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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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ADVANCED LOGIC RESEARCH, INC.
(NAME OF SUBJECT COMPANY)
ADVANCED LOGIC RESEARCH, INC.
(NAME OF PERSON FILING STATEMENT)
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COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
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007948102
(CUSIP NUMBER OF CLASS OF SECURITIES)
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EUGENE Y. LU
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
ADVANCED LOGIC RESEARCH, INC.
9401 JERONIMO ROAD
IRVINE, CALIFORNIA 92618
(714) 581-6770
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON FILING THIS STATEMENT)
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Copies to:
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<S> <C>
BRUCE R. HALLETT, ESQ. STEVE L. CAMAHORT, ESQ.
BROBECK, PHLEGER & HARRISON LLP BROBECK, PHLEGER & HARRISON LLP
4675 MACARTHUR COURT, SUITE 1000 SPEAR STREET TOWER, ONE MARKET
NEWPORT BEACH, CALIFORNIA 92600-1846 SAN FRANCISCO, CALIFORNIA 94105-1000
(714) 752-7535 (415) 442-0900
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INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 (this "Schedule
14D-9" or this "Statement") relates to an offer by Deuce Acquisition
Corporation, a Delaware corporation and wholly-owned subsidiary of Gateway
2000, Inc., a Delaware corporation, to purchase all of the Shares (as defined
below) of Advanced Logic Research, Inc., a Delaware corporation. Capitalized
terms used herein and not otherwise defined shall have the meaning assigned to
them in the Offer to Purchase dated June 24, 1997.
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Advanced Logic Research, Inc., a Delaware
corporation (the "Company"), and the address of the principal executive
offices of the Company is 9401 Jeronimo Road, Irvine, California 92618. The
title of the class of equity securities to which this statement relates is the
Company's common stock, par value $.01 per share (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer (the "Offer") described in the
Tender Offer Statement on Schedule 14D-1 dated June 24, 1997 (as amended or
supplemented, the "Schedule 14D-1"), filed by Deuce Acquisition Corporation, a
Delaware corporation ("Purchaser"), which is a wholly owned subsidiary of
Gateway 2000, Inc., a Delaware corporation ("Parent"), and Parent with the
Securities and Exchange Commission (the "Commission") relating to an offer by
Purchaser to purchase all the issued and outstanding Shares at a price of
$15.50 per Share, net to the seller in cash, without interest thereon (the
"Offer Price"), upon the terms and subject to the conditions set forth in
Purchaser's Offer to Purchase dated June 24, 1997, as amended or supplemented,
and the related Letter of Transmittal (which together constitute the "Offer
Documents"). The Offer Documents indicate that the principal executive offices
of Parent and Purchaser are located at 610 North Gateway Drive, North Sioux
City, South Dakota 57049-2000.
The Offer is being made pursuant to the Agreement and Plan of Merger dated
as of June 19, 1997 (the "Merger Agreement"), among the Company, Parent and
Purchaser. A copy of the Merger Agreement is filed as Exhibit 1 to this
Schedule 14D-9 and is incorporated herein by reference in its entirety.
Pursuant to the Merger Agreement, following the consummation of the Offer,
upon the satisfaction or waiver of certain conditions, Purchaser will be
merged with and into the Company (the "Merger"). In the Merger, each Share
outstanding immediately prior to the effective time of the Merger (other than
Shares held in the treasury of the Company, Shares owned by Parent, Purchaser
or any other subsidiary of Parent, or Shares held by stockholders who properly
exercise their dissenters' rights under the General Corporation Law of the
State of Delaware ("Delaware Law")) will, by virtue of the Merger and without
any action by the holder thereof, be converted into the right to receive
$15.50 per Share (or any higher price paid per Share in the Offer), net to the
seller in cash, without interest thereon (the "Merger Consideration"), upon
the surrender of the certificate formerly representing such Share. The Merger
Agreement is summarized in Item 3 of this Schedule 14D-9.
ITEM 3. IDENTITY AND BACKGROUND.
a. The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above. Unless the context otherwise
requires, references to the Company in this Schedule 14D-9 are to the
"Company" and its direct and indirect subsidiaries, viewed as a single entity.
b. Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of its executive officers, directors or
affiliates are described in Annex A attached to this Schedule 14D-9 and
incorporated herein by reference. See "Executive Compensation and Other
Information Concerning Directors and Executive Officers" therein.
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Except as described or incorporated by reference herein, to the knowledge of
the Company, as of the date hereof, there exists no material contract,
agreement, arrangement or understanding and no actual or potential conflict of
interest between the Company or its affiliates and (i) the Company's executive
officers, directors or affiliates or (ii) Purchaser or its executive officers,
directors or affiliates.
MERGER AGREEMENT
The following summary of the Merger Agreement is qualified in its entirety
by reference to the Merger Agreement, a copy of which is filed as Exhibit 1 to
this Schedule 14D-9 and is incorporated herein by reference. The Merger
Agreement should be read in its entirety for a more complete description of
the matters summarized below.
The Offer. The Merger Agreement provides that as promptly as reasonably
practicable after the date of execution of the Merger Agreement, but in no
event later than five business days after the public announcement of the
execution of the Merger Agreement, Purchaser will commence the Offer for all
of the outstanding Shares at a price of not less than $15.50 per share in
cash, net to the seller, subject to the satisfaction of conditions set forth
below and, subject only to the terms and conditions of the Offer, will pay, as
promptly as reasonably practicable, after expiration of the Offer for all
Shares duly tendered and not withdrawn. Purchaser may waive any condition to
the Offer, increase the price per Share payable in the Offer and make any
other changes in the terms and conditions of the Offer. However, no change may
be made which decreases the price per Share payable in the Offer, which
reduces the maximum number of Shares to be purchased in the Offer or which
imposes conditions to the Offer other than those described below or which
extends the Offer (except as set forth in the following sentence).
Notwithstanding the foregoing, Purchaser may, without the consent of the
Company, (i) extend the Offer beyond the scheduled expiration date (the
initial scheduled expiration date being 20 business days following the
commencement of the Offer) if, at the scheduled expiration date of the Offer,
any of the conditions to Purchaser's obligation to accept for payment, and to
pay for, the Shares, shall not be satisfied or waived, (ii) extend the Offer
for any period required by any rule, regulation or interpretation of the
Commission or the staff thereof applicable to the Offer, or (iii) extend the
Offer for an aggregate period of not more than 10 business days beyond the
latest applicable date that would otherwise be permitted under clause (i) or
(ii) of this sentence, if as of such date, all of the conditions to
Purchaser's obligations to accept for payment, and to pay for, the Shares are
satisfied or waived, but the number of shares validly tendered and not
withdrawn pursuant to the Offer is less than 90 percent of the outstanding
Shares on a fully diluted basis. Pursuant to the Merger Agreement, Purchaser
will commence the Offer for all of the outstanding Shares at a price of not
less than $15.50 per share in cash, net to the seller, subject to the
satisfaction of conditions set forth below and, subject only to the terms and
conditions of the Offer, will pay, as promptly as reasonably practicable,
after expiration of the Offer, for all Shares duly tendered and not withdrawn.
Purchaser may waive any condition to the Offer, increase the price per Share
payable in the Offer and make any other changes in the terms and conditions of
the Offer. However, no change may be made which decreases the price per Share
payable in the Offer, which reduces the maximum number of Shares to be
purchased in the Offer or which imposes conditions to the Offer other than
those described below or which extends the Offer (except as set forth in the
following sentence). Notwithstanding the foregoing, Purchaser may, without the
consent of the Company, (i) extend the Offer beyond the scheduled expiration
date (the initial scheduled expiration date being 20 business days following
the commencement of the Offer) if, at the scheduled expiration date of the
Offer, any of the conditions to Purchaser's obligation to accept for payment,
and to pay for, the Shares, shall not be satisfied or waived, (ii) extend the
Offer for any period required by any rule, regulation or interpretation of the
Commission or the staff thereof applicable to the Offer, or (iii) extend the
Offer for an aggregate period of not more than 10 business days beyond the
latest applicable date that would otherwise be permitted under clause (i) or
(ii) of this sentence, if as of such date, all of the conditions to
Purchaser's obligations to accept for payment, and to pay for, the Shares are
satisfied or waived, but the number of shares validly tendered and not
withdrawn pursuant to the Offer is less than 90 percent of the outstanding
Shares on a fully diluted basis.
The Merger. The Merger Agreement provides that, subject to the terms and
conditions thereof, at the Effective Time, at the election of Parent, either
Purchaser will be merged with and into the Company and the
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separate corporate existence of Purchaser will cease or the Company will be
merged with and into Purchaser and the separate corporate existence of the
Company will cease. At the Effective Time, by virtue of the Merger and without
any action on the part of Purchaser, the Company or the holders of Shares,
each Share issued and outstanding immediately prior to the Effective Time
(other than Shares owned by Purchaser, Parent or any direct or indirect
wholly-owned subsidiary of Parent or owned by the Company or any direct or
indirect wholly-owned subsidiary of the Company and Shares that are
outstanding immediately prior to the Effective Time and which are held by
stockholders who shall have not voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing appraisal
for such Shares in accordance with Section 262 of the Delaware Law) will be
converted into the right to receive the Merger Consideration. Pursuant to the
Merger Agreement, each share of common stock, par value $.01 per share, of
Purchaser issued and outstanding immediately prior to the Effective Time will
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock of the corporation existing subsequent to
the Merger (the "Surviving Corporation").
Charter Documents; Initial Directors and Officers. The Merger Agreement
provides that the Certificate of Incorporation of Purchaser in effect at the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation, until duly amended in accordance with the terms thereof and the
Delaware Law, provided, that Article First of the Certificate of Incorporation
of the Surviving Corporation will be amended to read in its entirety as
follows: "FIRST: The name of the corporation is Advanced Logic Research, Inc."
The Merger Agreement also provides that the By-Laws of Purchaser in effect at
the Effective Time shall be the By-Laws of the Surviving Corporation, until
duly amended in accordance with the terms thereof and the Delaware Law.
Pursuant to the Merger Agreement, the directors of Purchaser and the officers
of the Company at the Effective Time shall, from and after the Effective Time,
be the directors and officers, respectively, of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and By-Laws.
Stockholders Meeting. The Merger Agreement provides that the Company will
take all action necessary, in accordance with applicable law and its
Certificate of Incorporation and By-Laws to convene a meeting of its
stockholders to consider and vote upon the approval of the Merger Agreement,
the Merger and such other matters as may be necessary to effectuate the
transactions contemplated by the Merger Agreement, if necessary to comply with
applicable law, as promptly as practicable after the expiration of the Offer.
The Company's Board of Directors will recommend such approval and take all
lawful action to solicit such approval, provided, however, that the Company's
Board of Directors at any time prior to such time of acceptance for payment of
at least a majority of the Shares pursuant to the Offer, may withdraw, modify
or change any such recommendations to the extent that the Company's Board of
Directors (i) determines in good faith after consultation with and based upon
the advice of independent legal counsel that the failure to so withdraw,
modify or change its recommendation would cause the Company's Board of
Directors to breach its fiduciary duties to the Company's stockholders under
applicable law and (ii) the Company has received in writing a "Superior
Proposal" (as defined below), which is then pending, which the Company's Board
of Directors has determined to recommend to the stockholders of the Company.
For purposes of the Merger Agreement, a "Superior Proposal" means any bona
fide proposal relating to a Competing Transaction (as defined below) made by a
third party on terms which the Company's Board of Directors determines in its
good faith judgment (based upon the advice of a financial advisor of
nationally recognized reputation) to be more financially favorable to the
Company's stockholders than the Offer and the Merger and for which financing,
to the extent required, is then committed or which, in the good faith judgment
(based upon the advice of a financial advisor of nationally recognized
reputation) of the Company's Board of Directors, is reasonably capable of
being financed by such third party.
Parent and Purchaser will vote all Shares over which they exercise voting
control in favor of the Merger Agreement and the Merger. Under the Delaware
Law, if Purchaser acquires at least 90% of the outstanding Shares, Purchaser
will be able to approve the Merger without a vote of the Company's
stockholders. For a further discussion of certain provisions of the Delaware
Law applicable to the Merger, see Item 8. "Section 203."
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Conduct of Business. Pursuant to the Merger Agreement, prior to the
Effective Time, except to the extent that Purchaser shall otherwise consent
(including by virtue of action by the Company's Board of Directors approved by
all of Purchaser's or Parent's designees, as applicable, at such time as they
shall constitute a majority of the Company's Board of Directors), the Company
shall, and shall cause its subsidiaries to, except as expressly permitted by
the Merger Agreement, conduct their respective businesses in, and to not take
any action except in, the ordinary course of business in a manner consistent
with past practice. The Company shall, and shall cause its subsidiaries to,
use their respective reasonable best efforts to preserve intact the business
organization of the Company and its subsidiaries, to keep available the
services of the current officers, employees and consultants of the Company and
its subsidiaries and to preserve the current business relationships of the
Company and its subsidiaries, including, without limitation, with customers,
licensors, suppliers, distributors and others with which the Company or any
subsidiary has business relations. Without limiting the generality of the
foregoing, and except as expressly permitted or specifically contemplated by
the Merger Agreement, between the date of the Merger Agreement and the
Effective Time, the Company shall not, and it shall not permit any subsidiary
to, directly or indirectly do, or propose to do, any of the following without
the prior written consent of Purchaser (except as otherwise expressly
permitted by the Merger Agreement):
(i) (A) declare, set aside or pay any dividends on or other distributions
in respect of any of its capital stock (other than dividends and
distributions by any direct or indirect wholly-owned subsidiary of the
Company to the Company), (B) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock or (C) repurchase, redeem or otherwise acquire, or permit any
subsidiary to repurchase, redeem or otherwise acquire, any shares of
capital stock;
(ii) issue, deliver, sell, pledge, dispose or encumber, or authorize or
propose the issuance, delivery, sale, pledge, disposal or encumbrance of,
any shares of its capital stock of any class or any securities convertible
into, or any rights, warrants, calls, subscriptions or options to acquire,
any such shares or convertible securities, or any other ownership interest
other than (A) the issuance of shares of the Company's common stock (the
"Company Common Stock") upon the exercise of stock options granted under
the Company's Flexible Stock Incentive Plan, Directors Nonqualified Stock
Option Plan and 1996 Stock Option/Stock Issuance Plan (collectively the
"Company Stock Option Plans") outstanding on the date of the Merger
Agreement and in accordance with the current terms of such options, (B)
issuances by a subsidiary of the Company of its capital stock to the
Company or a subsidiary of the Company so long as the Company will, after
such issuance, directly or indirectly own all the outstanding capital stock
of such issuing subsidiary and (C) the grant of stock options to new hires
in the ordinary course of business consistent with past practice and with
the written consent of Parent;
(iii) amend or propose to amend its Certificate of Incorporation or By-
Laws;
(iv) acquire or agree to acquire, including, without limitation, by
merging or consolidating with, or by purchasing a substantial equity
interest in or substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof;
(v) sell, lease, license, grant a security interest in, encumber or
otherwise dispose of, or agree to sell, lease, grant a security interest
in, encumber or otherwise dispose of, any of its material assets other than
(A) sales or licenses of its products in the ordinary course of business
consistent with past practice, (B) equipment and property no longer used in
the operation of the Company's or any subsidiary of the Company's
respective businesses and (C) assets related to any discontinued operations
of the Company and any subsidiary of the Company which operations were
discontinued prior to the date of the execution of the Merger Agreement;
(vi) incur (which shall not be deemed to include entering into credit
agreements, lines of credit or similar arrangements until borrowings are
made under such arrangements) any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of the Company or any
subsidiary of the Company or guarantee any debt securities of others,
except in the ordinary course of business consistent with past practice;
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(vii) (A) grant any increase in the compensation of any of its directors,
officers or employees, except for increases for employees in the ordinary
course of business consistent with past practices, (B) grant, pay or agree
to pay any pension, retirement allowance or other employee benefit not
required or contemplated by any existing employee benefit plan, program,
arrangement, agreement or contract (including, without limitation, any
"employee benefit plan", as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), maintained
or contributed to by the Company or any subsidiary of the Company, or with
respect to which the Company or any subsidiary of the Company could incur
liability under Sections 4069, 4212(c) or 4204 of ERISA (the "Company
Benefit Plans") as in effect on the date hereof to any director, officer or
employee, (C) enter into any new employment, severance or termination plan,
program, arrangement, agreement or contract with any such director, officer
or employee or (D) except as may be required to comply with applicable law,
become obligated under any Company Benefit Plan that was not in existence
on the date of the execution of the Merger Agreement or amend any such plan
in existence on the date of the execution of the Merger Agreement to
enhance the benefits thereunder;
(viii) make any capital expenditure or expenditures which exceed $250,000
in the aggregate; or
(ix) authorize any of, or commit or agree to take any of, the actions
described in the immediately foregoing paragraphs (i) through (viii).
No Solicitation. Pursuant to the Merger Agreement, the Company has agreed to
immediately cease and cause to be terminated all existing discussions or
negotiations relating to a Competing Transaction, other than with respect to
the transactions contemplated by the Merger Agreement, with any parties
conducted prior thereto. The Company has agreed not to, directly or
indirectly, and to instruct its representatives not to, directly or
indirectly, initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Competing Transaction or enter into or maintain
discussions or negotiate with any person in furtherance of or relating to such
inquiries or to obtain a Competing Transaction or agree to or endorse any
Competing Transaction or authorize or permit any representative of the Company
or any of its subsidiaries to take any such action. The Company also agreed to
use its best efforts to cause its representatives and subsidiaries not to take
any such action and to promptly notify Parent if any such inquiries or
proposals are made regarding a Competing Transaction and as to the material
details of any such inquiry or proposal and, if in writing, to promptly
deliver or cause to be delivered to Parent a copy of such inquiry or proposal.
The Company also agreed to keep Parent informed, on a current basis, of the
details of any such inquiries and the status and terms of any such proposals;
provided, however, that prior to the time of acceptance for payment of at
least a majority of Shares pursuant to the Offer, the Merger Agreement shall
not prohibit the Company's Board of Directors from (i) furnishing information
to, or entering into discussions or negotiations with, any person that after
the date of the Merger Agreement makes an unsolicited bona fide proposal
regarding a Competing Transaction or agreeing to or endorsing any Competing
Transaction, if, and only to the extent that, (A) the Company's Board of
Directors, after consultation with and based upon the advice of independent
legal counsel, determines in good faith that such action is required for the
Company's Board of Directors to comply with its fiduciary duties to the
Company's stockholders imposed by the Delaware Law, (B) prior to furnishing
such information to, or entering into discussions or negotiations with such
person or agreeing to or endorsing any Competing Transaction, the Company's
Board of Directors determines in good faith, after consultation with and based
upon the advice of a financial advisor of a nationally recognized reputation,
that such Competing Transaction is a Superior Proposal, (C) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person, the Company provides written notice to Purchaser to the
effect that it is furnishing information to, or entering into discussions or
negotiations with, such person, (D) prior to furnishing such information to
such person, the Company receives from such person an executed confidentiality
agreement with terms no less favorable to the Company than those contained in
the confidentiality agreement between the Company and Parent, and (E) such
information to be so furnished has been previously delivered to Parent; or
(ii) complying with Rule 14e-2 promulgated under the Securities Exchange Act
of 1934 (the "Exchange Act") with regard to a Competing Transaction.
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For purposes of the Merger Agreement, "Competing Transaction" means any of
the following involving the Company or any of its subsidiaries (other than the
entering into or consummation of the transactions contemplated by the Merger
Agreement): (a) any merger, consolidation, share exchange, business
combination, or other similar transaction; (b) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of substantial assets (other
than assets held in inventory for resale in the ordinary course of business)
of the Company and its subsidiaries, taken as a whole, in a single transaction
or series of transactions; (c) any tender offer or exchange offer that if
consummated would result in any person beneficially owning 20% or more of the
outstanding shares of capital stock of the Company or the filing of a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), in connection therewith; (d) any solicitation of proxies in
opposition to approval by the Company's stockholders of the Merger; (e) the
acquisition by any person, after the date hereof, of beneficial ownership or
the right to acquire beneficial ownership of, or the formation of any "group"
(as such term is defined under Section 13(d) of the Exchange Act), that
beneficially owns or has the right to acquire beneficial ownership of 20% or
more of the then outstanding shares of capital stock of the Company, or the
acquisition by any person or "group" that, as of the date hereof, beneficially
owns 20% or more of the outstanding shares of capital stock of the Company
(other than any passive institutional investor) of beneficial ownership or the
right to acquire beneficial ownership of any additional shares of capital
stock of the Company; (f) the adoption by the Company of a plan of
liquidation, the declaration or payment by the Company of an extraordinary
dividend on any of its shares of capital stock or the effectuation by the
Company of a recapitalization or other type of transaction that would involve
either a change in the Company's outstanding capital stock or a distribution
of assets of any kind to the holders of such capital stock; (g) the repurchase
by the Company or any subsidiary of the Company of shares of Company Common
Stock; or (h) any agreement to, or public announcement by the Company or any
other person, entity or group of a proposal, plan or intention to, do any of
the foregoing.
Directors. The Merger Agreement provides that, promptly upon the acceptance
for payment of, and payment for, Shares constituting a majority of the then
outstanding Shares by Purchaser pursuant to the Offer, Purchaser from time to
time shall be entitled to designate such number of directors (rounded up to
the next whole number) on the Company's Board of Directors as will give
Purchaser, subject to compliance with Section 14(f) of the Exchange Act, that
percentage of the total number of directors on the Company's Board of
Directors (giving effect to the election of any additional directors pursuant
to the Merger Agreement) equal to the percentage of then outstanding Shares
owned by Purchaser and Parent (provided that such percentage of the total
number of directors shall not be less than a majority of the Company's Board
of Directors), at such time, cause Purchaser's designees to be elected by the
existing Company's Board of Directors, provided, however, that in the event
that such designees are elected to the Company's Board of Directors, from the
date of the Merger Agreement until the Effective Time, the Company's Board of
Directors shall have at least two directors who are directors on the date of
the Merger Agreement and who are neither officers of the Company nor
affiliates of Purchaser or Parent (the "Independent Directors"); and provided
further that if the number of Independent Directors shall be reduced below two
for any reasons whatsoever, the remaining Independent Director shall designate
a person to fill such vacancy who shall be deemed to be an Independent
Director for purposes of the Merger Agreement or, if no Independent Directors
then remain, the other directors shall designate two persons to fill such
vacancies who shall not be officers or affiliates of the Company or officers
or affiliates of Parent or any of its subsidiaries, and such persons shall be
deemed to be Independent Directors for purposes of the Merger Agreement.
Subject to applicable law, the Company shall take all actions requested by
Parent necessary to effect any such election, including mailing to its
stockholders the Information Statement containing the information required by
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder by the
Commission, and the Company agrees to make such mailing with the mailing of
its Schedule 14D-9. In connection with the foregoing, the Company will
promptly, at the option of Parent, either increase the size of the Company's
Board of Directors and/or obtain the resignation of such number of its current
directors as is necessary to enable Purchaser's designees to be elected or
appointed to, and to constitute that percentage of the total number of
directors on the Company's Board of Directors (giving effect to the election
of any additional directors pursuant to this Section) equal to the percentage
of then outstanding Shares owned by Purchaser and Parent (provided
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that such percentage of the total number of directors shall not be less than a
majority of the Company's Board of Directors).
The Merger Agreement also provides that following the election of
Purchaser's designees, pursuant to the Merger Agreement, prior to the
Effective Time, any amendment or termination of the Merger Agreement or waiver
of any of the Company's rights thereunder shall require the concurrence of a
majority of the Independent Directors.
Directors' and Officers' Indemnification. The Merger Agreement requires that
the Certificate of Incorporation and By-Laws of the Surviving Corporation
contain the same provisions with respect to indemnification, advancement and
director exculpation as set forth in the Certificate of Incorporation and By-
Laws of the Company as of the date of the Merger Agreement, and that such
provisions not be amended, repealed or otherwise modified for a period of six
years after the Effective Time in any manner that would adversely affect the
rights thereunder of persons who at any time prior to the Effective Time were
entitled to indemnification, advancement or exculpation under the Certificate
of Incorporation or By-Laws of the Company in respect of actions or omissions
occurring at or prior to the Effective Time (including, without limitation,
the transactions contemplated by the Merger Agreement), unless such
modification is required by any foreign or domestic (federal, state or local)
law, statute, ordinance, rule, regulation, interpretation, permit, injunction,
writ, judgment, decree or order ("Law").
Purchaser will not permit the provisions with respect to indemnification,
advancement or director exculpation set forth in the Certificate of
Incorporation and By-Laws of any of the Company's subsidiaries on the date of
the Merger Agreement to be amended, repealed or otherwise modified for a
period of six years after the Effective Time in any manner that would
adversely affect the rights thereunder of persons who at any time prior to the
Effective Time were entitled to indemnification, advancement or exculpation
under any such Certificate of Incorporation or By-Laws in respect of actions
or omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by the Merger Agreement), unless
such modification is required by Law.
The Merger Agreement further provides that from and after the Effective
Time, the Surviving Corporation shall indemnify, defend and hold harmless the
present and former officers, directors and employees of the Company
(collectively, the "Indemnified Parties") against all losses, expenses,
claims, damages, liabilities or amounts that are paid in settlement of (with
approval of Parent and the Surviving Corporation), or otherwise in connection
with, any claim, action, suit, proceeding or investigation, based in whole or
in part on the fact that such person is or was such a director, officer or
employee and arising out of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated
by the Merger Agreement), in each case to the fullest extent permitted under
the Delaware Law (and shall pay expenses in advance of the final disposition
of any such action or proceeding to each Indemnified Party to the fullest
extent permitted under the Delaware Law, upon receipt from the Indemnified
Party to whom expenses are advance of the undertaking to repay such advances
contemplated by Section 145(e) of the Delaware Law).
Parent has agreed to maintain in effect for not less than six years after
the Effective Time (except to the extent not generally available in the
market) directors' and officers' liability insurance that is substantially
equivalent in coverage to the Company's current insurance, with an amount of
coverage of not less than the amount of coverage maintained by the Company as
of the date of the Merger Agreement with respect to matters occurring prior to
the Effective Time; provided, however, that Parent is not required to pay an
annual premium for such insurance in excess of 150% of the last annual premium
paid prior to the date of the Merger Agreement (which the Company represented
and warranted to have been $250,000 plus applicable taxes), but in such case
shall purchase as much coverage as possible for such amount.
Company Options. The Merger Agreement provides that, at the Effective Time,
each option to purchase shares of Company Common Stock (each a "Company
Option") issued pursuant to the Company Stock Option Plans or granted by the
Company to any person outside of any Company Stock Option Plan that is
outstanding
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and unexercised immediately prior to the Effective Time shall be converted, at
the Effective Time, into an option to acquire, on the same terms and
conditions as were applicable under the Company Stock Option Plans and the
underlying option agreements (as modified by the Merger Agreement), that
number of shares of common stock, $.01 par value, of Parent (the "Parent
Common Stock") determined by multiplying the number of shares of Company
Common Stock subject to such option by the Exchange Ratio (as defined herein)
(rounded up to the nearest whole share) at a price per share of Parent Common
Stock equal to the exercise price per share of Company Common Stock under such
Company Option divided by the Exchange Ratio (rounded up to the nearest whole
cent); provided, however, that in the case of any option to which Section 421
of the Internal Revenue Code of 1986, as amended (the "Code") applies by
reason of its qualification under section 422 of the Code, the option price,
the number of shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall be determined in order to comply
with Section 424(a) of the Code. The term "Exchange Ratio" means that amount
equal to the price of the Offer divided by the closing price of Parent Common
Stock on the New York Stock Exchange, Inc. ("NYSE") for the twenty consecutive
trading days immediately preceding the date of the Effective Time. The Company
agreed to take all necessary action to effectuate the foregoing and, except
with respect to options currently outstanding under the Directors' Non-
Qualified Stock Option Plan (which the Company has advised Purchaser consists
of 72,500 shares), to preclude the acceleration of any vesting or other
provisions of any Company Option, including pursuant to a Company Stock Option
Plan or any agreement evidencing the grant of a Company Option, as a result of
the Merger Agreement and the transactions contemplated by the Merger
Agreement.
Employees. Following the Effective Time, the Surviving Corporation agreed to
honor in accordance with their terms all bonus, deferred compensation,
severance pay, insurance, stock purchase, stock option or other fringe
benefits plan, program or arrangement and all accrued benefits vested
thereunder. Purchaser agreed to provide, after the Effective Time, or cause
the Surviving Corporation to provide employees of the Company and its
subsidiaries retained and who continue to be employed by Purchaser with
employee benefits (other than stock options) in the aggregate substantially no
less favorable than those benefits provided to Purchaser's similarly situated
employees for a period ending on the first anniversary of the Effective Time.
Certain Conditions of the Offer. Notwithstanding any other provision of the
Offer, Purchaser shall not be required to accept for payment or pay for any
Shares tendered, and may terminate or amend the Offer (subject to the
provisions of the Merger Agreement) and may postpone the acceptance of, and
payment for, subject to Rule 14e-1(c) of the Exchange Act, any Shares
tendered, if:
(i) prior to expiration of the Offer there are not validly tendered and
not withdrawn at least a majority of the outstanding shares on a fully
diluted basis (the "Minimum Condition"),
(ii) any applicable waiting period under the HSR Act shall not have
expired or been terminated prior to the expiration of the Offer, or
(iii) at any time on or after the date of execution of the Merger
Agreement, and prior to the acceptance for payment of Shares, any of the
following conditions shall exist:
(a) there shall have been instituted by any Governmental Authority
any action or proceeding before any Governmental Authority (including
such Governmental Authority instituting or initiating such action or
proceeding), (i) challenging or seeking to make illegal, materially
delay or otherwise directly or indirectly restrain or prohibit the
making of the Offer, the acceptance for payment of, or payment for, any
Shares by Parent, Purchaser, or any other affiliate of Parent, or the
consummation of any other transaction contemplated by the Merger
Agreement, or seeking to obtain material damages in connection with any
transaction contemplated by the Merger Agreement; (ii) seeking to
prohibit or limit materially the ownership or operation by the Company,
Parent or any of their respective subsidiaries of all or any material
portion of the business or assets of the Company, Parent or any of
their respective subsidiaries, or to compel the Company, Parent or any
of their respective subsidiaries to dispose of or to hold separate all
or any material portion of the business or assets of the Company,
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Parent or any of their respective subsidiaries, as a result of the
transactions contemplated by the Merger Agreement; (iii) seeking to
impose or confirm limitations on the ability of Parent, Purchaser or
any other affiliate of Parent to exercise effectively full rights of
ownership of any Shares, including, without limitation, the right to
vote any Shares acquired by Purchaser pursuant to the Offer or
otherwise on all matters properly presented to the Company's
stockholders, including, without limitation, the approval and adoption
of the Merger Agreement and the transactions contemplated by the Merger
Agreement; (iv) seeking to require divestiture by Parent, Purchaser or
any other affiliate of Parent of any Shares; or (v) which otherwise has
a Company Material Adverse Effect (as defined in the Merger Agreement)
or which relates to the transactions contemplated by the Merger
Agreement and has a Purchaser Material Adverse Effect (as defined in
the Merger Agreement);
(b) there shall have been any action taken, or any Law enacted,
entered, enforced, promulgated, amended, issued or deemed applicable to
(i) Parent, the Company or any subsidiary or affiliate of Parent or the
Company or (ii) any transaction contemplated by the Merger Agreement,
by any government or Governmental Authority other than the routine
application of the waiting period provisions of the HSR Act to the
Offer or the Merger, which is reasonably likely to result in any of the
consequences referred to in clauses (i) through (v) of paragraph (a)
above;
(c) there shall have occurred any change, condition, event or
development that has a Company Material Adverse Effect;
(d) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the NYSE or the
National Association of Securities Dealers, Inc. Automatic
Quotation/National Market System ("NASDAQ/NNM") (excluding any
coordinated trading halt triggered solely as a result of a specified
decrease in a market index), (ii) a declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States,
(iii) any limitation (whether or not mandatory) by any government or
Governmental Authority of the United States on the extension of credit
by banks or other lending institutions or (iv) a commencement of a war
or material armed hostilities or other national or international
calamity involving the United States;
(e) the Company or any of its subsidiaries shall have sustained a
loss or interference with its business by fire, flood, accident,
hurricane, earthquake, theft, sabotage or other calamity or malicious
act which constitutes a Company Material Adverse Effect, whether or not
said loss shall have been insured, which will, in the reasonable
opinion of Parent, make it inadvisable or impractical to proceed with
the Offer;
(f) (i) it shall have been publicly disclosed or Parent or Purchaser
shall have otherwise learned that beneficial ownership of 20% or more
of the then outstanding Shares has been acquired by any person, other
than Parent or any of its affiliates or any other person not required
to file a Schedule 13D under the rules promulgated under the Exchange
Act or (ii) (A) the Board or any committee thereof shall have
withdrawn, modified or changed in a manner adverse to Parent or
Purchaser the approval or recommendation of the Offer, the Merger or
the Merger Agreement, or approved or recommended any Competing
Transaction or any other acquisition of Shares other than the Offer or
the Merger or (B) the Board or any committee thereof shall have
resolved to do any of the foregoing;
(g) the representations and warranties of the Company in the Merger
Agreement shall not be true and correct as of the date of the execution
of the Merger Agreement or as of the expiration of the Offer except for
(i) changes specifically contemplated by the Merger Agreement and (ii)
those representations and warranties that address matters only as of a
particular date (which shall remain true and correct as of such date)
and in each case except where failure to be so true and correct would
not have a Company Material Adverse Effect (other than representations
and warranties that are already so qualified or that are qualified as
to the prevention or delay of the consummation of any of the
transactions contemplated by the Merger Agreement or as to the
performance by the Company of its obligations under the Merger
Agreement, which in each such case shall be true and correct as
written);
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(h) the Company shall have failed to perform any obligation or to
comply with any agreement or covenant of the Company to be performed or
complied with by it under the Merger Agreement unless all such failures
together in their entirety, would not, individually or in the
aggregate, have a Company Material Adverse Effect;
(i) the Merger Agreement shall have been terminated in accordance
with its terms; or
(j) Parent and the Company shall have agreed that Purchaser shall
terminate the Offer or postpone the acceptance for payment of or
payment for Shares thereunder.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be asserted by Parent or Purchaser regardless of the circumstances
giving rise to any such condition or may be waived by Parent or Purchaser in
whole or in part at any time and from time to time in their sole discretion,
subject in each case to the terms of the Merger Agreement. The failure by
Parent or Purchaser at any time to execute any of the foregoing rights shall
not be deemed a waiver of any such right with respect to particular facts and
other circumstances shall not be deemed a waiver with respect to any other
facts and circumstances; and each such right shall be deemed an ongoing right
that may be asserted at any time and from time to time.
