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LOGO
May 18, 1998
Dear Stockholder:
We are pleased to inform you that on May 11, 1998, Micronics Computers,
Inc. (the "Company") entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Diamond Multimedia Systems, Inc. ("Diamond") and its wholly
owned subsidiary Boardwalk Acquisition Corporation (the "Purchaser"). Pursuant
to the Merger Agreement the Purchaser has commenced a tender offer (the "Offer")
to purchase all of the outstanding shares of the Company's common stock, par
value $.01 per share ("Common Stock"), for a cash price of $2.45 per share. The
Offer is conditioned upon, among other things, the tender of at least 51% of the
Common Stock outstanding on a partially diluted basis. The Merger Agreement
provides that following consummation of the Offer, the Purchaser will be merged
with and into the Company (the "Merger") and those shares of Common Stock that
are not acquired in the Offer will be converted into the right to receive $2.45
per share in cash. The Merger consideration is subject to upward adjustment at
Diamond's discretion.
The Board of Directors has unanimously approved the Merger Agreement, the
Offer and the Merger and determined that the terms of the Offer and the Merger
are fair to, and in the best interests of, the Company and the holders of the
Common Stock, and unanimously recommends that the Company's stockholders accept
the Offer and tender their shares of Common Stock pursuant to the Offer. In
arriving at its recommendation, the Board of Directors considered the factors
described in the accompanying Schedule 14D-9, including the opinion of the
Company's financial advisor, Alliant Partners ("Alliant"), to the effect that
the consideration to be received by the holders of the Common Stock is fair from
a financial point of view. A copy of Alliant's written opinion, which sets forth
the assumptions made, procedures followed and matters considered in, and the
limitations on, the review by Alliant in rendering its opinion is attached to
the Schedule 14D-9 as Appendix I.
The accompanying Offer to Purchase sets forth all of the terms of the
Offer. Additionally, the enclosed Schedule 14D-9 sets forth additional
information regarding the Offer and the Merger relevant to making an informed
decision. We urge you to read these materials carefully and in their entirety.
Very truly yours,
LOGO
Charles J. Hart
President and Chief Executive Officer
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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
------------------------
MICRONICS COMPUTERS, INC.
(NAME OF SUBJECT COMPANY)
MICRONICS COMPUTERS, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
595127 10 1
(CUSIP NUMBER OF CLASS OF SECURITIES)
CHARLES J. HART
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MICRONICS COMPUTERS, INC.
45365 NORTHPORT LOOP WEST
FREMONT, CALIFORNIA 94538
(510) 651-2300
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICE AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
COPIES TO:
GAIL E. SUNIGA, ESQ.
DAVID CHEN, ESQ.
FENWICK & WEST LLP
TWO PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94306
(650) 494-0600
================================================================================
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Micronics Computers, Inc., a Delaware
corporation (the "Company"), and the address of the principal executive offices
of the Company is 45365 Northport Loop West, Fremont, California 94538. The
title of the class of equity securities to which this Solicitation/
Recommendation Statement on Schedule 14D-9 (the "Statement") relates is the
Common Stock, par value $.01 per share (the "Common Stock"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer disclosed in a Tender Offer
Statement on Schedule 14D-1 dated May 15, 1998, as amended by Amendment No. 1,
dated May 18, 1998 (as amended, the "Schedule 14D-1"), of Diamond Multimedia
Systems, Inc., a Delaware corporation ("Diamond"), and its wholly owned
subsidiary, Boardwalk Acquisition Corporation, a Delaware corporation (the
"Purchaser"), to purchase all of the outstanding shares of Common Stock (the
"Shares") at a price of $2.45 per share, net to the Seller in cash upon the
terms and subject to the conditions set forth in the Offer to Purchase dated May
15, 1998 (the "Offer to Purchase") and the related Letters of Transmittal and
any supplement thereto (which together constitute the "Offer"). The Offer is
being made pursuant to an Agreement and Plan of Merger dated as of May 11, 1998
(the "Merger Agreement") by and among the Company, Diamond and the Purchaser.
According to the Schedule 14D-1, the address of the principal executive
offices of Diamond and the Purchaser is 1880 Junction Avenue, San Jose,
California 95134-1922.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this Statement, are set forth in Item 1 above.
(b)(1) Except as described in this Statement, 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) Diamond, the Purchaser or their respective
executive officers, directors or affiliates.
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of its directors and executive officers
are described in the Company's Proxy Statement dated March 19, 1998, relating to
its April 20, 1998 Annual Meeting of Stockholders (the "Proxy Statement"). A
copy of the applicable portions of the Proxy Statement has been filed as an
exhibit to this Statement and is incorporated into this Statement by reference.
The Company has granted to certain directors and executive officers of the
Company options to acquire Common Stock, pursuant to the Company's 1989 Stock
Option Plan (the "1989 Plan") and 1992 Directors Stock Option Plan (together
with the 1989 Plan, the "Plans"), filed herewith as Exhibits 5 and 6,
respectively, and incorporated in this Statement by reference. The Plans provide
that options that are not assumed or substituted by a successor corporation in a
tender offer will accelerate as to vesting and will become immediately
exercisable in full under the terms of such plans at the time of the offer.
Vesting of options assumed by the Company when it acquired Orchid Technology
(the "Orchid Options") are treated in a similar manner. Under the terms of the
Merger Agreement, neither Diamond nor Purchaser will assume or continue any
outstanding stock options under the Plans or the Orchid Options, or substitute
any additional options for such outstanding options. Consequently, following the
purchase of the Shares pursuant to the Offer, such options will vest and become
exercisable in full. All options may either be exercised prior to the purchase
of Common Stock pursuant to the Offer, will terminate as of that time or will be
cashed-out by the Company by the payment at the effective time of the merger
following the Offer of an amount for each option equal to (i) $2.45 less (ii)
the per share exercise price of the option, if less than $2.45, times (iii) the
number of in-the-money, vested shares subject to the option.
Each executive officer and director of the Company will be entitled to the
same benefits and will be subject to the same restrictions as all other
optionees holding options pursuant to the Plans or the Orchid
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Options. However, pursuant to an Employment Agreement dated as of February 6,
1998 (the "Employment Agreement") between the Company and Charles J. Hart, the
Company's Chief Executive Officer, filed with this Statement as Exhibit 7 and
incorporated in this Statement by reference, such accelerated vesting will not
apply with respect to two thirds of the 350,000 shares of Common Stock subject
to an option granted to Mr. Hart if purchase of the Shares pursuant to the Offer
occurs prior to August 6, 1998. The combined effect of the Plans, the Orchid
Options, the Employment Agreement and the applicable provisions in the Merger
Agreement, is that William Crouch, William Finley, Mr. Hart, Wun-Yann Liao and
Larry Smith, executive officers of the Company, will be entitled to receive
payments of $3,814, $188, $74,375, $11,940 and $3,938, respectively, following
the purchase of the Shares pursuant to the Offer, assuming that either they
elect to exercise options granted to them under the Plans or their options are
cashed-out.
On May 7, 1998, the Company's Board of Directors (the "Board") approved a
$25,000 cash bonus payable to William E. Shelander, the Company's Chairman of
the Board, on the closing of the merger of Purchaser with and into the Company
pursuant to the Merger Agreement, in consideration for Mr. Shelander's service
to the Company.
(b)(2) The Merger Agreement
The following is a summary of certain portions of the Merger Agreement. The
summary is qualified in its entirety by reference to the Merger Agreement which
has been incorporated by reference into this Statement and a copy of which has
been filed with the Securities and Exchange Commission (the "Commission") as
Exhibit 1 to this Statement. Capitalized terms not otherwise defined below have
the meaning set forth in the Merger Agreement.
Commencement. The Merger Agreement provides for the commencement of the
Offer not later than five business days after the public announcement of the
execution of the Merger Agreement, provided that the Merger Agreement has not
theretofore been terminated pursuant to its terms. Diamond, the Purchaser and
the Company are required to use all reasonable efforts to take all action as may
be necessary or appropriate in order to effectuate the Offer and the Merger as
promptly as possible and to carry out the transactions provided for or
contemplated by the Merger Agreement.
Merger. The Merger Agreement provides that, as soon as practicable after
expiration of the Offer and the receipt of any required approvals and adoption
of the Merger Agreement by the stockholders of the Company, to the extent
required by the Delaware General Corporation Law (the "DGCL"), and the
satisfaction or waiver, if possible, of certain other conditions contained in
the Merger Agreement, the Purchaser (or another direct or indirect Delaware
wholly-owned subsidiary of Diamond) will be merged with and into the Company
(the "Merger"), with the Company continuing as the surviving corporation (the
"Surviving Corporation") (the "Effective Time"). Notwithstanding the foregoing,
the parties to the Merger Agreement have agreed that the Purchaser may make
changes in the terms and conditions of the Offer (including substitution of
another direct or indirect wholly owned subsidiary of Diamond for the Purchaser)
provided that any such changes do not (i) reduce the maximum number of shares to
be purchased in the Offer, impose conditions to the Offer in addition to those
set forth in Annex I to the Merger Agreement or amend any other material terms
of the Offer in a manner materially adverse to the Company's stockholders;
provided, however, that the Offer may not, without the Company's prior written
consent, be extended beyond 120 days from the commencement of the Offer except
as necessary to provide time to satisfy the conditions set forth in Annex I to
the Merger Agreement or as required by any rule, regulation, interpretation or
position of the Commission and except that Purchaser may extend the Offer for up
to 20 business days, if as of such date, there shall not have been tendered at
least 90 percent of the outstanding shares so that the Merger could be effected
without a meeting of the Company's stockholders in accordance with applicable
provisions of the DGCL.
Vote Required to Approve Merger. In the Merger Agreement, the Company has
agreed, if required by the DGCL, in order to consummate the Merger, to take all
action necessary in accordance with the DGCL to convene a meeting of its
stockholders promptly following consummation of the Offer for the purpose of
considering and approving the Merger. The Company, acting through the Board, has
further agreed that if a stockholders' meeting is convened, the Company shall
recommend that stockholders of the Company vote in
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favor of the Merger and shall take all reasonable actions necessary to solicit
such approval. Subject to compliance with applicable fiduciary duties, the
Company, acting through its Board of Directors, shall include in the proxy
statement the unanimous recommendation of its Board of Directors that
stockholders of the Company vote in favor of the Merger and shall disclose that
each of the Company's directors and executive officers intend to tender all
outstanding shares beneficially owned by such persons to the Purchaser pursuant
to the Offer unless to do so would subject such person to liability under
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). In the event that proxies are to be solicited from the Company's
stockholders, the Company shall, use all reasonable commercial efforts to
solicit from stockholders of the Company proxies in favor of the Merger, and to
take all other action necessary or, in the reasonable judgment of Diamond and
the Purchaser, advisable to secure the vote of its stockholders required by DGCL
to effect the Merger. At any such meeting, all of the Shares then owned by
Diamond, the Purchaser or any subsidiary of Diamond, and all Shares for which
the Company has received proxies to vote, will be voted in favor of the Merger.
Conversion of Securities. At the Effective Time, each Share issued and
outstanding immediately prior thereto shall be canceled and extinguished and
each Share (other than Shares held by Diamond or any subsidiary thereof, and
Shares with respect to which appraisal rights are properly exercised
("Dissenting Shares")) shall, by virtue of the Merger and without any action on
the part of the Purchaser, the Company or the holders of the Shares, be
converted into the right to receive the Offer Price upon the surrender of the
certificate formerly representing such Share. Each share of common stock of the
Purchaser issued and outstanding immediately prior to the Effective Time shall,
at the Effective Time, by virtue of the Merger and without any action on the
part of the Purchaser, the Company or the holders of Shares, be converted into
and shall thereafter evidence one validly issued and outstanding share of common
stock of the Surviving Corporation.
Treatment of Stock Option Plans, 401(k) Plan and Employee Stock Purchase
Plan. The Company, Diamond and the Purchaser have agreed that Diamond shall not
assume or continue any outstanding stock options (the "Outstanding Options")
under the Plans, the Orchid Options or any other agreement or arrangement
(collectively, the "Stock Plans"), or substitute any additional options for such
outstanding options. The Company shall take all actions necessary to provide
that at the Effective Time, (i) each Outstanding Option shall be canceled and
(ii) in consideration for such cancellation, each holder of an Outstanding
Option shall receive in consideration thereof an amount (subject to applicable
withholding requirements) in cash equal to the product of (x) the excess, if
any, of the Offer Price over the per Share exercise price of each Outstanding
Option and (y) the number of Shares subject to such Outstanding Option. The
Company has agreed to take all actions necessary to effectuate the foregoing
including without limitation amending the Stock Plans and obtaining any
necessary consents from holders of Outstanding Options.
