate
Property Trust) as amended, and Justin Jacobs, Jr., dba Siri-Kifer
Investments, a joint venture, and Oak Technology, Inc., as amended June
1, 1990, and Consent to Alterations dated March 26, 1991 (lease
agreement for 139 Kifer Court, Sunnyvale, California) (4), and
amendments thereto dated June 15, 1995 and July 19, 1995 (8)
10.07 Lease Agreement dated August 22, 1994 among John Arrillaga, Trustee, or
his Successor Trustee, UTA dated 7/20/77 (John Arrillaga Separate
Property Trust) as amended and Richard T. Peery, Trustee, or his
Successor Trustee, UTA dated 7/20/77 (Richard T. Peery Separate
Property Trust) as amended, and Justin Jacobs, Jr., dba Siri-Kifer
Investments, a joint venture, and Oak Technology, Inc. (lease agreement
for 140 Kifer Court, Sunnyvale, California) (4), and amendment thereto
dated June 15, 1995 (8)
10.08 Form of Indemnification Agreement, between Oak Technology, Inc. and each
of its Directors and executive officers (17)
10.09 VCEP Agreement dated July 30, 1990 between Oak Technology, Inc. and
Advanced Micro Devices, Inc. (4)
10.10 Product License Agreement dated April 13, 1993 between Oak Technology,
Inc. and Media Chips, Inc., as amended September 16, 1993 (4)
10.11 Resolutions of the Board of Directors of Oak Technology, Inc. dated July
27, 1994 setting forth the provisions of the Executive Bonus Plan (4)
(15)*
10.12 Employee Incentive Plan effective January 1, 1995 (4)*
10.13 Option Agreement between Oak Technology, Inc., and Taiwan Semiconductor
Manufacturing Co., Ltd. dated as of August 8, 1996 (17)**
10.14 Foundry Venture Agreement between Oak Technology, Inc. and United
Microelectronics Corporation dated as of October 2, 1995 (9)(15)
10.15 Fab Ven Foundry Capacity Agreement among Oak Technology, Inc., Fab Ven
and United Microelectronics Corporation dated as of October 2, 1995
(10) (15)
10.16 Written Assurances Re: Foundry Venture Agreement among Oak Technology,
Inc., United Microelectronics Corporation and Fab Ven dated as of
October 2, 1995 (11) (15)
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10.17 Lease Agreement dated June 15, 1995 between John Arrillaga, Trustee, or
his Successor Trustee, UTA dated 7/20/77 (John Arrillaga Separate
Property Trust) as amended and Richard T. Peery, Trustee, or his
Successor Trustee, UTA dated 7/20/77 (Richard T. Peery Separate
Property Trust) as amended, and Oak Technology, Inc. (lease agreement
for 130 Kifer Court, Sunnyvale, California) (12), and amendments
thereto dated June 15, 1995 and August 18, 1995 (13)
10.18 Deposit Agreement dated November 8, 1995 between Chartered Semiconductor
Manufacturing Ltd. and Oak Technology, Inc. (14), and Amendment
Agreement (No. 1) thereto dated September 25, 1996 (16)**
10.19 Amendment Agreement (No. 2) dated April 7, 1997 to Deposit Agreement
dated November 8, 1995 between Chartered Semiconductor Manufacturing
Ltd. and Oak Technology, Inc. (18) and addendum thereto dated September
26, 1997 (20)**
10.20 First Amendment to Plan of Reorganization and Agreement of Merger dated
October 27, 1995 among Oak Technology, Inc., Oak Acquisition
Corporation, Pixel Magic, Inc. and the then shareholders of Pixel dated
June 25, 1996 and Second Amendment thereto dated June 13, 1997 (19)**
10.21 First Amendment to Non-Compete and Technology Transfer Agreement by and
among Oak Technology, Inc., Pixel Magic, Inc. and Peter D. Besen dated
June 13, 1997 (19)**
10.22 Agreement of Termination of Employment Agreement between Pixel Magic,
Inc. and Peter D. Besen dated June 13, 1997 (19)
10.23 Agreement of Termination of Employment Agreement between Pixel Magic,
Inc. and Don Schulsinger dated June 13, 1997 (19)
10.24 Release and Settlement Agreement between Oak Technology, Inc. and United
Microelectronics Corporation dated July 31, 1997 (19)**
10.25 Sublease Agreement dated December 1, 1997 between Global Village
Communication, Inc. and Oak Technology, Inc. (lease agreement for 1150
East Arques Avenue, Sunnyvale, California) and accompanying lease and
amendment thereto (21)
10.26 Amendment to Option Agreement by and between Taiwan Semiconductor
Manufacturing Co., Ltd., and Oak Technology, Inc. (22)**
10.27 Settlement Agreement between Winbond Electronics Corporation and Oak
Technology, Inc. (22)**
10.28 Amendment Agreement (No. 3) to Deposit Agreement dated November 8, 1995
between Chartered Semiconductor Manufacturing Ltd. and Oak Technology
Inc. (23)
10.29 Employment Agreement between Oak Technology Inc. and Young K. Sohn dated
February 27, 1999 (24)
10.30 Loan agreement between Oak Technology Inc. and Young K. Sohn dated
February 27, 1999 (24)
10.31 Oak Technology Inc. Executive Stock Option Plan (24)*
10.32 Letter Agreement dated January 22, 1999 between the Special Committee of
the Board of Directors of Oak Technology, Inc. and David T. Tsang and
Ta-Lin Shu (24)
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10.33 Amendment to Option Agreement dated June 30, 1999 between Oak Technology
Inc. and Taiwan Semiconductor Manufacturing Co., Ltd. (25)