Conditions to the Obligations of Each Party. The Merger Agreement provides
that the respective obligations of each party to consummate the Merger are
subject to the satisfaction of a number of conditions, including, but not
limited to, (i) the approval and adoption of the Merger Agreement by the
stockholders of the Company (if required), (ii) the expiration of any waiting
period applicable to the consummation of the Merger under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and any
required approvals in connection with any premerger notification filing with
the German Federal Cartel Office, (iii) no United States (federal, state or
local) or foreign government or governmental regulatory, administrative
authority, agency, commission, board, bureau, court or instrumentality or
arbitrator of any kind ("Governmental Authority"), having enacted, issued,
promulgated, enforced or entered into any law, rule, regulation, executive
order or decree, judgment, injunction, ruling or other order, whether
temporary, preliminary or permanent, that is then in effect and has the effect
of prohibiting the consummation of the Merger, and (iv) the Offer not having
been terminated in accordance with its terms prior to the purchase of any
Shares.
Conditions to the Obligations of Parent and Purchaser. The Merger Agreement
provides that the obligations of Parent and Purchaser to consummate the Merger
is subject to the satisfaction of a number of further conditions, including
but not limited to, (i) the accuracy of representations and warranties as of
the times specified in the Merger Agreement, (ii) the performance by the
Company, in all material respects, with its agreements and covenants contained
in the Merger Agreement and (iii) receipt of an Accountant's Letter from the
Company's independent auditors regarding agreed-upon procedures relating to
unaudited information after September 30, 1996.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto including, but
not limited to, representations by the Company as to corporate organization
and qualification, subsidiaries, capitalization, authority to enter into the
Merger Agreement, filings with the Commission and other governmental
authorities, the absence of certain changes or events, intellectual property,
material contracts, environmental matters, employee benefit matters, the
opinion of the Company's financial advisor, labor relations, the application
of California law, tax returns, audits, brokers and litigation.
Expenses. The Merger Agreement provides that, if (i) Parent terminates the
Merger Agreement because the Company withdraws, modifies or changes its
recommendation of the Merger Agreement or Merger or recommends a Competing
Transaction or resolves to do so or because the Company is in breach of any
material provision of the Merger Agreement; (ii) the Company terminates the
Merger Agreement because the Company's Board of Directors recommends a
Superior Proposal or resolves to do so; (iii) Parent terminates the Offer
because the Minimum Condition is not satisfied and at or prior to such time
the Company has received one or more proposals for a Competing Transaction
which at the time of such occurrence has not been absolutely and
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unconditionally withdrawn or abandoned; or (iv) within six months after the
date of termination of the Merger Agreement (other than a termination solely
pursuant to Section 8.1(a) (mutual agreement), (e) (breach of any material
provision of the Merger Agreement by Parent or Purchaser) or (g) (failure of
Purchaser to timely commence the Offer) of the Merger Agreement at which time
the Merger Agreement is not terminable pursuant to any other provision of
Section 8.1 thereof) of the Merger Agreement a Competing Transaction is
entered into by the Company, then promptly after such termination (or, with
respect to item (iv), upon the entering into of such Competing Transaction) by
Purchaser, Parent or the Company, the Company shall pay to Parent an amount
equal to $7,500,000 (the "Break-up Fee") and shall reimburse Parent for all of
its expenses up to an amount equal to $1,500,000; provided that with respect
to item (iii), the Company shall pay to Parent an amount equal to $2,500,000
(the "Initial Break-up Fee") plus all of Parent's expenses up to an amount
equal to $1,500,000 promptly following such termination and the balance of the
Break-up Fee only shall be payable subject to the terms of item (iv) above.
Except as set forth in the above paragraph, all expenses incurred in
connection with the Merger Agreement and the transactions contemplated by the
Merger Agreement will be paid by the party incurring such expenses, whether or
not any transaction contemplated by the Merger Agreement is consummated, other
than expenses of the Company's stockholders that entered into the Stockholders
Agreement for services provided by the Company's principal outside counsel
that are ancillary to those provided by such counsel to the Company in
connection with the Offer, the Merger and the other transactions contemplated
by the Merger Agreement, which may be paid by the Company.
Termination of the Merger Agreement. The Merger Agreement may be terminated
and the Merger and the transactions contemplated by the Merger Agreement may
be abandoned at any time prior to the Effective Time, notwithstanding any
requisite approval and adoption of the Merger Agreement and the transactions
contemplated by the Merger Agreement, as follows:
(i) by mutual written consent duly authorized by the Boards of Directors
of each of Parent and the Company;
(ii) by either Parent or the Company, if either (a) the Effective Time
shall not have occurred on or before November 15, 1997; provided, however,
that the right to terminate the Merger Agreement under this Section shall
not be available to any party whose failure to fulfill any obligation under
the Merger Agreement has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date; (b) there shall be any
Law that makes consummation of the Merger illegal or otherwise prohibited
or any order that is final and nonappealable preventing the consummation of
the Merger, except if the party relying on such order has not complied with
its obligations under Section 6.6(b) (consisting of its agreement to take
all other appropriate actions in connection with the Offer, the Merger and
the transactions contemplated by the Merger Agreement) of the Merger
Agreement or (c) Purchaser or Parent shall have terminated the Offer in
accordance with its terms and conditions without purchasing any Shares
pursuant thereto;
(iii) by Parent, if the Company's Board of Directors (a) withdraws,
modifies or changes its recommendation of the Merger Agreement or the
Merger in a manner adverse to Parent or Purchaser, (b) shall have
recommended to the stockholders of the Company any Competing Transaction or
(c) shall have resolved to do any of the foregoing;
(iv) by Parent, if there has been a breach of any material
representation, warranty, covenant or agreement on the part of the Company
set forth in the Merger Agreement, or if any representation or warranty of
the Company shall have become untrue, in either case such that the
condition to Parent and Purchaser's obligations set forth in Section 7.2(a)
of the Merger Agreement (breach of representations) would not be satisfied
(a "Terminating Company Breach"); provided, however, that, if such
Terminating Company Breach is curable by the Company through the exercise
of its reasonable best efforts and for so long as the Company continues to
exercise such reasonable best efforts (but in no event longer than thirty
days after Parent's notification of the Company of the occurrence of such
Terminating Company Breach), Parent may not terminate the Merger Agreement
pursuant to this provision;
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(v) by the Company, if there has been a breach of any material
representation, warranty, covenant or agreement on the part of Parent and
Purchaser set forth in the Merger Agreement, or if any representation or
warranty of Parent and Purchaser shall have become untrue in any material
respect ("Terminating Purchaser Breach"); provided, however, that, if such
Terminating Purchaser Breach is curable by Parent and Purchaser through the
exercise of their reasonable best efforts and for so long as Parent and
Purchaser continue to exercise such reasonable best efforts (but in no
event longer than thirty days after the Company's notification of Parent of
the occurrence of such Terminating Purchaser Breach), the Company may not
terminate the Merger Agreement pursuant to this provision;
(vi) by the Company, if, prior to such time as Purchaser's designees
constitute a majority of the members of the Company's Board of Directors,
the Company's Board of Directors shall have recommended to the stockholders
of the Company any Superior Proposal, which is then pending, or resolved to
do so, provided that any termination of the Merger Agreement by the Company
pursuant to this provision shall not be effective until the close of
business on the second full business day after notice of such termination
to Parent; or
(vii) by the Company, if Parent, Purchaser or an affiliate of Parent
shall have failed to commence the Offer within five business days after the
public announcement of the execution of the Merger Agreement.
Timing. The exact timing and details of the Merger will depend upon legal
requirements and a variety of other factors, including the number of Shares
acquired by Purchaser pursuant to the Offer. Although Purchaser and Parent
have agreed to cause the Merger to be consummated on the terms set forth
above, there can be no assurance as to the timing of the Merger.
Appraisal Rights. Stockholders do not have dissenters' rights as a result of
the Offer. However, if the Merger is consummated, stockholders of the Company
at the time of the Merger who do not vote in favor of or consent in writing to
the Merger will have the right under the Delaware Law to dissent and demand
appraisal of their Shares in accordance with Section 262 of the Delaware Law.
Under the Delaware Law, dissenting stockholders who comply with the applicable
statutory procedures will be entitled to receive a judicial determination of
the fair value of their Shares (exclusive of any element of value arising from
the accomplishment or expectation of the Merger) and to receive payment of
such fair value in cash, together with a fair rate of interest, if any. Any
such judicial determination of the fair value of the Shares could be based
upon considerations other than or in addition to the price paid in the Offer
(or the Merger) and the market value of the Shares. Stockholders should
recognize that the value so determined could be higher or lower than the price
per Share paid pursuant to the Offer or the Merger. Moreover, Parent or
Purchaser may argue in an appraisal proceeding that, for purposes of such a
proceeding, the fair value of the Shares is less than the price paid in the
Offer (or the Merger). THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING
STOCKHOLDERS DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF PROCEDURES TO BE
FOLLOWED BY STOCKHOLDERS DESIRING TO EXERCISE THEIR DISSENTERS' RIGHTS.
THE STOCKHOLDERS AGREEMENT
The following summary of the stockholders agreement, by and between the
Parent, Purchaser and the stockholders listed on Schedule I to the Merger
Agreement (each a "Selling Stockholder") (the "Stockholders Agreement") is
qualified in its entirety by reference to the Stockholders Agreement, a copy
of which is filed as Exhibit 2 hereto. The Stockholders Agreement should be
read in its entirety for a more complete description of the matters summarized
below.
Parent, Purchaser and Wearnes Technology (Private) Limited, Eugene Y. Lu,
Chun Win Wong and Philip A. Harding, have entered into the Stockholders
Agreement, pursuant to which, among other things, each such stockholder has
agreed to vote the Shares then owned by such stockholder in favor of the
approval and adoption of the Merger Agreement, the Merger and all the
transactions contemplated by the Merger Agreement and the Stockholders
Agreement and any other actions required in furtherance thereof and against
any Competing
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Transaction and any actions in furtherance thereof, to grant Purchaser an
irrevocable proxy to vote such Shares, to tender all Shares then owned by such
stockholder to Purchaser in accordance with the Offer as soon as practicable
(and in any event within five business days) of the commencement of the Offer
and to grant an option to purchase such Shares at a price of $15.50 per Share,
under certain circumstances. Wearnes, Mr. Lu, Mr. Wong and Mr. Harding
beneficially owned of record 4,780,549, 410,000, 30,000 and 25,704 Shares,
respectively, at the time of execution of the Stockholders Agreement,
representing approximately 42% of the issued and outstanding Shares and
approximately 38% on a fully diluted basis. In addition, Messrs. Lu, Wong and
Harding own vested options to acquire 45,316, 17,500 and 17,500 Shares,
respectively, which Shares, issuable upon exercise of such options, would be
subject to the provisions of the Stockholders Agreement.
THE RETENTION AGREEMENT
In connection with the Offer and the Merger, Parent entered into an
agreement with each of the following executive officers of the Company, as
described below: Eugene Y. Lu, Chairman of the Board, President and Chief
Executive Officer; David L. Kelly, Vice President, Hardware Engineering;
Donald E. Kullgren, Director, Manufacturing Operations; Vic Sangveraphunsiri,
Vice President, Systems Engineering, Director Asia Operations; Ronald J.
Sipkovich, Vice President Finance, Chief Financial Officer; Toan Q. Luu, Vice
President, Procurement,; Benedict R. Marchak, Vice President, Personal
Computer Products; Genevieve Ortegon, Vice President, Marketing; and Vikram S.
Sial, Vice President, Treasurer, Assistant Secretary (each an "Executive
Officer") (the "Retention Agreement"). The following summary of the Retention
Agreement is qualified in its entirety by reference to the Retention
Agreement, a copy of which is filed as Exhibit 3 hereto. The Retention
Agreement should be read in its entirety for a more complete description of
the matters summarized below.
The Retention Agreement provides for a one time stock option grant at the
Effective Time under Parent's 1996 Long-Term Equity Incentive Plan (each grant
an "Incentive Grant"), such grants at the closing price of Parent's common
stock, par value $.01 per share, on the New York Stock Exchange on the date of
the Effective Time. Options granted pursuant to the Retention Agreement vest
one-third on each year on the anniversary date of the grant and are
exercisable in the event of termination of the Executive Officer (i) to the
extent vested as of the date of termination in the event of termination with
cause and (ii) to the extent vested as of the last day of work in the event of
voluntary resignation (other than in the event of involuntary relocation of
greater than 25 miles or a 15% or greater diminution in salary (each, a
"Constructive Termination Event")). In the event of termination without cause
(or voluntary resignation after a Constructive Termination Event), (i) the
entire Incentive Grant will vest, and (ii) all prior unvested Company Options
converted to options to purchase Parent Common Stock pursuant to the Merger
Agreement will vest and are exercisable within one year of the termination
date in the event of termination due to death, disability or approved
retirement, and within 90 days of the termination in the event of termination
without cause for all other reasons. Further, in the event of termination
without cause within 12 months following the Effective Time, the Executive
Officer will receive 12 months payment of base salary, paid on a month to
month basis or in a lump sum within 30 days in the event the Executive Officer
becomes employed during that period. If the Executive Officer is terminated
without cause between the thirteenth and twenty-fourth month following the
Effective Time, the Executive Officer will receive 12 months payment of base
salary, reduced by one month for each month after the thirteenth month that
the termination occurs, paid on a month to month basis or in a lump sum within
30 days in the event that the Executive Officer becomes employed during that
period. The Executive Officer and eligible dependents may continue health and
dental coverages during this period with reimbursement by Parent for increased
costs.
Each Executive Officer has agreed as part of the Retention Agreement not to
disclose any confidential or proprietary information, nor to solicit any
employee, customer or supplier of the Company or Parent while employed or for
one year following termination of employment without express written
permission of Parent, to assign all rights in inventions to Parent and not to
compete with the Company or Parent.
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ITEM 4. THE SOLICITATION OR RECOMMENDATION.
Recommendation of the Board of Directors.
The Company's Board of Directors has unanimously approved the Merger
Agreement and determined that the Offer and the Merger are fair to and in the
best interests of the stockholders of the Company (other than Parent and its
subsidiaries) and recommends that all stockholders of the Company accept the
Offer and tender all their Shares pursuant to the Offer. This recommendation
is based in part upon an opinion, dated June 19, 1997, received by the Company
from PaineWebber Incorporated ("PaineWebber") that, as of such date, the
proposed cash consideration to be received by the Company's stockholders in
the Offer and the Merger is fair to the stockholders (other than the Purchaser
and its subsidiaries) from a financial point of view. The full text of the
fairness opinion received by the Company from PaineWebber is filed as Exhibit
4 to this Schedule 14D-9 and is also attached hereto as Annex B. Stockholders
are urged to read such opinion in its entirety.
As set forth in the Offer Documents, Purchaser will purchase Shares tendered
prior to the close of the Offer if the Minimum Condition has been satisfied by
that time and if all other conditions to the Offer have been satisfied (or
waived). Stockholders considering not tendering their Shares in order to wait
for the Merger should note that if the Minimum Condition is not satisfied or
any of the other conditions to the Offer are not satisfied, Purchaser is not
obligated to purchase any Shares, and can terminate the Offer and the Merger
Agreement and not proceed with the Merger. Under the Delaware Law, the
approval of the Company's Board of Directors and the affirmative vote of the
holders of a majority of the outstanding Shares are required to approve the
Merger. Accordingly, if the Minimum Condition is satisfied, Purchaser will
have sufficient voting power to cause the approval of the Merger without the
affirmative vote of any other stockholder. Further, under the Delaware Law, if
Purchaser acquires at least 90% of the outstanding shares, Purchaser will be
able to approve the Merger without a vote of the Company's stockholders.
The Offer is scheduled to expire at 12:00 Midnight, New York City time, on
Tuesday, July 22, 1997, unless Parent, in its sole discretion, elects to
extend the period of time for which the Offer is open. A copy of the press
release issued jointly by the Company and Parent on June 19, 1997 announcing
the Merger and the Offer is filed as Exhibit 5 to this Schedule 14D-9 and is
incorporated herein by reference in its entirety.
Background of the Offer.
On February 21, 1997, representatives of Parent and the Company negotiated
and executed a confidentiality agreement.
On March 19, 1997, representatives of Parent and its financial advisor,
Deutsche Morgan Grenfell, Inc. ("DMG"), met with representatives of the
Company and PaineWebber in Irvine, California to discuss a potential
acquisition or other business arrangement with the Company, such as a possible
OEM relationship.
During the period of March 21, 1997 through March 31, 1997, representatives
of DMG and PaineWebber had numerous discussions regarding the Company's
business and operations and the possible acquisition of the Company by Parent.
Again, no formal acquisition proposal was made.
On April 22 and April 23, representatives of Parent, DMG, the Company and
PaineWebber met at Parent's offices in North Sioux City, South Dakota as well
as other locations in and around the North Sioux City area to discuss the
business and operations of the Company. On May 1, 1997, Theodore W. Waitt,
Chairman and CEO of Parent, Richard D. Snyder, President and Chief Operating
Officer of Parent, Stephen P. Johns, Director of Corporate Development of
Parent, and representatives of DMG met to discuss potential alternative
strategic transactions with the Company. The following day, representatives of
DMG and PaineWebber conferred to develop a procedure for further discussions.
On May 9, 1997, Mr. Waitt and Mr. Eugene Y. Lu, Chairman of the Board,
President and Chief Executive Officer of the Company, met at Mr. Lu's
residence in Orange County, California to discuss certain matters
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relating to a possible acquisition by Parent of the Company. Also on May 9,
PaineWebber requested that DMG submit a proposal on behalf of Parent, prior to
additional due diligence meetings.
Over the next few days, representatives of Parent, DMG and Parent's outside
counsel, Kaye, Scholer, Fierman, Hays & Handler, LLP ("Kaye, Scholer"), held
numerous discussions regarding the terms of a potential transaction between
Parent and the Company. On May 13, 1997, a non-binding term sheet outlining a
proposed acquisition of the Company by Parent based upon a purchase price at a
premium to the then current market price of the Shares was sent to PaineWebber
and, over the next few days, representatives of DMG and PaineWebber held
numerous discussions regarding such proposal. PaineWebber informed DMG that
the Company was not prepared to continue the due diligence process based upon
the purchase price then being proposed.
On June 3 and 4, 1997, Messrs. Waitt, Snyder and Lu reopened discussions of
a proposed transaction based upon a potentially higher price. In such
conversation, Mr. Lu expressed the desire of the Company to obtain an offer
that would represent both a substantial premium to the then-current trading
price for the Shares and a price above the 12-months' high sales price for the
Shares. Mr. Waitt indicated he was willing to proceed on the basis of a final
purchase price of $15.25 per share. Mr. Lu contacted individual members of the
Board to obtain their reaction to this development. On June 4, 1997, Messrs.
Waitt and Lu had an additional conversation in which the parties agreed to
continue to investigate the possibility of a transaction on the basis of a
purchase price of $15.50 per Share. Representatives of Parent and the Company
agreed to continue the diligence process and, over the next week,
representatives of the Company, Parent, DMG, PaineWebber, Kaye, Scholer and
the Company's outside counsel, Brobeck, Phleger & Harrison LLP ("Brobeck"),
met relating to Parent's conducting of further due diligence on the Company.
On June 11, 1997, drafts of the Merger Agreement and the Stockholders
Agreement were delivered to the Company, Brobeck and PaineWebber for their
review.
On June 13, 1997, representatives of the Company, Parent, DMG, PaineWebber,
Kaye, Scholer and Brobeck met in Irvine and telephonically to begin
negotiations of the terms of the Merger Agreement and ancillary agreements.
On June 13, 1997, the Board held a special meeting to receive an update
regarding the proposed business combination. All of the Company's directors
were present in person or by telephone. The Board heard a detailed
presentation by its legal counsel with respect to the members' fiduciary
duties. At the meeting, the Board reviewed the first draft of the Merger
Agreement, and the principal open issues related thereto, with the Company's
management, representatives of Brobeck and representatives of PaineWebber. In
addition, the Board reviewed certain interests members thereof may have in the
proposed transaction including certain members or their affiliates entering
into the Stockholders Agreement and/or the Retention Agreement and the
proposed acceleration and cash-out, pursuant to their terms, of the Stock
Options of the outside directors. Representatives of PaineWebber described the
financial analysis of the proposed transaction that they were performing for
the Company and the preliminary results thereof. The Board discussed
alternatives reasonably available to the Company with the Company's management
and legal and financial advisors. At the conclusion of such meeting, the Board
authorized continued negotiation of the terms of the proposed transaction.
On June 16, 1997, representatives of the Company and Brobeck met
telephonically with representatives of Parent and Kaye, Scholer to further
negotiate the terms of the proposed Merger Agreement and ancillary agreements.
Representatives of the Company, Brobeck and PaineWebber met telephonically
with representatives of Parent, Kaye, Scholer and DMG on June 17, 18 and 19,
1997 to finalize negotiations of the Merger Agreement and ancillary
agreements.
On June 19, 1997, the Company's Board held a special meeting at Brobeck's
offices in Newport Beach, California to consider the Merger Agreement, the
Stockholders Agreement, the Offer, the Merger and the
15
<PAGE>
transactions contemplated thereby. All of the Company's directors were present
at the meeting. At the meeting, the Board reviewed the Merger Agreement, the
Stockholders Agreement, the Offer, the Merger and the transactions
contemplated thereby with the Company's management, representatives of Brobeck
and representatives of PaineWebber. The Board heard a presentation by its
legal counsel with respect to the members' fiduciary duties and the terms of
the proposed Offer and Merger and by representatives of PaineWebber with
respect to the financial terms of the proposed Offer and the Merger. The Board
discussed among themselves and with the Company's management and advisors
alternatives reasonably available to the Company. At the conclusion of their
presentation, representatives of PaineWebber delivered their oral opinion to
the Board (subsequently confirmed in writing) that, as of such date, the
proposed cash consideration to be received by the stockholders of the Company
(other than Parent and Purchaser) pursuant to the Offer and the Merger is fair
to such stockholders from a financial point of view.
Based upon such discussions, presentations and opinion, the Board
unanimously (i) approved the Offer, the Merger and the Merger Agreement, in
the form presented to the Board, and the transactions contemplated by the
Merger Agreement, and (ii) recommended that the Company's stockholders accept
the Offer and tender their Shares pursuant to the Offer and approve and adopt
the Merger Agreement and the transactions contemplated thereby. Later that
same day, (i) representatives of the Company, Parent and Purchaser signed the
Merger Agreement, (ii) representatives of Parent and Purchaser, a
representative of Wearnes Technology (Private) Limited, Mr. Lu, Philip A.
Harding and Chun Win Wong signed the Stockholders Agreement, (iii) a
representative of Parent and each of Eugene Y. Lu, David L. Kelly, Donald E.
Kullgren, Visish Sangveraphunsiri, Ronald J. Sipkovich, Toan Q. Luu, Benedict
R. Marchak, Genevieve Ortegon and Vikram S. Sial signed the Retention
Agreement and (iv) Parent and the Company issued a joint press release with
respect to the Offer and the Merger.
Reasons for the Recommendation.
In reaching its conclusions described above, the Company's Board of
Directors considered a number of factors, including, without limitation, the
following:
1. the financial and other terms and conditions of the Offer and the Merger
Agreement;
2. the Company's business, financial condition, results of operations,
assets, liabilities, business strategy and prospects, as well as various
uncertainties associated with those prospects, including the view of the
Company's management that the Company would likely face increasing
difficulties as a stand-alone company in its changing competitive environment
because, among other things, it lacked the size and financial resources
necessary to fully exploit the diverse and growing markets which it serves,
such difficulties being evidenced by, among other things, the recent downward
revision in the Company's sales for the fiscal quarter ending June 30, 1997;
3. the facts that the $15.50 per Share price to be received by the Company's
stockholders in both the Offer and the Merger represents a 29.2% premium over
the closing market price of $12.00 per Share on June 18, 1997, the last full
trading day prior to the approval of the Merger Agreement by the Company's
Board of Directors, and premiums of 34.4%, 48.3% and 45.2% over the average
closing prices for the 30-day period, the 60-day period and the 120-day
period, respectively, preceding June 18, 1997, and that such price would be
payable in cash, thus eliminating any uncertainties in valuing the
consideration to be received by the Company's stockholders;
4. the fact that the Offer and the Merger would not be subject to any
financing condition, that Parent has represented that the funds necessary to
consummate the Offer and the Merger will be provided and has agreed to cause
Purchaser to fully perform all of Purchaser's obligations under the Merger
Agreement;
5. the opinion of PaineWebber, dated June 19, 1997, that, as of such date,
the proposed cash consideration to be received by the Company's stockholders
pursuant to the Offer and the Merger was fair to such stockholders (other than
Parent and its subsidiaries) from a financial point of view; a copy of
PaineWebber's written opinion
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<PAGE>
is attached to this Schedule 14D-9 as Annex B and is incorporated herein by
reference. Such opinion should be read in its entirety for a description of
the procedures followed, assumptions and qualifications made, matters
considered and limitations of the review undertaken by PaineWebber. In
connection with delivering its opinion, PaineWebber made a presentation to the
Company's Board of Directors at its meeting on June 19, 1997, as to various
financial and other matters underlying such opinion including, among other
things, (a) a review of the Company's historical and projected operating
performance, (b) a review of the historical stock prices and trading volumes
of the Shares, (c) a review of the public market value and trading multiples
of certain publicly traded computer hardware manufacturers and of certain
computer and automated office equipment companies with market capitalizations
between $75,000,000 and $500,000,000, (d) a review of certain transactions in
the personal computer and high-end computer industry, (e) a review of premiums
paid in cash tender offers with values between $100,000,000 and $500,000,000
since January 1, 1994, (f) a discounted cash flow valuation of the Company,
and (g) an analysis of the Offer Price as a multiple of various measures of
the Company's operating performance;
6. the likelihood that the proposed Merger would be consummated, including
the terms of the Merger Agreement related thereto and the reputation and
experience of Parent;
7. the opinion of the Company's management that the strategic fit between
Parent and the Company would likely yield business and operational synergies,
a portion of which could be passed on to the Company's current stockholders in
the form of a premium over the preexisting market price for the Shares;
8. a review of possible values realizable by the Company's stockholders
through other alternatives, including information relating to previous efforts
by Wearnes Technology to identify and solicit proposals from other potential
purchasers of Wearnes Technology's equity stake in the Company;
9. the requirement by Parent, as a condition to entering into the Merger
Agreement, that the Selling Stockholders (who collectively own approximately
42% of the outstanding shares) enter into, and the deleterious effect on
potential subsequent Takeover Proposals of, the Stockholders Agreement; and
10. the fact that, to the extent required by the fiduciary obligations of
the Company's Board of Directors to the stockholders under the Delaware Law,
the Company may terminate the Merger Agreement in order to approve a tender
offer or exchange offer for the Shares or other proposed business combination
by a third party on terms more favorable to the Company's stockholders than
the Offer and the Merger taken together, upon the payment of a $7,500,000
termination fee and up to $1,500,000 of Parent's expenses associated with the
Offer and the Merger. See Item 3. "Identity and Background--Merger Agreement--
Expenses" and "--Termination of the Merger Agreement."
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company retained PaineWebber as its financial advisor in connection with
the Offer and the Merger. Pursuant to its agreements with the Company, dated
June 12, 1997, PaineWebber (i) became entitled to receive a fee of $225,000
immediately upon rendering an opinion as to whether or not the consideration
to be received in the Merger is fair, from a financial point of view, to the
shareholders of the Company and (ii) is entitled to receive at the Effective
Time an amount equal to $1,215,000 less the $225,000 paid pursuant to clause
(i) above. In addition, the Company has agreed to reimburse PaineWebber
periodically for its reasonable out-of-pocket expenses incurred in connection
with the Merger, including the fees, disbursements and other charges of its
legal counsel; in the event that the Merger is consummated and PaineWebber is
paid a transaction fee, PaineWebber shall not be entitled to any expenses
reimbursement in connection with the Merger. In addition, the Company has
agreed to indemnify PaineWebber, its affiliated companies, and each of
PaineWebber's and such affiliated companies' respective officers, directors,
agents, employees and controlling persons against certain liabilities (and
certain related expenses) relating to or arising out of its engagement.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the stockholders of the Company on
its behalf with respect to the Offer and the Merger.
17
<PAGE>
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the past sixty days, no transactions in the Shares have been
effected by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate, or subsidiary of the Company.
(b) To the best knowledge of the Company, all of its executive officers and
directors currently intend to tender pursuant to the Offer all Shares held of
record or beneficially owned by them.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth herein, no negotiation is being undertaken or is
underway by the Company in response to the Offer which relates to or would
result in (i) an extraordinary transaction, such as a merger or
reorganization, involving the Company or any subsidiary thereof; (ii) a
purchase, sale or transfer of a material amount of assets by the Company or
any subsidiary thereof; (iii) a tender offer for or other acquisition of
securities by or of the Company; or (iv) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as set forth herein, there is no transaction, board resolution,
agreement in principle or signed contract in response to the Offer that
relates to or would result in one or more of the events referred to in
Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
SECTION 203.
As a Delaware corporation, the Company is subject to Section 203 ("Section
203") of the Delaware Law. Section 203 would prevent an "Interested
Shareholder" (generally defined as a person beneficially owning 15% or more of
a corporation's voting stock) from engaging in a "Business Combination" (as
defined in Section 203) with a Delaware corporation for three years following
the date such person became an Interested Shareholder unless: (i) before such
person became an Interested Shareholder, the board of directors of the
corporation approved the transaction in which the Interested Shareholder
became an Interested Shareholder or approved the Business Combination, (ii)
upon consummation of the transaction which resulted in the Interested
Shareholder becoming an Interested Shareholder, the Interested Shareholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding for purposes of determining the
number of shares of outstanding stock held by directors who are also officers
and by employee stock ownership plans that do not allow plan participants to
determine confidentially whether to tender shares), or (iii) following the
transaction in which such person became an Interested Shareholder, the
Business Combination is (x) approved by the board of directors of the
corporation and (y) authorized at a meeting of shareholders by the affirmative
vote of the holders of at least 66-2/3% of the outstanding voting stock of the
corporation not owned by the Interested Shareholder. In accordance with the
provisions of the Company's Certificate of Incorporation and Section 203, the
Board of Directors of the Company has approved the Merger Agreement and the
Stockholders Agreement and Purchaser's acquisition of Shares pursuant to the
Offer and the Merger and the transactions contemplated by the Merger Agreement
and, therefore, the restrictions of Section 203 are inapplicable to the
Merger, the Offer and the related transactions.
ANTITRUST.
Under the HSR Act and the rules that have been promulgated thereunder by the
Federal Trade Commission (the "FTC"), certain acquisition transactions may not
be consummated unless certain information has been furnished to the Antitrust
Division of the United States Department of Justice (the "Antitrust Division")
and the FTC and certain waiting period requirements have been satisfied. The
acquisition of Shares by Purchaser pursuant to the Offer is subject to such
requirements.
Pursuant to the requirements of the HSR Act, Parent filed the required
Notification and Report Forms (the "Forms") with the Antitrust Division and
the FTC on June 20, 1997, and the Company expects to file the Forms
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<PAGE>
with such agencies on June 24, 1997. The statutory waiting period applicable
to the purchase of Shares pursuant to the Offer is to expire at 11:59 P.M.,
New York City time, on Saturday, July 5, 1997. However, prior to such date,
the Antitrust Division or the FTC may extend the waiting periods by requesting
additional information or documentary material relevant to the acquisition. If
such a request is made, the waiting period will be extended until 11:59 P.M.,
New York City time, on the tenth day after substantial compliance by Parent
with such request. Thereafter, such waiting periods can be extended only by
court order. A request is being made pursuant to the HSR Act for early
termination of the applicable waiting period. There can be no assurance,
however, that the waiting period will be terminated early. The Merger
Agreement provides that, if by the expiration of the Offer, the applicable
waiting period under the HSR Act shall not have expired or been terminated,
Parent may, without the consent of the Company, extend the Offer from time to
time until the date that such waiting period has expired or been terminated.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions. At any time before or after the
consummation of any such transactions, the Antitrust Division or the FTC
could, notwithstanding termination of the waiting period, take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the purchase of Shares pursuant to the
Offer or seeking divestiture of the Shares so acquired or divestiture of
substantial assets of Parent or the Company. Private parties may also bring
legal actions under the antitrust laws. There can be no assurance that a
challenge to the Offer on antitrust grounds will not be made, or if such a
challenge is made, what the result will be. See Item 3, "Identity and
Background--The Merger Agreement--Conditions to the Obligations of Each Party"
and "--Conditions to the Obligations of Parent and Purchaser."