The Company will take any and all actions necessary and appropriate to
terminate the Company's 401(k) plan and the Employee Stock Purchase Plan (the
"ESPP"), including without limitation (i) adoption of resolutions by the
Company's Board of Directors terminating the 401(k) plan and the ESPP
immediately prior to the Effective Time and (ii) timely delivery of any notices
required under the terms of the 401(k) plan and the ESPP. Notwithstanding the
foregoing, the Company's 401(k) plan in effect as of the date of the Merger
Agreement, to the extent practicable, will remain in effect until Company
employees are allowed to participate in a comparable benefit plan of Diamond.
With respect to such comparable benefit plan of Diamond, such plan shall give
full credit to each Company employee for each participant's respective period of
service with the Company prior to the Effective Time for all purposes for which
such period of service is relevant to benefits provided under such benefit plan
of Diamond. From and after the Effective Time, Diamond shall provide employees
of the Company with the opportunity to participate in any employee stock option
or other incentive compensation plan of Diamond or Purchaser on substantially
the same terms and subject to substantially the same conditions as are available
to similarly situated employees of Diamond and Purchaser, provided for any
employee that such employee otherwise fulfills all eligibility criteria.
Except as set forth above, the Company has agreed in the Merger Agreement
not to modify or accelerate the exercisability of any stock options, rights or
warrants presently outstanding.
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Conditions to Obligations of All Parties to the Merger. The obligations of
each of the parties to effect the Merger following completion of the Offer are
subject to the following conditions: (i) the Merger shall have been approved and
adopted by the vote of the stockholders of the Company to the extent required by
the DGCL; (ii) any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "Hart-Scott-Rodino Act") shall have expired or been
terminated; (iii) shares shall have been purchased pursuant to the Offer; and
(iv) no temporary restraining order, preliminary or permanent injunction,
judgment or other order, decree or ruling nor any statute, rule, regulation or
order shall be in effect which would (x) make the acquisition or holding by
Diamond or its affiliates of Shares or shares of Common Stock of the Surviving
Corporation illegal or otherwise prevent the consummation of the Merger, (y)
prohibit Diamond's or the Purchaser's ownership or operation of, or compel
Diamond or the Purchaser to dispose of or hold separate, all or a material
portion of the business or assets of the Purchaser, the Company or any
subsidiary of the Company thereof, (z) compel Diamond, the Purchaser or the
Company to dispose of or hold separate all or a material portion of the business
or assets of Diamond or any such subsidiary or the Company or any such
subsidiary, (xx) impose material limitations on the ability of Diamond or the
Purchaser or their affiliates effectively to exercise full ownership and
financial benefits of the Surviving Corporation, or (yy) impose any condition to
the Offer, the Merger Agreement or the Merger that is materially adverse to the
party objecting thereto.
Schedule 14D-9. In the Merger Agreement, the Company has agreed that
concurrently with the filing by Diamond and Purchaser of the Schedule 14D-1, it
will file with the Commission and promptly mail to its stockholders, a
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
containing the recommendation of the Board that the Company's stockholders
accept the Offer, tender their Shares thereunder to Purchaser and, if required
by applicable law, approve the Merger; provided, that such recommendation may
not be withdrawn, modified or amended in connection with a Superior Proposal (as
defined below).
Board of Directors. The Merger Agreement provides that promptly upon the
acquisition by Purchaser pursuant to the Offer of such number of Shares which
satisfies the Minimum Condition and from time to time thereafter, Diamond shall
be entitled to designate a majority of the members of the Board, subject to
compliance with Section 14(f) of the Exchange Act. The Company shall, upon
request by Diamond, promptly increase the size of the Board to the extent
permitted by its certificate of incorporation and/or secure the resignations of
such number of directors as is necessary to enable Diamond's designees to be
elected to the Board and shall use its reasonable efforts to cause Diamond's
designees to be so elected. The Company shall take, at its expense, all action
necessary to effect any such election, including mailing to its stockholders the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder in form and substance reasonably satisfactory to Diamond
and its counsel. Following the election or appointment of Diamond's designees
pursuant to the Merger Agreement and prior to the Effective Time, any amendment
or termination of the Merger Agreement, extension for the performance or waiver
of the obligations or other acts of Diamond or Purchaser or waiver of the
Company's rights hereunder, shall require the concurrence of a majority of the
Company's directors (or the concurrence of the director, if there is only one
remaining) then in office who are directors on the date thereof, or are
directors (other than directors designated by Diamond in accordance with the
Merger Agreement) designated by such persons to fill any vacancy (the
"Continuing Directors"); provided, however, that, if there shall be no
Continuing Directors, such actions may be affected by majority vote of the
entire Board, except that no such action shall amend the terms of the Merger
Agreement or waive any right or obligation under the Merger Agreement in a
manner adverse to the stockholders of the Company.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Diamond and the Purchaser,
including, but not limited to, representations and warranties relating to the
Company's organization and qualification, capitalization and authority to enter
into the Merger Agreement and carry out the transactions contemplated thereby,
the Company's subsidiaries, Commission filings (including financial statements),
the documents supplied by the Company relating to the Offer, required consents
and approvals, employee benefit plans, litigation, the material liabilities of
the Company and its subsidiaries, environmental matters relating to the Company
and its subsidiaries, labor
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matters, trademarks, patents and other intellectual property, the payment of
taxes, arrangements with financial advisors, related party transactions, and the
absence of certain material adverse changes or events since March 31, 1998. The
Company has also represented that it has taken or will take all action necessary
to render Section 203 of the DGCL (see "Item 8. Additional Information to be
Furnished -- Section 203 of the DGCL" below) inapplicable to Diamond or the
Purchaser solely by virtue of the Offer, the Merger, the Merger Agreement, the
purchase of Shares pursuant to the Offer, the Merger and the transactions
contemplated thereby or therein.
Diamond and the Purchaser have also made customary representations and
warranties to the Company, including, but not limited to, representations and
warranties relating to Diamond's and the Purchaser's organization and
qualification, their authority to enter into the Merger Agreement and consummate
the Offer and the Merger, required consents and approvals, documents related to
the Offer and the availability of sufficient financing to consummate the Offer.
Conduct of Company's Business Pending Merger. Pursuant to the Merger
Agreement, the Company and its subsidiaries have agreed that, prior to the
Effective Time, unless Diamond shall otherwise have agreed in writing or as
otherwise contemplated by the Merger Agreement, the Company, together with its
subsidiaries, will carry on its business diligently and in accordance with good
commercial practice and to carry on its business in the usual, regular and
ordinary course, in substantially the same manner as conducted prior to the
execution of the Merger Agreement and in compliance with all applicable laws and
regulations, to pay its debts and taxes when due subject to good faith disputes
over such debts or taxes, to pay or perform other material obligations when due,
and use its commercially reasonable efforts consistent with past practices and
policies to preserve intact its present business organization, keep available
the services of its present officers and employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees, and
others with which it has business dealings. In addition, the Company will
promptly notify Diamond of any material event involving its business or
operations.
The Company has also agreed pursuant to the Merger Agreement that, prior to
the Effective Time, except as permitted by the terms of the Merger Agreement,
without the prior written consent of Diamond, it will not do, and it will not
permit any of its subsidiaries to do, any of the following:
(i) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant or director stock plans or authorize
cash payments in exchange for any options granted under any of such plans;
(ii) Grant any severance or termination pay to any director, officer
or employee except payments in amounts consistent with policies and past
practices or pursuant to written agreements outstanding, or policies
existing, on the date of the Merger Agreement and as previously disclosed
in writing to the other, or adopt any new severance plan, or provide any
other compensation or benefit to any employee, officer or director that
would accrue or become payable as a result of or in connection with the
Offer and/or Merger;
(iii) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Company
Intellectual Property (as defined in the Merger Agreement) or other
proprietary rights, or enter into grants to future patent rights, other
than in the ordinary course of business, consistent with past practice;
(iv) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any capital stock or
split, combine or reclassify any capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock;
(v) Repurchase or otherwise acquire, directly or indirectly, any
shares of capital stock except pursuant to rights of repurchase of any such
shares under any employee, consultant or director stock plan existing on
the date of the Merger Agreement (which repurchase rights the Company shall
be obligated to exercise if the repurchase price is less than the Offer
Price);
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(vi) Issue, deliver, sell, authorize or propose the issuance, delivery
or sale of, any shares of capital stock or any securities convertible into
shares of capital stock, or subscriptions, rights, warrants or options to
acquire any shares of capital stock or any securities convertible into
shares of capital stock, or enter into other agreements or commitments of
any character obligating it to issue any such shares or convertible
securities, other than the issuance of Shares pursuant to the exercise of
stock options therefor outstanding as of the date of the Merger Agreement;
(vii) Cause, permit or propose any amendments to any charter document
or bylaw (or similar governing instruments of any subsidiaries);
(viii) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any equity interest in or a material portion of the assets
of, or by any other manner, any business or any corporation, partnership
interest, association or other business organization or division thereof,
or otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to the business of the Company, or enter
into any joint ventures, strategic partnerships or alliances;
(ix) Sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the aggregate,
to the business of the Company, except in the ordinary course of business
consistent with past practice;
(x) Incur any indebtedness for borrowed money in excess of $100,000
(other than ordinary course trade payables or pursuant to existing credit
facilities in the ordinary course of business) or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire debt securities, or guarantee any debt securities of others;
(xi) Adopt or amend any employee benefit or employee stock purchase or
employee option plan, or enter into any employment contract, pay any
special bonus or special remuneration to any director or employee, or
increase the salaries or wage rates of its officers or employees other than
in the ordinary course of business, consistent with past practice, or
change in any material respect any management policies or procedures;
(xii) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business;
(xiii) Make any grant of exclusive distribution or other resale rights
to any third party; or
(xiv) Agree in writing or otherwise to take any of the actions
described in (i) through (xiii) above.
Non-Solicitation. The Company has agreed in the Merger Agreement that from
and after the date of the Merger Agreement until the earlier of the Effective
Time or termination of the Merger Agreement pursuant its terms, the Company and
its subsidiaries shall not, and will instruct their respective directors,
officers, employees, representatives, investment bankers, agents and affiliates
not to, directly or indirectly, (i) solicit or encourage submission of, any
proposals or offers by any person, entity or group of such entity (other than
Diamond and its affiliates, agents and representatives), or (ii) participate in
any discussions or negotiations with, or disclose any non-public information
concerning the Company or any of its subsidiaries to, or afford any access to
the properties, books or records of the Company or any of its subsidiaries to,
or otherwise assist or facilitate, or enter into any agreement or understanding
with, any person, entity or group (other than Diamond and its affiliates, agents
and representatives), in connection with any Acquisition Proposal with respect
to the Company. For the purposes of the Merger Agreement, an "Acquisition
Proposal" with respect to an entity means any proposal or offer relating to (i)
any merger, consolidation, sale or license of substantial assets or similar
transactions of such entity (other than sales of assets or inventory in the
ordinary course of business or as permitted under the terms of the Merger
Agreement), (ii) sale of 10 percent or more of the outstanding shares of capital
stock of the Company (including without limitation by way of a tender offer or
an exchange offer), (iii) the acquisition by any person of beneficial ownership
or a right to acquire beneficial ownership of, or the formation of any "group"
(as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) which beneficially owns, or has the right to acquire
beneficial ownership of,
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10 percent or more of the then outstanding shares of capital stock of the entity
(except for acquisitions for passive investment purposes only in circumstances
where the person or group qualifies for and files a Schedule 13G with respect
thereto or qualifies for and files a Schedule 13D with respect thereto,
indicating that the acquisition of such shares is for passive investment
purposes only, and such person or group does not subsequently file an amendment
to such 13D indicating that such shares were not acquired for passive investment
purposes only and the Minimum Condition is not satisfied); or (iv) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing. The Company will immediately cease
any and all existing activities, discussions or negotiations with any parties
conducted previously with respect to any of the foregoing. The Company will (i)
notify Diamond as promptly as practicable if any inquiry or proposal is made or
any information or access is requested in connection with an Acquisition
Proposal or potential Acquisition Proposal and (ii) as promptly as practicable
notify Diamond of the terms and conditions of any such Acquisition Proposal. In
addition, subject to the other provisions of the Merger Agreement, from and
after the date of the Merger Agreement until the earlier of the Effective Time
and termination of the Merger Agreement pursuant to its terms, the Company and
its subsidiaries will not, and will instruct their respective directors,
officers, employees, representatives, investment bankers, agents and affiliates
not to, directly or indirectly, make or authorize any public statement,
recommendation or solicitation in support of any Acquisition Proposal made by
any person, entity or group (other than Diamond or the Purchaser); provided,
however, that nothing shall prohibit the Board from taking and disclosing to the
Company's stockholders a position with respect to a tender offer pursuant to
Rules 14d-9 and 14e-2 promulgated under the Exchange Act.