23.01 Consent of KPMG LLP, Independent Auditors Oak Technology Inc.
23.02 Consent of Arthur Andersen LLP, Independent Auditors of Xionics Document
Technologies, Inc.
23.03 Consent of Brobeck, Phleger & Harrison LLP (included in opinion filed as
exhibit 5.01)
23.04 Consent of Bingham Dana LLP (included in opinion filed as exhibit 8.01)
24.01 Power of Attorney (contained on the signature page included in Part II to
this registration statement)
27.01 Financial Data Schedule
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(1) Attached as Appendix A to the joint proxy statement/prospectus contained in
this registration statement.
(2) Incorporated herein by reference to exhibit 3.01 of Oak's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996.
(3) Incorporated herein by reference to exhibit 3.05 filed with Oak's
Registration Statement on Form S-1 (File No. 33-87518) declared effective by
the Securities and Exchange Commission on February 13, 1995 (the "February
1995 Form S-1").
(4) Incorporated herein by reference to the exhibit with the same number filed
with the February 1995 Form S-1.
(5) Incorporated herein by reference to Exhibit 1 filed with Oak's Registration
Statement on Form 8-A/12B/A (File No. 000-25298) on November 25, 1998.
(6) Incorporated herein by reference to Exhibit 3.03 filed with Oak's Annual
Report on Form 10-K for the year ended June 30, 1997.
(7) Incorporated herein by reference to Exhibit 10.1 filed with Oak's
Registration Statement on Form S-8 (File No. 333-4334) on May 2, 1996.
(8) Incorporated herein by reference to the exhibit with the same number filed
with Oak's Annual Report on Form 10-K for the year ended June 30, 1996.
(9) Incorporated herein by reference to Exhibit 2.1 filed with Oak's Form 8-K
dated October 2, 1995 (the "October 1995 form 8-K").
(10) Incorporated herein by reference to Exhibit 2.2 filed with the October 1995
Form 8-K.
(11) Incorporated herein by reference to Exhibit 2.3 filed with the October 1995
Form 8-K.
(12) Incorporated herein by reference to Exhibit 10.08 filed with Oak's Annual
Report on Form 10-K for the year ended June 30, 1995.
(13) Incorporated herein by reference to Exhibit 10.08 filed with Oak's Annual
Report on Form 10-K for the year ended June 30, 1996.
(14) Incorporated herein by reference to Exhibit 10.04 filed with Oak's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1995.
(15) Confidential treatment has been granted with respect to portions of this
exhibit.
(16) Incorporated herein by reference to Exhibit 10.17 filed with Oak's Annual
Report on Form 10-K for the year ended June 30, 1996.
(17) Incorporated herein by reference to the exhibit with the same number filed
with Oak's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996.
(18) Incorporated herein by reference to the exhibit with the same number filed
with Oak's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997.
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<PAGE>
(19) Incorporated herein by reference to the exhibit with the same number filed
with Oak's Annual Report on Form 10-K for the year ended June 30, 1997.
(20) Incorporated herein by reference to the exhibit with the same number filed
with Oak's Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.
(21) Incorporated herein by reference to the exhibit with the same number filed
with Oak's Quarterly Report on Form 10-Q for the quarter ended December 31,
1997.
(22) Incorporated herein by reference to the exhibit with the same number filed
with Oak's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998.
(23) Incorporated herein by reference to the exhibit with the same number filed
with Oak's Quarterly Report on Form 10-Q for the quarter ended December 31,
1998.
(24) Incorporated herein by reference to the exhibit with the same number filed
with Oak's Quarterly Report on Form 10-Q for the quarter ended March 31,
1999.
(25) Incorporated herein by reference to the exhibit with the same number filed
with Oak's Annual Report on Form 10-K for the year ended June 30, 1999.
* Indicates Management incentive plan.
** Confidential treatment granted and/or requested as to portions of the
exhibit.