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<C> <S>
Exhibit 1 Merger Agreement dated as of June 19, 1997 among Parent, Purchaser
and the Company
Exhibit 2 Stockholders Agreement dated as of June 19, 1997 among Wearnes
Technology (Private) Limited, Eugene Y. Lu, Chun Win Wong, Philip A.
Harding, Parent and Purchaser
Exhibit 3 Retention Agreement dated as of June 19, 1997 among Parent and
Eugene Y. Lu, David L. Kelly, Donald E. Kullgren, Visish
Sangveraphunsiri, Ronald J. Sipkovich, Toan Q. Luu, Benedict R.
Marchak, Genevieve Ortegon and Vikram S. Sial
Exhibit 4 Opinion of PaineWebber Incorporated, dated June 19, 1997 (Attached
to Schedule 14D-9 mailed to stockholders as Annex B)
Exhibit 5 Press Release of the Company and Parent, issued June 19, 1997
Exhibit 6 Article Ten of the Certificate of Incorporation of the Company
Exhibit 7 Article Nine of the By-Laws of the Company
Exhibit 8 Letter dated June 24, 1997 from Eugene Y. Lu to the stockholders of
the Company (Included with Schedule 14D-9 mailed to stockholders)
</TABLE>
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<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
June 24, 1997
ADVANCED LOGIC RESEARCH, INC.
By: /s/ Eugene Y. Lu
---------------------------------
Eugene Y. Lu
Chairman of the Board, President
and
Chief Executive Officer
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<PAGE>
ANNEX A
ADVANCED LOGIC RESEARCH, INC.
9401 JERONIMO ROAD
IRVINE, CALIFORNIA 92618
(714) 581-6770
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
----------------
GENERAL
This Information Statement is being mailed on or about June 24, 1997, with
the Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") of Advanced Logic Research, Inc. (the "Company") with respect to the
Offer to Purchase dated June 24, 1997 (as supplemented, the "Offer to
Purchase") of Deuce Acquisition Corporation ("Purchaser"), a Delaware
corporation and a wholly owned subsidiary of Gateway 2000, Inc. ("Parent").
Purchaser is offering to purchase all outstanding shares of Common Stock, par
value $.01 per share (the "Common Stock") of the Company at a price of $15.50
per share, net to the seller in cash (the "Offer"). The Offer is being made
pursuant to the Agreement and Plan of Merger, dated as of June 19, 1997 (the
"Merger Agreement"), by and among Parent, Purchaser and the Company. You are
receiving this Information Statement in connection with the possible election
of persons designated by Purchaser (the "Purchaser Designees") to at least a
majority of the seats on the Board of Directors (the "Board") of the Company
pursuant to the Merger Agreement. The Merger Agreement is more fully described
under Item 3 of the Schedule 14D-9, to which this Information Statement is
attached as Annex A. Capitalized terms used and not defined herein have the
meanings assigned to them in the Schedule 14D-9.
The information with respect to the Purchaser Designees has been supplied to
the Company by Purchaser for inclusion or incorporation by reference herein,
and the Company assumes no responsibility for the accuracy or completeness of
such information.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. You are urged to read this Information Statement carefully. You
are not, however, required to take any action.
THE PURCHASER DESIGNEES
Pursuant to the Merger Agreement and subject to compliance with applicable
law, upon Parent's or Purchaser's, as applicable, acceptance for payment of a
majority of the then outstanding shares of Common Stock pursuant to the Offer,
Purchaser will be entitled to designate such number of directors (rounded up
to the next whole number) on the Board of Directors of the Company as will
give Parent or Purchaser, as applicable, that percentage of the total number
of directors on the Board (giving effect to the election of any additional
directors) equal to the percentage of then outstanding Shares owned by Parent
or Purchaser (provided that such percentage of the total number of directors
shall not be less than a majority of the Board). The foregoing
notwithstanding, the Merger Agreement further provides that at least two
directors who were directors of the Company as of the date of the Merger
Agreement and who are not officers of the Company (each such director, an
"Independent Director") shall continue to serve on the Board until the
effectiveness of the Merger; provided, however, that if the number of
Independent Directors shall be reduced below two for any reasons whatsoever,
the remaining Independent Director or other directors, as applicable, shall
fill such vacancy or vacancies by designation of a person or persons eligible
to serve pursuant to the terms of the Merger Agreement. The Company has agreed
to take all action necessary to effect the election of the Purchaser Designees
to the Board, including, in connection therewith, increasing the size of the
Board or seeking and obtaining the resignation of such number of its current
directors or both to enable the Purchaser Designees to be elected to the Board
as provided above.
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Purchaser has informed the Company that it will choose the Purchaser
Designees from the directors and executive officers listed in Schedule I to
the Purchaser's Offer to Purchase, a copy of which is being mailed to the
Company's stockholders together with the Schedule 14D-9. Purchaser has
informed the Company that each of the directors and executive officers listed
in Schedule I to the Offer to Purchaser has consented to act as a director, if
so designated. The business address of each such person is c/o Gateway 2000,
Inc., 610 Gateway Drive, North Sioux City, South Dakota 57049-2000.
It is expected that the Purchaser Designees may assume office at any time
following the purchase by Parent or Purchaser, as applicable, of the specified
minimum number of shares of Common Stock pursuant to the Offer, which purchase
cannot be earlier than July 22, 1997.
CERTAIN INFORMATION CONCERNING THE COMPANY
The authorized stock of the Company consists of (a) 25,000,000 shares of
Common Stock and (b) 2,500,000 shares of preferred stock, $.01 par value. The
shares of Common Stock constitute the only class of voting securities of the
Company. As of the close of business on June 19, 1997, there were 12,552,951
shares of Common Stock outstanding. Each share of Common Stock entitles its
record holder to one vote. Stockholders of the Company do not have cumulative
voting rights. None of the Company's 2,500,000 authorized shares of preferred
stock have been issued. The Board currently consists of five members.
THE CURRENT MEMBERS OF THE BOARD AND EXECUTIVES OFFICERS OF THE COMPANY
To the extent the Board will consist of persons who are not Purchaser
Designees, the Board is expected to continue to consist of those persons who
are currently directors of the Company who do not resign. The current
directors and executive officers of the Company, their ages, and their
positions and terms of office with the Company are set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE
- ---- --- -------- --------
<S> <C> <C> <C>
Eugene Y. Lu............ 42 Chairman of the Board, President, and Chief 1984
Executive Officer of the Company
David L. Kelly.......... 42 Vice President, Hardware Engineering, and
Assistant Secretary
Vic Sangveraphunsiri.... 45 Vice President, Systems Engineering, and
Director of Asia Pacific Operations
Ronald J. Sipkovich..... 55 Vice President, Finance and Administration,
Chief Financial Officer, and Secretary
Philip A. Harding(1)(2). 64 Director of the Company 1985
Therese E. Myers(1)(3).. 52 Director of the Company 1990
Kenneth W. 62 Director of the Company 1990
Simonds(1)(2)(3).......
Chun Win Wong........... 61 Director of the Company 1986
</TABLE>
- --------
(1) Member of the Audit Committee of the Company.
(2) Member of the Nominating Committee of the Company.
(3) Member of the Compensation Committee of the Company.
Eugene Y. Lu, age 42, the founder of the Company, has been President, Chief
Executive Officer and a director of the Company since its inception in 1984.
In August 1990, Mr. Lu was elected Chairman of the Board of Directors. Mr. Lu
received a Bachelor of Science degree in Electrical and Electronic Engineering
from California State Polytechnic University in Pomona.
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<PAGE>
David L. Kelly, age 42, has been Vice President of Hardware Engineering
since joining the Company in 1984. Mr. Kelly also serves as Assistant
Secretary of the Company. Mr. Kelly studied electrical and electronic
engineering at California State Polytechnic University at Pomona and
California State University, Fullerton.
Vic Sangveraphunsiri, age 45, has been Vice President of Systems Engineering
since joining the Company in 1986. Since May 1995, Mr. Sangveraphunsiri has
also been serving as the Company's Director of Asia-Pacific Operations. Mr.
Sangveraphunsiri holds a Master of Science degree in Electrical and Electronic
Engineering from the University of Cincinnati and a Bachelor of Science degree
in Electrical Engineering from the University of Louisville.
Ronald J. Sipkovich, age 55, has been Vice President of Finance and
Administration, Chief Financial Officer and Secretary since July 1992. Since
joining the Company in December 1989 and prior to July 1992, Mr. Sipkovich
served as the Company's Corporate Controller and Director of Financial
Planning. Mr. Sipkovich studied accounting and finance at Pepperdine
University in Los Angeles, California.
Philip A. Harding, age 64, has been a director of the Company since 1985.
Mr. Harding is presently the Chief Executive Officer and a director of Multi-
Fineline Electronix, Inc. in Santa Ana, California, a privately held
manufacturer of electronics products that is majority-owned by Wearnes
Technology (Private) Limited ("Wearnes Technology") and its affiliates. From
1984 to 1989, he was Chief Executive Officer of Wearnes Technology's affiliate
Weltec Digital, Inc., a private company, where he currently serves as Chairman
of the Board of Directors. Mr. Harding received his Master of Science degree
from Columbia University and his Bachelor of Science degree from Cooper Union
College.
Therese E. Myers, age 52, has been a director of the Company since August
1990. Ms. Myers founded Bouquet Multimedia, a provider of multimedia software
to the PC industry, in 1994, and has served as that company's Chief Executive
Officer since that time. From 1982 to 1994, Ms. Myers was President and a
director of Quarterdeck Office Systems, a supplier of software to the computer
industry. Ms. Myers received her Bachelor of Arts degree in Economics from
Newton College of the Sacred Heart. She holds a Master of Administration
degree from the Graduate School of Industrial Administration at Carnegie
Mellon University.
Kenneth W. Simonds, age 62, has been a director of the Company since August
1990. Mr. Simonds currently serves as Chairman of the Board of NeoVista
Solutions, Inc., a private company, and is a director of Printrak
International, Inc., a public company, and File Tek, Inc., and Hampton
Products International, both of which are privately held companies. From 1987
to 1989, Mr. Simonds served as the Chairman of the Board of Teradata
Corporation, a manufacturer of fault-tolerant database management computer
systems based in Los Angeles. Mr. Simonds received a Bachelor of Science
degree from East Tennessee State University.
Chun Win Wong, age 61, has been a director of the Company since 1986 with
the investment in the Company by Wearnes Technology, the Company's single
largest stockholder. Since 1994, Mr. Wong has served as Chairman of the Board
of Wearnes Technology. From 1983 to 1994, Mr. Wong served as Managing Director
of Wearnes Technology. He also serves on the Board of Directors of Wearnes
Technology's parent corporation, WBL Corporation Limited, and a number of its
affiliates. WBL Corporation Limited is a public company listed on the
Singapore stock exchange. Mr. Wong also serves on the board of Integrated
Silicon Solution, Inc., a public company. Mr. Wong received an Associate
degree in Electrical Engineering from the Royal Melbourne Institute of
Technology.
BOARD MEETINGS AND COMMITTEES
The Board has a standing Audit Committee, a standing Compensation Committee,
and a standing Nominating Committee. The Audit Committee, which held one
meeting during fiscal 1996, consists of Philip A. Harding, Therese E. Myers
and Kenneth W. Simonds. The Audit Committee recommends engagement of the
Company's independent accountants and is primarily responsible for approving
the services performed by the Company's independent accountants and for
reviewing and evaluating the Company's accounting principles and
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<PAGE>
its system of internal accounting controls. The Compensation Committee
consists of Therese E. Myers and Kenneth W. Simonds. The Compensation
Committee held one meeting during fiscal 1996. The Compensation Committee is
responsible for reviewing and administering the Company's various incentive
plans, including the cash compensation levels of members of management, the
Company's bonus plan and the Company's 1996 Stock Option/Stock Issuance Plan.
The Nominating Committee was formed during fiscal 1996 and consists of Philip
A. Harding and Kenneth W. Simonds. The Nominating Committee is responsible for
reviewing candidates for the Company's Board of Directors. The Nominating
Committee did not meeting during fiscal 1996.
During the fiscal year ended September 30, 1996, the Company's Board of
Directors met four times. No incumbent director attended fewer than 75% of the
aggregate meetings of the Board of Directors and meetings of the committees of
the Board on which he or she served.
There is no family relationship between any director or executive officer of
the Company.
PRINCIPAL HOLDERS OF VOTING SECURITIES
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to the only persons
who (to the Company's knowledge) beneficially owned more than 5% of the Common
Stock of the Company as of June 19, 1997.
<TABLE>
<CAPTION>
BENEFICIAL AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF PERCENT OF CLASS
------------------------------------ ---------- -------------------
<S> <C> <C>
Wearnes Technology (Private) Limited........ 4,780,549 38%
801, Lorong 7 #07-00
Toa Payoh, Singapore 1231
</TABLE>
A-4
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of June 19, 1997, for each of (i) each
member of the Board, the Company's Chief Executive Officer and each of the
next four most highly compensated executive officers of the Company and (ii)
all directors and executive officers as a group the number of shares and
percentage of outstanding Common Stock of the Company beneficially owned. Each
person named in the table has sole investment power and sole voting power with
respect to the shares of the Common Stock set forth opposite such person's
name, except as otherwise indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME OF INDIVIDUAL OR SHARES BENEFICIALLY COMMON STOCK
NUMBER OF PERSONS IN GROUP(1) OWNED(2) OUTSTANDING(2)
----------------------------- ------------------- --------------
<S> <C> <C>
Eugene Y. Lu(3).......................... 495,594 3.9%
Philip A. Harding(4)..................... 45,704 *
Therese E. Myers......................... 20,000 *
Kenneth W. Simonds....................... 12,500 *
Chun Win Wong(4)......................... 50,000 *
David L. Kelly........................... 67,779 *
Vic Sangveraphunsiri..................... 76,444 *
Ronald J. Sipkovich...................... 87,138 *
All executive officers and directors as a
group
(9 persons)(4).......................... 855,159 6.6%
</TABLE>
- --------
* Less than 1%
(1) Unless otherwise indicated, the address of each individual named in the
table is c/o Advanced Logic Research, Inc., 9401 Jeronimo Road, Irvine,
California 92618.
(2) The shares listed on the table include the following stock options
exercisable on or within 60 days after June 19, 1997: Mr. Lu--79,168
shares; Messrs. Harding and Wong, and Ms. Myers--20,000 shares each; Mr.
Simonds--12,500 shares; Mr. Kelly--67,779 shares; Mr. Sangveraphunsiri--
76,444 shares; Mr. Sipkovich--87,138 shares; and all directors and
executive officers as a group--383,029.
(3) Includes 6,426 shares of Common Stock held of record by Mr. Lu's wife.
(4) Excludes 4,780,549 shares of Common Stock owned by Wearnes Technology
(Private) Limited. While Mr. Wong serves as a director of Wearnes
Technology and certain of its affiliates, and Mr. Harding is the chief
executive officer and a director of an affiliate of Wearnes Technology,
they disclaim beneficial ownership of Wearnes Technology's shares.
A-5
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the three most recently ended fiscal years,
the compensation paid or accrued for those years to the Chief Executive
Officer of the Company and to each of the four most highly compensated
executive officers of the Company other than the Chief Executive Officer whose
aggregate annual salary and bonus paid in compensation for services rendered
in all the capacities in which they served exceeded $100,000 for the Company's
last fiscal year (the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION AWARDS
------------------------------ -----------------------------
SECURITIES
NAME OF INDIVIDUAL AND UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OTHER($)(2) OPTIONS(#) COMPENSATION($)(3)
---------------------- ---- --------- -------- ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Eugene Y. Lu ........... 1996 383,636 130,204 18,445 50,000 5,440
Chief Executive Officer 1995 383,840 60,639 26,641 100,000 5,370
1994 353,030 61,777 28,239 50,000 6,229
David L. Kelly.......... 1996 170,000 65,102 10,316 25,000 4,761
Vice President, 1995 161,827 30,319 19,566 50,000 4,275
Hardware Engineering 1994 148,750 30,889 18,680 20,000 4,921
David G. Kirkey......... 1996 200,000 65,102 11,600 25,000 5,136
Vice President, 1995 193,949 30,319 20,942 50,000 5,857
Sales 1994 157,500 30,889 24,488 20,000 4,271
Vic Sangveraphunsiri.... 1996 170,000 65,102 10,806 25,000 4,212
Vice President, 1995 172,134 30,319 20,209 50,000 4,898
Systems Engineering 1994 148,750 30,889 18,186 20,000 5,299
Ronald J. Sipkovich..... 1996 170,000 65,102 10,208 25,000 5,204
Vice President, 1995 161,827 30,319 19,128 50,000 5,400
Finance and
Administration 1994 148,750 30,889 19,009 20,000 4,921
</TABLE>
- --------
(1) Amounts shown include cash and non-cash compensation earned and received
by executive officers as well as amounts earned but deferred at the
election of these officers.
(2) Amounts of Other Annual Compensation shown for officers include the cost
of (i) health and dental insurance premiums for providing coverage to
spouses and dependents, (ii) insurance which provides reimbursement for a
portion of the health and dental costs in excess of the amount payable
under the Company's group health and dental plans, and (iii) tax and
financial planning advice by third parties.
(3) All Other Compensation consists of 401(k) matching contributions and
supplemental life insurance payments by the Company. As to the amounts
listed for fiscal 1996, $4,750, $4,071, $4,446, $3,522, and $4,514
represent matching contributions by the Company under its 401(k) plan for
Messrs. Lu, Kelly, Kirkey, Sangveraphunsiri, and Sipkovich, respectively.
A-6
<PAGE>
STOCK OPTION GRANTS
The following table sets forth information concerning the grant of stock
options made during the fiscal year ended September 30, 1996:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(3)
---------------------------------------------------- ----------------------
PERCENT OF TOTAL
NUMBER OF SECURITIES
SECURITIES UNDERLYING
UNDERLYING OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES BASE PRICE(2) EXPIRATION
NAME GRANTED(1) IN 1996 ($/SH) DATE 5%($) 10%($)
---- ---------- ---------------- ------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Eugene Y. Lu............ 50,000 8.3 7.00 9/19/06 222,436 565,049
David Kelly............. 25,000 4.2 7.00 9/19/06 111,218 282,524
David Kirkey............ 25,000 4.2 7.00 9/19/06 111,218 282,524
Vic Sangveraphunsiri.... 25,000 4.2 7.00 9/19/06 111,218 282,524
Ronald Sipkovich........ 25,000 4.2 7.00 9/19/06 111,218 282,524
</TABLE>
- --------
(1) All options were granted under the Company's Flexible Stock Incentive Plan
on August 20, 1996. Each of the options vests monthly over three years
from the grant date and is first exercisable one year from the grant date.
Each option has a maximum term of ten years and one month from the grant
date, subject to earlier termination in the event of the optionee's
cessation of employment with the Company.
(2) The exercise price per share of the options granted represented the fair
market value of the underlying shares of Common Stock on the date the
respective options were granted. The exercise price may be paid in cash or
in shares of Common Stock valued at fair market value on the exercise
date. The Company may also fund the option exercise by loaning the
optionee sufficient funds to pay the exercise price of the purchased
shares.
(3) The potential realizable value is calculated from the closing price of
Common Stock on August 20, 1996, the date of grant to officers. These
amounts represent certain assumed annual rates of appreciation over the
ten-year-and-one-month option period. Actual gains, if any, on stock
option exercises and Common Stock holdings are dependent on the future
performance of the Common Stock and overall market conditions. There can
be no assurance that the amounts reflected in this table will be achieved.
A-7
<PAGE>
STOCK OPTION EXERCISES
The following table sets forth information concerning the exercise of stock
options during the fiscal year ended September 30, 1996 by the Company's Chief
Executive Officer and other Executive Officers and the value of unexercised
options at the fiscal year-end:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS AT
SEPTEMBER 30, 1996(#) SEPTEMBER 30, 1996($)(2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eugene Y. Lu............ 221,109 783,324 20,834 93,057 84,381 228,649
David Kelly............. 31,109 108,638 69,029 46,112 188,827 112,294
David Kirkey............ 30,000 119,096 70,138 46,112 189,860 112,294
Vic Sangveraphunsiri.... 52,444 161,568 47,694 46,112 106,042 112,294
Ronald Sipkovich........ 25,000 97,014 73,388 46,112 239,318 112,294
</TABLE>
- --------
(1) Based on the fair market value per share of the shares on the exercise
date less the exercise price paid for those shares.
(2) Based on a fair market value of $8.25 per share of Common Stock at
September 30, 1996 (based on the closing selling price on The Nasdaq Stock
Market) less the exercise price.
COMPENSATION OF DIRECTORS
Directors who are not officers of the Company receive an annual retainer of
$8,000, plus $2,000 per regular or special Board meeting attended and $500 for
attending any committee meeting not held on the same day as a regular or
special Board meeting. Directors also receive stock options pursuant to the
Directors' Nonqualified Stock Option Plan.
INDEMNIFICATION
Article Ten of the Certificate of Incorporation of the Company limits the
personal liability of directors of the Company and Article Nine of the By-Laws
of the Company provides for indemnification of the officers and directors of
the Company. A copy of such Article Ten of the Certificate of Incorporation
has been filed as Exhibit 6 to the Schedule 14D-9 and is incorporated herein
by reference in its entirety. A copy of Article Nine of the By-Laws has been
filed as Exhibit 7 to the Schedule 14D-9 and is incorporated herein by
reference in its entirety.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended September 30, 1996, the Compensation Committee
consisted of Ms. Myers and Mr. Simonds. During fiscal 1996, none of the
executive officers of the Company served on the board of directors or on the
compensation committee of any other entity, any of whose officers served
either on the Board or on the Compensation Committee of the Company.
A-8
<PAGE>
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee ("Committee") of the Board of Directors
is composed of independent outside directors, Mr. Simonds and Ms. Myers. The
Committee reviews and administers the Company's various incentive plans,
including the cash compensation levels of members of management, the Company's
bonus plan and the Company's 1996 Stock Option/Stock Issuance Plan.
General Compensation Policy. The Committee's fundamental compensation policy
is to make a substantial portion of an executive's compensation contingent
upon the financial performance of the Company. Accordingly, in addition to
each executive's base salary, the Company offers semi-annual and annual
bonuses which are tied to the Company's achievement of financial performance
goals. The Company also offers stock option awards to its executive officers,
as the Committee believes that its stockholders are benefited through the
alignment of the long-term interests of stockholders and employees by
providing certain employees an equity interest in the Company.
Base Salary. The Committee annually reviews the compensation package
provided to executive officers including their base salaries, the bonus plan
and stock option awards under the Plan.
Fiscal 1996 Cash Bonus Plan. The Company's Fiscal 1996 Cash Bonus Plan is
designed to provide officers with incentives for higher levels of performance
while establishing minimum acceptable performance thresholds. The Company's
Fiscal 1996 Cash Bonus Plan consists of semi-annual and annual bonuses based
on the Company achieving certain operating performance criteria. The operating
criteria consist of 30% revenue growth over the comparable year-to-date period
in the preceding fiscal year and a net income target of 5% of revenue for the
year-to-date period being measured with minimum thresholds established at 5%
revenue growth over the year-ago period with a minimum net income threshold of
1% of revenue. The maximum aggregate amount of quarterly and annual bonuses
based on achieving the performance goals was $180,000 for the CEO and $90,000
for each of the other executive officers. Actual bonuses are calculated on a
pro rata basis between the minimum threshold and operating goal points. During
fiscal 1996, bonuses totaling $60,049 and $30,025 were paid to the CEO and
each executive officer, respectively, for achieving operating performance
goals for the first six months ended March 31, 1996. Additionally, bonuses
totaling $50,155 and $25,077 were accrued at year-end for the CEO and each
executive officer, respectively, for achieving operating performance goals for
fiscal 1996. The Company's Fiscal 1996 Cash Bonus Plan also has an annual
maximum discretionary component of $50,000 for the CEO and $25,000 for each of
the other executive officers. The award of the discretionary component is
subject to the Company achieving certain operational milestones. Bonuses
totaling $20,000 for the CEO and $10,000 for each of the other executive
officers were accrued at year-end under the discretionary component of the
Company's Fiscal 1996 Cash Bonus Plan.
Stock Option Awards. The Company's Flexible Stock Incentive Plan was adopted
in 1990 and provides for the granting of stock options, stock bonuses, stock
appreciation rights or rights to purchase stock for up to an aggregate of not
more than the greater of (i) 10% of the authorized shares of Common Stock, or
(ii) 15% of the shares of Common Stock outstanding as of the close of business
on the Company's immediately preceding fiscal year. The Committee grants stock
options at prices not less than the fair market value of the Common Stock on
the grant date. The options generally vest monthly over thirty-six months and
are first exercisable twelve months from the grant date. Grants to executives
and other key employees are based on their responsibilities and relative
positions in the Company as well as industry peer group comparisons. As stock
options are tied to the future value of the Company's stock they benefit the
recipient only when the price of the Company's Common Stock increases above
the option grant price thus providing a direct linkage with stockholder
interest. Therefore, the stock option program serves as the Company's only
long-term incentive and retention tool for executives and other key employees.
Subject to approval of Proposal 2, the 1996 Stock Option/Stock Issuance Plan
will be the successor to the Flexible Stock Incentive Plan.
A-9
<PAGE>
CEO Compensation. In setting the base salary for Eugene Y. Lu, the Company's
Chairman, President and Chief Executive Officer, for 1996, the Committee
sought to provide him with a level of salary competitive with the salaries
paid to chief executive officers of similarly-sized companies in the industry.
There was no intent on the Committee's part to have this particular component
of Mr. Lu's compensation affected to any significant degree by the Company's
performance factors. In addition to his base salary, Mr. Lu received certain
bonuses for fiscal 1996 as follows: as indicated above under the title Fiscal
1996 Cash Bonus Plan, Mr. Lu received a cash bonus totaling $110,204 based on
the Company successfully achieving operating performance goals for fiscal
1996. Mr. Lu was also awarded a discretionary bonus totaling $20,000 for
achieving certain operational milestones during fiscal 1996. In recognition of
his contribution to the Company's successful performance in fiscal 1996, the
Committee also awarded him a stock option for 50,000 shares.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to
publicly held companies for compensation (other than performance-based
compensation) exceeding $1 million paid to certain of the corporation's
executive officers. It is not expected that the compensation to be paid to the
Company's executive officers for fiscal 1997 will exceed the $1 million limit
per officer. In addition, the 1996 Stock Option/Stock Issuance Plan contains
certain provisions intended to assure that any compensation deemed paid in
connection with the exercise of stock options granted under that plan with an
exercise price equal to the market price of the option shares on the grant
date will qualify as performance-based compensation.
COMPENSATION COMMITTEE
Therese E. Myers Kenneth W. Simonds
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's executive officers and directors, and
persons who own more than ten percent of a registered class of the Company's
equity securities (the "Ten Percent Stockholders"), to file reports of
ownership on Form 3 and reports of changes in ownership on Form 4 or Form 5
with the Commission. Executive officers, directors and the Ten Percent
Stockholders are required to furnish the Company with copies of such reports.
Based solely on its review of the copies of such Forms received by the
Company, or written representations that no other reports were required, the
Company believes that during the fiscal year ended September 30, 1996, the
Company's executive officers, directors, and Ten Percent Stockholders complied
with all applicable Section 16(a) filing requirements.
CERTAIN TRANSACTIONS
Shares held by Wearnes Technology (Private) Limited ("Wearnes Technology")
represent approximately 38% of the outstanding Shares. From time to time the
Company purchases components and finished goods from Wearnes Technology and
its affiliates totaling approximately $3,000 during the fiscal year ended
September 30, 1996.
A-10
<PAGE>
COMPARATIVE STOCK PERFORMANCE GRAPH
STOCK PERFORMANCE GRAPH
The following graph compares the Company's cumulative total return to the
Standard & Poors ("S&P") 500 Composite Index and the S&P Computers (Hardware)-
500 (formerly called Computer Systems Composite Index) since September 30,
1991. The stockholder return assumes $100 invested at the beginning of the
period in Company Common Stock, the S&P 500 Composite Index and the S&P
Computers (Hardware)-500 Systems. The total return calculation assumes
reinvestment of all dividends for the two indexes. The Company has not paid
any dividends since September 30, 1991.
TABLE IV
COMPARISON OF CUMULATIVE TOTAL RETURN
[GRAPH APPEARS HERE]
The data points depicted on the graph are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER
30,
-----------------------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Advanced Logic Research, Inc..................... $100 $ 35 $ 26 $ 33 $ 65 $ 69
S&P 500 Composite Index.......................... 100 111 125 130 169 203
S&P Computers (Hardware)-500..................... 100 83 56 81 117 142
</TABLE>
A-11
<PAGE>
ANNEX B
June 19, 1997
Board of Directors
Advanced Logic Research, Inc.
9401 Jeronimo
Irvine, CA 92618
Ladies and Gentlemen:
Advanced Logic Research, Inc. (the "Company"), Gateway 2000, Inc. ("Parent")
and a wholly-owned subsidiary of Parent ("Purchaser") propose to enter into an
Agreement and Plan of Merger (the "Agreement") pursuant to which Purchaser
will commence a tender offer (the "Offer") to purchase any and all shares of
the Company's common stock, par value $.01 per share (the "Shares"), at a
minimum price of $15.50 per Share in cash. The Agreement also provides that,
following consummation of the Offer, Purchaser will merge with the Company in
a transaction (the "Merger") in which each share of the Company's common stock
will be converted into the right to receive cash equal to the higher of $15.50
or the amount per Share paid in the Offer. As a condition to Parent and
Purchaser entering into the Agreement, Parent and Purchaser have requested
that certain stockholders of the Company, who own an aggregate of 41.8% of the
Company's outstanding Shares, enter into stockholders agreements
("Stockholders Agreements"), pursuant to which each such stockholder would
agree to vote in favor of the Merger, to grant Parent an irrevocable proxy to
vote such Shares in favor of the Merger, to tender all Shares owned by such
stockholder to Purchaser in the Offer, and to grant to Parent an option to
purchase such Shares for a purchase price of $15.50 per share in certain
circumstances. For purposes of this letter, the Offer and the Merger are
sometimes collectively referred to as the "Proposed Transaction."
You have asked us whether or not, in our opinion, the proposed cash
consideration to be received by the stockholders of the Company (other than
Parent and Purchaser) pursuant to the Offer and the Merger is fair to such
stockholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended September 30, 1996 and the
Company's Forms 10-Q and the related unaudited financial information
for the quarters ended December 31, 1996 and March 31, 1997;
(2) Reviewed Parent's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended December 31, 1996 and
Parent's Form 10-Q and the related unaudited financial information for
the quarter ended March 31, 1997;
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the
Company furnished to us by the Company;
(4) Conducted discussions with members of senior management of the Company
concerning its business and prospects;
B-1
<PAGE>
(5) Reviewed the historical market prices and trading activity for the
Shares and compared them with those of certain publicly traded
companies which we deemed to be relevant;
(6) Compared the financial position and results of operations of the
Company with those of certain publicly traded companies which we deemed
to be relevant;
(7) Compared the proposed financial terms of the Proposed Transaction with
the financial terms of certain other business combinations which we
deemed to be relevant;
(8) Reviewed a draft of the Agreement dated June 17, 1997;
(9) Reviewed a draft of the Stockholders Agreement dated June 17, 1997; and
(10) 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.
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was publicly available, supplied or otherwise made
available to us by the Company, and we have not assumed any responsibility to
independently verify such information. We have assumed that the financial
forecasts examined by us were reasonably prepared and reflect the best
currently available estimates and good faith judgments of the management of
the Company as to the future performance of the Company. We have also relied
upon assurances of the management of the Company that they are unaware of any
facts that would make the information or financial forecasts provided to us
incomplete or misleading. We have not made any independent evaluation or
appraisal of the assets, liabilities (contingent or otherwise) or technologies
of the Company nor have we been furnished with any such evaluations or
appraisals. Our opinion is based upon economic, monetary and market conditions
existing on the date hereof. We have further assumed with your consent that
the transactions contemplated by the draft Agreement and draft Stockholders
Agreement reviewed by us will be consummated in accordance with the terms of
such agreements, without any further amendment thereto, and without waiver by
the Company of any of the conditions to its obligations thereunder.
Our opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any stockholder of the Company as to
whether any such stockholder should accept the Offer or how any such
stockholder should vote on the Merger. This opinion does not address the
relative merits of the Proposed Transaction and any other transactions or
business strategies discussed by the Board of Directors of the Company as
alternatives to the Proposed Transaction or the decision of the Board of
Directors of the Company to proceed with the Proposed Transaction. In
connection with its engagement, PaineWebber Incorporated was not requested or
authorized by the Board of Directors to solicit, and did not solicit,
potential proposals from any third parties with respect to the acquisition of
the Company.
This opinion has been prepared for the use of the Board of Directors of the
Company and shall not be reproduced, summarized, described or referred to or
given to any other person or otherwise made public without the prior written
consent of PaineWebber Incorporated; provided, however, that this letter may
be reproduced in full in any Schedule 14D-1 filed by Parent or any Schedule
14D-9 filed by the Company with the Securities and Exchange Commission in
connection with the Proposed Transaction.