Prior to consummation of the Offer, the Company may, to the extent the
Board determines, in good faith, after consultation with outside legal counsel,
that the Board's fiduciary duties under applicable law require it to do so,
participate in discussions or negotiations with, and, subject to the
requirements of the paragraph below, furnish information to any person, entity
or group after such person, entity or group has delivered to the Company in
writing, an unsolicited bona fide Acquisition Proposal which the Board in its
good faith reasonable judgment determines, after consultation with its
independent financial advisors, would result in a transaction more favorable
than the Offer and the Merger to the stockholders of the Company from a
financial point of view and for which financing, to the extent required, is then
committed or which, in the good faith reasonable judgment of the Board (based
upon the advice of independent financial advisors), is reasonably capable of
being financed by such person, entity or group and which is reasonably likely to
be consummated (a "Superior Proposal"). In the event the Company receives a
Superior Proposal, nothing contained in the Merger Agreement (but subject to the
terms hereof) will prevent the Board from recommending such Superior Proposal to
the Company's stockholders, if the Board determines, in good faith, after
consultation with outside legal counsel, that such action is required by its
fiduciary duties under applicable law; provided, however, that the Company shall
not recommend to its stockholders a Superior Proposal for a period of not less
than 48 hours after Diamond's receipt of a copy of such Superior Proposal (or a
description of the terms and conditions thereof, if not in writing).
The Company will not provide any non-public information to a third party
unless: (i) the Company provides such non-public information pursuant to a
nondisclosure agreement with terms regarding the protection of confidential
information at least as restrictive as such terms in the Confidentiality
Agreement; and (ii) such non-public information has been previously delivered to
Diamond.
Public Announcements. Diamond and Purchaser on the one hand and the Company
on the other hand will consult with each other before issuing any press release
or otherwise making any public statements with respect to the Merger Agreement,
the Offer or the Merger or the other transactions contemplated hereby, and shall
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by law.
Indemnification. Pursuant to the terms of the Merger Agreement, all rights
to indemnification existing in favor of the current directors and officers of
the Company (the "Indemnified Persons") for acts and omissions occurring prior
to the Effective Time, as provided in the Company's certificate of incorporation
and/or bylaws (as in effect as of the date of the Merger Agreement) and as
provided in the indemnification agreements between the Company and the
Indemnified Persons (as in effect as of the date of the Merger
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Agreement), shall survive the Offer and the Merger for a period of not less than
four years after the Effective Time; provided, however, that if, at any time
prior to the fourth anniversary of the Effective Time, any Indemnified Persons
delivers to Diamond or the Surviving Corporation a written notice asserting a
claim for indemnification, then the claim asserted in such notice shall survive
the fourth anniversary of the Effective Time until such time as such claim is
fully and finally resolved. The certificate of incorporation and bylaws of the
Surviving Corporation will contain provisions with respect to exculpation and
indemnification that are at least as favorable to current Indemnified Persons as
those contained in the certificate of incorporation and bylaws of the Company as
in effect on the date of the Merger Agreement, which provisions will not be
amended, repealed or otherwise modified from the Effective Time until the fourth
anniversary of the date on which the Merger becomes effective in any manner that
would adversely affect the rights thereunder of any such Indemnified Person.
Diamond has agreed in the Merger Agreement that from the Effective Time
until the fourth anniversary of the date on which the Merger becomes effective,
Diamond shall maintain in effect, for the benefit of the Indemnified Persons
with respect to acts or omissions occurring prior to the Effective Time, the
directors' and officers' liability insurance policy currently carried: provided,
however, that Diamond may substitute for such policy a policy or policies of
materially equivalent coverage for acts or omissions prior to the Effective Date
and, provided further, that Diamond shall not be obligated to maintain such
coverage for policy limits which would cause the annual cost of such coverage to
exceed $397,248, representing 150 percent of the cost of such coverage paid by
the Company in fiscal year 1998 and, provided, further, that if the annual
premiums of such insurance coverage exceed such amount, Diamond shall be
obligated to obtain a policy with the greatest coverage available for a cost not
exceeding such amount.
Termination of Merger Agreement. The Merger Agreement provides grounds for
which it may be terminated at any time prior to the Effective Time, whether
before or after approval by the stockholders of the Company. The Merger
Agreement may be so terminated:
(a) by mutual written agreement of the Boards of Directors of Diamond
and the Company;
(b) by either Diamond or the Company:
(i) if the Offer shall be terminated or expire without any Shares
having been purchased pursuant to the Offer; provided, however, that a
party shall not be entitled to terminate the Merger Agreement if it is
in material breach of its representations and warranties, covenants or
other obligations under the Merger Agreement; or
(ii) if any court of competent jurisdiction in the United States or
other United States governmental body shall have issued an order, decree
or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Offer or the Merger and such order, decree, ruling or
other action shall have become final and nonappealable;
(c) by Diamond:
(i) if the Board or any committee thereof shall have approved, or
recommended (and not rescinded such recommendation within two (2)
business days) that stockholders of the Company accept or approve, an
Acquisition Proposal by a third party;
(ii) if the Board or any committee thereof shall have withdrawn or
modified (and not rescinded such recommendation within two (2) business
days) its approval of, or recommendation that the stockholders of the
Company accept or approve (as the case may be), the Offer, the Merger
Agreement and the Merger;
(iii) if the Company shall have failed to include in the Schedule
14D-9 the recommendation of the Board that the stockholders of the
Company accept the Offer;
(iv) prior to the purchase of Shares pursuant to the Offer, in the
event that any waiting period (and any extension thereof) under the
Hart-Scott-Rodino Act applicable to the Purchase of Shares pursuant to
the Offer shall not have expired or been terminated, the Minimum
Condition shall not
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be satisfied or if any of the events set forth in clause (iii) of Annex
I to the Merger Agreement shall have occurred; provided in the case of
an event set forth in clause (iii), item (A), (B), (C), (F) or (H) of
Annex I to the Merger Agreement that if such event is and continues to
be reasonably probable of being cured by the date which is 20 business
days after commencement of the Offer, Diamond shall not terminate the
Merger Agreement as a result of such event until the date that is 20
business days after the commencement of the Offer; or
(v) prior to the purchase of Shares pursuant to the Offer if the
Company is in material breach of any of its covenants or obligations
under the Merger Agreement, or any representation or warranty of the
Company contained in the Merger Agreement shall have been incorrect, in
any material respect, when made or shall have since the date of the
Merger Agreement ceased to be true and correct in any material respect;
provided, that, if such breach is curable through exercise of the
Company's commercially reasonable efforts, then Diamond may not
terminate the Merger Agreement unless the breach is not cured within 10
days after giving notice to the Company;
(d) by the Company:
(i) if the Offer shall not have been commenced in accordance with
the terms of the Merger Agreement, or Diamond or the Purchaser shall
have failed to purchase validly tendered Shares in violation of the
terms of the Offer within ten business days after the expiration of the
Offer; provided, however, that the Company shall not be entitled to
terminate the Merger Agreement if it is in material breach of its
representations and warranties, covenants or other obligations under the
Merger Agreement;
(ii) if the Board has resolved to, and in fact does, recommend to
the Company's Stockholders that they accept a Superior Proposal, and
provided further that the Company shall have paid to Diamond the entire
Break-up Fee (as defined below); or
(iii) prior to the purchase of Shares pursuant to the Offer, if
Diamond or the Purchaser is in material breach of any of its covenants
or obligations under the Merger Agreement, or any representation or
warranty of Diamond or the Purchaser contained in the Merger Agreement
shall have been incorrect, in any material respect, when made or shall
have since ceased to be true and correct in any material respect;
provided, that, if such breach is curable through exercise of the
Diamond's or the Purchaser's commercially reasonable efforts, then the
Company may not terminate the Merger Agreement unless the breach is not
cured within 10 days after giving notice to the Diamond.
In the event of the termination of the Merger Agreement by the Company or
Diamond or both of them, the terminating party shall provide written notice of
such termination to the other party and the Merger Agreement shall forthwith
become void and there shall be no liability on the part of Diamond, the
Purchaser or the Company, except as otherwise provided in the Merger Agreement.
Fees and Expenses. The Merger Agreement provides that whether or not the
transactions contemplated by the Offer and the Merger Agreement are consummated,
all costs and expenses incurred in connection with the transactions contemplated
by the Offer and the Merger Agreement shall be paid by the party incurring such
expenses.
The Merger Agreement also provides that the Company shall pay Diamond, in
same day funds, upon demand, a fee of $2,000,000 (the "Break-up Fee"), if any of
the following shall occur:
(i) the Board or any committee thereof shall have approved, or
recommended that stockholders of the Company accept or approve, an
Acquisition Proposal by a third party, or shall have resolved to do any of
the foregoing;
(ii) the Board or any committee thereof shall have withdrawn or
modified its unanimous approval of, or unanimous recommendation that the
stockholders of the Company accept or approve (as the case may be), the
Offer, the Merger Agreement and the Merger, or shall have resolved to do
any of the foregoing;
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(iii) the Company shall have failed to include in the Schedule 14D-9
the unanimous recommendation of the Board that the stockholders of the
Company accept the Offer; or
(iv) (A) prior to the Effective Time, any person, entity or "group"
(as that term is used in Section 13(d)(3) of the Exchange Act), shall
beneficially own (as that term is used in Section 13(d)(3) of the Exchange
Act), or shall have acquired, 25 percent or more of the Shares, or shall
have been granted any option or right, conditional or otherwise, to acquire
25 percent or more of the Shares (the "25% Person"), which Shares are not
tendered to Diamond in connection with the Offer, (B) the Minimum Condition
shall not be met as of the Expiration Date and (C) either (1) the 25%
Person shall, at any time within twelve (12) months of the expiration of
the Offer, effect the Acquisition (as defined below) of the Company or
enter into an agreement with the Company or commence a tender offer to
effect such an Acquisition, and the transactions contemplated thereby are
subsequently consummated at any time, or (2) any person other than Diamond
or any affiliate of Diamond effects the Acquisition of the Company during
1998, or during 1998 enters into an agreement with the Company or commences
a tender offer for the Acquisition of the Company and the transactions
contemplated thereby are subsequently consummated at any time, in any such
case under this clause (2) at a purchase price equivalent to a price per
Share in excess of $2.45. For the purposes of the Merger Agreement, an
"Acquisition" of the Company means any merger, consolidation or other
reorganization, any tender offer or other transaction or series of related
transactions involving the acquisition of securities of the Company, or any
sale or license of all or substantially all the business or assets of the
Company, unless the shareholders of the Company prior to such transaction
or series of related transactions retain following such transaction or
series of related transactions (in respect of their equity interest in the
Company prior thereto) more than 50% of the voting equity securities of the
surviving or successor corporation to the business of the Company.
The Merger Agreement further provides that the Break-up Fee is payable to
compensate Diamond and the Purchaser for their direct and indirect costs and
expenses associated with the negotiation and execution of the Merger Agreement
and the undertaking of the transactions contemplated therein in the event of the
occurrence of all of the events set forth in clauses (i), (ii), (iii) and (iv)
of the paragraph above, and shall constitute liquidated damages with respect to
(but solely with respect to) the events itemized in clauses (i), (ii), (iii)
and/or (iv) of the paragraph above. However, the right to the payment of the
Break-up Fee shall be in addition to any other damages or remedies at law or in
equity to which Diamond or the Purchaser may be entitled as a result of the
Company's violation or breach of any other term or provision of this Agreement.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE BOARD
At a meeting held on May 7, 1998, the Board reviewed the Merger Agreement,
the Offer and the Merger, and received presentations from Alliant Partners
("Alliant") and the Company's legal counsel. Alliant delivered to the Board its
written opinion (the "Fairness Opinion") to the effect that the valuation of the
Company of $2.45 per Share, and the acquisition of the vested stock options, is
fair, from a financial point of view, to the Company's stockholders. At the
conclusion of the meeting the Board unanimously approved the Merger Agreement,
the Offer and the Merger and determined that the terms of the Offer and the
Merger are fair to, and in the best interests of, the Company and the holders of
Common Stock. The Board unanimously recommends that the Company's stockholders
accept the Offer and tender their Shares pursuant to the Offer.