(B) FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION S-X
Not applicable.
(C) REPORTS, OPINIONS OR APPRAISALS NOT FURNISHED AS PART OF PROSPECTUS
Not applicable.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof."
The undersigned registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the Securities
Act, such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by person who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
The registrant hereby undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to this registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
II-5
<PAGE>
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under this Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sunnyvale, State of
California, on the 10th day of December, 1999.
OAK TECHNOLOGY, INC.,
a Delaware corporation
By: /s/ YOUNG K. SOHN
-----------------------------------------
Young K. Sohn
CHIEF EXECUTIVE OFFICER AND PRESIDENT
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Robert O. Hersh, Shawn M. Soderberg and Timothy
Tomlinson, and each of them his or her true and lawful attorneys-in-fact, each
with full power of substitution, for him or her in any and all capacities, to
sign any amendments to this Registration Statement and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact or their substitute or substitutes may do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated below.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Chief Executive Officer, December 10, 1999
/s/ YOUNG K. SOHN President and Director
- ------------------------------ (principal executive
Young K. Sohn officer)
Vice President and Chief December 10, 1999
/s/ ROBERT O. HERSH Financial Officer
- ------------------------------ (principal financial and
Robert O. Hersh accounting officer)
/s/ DAVID D. TSANG December 9, 1999
- ------------------------------ Chairman of the Board of
David D. Tsang Directors and Director
/s/ RICHARD B. BLACK Vice-Chairman of the Board December 10, 1999
- ------------------------------ of Directors and
Richard B. Black Director
/s/ TIMOTHY TOMLINSON December 9, 1999
- ------------------------------
Timothy Tomlinson Director
/s/ TA-LIN HSU December 9, 1999
- ------------------------------ Director and Assistant
Ta-Lin Hsu Secretary
/s/ ALBERT Y.C. YU December 10, 1999
- ------------------------------
Albert Y.C. Yu Director
II-7
<PAGE>
EXHIBIT 5.01
December 10, 1999
Oak Technology, Inc.
139 Kifer Court
Sunnyvale, California 94086
Re: Oak Technology, Inc. Registration Statement on Form
S-4 for Issuance of Shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to Oak Technology, Inc., a Delaware
corporation (the "Company"), in connection with the proposed issuance and sale
of the Company's Common Stock (the "Shares") as described in the Company's
Registration Statement on Form S-4 (the "Registration Statement") filed on the
date hereof with the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "Act").
This opinion is being furnished in accordance with the
requirements of Item 21 of Form S-4 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the
corporate proceedings taken by the Company in connection with the issuance
and sale of the Shares. Based on such review and assuming the Registration
Statement becomes and remains effective, and all applicable state and federal
laws are complied with, we are of the opinion that the Shares when issued in
accordance with the Registration Statement and the related prospectus (as
amended and supplemented through the date of issuance) will be validly
issued, fully paid and nonassessable shares of the Common Stock of the
Company.
We consent to the filing of this opinion letter as Exhibit
5.1 to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the prospectus which is part of the Registration
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the Act,
the rules and regulations of the Securities and Exchange Commission
promulgated thereunder, or Item 509 of Regulation S-K.
<PAGE>
December 9, 1999
Page 2
This opinion letter is rendered as of the date first
written above and we disclaim any obligation to advise you of facts,
circumstances, events or developments which hereafter may be brought to our
attention and which may alter, affect or modify the opinion expressed herein.
Our opinion is expressly limited to the matters set forth above and we render
no opinion, whether by implication or otherwise, as to any other matters
relating to the Company or the Shares.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
-----------------------------------
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 8.01
December 10, 1999
Xionics Document Technologies, Inc.
70 Blanchard Road
Burlington, MA 01803
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 8.1(g) of the
Agreement and Plan of Merger and Reorganization dated as of July 29, 1999
(the "Agreement"), among Oak Technologies, Inc., a Delaware corporation
("Oak"), Vermont Acquisition Corp., a Delaware corporation ("Merger Sub"),
and Xionics Document Technologies, Inc., a Delaware corporation ("Xionics").
Pursuant to the Agreement, Xionics will merge with and into Merger Sub, with
Merger Sub continuing as the surviving corporation and as a wholly-owned
direct subsidiary of Oak, in a transaction (the "Merger") in which the
existing stockholders of Xionics will receive cash and Oak common stock in
exchange for their issued and outstanding shares of Xionics common stock.
You have requested our opinion as to certain federal income tax consequences
anticipated to follow from implementation of the Agreement. Capitalized
terms not defined herein have the respective meanings set forth in the
Agreement.