PaineWebber Incorporated is currently acting as financial advisor to the
Company in connection with the Proposed Transaction and will receive a fee
upon consummation of the Merger. In the past, PaineWebber Incorporated and its
affiliates have provided investment banking services to the Company and have
received fees for rendering these services.
In the ordinary course of its business, PaineWebber Incorporated may trade
the securities of the Company and Parent for its own account and for the
accounts of its customers and, accordingly, may at any time hold long and
short positions in such securities.
B-2
<PAGE>
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the proposed cash consideration to be received by the
stockholders of the Company (other than Parent and Purchaser) pursuant to the
Offer and the Merger is fair to such stockholders from a financial point of
view.
Very truly yours,
PAINEWEBBER INCORPORATED
By:
-------------------------------
B-3
<PAGE>
EXHIBIT 1
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ADVANCED LOGIC RESEARCH, INC.,
GATEWAY 2000, INC.
AND
DEUCE ACQUISITION CORPORATION
DATED AS OF JUNE 19, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE MERGER; CLOSING; EFFECTIVE TIME.............................. 2
SECTION 1.1 The Merger............................................... 2
----------
SECTION 1.2 Closing.................................................. 2
-------
SECTION 1.3 Effective Time........................................... 2
--------------
SECTION 1.4 Subsequent Actions....................................... 3
------------------
SECTION 1.5 Certificate of Incorporation............................. 3
----------------------------
SECTION 1.6 The By-Laws.............................................. 3
-----------
SECTION 1.7 Officers and Directors................................... 3
----------------------
ARTICLE II CONVERSION AND CANCELLATION OF SHARES
IN THE MERGER................................................... 3
SECTION 2.1 Conversion or Cancellation of Shares..................... 3
------------------------------------
SECTION 2.2 Payment for Shares in the Merger......................... 4
--------------------------------
SECTION 2.3 Company Stock Options and Related Matters................ 5
-----------------------------------------
SECTION 2.4 Transfer of Shares After the Effective Time.............. 7
-------------------------------------------
SECTION 2.5 No Further Rights in Company Common Stock................ 7
-----------------------------------------
SECTION 2.6 No Liability............................................. 7
------------
SECTION 2.7 Withholding Rights....................................... 7
------------------
SECTION 2.8 Lost Certificates........................................ 7
-----------------
SECTION 2.9 Dissenting Shares........................................ 8
-----------------
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. 8
SECTION 3.1 Organization and Qualification........................... 8
------------------------------
SECTION 3.2 Certificate of Incorporation and By-Laws................. 9
----------------------------------------
SECTION 3.3 Subsidiaries............................................. 9
------------
SECTION 3.4 Capitalization........................................... 10
--------------
SECTION 3.5 Authority Relative to this Agreement..................... 11
------------------------------------
SECTION 3.6 No Conflict; Required Filings and Consents............... 11
------------------------------------------
SECTION 3.7 SEC Filings; Financial Statements........................ 12
---------------------------------
SECTION 3.8 Absence of Certain Changes or Events..................... 13
------------------------------------
SECTION 3.9 Intellectual Property.................................... 14
---------------------
SECTION 3.10 Material Contracts....................................... 17
------------------
SECTION 3.11 Environmental Matters.................................... 18
---------------------
SECTION 3.12 Employee Benefits........................................ 18
------------------
SECTION 3.13 Opinion of Financial Advisor............................. 21
----------------------------
SECTION 3.14 Brokers.................................................. 21
-------
SECTION 3.15 Litigation............................................... 21
-----------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 3.16 Labor Relations.......................................... 21
----------------
SECTION 3.17 Application of California Statute........................ 22
---------------------------------
SECTION 3.18 Tax Returns and Audits................................... 22
----------------------
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER AND
MERGER SUB...................................................... 22
SECTION 4.1 Organization and Qualification; Subsidiaries............. 22
--------------------------------------------
SECTION 4.2 Certificate of Incorporation and By-Laws................. 23
----------------------------------------
SECTION 4.3 Authority Relative to this Agreement..................... 23
------------------------------------
SECTION 4.4 No Conflict; Required Filings and Consents............... 24
------------------------------------------
SECTION 4.5 Brokers.................................................. 24
-------
SECTION 4.6 Financing................................................ 24
---------
ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER........................... 25
SECTION 5.1 Conduct of Business by the Company Pending the Merger..... 25
-----------------------------------------------------
ARTICLE VI ADDITIONAL AGREEMENTS........................................... 27
SECTION 6.1 Meeting of the Stockholders............................... 27
---------------------------
SECTION 6.2 Access to Information; Confidentiality.................... 28
--------------------------------------
SECTION 6.3 No Solicitation of Transactions........................... 29
-------------------------------
SECTION 6.4 Indemnification........................................... 30
---------------
SECTION 6.5 Obligations of Merger Sub................................. 32
--------------------------
SECTION 6.6 Further Action; Consents; Filings......................... 33
---------------------------------
SECTION 6.7 Public Announcements...................................... 34
--------------------
SECTION 6.8 Company SEC Reports....................................... 34
-------------------
SECTION 6.9 Notification of Certain Matters........................... 34
-------------------------------
SECTION 6.10 Accountants............................................... 35
-----------
SECTION 6.11 Directors................................................. 35
---------
SECTION 6.12 Employees................................................. 36
----------
ARTICLE VII CONDITIONS TO THE MERGER....................................... 36
SECTION 7.1 Conditions to the Obligations of Each Party............... 36
-------------------------------------------
SECTION 7.2 Conditions to the Obligations of Purchaser and Merger Sub. 37
---------------------------------------------------------
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER............................. 38
SECTION 8.1 Termination............................................... 38
-----------
SECTION 8.2 Effect of Termination..................................... 39
---------------------
SECTION 8.3 Amendment................................................. 39
---------
SECTION 8.4 Waiver.................................................... 39
------
SECTION 8.5 Expenses.................................................. 39
--------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE IX THE OFFER....................................................... 41
SECTION 9.1 Tender Offer.............................................. 41
------------
ARTICLE X GENERAL PROVISIONS............................................... 42
SECTION 10.1 Nonsurvival of Representations, Warranties and Agreements 42
---------------------------------------------------------
SECTION 10.2 Notices.................................................. 42
-------
SECTION 10.3 Certain Definitions...................................... 43
-------------------
SECTION 10.4 Severability............................................. 44
------------
SECTION 10.5 Assignment; Binding Effect; Benefit...................... 44
-----------------------------------
SECTION 10.6 Specific Performance..................................... 45
--------------------
SECTION 10.7 Governing Law............................................ 45
-------------
SECTION 10.8 Headings................................................. 45
--------
SECTION 10.9 Counterparts............................................. 45
------------
SECTION 10.10 Waiver of Jury Trial..................................... 45
--------------------
SECTION 10.11 Entire Agreement; Modification........................... 46
------------------------------
SECTION 10.12 Mutual Drafting.......................................... 46
---------------
SECTION 10.13 No Waivers............................................... 46
----------
</TABLE>
iii
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM POSITION OF DEFINITION
- ------------ ----------------------
<S> <C>
Accountant's Letter (S) 6.10
affiliate (S) 10.3(a)
Agreement Preamble
beneficial owner (S) 10.3(b)
Blue Sky Laws (S) 3.6(b)
Break-up Fee (S) 8.5(b)
business day (S) 10.3(c)
Certificate of Merger (S) 1.3
Certificate of Ownership (S) 1.3
Certificates (S) 2.2(b)
Claim (S) 6.4(b)
Closing (S) 1.2
Code (S) 2.3(a)
Company Preamble
Company Benefit Plans (S) 5.1(g)
Company Common Stock Recitals
Company Disclosure Schedule Article III Preamble
Company Intellectual Property Rights (S) 3.9(a)
Company Material Adverse Effect (S) 3.1
Company Option (S) 2.3(a)
Company SEC Reports (S) 3.7(a)
Company Stock Option Plans (S) 2.3(a)
Competing Transaction (S) 6.3(a)
Confidentiality Agreement (S) 6.2(b)
Constituent Corporations Preamble
control (S) 10.3(d)
controlled by (S) 10.3(d)
Copyrights (S) 3.9(f)(i)
DGCL (S) 1.1
Dissenting Shares (S) 2.9(a)
Effective Time (S) 1.3
Environmental Laws (S) 3.11(a)
Encumbrances (S) 3.3
Environmental Permits (S) 3.11(b)
ERISA (S) 3.12(b)
ERISA Affiliates (S) 3.12(c)
Exchange Act (S) 3.6(b)
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM POSITION OF DEFINITION
- ------------ ----------------------
<S> <C>
Exchange Agent (S) 2.2(a)
Exchange Fund (S) 2.2(a)
Exchange Ratio (S) 2.3(a)
Expenses (S) 8.5(a)
Governmental Authority (S) 3.6(b)
Hazardous Substances (S) 3.11(a)
HSR Act (S) 3.6(b)
Indemnified Parties (S) 6.4(b)
Independent Directors (S) 6.11(a)
Initial Break-up Fee (S) 8.5(b)
knowledge (S) 10.3(e)
known (S) 10.3(e)
Law (S) 3.6(a)
Marks (S) 3.9(e)(i)
Meeting (S) 6.1(a)
Merger (S) 1.1
Merger Consideration (S) 2.1(a)
Merger Sub Preamble
NASDAQ/NMS (S) 3.6(b)
NYSE (S) 2.3(a)
Offer Recitals
Offer Documents (S) 9.1(b)
Order (S) 6.6(b)
Patents (S) 3.9(d)(i)
person (S) 10.3(f)
Plans (S) 3.12(b)
Proxy Statement (S) 6.1(c)
Purchaser Common Stock (S) 2.3(a)
Purchaser Companies (S) 2.1(a)
Purchaser Material Adverse Effect (S) 4.1
Purchaser Preamble
Representatives (S) 6.2(a)
Schedule 14D-9 (S) 9.1(b)
SEC (S) 3.7(a)
SEC Reports (S) 3.7(a)
Securities Act (S) 3.6(b)
Shares (S) 2.1(a)
Stockholders Recitals
Stockholder Agreements Recitals
Subsidiary (S) 3.3
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM POSITION OF DEFINITION
- ------------ ----------------------
<S> <C>
Superior Proposal (S) 6.1(b)
Surviving Corporation (S) 1.1
Terminating Company Breach (S) 8.1(d)
Terminating Purchaser Breach (S) 8.1(e)
Third Party Provisions (S) 10.5
Trade Secrets (S) 3.9(g)(ii)
Transactions Recitals
</TABLE>
vi
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated
as of June 19, 1997, among Advanced Logic Research, Inc., a Delaware corporation
(the "Company"), Gateway 2000, Inc., a Delaware corporation ("Purchaser"), and
Deuce Acquisition Corporation, a Delaware corporation ("Merger Sub"), the
Company and Merger Sub sometimes being hereinafter collectively referred to as
the "Constituent Corporations."
RECITALS
WHEREAS, the Company desires to merge with Merger Sub and Merger Sub
desires to merge with the Company, all upon the terms and subject to the
conditions of this Agreement;
WHEREAS, the Board of Directors of the Company (a) has determined that the
Merger (as such term is hereinafter defined) is in the best interests of the
Company and its stockholders and approved and adopted this Agreement and the
transactions contemplated hereby, including without limitation, the Merger (the
"Transactions"), and (b) has recommended approval and adoption of this
Agreement, and the transactions contemplated hereby by the stockholders of the
Company;
WHEREAS, the Board of Directors of Purchaser has determined that the Merger
is in the best interests of Purchaser and its stockholders and has approved and
adopted this Agreement and the Transactions;
WHEREAS, the Company, Purchaser and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger; and
WHEREAS, in furtherance of the Merger it is proposed that Merger Sub
commence a tender offer for all of the outstanding shares of the Company's
common stock, par value $.01 (the "Company Common Stock"), at a price of $15.50
per share (the "Offer") which price is not less than the fair market value per
share; and
WHEREAS, as a condition and inducement to Purchaser's and Merger Sub's
entering into this Agreement and incurring the obligations set forth herein,
concurrently with the execution and delivery of this Agreement, Purchaser and
Merger Sub are entering into one or more stockholder agreements with the
individuals and entities (the "Stockholders") listed on Schedule I hereto
(collectively, the "Stockholder Agreements"), pursuant to which, among other
things, each Stockholder has agreed to vote the Shares (as such term is
hereinafter defined) then owned by such Stockholder in favor of the Merger, to
grant Purchaser an irrevocable proxy to vote such Shares, to tender all Shares
then owned by such Stockholder to Purchaser or Merger
1
<PAGE>
Sub, as applicable, in accordance with the Offer and to grant an option to
purchase such Shares to Purchaser.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, agreements and conditions herein
contained, the parties hereto agree as follows:
ARTICLE I
THE MERGER; CLOSING; EFFECTIVE TIME
SECTION 1.1 The Merger. Subject to the terms and conditions of this
----------
Agreement, at the Effective Time (as defined in Section 1.3), at the election of
Purchaser, either Merger Sub shall be merged with and into the Company and the
separate corporate existence of Merger Sub shall thereupon cease or the Company
shall be merged with and into Merger Sub and the separate corporate existence of
the Company shall thereupon cease (the "Merger"). The surviving corporation in
the Merger (sometimes hereinafter referred to as the "Surviving Corporation"),
shall continue to be governed by the laws of the State of Delaware, the separate
corporate existence of the Surviving Corporation with all its rights,
privileges, powers, immunities and franchises shall continue unaffected by the
Merger and all debts, liabilities, obligations, resolutions and duties of each
of the Company and Merger Sub shall become the debts, liabilities, obligations
restrictions and duties of the Surviving Corporation. The Merger shall have the
effects specified in the General Corporation Law of the State of Delaware (the
"DGCL").
SECTION 1.2 Closing. The closing of the Merger (the "Closing") shall
-------
take place (i) at the offices of Kaye, Scholer, Fierman, Hays & Handler, LLP,
1999 Avenue of the Stars, Los Angeles, California 90067 as promptly as
practicable and in no event later than the third business day following the
satisfaction or waiver of the conditions set forth in Article VII hereof in
accordance with this Agreement, at such time as the Company and Purchaser may
agree, or (ii) at such other place and time and/or on such other date as the
Company and Purchaser may agree.
SECTION 1.3 Effective Time. Immediately following the Closing, the
--------------
Company and Purchaser shall cause a Certificate of Merger (the "Certificate of
Merger") or Purchaser shall cause a Certificate of Ownership and Merger (the
"Certificate of Ownership") to be executed and filed with the Secretary of State
of the State of Delaware as provided in the DGCL. The Merger shall become
effective at such time as the Certificate of Merger or the Certificate of
Ownership has been duly filed with the Secretary of State of the State of
Delaware, and such time, or such later time as may, with the consent of the
Independent Directors (as defined below), be specified in the Certificate of
Merger or the Certificate of Ownership, is hereinafter referred to as the
"Effective Time."
2
<PAGE>
SECTION 1.4 Subsequent Actions. If, at any time after the Effective
------------------
Time, the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of either of the Constituent Corporations acquired
or to be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger or otherwise to carry out this Agreement, the officers and
directors of the Surviving Corporation are hereby authorized to execute and
deliver, in the name and on behalf of each of the Constituent Corporations or
otherwise, all such deeds, bills of sale, assignments and assurances and to take
and do, in the name and on behalf of each of the Constituent Corporations or
otherwise, all such other actions and things as may be necessary or desirable to
vest, perfect or confirm any and all right, title and interest in, to and under
such rights, properties or assets in the Surviving Corporation or otherwise to
carry out this Agreement.
SECTION 1.5 Certificate of Incorporation. The Certificate of
----------------------------
Incorporation of Merger Sub in effect at the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation, until duly amended in
accordance with the terms thereof and the DGCL, provided that Article First of
the Certificate of Incorporation of the Surviving Corporation shall be amended
to read in its entirety as follows:
"FIRST: The name of the Corporation is Advanced Logic Research, Inc."
SECTION 1.6 The By-Laws. The By-Laws of Merger Sub in effect at the
-----------
Effective Time shall be the By-Laws of the Surviving Corporation, until duly
amended in accordance with the terms thereof and the DGCL.
SECTION 1.7 Officers and Directors. The directors of Merger Sub and the
----------------------
officers of the Company at the Effective Time shall, from and after the
Effective Time, be the directors and officers, respectively, of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and By-Laws.
ARTICLE II
CONVERSION AND CANCELLATION OF SHARES IN THE MERGER
SECTION 2.1 Conversion or Cancellation of Shares. At the Effective
------------------------------------
Time, by virtue of the Merger and without any action on the part of the Merger
Sub, the Company or the holders of any of the following securities:
(a) each share of Company Common Stock (all issued and outstanding
shares of Company Common Stock hereinafter collectively referred to as the
"Shares") issued
3
<PAGE>
and outstanding immediately prior to the Effective Time, other than (i) Shares
owned by Purchaser, Merger Sub or any other direct or indirect wholly-owned
subsidiary of Purchaser (collectively, the "Purchaser Companies"), or by the
Company or any direct or indirect wholly owned subsidiary of the Company, and
(ii) Dissenting Shares (as hereinafter defined), shall be converted into the
right to receive, in cash, without interest thereon, the higher of (x) $15.50 or
(y) such greater amount which may be paid pursuant to the Offer (the "Merger
Consideration"); provided, nothing herein shall be deemed an agreement by
Purchaser to increase the Merger Consideration. All such Shares shall no longer
be outstanding and shall be canceled and retired and shall cease to exist, and
each holder of a certificate representing any such Shares shall thereafter cease
to have any rights with respect to such Shares, except the right to receive the
Merger Consideration for such Shares upon the surrender of such certificate in
accordance with Section 2.2;
(b) each Share issued and outstanding immediately prior to the
Effective Time and owned by any of the Purchaser Companies, and each Share
issued and held in the Company's treasury immediately prior to the Effective
Time, shall cease to be outstanding, be canceled and be retired without payment
of any consideration therefor and cease to exist; and
(c) each share of common stock, $.01 par value, of Merger Sub issued
and outstanding immediately prior to the Effective Time shall be converted into
one validly issued, fully paid and non-assessable share of common stock of the
Surviving Corporation.
SECTION 2.2 Payment for Shares in the Merger. The manner of making
--------------------------------
payment for Shares in the Merger shall be as follows:
(a) At the Effective Time, Purchaser or Merger Sub, as applicable,
shall deposit in trust, or enter such other agreement or arrangement as may be
reasonably satisfactory to the Company, with a bank or trust company designated
by Purchaser and reasonably acceptable to the Company (the "Exchange Agent"),
cash in an aggregate amount equal to the product of (i) the number of Shares
issued and outstanding at the Effective Time (other than Shares owned by the
Purchaser Companies, the Company or any direct or indirect wholly-owned
subsidiary of the Company) and (ii) the Merger Consideration (such amount being
hereinafter referred to as the "Exchange Fund"). The Exchange Agent shall,
pursuant to irrevocable instructions, make the payments provided for in Section
2.1 of this Agreement out of the Exchange Fund. The Exchange Fund shall not be
used for any other purpose, except as provided in this Agreement or as otherwise
agreed to by Purchaser and Merger Sub.
(b) Promptly after the Effective Time, the Exchange Agent shall mail
or cause to be mailed to each holder (other than the Purchaser Companies, the
Company or any direct or indirect wholly-owned subsidiary of the Company), as of
the Effective Time, of an outstanding certificate or certificates which
immediately prior to the Effective Time represented Shares (collectively, the
"Certificates") a form letter of transmittal (which shall specify that
4
<PAGE>
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent) and
instructions for use in effecting the surrender of the Certificates for payments
therefor. Upon surrender to the Exchange Agent of a Certificate representing
Shares that have been converted into, or representing, in accordance with the
terms of this Agreement, the right to receive the Merger Consideration, together
with such letter of transmittal duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor cash in an amount equal to the
product of (i) the number of Shares represented by such Certificate and (ii) the
Merger Consideration, and such Certificate shall forthwith be canceled. No
interest will be paid or accrued on the cash payable upon the surrender of the
Certificates. If payment is to be made to a person other than the person in
whose name the Certificate surrendered is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other taxes required by reason of the payment
to a person other than the registered holder of the Certificate surrendered, or
such person shall establish to the satisfaction of the Surviving Corporation
that such tax has been paid or is not applicable. Until surrendered in
accordance with the provisions of this Section 2.2, each Certificate (other than
Certificates representing Shares owned by the Purchaser Companies, Shares owned
by the Company or any direct or indirect wholly owned subsidiary of the Company
or Dissenting Shares) shall solely represent, for all purposes, the right to
receive the Merger Consideration in cash multiplied by the number of Shares
evidenced by such Certificate, without any interest thereon.
(c) Any portion of the Exchange Fund that remains undistributed to the
holders of Company Common Stock for six months after the Effective Time shall be
delivered to Purchaser, upon demand, and any holders of Company Common Stock who
have not theretofore complied with Section 2.2 shall thereafter look only to
Purchaser for the payment of their claim for the Merger Consideration for
Shares, without any interest thereon. Any portion of the Exchange Fund
remaining unclaimed by holders of Shares as of a date which is immediately prior
to such time as such amounts would otherwise escheat to or become property of
any government entity shall, to the extent permitted by applicable law, become
the property of Purchaser free and clear of any claims or interest of any person
previously entitled thereto. The Exchange Agent shall retain the right to
invest and reinvest the Exchange Fund on behalf of the Purchaser in securities
issued or guaranteed by the United States government or certificates of deposit
of commercial banks that have, or are members of a group of commercial banks
that has, consolidated total assets of not less than $500,000,000 and Purchaser
shall receive the interest earned thereon.
SECTION 2.3 Company Stock Options and Related Matters.
-----------------------------------------
(a) At the Effective Time, each option to purchase shares of Company Common
Stock (each a "Company Option") issued pursuant to the Company's Flexible Stock
Incentive Plan, Director's Nonqualified Stock Option Plan and 1996 Stock
Option/Stock Issuance Plan
5
<PAGE>
(collectively, the "Company Stock Option Plans") or granted by the Company to
any person outside of any Company Stock Option Plan that is outstanding and
unexercised immediately prior to the Effective Time shall be converted, at the
Effective Time, into an option to acquire, on the same terms and conditions as
were applicable under the Company Stock Option Plans and the underlying option
agreements (as modified by this Section 2.3), that number of shares of common
stock $.01 par value, of the Purchaser (the "Purchaser Common Stock") determined
by multiplying the number of shares of Company Common Stock subject to such
option by the Exchange Ratio (rounded up to the nearest whole share) at a price
per share of Purchaser Common Stock equal to the exercise price per share of
Company Common Stock under such Company Option divided by the Exchange Ratio
(rounded up to the nearest whole cent); provided, however, that in the case of
-------- -------
any option to which Section 421 of the United States Internal Revenue Code 1986,
as amended (the "Code"), applies by reason of its qualification under section
422 of the Code, the option price, the number of shares purchasable pursuant to
such option and the terms and conditions of exercise of such option shall be
determined in order to comply with Section 424(a) of the Code. The term
"Exchange Ratio" means that amount equal to the Merger Consideration divided by
the average of the closing prices of Purchaser Common Stock on the New York
Stock Exchange, Inc. ("NYSE") for the twenty consecutive trading days
immediately preceding the date of the Effective Time.
(b) As soon as practicable after the Effective Time, Purchaser shall
deliver to the holders of Company Options appropriate notices setting forth such
holders' rights pursuant to the applicable Company Stock Option Plan and the
agreements pursuant to which such Company Options were issued and the agreements
evidencing the grants of such Company Options shall continue in effect on the
same terms and conditions as specified with respect to such Company Options as
of the Effective Time in the applicable Company Stock Option Plan governing such
Company Option (subject to the adjustments and amendments required by this
Section 2.3, and after giving effect to the Merger and the conversion set forth
above). It is the intention of the parties that, subject to applicable law,
each Company Option that qualified as an incentive stock option under section
422 of the Code prior to the Effective Time shall continue to qualify as an
incentive stock option of Purchaser after the Effective Time. The Company
agrees that it shall take all necessary action to effectuate the provisions of
this Section 2.3 and, except to the extent set forth in Section 2.3(b) to the
Company Disclosure Schedule (as hereinafter defined) with respect to options
currently outstanding under the Directors' Non-Qualified Stock Option Plan, to
preclude the acceleration of any vesting or other provisions of any Company
Option, including pursuant to a Company Stock Option Plan or any agreement
evidencing the grant of a Company Option, as a result of the Transactions.
Immediately following the Effective Time, each employee stock option, stock
bonus, stock award or similar plan of the Company or any of its Subsidiaries
will be terminated and, except as otherwise specifically permitted herein, no
further stock awards, stock options or stock appreciation or similar rights will
be granted thereunder subsequent to the date hereof.
6
<PAGE>
(c) Purchaser shall take all corporate action necessary to reserve for
issuance and have available for delivery a sufficient number of shares of
Purchaser Common Stock to be delivered upon exercise, vesting or payment, as
applicable, of the Company Options converted in accordance with this Section
2.3. As soon as practicable after the Effective Time, Purchaser shall file a
registration statement on Form S-8 (or any successor or other appropriate form)
with respect to the delivery of such shares of Purchaser Common Stock, to the
extent such registration statement is required under applicable law so as to
permit public resale of such shares, and Purchaser shall use its reasonable best
efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such benefits and grants remain
payable and such options remain outstanding. With respect to those individuals,
if any, who subsequent to the Merger will be subject to the reporting
requirements under Section 16(a) of the Exchange Act (as hereinafter defined),
the Board of Directors (or a committee thereof) of Purchaser shall approve the
Company Options held by such individuals and assumed pursuant to this Section
2.3 in a manner that complies with Rule 16b-3 promulgated under the Exchange
Act.
SECTION 2.4 Transfer of Shares After the Effective Time. At the
-------------------------------------------
Effective Time, the stock transfer books of the Company shall be closed and no
transfers of Shares shall be made on such stock transfer books of the Surviving
Corporation at or after the Effective Time.
SECTION 2.5 No Further Rights in Company Common Stock. All Merger
-----------------------------------------
Consideration paid upon the acceptance of tendered and not withdrawn Shares in
accordance with the terms of the Offer shall be deemed to have been paid in full
satisfaction of all rights pertaining to such Shares.
SECTION 2.6 No Liability. Neither Purchaser nor the Surviving
------------
Corporation shall be liable to any holder of Shares of Company Common Stock for
any cash delivered to a public official pursuant to any abandoned property,
escheat or similar Law.
SECTION 2.7 Withholding Rights. Each of the Surviving Corporation and
------------------
Purchaser shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any person such amounts as it is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or Purchaser, as the
case may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to a person in respect of which such deduction and
withholding was made by the Surviving Corporation or Purchaser, as the case may
be.
SECTION 2.8 Lost Certificates. If any Certificate shall have been lost,
-----------------
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as
7
<PAGE>
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will pay the Merger Consideration in accordance
with the terms of the Offer to the registered owner of such Shares.
SECTION 2.9 Dissenting Shares. (a) Notwithstanding any provision of
-----------------
this Agreement to the contrary, Shares that are outstanding immediately prior to
the Effective Time and which are held by stockholders who shall have not voted
in favor of the Merger or consented thereto in writing and who shall have
demanded properly in writing appraisal for such Shares in accordance with
Section 262 of the DGCL (collectively, the "Dissenting Shares") shall not be
-----------------
converted into or represent the right to receive the Merger Consideration. Such
stockholders shall be entitled to receive payment of the appraised value of such
Shares held by them in accordance with the provisions of Section 262, except
that all Dissenting Shares held by stockholders who shall have failed to perfect
or who effectively shall have withdrawn or lost their rights to appraisal of
such Shares under such Section 262 shall thereupon be deemed to have been
converted into and to have become exchangeable for, as of the Effective Time,
the right to receive the Merger Consideration, without any interest thereon,
upon surrender, in the manner provided in Section 2.2 hereof, of the certificate
or certificates that formerly evidenced such Shares.
(b) The Company shall give Purchaser (i) prompt notice of any demands
for appraisal received by the Company, withdrawals of such demands, and any
other instruments served pursuant to the DGCL and received by the Company and
(ii) the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the DGCL. The Company shall not, except with the
prior written consent of Purchaser, make any payment with respect to any demands
for appraisal or offer to settle or settle any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered by the Company to
Purchaser and Merger Sub concurrently with the execution of this Agreement (the
"Company Disclosure Schedule"), as referenced below, the Company hereby
represents and warrants to Purchaser and Merger Sub that:
SECTION 3.1 Organization and Qualification. The Company is a
------------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the requisite 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, except
where the failure to be so incorporated, existing or in good standing or to have
such power, authority and governmental approvals would not prevent or materially
delay consummation of the Merger or the other Transactions, or otherwise prevent
the Company from performing its material obligations under the Agreement, and
would not, individually or in the
8
<PAGE>
aggregate, have a Company Material Adverse Effect (as defined below). The
Company is duly qualified or licensed as a foreign corporation to do business,
and is in good standing, in each jurisdiction where the character of the
properties owned, leased or operated by it or the nature of its business makes
such qualification or licensing necessary, except for such failures to be so
qualified or licensed or in good standing that would not prevent or materially
delay consummation of the Merger or the other Transactions, or otherwise prevent
the Company from performing its material obligations under this Agreement and
would not, individually or in the aggregate, have a Company Material Adverse
Effect. The term "Company Material Adverse Effect" means any circumstance,
change in or effect on the Company or any of its Subsidiaries (as defined below)
that is materially adverse to the business, operations, properties, financial
condition or results of operations of the Company and its Subsidiaries, taken as
a whole, except for cancelations or delays in (affecting not more than 10%, in
the aggregate, of) the Company's reseller channel sales that the Company bears
the burden of demonstrating are directly and primarily attributable to the
announcement of the execution of this Agreement.
SECTION 3.2 Certificate of Incorporation and By-Laws. The Company has
----------------------------------------
heretofore furnished to Purchaser a complete and correct copy of the Certificate
of Incorporation and the By-Laws of the Company. The Certificate of
Incorporation and By-Laws of the Company are in full force and effect. As of
the date of this Agreement, the Company is not in violation of any of the
provisions of its Certificate of Incorporation or By-Laws.
SECTION 3.3 Subsidiaries. Section 3.3 of the Company Disclosure
------------
Schedule contains a complete and accurate list of all corporations,
partnerships, joint ventures or other legal entities of which the Company owns,
directly or indirectly, any voting stock or other equity or beneficial interest,
together with the jurisdiction of organization of such entity and the percentage
of each entity's outstanding capital stock or other equity or beneficial
interests owned directly or indirectly by the Company. Each Subsidiary is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the requisite 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, except
where the failure to be so incorporated, existing or in good standing or to have
such power, authority and governmental approvals would not prevent or materially
delay consummation of the Merger or the other Transactions, or otherwise prevent
the Company from performing its material obligations under this Agreement, and
would not, individually or in the aggregate, have a Company Material Adverse
Effect. Each Subsidiary is duly qualified or licensed as a foreign corporation
to do business and is in good standing, in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed or in good standing that would not prevent or
materially delay consummation of the Merger or the other Transactions, or
otherwise prevent the Company from performing its material obligations under
this Agreement and would not, individually or in the aggregate, have a Company
Material Adverse Effect. All of the outstanding capital stock of each
Subsidiary have been validly issued,
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and are fully paid and nonassessable. All of the capital stock of each of such
Subsidiaries are owned, directly or indirectly, by the Company free and clear of
all Encumbrances. For purposes of this Agreement, the term (i) "Subsidiary" of
any person means any corporation, partnership, joint venture or other legal
entity of which such person (either alone or through or together with another
subsidiary), owns, directly or indirectly, more than 50% of the stock or other
equity or beneficial 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 and (ii) "Encumbrances" shall mean any pledge,
security interest, lien, claim, encumbrance, mortgage, charge, hypothecation,
option, right of first refusal or offer, preemptive right, voting agreement,
voting trust, proxy, power of attorney, escrow, option, forfeiture, penalty,
action at law or in equity, security agreement, stockholder agreement or other
agreement, arrangement, contract, commitment, understanding or obligation, or
any other restriction, qualification or limitation on the use, transfer, right
to vote, right to dissent and seek appraisal, receipt of income or other
exercise of any attribute of ownership.
SECTION 3.4 Capitalization. The authorized capital stock of the Company
--------------
consists of (a) 25,000,000 Shares (b) and 2,500,000 shares of preferred stock,
$.01 par value. As of the date hereof (i) 12,552,951 Shares are issued and
outstanding, all of which are validly issued, fully paid and nonassessable, (ii)
no Shares are held in the treasury of the Company, (iii) no Shares are held by
the Company or any of its Subsidiaries (as defined below), (iv) 1,232,939 Shares
are reserved for future issuance pursuant to outstanding Company Options and (v)
no shares of Preferred Stock are issued and outstanding. Except as provided in,
or contemplated by, this Agreement and except for Company Options granted
pursuant to the Company Stock Option Plans, there are no options, warrants or
other rights, agreements, arrangements or commitments of any character relating
to the issued or unissued capital stock of the Company or any of its
Subsidiaries or obligating the Company or any of its Subsidiaries to issue or
sell any shares of capital stock of, or other equity or beneficial interests in,
the Company or any of its Subsidiaries. No Company Options shall be accelerated
or in any other way altered or changed, whether in connection with the
acceleration of any vesting period or otherwise, by the execution, delivery or
performance of this Agreement by the Company or the consummation of any of the
Transactions except pursuant to and in accordance with Section 2.3 hereof. All
Shares subject to issuance, upon issuance 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 the Company or any Subsidiary to repurchase, redeem
or otherwise acquire any Shares. Other than the Stockholder Agreements, there
are no stockholder agreements, voting trusts or other agreements or
understandings to which the Company is a party, or of which the Company is
aware, relating to voting, registration or disposition of any shares of capital
stock of the Company or granting to any person or group of persons the right to
elect, or to designate or nominate for election, a director to the board of
directors of the Company.