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(B) BACKGROUND OF THE OFFER; REASONS FOR THE RECOMMENDATION
Background of the Offer. In 1995, the Company received a proposal (the
"Lindner Proposal") from one of its stockholders, Lindner Investments
("Lindner"), that was presented to the Company's stockholders at the next annual
meeting of stockholders in February 1996. The proposal, which sought a
stockholder recommendation that the Company be sold for cash as soon as
possible, was defeated at the meeting by a vote of 3,673,799 Shares voting in
favor of the proposal, 3,628,468 voting against and 119,864 abstaining.
On October 30, 1996, the Company engaged Bentley Hall Von Gehr
International (which subsequently changed its name to Alliant Partners) to
explore alternatives to maximize the stockholder value of the Company.
Consideration was given to mergers, acquisitions, other business combinations
and the potential sale of the Company.
In 1996, Lindner again presented the Lindner Proposal to be brought before
the Company's stockholders at the 1997 annual meeting held on February 27, 1997.
The Lindner Proposal was again brought before the stockholders at such meeting
and the following resolution was approved by a majority of the stockholders of
the Company present or represented by proxy:
"RESOLVED, THAT THE SHAREHOLDERS OF MICRONICS COMPUTERS, INC.
HEREBY RECOMMEND TO THE BOARD OF DIRECTORS THAT THE BOARD TAKE THE
STEPS NECESSARY TO ACHIEVE A SALE OR CASH MERGER OF MICRONICS
COMPUTERS ON TERMS THAT WILL MAXIMIZE VALUES AS PROMPTLY AS POSSIBLE."
There were 4,054,630 Shares voted in favor of the Lindner Proposal,
2,573,500 voted against, and 110,740 abstaining.
Following the 1997 meeting, Alliant continued to explore potential business
combinations on behalf of the Company. During the course of its engagement,
Alliant made contacts with over 70 potential acquirors. Due to the financial
performance of the Company's business, as well as negative competitive
considerations related to the motherboard business, most of the prospects
declined to seriously consider the potential of a transaction with the Company.
However, direct meetings were held with 13 prospects, culminating in series of
discussions regarding a potential transaction with some of these prospects. No
agreement or commitment to enter into any agreement was made with any of these
companies, because these meetings either did not result in meaningful
negotiations or did not result in a formal offer. The reasons for ending
negotiations included, but were not limited to, the failure of the counterparty
to continue to pursue a transaction, the Board's judgment, in different
instances, that the counterparty was not likely to be capable of financing its
proposed transaction, that the nature or amount of the consideration proposed to
be paid to the Company's stockholders was not attractive to the stockholders,
that the risk involved in the transaction was not acceptable or that the
potential acquiror's business made an attractive transaction unlikely, as well
as a variety of other factors.
On March 31, 1998, representatives of Broadview Associates LLC
("Broadview"), on behalf of Diamond, contacted Mr. Hart, President and Chief
Executive Officer of the Company, to inquire about his interest in a possible
business combination with Diamond. Mr. Hart referred Broadview to Alliant.
Broadview contacted Alliant and discussed certain parameters and alternatives
regarding a potential transaction.
During the course of these preliminary discussions, Alliant advised
Broadview that active discussions were currently underway with another party
(the "Other Party"). On April 8, 1998, that party advised a representative of
Alliant that it wished to temporarily defer discussions with the Company
regarding a potential transaction.
Mr. Hart, Mr. Finley, Vice President, Finance, and Chief Financial Officer
of the Company, William Schroeder, Chairman, President and Chief Executive
Officer of Diamond, James Walker, Senior Vice President, Finance and
Administration, and Chief Financial Officer of Diamond, and certain other
members of senior management of both Diamond and the Company, as well as
representatives of Broadview and Alliant, met at Alliant's offices on April 2,
1998. The parties exchanged information on their financial conditions, the
strategies and prospects of their respective businesses, personnel matters,
synergies between the
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<PAGE> 14
companies and the possibility of a business combination. Based on the discussion
at the meeting, the parties agreed to continue discussions.
During the week of April 6, the Company provided Diamond with certain
confidential information regarding the Company, as part of Diamond's preliminary
due diligence review of the Company and in order to assist Diamond in its
valuation analysis of the Company. Numerous discussions were held between
representatives of Broadview and Alliant regarding parameters and terms of a
potential transaction, including preliminary valuations of the Company and the
structure of the possible transaction. Alliant conveyed the Company's preference
for a cash transaction.
On April 8, 1998, the Company and Diamond executed a mutual confidentiality
agreement, pursuant to which the parties agreed, among other things, to keep the
existence of their discussions confidential, not to disclose financial,
technical and other business information being provided to the other party, and
not to solicit for hire employees of the other party for no less than six
months.
On April 10, 1998, members of Diamond's technical staff and representatives
of Broadview met with Mr. Hart, Mr. Finley, members of the Company's technical
staff and Alliant at the Company's offices to conduct due diligence and to
discuss issues related to the Company's organization, technology and product
offerings.
On April 14, 1998, by letter, Diamond provided the Company with a
preliminary proposal to acquire the Company for cash, subject to the
satisfactory completion of due diligence, execution of a definitive agreement,
as well as other customary conditions. The preliminary proposal contemplated an
acquisition of the Company for an aggregate consideration of approximately $34.5
million in cash.
On April 14, 1998, the Board met telephonically to consider Diamond's
proposal, and the Board unanimously determined that it was in the best interests
of the stockholders of the Company to continue negotiations with Diamond. The
Board unanimously authorized certain officers and representatives of the Company
to proceed with negotiations related to Diamond's proposed transaction.
From April 14 to 17, 1998, the Company and Diamond exchanged additional due
diligence materials. Officers and other representatives of both Diamond and the
Company continued to exchange information and meet to conduct due diligence and
to discuss timing issues with regard to a possible transaction.
A draft of an agreement with respect to Diamond's proposal was provided to
legal counsel for the Company by legal counsel for Diamond on April 23, 1998.
Over the subsequent two week period, the parties through their legal counsel
negotiated the terms and conditions of the draft agreement. Extensive
negotiations were conducted regarding the amount of the Break-up Fee and the
circumstances under which the Break-up Fee would be payable, as well as
Diamond's request that it be granted an option to acquire up to 19.9 percent of
the outstanding Shares in connection with any acquisition agreement. During
these negotiations, Diamond agreed to abandon its request to be granted the
option, if an acceptable termination fee arrangement were reached.
On April 23 and 24, 1998, Mr. Hart and other members of the Company's
management and technical staff met with Mr. Schoeder and other members of
Diamond's management to discuss the proposed transaction and to provide further
information to Diamond regarding the Company's engineering organization.
On April 27, 1998, Diamond informed Alliant that, because the Company's
losses for the second quarter of fiscal 1998 were expected to be larger than
previously anticipated by Diamond, Diamond was reducing its offer to
approximately $32.5 million plus assumption of stock options.
On May 4, 1998, Broadview advised Alliant that, due to additional concerns
identified by Diamond during its diligence efforts, Diamond was not prepared to
proceed with its prior offer of $32.5 million, or $2.50 per Share, and instead
would proceed only at a lower valuation. After a series of telephone
conversations between representatives of Alliant and Broadview discussing the
change in proposed consideration, Diamond proposed a cash tender offer for all
outstanding Shares for $2.45 per Share plus the cashing-out of options, or an
aggregate valuation of approximately $32.0 million.
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On May 4, 1998, the Board met telephonically to discuss the status of the
negotiations with Diamond. Subject to satisfactory resolution of outstanding
terms and conditions, including the amount and terms of the Break-up Fee, the
Board authorized the Company's officers and representatives to proceed based on
Diamond's proposed tender offer of $2.45 per Share.
On May 5, 1998, Alliant notified the Other Party that there were on-going
discussions with another potential acquirer. The Other Party declined to
participate in a competitive situation.
On May 7, 1998 the Board met at Alliant's office to consider Diamond's
proposed transaction, as well as to review Alliant's proposed Fairness Opinion.
Alliant delivered to the Board its Fairness Opinion to the effect that the
valuation of the Company of $2.45 per Share, and the cashing-out of the vested
in-the-money stock options, is fair, from a financial point of view, to the
Company's stockholders. The Board unanimously approved entering into the
transaction proposed by Diamond, agreed to a Break-up Fee of $2.0 million and
directed Mr. Hart to resolve the remaining issues, only one of which was deemed
by the Board to be material.
On May 11, 1998, after consultation with a majority of the members of the
Board, which was later confirmed with the remaining director, the Company
resolved with Diamond the final terms of the Merger Agreement and entered into
the Merger Agreement with Diamond and Purchaser.
Reasons for the Recommendation. In reaching its conclusions and
recommendations described above, the Board considered a number of factors,
including without limitation the following:
(i) the financial and other terms of the Offer, the Merger and the
Merger Agreement;
(ii) that the $2.45 per Share tender offer price represents a premium
of 40 percent over the closing sale price of the Common Stock of $1.75 as
reported by the Nasdaq National Market on May 7, 1998, the day on which the
Board conditionally approved the Merger Agreement, the Merger and the
Offer;
(iii) the form of the consideration to be offered to the Company's
stockholders;
(iv) the Company's business, financial condition, results of
operations, assets, liabilities, business strategy and prospects;
(v) the written opinion of Alliant delivered to the Board on May 7,
1998 to the effect that the valuation of the Company of $2.45 per Share,
and the cash-out of the vested in-the-money stock options, is fair, from a
financial point of view, to the Company's stockholders. The full text of
Alliant's written opinion is attached hereto as Appendix I and is
incorporated herein by reference. Shareholders are urged to read the
opinion in its entirety;
(vi) the provisions of the Merger Agreement, including the provisions
(a) permitting the Company to respond to unsolicited bona fide proposals or
offers concerning an acquisition of the Company that the Board in its good
faith reasonable judgment determines, after consulting with its independent
financial advisors, would result in a transaction more favorable than the
Offer and the Merger to the stockholders of the Company from a financial
point of view, for which financing, to the extent required, is then
committed or which, in the good faith reasonable judgment of the Board, is
reasonably capable of being financed by the proposing or offering person,
entity or group and which is reasonably likely to be consummated (a
"Superior Proposal"), (b) permitting the Board to recommend a Superior
Proposal to the Company's stockholders if the Board determines, in good
faith, after consultation with outside legal counsel, that such action is
required by its fiduciary duties under applicable law and (c) permitting
the Company to terminate the Agreement upon payment to the Purchaser of the
termination fee as set forth in the description of the Merger Agreement set
forth in Item 3(b), in the event that the Board determines to withdraw its
recommendation that the Company's stockholders accept the Offer;
(vii) Diamond's financial condition and ability to cause the Purchaser
to meet its obligations under the Merger Agreement; and
(viii) the familiarity of the Board with the business, results of
operations, properties and financial condition of the Company and the
nature of the industry in which it operates.
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The foregoing discussion of the information and factors considered and
given weight by the Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Merger
Agreement, the Offer and the Merger, the Board did not find it practicable to,
and did not, quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. Rather, the Board based its
decision on the totality of the information presented to and considered by the
Board.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company retained Alliant to render financial advisory services to the
Company in connection with a sale of the Company. Pursuant to an engagement
letter, dated October 30, 1996, the Company agreed to pay Alliant (a) an initial
fee of $100,000 and (b) one percent of the total amount, up to $30 million,
received by the Company or its stockholders upon the consummation of a sale of
the Company, and two percent of such amount exceeding $30 million. The Company
also agreed to reimburse Alliant's reasonable out-of-pocket costs and expenses,
and to indemnify Alliant and certain related persons against certain liabilities
in connection with the engagement.
Except as disclosed in this Statement, neither the Company nor any person
acting on its behalf currently intends to employ, retain or compensate any other
person to make solicitations or recommendations to security holders on its
behalf concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the Company's knowledge, no transactions in the Shares have been
effected during the past 60 days by the Company or by any executive officer,
director, affiliate or subsidiary of the Company.
(b) To the Company's knowledge, each executive officer, director and
affiliate of the Company currently intends to tender all Shares to the Purchaser
over which he, she or it has sole dispositive power as of the expiration date of
the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth herein or in Item 3(b) or 4(b), 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; (ii) a purchase, sale or transfer of a
material amount of assets by the Company; (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 described herein or in Item 3(b) or 4(b), there are no
transactions, Board resolutions, agreements in principle or signed contracts in
response to the Offer that relate to or would result in one or more of the
events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) The Information Statement attached as Appendix II hereto and
incorporated herein by reference is being furnished in connection with the
possible designation by the Purchaser, pursuant to the Merger Agreement, of
certain persons to be appointed to the Board other than at a meeting of the
Company's stockholders as described in Item 3.