For purposes of our opinion, we have examined and relied upon the
originals or copies, certified or otherwise identified to us to our
satisfaction, of the Agreement, the joint proxy statement/prospectus dated
December 9, 1999 (the "Proxy/Prospectus") included in the registration
statement on Form S-4 filed with the Securities and Exchange Commission by
Oak in connection with the Merger, and related documents (collectively, the
"Documents"). In that examination, we have assumed the genuineness of all
signatures, the authenticity and completeness of all documents purporting to
be originals (whether reviewed by us in original or copy form) and the
conformity to the originals of all documents purporting to be copies,
including electronic copies.
As to certain factual matters, we have relied with your consent upon,
and our opinion is limited by, the representations and statements of the
various parties set forth in the Documents and in the certificates from Oak,
Merger Sub, and Xionics dated the date hereof, copies of which are attached
hereto (the "Certificates"). Our opinion assumes (i) that all
representations and statements set forth in the Documents and in the
Certificates are true, correct, and complete as of the dates made and as of
the date hereof and (ii) that those representations and statements can and
will be reconfirmed as of the time of the Merger. Our opinion is limited
solely to the provisions of the federal Internal Revenue Code as now in
effect (the "Code"), and the regulations, rulings, and
<PAGE>
Xionics Document Technologies, Inc.
December __, 1999
Page 2
interpretations thereof in force as of this date and we assume no obligation
to advise you of changes in the law or fact that occur after the date of this
opinion.
On the basis of and subject to the foregoing, assuming due adoption
and implementation of the Agreement in accordance with its terms and
consistent with the representations set out in the Documents and Certificates
(and without any waiver or modification of any thereof), we are of the
opinion that for federal income tax purposes:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code.
2. Subject to paragraph 3 below, holders of Xionics common stock
will recognize gain but not loss equal to the lesser of: (a) the excess, if
any, of the consideration received by such holder in the Merger over the
holder's tax basis in such Xionics common stock; and (b) the amount of cash
received in the Merger (excluding cash received in lieu of fractional shares
of Oak common stock).
3. In addition to any gain recognized as described in paragraph 2
above, a holder of Xionics common stock who receives cash in lieu of a
fractional share of Oak common stock will be treated has having received the
fractional share and having sold it to Oak, and will recognize gain or loss
as a result in an amount equal to the difference between the amount of cash
received and the holder's tax basis allocable to the fractional share.
4. The aggregate basis in the Oak common stock received in the
Merger by a Xionics stockholder will equal such stockholder's basis in the
Xionics common stock surrendered in exchange therefor, reduced by the cash
received and any tax basis allocable to any fractional share and increased by
the amount of realized gain other than gain realized with respect to any
fractional share.
5. The holding period of Oak common stock to be received in the
Merger by a Xionics stockholder will include the period during which the
stockholder held the Xionics common stock surrendered in exchange therefor;
PROVIDED THAT, such Xionics common stock is held as a capital asset by that
stockholder at the time of the Merger.
This opinion is being delivered solely to you for your use in
connection with the Merger. It may not be made available to or relied upon
by any other person or entity < , OTHER THAN THE STOCKHOLDERS OF XIONICS, > or
used for any other purpose without our prior written consent.
< WE HEREBY CONSENT TO THE FILING OF THIS OPINION WITH THE SECURITIES AND
EXCHANGE COMMISSION AS AN EXHIBIT TO THE DOCUMENTS, AND TO THE REFERENCES TO
US UNDER THE CAPTION "THE MERGER -- FEDERAL INCOME TAX CONSEQUENCES"
AND ELSEWHERE IN THE PROXY/PROSPECTUS. IN GIVING SUCH CONSENT, WE DO NOT
THEREBY ADMIT THAT WE ARE IN THE CATEGORY OF PERSONS WHOSE CONSENT IS
REQUIRED UNDER SECTION 7 OF THE SECURITIES ACT OF 1933, AS AMENDED. >
Very truly yours,
/s/ BINGHAM DANA LLP
BINGHAM DANA LLP
<PAGE>
The Board of Directors
Oak Technology, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-4 of Oak Technology, Inc., filed on December 10, 1999 of our report
dated July 30, 1999, relating to the consolidated balance sheets of Oak
Technology, Inc. and subsidiaries as of June 30, 1999 and 1998, and related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the years in the three-year period ended June 30, 1999, and
related financial statement schedule, which report appears in the June 30,
1999, annual report on Form 10-K/A of Oak Technology, Inc., and to the
references to our firm under the headings "Oak Selected Historical
Consolidated Financial Data" and "Experts" in the prospectus.
/s/ KPMG LLP
Mountain View, California
December 10, 1999
<PAGE>
EXHIBIT 23.02
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated July 22, 1999
included (or incorporated by reference) in Xionics Document Technologies
Form 10-K/A for the year ended June 30, 1999 and to all references to our Firm
included in this registration statement.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Boston, MA
December 8, 1999
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