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SECTION 3.5 Authority Relative to this Agreement.
------------------------------------
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the Transactions. The execution and delivery of this Agreement by
the Company and the consummation by the Company of the Transactions have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the Transactions (other than, with respect to the
Merger, the approval and adoption of this Agreement by the holders of a majority
of the then outstanding Shares and the filing and recordation of appropriate
merger documents as required by the DGCL). This Agreement has been duly and
validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Purchaser and Merger Sub, constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms.
(b) The Board of Directors of the Company has, on June 19, 1997,
unanimously (i) approved and adopted this Agreement and the Transactions, (ii)
determined that this Agreement and the Transactions, including each of the Offer
and the Merger, are in the best interests of the Company and its stockholders
and that the terms of this Agreement are fair to the Company and its
stockholders and (iii) determined to recommend that the stockholders of the
Company approve and adopt this Agreement. The Company has been advised by each
of its directors and officers that they intend to tender all Shares beneficially
owned by them pursuant to the Offer.
(c) The Board of Directors of the Company has approved Purchaser as an
"interested stockholder" within the meaning of Section 203 of the DGCL with
respect to the Merger, any acquisition of Shares pursuant to the Offer or any of
the other Transactions.
SECTION 3.6 No Conflict; Required Filings and Consents.
------------------------------------------
(a) The execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company and the consummation
of the Transactions will not, (i) conflict with or violate the Certificate of
Incorporation or By-Laws or equivalent organizational documents of the Company
or conflict with or violate the certificate of incorporation or by-laws or
equivalent organizational documents of any Subsidiary, (ii) assuming that all
consents, approvals, authorizations and other actions described in subsection
3.6(b) have been obtained and all filings and obligations described in
subsection 3.6(b) have been made or complied with, conflict with or violate any
foreign or domestic (federal, state or local) law, statute, ordinance, rule,
regulation, interpretation, permit, injunction, writ, judgment, decree or order
("Law") applicable to the Company or any Subsidiary or by which any asset of the
Company or any Subsidiary is bound or affected, or (iii) conflict with, result
in any breach of or constitute a default (or an event that with notice or lapse
of time or both would become a default)
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<PAGE>
under, or give to others any right of termination, amendment, acceleration or
cancellation of, or require any payment under, or result in the creation of a
lien, claim, security interest or other charge or Encumbrance on any asset of
the Company or any Subsidiary pursuant to, any contract or other instrument or
obligation to which the Company or any Subsidiary is a party or by which any
asset of the Company or any Subsidiary is bound or affected, except with respect
to the foregoing clauses (ii) and (iii), for any such conflicts, violations,
breaches, defaults or other occurrences that would not, individually or in the
aggregate, have a Company Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company and the consummation
of the Transactions will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any United States (federal, state
or local) or foreign government or governmental, regulatory or administrative
authority, agency, commission, board, bureau, court or instrumentality or
arbitrator of any kind ("Governmental Authority"), except (i) for applicable
requirements, if any, of the Securities Act of 1933, as amended, and the rules
and regulations thereunder (collectively the "Securities Act"), the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder
(collectively the "Exchange Act"), state securities or "blue sky" laws ("Blue
Sky Laws"), National Association of Securities Dealers, Inc. Automated
Quotation/National Market System ("NASDAQ/NMS") and state takeover laws, the
pre-merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder
(the "HSR Act"), any pre-merger notification filing with the German Federal
Cartel Office and filing and recordation of appropriate merger documents as
required by the DGCL and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of the Offer or the Merger or otherwise prevent
the Company from performing its obligations under this Agreement or consummating
any of the Transactions, and would not, individually or in the aggregate, have a
Company Material Adverse Effect.
SECTION 3.7 SEC Filings; Financial Statements.
---------------------------------
(a) Since January 1, 1994, the Company has filed all forms, reports,
statements and other documents required to be filed with the Securities and
Exchange Commission (the "SEC") through the date of this Agreement
(collectively, the "Company SEC Reports") including, without limitation, (i) all
Annual Reports on Form 10-K, (ii) all Quarterly Reports on Form 10-Q, (iii) all
proxy statements relating to meetings of stockholders (whether annual or
special), (iv) all Reports on Form 8-K, (v) all other reports or registration
statements and (vi) all amendments and supplements to all such reports and
registration statements (collectively, the "SEC Reports"). The Company SEC
Reports (A) were prepared in all material respects in accordance with the
requirements Securities Act and the Exchange Act applicable to such Company SEC
Reports and (B) did not at the time they were filed contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or
12
<PAGE>
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) Since September 30, 1996, there has not been any Company Material
Adverse Effect.
(c) Each of the consolidated financial statements (including, in each
case, any notes thereto) contained in the Company SEC Reports has been prepared
in accordance with the published rules and regulations of the SEC and generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as may be indicated in the notes thereto) and each
fairly presents, in all material respects, the consolidated financial position,
results of operations and cash flows of the Company and its consolidated
Subsidiaries as at the respective dates thereof and for the respective periods
indicated therein, except as otherwise indicated in the notes thereto (subject,
in the case of unaudited statements, to normal and recurring year-end
adjustments which were not and are not expected, individually or in the
aggregate, to have a Company Material Adverse Effect).
(d) Except as and to the extent set forth on, or reserved against on,
the consolidated balance sheet of the Company and its consolidated Subsidiaries
as of March 31, 1997, including the notes thereto, or incurred since March 31,
1997 in the ordinary course of business consistent with past practice, none of
the Company or any Subsidiary has any liability or obligation of any nature
(whether accrued, absolute, contingent, fixed, liquidated, unliquidated or
otherwise) that would be required to be reflected on, or reserved against in, a
balance sheet of the Company, or in the notes thereto, prepared in accordance
with the published rules and regulations of the SEC and generally accepted
accounting principles, which are, individually or in the aggregate, material to
the business, operations, properties, financial condition, results of operations
of the Company and its Subsidiaries, taken as a whole.
(e) Except as disclosed in the Company SEC Reports, none of the
Company or any of its Subsidiaries is indebted to any director, officer,
employee or agent of the Company or any of its Subsidiaries (except for amounts
due as normal salaries and bonuses and in reimbursement of ordinary expenses)
and no such person is indebted to the Company or any of its Subsidiaries, and
there have been no other transactions of the type required to be disclosed
pursuant to Items 402 and 404 of Regulation S-K under the Exchange Act.
SECTION 3.8 Absence of Certain Changes or Events. Since September 30,
------------------------------------
1996 except as contemplated by this Agreement or as disclosed in any Company SEC
Report filed since September 30, 1996, the Company and its Subsidiaries have
conducted their businesses only in the ordinary course and in a manner
consistent with past practice and, since such date, there has not been (a) any
change by the Company in its accounting methods, principles or practices, (b)
any revaluation by the Company of any material asset (including, without
limitation, any writing down of the value of inventory or writing off of notes
or accounts
13
<PAGE>
receivable), other than in the ordinary course of business consistent with past
practice, (c) any entry by the Company or any Subsidiary into any commitment or
transaction material to the Company and its Subsidiaries taken as a whole,
except in the ordinary course of business and consistent with past practice, (d)
any declaration, setting aside or payment of any dividend or distribution in
respect of the Shares or any redemption, purchase or other acquisition of any of
its securities, (e) any increase in the benefits under, or the establishment or
amendment 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 officers
or key employees of the Company or any Subsidiary except as set forth in Section
3.8 of the Company Disclosure Schedule, (f) any entry by the Company or any
Subsidiary into any employment, consulting, termination or indemnification
agreement with any officer or key employee of the Company or any Subsidiary or
entry into any such agreement with any other person outside the ordinary course
of business except as set forth in Section 3.8 of the Company Disclosure
Schedule, or (g) any agreement by the Company or any Subsidiary to take any of
the actions described in this Section 3.8 except as expressly contemplated by
this Agreement. Between September 30, 1996, and the execution and delivery of
this Agreement, neither the Company nor any Subsidiary has taken, or agreed to
take, any action that would constitute a breach of Section 5.1 if taken after
the date of this Agreement.
SECTION 3.9 Intellectual Property.
---------------------
(a) "Company Intellectual Property Rights" means all trademarks,
trademark rights, trade names, trade name rights, patents, patent rights,
industrial models, copyrights, servicemarks, trade secrets, computer software
programs or applications (in both source code and object code form), maskworks,
net lists, schematics, technology, ideas, algorithms, processes, know-how,
inventions and applications for patents, trademarks, copyrights and servicemarks
and all other tangible and intangible proprietary rights and information owned
by or licensed to the Company or any Subsidiary or which the Company or any
Subsidiary otherwise possesses legally enforceable rights to use.
(b) Section 3.9(b) of the Company Disclosure Schedule contains a
complete and accurate list and summary description, including any royalties paid
or received by the Company or any of its Subsidiaries, of all contracts,
agreements, understandings or arrangements relating to the Company Intellectual
Property Rights to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound, except for any license
implied by the sale of a product and perpetual, paid-up licenses for
commercially available software programs with a value of less than $1,000 under
which the Company or any of its Subsidiaries is the licensee. There are no
outstanding and, to the Company's knowledge, no threatened disputes or
disagreements with respect to any such contracts, agreements, understandings or
arrangements.
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(c) Know-How Necessary for the Business.
-----------------------------------
(i) The Company Intellectual Property rights are all those used or
proposed to be used by the Company for the operation of the businesses of the
Company and its Subsidiaries as they are currently conducted or currently
proposed to be conducted, respectively. Either the Company, or one of its direct
or indirect wholly owned subsidiaries, is the owner of all right, title, and
interest in and to each of the Company Intellectual Property Rights, free and
clear of all liens, security interests, charges, encumbrances, equities and
other adverse claims, and has the right to use without payment to a third party
such Company Intellectual Property Rights.
(ii) All former and current employees of each the Company and
each of its Subsidiaries have executed written agreements with one or more of
the Company and its direct or indirect wholly owned subsidiaries that assign to
one or more of such entities all rights to any inventions, improvements,
discoveries or information relating to the business of the Company or one of its
Subsidiaries. No employee of the Company or one of its Subsidiaries has entered
into any contract, agreement, understanding or arrangement that restricts or
limits in any way the scope or type of work in which the employee may be engaged
or requires the employee to transfer, assign, or disclose information concerning
his work to anyone other than one or more of the Company and its direct or
indirect wholly owned subsidiaries.
(d) Patents.
-------
(i) Section 3.9(d) of the Company Disclosure Schedule contains a
complete and accurate list and summary description of all inventions, patents,
patent applications and patent rights used or proposed to be used by the Company
or any of its Subsidiaries (collectively, "Patents").
(ii) All of the issued Patents are currently in compliance with
formal legal requirements (including payment of filing, examination, and
maintenance fees and proofs of working or use), are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling due within
ninety days after the Effective Time.
(iii) No Patent has been or is now involved in any interference,
reissue, reexamination, or opposition proceeding. To the Company's knowledge,
there is no potentially interfering patent or patent application of any third
party.
(iv) To the Company's knowledge, no Patent is infringed or, to
Company's knowledge, has been challenged or threatened in any way. To the
Company's knowledge, none of the products manufactured and sold, nor any process
or know-how used, by the Company or any of its Subsidiaries infringes or is
alleged to infringe any patent or other proprietary right of any other person.
15
<PAGE>
(v) All products made, used, or sold under the Patents have been
marked with a proper patent notice.
(e) Trademarks.
----------
(i) Section 3.9(e) of the Company Disclosure Schedule contains a
complete and accurate list and summary description of all trademarks, trademark
rights, trade names, trade name rights and servicemarks used or proposed to be
used by the Company or any of its Subsidiaries (collectively, the "Marks").
(ii) All applications for registration of the Marks that have
been registered with the United States Patents and Trademark Office are
currently in compliance with all formal legal requirements (including the timely
post-registration filing of affidavits of use and incontestability and renewal
applications), are valid and enforceable, and the registered Marks and pending
applications are not subject to any maintenance fees or taxes or actions falling
due within ninety days after the Effective Time.
(iii) No Mark has been or is now involved in any opposition,
invalidation, or cancellation and, to the Company's knowledge, no such action is
threatened with the respect to any of the Marks.
(iv) To the Company's knowledge, there is no potentially
interfering trademark or trademark application of any third party.
(v) To the Company's knowledge, no Mark is infringed or has been
challenged or threatened in any way. To the Company's knowledge, none of the
Marks infringes or is alleged to infringe any trade name, trademark, or service
mark of any third party.
(vi) All products and materials containing a Mark bear a proper
federal registration notice where permitted by law.
(f) Copyrights.
----------
(i) Section 3.9(f) of the Company Disclosure Schedule contains a
complete and accurate list and summary description of all copyrights for works
of authorship used or proposed to be used by the Company or any of its
Subsidiaries and registered with the United States Copyright Office
("Copyrights").
(ii) All the Copyrights have been registered and are currently in
compliance with formal legal requirements, are valid and enforceable, and the
Copyrights are not subject to any maintenance fees or taxes or actions falling
due within ninety days after the Effective Time.
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<PAGE>
(iii) To the Company's knowledge, no Copyright is infringed or has
been challenged or threatened in any way. To the Company's knowledge, none of
the subject matter of any of the Copyrights infringes or is alleged to infringe
any copyright of any third party or is a derivative work based on the work of a
third party.
(iv) All works encompassed by the Copyrights have been marked
with a proper copyright notice.
(v) To the Company's knowledge, all works subject to Copyright are
original works of authorship of regular employees of the Company or independent
contractors who have assigned their rights in such works to the Company and no
part of any such work has been copied from any other source.
(g) Trade Secrets.
-------------
(i) Each of the Company and each of its Subsidiaries has taken
reasonable and necessary precautions to protect the secrecy, confidentiality,
and value of their trade secrets.
(ii) To the Company's knowledge, either the Company or one or
more of its direct or indirect wholly owned subsidiaries has good title and an
absolute (but not necessarily exclusive) right to use the trade secrets used or
proposed to be used by the Company or any of its Subsidiaries ("Trade Secrets").
To the Company's knowledge, the Trade Secrets are not part of the public
knowledge or literature, and have not been used, divulged, or appropriated
either for the benefit of any person (other than the Company or its
Subsidiaries) or to the detriment of the Company or its Subsidiaries. To the
Company's knowledge, no Trade Secret is subject to any adverse claim or has been
challenged or threatened in any way.
(h) Since September 30, 1996, (i) none of the Company Intellectual
Property Rights has been sold, transferred, assigned or otherwise disposed of
and (ii) there has been no change in the Company Intellectual Property Rights.
SECTION 3.10 Material Contracts. Section 3.10 of the Company Disclosure
------------------
Schedule sets forth a list of all agreements of the Company with any stockholder
who beneficially owns 5% or more of the outstanding Shares, executive officer of
the Company or director of the Company. Except as set forth in Section 3.10 of
the Company Disclosure Schedule, no officer or director of the Company, or any
"associate" (as such term is defined in Rule 14a-1 under the Exchange Act) of
any such officer or director, has any material interest in any material contract
or property (real or personal, tangible or intangible), used in, or pertaining
to the business of the Company or any of its Subsidiaries.
17
<PAGE>
SECTION 3.11 Environmental Matters.
---------------------
(a) For purposes of this Agreement, the following terms shall have the
following meanings: (i) "Hazardous Substances" means (A) those substances
defined in or regulated under the following federal statutes and their state
counterparts, as each may be amended from time to time, and all regulations
thereunder: the Hazardous Materials Transportation Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water
Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide
Act and the Clean Air Act; (B) petroleum and petroleum products including crude
oil and any fractions thereof; (C) natural gas, synthetic gas, and mixtures
thereof; (D) radon; (E) asbestos; (F) any other contaminant; and (G) any
substance with respect to which a federal, state or local agency requires
environmental investigation, monitoring, reporting or remediation; and (ii)
"Environmental Laws" means any federal, state or local law relating to (A)
releases or threatened releases of Hazardous Substances or materials containing
Hazardous Substances; (B) the manufacture, handling, transport, use, treatment,
storage or disposal of Hazardous Substances or material containing Hazardous
Substances; or (C) otherwise relating to pollution of the environment.
(b) Except as could not reasonably be expected to have a Company
Material Adverse Effect, (i) the Company is not in violation of any
Environmental Law; (ii) none of the properties owned or leased by the Company
are contaminated with any Hazardous Substance; (iii) the Company is not liable
for any off-site contamination; (iv) the Company is not liable under any
Environmental Law; (v) the Company has all permits, licenses and other
authorizations required under any Environmental Law ("Environmental Permits");
(vi) the Company is in compliance with its Environmental Permits; and (vii)
there are no pending, or, to the knowledge of the Company, threatened claims
against the Company or any Subsidiary relating to any Environmental Law or
Hazardous Substance.
SECTION 3.12 Employee Benefits.
-----------------
(a) Section 3.12(a) of the Company Disclosure Schedule contains a true
and complete summary or list of or otherwise describes all material employment
contracts or other employee benefit arrangements with "change of control" or
similar provisions, all severance agreements with directors or executive
officers and all bonus, deferred compensation, pension, retirement, profit
sharing, stock option, stock purchase and other employee benefit plans (other
than medical and other similar welfare plans made generally available to all
employees) to which the Company or any of its Subsidiaries is a party. True and
complete copies of all such plans and agreements have been made available to
Purchaser.
(b) The Company has heretofore delivered or otherwise made available
to Purchaser true, correct and complete copies of (i) each "employee benefit
plan" as defined in
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<PAGE>
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), it maintains or to which it contributes and any bonus, deferred
compensation, severance pay, insurance, stock purchase, stock option or other
fringe benefit plan, program or arrangement, whether formal or informal (the
"Plans"), (ii) the three most recent Annual Reports (Form 5500 Series) and
accompanying schedules for each of the Plans for which such a report is
required, (iii) the most current summary plan description (and any summary of
material modifications) for each Plan, (iv) the three most recent certified
financial statements for each of the Plans for which such a statement is
required or was prepared, (v) the Forms PBGC-1 filed in each of the three most
recent plan years for each of the Plans for which such form was required to be
filed, and (vi) for each Plan intended to be "qualified" within the meaning of
Section 401(a) of the Code, the most recent Internal Revenue Service
determination letter issued with respect to such Plan.
(c) The Company and each Subsidiary and ERISA Affiliate (as defined
below) has performed and complied in all material respects with all of its
obligations under and with respect to the Plans and each of the Plans has, at
all times, in form and operation complied in all material respects with its
terms, and, where applicable, the requirements of the Code, ERISA and all other
applicable laws. Each Plan which is intended to be "qualified" within the
meaning of Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified and, to the knowledge of the Company, nothing
has occurred which reasonably could be expected to adversely affect such
qualified status. For purposes of this Agreement, the term "ERISA Affiliates"
as applied to any person, shall mean (a) any corporation which is a member of a
controlled group of corporations, within the meaning of Section 414(b) of the
Code of which that person is a member, (b) any trade or business (whether or not
incorporated) which is a member of a group of trades or businesses under common
control, within the meaning of Section 414(c) of the Code, of which that person
is a member, and (c) any member of any affiliate service group, within the
meaning of Section 414(m) and (o) of the Code, of which that person or any
entity descried in clause (a) or (b) is a member.
(d) There are no unpaid contributions due prior to the date hereof
with respect to any Plan, and with respect to each Plan that is subject to
Section 412 of the Code, there has occurred no failure to meet the minimum
funding standards of such Section, or failure to make a required installment
under Section 412(m) of the Code by its due date.
(e) Neither the Company, any Subsidiary nor any ERISA Affiliate has
withdrawn from any Plan during a plan year in which it was a "substantial
employer," as defined in Section 4001(a)(2) of ERISA, where such withdrawal
could result in liability of such substantial employer pursuant to Section
4062(e) or 4063 of ERISA, and neither the Company, nor any Subsidiary nor any
ERISA Affiliate has filed a notice of intent to terminate any such plan or
adopted any amendment to treat any such plan as terminated. The Pension
Benefit Guaranty Corporation has not instituted proceedings to terminate any
Plan, and no other event or condition has occurred which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any such plan. No reportable
19
<PAGE>
event, as described in Section 4043 of ERISA (whether or not waived), has
occurred with respect to any Plan, and there has been no event which could
subject the Company, any Subsidiary or ERISA Affiliate to liability under
Section 4064 or 4069 of ERISA for any Plan.
(f) With respect to each Plan that is subject to the provisions of
Title I, Sub title B, Part 3 of ERISA, the actuarial present value (based on the
actuarial assumptions used in the most recent actuarial valuation) of vested and
nonvested "benefit liabilities," as defined in Section 4001(a)(16) of ERISA
(calculated on a termination basis and taking into account all contingent and
subsidized benefits) of each such Plan, determined as of the most recent
valuation date for each such plan, did not exceed the fair market value of the
assets of such Plan as of such date.
(g) Except as described in Section 3.12(g) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary or ERISA Affiliate has any
obligation to provide health benefits or other non-pension benefits to retired
or other former employees, except as specifically required by Section 4980B of
the Code or Part 6 of Title I of ERISA, and the Company and any Subsidiary or
ERISA Affiliate has complied in all material respects with the requirements of
Code Section 4980B and such Part 6.
(h) To the knowledge of the Company, neither the Company, any
Subsidiary or any ERISA Affiliate, nor any other "disqualified person" or "party
in interest," as defined in Section 4975 of the Code and Section 3(14) of ERISA,
respectively, has engaged in any "prohibited transaction," as defined in Section
4975 of the Code or Section 406 of ERISA, with respect to any Plan which could
subject the Company or any ERISA Affiliate to any material penalty or tax under
Section 502(i) of ERISA or Sections 4971 and 4975 of the Code. Except as set
forth in Section 3.12(h) of the Company Disclosure Schedule, with respect to any
Plan, no action, suit or claim is pending with respect to any Plan, other than
routine claims for benefits.
(i) To the knowledge of the Company, neither the Company nor any
Subsidiary or ERISA Affiliate has incurred any liability or taken any action and
none of them has any knowledge of any action or event that could cause any one
of them to incur any liability (i) under Section 412 of the Code or Title IV of
ERISA, or (ii) on account of a partial or complete withdrawal (as defined in
Sections 4203 and 4205 of ERISA, respectively) with respect to any Multiemployer
Plan.
(j) Except as set forth in Section 3.12(j) of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of any or all of the contemplated transactions will: (i) entitle
any current or former employee of the Company nor any Subsidiary or ERISA
Affiliate to severance pay, unemployment compensation or any similar payment, or
(ii) result in the payment of any "excess parachute payment" to any person under
Section 280G of the Code.
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SECTION 3.13 Opinion of Financial Advisor. The Company has received the
----------------------------
opinion of PaineWebber Incorporated on the date of this Agreement to the effect
that, as of the date of this Agreement, the Merger Consideration is fair to the
Company's stockholders from a financial point of view and the Company will
promptly, after the receipt thereof, deliver a copy of such opinion to
Purchaser.
SECTION 3.14 Brokers. No broker, finder or investment banker (other
-------
than PaineWebber Incorporated) is entitled to any brokerage, finder's or other
fee or commission in connection with the Transactions based upon arrangements
made by or on behalf of the Company. The Company has heretofore made available
to Purchaser a complete and correct copy of all agreements between the Company
and PaineWebber Incorporated pursuant to which such firm would be entitled to
any payment relating to the Transactions.
SECTION 3.15 Litigation. Except as set forth in Section 3.15 of the
----------
Company Disclosure Schedule, (a) there is no action, suit, proceeding or, to the
Company's knowledge, investigation pending against or affecting the Company or
any of its Subsidiaries or any of their respective properties and, to the
Company's knowledge, there is no action, suit, proceeding or investigation
threatened against or affecting the Company or any of its Subsidiaries or any of
their respective properties before any Governmental Authority and (b) neither
the Company nor any of its Subsidiaries is subject to any judgment, decree,
injunction, rule or order of any Governmental Authority or arbitrator.
SECTION 3.16 Labor Relations. The Company and its Subsidiaries are in
---------------
material compliance with all federal, state and local laws, rules, regulations
and orders respecting employment and employment practices, including, without
limitation, immigration and terms and conditions of employment, wages and hours.
To the Company's knowledge, there are no pending investigations involving the
Company or any of its Subsidiaries by any Governmental Authority for the
enforcement of such federal, state or local laws, rules regulations and orders.
There is no unfair labor practice charge or complaint pending, or, to the
Company's knowledge, threatened or contemplated, against the Company or any of
its Subsidiaries before any Governmental Authority or any strike, picketing,
boycott, dispute, slowdown or stoppage pending, or, to the Company's knowledge,
threatened or contemplated, against or involving the Company or any of its
Subsidiaries. There are no existing collective bargaining agreements with the
Company or any of its Subsidiaries. No representation question exists
respecting the employees of the Company or any of its Subsidiaries and no
collective bargaining agreement or modification thereof is currently being
negotiated by or on behalf of the Company or any of its Subsidiaries. No
grievance or arbitration proceeding is pending, or, to the Company's knowledge,
threatened or contemplated, under any expired collective bargaining agreements
of the Company or its Subsidiaries. No labor dispute with the employees of the
Company or any of its Subsidiaries is pending, or, to the Company's knowledge,
threatened or contemplated.
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SECTION 3.17 Application of California Statute. The Company is not a
---------------------------------
foreign corporation subject to Section 2115 of the California General
Corporation Law.
SECTION 3.18 Tax Returns and Audits. Each of the Company and its
----------------------
Subsidiaries has duly filed all federal income tax returns to be filed by it and
has duly filed all other federal, state, local and foreign tax returns and
reports required to be filed by it and has duly paid or made adequate provision
on its books in accordance with generally accepted accounting principles for the
payment of all taxes which have been incurred or are due and payable. Except as
set forth in Section 3.18 of the Company Disclosure Schedule (a) there are no
pending audits, examinations or proposed audits or examinations of any tax
returns filed by the Company or any of its Subsidiaries and (b) neither the
Company nor any of its Subsidiaries have given or been requested to give waivers
or extensions of any statute of limitations relating to the payment of taxes for
which the Company or any of its Subsidiaries may be liable. As of the date of
this Agreement, the consolidated federal income tax returns of the Company and
its Subsidiaries have been audited by the Internal Revenue Service (or the
appropriate statute of limitations has expired) for all fiscal years through and
including September 30, 1992. All deficiencies asserted or proposed as a result
of any examinations or audits of any tax returns have been paid or adequately
provided for on the books of the Company or one of its Subsidiaries in
accordance with generally accepted accounting principles. Except as set forth
in Section 3.18 of the Company Disclosure Schedule, neither the Company nor any
of its Subsidiaries (i) is a party to any agreement providing for the
allocation, payment or sharing of taxes among the Company, its Subsidiaries or
any third parties, (ii) has any net operating loss carryovers, net capital loss
carryovers or any other items the use of which, by deduction or credit or
otherwise, would or may be limited by Section 382 of the Code (except as a
result of the transactions contemplated hereby), (iii) has filed any consent to
the application of Section 341(f) of the Code with respect to any of its
property, (iv) has an application pending with respect to any tax requesting
permission for a change in accounting method, (v) is required to make any
adjustments to income pursuant to Section 481 of the Code or (vi) owns or leases
any real property or otherwise holds any interest in real property that would or
may subject the parties hereto or the Surviving Corporation to a transfer or
gains tax as a result of the Merger (unless Purchaser elects to merge the
Company into Merger Sub and except for transactions after the Merger).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB
Purchaser and Merger Sub hereby jointly and severally represent and warrant
to the Company that:
SECTION 4.1 Organization and Qualification; Subsidiaries. Purchaser is
--------------------------------------------
a corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the requisite power and
authority and all necessary governmental
22
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approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so incorporated,
existing or in good standing or to have such power, authority and governmental
approvals would not prevent or materially delay consummation of the Merger or
the other Transactions or otherwise prevent Purchaser or Merger Sub from
performing their material obligations under this Agreement or, individually or
in the aggregate, have a Purchaser Material Adverse Effect (as defined below).
Purchaser is duly qualified or licensed as a foreign corporation to do business,
and is in good standing, and in good standing in each jurisdiction where the
character of the properties owned, lease 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 or in good standing that would not
prevent or materially delay consummation of the Merger or the other
Transactions, or otherwise prevent Purchaser or Merger Sub from performing their
material obligations under this Agreement and would not, individually or in the
aggregate, have a Purchaser Material Adverse Effect. The term "Purchaser
Material Adverse Effect" means any circumstance, change in or effect on
Purchaser or any of its Subsidiaries that is materially adverse to the business,
operations, properties, financial condition or results of operations of
Purchaser and its Subsidiaries, taken as a whole.
SECTION 4.2 Certificate of Incorporation and By-Laws. Purchaser
----------------------------------------
heretofore has made available to the Company a complete and correct copy of the
Certificate of Incorporation and the By-Laws of each of Purchaser and Merger
Sub. The Certificate of Incorporation and By-Laws of each of Purchaser and
Merger Sub are in full force and effect. Neither Purchaser nor Merger Sub is in
violation of any of the provisions of its Certificate of Incorporation or By-
Laws.
SECTION 4.3 Authority Relative to this Agreement.
------------------------------------
(a) Each of Purchaser and Merger Sub has all necessary corporate power
and authority to execute and deliver this Agreement, to perform their respective
obligations hereunder and to consummate the Transactions. The execution and
delivery of this Agreement by each of Purchaser and Merger Sub and the
consummation by each of Purchaser and Merger Sub of the Transactions have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Purchaser or Merger Sub are necessary to
authorize this Agreement or to consummate the Transactions (other than the
filing and recordation of appropriate merger documents as required by the DGCL).
This Agreement has been duly and validly executed and delivered by each of
Purchaser and Merger Sub and, assuming the due authorization, execution and
delivery by the Company, constitutes a legal, valid and binding obligations of
each Purchaser and Merger Sub, enforceable against each of Purchaser and Merger
Sub in accordance with its terms.
(b) The Board of Directors of Purchaser has, on June 18, 1997,
approved and adopted this Agreement and the Transactions and Purchaser has
approved this Agreement and the Transactions as the sole stockholder of Merger
Sub.
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SECTION 4.4 No Conflict; Required Filings and Consents.
------------------------------------------
(a) The execution and delivery of this Agreement by each of Purchaser
and Merger Sub does not, and the performance of this Agreement by each of
Purchaser and Merger Sub and the consummation of the Transactions will not, (i)
conflict with or violate the Certificate of Incorporation or By-Laws or
equivalent organizational documents of Purchaser or Merger Sub, (ii) assuming
that all consents, approvals, authorizations and other actions described in
subsection 4.4(b) have been obtained and all filings and obligations described
in subsection 4.4(b) have been made or complied with, conflict with or violate
any Law applicable to Purchaser or by which any asset of Purchaser is bound or
affected, or (iii) conflict with, result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or require any payment under or result in the
creation of a lien, claim, security interest or other charge or Encumbrance on
any asset of Purchaser pursuant to, any contract or other instrument or
obligation to which Purchaser or Merger Sub is a party or by which any asset of
Purchaser or Merger Sub is bound or affected, except, with respect to clauses
(ii) and (iii), for any such conflicts, violations, breaches, defaults, or other
occurrences which would not, individually or in the aggregate, have a Purchaser
Material Adverse Effect.
(b) The execution and delivery of this Agreement by each of Purchaser
and Merger Sub does not, and the performance of this Agreement by each of
Purchaser and Merger Sub and the consummation of the Transactions will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, except (i) for applicable
requirements, if any, of the Securities Act, the Exchange Act, Blue Sky Laws,
the NYSE and state takeover laws, the pre-merger notification requirements of
the HSR Act, any pre-merger notification filing with the German Federal Cartel
Office and recordation of appropriate merger documents as required by the DGCL
and (ii) where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notification would not prevent or delay
consummation of the Offer or the Merger, or otherwise prevent either Purchaser
or Merger Sub from performing their respective obligations under this Agreement
or consummating any of the Transactions, and would not, individually or in the
aggregate, have a Purchaser Material Adverse Effect.
SECTION 4.5 Brokers. No broker, finder or investment banker (other than
-------
Deutsche Morgan Grenfell) is entitled to any brokerage, finder's or other fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of Purchaser.
SECTION 4.6 Financing. Purchaser shall provide or cause to be provided
---------
to Merger Sub the funds necessary to satisfy all of Purchaser's and Merger Sub's
obligations under this Agreement to consummate the Offer and the Merger in
accordance with their respective terms and the terms of this Agreement, each as
may be amended from time to time.
24
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ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 Conduct of Business by the Company Pending the Merger.