(b) Section 203 of the DGCL
As a Delaware corporation, the Company is subject to Section 203 ("Section
203") of the DGCL. Under Section 203, certain "Business Combinations" (defined
generally to include (i) mergers or consolidations between a Delaware
corporation and an Interested Stockholder (as defined below), (ii) transactions
with an Interested Stockholder involving the assets or stock of the corporation
or its majority-owned subsidiaries, and (iii) transactions which increase an
Interested Stockholder's percentage ownership of stock) between a Delaware
corporation whose stock is publicly traded or has more than 2,000 stockholders
of record, and an "Interested Stockholder" (defined generally as a person that
is the beneficial owner of 15% or more of a
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corporation's outstanding voting stock) are prohibited for a three-year period
following the date that such a stockholder became an Interested Stockholder,
unless (i) the corporation has elected in its original certificate of
incorporation not to be governed by Section 203 (the Company did not make such
an election), (ii) the transaction in which the stockholder became an Interested
Stockholder or the Business Combination was approved by the Board of Directors
of the corporation before the other party to the Business Combination became an
Interested Stockholder, (iii) upon consummation of the transaction that made it
an Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the corporation outstanding at the commencement of the
transaction (excluding voting stock owned by directors who are also officers or
held in employee benefit plans in which the employees do not have a confidential
right to tender or vote stock held by the plan) or (iv) the Business Combination
was approved by the Board of Directors of the corporation and ratified by
66 2/3% of the voting stock which the Interested Stockholder did not own.
In accordance with the Merger Agreement and Section 203, the Board approved
the Offer, the Merger and the other transactions contemplated by the Merger
Agreement and, therefore, the restrictions of Section 203 are inapplicable to
the Offer, the Merger and the related transactions.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 Agreement and Plan of Merger, dated as of May 11, 1998, by and among
Micronics Computers, Inc., Diamond Multimedia Systems, Inc. and
Boardwalk Acquisition Corporation.*
Exhibit 2 Letter to Stockholders of Micronics Computers, Inc., dated May 14,
1998 (included in copies of the Statement mailed to stockholders).
Exhibit 3 Press Release of Diamond Multimedia Systems, Inc., dated May 11,
1998.*
Exhibit 4 Opinion of Alliant Partners (included as Appendix I in copies of the
Statement mailed to stockholders).*
Exhibit 5 Pages 3 to 10 of the Proxy Statement of Micronics Computers, Inc.
dated March 19, 1998, relating to its April 20, 1998 Annual Meeting
of Stockholders.*
Exhibit 6 1992 Directors Stock Option Plan of Micronics Computers, Inc.*
Exhibit 7 1989 Stock Option Plan of Micronics Computers, Inc.*
Exhibit 8 Employment Agreement dated as of February 6, 1998 between Micronics
Computers, Inc. and Charles J. Hart.*
- ---------------
* Not included in copies of the Statement mailed to stockholders.
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.
MICRONICS COMPUTERS, INC.
LOGOCharles J. Hart
President and Chief Executive Officer
Dated: May 18, 1998
16
<PAGE> 18
APPENDIX I
ALLIANT PARTNERS
May 7, 1998
Board of Directors
Micronics Computers, Inc.
45365 Northport Loop West
Fremont, CA 94538-6417
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of Micronics Computers, Inc. ("Micronics") of the
Company valuation of $31.6 million in cash for the acquisition of 100% of the
shares outstanding, plus a payment of $484,000 for the net value of vested stock
options of Micronics by Diamond Multimedia Systems, Inc. ("Diamond"), as of May
7, 1998.
Alliant Partners, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
private placements, mergers and acquisitions, and corporate partnering
transactions.
In arriving at our opinion, we have reviewed the Agreement and Plan of
Merger and financial and other information that was publicly available or
furnished to us by Micronics. We also have reviewed certain internal financial
reports and forecasts for Micronics prepared by their management and have held
discussions with members of the senior management of Micronics regarding the
historic and current business operations and future prospects of Micronics
including their expectations for certain strategic benefits of the transaction.
In addition, Alliant Partners analyzed the stock market value of Micronics,
compared certain financial data of Micronics with those of various other
companies engaged in businesses we considered comparable and whose securities
are traded in public markets, reviewed the overall risks presented by the
business plan, reviewed prices paid in certain other similar business
transactions, analyzed the future cash flows of the company as projected by
Micronics management, and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion.
We have assumed, without independent verification, the accuracy,
completeness and fairness of all of the financial and other information
regarding Micronics that has been provided to us by them and their
representatives. We did not make any independent evaluation of Micronics's
businesses nor did we review any of their corporate records.
Based on the foregoing and such other factors as we deem relevant, we are
of the opinion as of the date hereof, that the Micronics company valuation of
$2.45 per share, and the acquisition of vested stock options, is fair, from a
financial point of view, to the Micronics shareholders.
Sincerely yours,
/s/ Alliant Partners
--------------------------------------
Alliant Partners
I-1
<PAGE> 19
APPENDIX II
MICRONICS COMPUTERS, INC.
45365 NORTHPORT LOOP WEST
FREMONT, CALIFORNIA 94538
------------------------
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
The following information is being furnished to holders of the common
stock, par value $.01 per share (the "Common Stock"), of Micronics Computers,
Inc., a Delaware corporation (the "Company"), in connection with the possible
designation by Diamond Multimedia Systems, Inc., a Delaware corporation
("Diamond"), of at least a majority of the board of directors of the Company
pursuant to the terms of an Agreement and Plan of Merger, dated as of May 11,
1998 (the "Merger Agreement"), by and among the Company, Diamond and Boardwalk
Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of
Diamond (the "Purchaser"). THIS INFORMATION IS BEING PROVIDED SOLELY FOR
INFORMATIONAL PURPOSES AND NOT IN CONNECTION WITH A VOTE OF THE COMPANY'S
STOCKHOLDERS.
Pursuant to the Merger Agreement, the Purchaser has commenced a tender
offer (the "Offer") to purchase all of the outstanding shares of the Common
Stock. The Merger Agreement provides that promptly following the acquisition by
the Purchaser pursuant to the Offer of not less than 51 percent of the shares of
Common Stock outstanding on a partially diluted basis, Diamond shall be entitled
to designate a majority of the members of the Company's Board of Directors. The
Company has also agreed, upon request by Diamond, to increase the size of the
Company's Board of Directors to the extent permitted by its Certificate of
Incorporation, or to secure the resignation of existing directors to enable
Diamond's designees to be elected and to use its reasonable commercial efforts
to cause Diamond's designees to be so elected.
The information contained in this Appendix II concerning the Purchaser has
been furnished to the Company by Diamond, and the Company assumes no
responsibility for the accuracy or completeness of any such information.
VOTING SECURITIES OF THE COMPANY
As of May 14, 1998 there were issued and outstanding 12,902,565 shares of
Common Stock, each of which entitles the holder to one vote.
BOARD OF DIRECTORS,
ACQUISITION DESIGNEES AND EXECUTIVE OFFICERS
BOARD BIOGRAPHICAL INFORMATION
Certain information concerning directors of the Company as of May 12, 1998
is set forth below:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
---- --- --------------------
<S> <C> <C>
William E. Shelander...... 45 Chairman of the Board of Directors of the Company
Charles J. Hart........... 60 President and Chief Executive Officer of the
Company
Diane Simon(1)............ 61 Private Investor
Jim Timmins(1)............ 42 Partner, Glenwood Capital and Redwood Partners
</TABLE>
- ---------------
(1) Member of the Compensation Committee and the Audit Committee.
II-1
<PAGE> 20
Mr. Shelander has been the Company's Chairman of the Board since September
1997, has been a director of the Company since September 1990, and served as
Chief Executive Officer from September 1997 to February 1998. Mr. Shelander also
serves as a general partner of East West Capital, a venture capital firm. From
June 1995 to October 1996, he was co-President of JAFCO America Ventures, Inc.,
a venture capital firm and the United States subsidiary of Japan Associated
Finance Co., Ltd., a public company listed on the Tokyo over-the-counter market.
Japan Associated Finance Co., Ltd. and two investment partnerships affiliated
with JAFCO America Ventures, Inc. are investors in the Company. From October
1988 to June 1995, Mr. Shelander was General Manager, and from June 1986 to
October 1988 he was an Associate, of JAFCO America Ventures, Inc. He previously
served as National Product Manager of Liquid Air Corporation and was a systems
engineer with Union Carbide Corporation. Mr. Shelander holds a B.S. in
industrial and systems engineering from the Georgia Institute of Technology, an
M.S.E. in chemical engineering from West Virginia College of Graduate Studies
and an M.B.A. from Stanford University.
Mr. Hart has been President, Chief Executive Officer and a director of the
Company since February 1998. He was a founding member of the Board of Directors
and participated in the launch of InsWeb Corporation from August 1995 until May
1997. This Internet technology company created the first vertically integrated
marketplace for the insurance industry on the World Wide Web. From January 1992
until July 1995, he was President and Chief Executive Officer of Semaphore
Communications Corporation, a hardware and software company providing advanced
global network encryption systems. Previously, Mr. Hart was president and Chief
Executive Officer of Phaser Systems, LAN pioneer Nestar Systems and Etak, Inc.,
a provider of geographic information systems. Mr. Hart began his career in the
computer industry with Control Data Corporation in the United States and Europe.
He has served on the Board of Directors of Network Peripherals, Inc. since 1996.
Mr. Hart holds a B.A. from the University of Maryland, College of Arts &
Sciences and attended the Stanford University, Graduate School of Industrial
Engineering Executive Institute. He also served as an officer in the United
States Air Force, Strategic Air Command.
Ms. Simon has been a director of the Company since February 1997, and is a
private investor. From November 1996 to October 1997, Ms. Simon served as Vice
President Operations and Controller for Lumina Office Products, a
multi-functional office equipment manufacturer. From January 1996 to November
1996, she was Chief Operating Officer of Wood Associates, a promotional
merchandising company. From January 1995 to December 1995, she was Vice
President Operations for Aureal Semiconductor, a developer of semiconductor
devices. From 1981 to January of 1995 she was Vice President Operations of Wyse
Technology, a computer systems and terminal manufacturer. Ms. Simon holds a B.A.
and an M.A. from the City University of New York.
Mr. Timmins has been a director of the Company since September 1997. He has
been a partner of Glenwood Capital since September 1991 and a partner of Redwood
Partners since August 1995, both of which are venture buyout firms. Mr. Timmins
holds a B.A. from the University of Toronto and an M.B.A. from Stanford
University.
RIGHT TO DESIGNATE DIRECTORS; DIAMOND DESIGNEES
The Merger Agreement provides that promptly upon the purchase by the
Purchaser pursuant to the Offer of such number of Shares which satisfies the
Minimum Condition, Diamond shall be entitled to designate a majority of the
number of members of the Board. The Company will, upon request of Diamond,
promptly increase the size of the Board and/or secure the resignations of such
number of its incumbent directors as is necessary to enable the nominees
designated by Diamond (the "Diamond Designees") to be elected to the Board.
Diamond has informed the Company that it will choose the initial Diamond
Designees from among certain persons set forth below. With respect to the
Diamond Designees, the following table, prepared from information furnished to
the Company by Diamond, sets forth the name, occupation and age of each such
Diamond Designee. Diamond has informed the Company that each of such individuals
has consented to act as a director, if so designated. If necessary, Diamond may
choose additional or other Diamond Designees, subject to the requirements of
Rule 14f-1.
II-2
<PAGE> 21
None of the Diamond Designees (i) is currently a director of, or holds any
position with, the Company, (ii) has a familial relationship with any directors
or executive officers of the Company or (iii) to the best knowledge of Diamond,
beneficially owns any securities (or rights to acquire such securities) of the
Company. The Company has been advised by Diamond that, to the best of Diamond's
knowledge, none of the Diamond Designees has been involved in any transactions
with the Company or any of its directors, executive officers or affiliates which
are required to be disclosed pursuant to the rules and regulations of the
Securities and Exchange Commission, except as may be disclosed herein or in the
Schedule 14D-9.
It is expected that the Diamond Designees may assume office at any time
following the purchase by Purchaser of such number of shares which satisfies the
Minimum Condition (as defined in the Merger Agreement), which purchase cannot be
earlier than June 12, 1998, and that, upon assuming office, the Diamond
Designees will thereafter constitute at least a majority of the Board. Diamond
has informed the Company that it will choose the Diamond Designees from the
individuals shown in the table below to serve on the Board.