-----------------------------------------------------
Prior to the Effective Time, except to the extent that Purchaser shall otherwise
consent (including by virtue of action by the Board of Directors of the Company
approved by all of Purchaser's or Merger Sub's designees, as applicable, at such
time as they shall constitute a majority of such Board), the Company shall, and
shall cause its Subsidiaries to, except as expressly permitted by this
Agreement, conduct their respective businesses in, and shall not take any action
except in, the ordinary course of business in a manner consistent with past
practice; and the Company shall, and shall cause its Subsidiaries to, use their
respective reasonable best efforts to preserve intact the business organization
of the Company and its Subsidiaries, to keep available the services of the
current officers, employees and consultants of the Company and its Subsidiaries
and to preserve the current business relationships of the Company and its
Subsidiaries, including, without limitation, with customers, licensors,
suppliers, distributors and others with which the Company or any Subsidiary has
business relations. Without limiting the generality of the foregoing, and
except as expressly permitted or specifically contemplated by this Agreement,
the Company shall not, and shall not permit any Subsidiary to, between the date
of this Agreement and the Effective Time, directly or indirectly do, or propose
to do, any of the following without the prior written consent of Purchaser
(except as otherwise expressly permitted by this Agreement):
(a) (i) declare, set aside or pay any dividends on or other
distributions in respect of any of its capital stock (other than dividends and
distributions by any direct or indirect wholly owned subsidiary of the Company
to its parent), (ii) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock or (iii)
repurchase, redeem or otherwise acquire, or permit any Subsidiary to repurchase,
redeem or otherwise acquire, any shares of capital stock;
(b) issue, deliver, sell, pledge, dispose or encumber, or authorize or
propose the issuance, delivery, sale, pledge, disposal or encumbrance of, any
shares of its capital stock of any class or any securities convertible into, or
any rights, warrants, calls, subscriptions or options to acquire, any such
shares or convertible securities, or any other ownership interest other than (i)
the issuance of shares of Company Common Stock upon the exercise of stock
options granted under the Company Stock Option Plans outstanding on the date of
this Agreement and in accordance with the current terms of such options, (ii)
issuances by a Subsidiary of its capital stock to the Company or a Subsidiary so
long as the Company will, after such issuance, directly or indirectly own all
the outstanding capital stock of the issuing Subsidiary and (iii) the grant of
stock options to new hires in the ordinary course of business consistent with
past practice and with the written consent of Purchaser;
25
<PAGE>
(c) amend or propose to amend its Certificate of Incorporation or By-
Laws;
(d) acquire or agree to acquire, including, without limitation, by
merging or consolidating with, or by purchasing a substantial equity interest in
or substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof;
(e) sell, lease, license, grant a security interest in, encumber or
otherwise dispose of, or agree to sell, lease, grant a security interest in,
encumber or otherwise dispose of, any of its material assets other than (i)
sales or licenses of its products in the ordinary course of business consistent
with past practice, (ii) equipment and property no longer used in the operation
of the Company and its Subsidiaries' respective businesses and (iii) assets
related to any discontinued operations of the Company and its Subsidiaries which
operations were discontinued prior to the date hereof;
(f) incur (which shall not be deemed to include entering into credit
agreements, lines of credit or similar arrangements until borrowings are made
under such arrangements) any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Company or any Subsidiary or guarantee any
debt securities of others, except in the ordinary course of business consistent
with past practice;
(g) (i) grant any increase in the compensation of any of its
directors, officers or employees, except for increases for employees in the
ordinary course of business consistent with past practices, (ii) grant, pay or
agree to pay any pension, retirement allowance or other employee benefit not
required or contemplated by any existing employee benefit plan, program,
arrangement, agreement or contract (including, without limitation, any "employee
benefit plan", as defined in Section 3(3) of ERISA), maintained or contributed
to by the Company or any Subsidiary, or with respect to which the Company or any
Subsidiary could incur liability under Sections 4069, 4212(c) or 4204 of ERISA
(the "Company Benefit Plans") as in effect on the date hereof to any director,
officer or employee, (iii) enter into any new employment, severance or
termination plan, program, arrangement, agreement or contract with any such
director, officer or employee or (iv) except as may be required to comply with
applicable law, become obligated under any Company Benefit Plan that was not in
existence on the date hereof or amend any such plan in existence on the date
hereof to enhance the benefits thereunder;
(h) make any capital expenditure or expenditures which exceed $250,000
in the aggregate; or
(i) authorize any of, or commit or agree to take any of, the actions
described in paragraphs (a) through (h) of this Section 5.1.
26
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Meeting of the Stockholders.
---------------------------
(a) The Company will take all action necessary in accordance with
applicable law and its Certificate of Incorporation and By-Laws to convene a
meeting of its stockholders to consider and vote upon the approval of this
Agreement and the Merger and such other matters as may be necessary to
effectuate the Transactions (the "Meeting"), if necessary to comply with
applicable law, as promptly as practicable after the expiration of the Offer.
The Purchaser Companies will vote all Shares over which they exercise voting
control in favor of this Agreement and the Merger.
(b) The Board of Directors of the Company shall recommend such
approval and take all lawful action to solicit such approval; provided, however,
-------- -------
that the Board of Directors of the Company at any time prior to the time of
acceptance for payment of at least a majority of Shares pursuant to the Offer
may withdraw, modify or change any such recommendations to the extent that the
Board of Directors of the Company (i) determines in good faith after
consultation with and based upon the advice of independent legal counsel that
the failure to so withdraw, modify or change its recommendation would cause the
Board of Directors of the Company to breach its fiduciary duties to the
Company's stockholders under applicable law and (ii) the Company has received in
writing a Superior Proposal (as defined below), which is then pending, which the
Board of Directors of the Company has determined to recommend to the
stockholders of the Company. For purposes of this Agreement, a "Superior
Proposal" means any bona fide proposal relating to a Competing Transaction (as
hereinafter defined) made by a third party on terms which the Board of Directors
of the Company determines in its good faith judgment (based upon the advice of a
financial advisor of nationally recognized reputation) to be more financially
favorable to the Company's stockholders than the Offer and the Merger and for
which financing, to the extent required, is then committed or which, in the good
faith judgment (based upon the advice of a financial advisor of nationally
recognized reputation) of the Board of Directors of the Company, is reasonably
capable of being financed by such third party. The Company agrees that it shall
notify Purchaser at least forty-eight hours prior to taking any action with
respect to such Superior Proposal or taking any action with respect to the
withdrawal, modification or change of its recommendation for approval of this
Agreement, the Merger or the Transactions. Notwithstanding anything to the
contrary contained in this Agreement, any such withdrawal, modification or
change of recommendation in accordance with the provisions of this Section
6.1(b) shall not constitute a breach of this Agreement by the Company.
(c) Notwithstanding the foregoing, in the event that Purchaser shall
acquire at least 90 percent of the then outstanding Shares, the parties hereto
agree, subject to Article VII, to take all necessary and appropriate action to
cause the Merger to become effective, in
27
<PAGE>
accordance with Section 253 of the DGCL, as soon as reasonably practicable after
such acquisition, without a meeting of the stockholders of the Company.
(d) If required by applicable law, as soon as practicable after the
expiration of the Offer, the Company shall file with the SEC a proxy statement
(the "Proxy Statement") and form of proxy relating to the Merger, which shall
comply as to form with all applicable laws. The Company shall obtain and furnish
the information required to be included in the Proxy Statement and shall respond
promptly to any comments made by the SEC with respect to the Proxy Statement and
cause the Proxy Statement and form of proxy to be mailed to the Company's
stockholders at the earliest practicable date. Purchaser and Merger Sub shall
cooperate in the preparation of the Proxy Statement and shall furnish the
Company with all information with respect to itself, and its directors,
officers, stockholders and Subsidiaries, as may be required for inclusion in the
Proxy Statement. The Company agrees, as to information with respect to the
Company, its officers, directors, stockholders and Subsidiaries contained in the
Proxy Statement, and Purchaser agrees, as to information with respect to
Purchaser, its officers, directors, stockholders and Subsidiaries contained in
the Proxy Statement, that such information, at the date the Proxy Statement is
mailed and (as then amended or supplemented) at the time of the Meeting, will
not be false or misleading with respect to any material fact, or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. Purchaser and its counsel shall be given an
opportunity to review the Proxy Statement, and all amendments or supplements
thereof, prior to their being filed with the SEC and the Company shall not make
any such filing without the approval of Purchaser (which shall not be
unreasonably withheld). The Company will advise Purchaser, promptly after it
receives notice thereof, of the time when the Proxy Statement has been cleared
by the SEC or any request by the SEC for amendment of the Proxy Statement or
comments thereon and proposed responses thereto or requests by the SEC for
additional information.
SECTION 6.2 Access to Information; Confidentiality.
--------------------------------------
(a) Except as required pursuant to any confidentiality agreement or
similar agreement or arrangement to which the Company or any of its Subsidiaries
is a party (as to which it will use its reasonable best efforts to obtain any
necessary consents) or pursuant to applicable Law, from the date of this
Agreement to the Effective Time, the Company shall (and shall cause its
Subsidiaries to): (i) provide to Purchaser and its officers, directors,
employees, accountants, legal counsel, agents, investment bankers and other
authorized representatives (collectively, "Representatives") access at
reasonable times upon prior notice to the officers, employees, agents,
properties, offices and other facilities of the Company and its Subsidiaries and
to the books and records thereof and (ii) furnish promptly to Purchaser and its
Representatives such information concerning the business, properties, contracts,
assets, liabilities, personnel and other aspects with respect to the Company and
its Subsidiaries as Purchaser may reasonably request.
28
<PAGE>
(b) The parties shall comply with, and shall cause their respective
Representatives to comply with, all their respective obligations under the
Confidential Disclosure Agreement dated February 21, 1997 (the "Confidentiality
Agreement"), between the Company and Purchaser.
(c) No investigation pursuant to this Section 6.2 shall affect any
representation or warranty in this agreement of any party hereto or any
condition to the obligations of the parties hereto.
SECTION 6.3 No Solicitation of Transactions.
-------------------------------
The Company shall immediately cease and cause to be terminated all
existing discussions or negotiations relating to a Competing Transaction (as
defined below), other than with respect to the Transactions, with any parties
conducted heretofore. The Company will not, directly or indirectly, and will
instruct its Representatives not to, directly or indirectly, initiate, solicit
or encourage (including by way of furnishing information or assistance), or take
any other action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Competing
Transaction, or enter into or maintain discussions or negotiate with any person
in furtherance of or relating to such inquiries or to obtain a Competing
Transaction, or agree to or endorse any Competing Transaction, or authorize or
permit any Representative of the Company or any of its Subsidiaries to take any
such action, the Company shall use its best efforts to cause the Representatives
of the Company and its Subsidiaries not to take any such action, the Company
shall promptly notify Purchaser if any such inquiries or proposals are made
regarding a Competing Transaction, and the Company shall promptly inform
Purchaser as to the material details of any such inquiry or proposal and, if in
writing, promptly deliver or cause to be delivered to Purchaser a copy of such
inquiry or proposal. The Company shall keep Purchaser informed, on a current
basis, of the details of any such inquiries and the status and terms of any such
proposals; provided, however, that prior to the time of acceptance for payment
-------- -------
of at least a majority of Shares pursuant to the Offer, nothing contained in
this Section 6.3 shall prohibit the Board of Directors of the Company from (i)
furnishing information to, or entering into discussions or negotiations with,
any person that after the date hereof makes an unsolicited bona fide proposal
regarding a Competing Transaction or agreeing to or endorsing any Competing
Transaction, if, and only to the extent that, (A) the Board of Directors of the
Company, after consultation with and based upon the advice of independent legal
counsel, determines in good faith that such action is required for the Board of
Directors of the Company to comply with its fiduciary duties to stockholders
imposed by the DGCL, (B) prior to furnishing such information to, or entering
into discussions or negotiations with such person or agreeing to or endorsing
any Competing Transaction, the Board of Directors of the Company determines in
good faith, after consultation with and based upon the advice of a financial
advisor of a nationally recognized reputation, that such Competing Transaction
is a Superior Proposal, (C) prior to furnishing such information to, or entering
into discussions or negotiations with, such person, the Company provides written
notice to Purchaser to the effect
29
<PAGE>
that it is furnishing information to, or entering into discussions or
negotiations with, such person, (D) prior to furnishing such information to such
person, the Company receives from such person an executed confidentiality
agreement with terms no less favorable to the Company than those contained in
the Confidentiality Agreement, and (E) such information to be so furnished has
been previously delivered to Purchaser; or (ii) complying with Rule 14e-2
promulgated under the Exchange Act with regard to a Competing Transaction.
For purposes of this Agreement, "Competing Transaction" shall mean any
of the following involving the Company or any of its Subsidiaries (other than
the entering into or consummation of the Transactions): (a) any merger,
consolidation, share exchange, business combination, or other similar
transaction; (b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of substantial assets (other than assets held in inventory for
resale in the ordinary course of business) of the Company and its Subsidiaries,
taken as a whole, in a single transaction or series of transactions; (c) any
tender offer or exchange offer that if consummated would result in any person
beneficially owning 20% or more of the outstanding shares of capital stock of
the Company or the filing of a registration statement under the Securities Act
in connection therewith; (d) any solicitation of proxies in opposition to
approval by the Company's stockholders of the Merger; (e) the acquisition by any
person, after the date hereof, of beneficial ownership or the right to acquire
beneficial ownership of, or the formation of any "group" (as such term is
defined under Section 13(d) of the Exchange Act), that beneficially owns or has
the right to acquire beneficial ownership of 20% or more of the then outstanding
shares of capital stock of the Company, or the acquisition by any person or
"group" that, as of the date hereof, beneficially owns 20% or more of the
outstanding shares of capital stock of the Company (other than any passive
institutional investor) of beneficial ownership or the right to acquire
beneficial ownership of any additional shares of capital stock of the Company;
(f) the adoption by the Company of a plan of liquidation, the declaration or
payment by the Company of an extraordinary dividend on any of its shares of
capital stock or the effectuation by the Company of a recapitalization or other
type of transaction that would involve either a change in the Company's
outstanding capital stock or a distribution of assets of any kind to the holders
of such capital stock; (g) the repurchase by the Company or any of its
Subsidiaries of shares of Company Common Stock; or (h) any agreement to, or
public announcement by the Company or any other person, entity or group of a
proposal, plan or intention to, do any of the foregoing.
SECTION 6.4 Indemnification.
---------------
(a) The Certificate of Incorporation and By-Laws of the Surviving
Corporation shall contain the same provisions with respect to indemnification,
advancement and director exculpation set forth in the Certificate of
Incorporation and By-Laws of the Company on the date of this Agreement, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years after the Effective Time in any manner that would adversely affect the
rights thereunder of persons who at any time prior to the Effective Time were
entitled
30
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to indemnification, advancement or exculpation under the Certificate of
Incorporation or By-Laws of the Company in respect of actions or omissions
occurring at or prior to the Effective Time (including, without limitation, the
Transactions), unless such modification is required by Law.
Purchaser will not permit the provisions with respect to
indemnification, advancement or director exculpation set forth in the
Certificate of Incorporation and By-Laws of any of the Company's Subsidiaries on
the date of this Agreement to be amended, repealed or otherwise modified for a
period of six years after the Effective Time in any manner that would adversely
affect the rights thereunder of persons who at any time prior to the Effective
Time were entitled to indemnification, advancement or exculpation under any such
Certificate of Incorporation or By-Laws in respect of actions or omissions
occurring at or prior to the Effective Time (including, without limitation, the
Transactions), unless such modification is required by Law.
(b) From and after the Effective Time, the Surviving Corporation shall
indemnify, defend and hold harmless the present and former officers, directors
and employees of the Company (collectively, the "Indemnified Parties") against
all losses, expenses, claims, damages, liabilities or amounts that are paid in
settlement of (with approval of Purchaser and the Surviving Corporation), or
otherwise in connection with, any claim, action, suit, proceeding or
investigation (a "Claim"), based in whole or in part on the fact that such
person is or was such a director, officer or employee and arising out of actions
or omissions occurring at or prior to the Effective Time (including, without
limitation, the Transactions), in each case to the fullest extent permitted
under the DGCL (and shall pay expenses in advance of the final disposition of
any such action or proceeding to each Indemnified Party to the fullest extent
permitted under the DGCL, upon receipt from the Indemnified Party to whom
expenses are advance of the undertaking to repay such advances contemplated by
Section 145(e) of the DGCL).
(c) Any Indemnified Party wishing to claim indemnification under this
Section 6.4, upon learning of any such Claim, shall notify Purchaser and the
Surviving Corporation (although the failure so to notify Purchaser and the
Surviving Corporation shall not relieve the Surviving Corporation from any
liability that it may have under this Section 6.4, except to the extent such
failure materially prejudices such party), and shall deliver to the Surviving
Corporation the undertaking contemplated by Section 145(e) of the DGCL.
Purchaser and the Surviving Corporation shall have the right to assume the
defense thereof and the Surviving Corporation, including its affiliates, shall
not be liable to such Indemnified Parties for any legal expenses of other
counsel or any other expenses subsequently incurred by such Indemnified Parties
in connection with the defense thereof, except that if Purchaser and the
Surviving Corporation elect not to assume such defense or there is a conflict of
interest between, or different defenses exist for Purchaser and the Surviving
Corporation and the Indemnified Parties, the Indemnified Parties may retain
counsel satisfactory to them (and reasonably satisfactory to Purchaser) and the
Surviving Corporation shall pay all reasonable fees and
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expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; provided, however, that (i) the Surviving Corporation,
-------- -------
including its affiliates, shall not, in connection with any one such action or
proceeding or separate but substantially similar actions or proceedings arising
out of the same general allegations, be liable for the fees and expenses of more
than one separate firm of attorneys at any time for all Indemnified Parties
except to the extent that local counsel, in addition to such parties' regular
counsel, is necessary or desirable in order to effectively defend against such
action or proceeding, (ii) Purchaser, the Surviving Corporation and the
Indemnified Parties will cooperate in the defense of any such matter, and (iii)
the Surviving Corporation, including its affiliates, shall not be liable for any
settlement effected without Purchaser's prior written consent, which consent
will not be unreasonably withheld or delayed, and provided, further, however,
that the Surviving Corporation, including its affiliates, shall not have any
obligation hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and not subject to further appeal, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law. No Indemnified Party shall consent to entry of any judgment or enter into
any settlement that does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release, in form and
substance reasonably satisfactory to such Indemnified Party, from all liability
in respect of such claim or litigation for which such Indemnified Party would be
entitled to indemnification hereunder.
(d) Purchaser shall cause to be maintained in effect for not less than
six years after the Effective Time (except to the extent not generally available
in the market) directors' and officers' liability insurance that is
substantially equivalent in coverage to the Company's current insurance, with an
amount of coverage of not less than the amount of coverage maintained by the
Company as of the date of this Agreement with respect to matters occurring prior
to the Effective Time; provided, however, that Purchaser shall not be required
-------- -------
to pay an annual premium for such insurance in excess of 150% of the last annual
premium paid prior to the date of this Agreement (which the Company represents
and warrants to have been $250,000 plus applicable taxes), but in such case
shall purchase as much coverage as possible for such amount.
(e) This Section 6.4 is intended to be for the benefit of, and shall
be enforceable by, the Indemnified Parties referred to herein, their heirs and
personal representatives and shall be binding on Purchaser and Merger Sub and
the Surviving Corporation and their respective successors and assigns.
SECTION 6.5 Obligations of Merger Sub. Purchaser shall take all actions
-------------------------
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and subject to conditions set forth in
this Agreement.
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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 to do, or cause to be done, and to assist and
cooperate with the other party in doing, all things necessary, proper or
advisable under applicable law or otherwise to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other Transactions,
(ii) obtain from Governmental Authorities any consents, licenses, permits,
waivers, approvals, authorizations or orders required to be obtained or made by
Purchaser or the 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 the other Transactions, (iii) make all necessary
filings, and thereafter make any other required submissions, with respect to
this Agreement, the Merger and the other Transactions required under (A) the
Exchange Act, the Securities Act and any other applicable federal or state
securities laws, (B) the HSR Act and any pre-merger notification filing with the
German Federal Cartel Office and (C) any other applicable Law. The parties
hereto shall cooperate with each other in connection with the making of all such
filings, including by providing copies of all such documents to the nonfiling
party and its advisors prior to filing and, if requested, by accepting all
reasonable additions, deletions or changes suggested in connection therewith.
(b) The Company and Purchaser each agree to use all reasonable efforts
vigorously to contest and resist any action, including legislative,
administrative or judicial action, and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction, ruling or other order, whether
temporary, preliminary or permanent (an "Order"), that is in effect and that
restricts, prevents or prohibits the consummation of any of the Transactions,
including, without limitation, by vigorously pursuing all available avenues of
administrative and judicial appeal and all available legislative action.
(c) Each of Purchaser, Merger Sub and the Company shall not, and shall
not permit any of its respective Subsidiaries to, take any action that would, or
that would reasonably be expected to, result in (i) any of its respective
representations and warranties set forth in this Agreement that are qualified as
to materiality becoming untrue, (ii) any of such respective representations and
warranties that are not so qualified becoming untrue in any material respect or
(iii) except as otherwise permitted by Section 6.1(b) or Section 6.3, any of the
conditions to the Merger set forth in Article VII not being satisfied.
(d) Each of the Company and Purchaser shall give prompt notice to the
other of (i) any representation or warranty made by it contained in this
Agreement that is qualified as to materiality becoming untrue or inaccurate in
any respect or any such representation or warranty that is not so qualified
becoming untrue or inaccurate in any material respect or (ii) the failure by it
to comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement; provided,
--------
33
<PAGE>
however, that no such notification shall affect the representations, warranties,
- -------
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
SECTION 6.7 Public Announcements. Without the prior written consent of
--------------------
the other party, neither party will issue any press release or otherwise make
any public statements with respect to this Agreement or any Transaction except
(a) to such party's directors, employees, agents, advisors and affiliates, in
each case on a confidential and need-to-know basis, or (b) as is required, in
the opinion of its outside counsel, by applicable Law (including, without
limitation, Federal securities laws) or pursuant to applicable requirements of
any listing agreement with or the rules of the NYSE or the NASDAQ/NMS, as
applicable, provided that if any party hereto proposes to make any disclosure
based upon the opinion of its counsel such party will advise and consult with
the other party reasonably prior to such disclosure concerning the information
such party proposes to disclose.
SECTION 6.8 Company SEC Reports.
-------------------
(a) The Company shall timely file all required SEC Reports, each of
which (i) shall be prepared in all material respects in accordance with the
requirements of the Securities Act and the Exchange Act applicable to such SEC
Reports and (ii) shall not at the time they are 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 therein, in the
light of the circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each
case, any notes thereto) contained in the SEC Reports filed after the date of
this Agreement and prior to the Effective Time shall be prepared in accordance
with the published rules and regulations of the SEC and generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated and each shall present fairly, in all material respects, the
consolidated financial position, results of operations and cash flows of the
Company and its consolidated Subsidiaries as at the respective dates thereof and
for the respective periods indicated therein (subject, in the case of unaudited
statements, to normal and recurring year-end adjustments which are not expected,
individually or in the aggregate, to have a Company Material Adverse Effect).
SECTION 6.9 Notification of Certain Matters. The Company shall give
-------------------------------
prompt notice to Purchaser of (a) any notice of, or other communication relating
to, a default or event which, with notice or lapse of time or both, would become
a default, received by the Company or any of its Subsidiaries subsequent to the
date of this Agreement and prior to the Effective Time, under any contract
material to the business, operations, properties, financial condition or results
of operations of the Company and its Subsidiaries, taken as a whole, to which
the Company or any of its Subsidiaries is a party or is subject or (b) any
material adverse change in its business, operations, properties, financial
condition or results of operations or the occurrence of any event
34
<PAGE>
which, so far as reasonably can be foreseen at the time of its occurrence, is
reasonably likely to result in any such change. Each of the Company and
Purchaser shall give prompt notice to the other party of any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the Transactions.
SECTION 6.10 Accountants. The Company shall cause KPMG Peat Marwick
-----------
LLP, the Company's independent auditors, to deliver to Purchaser and Merger Sub
on or prior to the Effective Date a letter (the "Accountant's Letter"), dated
the Effective Time, in form and substance reasonably satisfactory to the
Purchaser to the effect that they have performed certain agreed upon procedures
and that based upon such procedures, nothing has come to their attention which
would cause them to believe that any financial statements contained in any
Company SEC Reports filed by the Company with respect to the periods ending on
or after September 30, 1996 do not comply in all material respects with all
applicable accounting requirements of the Exchange Act or that such financial
statements are not fairly presented in all material respects in conformity with
generally accepted accounting principles.
SECTION 6.11 Directors.
---------
(a) Promptly upon the acceptance for payment of, and payment for,
Shares constituting a majority of the then outstanding Shares by Purchaser or
Merger Sub, as applicable, pursuant to the Offer, Purchaser from time to time
shall be entitled to designate such number of directors (rounded up to the next
whole number) on the Board of Directors of the Company as will give Purchaser or
Merger Sub, as applicable, subject to compliance with Section 14(f) of the
Exchange Act, that percentage of the total number of directors on the Board of
Directors of the Company (giving effect to the election of any additional
directors pursuant to this Section) equal to the percentage of then outstanding
Shares owned by Purchaser or Merger Sub (provided that such percentage of the
total number of directors shall not be less than a majority of the Board of
Directors of the Company), and the Company shall, at such time, cause
Purchaser's or Merger Sub's designees, as applicable, to be so elected by its
existing Board of Directors; provided, however, that in the event that such
-------- -------
designees are elected to the Board of Directors of the Company, until the
Effective Time such Board of Directors shall have at least two directors who are
directors on the date of this Agreement and who are neither officers of the
Company nor affiliates of Purchaser or Merger Sub (the "Independent Directors");
and provided further that if the number of Independent Directors shall be
reduced below two for any reasons whatsoever, the remaining Independent Director
shall designate a person to fill such vacancy who shall be deemed to be an
Independent Director for purposes of this Agreement or, if no Independent
Directors then remain, the other directors shall designate two persons to fill
such vacancies who shall not be officers or affiliates of the Company or
officers or affiliates of Purchaser or any of its Subsidiaries, and such persons
shall be deemed to be Independent Directors for purposes of this Agreement.
35
<PAGE>
(b) Subject to applicable law, the Company shall take all actions
requested by Purchaser necessary to effect any such election, including mailing
to its stockholders the Information Statement containing the information
required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder by the SEC, and the Company agrees to make such mailing with the
mailing of the Schedule 14D-9 (as defined below). In connection with the
foregoing, the Company will promptly, at the option of Purchaser, either
increase the size of the Company's Board of Directors and/or obtain the
resignation of such number of its current directors as is necessary to enable
Purchaser's or Merger Sub's designees, as applicable, to be elected or appointed
to, and to constitute (rounded up to the next whole number) that percentage of
the total number of directors on the Board of Directors of the Company (giving
effect to the election of any additional directors pursuant to this Section)
equal to the percentage of then outstanding Shares owned by Purchaser or Merger
Sub (provided that such percentage of the total number of directors shall not be
less than a majority of the Board of Directors of the Company).
(c) Following the election of Purchaser's or Merger Sub's designees,
as applicable, pursuant to this Section 6.11, prior to the Effective Time, any
amendment or termination of this Agreement or waiver of any of the Company's
rights hereunder shall require the concurrence of a majority of the Independent
Directors.
SECTION 6.12 Employees. (a) Following the Effective Time, the Surviving
---------
Corporation shall honor in accordance with their terms all Plans and all accrued
benefits vested thereunder. Purchaser agrees to provide, after the Effective
Time, or cause the Surviving Corporation to provide employees of the Company and
its Subsidiaries retained and who continue to be employed by Purchaser with
employee benefits (other than stock options) in the aggregate substantially no
less favorable than those benefits provided to Purchaser's similarly situated
employees for a period ending on the first anniversary of the Effective Time.
(b) Each of Purchaser and the Company shall use reasonable efforts to
cause the execution and delivery of mutually satisfactory retention and non-
competition agreements between Purchaser, the Company and the management
employees of the Company set forth on Exhibit B hereto in addition to those
agreements entered into on the date hereof.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.1 Conditions to the Obligations of Each Party. The
-------------------------------------------
obligations of the Company, Purchaser and Merger Sub to consummate the Merger
are subject to the satisfaction of the following conditions:
36
<PAGE>
(a) Company Stockholder Approval. If required by the DGCL, this
----------------------------
Agreement shall have been approved and adopted by the stockholders of the
Company in accordance with the DGCL, the Company's Certificate of Incorporation
and its By-Laws.
(b) HSR; German Federal Cartel Office. Any waiting period (and any
---------------------------------
extension thereof) applicable to the consummation of the Merger under the HSR
Act and any waiting period (and any extension thereof) under the HSR Act
applicable to the Merger shall have expired or been terminated and any required
approvals in connection with any pre-merger notification filing with the German
Federal Cartel Office shall have been obtained and shall have remained in full
force and effect.
(c) No Order. No Governmental Authority shall have enacted, issued,
--------
promulgated, enforced or entered any law, rule, regulation, executive order or
Order that is then in effect and has the effect of prohibiting the consummation
of the Merger.
(d) The Offer. The Offer shall not have been terminated in accordance
---------
with its terms prior to the purchase of any Shares.
SECTION 7.2 Conditions to the Obligations of Purchaser and Merger Sub.
---------------------------------------------------------
The obligations of Purchaser and Merger Sub to consummate the Merger are subject
to the satisfaction by Purchaser and Merger Sub of the following further
conditions:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company contained in this Agreement (i) was when made as of
the date of this Agreement true and correct, and was as of the expiration of the
Offer true and correct as if made on and as of the expiration of the Offer, and
(ii) in the case of the representations and warranties contained in Section 3.9,
are true and correct as of the Effective Time as though made on and as of the
Effective Time, except that those representations and warranties that address
matters only as of a particular date shall remain true and correct as of such
date and in each case except where failure to be so true and correct would not
have a Company Material Adverse Effect (other than representations and
warranties that are already so qualified or that are qualified as to the
prevention or delay of the consummation of any of the Transactions or as to the
performance by the Company of its obligations under this Agreement, which in
each such case shall be true and correct as written).
(b) Compliance. The Company shall have performed or complied with, in
----------
all material respects, all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to the Effective Time and
Purchaser shall have received a certificate of the Chairman, President or Chief
Financial Officer of the Company to that effect.
(c) Accountants. Purchaser and Merger Sub shall have received the
-----------
Accountant's Letter from KPMG Peat Marwick LLP, the Company's independent
auditors.
37
<PAGE>
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated and the
-----------
Merger and the other Transactions may be abandoned at any time prior to the
Effective Time, notwithstanding any requisite approval and adoption of this
Agreement and the Transactions as follows:
(a) by mutual written consent duly authorized by the Boards of
Directors of each of Purchaser and the Company;
(b) by either Purchaser or the Company, if either (i) the Effective
Time shall not have occurred on or before November 15, 1997; provided, however,
-------- -------
that the right to terminate this Agreement under this Section 8.1(b) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date; (ii) there shall be any Law that makes
consummation of the Merger illegal or otherwise prohibited or any Order that is
final and nonappealable preventing the consummation of the Merger, except if the
party relying on such Order has not complied with its obligations under Section
6.6(b) or (iii) Merger Sub or Purchaser shall have terminated the Offer in
accordance with its terms and conditions without purchasing any Shares pursuant
thereto.
(c) by Purchaser, if the Board of Directors of the Company (i)
withdraws, modifies or changes its recommendation of this Agreement or the
Merger in a manner adverse to Purchaser or Merger Sub, (ii) shall have
recommended to the stockholders of the Company any Competing Transaction or
(iii) shall have resolved to do any of the foregoing;
(d) by Purchaser, if there has been a breach of any material
representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement, or if any representation or warranty of the Company
shall have become untrue, in either case such that any of the conditions set
forth in Section 7.2(a) would not be satisfied (a "Terminating Company Breach");
provided, however, that, if such Terminating Company Breach is curable by the
- -------- -------
Company through the exercise of its reasonable best efforts and for so long as
the Company continues to exercise such reasonable best efforts (but in no event
longer than thirty days after Purchaser's notification of the Company of the
occurrence of such Terminating Company Breach), Purchaser may not terminate this
Agreement under this Section 8.1(d);
(e) by the Company, if there has been a breach of any material
representation, warranty, covenant or agreement on the part of Purchaser and
Merger Sub set forth in this Agreement, or if any representation or warranty of
Purchaser and Merger Sub shall have become untrue in any material respect
("Terminating Purchaser Breach"); provided,
--------
38
<PAGE>
however, that, if such Terminating Purchaser Breach is curable by Purchaser and
- -------
Merger Sub through the exercise of its reasonable best efforts and for so long
as Purchaser and Merger Sub continue to exercise such reasonable best efforts
(but in no event longer than thirty days after the Company's notification of
Purchaser of the occurrence of such Terminating Purchaser Breach), the Company
may not terminate this Agreement under this Section 8.1(e); or
(f) by the Company, if, prior to such time as Purchaser's designees
constitute a majority of the members of the Board of Directors of the Company,
the Board of Directors of the Company shall have recommended to the stockholders
of the Company any Superior Proposal, which is then pending, or resolved to do
so; provided that any termination of this Agreement by the Company pursuant to
--------
this Section 8.1(f) shall not be effective until the close of business on the
second full business day after notice of such termination to Purchaser; or
(g) by the Company, if Purchaser or Merger Sub or another Purchaser
Company shall have failed to commence the Offer within the time required in
Section 9.1.
SECTION 8.2 Effect of Termination. Except as provided in Section
---------------------
6.2(b), Section 8.5 and Section 10.1, in the event of termination of this
Agreement pursuant to Section 8.1, this Agreement shall forthwith become void,
there shall be no liability, except as a result of any prior breach thereof,
under this Agreement on the part of Purchaser, Merger Sub or the Company or any
of their respective officers or directors and all rights and obligations, except
as a result of any prior breach thereof, of each party hereto shall cease.