The following table, prepared from information furnished to the Company by
Diamond, sets forth the name, age and occupation of each of the Diamond
Designees.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS HELD
NAME DURING THE PAST FIVE YEARS
---- -----------------------------------
<S> <C>
</TABLE>
William J. Schroeder, age 53.... Mr. Schroeder is President and Chief
Executive Officer of Diamond, and has been a
member of Diamond's Board of Directors since
May 1994. Mr. Schroeder was employed by
Conner Peripherals, Inc. ("Conner") from 1986
to 1994, initially as President and from 1989
as Vice Chairman of the Board of Directors.
He was also President of Archive Corporation
(a Conner subsidiary) from January 1993 to
November 1993, and CEO of Arcada Software,
Inc. (a Conner subsidiary) from November 1993
to May 1994. Mr. Schroeder is a director of
Xircom, Inc. and CNF Transportation, Inc.
Bruce C. Edwards, age 44........ Mr. Edwards has served as President and Chief
Executive Officer of Powerwave Technologies,
Inc., a manufacturer of power amplifiers for
wireless telecommunications applications,
since February 1996. He has been a director
of Diamond since January 1995. Previously,
Mr. Edwards was employed by AST Research,
Inc. as Senior Vice President, Chief
Financial Officer from 1988 until July 1994
and as Executive Vice President, Chief
Financial Officer and a director from July
1994 to December 1995. Mr. Edwards is also a
director of HMT Technology Corporation and
Powerwave Technologies, Inc.
Carl W. Neun, age 54............ Mr. Neun is Senior Vice President and Chief
Financial Officer of Tektronix, Inc. Mr. Neun
was employed by Tektronix in March 1993
initially as Vice President and Chief
Financial Officer, and as Senior Vice
President from 1995 to the present. Mr. Neun
has been a director of Diamond since January
1998. Previously, Mr. Neun was Senior Vice
President of Administration and Chief
Financial Officer at Conner Periperhals, Inc.
from 1987 to 1993.
James T. Schraith, age 40....... Mr. Schraith is currently President and Chief
Executive Officer of ShareWave, Inc., a
company developing wireless home networking
products. Mr. Schraith has been a director of
Dia-
II-3
<PAGE> 22
mond since March 1998. From October 1996 to
January 1998, Mr. Schraith was Vice-President
and General Manager of the North America
Division of Compaq Computer. Previously, Mr.
Schraith was Chief Executive Officer and a
director of the Cerplex Group, Inc. From 1987
to 1995, Mr. Schraith was employed at AST
Research, Inc., most recently serving as
President, Chief Operating Officer and
Director. Mr. Schraith is also a director of
Semtech Corporation.
BOARD COMMITTEES AND MEETINGS
The Board of Directors (the "Board") met fifteen times and acted by
unanimous written consent twice during the year ended September 30, 1997
("fiscal 1997"). No incumbent director attended fewer than 90% of the total
number of meetings of the Board of Directors and of the committees of the Board
on which such director served. Standing committees of the Board currently
include an Audit Committee and a Compensation Committee. The Board does not have
a nominating committee or a committee performing a similar function.
The Audit Committee met twice during fiscal 1997. The Audit Committee
exercises the following powers: (1) nominates the independent auditors of the
Company to be approved by the Board of Directors; (2) meets with the independent
auditors to review the annual audit; (3) assists the full Board in evaluating
the auditor's performance; and (4) reviews internal audit and control
procedures, related party transactions and, where appropriate, potential
conflict of interest situations. Ms. Simon and Mr. Timmins are currently members
of the Audit Committee.
The Compensation Committee met six times during fiscal 1997. The
Compensation Committee administers the Company's cash bonus and profit sharing
plan and sets all stock and other compensation for the Company's officers.
Additionally, the Compensation Committee administers the Company's 1992
Directors Option Plan, 1989 Stock Option Plan, Employee Stock Purchase Plan and
other stock benefit plans for officers and employees. Ms. Simon and Mr. Timmins
are currently members of the Compensation Committee.
After consummation of the Merger, it is expected that the Company's Board
of Directors will act to appoint new members to the Audit and Compensation
Committees. To the Company's knowledge, no decision has been made by the
Purchaser Designees regarding the membership of any such committees of the
Board.
DIRECTORS' COMPENSATION
The Company has a compensation plan for directors who are not employees,
consultants or independent contractors of the Company ("Outside Directors"). For
the period subsequent to November 1995, each Outside Director receives
compensation for his services as a director at an annual rate of $24,000 (the
"Base Fee"). Each Outside Director also receives an additional $1,500 per annum
for each committee of the Board upon which the director serves. Outside Director
fees are paid quarterly. This plan was suspended by the Board in August 1995 and
was reinstated in November 1995. Prior to November 1995, the Base Fee received
by each Outside Director for his services as a director was set at an annual
rate of $30,000 ($60,000 for the Chairman of the Board, if an Outside Director).
During fiscal 1997, Mr. Shelander received $27,000 and Ms. Simon received
$15,000 ($6,000 of which was accrued but not yet paid) as compensation as
directors of the Company. Mr. Timmins received no compensation as a director
during fiscal 1997. Outside Directors are also reimbursed for their reasonable
and necessary expenses incurred on the Company's behalf. Messrs. Shelander and
Hart are not Outside Directors and are not paid separately for their services as
members of the Board.
Outside Directors are eligible for automatic option grants under the 1992
Directors Stock Option Plan (the "Directors Plan"). The Directors Plan provides
for the automatic grant of an option for 30,000 shares (60,000 shares for the
Chairman of the Board, if an Outside Director) of the Company's Common Stock
when an individual first becomes an Outside Director. If the individual is still
an Outside Director when his initial option under the Directors Plan has
completed vesting, he is automatically granted an additional option
II-4
<PAGE> 23
for the same number of shares. All options granted under the Directors Plan have
an exercise price equal to the fair market value of the Company's Common Stock
on the date of grant, become exercisable at a rate of one-sixth of the shares
every six months, and expire five years after the date of grant.
EXECUTIVE OFFICERS
Certain information concerning executive officers of the Company as of May
14, 1998 is set forth below:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
---- --- --------------------
<S> <C> <C>
Charles J. Hart................... 60 President and Chief Executive Officer of the Company
William E. Shelander.............. 45 Chairman of the Board
Bill R. Finley.................... 57 Vice President, Finance and Chief Financial Officer
William Crouch.................... 50 Vice President, Sales and Marketing
Wun-Yann Liao..................... 43 Vice President, Operations
Larry Smith....................... 52 Vice President, Research and Development
</TABLE>
Executive officers are elected by and serve at the discretion of the
Company's Board of Directors. No arrangement exists between any executive
officer and any other person or persons pursuant to which any executive officer
was or is to be selected as an executive officer. None of the executive officers
has any family relationship to any nominee for director or to any other
executive officer of the Company. Set forth below is a brief description of the
business experience for the previous five years of all executive officers of the
Company, except Messrs. Hart and Shelander. For information concerning Messrs.
Hart and Shelander, see "Board of Directors" above.
Mr. Finley has been the Company's Vice President, Chief Financial Officer
and Secretary since January 1997. Prior to joining the Company, Mr. Finley was
Chief Financial Officer for Vanguard Automation, Inc., a semiconductor company,
in Tucson, Arizona from November 1994 until January 1997. From January 1992
until November 1994, he was President and Chief Financial Officer of Ramtek
Corporation, a computer peripheral products company. Mr. Finley holds a B.S. in
business administration from Oregon State University and an M.B.A. from
University of California, Berkeley. He is a certified public accountant.
Mr. Crouch has been the Company's Vice President, Sales and Marketing since
August 1996. From April 1995 to May 1996, he was Director, Sales and Marketing
at Fujitsu Microelectronics, Inc. From January 1992 to April 1995, he was
Executive Vice President of Aztech Labs, Inc. Mr. Crouch holds a B.A. in
economics and communications from the University of Arizona.
Mr. Liao has been Vice President, Operations since November 1996. Since
September 1989, he has been President and Chief Executive Officer of Microniche
Information Systems, a wholly owned subsidiary of the Company. Prior to joining
the Company, Mr. Liao worked as Chief Technologist at Arche Technologies, Inc.
He has held various other programming-related jobs with companies including
National Semiconductor, DSC and American Microsystems, Inc. Mr. Liao holds a
B.S. in electrical engineering from National Taiwan University and an M.S. in
computer science from the University of California, Santa Barbara.
Mr. Smith has been the Company's Vice President, Engineering since November
1996. He was the Company's Director, Technical Services from August 1996 to
November 1996. Prior to joining the Company, Mr. Smith was Software Designer
from November 1995 to August 1996 for Tandem Computers, Inc. and Project Manager
from January 1989 to October 1995 at Wyse Technology.
II-5
<PAGE> 24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of May 12, 1998,
known to the Company regarding the beneficial ownership of Common Stock by (i)
each person known to the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock; (ii) each director of the Company; (iii) each of
the Company's executive officers who earned in excess of $100,000 from the
Company during fiscal 1997, and one highly compensated executive officer who was
not serving as an executive officer at the end of fiscal 1997 (together, the
"Named Officers"); and (iv) all directors and executive officers as a group. The
business address of each of the following persons is 45365 Northport Loop West,
Fremont, California 94538, unless otherwise specified. The following table does
not reflect the effect of accelerated vesting as a result of the Offer. See
"Item 3: Identity and Background" in the accompanying Schedule 14D-9.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE COMMON
NAME AND ADDRESS OF BENEFICIAL STOCK
OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING(2)
------------------- ------------- --------------
<S> <C> <C>
5% or greater holders
Dimensional Fund Advisors, Inc.(3)......................... 790,900 6.1%
1299 Ocean Ave., 11th Floor
Santa Monica, California 90401
Ira Albert(4).............................................. 759,500 5.9%
1304 SW 160th Ave., Ste. 209
Ft. Lauderdale, Florida 33326
Capital Technology, Inc.................................... 692,800 5.4%
8314 Pineville Matthews Road
Charlotte, North Carolina 28226
Directors and Executive Officers
Shanker Munshani(5)........................................ 198,573 1.5%
William E. Shelander(6).................................... 88,667 *
William Crouch(7).......................................... 24,479 *
William R. Finley(8)....................................... 25,924 *
Wun-Yann Liao(9)........................................... 54,294 *
Larry Smith(10)............................................ 27,604 *
Diane Simon(11)............................................ 10,000 *
Jim Timmins(12)............................................ 5,000 *
Charles J. Hart(13)........................................ 0 *
All directors and officers as a group (8 persons)(14)...... 434,541 3.3%
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated below, the persons named in the table have sole
voting and sole investment power with respect to all shares beneficially
owned, subject to community property laws where applicable.
(2) Percentage ownership is based upon 12,902,565 shares of Common Stock
outstanding as of May 12, 1998.
(3) According to the Schedule 13G (the "Dimensional 13G") filed with the
Securities and Exchange Commission (the "Commission") on February 10, 1998
by Dimensional Fund Advisors Inc. ("Dimensional"), Dimensional is a
registered investment advisor and is deemed to have beneficial ownership of
790,900 shares of the Company's Common Stock. Dimensional reported that all
shares reported in the Dimensional 13G are owned by advisory clients of
Dimensional, no one of which to the knowledge of Dimensional owns more than
5% of the outstanding shares of Common Stock. Dimensional disclaims
beneficial ownership of all such shares of Common Stock. According to the
Dimensional 13G, persons who are officers of Dimensional also serve as
officers of DFA Investment Dimensions Group Inc. (the "Fund") and The DFA
Investment Trust Company (the "Trust"), each an open-end management
investment company registered under the Investment Company Act of 1940, and
in their capacities as
II-6
<PAGE> 25
officers of the Fund and the Trust, these persons vote 110,200 additional
shares which are owned by the Fund and 169,200 shares which are owned by
the Trust.
(4) Based on information supplied by Mr. Albert in a Schedule 13G filed with
the Commission on February 21, 1997. Includes 335,000 shares held by Albert
Investment Associates, L.P. and 422,500 shares held by various accounts
over which Mr. Albert has discretionary authority.
(5) Includes 179,167 shares subject to options exercisable within 60 days after
May 12, 1998. Mr. Munshani is a consultant to the Company.
(6) Includes 71,667 shares subject to options exercisable within 60 days after
May 12, 1998.
(7) Represents 24,479 shares subject to options exercisable within 60 days
after May 12, 1998.
(8) Includes 23,438 shares subject to options exercisable within 60 days after
May 12, 1998.
(9) Includes 39,479 shares subject to options exercisable within 60 days after
May 12, 1998.