SECTION 8.3 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 and adoption of this Agreement and the Merger by the stockholders of
the Company, no amendment may be made that would reduce the amount or change the
type of consideration into which each Share shall be converted upon consummation
of the Merger without the approval of the stockholders of the Company. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
SECTION 8.4 Waiver. At any time prior to the Effective Time, any party
------
hereto may (a) extend the time for 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 with any agreement or condition 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 8.5 Expenses.
--------
(a) Except as otherwise set forth in this Section 8.5, all Expenses
(as defined below) incurred in connection with this Agreement and the
Transactions shall be paid by the
39
<PAGE>
party incurring such expenses, whether or not any Transaction is consummated.
"Expenses" as used in this Agreement shall include 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 a party or on its behalf in connection with or
related to the authorization, preparation, negotiation, execution and
performance of this Agreement, the preparation, printing, filing and mailing of
the Proxy Statement, the solicitation of stockholder approvals and all other
matters relating to the closing of the Transactions, it being understood that
the Company shall not pay or be liable for any of the separate Expenses of its
affiliates in connection herewith (including, without limitation, the
Stockholders party to the Stockholder Agreements but excluding reasonable
expenses for services provided by the Company's principal outside counsel to
management ancillary to the services provided by such counsel to the Company in
connection with the Transactions, which Expenses may be paid by the Company).
(b) The Company agrees that, if (i) Purchaser shall terminate this
Agreement pursuant to Section 8.1(c) or (d); (ii) the Company shall terminate
this Agreement pursuant to Section 8.1(f); (iii) the Purchaser shall terminate
the Offer because the Minimum Condition (as defined in Exhibit A hereof) is not
satisfied and at or prior to such time the Company has received one or more
proposals for a Competing Transaction which at the time of such occurrence has
not been absolutely and unconditionally withdrawn or abandoned or (iv) within
six months after the date of termination (other than a termination solely
pursuant to Section 8.1(a), (e) or (g) of this Agreement at which time this
Agreement is not terminable pursuant to any other provision of Section 8.1) a
Competing Transaction is entered into by the Company, then promptly after such
termination (or, with respect to item (iv), upon the entering into of such
Competing Transaction) by Purchaser or the Company, the Company shall pay to
Purchaser an amount equal to $7,500,000 (the "Break-up Fee") and shall reimburse
Purchaser for all of its Expenses up to an amount equal to $1,500,000; provided
that with respect to item (iii), the Company shall pay to Purchaser an amount
equal to $2,500,000 (the "Initial Break-up Fee") plus all of Purchaser's
Expenses up to an amount equal to $1,500,000 promptly following such termination
and the balance of the Break-up Fee only shall be payable subject to the terms
of item (iv) above.
(c) Any payment required to be made pursuant to Section 8.5(b) shall
be made to Purchaser not later than three business days after delivery to the
Company of notice of demand for payment and shall be made by wire transfer of
immediately available funds to an account designated by the Purchaser in the
notice of demand for payment delivered pursuant to this Section 8.5(c).
(d) The payouts, if any, made pursuant to Section 8.5(b) shall not be
deemed to be liquidated damages, and the right to the payment of such amount
shall be in addition to (and not a maximum payment in respect of) any other
damages or remedies at law or in equity to
40
<PAGE>
which Purchaser or Merger Sub may be entitled as a result of the Company's
violation or breach of any term of provision of this Agreement.
ARTICLE IX
THE OFFER
SECTION 9.1 Tender Offer.
------------
(a) As promptly as reasonably practicable after the date hereof, but
in no event later than five business days after the public announcement of the
execution of this Agreement, Purchaser or Merger Sub will commence the Offer for
all of the outstanding Shares at a price of not less than $15.50 per Share in
cash, net to the seller, subject to the conditions set forth in Exhibit A, and,
subject only to the terms and conditions of the Offer, will pay, as promptly as
reasonably practicable after expiration of the Offer, for all Shares duly
tendered and not withdrawn. Purchaser expressly reserves the right to waive any
such condition, to increase the price per Share payable in the Offer, and to
make any other changes in the terms and conditions of the Offer; provided,
--------
however, that no change may be made which decreases the price per Share payable
- -------
in the Offer, which reduces the maximum number of Shares to be purchased in the
Offer, which imposes conditions to the Offer other than those set forth in
Exhibit A hereto or which extends the Offer (except as set forth in the
following sentence). Notwithstanding the foregoing, Purchaser may, without the
consent of the Company, (i) extend the Offer beyond the scheduled expiration
date (the initial scheduled expiration date being 20 business days following the
commencement of the Offer) if, at the scheduled expiration date of the Offer,
any of the conditions to Purchaser's obligation to accept for payment, and to
pay for, the Shares, shall not be satisfied or waived, (ii) extend the Offer for
any period required by any rule, regulation or interpretation of the SEC or the
staff thereof applicable to the Offer, or (iii) extend the Offer for an
aggregate period of not more than 10 business days beyond the latest applicable
date that would otherwise be permitted under clause (i) or (ii) of this
sentence, if as of such date, all of the conditions to Purchaser's obligations
to accept for payment, and to pay for, the Shares are satisfied or waived, but
the number of Shares validly tendered and not withdrawn pursuant to the Offer is
less than 90 percent, of the outstanding Shares on a fully diluted basis.
(b) The Company hereby consents to the Offer and represents that the
Board of Directors of the Company has unanimously determined that the Offer is
fair to the holders of the Shares and the Merger is in the best interests of the
Company and the stockholders of the Company, approved the making of the Offer
and resolved to recommend acceptance of the Offer by the holders of the Shares
and approval of the Merger by the Company's stockholders. The Company's Board
of Directors shall recommend, in accordance with the provisions of Section
6.1(b) hereof, to its stockholders in a Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Schedule 14D-9") to be filed with the SEC as soon as
practicable on the day the Offer is commenced. Purchaser agrees, as to the
Offer to Purchase and related Letter of
41
<PAGE>
Transmittal (which together constitute the "Offer Documents") and the Company
agrees, as to the Schedule 14D-9, that such documents shall, in all material
respects, comply with the requirements of the Exchange Act and other applicable
laws. The Company and its counsel, as to the Offer Documents, and the Purchaser
and its counsel, as to the Schedule 14D- 9, shall be given an opportunity to
review such documents prior to their being filed with the SEC. Neither Purchaser
nor the Company shall file any of such documents with the SEC without the
approval of the other party (which shall not be unreasonably withheld).
(c) In connection with the Offer, the Company will cause the transfer
agent for the Company Common Stock to furnish promptly to Merger Sub a list, as
of a recent date, of the record holders of shares and their addresses, as well
as mailing labels containing the names and addresses of all record holders of
Shares and lists of security positions of Shares held in stock depositories.
The Company will furnish Merger Sub with such additional information (including,
without limitation, updated lists of holders of Shares and their addresses,
mailing labels and lists of security positions) and such other assistance as
Purchaser or Merger Sub or their agents may reasonably request in communicating
the Offer to the record and beneficial holders of Shares.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Nonsurvival of Representations, Warranties and Agreements.
---------------------------------------------------------
The representations, warranties and agreements in this Agreement and in any
certificate delivered pursuant hereto shall terminate at the Effective Time or
upon the termination of this Agreement pursuant to Section 8.1, as the case may
be, except that the agreements set forth in Articles I (but only to the extent
that such expressly relates to actions to be taken after the Effective Time) and
II (but only to the extent that such expressly relates to actions to be taken
after the Effective Time) and Section 6.4 and Article X shall survive the
Effective Time and those set forth in Section 6.2(b), Section 8.2, Section 8.5
and Article X shall survive termination.
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 received if so given) by delivery in person, by
facsimile transmission, by registered or certified mail (postage prepaid, return
receipt requested) or courier service providing proof of delivery 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
10.2):
42
<PAGE>
If to Purchaser or Merger Sub: Gateway 2000, Inc.
610 Gateway Drive
North Sioux City, South Dakota 57049
Attention: William M. Elliott, Esq.
Facsimile No.: (605) 232-2612
with a copy to: Kaye, Scholer, Fierman, Hays & Handler, LLP
1999 Avenue of the Stars, Suite 1600
Los Angeles, California 90067
Attention: Barry L. Dastin, Esq.
Facsimile No.: (310) 788-1200
If to the Company: Advanced Logic Research, Inc.
9401 Jeronimo Road
Irvine, California 92718
Attention: Gene Lu
Facsimile No.: (714) 581-9240
with copies to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92600-1846
Attention: Bruce R. Hallett, Esq.
Facsimile No.: (714) 752-7522
and
Brobeck, Phleger & Harrison LLP
Spear Street Tower
One Market
San Francisco, California 94105
Attention: Steve L. Camahort, Esq.
Facsimile No.: (415) 442-1010
SECTION 10.3 Certain Definitions. For purposes of this Agreement, the
-------------------
term:
(a) "affiliate" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by, or is
under common control with, such specified person;
(b) "beneficial owner" with respect to any shares means a person who
shall be deemed to be the beneficial owner of such shares (i) which such person
or any of its affiliates or associates (as such term is defined in Rule 12b-2
promulgated under the Exchange Act) beneficially owns, directly or indirectly,
(ii) which such person or any of its affiliates or
43
<PAGE>
associates has, directly or indirectly, (A) the right to acquire (whether such
right is exercisable immediately or within sixty days of the date of such
determination), pursuant to any agreement, arrangement or understanding or upon
the exercise of consideration rights, exchange rights, warrants or options or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement or
understanding or (iii) which are beneficially owned, directly or indirectly, by
any other persons with whom such person or any of its affiliates or associates
or person with whom such person or any of its affiliates or associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any Shares;
(c) "business day" means 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
authorized or obligated to be closed in the City of New York;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities, as
trustee or executor, by contract or credit arrangement or otherwise;
(e) "knowledge" or "known" means, with respect to any matter in
question, if any of the officers of the Company or Purchaser, as the case may
be, has actual knowledge of such matter; and
(f) "person" means 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 or entity or government, political subdivision, agency or
instrumentality of a government.
SECTION 10.4 Severability. If any term or other provision of this
------------
Agreement is or is deemed invalid, illegal or incapable of being enforced by any
rule of Law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the Transactions 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 in order that the Transactions be consummated as originally contemplated
to the fullest extent possible.
SECTION 10.5 Assignment; Binding Effect; Benefit. Neither this Agreement
-----------------------------------
nor any of the rights or interests 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. Subject to
44
<PAGE>
the preceding sentence, this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
Notwithstanding anything contained in this Agreement to the contrary, except for
the provisions of Section 6.4 (the "Third Party Provisions"), nothing in this
Agreement, expressed or implied, including, without limitation, the provisions
of Section 6.12, is intended to confer on any person other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement. The Third Party
Provisions in Section 6.4 may be enforced by any of the beneficiaries thereof.
SECTION 10.6 Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 10.7 Governing Law.
-------------
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware, without giving effect to the principles
of conflicts of law thereof.
(b) Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
----- --- ----------
venue therein); provided, however, that such consent to jurisdiction is solely
-------- -------
for the purpose referred to in this subsection (b) and shall not be deemed to be
a general submission to the jurisdiction of such court or in the State of
Delaware other than for such purposes.
SECTION 10.8 Headings. 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.
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 instrument.
SECTION 10.10 Waiver of Jury Trial. EACH OF PURCHASER, THE COMPANY AND
--------------------
MERGER SUB HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS
45
<PAGE>
AGREEMENT OR THE ACTIONS OF PURCHASER, THE COMPANY OR MERGER SUB IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
SECTION 10.11 Entire Agreement; Modification. This Agreement 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.
SECTION 10.12 Mutual Drafting. Each party hereto has participated in the
---------------
drafting of this Agreement, which each party acknowledges is the result of
extensive negotiations between the parties.
SECTION 10.13 No Waivers. The failure of any party hereto to exercise any
----------
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon strict compliance by any
other party hereto with its obligations hereunder, and any custom or practice of
the parties at variance with the terms hereof, shall not constitute a wavier by
such party of its rights to exercise any such or other right, power or remedy or
to demand such compliance.
46
<PAGE>
IN WITNESS WHEREOF, Purchaser, Merger Sub and the Company have caused this
Agreement to be executed as of the date first above written by their respective
officers thereunto.
GATEWAY 2000, INC.
By: /s/ William M. Elliott
-------------------------------
Name: William M. Elliott
Title: Senior Vice President,
General Counsel and
Corporate Secretary
DEUCE ACQUISITION CORPORATION
By: /s/ Stephen P. Johns
-------------------------------
Name: Stephen P. Johns
Title: President
ADVANCED LOGIC RESEARCH, INC.
By: /s/ Eugene Lu
-------------------------------
Name: Eugene Lu
Title: Chairman, President and
Chief Executive Officer
47
<PAGE>
SCHEDULE I
STOCKHOLDERS
<TABLE>
<CAPTION>
Name Number of Shares Vested Options
- ---- ---------------- --------------
<S> <C> <C>
Wearnes Technology 4,780,549 -0-
(Private) Limited
Eugene Lu 410,000 45,316
Chun Win Wong 30,000 17,500
Philip A. Harding 25,704 17,500
</TABLE>
I-i
<PAGE>
EXHIBIT A
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, Purchaser or the Merger
Sub, as applicable, shall not be required to accept for payment or pay for any
Shares tendered, and may terminate or amend the Offer (subject to the provisions
of the Merger Agreement) and may postpone the acceptance of, and payment for,
subject to Rule 14e-1(c) of the Exchange Act, any Shares tendered, if:
(i) the Minimum Condition (as defined below) shall not have been
satisfied,
(ii) any applicable waiting period under the HSR Act shall not have
expired or been terminated prior to the expiration of the Offer, or
(iii) at any time on or after the date of this Agreement, and prior to the
acceptance for payment of Shares, any of the following conditions shall exist:
(a) there shall have been instituted by any government or Governmental
Authority, any action or proceeding before any Governmental Authority (including
such Governmental Authority instituting or initiating such action or
proceeding), (i) challenging or seeking to make illegal, materially delay or
otherwise directly or indirectly restrain or prohibit the making of the Offer,
the acceptance for payment of, or payment for, any Shares by Purchaser, Merger
Sub or any other affiliate of Purchaser, or the consummation of any other
Transaction, or seeking to obtain material damages in connection with any
Transaction; (ii) seeking to prohibit or limit materially the ownership or
operation by the Company, Purchaser or any of their respective Subsidiaries of
all or any material portion of the business or assets of the Company, Purchaser
or any of their respective Subsidiaries, or to compel the Company, Purchaser or
any of their respective Subsidiaries to dispose of or to hold separate all or
any material portion of the business or assets of the Company, Purchaser or any
of their respective Subsidiaries, as a result of the Transactions; (iii) seeking
to impose or confirm limitations on the ability of Purchaser, Merger Sub or any
other affiliate of Purchaser to exercise effectively full rights of ownership of
any Shares, including, without limitation, the right to vote any Shares acquired
by Merger Sub pursuant to the Offer or otherwise on all matters properly
presented to the Company's stockholders, including, without limitation, the
approval and adoption of this Agreement and the Transactions; (iv) seeking to
require divestiture by Purchaser, Merger Sub or any other affiliate of Purchaser
of any Shares; or (v) which otherwise has a Company Material Adverse Effect or
which relates to the Transactions and has a Purchaser Material Adverse Effect;
(b) there shall have been any action taken, or any Law enacted,
entered, enforced, promulgated, amended, issued or deemed applicable to (i)
Purchaser, the Company or any Subsidiary or affiliate of Purchaser or the
Company or (ii) any Transaction, by any
A-1
<PAGE>
government or Governmental Authority other than the routine application of the
waiting period provisions of the HSR Act to the Offer or the Merger, which is
reasonably likely to result, directly or indirectly, in any of the consequences
referred to in clauses (i) through (v) of paragraph (a) above;
(c) there shall have occurred any change, condition, event or
development that has a Company Material Adverse Effect;
(d) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the NYSE or the NASDAQ/NMS
(excluding any coordinated trading halt triggered solely as a result of a
specified decrease in a market index), (ii) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (iii) any limitation (whether or not mandatory) by any government or
Governmental Authority of the United States on the extension of credit by banks
or other lending institutions or (iv) a commencement of a war or material armed
hostilities or other national or international calamity involving the United
States;
(e) the Company or any of its Subsidiaries shall have sustained a loss
or interference with its business by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which constitutes
a Company Material Adverse Effect, whether or not said loss shall have been
insured, which will, in the reasonable opinion of Purchaser, make it inadvisable
or impractical to proceed with the Offer.
(f) (i) it shall have been publicly disclosed or Purchaser or Merger
Sub shall have otherwise learned that beneficial ownership of 20% or more of the
then outstanding Shares has been acquired by any person, other than Purchaser or
any of its affiliates or any other person not required to file a Schedule 13D
under the rules promulgated under the Exchange Act or (ii) (A) the Board of
Directors of the Company or any committee thereof shall have withdrawn, modified
or changed in a manner adverse to Purchaser or Merger Sub the approval or
recommendation of the Offer, the Merger or the Agreement, or approved or
recommended any Competing Transaction or any other acquisition of Shares other
than the Offer or the Merger or (B) the Board of Directors of the Company or any
committee thereof shall have resolved to do any of the foregoing;
(g) the representations and warranties of the Company shall not be
true and correct as of the date of this Agreement or as of the expiration of the
Offer except for (i) changes specifically contemplated by this Agreement and
(ii) those representations and warranties that address matters only as of a
particular date (which shall remain true and correct as of such date) and in
each case except in where failure to be so true and correct would not have a
Company Material Adverse Effect (other than representations and warranties that
are already so qualified or that are qualified as to the prevention or delay of
the consummation of any of the Transactions or as to the performance by the
Company of its obligations under this Agreement, which in each such case shall
be true and correct as written);
A-2
<PAGE>
(h) the Company shall have failed to perform any obligation or to
comply with any agreement or covenant of the Company to be performed or complied
with by it under the Agreement unless all such failures together in their
entirety, would not, individually or in the aggregate, have a Company Material
Adverse Effect;
(i) the Agreement shall have been terminated in accordance with its
terms; or
(j) Purchaser and the Company shall have agreed that Purchaser or
Merger Sub, as applicable, shall terminate the Offer or postpone the acceptance
for payment of or payment for Shares thereunder.
For purposes hereof, the term "Minimum Condition" shall mean a majority of
the Shares outstanding on a fully diluted basis (including for purposes of such
calculation all Shares issuable upon exercise of all vested and unvested stock
options, and conversion of convertible securities or other rights to purchase or
acquire Shares) being validly tendered and not withdrawn prior to the expiration
of the Offer.
The foregoing conditions are for the sole benefit of Purchaser and Merger
Sub and may be asserted by Purchaser or Merger Sub regardless of the
circumstances giving rise to any such condition or may be waived by Purchaser or
Merger Sub in whole or in part at any time and from time to time in their sole
discretion, subject in each case to the terms of the Agreement. The failure by
Purchaser or Merger Sub at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right; the waiver of any such right
with respect to particular facts and other circumstances shall not be deemed a
waiver with respect to any other facts and circumstances; and each such right
shall be deemed an ongoing right that may be asserted at any time and from time
to time.
A-3
<PAGE>
EXHIBIT B
KEY EMPLOYEES
Gene Y. Lu
David L. Kelly
Donald E. Kullgren
Visish Sangveraphunsir
Ronald J. Sipkovich
Toan Q. Luu
Benedict R. Marchak
Genevieve Ortegon
Vikram S. Sial
B-1
<PAGE>
EXHIBIT 2
STOCKHOLDERS AGREEMENT, dated as of June 19, 1997, among Gateway 2000,
Inc., a Delaware corporation ("Purchaser"), Deuce Acquisition Corporation, a
Delaware corporation ("Merger Sub"), and Wearnes Technology (Private) Limited,
Eugene Lu, Chun Win Wong and Philip A. Harding (each, a "Stockholder").
WHEREAS, Purchaser and Merger Sub propose to enter into simultaneously
herewith an Agreement and Plan of Merger, dated as of the date hereof (as
amended from time to time, the "Merger Agreement"; capitalized terms used but
not defined herein shall have the meanings set forth in the Merger Agreement,
whether or not such Merger Agreement shall be in effect from time to time), with
Advanced Logic Research, Inc., a Delaware corporation (the "Company"), which
contemplates, among other things, that Purchaser or Merger Sub will commence a
tender offer (as modified from time to time as permitted by the Merger
Agreement, the "Offer") for all of the outstanding shares of common stock, $.01
par value, of the Company ("Company Common Stock"); and that Merger Sub will
merge with the Company pursuant to the merger contemplated by the Merger
Agreement (the "Merger");
WHEREAS, as of the date hereof, each Stockholder owns (either beneficially
or of record) the number shares of Company Common Stock set forth opposite such
Stockholder's name on Exhibit A hereto (all such shares owned by the
Stockholders and any shares hereafter acquired by the Stockholders prior to the
termination of this Agreement being referred to herein as the "Shares"); and
WHEREAS, as a condition to the willingness of Purchaser to enter into the
Merger Agreement, Purchaser has requested that each Stockholder agree, and in
order to induce Purchaser to enter into the Merger Agreement, each Stockholder
has agreed, severally and not jointly, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE I
OPTION
SECTION 1.1 Grant of Options. Each Stockholder hereby grants to Purchaser
----------------
an irrevocable option (each, an "Option") to purchase, subject to the terms and
conditions described herein, such Stockholder's Shares at a price per Share
equal to $15.50 (the "Purchase Price"). Each Stockholder agrees to (i) deliver
one or more certificates evidencing all of the Shares owned (either beneficially
or of record) as of the date hereof (together with any replacement certificates
or certificates reflecting additional Shares hereafter acquired, the "Share
Certificates") to Purchaser for placement of an appropriate legend reflecting
this Agreement; (ii)
<PAGE>
keep the Share Certificates at all other times during the term of this Agreement
prior to exercise of the Option to purchase such Shares in the safekeeping of
the Depositary for the Offer; and (iii) obtain the agreement of the Depositary
in form acceptable to Purchaser to notify Purchaser five business days prior to
the date such Share Certificates are to be removed from Depositary's
safekeeping.
SECTION 1.2 Exercise of Option.
------------------
(a) The Purchaser may exercise any or all of the Options in whole or in
part at any time and from time to time that is both (x) after termination of the
Merger Agreement pursuant to Section 8.1(c), 8.1(d) (relating to a breach of
Section 6.1(b) or Section 6.3) or Section 8.1(f) or if the Purchaser shall
terminate the Offer because the Minimum Condition is not satisfied and at or
prior to such time the Company has received one or more proposals for a
Competing Transaction which at the time of such occurrence has not been
absolutely and unconditionally withdrawn or abandoned and (y) before termination
of this Agreement. In the event Purchaser wishes to exercise an Option,
Purchaser shall send a written notice to each Stockholder whose Shares are being
purchased (each a "Selling Stockholder") specifying the place, date and time for
the closing of such purchase (each an "Option Closing"). Purchaser's obligation
to purchase the Shares upon any exercise of any Option shall be subject to (i)
each of the representations and warranties of the Selling Stockholder contained
in this Agreement was when made on the date of this Agreement true and correct
and is true and correct as of the time of the Option Closing as though made on
and as of the time of the Option Closing, (ii) the Selling Stockholder shall
have performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Option
Closing, (iii) the expiration or termination of any applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), and (iv) no Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive order or
Order that is then in effect and has the effect of prohibiting the purchase of
the Shares. Upon request of Purchaser, each Stockholder shall promptly take, or
cause to be taken, after the date hereof, all action required to effect all
necessary filings by such Stockholder under the HSR Act and shall cooperate with
the Purchaser with respect to its filing obligations.
(b) At any Option Closing, each Selling Stockholder will deliver to
Purchaser a certificate as to the satisfaction of conditions (i), (ii) and (iv)
of the penultimate sentence of Section 1.2(a), and Purchaser will deliver to
such Selling Stockholder a certificate of an officer of Purchaser certifying the
truth and correctness of Purchaser's representations and warranties contained in
this Agreement as if made on the date of the Option Closing.
SECTION 1.3 Purchase of Shares.
------------------
(a) At any Option Closing, (i) Purchaser shall pay the aggregate Purchase
Price for the Shares then being purchased from each Selling Stockholder by
certified or cashier's check or
2
<PAGE>
wire transfer, as determined solely by Purchaser, and (ii) each Selling
Stockholder shall deliver, or cause to be delivered, to Purchaser one or more
Share Certificates evidencing such Stockholder's Shares then being sold, and
such Stockholder agrees that such Shares shall be transferred free and clear of
all Encumbrances (as defined in Section 7.1(c) below). All such Share
Certificates shall be duly endorsed in blank, or with appropriate stock powers,
duly executed in blank, attached thereto, in proper form for transfer, with the
signature of such Selling Stockholder thereon guaranteed, and with all
applicable taxes paid (including any tax stamps attached).
(b) If Purchaser shall exercise any Option pursuant to this Agreement, and
without additional consideration, each Selling Stockholder shall execute and
deliver further transfers, assignments, endorsements, consents and other
instruments as Purchaser may reasonably request for the purpose of effectively
carrying out the transactions contemplated by this Agreement and the Merger
Agreement, including the transfer of any and all of such Selling Stockholder's
Shares sold to Purchaser and the release of any and all Encumbrances covering
such Shares.
SECTION 1.4 Certain Option Adjustments. In the event of any dividend or
--------------------------
distribution on the Company Common Stock or any change in the issued and
outstanding shares of Company Common Stock by reason of any stock dividend,
split-up, combination, recapitalization, merger or other change in the corporate
or capital structure of the Company, Purchaser shall be entitled to receive,
upon exercise of the Option and upon payment of the Purchase Price, the stock or
other securities, cash or property which each Selling Stockholder received
(which consideration shall be escrowed with the Depositary during the term of
this Agreement on terms satisfactory to Purchaser) or is entitled to receive as
a consequence of such dividend, distribution or change.
SECTION 1.5 Termination. This Agreement shall terminate upon the earlier
-----------
of (i) the effective time of the Merger, (ii) the date three months after
termination of the Merger Agreement or October 15, 1997, if later, and (iii)
the termination of the Merger Agreement by the Company solely in accordance with
the provisions of Sections 8.1(a), (e) or (g) of the Merger Agreement and is not
then terminable pursuant to any other provision of Section 8.1 of the Merger
Agreement (the "Termination Date"). In the event of the termination of this
Agreement, this Agreement shall forthwith become void and there shall be no
liability on the part of either Purchaser or any Stockholder under this
Agreement; provided the foregoing provisions shall not limit the liability of
any party for breach of this Agreement prior to such termination.
ARTICLE II
VOTING AGREEMENT
SECTION 2.1 Voting Agreement. Each Stockholder hereby agrees that, at any
----------------
meeting of the stockholders of the Company, however called, or in connection
with any written consent of the holders of shares of Company Common Stock, the
Stockholder shall vote the Shares (a) in
3
<PAGE>
favor of the approval and adoption of the Merger Agreement, the Merger and all
the transactions contemplated by the Merger Agreement and this Agreement and any
other actions required in furtherance thereof and hereof and (b) against any
Competing Transaction and any actions in furtherance thereof for a period ending
three months after the termination of the Merger Agreement or October 15, 1997,
if later.
SECTION 2.2 Irrevocable Proxy. Each Stockholder hereby irrevocably
-----------------
constitutes and appoints Purchaser and its officers, and each of them, as its
attorney and proxy pursuant to the provisions of Section 212(c) of the Delaware
General Corporation Law ("DGCL"), with full power of substitution, to vote and
otherwise act (by written consent or otherwise) with respect to the Shares which
such Stockholder is entitled to vote at any meeting of stockholders of the
Company (whether annual or special and whether or not an adjourned or postponed
meeting) or consent in lieu of any such meeting or otherwise, on, and only on,
the matters described in Section 2.1 and to execute and deliver any and all
consents, instruments or other agreements or documents in order to take any and
all such actions in connection with or in furtherance of the obligations of such
Stockholder set forth in this Agreement and each of the transactions
contemplated by this Agreement or the Merger Agreement. THIS PROXY AND POWER OF
ATTORNEY IS IRREVOCABLE, SUBJECT TO SECTION 1.5, AND COUPLED WITH AN INTEREST.
Each Stockholder hereby revokes all other proxies and powers of attorney with
respect to such Stockholder's Shares that it may have heretofore appointed or
granted, and no subsequent proxy or power of attorney shall be given or written
consent executed (and if given or executed, shall not be effective) by such
Stockholder with respect thereto. All authority herein conferred or agreed to
be conferred shall survive the death or incapacity of a Stockholder and any
obligation of such Stockholder under this Agreement shall be binding upon the
heirs, personal representatives, successors and assigns of such Stockholder.
ARTICLE III
AGREEMENT TO TENDER
SECTION 3.1 Agreement to Tender. Each Stockholder hereby agrees that,
-------------------
if Purchaser or Merger Sub commences the Offer, such Stockholder will tender, or
cause to be tendered, all of the Shares then beneficially owned by such
Stockholder to Purchaser or Merger Sub, as applicable, as soon as practicable
(and in any event within five business days) after the commencement of the Offer
in accordance with the terms and conditions of the Offer. Each Stockholder
further agrees that it will not withdraw such tendered Shares unless the Offer
is terminated by Purchaser or Merger Sub, as applicable. Each Stockholder will
be entitled, upon consummation of the Offer subject to and in accordance with
the Offer's terms and conditions, to receive an amount equal to the Merger
Consideration with respect to its tendered Shares.
4
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 Representations and Warranties of the Stockholders. Each
--------------------------------------------------
Stockholder, severally and not jointly, represents and warrants to each of
Purchaser and Merger Sub as follows:
(a) Such Stockholder (if it is a corporation, partnership or other legal
entity) is duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization. Such Stockholder has
the requisite power and authority (whether corporate or otherwise) to enter into
and deliver this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by and no other
proceedings on the part of such Stockholder are necessary to authorize this
Agreement and the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by such Stockholder and, assuming
its due authorization, execution and delivery by Purchaser, is a legal, valid
and binding obligation of such Stockholder, enforceable against such Stockholder
in accordance with its terms.
(b) The execution and delivery of this Agreement by such Stockholder do
not, and the performance of this Agreement by such Stockholder will not, (i)
conflict with or violate the Certificate of Incorporation or By-laws or similar
organizational document of such Stockholder (in the case of Stockholder that is
a corporation, partnership or other legal entity), (ii) conflict with or violate
any federal, state, local or foreign law, statute, ordinance, rule, regulation,
permit, injunction, writ, judgment, decree or order (collectively, "Laws") of
any Governmental Authority applicable to such Stockholder or by which any of
its assets are bound (subject to the required consents referenced in Section
4.1(c)), or (iii) conflict with, result in any breach of or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or require payment under, or result in the creation of any
Encumbrance on any of the assets of such Stockholder pursuant to, any contract
or other instrument to which such Stockholder is a party or by which such
Stockholder or (if such Stockholder purports to be a corporation) any of its
subsidiaries or any of their respective assets are bound, except for any thereof
that could not reasonably be expected to impair the ability of such Stockholder
to perform its obligations hereunder and except for any Encumbrances created
hereby.
(c) The execution and delivery of this Agreement by such Stockholder do
not, and the performance of this Agreement by such Stockholder will not, require
such Stockholder to obtain any consent, approval, authorization or permit of, or
to make any filing with or notification to, any Governmental Authority based on
any Laws of any Governmental Authority, except (i) the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated by the
5
<PAGE>
Securities and Exchange Commission (the "SEC") thereunder (collectively, the
"Exchange Act"), and the HSR Act; and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, could not reasonably be expected to impair the ability of such
Stockholder to perform its obligations hereunder.
(d) There is no suit, action, investigation or proceeding pending or, to
the knowledge of such Stockholder, threatened against such Stockholder at law or
in equity before or by any Governmental Authority that could reasonably be
expected to impair the ability of such Stockholder to perform its obligations
hereunder, and there is no judgment, decree, injunction, rule, order or writ of
any Governmental Authority to which such Stockholder or its assets are subject
that could reasonably be expected to impair the ability of such Stockholder to
perform its obligations hereunder.
(e) Such Stockholder owns beneficially and of record the shares of Company
Common Stock set forth opposite such Stockholder's name on Exhibit A hereto
(with respect to such Stockholder, the "Existing Shares"). The Existing Shares
constitute all the shares of Company Common Stock owned beneficially and of
record by such Stockholder. Such Stockholder has sole voting power, sole power
of disposition and all other stockholder rights with respect to all of its
Existing Shares, with no restrictions, other than restrictions on disposition
pursuant to applicable securities laws, on such Stockholder's rights of voting
or disposition pertaining thereto. Such Stockholder has good and valid title to
all its Existing Shares, free and clear of all Encumbrances (other than any
Encumbrances created hereby) and, when delivered by such Stockholder to
Purchaser upon exercise of the Option, good and valid title in and to such
Existing Shares will be transferred to the Purchaser free and clear of all
Encumbrances.
SECTION 4.2 Representations and Warranties of Purchaser. Purchaser
-------------------------------------------
represents and warrants to each Stockholder as follows:
(a) Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Purchaser has the requisite
corporate power and authority to enter into and deliver this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by Purchaser and no other proceedings on the part of Purchaser
are necessary to authorize this Agreement and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Purchaser and, assuming its due authorization, execution and
delivery by each Stockholder, is a legal, valid and binding obligation of
Purchaser, enforceable against Purchaser in accordance with its terms.