(10) Represents 27,604 shares subject to options exercisable within 60 days
after May 12, 1998.
(11) Represents 10,000 shares subject to options exercisable within 60 days
after May 12, 1998.
(12) Represents 5,000 shares subject to options exercisable within 60 days after
May 12, 1998.
(13) Mr. Hart has been granted options for the purchase of up to 350,000 shares
of the Company's Common Stock, none of which will be exercisable within 60
days after May 12, 1998, except that certain accleration of vesting occurs
in connection with the Offer. See "Item 3: Identity and Background" in the
accompanying Schedule 14D-9.
(14) Includes 380,834 shares subject to options exercisable within 60 days of
May 12, 1998.
II-7
<PAGE> 26
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded, earned or paid for
services rendered in all capacities to the Company and its subsidiaries during
each of the fiscal years 1995, 1996 and 1997 to the Named Officers. This
information includes the dollar values of base salaries, bonus awards, the
number of stock options granted and certain other compensation, if any, whether
paid or deferred. The Company does not grant stock appreciation rights and has
no long-term compensation benefits other than stock options.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
----------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS(#) ($)(2)
--------------------------- ---- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
William E. Shelander(3)................. 1997 $ 31,615 -- 100,000 $ 43
Chairman of the Board 1996 22,500 -- -- --
1995 23,625 -- 30,000 --
William Crouch.......................... 1997 $145,000 -- 55,000 $1,359
Vice President 1996 16,731 -- -- 279
Sales and Marketing 1995 -- -- -- --
Bill R. Finley.......................... 1997 $ 99,615 -- 65,000 $1,144
Vice President, Finance 1996 -- -- -- --
Chief Financial Officer and Secretary 1995 -- -- -- --
Wun-Yann Liao........................... 1997 $146,731 -- 15,000 $1,860
Vice President 1996 162,039 -- 50,000 1,541
Operations 1995 141,678 $6,270 10,000 1,362
Larry Smith............................. 1997 $119,327 -- 65,000 $ 754
Vice President 1996 16,058 -- -- 227
Engineering 1995 -- -- -- --
Shanker Munshani........................ 1997 $270,000 -- 75,000 $2,242
Consultant 1996 198,269 -- 100,000 1,656
1995 146,154 $8,859 100,000 847
</TABLE>
- ---------------
(1) Represents bonuses earned for services rendered during the fiscal year
listed, even if paid after the end of the fiscal year.
(2) Perquisites are excluded as their aggregate value did not meet the reporting
threshold of the lesser of $50,000 or 10% of the individual's salary plus
bonus. Represents insurance premiums paid by the Company with respect to
term life insurance for the benefit of the Named Officers ($206 and $77 for
Messrs. Liao and Munshani, respectively, in fiscal 1995; $279, $376, $227
and $791 and for Messrs. Crouch, Liao, Smith and Munshani, respectively, in
fiscal 1996; $43, $453, $497, $588, and $918 for Messrs. Shelander, Crouch,
Liao, Smith and Munshani, respectively, in fiscal 1997), and Company
matching contributions to the Company's 401(k) plan ($1,156 and $770 for
Messrs. Liao and Munshani, respectively, in fiscal 1995; $1,165 and $865 for
Messrs. Liao and Munshani, respectively, in fiscal 1996; and $906, $1,144,
$1,363, $166, and $1,324 for Messrs. Crouch, Finley, Liao, Smith, and
Munshani, respectively, in fiscal 1997).
(3) Salary includes $27,000, $22,500 and $23,625 in fees paid to Mr. Shelander
as director fees in fiscal 1997, 1996 and 1995 respectively.
II-8
<PAGE> 27
OPTION GRANTS IN FISCAL 1997
The following table sets forth information concerning option grants during
fiscal 1997 to each of the Named Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK PRICE
TOTAL OPTIONS APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM(1)
GRANTED EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME (#)(2) FISCAL YEAR(3) ($/SH) DATE 5% ($) 10% ($)
---- ------- -------------- ----------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
William E.
Shelander........... 100,000 10.2% $2.44 09/02 $67,344 $148,812
William Crouch........ 55,000 5.6 2.38 - 2.44 12/01 - 03/02 28,180 69,826
Bill R. Finley........ 65,000 6.6 2.44 - 2.48 01/02 - 03/02 44,395 98,826
Wun-Yann Liao......... 15,000 1.5 2.44 03/02 10,102 22,322
Larry Smith........... 65,000 6.6 2.38 - 2.44 12/01 - 03/02 34,914 84,707
Shanker Munshani...... 75,000 7.7 2.44 03/02 50,508 111,609
</TABLE>
- ---------------
(1) The 5% and 10% assumed rates of annual compound stock price appreciation are
mandated by rules of the Commission and do not represent the Company's
estimate or projection of future Common Stock prices. No value is reported
for options that expired without being exercised.
(2) Stock options are granted with an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant. Options generally
become exercisable (a) as to grants made to optionees who have not yet
received an option under the plan and who have been hired by, or commenced
their relationship with, the Company within one year prior to the grant date
of the first such option, as to 25% of the shares subject to the option on a
date one year after the vesting start date specified by the Board
(generally, the hire date), with the remainder to vest in equal amounts per
month over the following three-year period and (b) as to options granted to
all other optionees, in equal amounts per month over the four-year period
commencing with the vesting start date specified by the Board (generally the
date of grant).
(3) The Company granted options to purchase 979,200 shares in fiscal 1997.
The following table sets forth information concerning the number and value
of unexercised stock options held at September 30, 1997 by each of the Named
Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT 9/30/97 AT 9/30/97($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William E. Shelander........ -- -- 20,000 110,000 -- --
William Crouch.............. -- -- 13,542 41,458 -- --
Bill R. Finley.............. -- -- 0 65,000 -- --
Wun-Yann Liao............... -- -- 25,208 49,792 $1,094 $2,658
Larry Smith................. -- -- 13,542 51,458 -- --
Shanker Munshani............ -- -- 125,000 150,000 -- --
</TABLE>
- ---------------
(1) These values have not been and may never be realized. They are based on the
positive difference between the respective exercise prices of outstanding
stock options and the closing price of the Company's Common Stock of $2.25
as reported by the Nasdaq National Market on September 30, 1997.
II-9
<PAGE> 28
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee and the full Board generally review base salary
levels for officers each February. The Compensation Committee establishes the
general compensation policy of the Company for all executive officers and
recommends specific salary levels to the full Board.
To arrive at base salary levels, the Company's Human Resources Department
provides the Compensation Committee with executive compensation data from a
group of similar size high-technology companies. The factors used to determine
the participants in the survey group include annual revenue, industry, growth
rate and geography. The Company's executive level positions, including the Chief
Executive Officer ("CEO"), were matched to comparable survey positions and
competitive market compensation levels to determine base salary, target
incentives and target total cash compensation. Practices of such companies with
respect to stock option grants are also reviewed and compared.
In preparing the performance graph for this Proxy Statement, the Company
used the Nasdaq Computer Manufacturer Index ("NCM Index") as its published line
of business index. The companies in the executive compensation survey group
prepared by the Human Resources Department are substantially similar to the
companies contained in the NCM Index in that they are all computer or computer
component manufacturers. However, the NCM Index includes companies located
throughout the United States and the executive compensation survey is restricted
to companies that are located in northern California.
The executive compensation survey data are reviewed with the CEO for each
executive level position and, are currently reviewed by the Board as to the
CEO's compensation. During fiscal 1997, the CEO's salary was based on
competitive market conditions as of the time his employment agreement was
entered into, as described below.
Fiscal Year 1997 Executive Compensation
The practice of the Company during fiscal 1997 was to establish base
salaries at the approximate median of comparative positions included in the
executive compensation survey data. In any case where the Board or the CEO
believed an executive officer was not working at a level expected of him, or was
exceeding the Board's or CEO's expectations, the executive officer's base
compensation was adjusted upward or downward, as appropriate. In any case where
the services of a particular executive officer were sought by the Company's
competitors, the executive officer's base compensation may then have been raised
to meet or exceed any competitive offers of competitors. The foregoing
information, along with the CEO's recommendations of base salary for fiscal 1997
for each executive officer, was presented to the Compensation Committee and then
to the full Board at the time salary levels were approved and again for
particular executive officers at various times throughout the year when the
executive officer was promoted or other changes in the officer's status were
made. At that time, the Board reviewed the recommendations outlined above and
established a base salary level for the executive officer in question.
Secondly, the Board believes that the compensation of the CEO and other
executive officers should be influenced by the Company's overall performance. As
a result, once base salary was determined, an additional portion of the
compensation of each executive was contingent upon corporate performance under
the Company's Bonus and Profit Sharing Plans. Under these plans, semi-annual
cash awards may be made to employees based upon the Company's overall
performance measured by pre-tax income. No distributions were made under either
plan for fiscal 1997.
The Bonus Plan provides for semi-annual distribution of cash awards to
employees and executive officers, excluding the CEO. The total amount of the
distribution to participants in the Plan (the "Bonus Pool") is based upon a
percentage of pre-tax income, not to exceed 6%. Up to 40% of the Bonus Pool, at
the discretion of the Board, may be allocated for distribution to executive
officers as a group and the remainder to other employees of the Company.
Allocations for the CEO are made by the Board, if the CEO is eligible for a
bonus under the Bonus Plan, and further allocation among executive officers is
made by the CEO, in each case, based upon merit. Further allocation among
non-officer employees is made, again based upon merit, by the CEO and Company
department heads as to employees they supervise. No distribution was made under
the Bonus Plan for fiscal 1997.
II-10
<PAGE> 29
Under the Profit Sharing Plan, semi-annual cash distributions are made to
all employees in amounts not to exceed 4% of pretax income. No distribution was
made under the Profit Sharing Plan with respect to fiscal 1997.
Third, the Board believes that stock options play an important role in
attracting and retaining qualified personnel because they provide personnel with
a reward directly tied to increased stock values. Stock options are granted at
fair market value to executive officers when they first join the Company. In
individual cases, follow-on options are granted, again at fair market value on
the date of grant, to executives after the initial options are partially or
fully vested. Both initial and follow-on options are granted based upon an
analysis, made by the Compensation Committee of the Board, of equity incentives
offered to executives in equivalent positions by similar companies with whom the
Company competes for available executive talent and, with respect to follow-on
options, the Committee's or the CEO's determination of whether or not the
executive officer's performance warrants an additional grant. Reference is made
to page 8 of the Company's proxy statement for its 1997 annual meeting of
stockholders (page II-10 of this Information Statement) for information on
grants made to executive officers during fiscal 1997.
CEO Compensation
In September 1997, the Company and Shanker Munshani, the Company's
then-President and Chief Executive Officer, agreed to terminate Mr. Munshani's
employment and his position as a director of the Company. Prior to the
termination of Mr. Munshani's employment with the Company, Mr. Munshani's annual
salary was $270,000, subject to increase and to a bonus arrangement as
determined by the Company's Board of Directors pursuant to the terms of an
employment agreement. Mr. Munshani also was not eligible to participate in the
Bonus Plan and the Profit Sharing Plan. The standards under which Mr. Munshani's
compensation was set were the same standards as apply to other executive
officers of the Company.
Charles J. Hart, the Company's current President and Chief Executive
Officer, was hired in February 1998 pursuant to a two-year employment agreement
that was entered into after arms'-length negotiations.
Pursuant to his Employment Agreement, Mr. Hart's initial salary is $20,000
per month until August 1998, at which time his monthly salary increases of
$22,000 per month. Subject to the discretion of the board, Mr. Hart's salary may
increase to $25,000 in February 1999. Mr. Hart is also eligible to receive a
$50,000 bonus if the Company's operating income in any quarter is $500,000 or
more and has increased over the preceding quarter. Bonuses will be paid at the
discretion of the Board. The Employment Agreement provides that if Mr. Hart's
employment is terminated by the Company without good cause during the term of
the Agreement, then Mr. Hart would receive a severance payment equal to $22,000
($25,000 after February 1999) times the number of months Mr. Hart had been
employed by the Company up to a maximum of twelve months; provided, however,
that if Mr. Hart is terminated without good cause prior to August 3, 1998, Mr.
Hart will receive a minimum severance payment of $120,000.
Mr. Hart's Employment Agreement also provides for the grant of 350,000
shares of the Company's Common Stock under option, which options were granted at
$1.8125 per share, the closing price of the Company's stock on the day preceding
the effective date of the grant, and which vest over a four-year period. Options
for an additional 200,000 shares of the Company's Common Stock may be granted to
Mr. Hart if the Company meets certain milestones during the two-year term of the
Employment Agreement. The primary purpose of the option grants is to provide a
strong incentive for Mr. Hart to increase the value of the Company's stock
during the term of his employment with the Company.