(b) The execution and delivery of this Agreement by Purchaser do not, and
the performance of this Agreement by Purchaser will not, (i) conflict with or
violate the Certificate
6
<PAGE>
of Incorporation or By-laws of Purchaser, (ii) conflict with or violate any Laws
of any Governmental Authority applicable to Purchaser or by which any of its
assets are bound (subject to the required consents referenced in Section
4.2(c)), or (iii) conflict with, result in any breach of or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or require payment under, or result in the creation of any
Encumbrance on any of the assets of Purchaser pursuant to any contract or other
instrument to which Purchaser is a party or by which Purchaser or any of its
assets are bound, except for any thereof that could not reasonably be expected
to impair the ability of Purchaser to perform its obligations hereunder.
(c) The execution and deliver of this Agreement by Purchaser do not, and
the performance of this Agreement by Purchaser will not, require Purchaser to
obtain any consent, approval, authorization or permit of, or to make any filing
with or notification to, any Governmental Authority based on any Laws of any
Governmental Authority, except (i) the Exchange Act and the HSR Act; and (ii)
where the failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, could not reasonably be expected to
impair the ability of Purchaser to perform its obligations hereunder.
ARTICLE V
COVENANTS OF THE STOCKHOLDER
SECTION 5.1 "No Shop". Each Stockholder shall immediately cease and cause
-------
to be terminated all existing discussions or negotiations relating to a
Competing Transaction, other than with respect to the Transactions, with any
parties conducted heretofore. Each Stockholder will not, directly or
indirectly, and will instruct its Representatives not to, directly or
indirectly, initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Competing Transaction, or enter into or maintain
discussions or negotiate with any person in furtherance of or relating to such
inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize or permit any of its Representatives to take
any such action. Each Stockholder shall use its best efforts to cause its
Representatives not to take any such action, each Stockholder shall promptly
notify Purchaser if any such inquiries or proposals are made regarding a
Competing Transaction, and each Stockholder shall promptly inform Purchaser as
to the material details of any such inquiry or proposal and, if in writing,
promptly deliver or cause to be delivered to Purchaser a copy of such inquiry or
proposal. Each Stockholder shall keep Purchaser informed, on a current basis,
of the details of any such inquiries and the status and terms of any such
proposals. Anything in this Section 5.1 to the contrary notwithstanding, nothing
in this Section 5.1 shall limit in any way a Stockholder who is a director of
the Company from exercising any of his rights or performing any of his duties as
a director of the Company.
7
<PAGE>
SECTION 5.2 Restriction on Transfer. Until and unless this Agreement has
-----------------------
been terminated, each Stockholder shall not except as expressly provided for in
this Agreement (a) sell, exchange, pledge, encumber or otherwise transfer or
dispose of, or agree to sell, exchange, pledge, encumber or otherwise transfer
or dispose of, any its Shares, or any interest therein, (b) deposit its Shares
into a voting trust or enter into voting agreement or arrangement with respect
to such Shares or grant any proxy with respect thereto or (c) enter into any
agreement, arrangement, understanding, or undertaking to do any of the
foregoing. Until and unless this Agreement has been terminated, the Share
Certificates shall remain in the sole custody and possession of Depositary
except for any delivery of possession contemplated by Article I or Article III
hereof.
SECTION 5.3 Further Assurances. Each Stockholder agrees to use its
------------------
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable Laws to consummate and make effective the transactions contemplated
by this Agreement. If any further action is necessary or desirable to carry out
the purposes of this Agreement, such Stockholder shall use its reasonable best
efforts to take, or cause to be taken, all such action as promptly as
practicable.
ARTICLE VI
SURVIVAL
SECTION 6.1 Survival. All provisions of this Agreement shall survive any
--------
termination of the Merger Agreement and shall remain in full force and effect,
except as otherwise provided in Sections 1.5 or 6.2.
SECTION 6.2 Effect of Termination. In the event that any part of this
---------------------
Agreement shall terminate pursuant to this Article VI, such part of this
Agreement shall thereafter be void and the parties hereto shall have no further
rights or obligations with respect thereto, except as a result of any prior
breach thereof.
ARTICLE VII
DEFINITIONS
SECTION 7.1 Definitions. For the purpose of this Agreement:
-----------
(a) "beneficially own" or "beneficial ownership" with respect to any
---------------- --------------------
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act), including pursuant to
any agreement, arrangement or understanding, whether or not in writing, subject
to any fiduciary duty in the case of securities not held of record.
8
<PAGE>
(b) "person" shall mean any individual, corporation, partnership,
------
limited liability company, limited liability partnership, joint venture,
association, trust, unincorporated organization or other entity.
(c) "Encumbrance" means any pledge, security interest, lien, claim,
-----------
encumbrance, mortgage, charge, hypothecation, option, right of first refusal or
offer, community property right, other marital right, preemptive right, voting
agreement, voting trust, proxy, power of attorney, escrow, option, forfeiture,
penalty, action at law or in equity, security agreement, stockholder agreement
or other agreement, arrangement, contract, commitment, understanding or
obligation, or any other restriction, qualification or limitation on the use,
transfer, right to vote, right to dissent and seek appraisal, receipt of income
or other exercise of any attribute of ownership.
ARTICLE VII
MISCELLANEOUS
SECTION 8.1 Severability. If any term or other provision of this
------------
Agreement is or is deemed to be invalid, illegal or incapable of being enforced
by any applicable 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 this Agreement 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 so that the terms of this Agreement remain as originally
contemplated to the fullest extent possible.
SECTION 8.2 Entire Agreement. This Agreement constitutes the entire
----------------
understanding between Purchaser, Merger Sub and each Stockholder with respect
to the subject matter hereof and thereof and supersede all prior agreements and
understandings, both written and oral, between Purchaser, Merger Sub and each
Stockholder with respect to the subject matter hereof and thereof.
SECTION 8.3 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 instrument.
SECTION 8.4 Mutual Drafting. Each party hereto has participated in the
---------------
drafting of this Agreement, which each party acknowledges is the result of
extensive negotiations between the parties.
9
<PAGE>
SECTION 8.5 Assignment. This Agreement shall not be assigned by operation
----------
of law or otherwise without the prior written consent of the other parties
hereto, provided that Purchaser may assign its rights hereunder to any direct or
indirect wholly owned subsidiary of Purchaser, but no such assignment shall
relieve Purchaser of its obligations hereunder if such assignee does not perform
such obligations.
SECTION 8.6 Amendments. This Agreement may not be amended, supplemented,
----------
waived or otherwise modified or terminated, except upon the execution and
delivery of a written agreement executed by the parties hereto.
SECTION 8.7 Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by delivery in person, facsimile
transmission, registered or certified mail (postage prepaid, return receipt
requested), or courier service providing proof of delivery to the respective
parties at the following addresses (or to such other address for a party as
shall be specified in a notice given in accordance with this Section 8.7).
If to Purchaser or Merger Sub:
Gateway 2000, Inc.
610 Gateway Drive
North Sioux City, South Dakota 57049
Attention: William M. Elliott, Esq.
Facsimile No.: (605) 232-2612
with copies to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
1999 Avenue of the Stars
Suite 1600
Los Angeles, California 90067
Attention: Barry L. Dastin, Esq.
Fax: (310) 788-1200
If to any Stockholder:
To the address of such Stockholder
on the books and records of the Company
10
<PAGE>
with copies to:
Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92600-1846
Attention: Bruce R. Hallett, Esq.
Facsimile No.: (714) 752-7522
and
Brobeck, Phleger & Harrison LLP
Spear Street Tower
One Market
San Francisco, California 94105
Attention: Steve L. Camahort, Esq.
Facsimile No.: (415) 442-1010
SECTION 8.8 No Third Party Beneficiaries. This Agreement is not intended
----------------------------
to be for the benefit of, and shall not be enforceable by, any person or entity
not a party hereto.
SECTION 8.9 Specific Performance. Each of the parties hereto acknowledges
--------------------
that a breach by it of any agreement contained in this Agreement will cause the
other party to sustain damage for which it would not have an adequate remedy at
law for money damages, and therefore each of the parties hereto agrees that in
the event of any such breach the aggrieved party shall be entitled to the remedy
of specific performance of such agreement and injunctive and other equitable
relief in addition to any other remedy to which it may be entitled, at law or in
equity.
SECTION 8.1 Remedies Cumulative. All rights, powers and remedies provided
-------------------
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
right, power or remedy by such party.
SECTION 8.1 No Waiver. The failure of any party hereto to exercise any
---------
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon strict compliance by any
other party hereto with its obligations hereunder, and any custom or practice of
the parties at variance with the terms hereof, shall not constitute a waiver by
such party of its rights to exercise any such or other right, power or remedy or
to demand such compliance.
11
<PAGE>
SECTION 8.1 Governing Law.
-------------
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware, without giving effect to the principles
of conflicts of law.
(b) Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
----- --- ----------
venue therein); provided, however, that such consent to jurisdiction is solely
-------- -------
for the purpose referred to in this subsection (b) and shall not be deemed to be
a general submission to the jurisdiction of such court or in the State of
Delaware other than for such purposes.
SECTION 8.1 Waiver of Jury Trial. EACH OF PURCHASER, MERGER SUB AND EACH
--------------------
STOCKHOLDER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PURCHASER, MERGER
SUB OR ANY STOCKHOLDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND
ENFORCEMENT THEREOF.
12
<PAGE>
SECTION 8.1 Headings. 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.
IN WITNESS WHEREOF, Purchaser, Merger Sub and each Stockholder have caused
this Agreement to be duly executed as of the date first above written.
GATEWAY 2000, INC.
By: /s/ William M. Elliott
------------------------------
Name: William M. Elliott
Title: Senior Vice President,
General Counsel and
Corporate Secretary
DEUCE ACQUISITION CORPORATION
By: /s/ Stephen P. Johns
------------------------------
Name: Stephen P. Johns
Title: President
WEARNES TECHNOLOGY
(PRIVATE) LIMITED
By: /s/ Chun Win Wong
------------------------------
Name: Chun Win Wong
Title: Chairman of the Board
/s/ Eugene Lu
---------------------------------
EUGENE LU
/s/ Chun Win Wong
---------------------------------
CHUN WIN WONG
/s/ Philip A. Harding
---------------------------------
PHILIP A. HARDING
13
<PAGE>
EXHIBIT A
List of Stockholders
<TABLE>
<CAPTION>
Number of Shares of
Advanced Logic Research,
Inc. Common Stock Owned Share
Name of Beneficially and Vested Certificate
Stockholder of Record Options Numbers
- ----------- ----------------------- ------- -----------
<S> <C> <C> <C>
Wearnes 4,780,549 -0-
Technology
(Private) Limited
Eugene Lu 410,000 45,316
Chun Win Wong 30,000 17,500
Philip A. Harding 25,704 17,500
</TABLE>
14
<PAGE>
EXHIBIT 3
STOCK OPTION RETENTION BONUS
Purpose: To provide certain executives and key employees of
Advanced Logic Research, Inc. (ALR) an incentive to
stay in the employ of Gateway 2000, Inc. (Company)
following the merger. This arrangement provides for the
making of an Initial Stock Option Grant.
Participants: Eugene Y. Lu Chairman of the Board,
President and Chief
Executive Officer
David L. Kelly VP, Hardware Engineering
Donald E. Kullgren Dir, Manufacturing
Operations
Visish Sangveraphunsiri VP, Enhanced Engineering/
Dir, Asia
Ronald J. Sipkovich CFO and VP, Finance and
Administration
Toan Q. Luu VP, Procurement
Benedict R. Marchak VP, Computer Products
Geneviene Ortegon VP, Marketing
Vikram S. Sial VP and Treasurer
Initial Stock Option: Effective at the merger, a one time stock option grant
under the Company's 1996 Long-Term Incentive Equity
Plan will be given to the Participants per the schedule
below (stock option grants are stated pre-split). The
grant price will be the closing price on the New York
Stock Exchange on the day of the merger. These options
vest 1/3 each year on the anniversary date of the
grant. The Participants will be considered for
additional grants at the Company's discretion in
January 1998 in the normal grant cycle.
Eugene Y. Lu 60,000
David L. Kelly 25,000
Donald E. Kullgren 25,000
Visish Sangveraphunsiri 25,000
Ronald J. Sipkovich 25,000
Toan Q. Luu 10,000
Benedict R. Marchak 10,000
Genevieve Ortegon 10,000
Vikram S. Sial 10,000
Effect of Termination
of Employment: CAUSE: If a Participant is terminated for cause, the
Participant will not be eligible to exercise any stock
options not vested through the last day worked.
VOLUNTARY RESIGNATION. If a Participant voluntarily
resigns, the Participant will be eligible to exercise
any stock options vested through the last day worked.
TERMINATION WITHOUT CAUSE. If a Participant's
employment is terminated by the Company without cause
within the first two years, including a reduction in
base salary by the Company of more than 15% or
involuntary relocation of greater than 26 miles:
. The Initial Stock Option grant will be vested. In
addition, all prior unvested ALR stock option grants
converted to the Company's stock option grants in
1997 will be vested. The Participant will have 90
days to exercise vested stock option grants
following the termination date. If termination is
due to death, disability or approved retirement, the
Participant will have 1 year to exercise vested
stock options following the death, disability or
approved retirement.
. Base Pay
. If Termination is within 12 months following the
merger, the Participant will receive 12 months
payment of base salary. This will be paid on a
month to month basis. If the Participant becomes
employed during this 12 month
1
<PAGE>
period, the balance of the base salary payments
due will be paid in a lump sum within 30 days,
or
. If Termination occurs between the 13th and 24th
month following the Merger, the Participant will
receive 12 months payment of base salary. The
number of months of base salary continuation will
be reduced by 1 month for each month after the
13th that the termination occurs. This will be
paid on a month to month basis. If the
Participant becomes employed during this 12 month
period, the balance of the base salary payments
due will be paid in a lump sum within 30 days.
. All amounts shall be pro-rated in the case of
partial months.
. During this period, the employee and eligible
dependents may continue Medical and Dental coverage
through COBRA. For up to the first 12 months of this
period or until the Participant is eligible to be
covered by another employer's plan, the Participant
will be reimbursed for the difference between the
COBRA rates for the coverage elected and the active
employee rates for the same coverage.
Protective Covenants: As a condition to the payments above, Participants will
agree as follows:
All Participants will agree to sign the Company's
NONCOMPETITION AGREEMENT, the terms of such agreement
shall be reasonably satisfactory to the Participants,
as soon as practicable after the date hereof.
All Participants agree (i) not to disclose any
confidential or proprietary information at any time;
(ii) not to solicit any employee, customer or supplier
of ALR or the Company, while employed by the Company
and for the one year period following termination of
employment, without expressed written permission of the
Company; (iii) to assign all rights in inventions to
the Company; and (iv) to not compete with ALR or the
Company, each as more fully described in the Company's
NONCOMPETITION AGREEMENT.
Breach by a Participant of any of these protective
covenants will result in immediate forfeiture of any
right to future payment covered by this agreement not
yet made.
The Company shall also be entitled to appropriate
equitable relief to enjoin any such breach.
Agreements: Each Participant shall sign one or more agreements
further expanding on the terms above.
Governing Law: Delaware. Nothing in this agreement creates or is
implied to create an employment contract.
<TABLE>
<CAPTION>
GATEWAY 2000, INC. ADVANCED LOGIC RESEARCH, INC.
------------------ -----------------------------
<S> <C> <C> <C>
Name /s/ William M. Elliott Date Name /s/ Eugene Y. Lu Date
--------------------------- --------- --------------------------- ---------
William M. Elliott Eugene Y. Lu
Name /s/ David L. Kelly Date
--------------------------- ---------
David L. Kelly
Name /s/ Donald E. Kullgren Date
--------------------------- ---------
Donald E. Kullgren
Name /s/ Visish Sangveraphunsiri Date
--------------------------- ---------
Visish Sangveraphunsiri
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Name /s/ Ronald J. Sipkovich Date
--------------------------- ---------
Ronald J. Sipkovich
Name /s/ Toan Q. Luu Date
--------------------------- ---------
Toan Q. Luu
Name /s/ Benedict R. Marchak Date
--------------------------- ---------
Benedict R. Marchak
Name /s/ Genevieve Ortegon Date
--------------------------- ---------
Genevieve Ortegon
Name /s/ Vikram S. Sial Date
--------------------------- ---------
Vikram S. Sial
</TABLE>
3
<PAGE>
EXHIBIT 4
[PAINEWEBBER LETTERHEAD]
June 19, 1997
Board of Directors
Advanced Logic Research, Inc.
9401 Jeronimo
Irvine, CA 92618
Ladies and Gentlemen:
Advanced Logic Research, Inc. (the "Company"), Gateway 2000, Inc. ("Parent")
and a wholly-owned subsidiary of Parent ("Purchaser") propose to enter into an
Agreement and Plan of Merger (the "Agreement") pursuant to which Purchaser will
commence a tender offer (the "Offer") to purchase any and all shares of the
Company's common stock, par value $.01 per share (the "Shares"), at a minimum
price of $15.50 per Share in cash. The Agreement also provides that, following
consummation of the Offer, Purchaser will merge with the Company in a
transaction (the "Merger") in which each share of the Company's common stock
will be converted into the right to receive cash equal to the higher of $15.50
or the amount per Share paid in the Offer. As a condition to Parent and
Purchaser entering into the Agreement, Parent and Purchaser have requested that
certain stockholders of the Company, who own an aggregate of 41.8% of the
Company's outstanding Shares, enter into stockholders agreements ("Stockholders
Agreements"), pursuant to which each such stockholder would agree to vote in
favor of the Merger, to grant Parent an irrevocable proxy to vote such Shares in
favor of the Merger, to tender all Shares owned by such stockholder to Purchaser
in the Offer, and to grant to Parent an option to purchase such Shares for a
purchase price of $15.50 per share in certain circumstances. For purposes of
this letter, the Offer and the Merger are sometimes collectively referred to as
the "Proposed Transaction."
You have asked us whether or not, in our opinion, the proposed cash
consideration to be received by the stockholders of the Company (other than
Parent and Purchaser) pursuant to the Offer and the Merger is fair to such
stockholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended September 30, 1996 and the
Company's Forms 10-Q and the related unaudited financial information
for the quarters ended December 31, 1996 and March 31, 1997;
(2) Reviewed Parent's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended December 31, 1996 and
Parent's Form 10-Q and the related unaudited financial information for
the quarter ended March 31, 1997;
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the
Company furnished to us by the Company;
(4) Conducted discussions with members of senior management of the Company
concerning its business and prospects;
<PAGE>
(5) Reviewed the historical market prices and trading activity for the
Shares and compared them with those of certain publicly traded
companies which we deemed to be relevant;
(6) Compared the financial position and results of operations of the
Company with those of certain publicly traded companies which we deemed
to be relevant;
(7) Compared the proposed financial terms of the Proposed Transaction with
the financial terms of certain other business combinations which we
deemed to be relevant;
(8) Reviewed a draft of the Agreement dated June 17, 1997;
(9) Reviewed a draft of the Stockholders Agreement dated June 17, 1997; and
(10) 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.
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was publicly available, supplied or otherwise made
available to us by the Company, and we have not assumed any responsibility to
independently verify such information. We have assumed that the financial
forecasts examined by us were reasonably prepared and reflect the best
currently available estimates and good faith judgments of the management of
the Company as to the future performance of the Company. We have also relied
upon assurances of the management of the Company that they are unaware of any
facts that would make the information or financial forecasts provided to us
incomplete or misleading. We have not made any independent evaluation or
appraisal of the assets, liabilities (contingent or otherwise) or technologies
of the Company nor have we been furnished with any such evaluations or
appraisals. Our opinion is based upon economic, monetary and market conditions
existing on the date hereof. We have further assumed with your consent that
the transactions contemplated by the draft Agreement and draft Stockholders
Agreement reviewed by us will be consummated in accordance with the terms of
such agreements, without any further amendment thereto, and without waiver by
the Company of any of the conditions to its obligations thereunder.
Our opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any stockholder of the Company as to
whether any such stockholder should accept the Offer or how any such
stockholder should vote on the Merger. This opinion does not address the
relative merits of the Proposed Transaction and any other transactions or
business strategies discussed by the Board of Directors of the Company as
alternatives to the Proposed Transaction or the decision of the Board of
Directors of the Company to proceed with the Proposed Transaction. In
connection with its engagement, PaineWebber Incorporated was not requested or
authorized by the Board of Directors to solicit, and did not solicit,
potential proposals from any third parties with respect to the acquisition of
the Company.
This opinion has been prepared for the use of the Board of Directors of the
Company and shall not be reproduced, summarized, described or referred to or
given to any other person or otherwise made public without the prior written
consent of PaineWebber Incorporated; provided, however, that this letter may
be reproduced in full in any Schedule 14D-1 filed by Parent or any Schedule
14D-9 filed by the Company with the Securities and Exchange Commission in
connection with the Proposed Transaction.
PaineWebber Incorporated is currently acting as financial advisor to the
Company in connection with the Proposed Transaction and will receive a fee
upon consummation of the Merger. In the past, PaineWebber Incorporated and its
affiliates have provided investment banking services to the Company and have
received fees for rendering these services.
In the ordinary course of its business, PaineWebber Incorporated may trade
the securities of the Company and Parent for its own account and for the
accounts of its customers and, accordingly, may at any time hold long and
short positions in such securities.
<PAGE>
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the proposed cash consideration to be received by the
stockholders of the Company (other than Parent and Purchaser) pursuant to the
Offer and the Merger is fair to such stockholders from a financial point of
view.
Very truly yours,
PAINEWEBBER INCORPORATED
By: /s/ PaineWebber Incorporated
----------------------------
<PAGE>
EXHIBIT 5
NEWS [COMPANY LOGO OF GATEWAY 2000]
610 Gateway Drive
P.O. Box 2000
North Sioux City, SD 57049-2000
FOR IMMEDIATE RELEASE
- --------------------- Phone: 605-232-2000
Toll Free: 800-846-2000
GATEWAY 2000, INC. ANNOUNCES AGREEMENT TO ACQUIRE
ADVANCED LOGIC RESEARCH, INC. fax: 605-232-2023
NORTH SIOUX CITY, SD, June 19, 1997 - Gateway 2000, Inc., (NYSE: GTW) and
Advanced Logic Research, Inc. (Nasdaq: AALR) announced today that they have
signed a definitive agreement for Gateway to acquire ALR for $15.50 per share in
cash, or a total equity value of approximately $194 million for the outstanding
shares of common stock.
In announcing the transaction, Ted Waitt, Chairman and Chief Executive
Officer of Gateway 2000, said, "Combining Gateway and ALR represents a
tremendous opportunity. The new relationship gives Gateway immediate access to
established server technology, a key component of the growth strategy for our
Enterprise line."
"ALR and its employees are proven innovators with a track record of
developing successful products," Waitt continued. "The combination of the
expertise of these two companies will benefit both companies' customers and
ALR's channel partners."
ALR Chairman, CEO and President, Gene Lu, said, "By combining ALR's
award-winning products with Gateway's build-to-order expertise and commitment to
customer service and technology, we intend to provide customers with the best
possible products and solutions."
"This is a great next step for ALR. We will continue to build our reseller
channel relationships and serve our customers through this channel," said Lu.
"Our customers and channel partners will benefit from lower component costs and
purchasing benefits. This will allow us to deliver even greater value and to
serve our markets better."
ALR is a pioneer in open, multiprocessor, Intel/R/-based PC servers, with
design, manufacturing and marketing support targeted at the client/server and
high-end desk-top markets.
ALR will operate as a wholly-owned subsidiary of Gateway and continue to
market products under the ALR brand through its established channels. ALR will
retain its offices and operations in Irvine, California and Mr. Lu will remain
President of ALR and be a Vice President and officer of Gateway. Gateway
expects the acquisition will result in accelerated growth in ALR's business and
a continued expansion of the workforce.
<PAGE>
Gateway expects the acquisition to be immediately additive to continuing
earnings and anticipates incurring a one-time, non-cash charge to earnings for
the write-off of in-process research and development for ALR products under
development.
Pursuant to the definitive agreement announced today, a cash tender offer
will be commenced by a wholly-owned subsidiary of Gateway no later than June 25,
1997 to acquire all the outstanding shares of ALR common stock.
The Board of Directors of ALR has approved the definitive agreement and has
unanimously recommended that ALR stockholders tender their shares pursuant to
the offer.
The tender offer will be conditional upon the tender of a majority of
outstanding ALR shares on a fully-diluted basis, the expiration or termination
of the waiting period under applicable antitrust law and certain customary
conditions. ALR's largest stockholder, Wearnes Technology (Private) Ltd.,
together with Mr. Lu and two other members of ALR's Board of Directors,
collectively holding approximately 42 percent of the outstanding shares, have
agreed to tender their shares in the offer and to provide Gateway with an option
on their shares at the tender offer price.
The tender offer is expected to be completed by the end of July. It is
expected that all shares not purchased in the tender offer will be converted
into the right to receive $15.50 per share in a second step merger following the
tender offer.
Special Note
The above statements include forward-looking statements based on current
management expectations. Factors that could cause future results to differ from
these expectations include the following: general economic conditions; growth in
the personal computer industry; competitive factors and pricing pressures;
component supply shortages; risks relating to acquired businesses; and inventory
risks due to shifts in market demand. Additional factors are described in the
company's reports filed with the Securities and Exchange Commission.
About ALR
Advanced Logic Research, Inc., an industry leader in the design and
manufacture of high-performance computer systems, engineered the industry's
first four-way and six-way SMP server systems featuring Intel Pentium Pro
technology. Developed in response to the changing role of the PC server in
today's corporate computing environment, these products form the cornerstone of
ALR's award-winning portfolio of advanced multiprocessor servers, computer
workstations, and desktop PCs. Founded in 1984 and headquartered in Irvine,
California, ALR serves its worldwide markets through export sales from the U.S.
and its subsidiaries located in Singapore, Germany, and the United Kingdom. ALR,
Inc.'s common stock is traded on NASDAQ under the symbol "AALR". For further
information, visit ALR at http://www.ALR.com or call 1-800-444-4ALR.
<PAGE>
ABOUT GATEWAY
Gateway (NYSE:GTW), a Fortune 500 company founded in 1985, is a leading
global manufacturer and direct marketer of PC products. The company,
headquartered in North Sioux City, South Dakota, has manufacturing facilities in
the United States, Ireland and Malaysia and employs over 10,000 people
worldwide. Gateway products and services consistently win top awards from
leading industry publications. For further information, visit Gateway at
http://www.gw2k.com.
MEDIA ADVISORY:
Gateway and ALR will conduct a joint media conference call beginning at
5:00 p.m. (Eastern Daylight Time). To join the call, dial (415)356-0701.
Contact: Jim Wharton Vic Sial
Director of Corporate Communications Vice President & Treasurer
Gateway 2000, Inc. Advanced Logic Research, Inc.
(605)232-2709 (714)581-6770
<PAGE>
EXHIBIT 6
Article 10 of the Certificate of Incorporation of Advanced Logic Research,
Inc. states that:
To the fullest extent permitted by Delaware statutory or decisional
law, as amended or interpreted, no director of this Corporation shall
be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. This
Article 10 does not affect the availability of equitable remedies for
breach of fiduciary duties.
<PAGE>
EXHIBIT 7
Article IX of the By-Laws of Advanced Logic Research, Inc. states:
ARTICLE IX
----------
Indemnification of
Officers, Directors, Employees and Agents
-----------------------------------------
Section 1. Right to Indemnification. Each person who was or is a
party or is threatened to be made a party to or is involved (as a party,
witness, or otherwise), in any threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "Proceeding"), by reason of the fact that he, or a person of whom
he is the legal representative, is or was a director, officer, employee, or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation or of a
partnership, joint venture, trust, or other enterprise, including service with
respect to employee benefit plans, whether the basis of the Proceeding is
alleged action in an official capacity as a director, officer, employee, or
agent or in any other capacity while serving as a director, officer, employee,
or agent (hereafter an "Agent"), shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended or interpreted (but, in the
case of any such amendment or interpretation, only to the extent that such
amendment or interpretation permits the corporation to provide broader
indemnification rights than were permitted prior thereto) against all expenses,
liability, and loss (including attorneys' fees, judgments, fines, RRISA excise
taxes or penalties, and amounts paid or to be paid in settlement, and any
interest, assessments, or other charges imposed thereon, and any federal, state,
local, or foreign taxes imposed on any Agent as a result of the actual or deemed
receipt of any payments under this Article) reasonably incurred or suffered by
such person in connection with investigating, defending, being a witness in, or
participating in (including on appeal), or preparing for any of the foregoing
in, any Proceeding (hereinafter "Expenses"). The right to indemnification
conferred in this Article shall be a contract right.
Section 2. Authority to Advance Expenses. Expenses incurred by an
officer or director (acting in his capacity as such) in defending a Proceeding
shall be paid by the corporation in advance of the final disposition of such
Proceeding, provided, however, that such Expenses shall be advanced only upon
delivery to the corporation of an undertaking by or on behalf of such director
or officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation as authorized in this Article
or otherwise.
<PAGE>
Expenses incurred by other Agents of the corporation (or by the directors or
officers not acting in their capacity as such, including service with respect to
employee benefit plans) may be advanced upon such terms and conditions as the
Board of Directors deems appropriate. Any obligation to reimburse the
corporation for Expense advances shall be unsecured and no interest shall be
charged thereon.
Section 3. Right of Claimant to Bring Suit. If a claim under Section 1 or
2 of this Article is not paid in full by the corporation within 60 days after a
written claim has been received by the corporation and the required undertaking
has been made by the claimant, the claimant may at any time thereafter bring
suit against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense (including attorneys' fees) of prosecuting such claim. The burden of
proof of such proceeding shall be on the claimant to establish that he is
entitled to be indemnified under this Article. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
defending a Proceeding in advance of its final disposition where the required
undertaking has been tendered to the corporation) that the claimant has not met
the standards of conduct that make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. The burden of proving such a defense shall be on the corporation.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper under the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant had not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that claimant has not met the applicable standard of conduct.
Section 4. Provisions Nonexclusive. The rights conferred on any person by
this Article shall not be exclusive of any other rights that such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, agreement, vote of stockholders or disinterested directors, or
otherwise, both
<PAGE>
as to action in an official capacity and as to action in another capacity while
holding such office. To the extent that any provision of the Certificate,
agreement, or vote of the stockholders or disinterested directors is
inconsistent with these bylaws, the provision, agreement, or vote shall take
precedence.
Section 5. Authority to Insure. The corporation may purchase and
maintain insurance to protect itself and any Agent against any Expense, whether
or not the corporation would have the power to indemnify the Agent against such
Expense under applicable law or the provisions of this Article.
Section 6. Survival of Rights. The rights provided by this Article
shall continue as to a person who provided by this article shall continue as to
a person who has ceased to be an Agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
Section 7. Settlement of Claims. The corporation shall not be liable
to indemnify any Agent under this Article (a) for any amounts paid in settlement
of any action or claim effected without the corporation's written consent, which
consent shall not be unreasonably withheld: or (b) for any judicial award if the
corporation was not given a reasonable and timely opportunity, at its expense,
to participate in the defense of such action.
Section 8. Effect of Amendment. Any amendment, repeal, or modification
of this Article shall not adversely affect any right or protection of any Agent
existing at the time of such amendment, repeal, or modification.
Section 9. Subrogation. In the event of payment under this Article, the
corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Agent, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the corporation effectively to
bring suit to enforce such rights.
Section 10. No Duplication of Payments. The corporation shall not be
liable under this Article to make any payment in connection with any claim made
against the Agent to the extent the Agent has otherwise actually received
payment (under any insurance policy, agreement, vote, or otherwise) of the
amounts otherwise indemnifiable hereunder.
<PAGE>
EXHIBIT 8
[LETTERHEAD OF ADVANCED LOGIC RESEARCH, INC.]
June 24, 1997
Dear Stockholder:
I am pleased to report that on June 19, 1997, Advanced Logic Research, Inc.
(the "Company") entered into a merger agreement with Gateway 2000, Inc. and one
of its subsidiaries ("Gateway") that provides for the acquisition of the Company
by Gateway at a price of $15.50 per share in cash. Under the terms of the
proposed transaction, a Gateway subsidiary has made a tender offer for all
outstanding shares of the Company's common stock at $15.50 per share in cash.
Your Board of Directors has unanimously approved the merger agreement and
the Gateway offer, and has determined that the terms of the offer and the
merger are fair to and in the best interests of the Company's stockholders.
Accordingly, the Board of Directors unanimously recommends that all Company
stockholders accept the Gateway offer and tender their shares to Gateway.
In arriving at its recommendations, the Board of Directors gave careful
consideration to a number of factors. These factors included the opinion of
PaineWebber Incorporated, financial advisor to the Company, that the cash
consideration of $15.50 per share to be received by the stockholders pursuant
to the Gateway offer and the merger is fair to the Company's stockholders from
a financial point of view.
Following the successful completion of the tender offer, upon approval by
stockholder vote, if required, the Gateway subsidiary and the Company will
merge, and all Company shares not purchased in the tender offer will be
converted into the right to receive $15.50 per share in cash in the merger.
Accompanying this letter is a copy of the Company's Solicitation/
Recommendation Statement on Schedule 14D-9. Also enclosed is the Offer to
Purchase and related materials, including a Letter of Transmittal for use in
tendering shares. We urge you to read the enclosed materials carefully.
On behalf of the Board of Directors,
Sincerely,
/s/ Eugene Y. Lu
--------------------------------
Eugene Y. Lu
Chairman of the Board, President
and Chief Executive Officer