The Board believed it necessary to provide the compensation package to Mr.
Hart that is described above in order to encourage Mr. Hart to accept employment
with, and thereafter remain employed by, the Company. This package was agreed by
the Company after taking into account the compensation packages offered by the
Company's competitors described above and the compensation packages being
requested by other CEOs.
This report on compensation is given by the Compensation Committee of the
Board of Directors:
<TABLE>
<S> <C>
/s/ Diane Simon /s/ Jim Timmins
</TABLE>
II-11
<PAGE> 30
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, Ms. Simon and Mr. Timmins served as members of the
Compensation Committee. None of such members of the Compensation Committee are
or have been officers or employees of the Company.
COMPARISON OF STOCKHOLDER RETURN
The graph below compares the cumulative stockholder return on the Common
Stock from September 30, 1992 to September 30, 1997 with the cumulative return
on the Nasdaq Market Index (U.S. Companies) and the Nasdaq Computer
Manufacturers Index over the same period (assuming the investment of $100 in the
Company's Common Stock and in each of the indexes on September 30, 1992 and
reinvestment of all dividends, if any).
COMPARISON OF CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
NASDAQ STOCK
MEASUREMENT PERIOD 'MICRONICS MARKET (US NASDAQ COMPUTER
(FISCAL YEAR COVERED) COMPUTERS, INC.' COMPANIES) MANUFACTURERS
<S> <C> <C> <C>
9/30/92 100.000 100.000 100.000
107.143 103.939 110.612
146.429 112.210 121.699
128.571 116.341 129.002
146.430 119.650 135.630
142.860 115.190 123.870
153.570 118.520 122.070
200.000 113.460 115.810
189.290 120.240 126.270
167.860 120.800 117.290
175.000 120.940 106.250
175.000 127.190 108.030
9/30/93 167.860 130.980 104.940
171.430 133.920 112.620
175.000 129.930 115.310
175.000 133.560 122.260
142.860 137.610 128.280
139.290 136.320 131.390
153.570 127.940 118.530
114.290 126.280 110.780
146.430 126.590 103.170
121.430 121.960 96.099
117.860 124.460 102.510
116.070 132.400 112.580
9/30/94 110.710 132.060 116.840
121.430 134.650 127.500
139.290 130.190 126.160
125.000 130.550 134.270
150.000 131.280 131.290
157.140 138.230 134.930
153.570 142.320 141.540
135.710 146.810 148.750
125.000 150.590 152.940
117.860 162.800 172.120
114.290 174.770 185.750
139.290 178.310 197.680
9/29/95 132.140 182.410 207.080
117.860 181.360 216.540
96.429 185.620 224.480
100.000 184.630 211.480
92.857 185.540 212.310
87.500 192.610 233.570
76.786 193.240 217.990
82.143 209.280 249.840
92.857 218.890 266.840
73.214 209.020 245.070
71.429 190.410 220.250
60.714 201.070 235.470
9/30/96 60.714 216.460 270.570
55.357 214.060 271.680
82.143 227.300 295.760
58.929 227.090 283.960
66.072 243.230 309.050
71.429 229.786 266.011
66.072 214.785 238.651
66.072 221.500 248.468
80.357 246.611 305.834
87.500 254.152 308.356
73.214 280.983 375.359
73.214 280.555 374.135
9/30/97 64.286 297.150 388.370
</TABLE>
II-12
<PAGE> 31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On or about November 17, 1997 a principal stockholder of the Company, the
Lindner Fund, sold approximately 200,000 shares of the Company's Common Stock in
the open market. On November 24, 1997, the Company purchased an additional
1,208,900 shares of its Common Stock from the Lindner Fund in the open market
after being contacted by the Lindner fund's broker with an offer to sell the
additional shares to the Company. The Company paid $2.00 per share in cash for
the Common Stock held by the Lindner Fund. The Sales price of the Company's
Common Stock in the open market prior to the sale was $2.25 per share, resulting
in a purchase by the Company of the Lindner Fund Common Stock at a price below
market and a sale by the Lindner Fund of its complete holdings of the Company's
capital stock.
In September 1997, the Company and Shanker Munshani, the Company's
then-President and Chief Executive Officer, agreed to terminate Mr. Munshani's
employment and his position as a director of the Company. In order to provide
continuity for the Company's management, the Company entered into a nine-month
consulting arrangement pursuant to the terms of a written Consulting Agreement.
Under the Consulting Agreement, Mr. Munshani will be paid $19,166.67 per month
for his consulting services, not to exceed ten hours per week during the
nine-month consulting period, and will receive COBRA insurance benefits at the
Company's expense. Mr. Munshani's options will continue to vest during the
consulting period. The Consulting Agreement contains a mutual general release
and restates Mr. Munshani's continuing obligation to maintain the
confidentiality of the Company's proprietary and confidential information.
Charles J. Hart, the Company's current President and Chief Executive
Officer, entered into an Employment Agreement with the Company in connection
with his initial hiring on February 6, 1998, under which Mr. Hart serves as the
Company's Chief Executive Officer and a director of the Company. Pursuant to his
Employment Agreement, Mr. Hart's initial salary is $20,000 per month until
August 1998, at which time his monthly salary increases to $22,000 per month.
Subject to the discretion of the board, Mr. Hart's salary may increase to
$25,000 in February 1999. Mr. Hart is also eligible to receive a $50,000 bonus
if the Company's operating income in any quarter is $500,000 or more and has
increased over the preceding quarter. Bonuses will be paid at the discretion of
the board. The Employment Agreement also provides for the grant of 350,000
shares of the Company's Common Stock under option, which options were granted
$1.8125 per share, the closing price of the Company's stock on the day preceding
the effective date of the grant, and which vest over a four-year period. Options
for an additional 200,000 shares of the Company's Common Stock may be granted to
Mr. Hart if the Company meets certain milestones during the two-year term of the
Employment Agreement.
Finally, the Employment Agreement provides that if Mr. Hart's employment is
terminated by the Company without good cause during the two-year term of the
Agreement, then Mr. Hart would receive a severance payment equal to $22,000
($25,000 after February 1999) times the number of months Mr. Hart had been
employed by the Company up to a maximum of twelve months; provided, however,
that if Mr. Hart is terminated without good cause prior to August 3, 1998, Mr.
Hart will receive a minimum severance payment of $120,000.
On May 7, 1998, the Company's Board approved a $25,000 cash bonus payable
to William E. Shelander, the Chairman of the Board, on the closing of the merger
of Purchaser with and into the Company pursuant to the Merger Agreement, in
consideration for Mr. Shelander's service to the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of the Company's Common Stock ("10% Stockholders"), to file with the
Commission initial reports of ownership on a Form 3 and reports of changes in
ownership of Common Stock and other equity securities of the Company on a Form 4
or Form 5. Officers, directors and 10% Stockholders are required by Commission
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required to be filed, during fiscal 1997 all applicable Section
16(a) filing requirements applicable to its officers, directors, and 10%
Stockholders were complied with.
II-13
<PAGE> 1
Exhibit 1
================================================================================
AGREEMENT AND PLAN OF MERGER
By and Among
Diamond Multimedia Systems, Inc.
Boardwalk Acquisition Corporation
and
Micronics Computers, Inc.
Dated as of May 11, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE TENDER OFFER . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Offer . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Company Action . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Directors . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Effects of the Merger . . . . . . . . . . . . . . . . . . . 5
2.4 Certificate of Incorporation . . . . . . . . . . . . . . . . 5
2.5 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.6 Directors . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.8 Conversion of Shares . . . . . . . . . . . . . . . . . . . . 6
2.10 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . 7
2.11 Payment For Shares . . . . . . . . . . . . . . . . . . . . . 7
2.12 No Further Rights or Transfers . . . . . . . . . . . . . . . 8
2.13 Supplementary Action . . . . . . . . . . . . . . . . . . . . 8
2.14 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . 9
3.1 Organization of the Company . . . . . . . . . . . . . . . . 9
3.2 Company Capital Structure . . . . . . . . . . . . . . . . . 10
3.3 Obligations With Respect to Capital Stock . . . . . . . . . 10
3.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5 SEC Filings; the Company Financial Statements . . . . . . . 12
3.6 Absence of Certain Changes or Events . . . . . . . . . . . . 13
3.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.8 Title to Properties; Absence of Liens and Encumbrances . . . 14
3.9 Intellectual Property . . . . . . . . . . . . . . . . . . . 15
3.10 Compliance; Permits; Restrictions . . . . . . . . . . . . . 18
3.11 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.12 Brokers' and Finders' Fees . . . . . . . . . . . . . . . . . 19
3.13 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . 19
3.14 Employees; Labor Matters . . . . . . . . . . . . . . . . . . 19
3.15 Environmental Matters . . . . . . . . . . . . . . . . . . . 20
3.16 Agreements, Contracts and Commitments . . . . . . . . . . . 21
3.17 Change of Control Payments . . . . . . . . . . . . . . . . . 22
3.18 Board Approval . . . . . . . . . . . . . . . . . . . . . . . 22
3.19 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3.20 Offer Documents . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER . . . 22
4.1 Organization and Qualification . . . . . . . . . . . . . . . 22
4.2 Corporate Power, Authorization and Enforceability . . . . . 22
4.3 No Conflict; Required Filings and Consents . . . . . . . . . 23
4.4 Schedule 14D-1 . . . . . . . . . . . . . . . . . . . . . . . 24
4.5 Available Funds . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE V COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.1 Conduct of Business by the Company . . . . . . . . . . . . . 24
5.2 Access to Information; Confidentiality . . . . . . . . . . . 26
5.3 Proxy Material; Stockholders' Meeting . . . . . . . . . . . 27
5.4 No Solicitation . . . . . . . . . . . . . . . . . . . . . . 28
5.5 Public Announcements . . . . . . . . . . . . . . . . . . . . 29
5.6 Notification of Certain Matters . . . . . . . . . . . . . . 30
5.7 Actions by Company . . . . . . . . . . . . . . . . . . . . . 30
5.8 Officers' and Directors' Indemnification . . . . . . . . . . 30
5.9 intentionally left blank] . . . . . . . . . . . . . . . . . 31
5.10 Additional Agreements . . . . . . . . . . . . . . . . . . . 31
5.11 Other Actions by the Company . . . . . . . . . . . . . . . . 31
5.12 Section 203 of the DGCL . . . . . . . . . . . . . . . . . . 32
5.13 Stockholder Litigation . . . . . . . . . . . . . . . . . . . 32
5.14 Section 401(k) Plan Termination; ESPP Termination . . . . . 32
ARTICLE VI CONDITIONS OF MERGER . . . . . . . . . . . . . . . . . . . . 32
6.1 Conditions to the Obligations of Each Party to Effect the
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . 33
7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . 33
7.2 Procedure and Effect of Termination . . . . . . . . . . . . 35
7.3 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . 35
7.4 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 37
8.1 Severability . . . . . . . . . . . . . . . . . . . . . . . . 37
8.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.3 Entire Agreement; No Third Party Beneficiaries; No
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.4 Interpretation; Knowledge . . . . . . . . . . . . . . . . . 39
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
8.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 39
8.6 Other Remedies; Specific Performance . . . . . . . . . . . . 39
8.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 39
8.8 Rules of Construction . . . . . . . . . . . . . . . . . . . 40
8.9 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . 40
8.10 Survival of Representations and Warranties . . . . . . . . . 40
</TABLE>
-iii-
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (THE "AGREEMENT") is made and
entered into as of this 11th day of May, 1998, by and among Diamond Multimedia
Systems, Inc., a Delaware corporation ("PARENT"), Boardwalk Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent
("PURCHASER"), and Micronics Computers, Inc., a Delaware corporation (the
"COMPANY").
RECITALS
A. The Boards of Directors of Parent, Purchaser and the Company
have each unanimously approved the terms and conditions of a merger of
Purchaser with and into the Company (the "MERGER") upon the terms and subject
to the conditions set forth herein.
B. Pursuant to the Merger, Purchaser will acquire each issued and
outstanding share of Common Stock par value $0.01 per share, of the Company
(shares of the Common Stock are referred to herein as the "SHARES") at a price
of $2.45 net per Share to the seller in cash and without interest thereon (the
"OFFER PRICE"). In order to accomplish the Merger, Purchaser shall first
commence a tender offer (the "OFFER") by Purchaser under Section 14(d)(1) of
the Securities and Exchange Act of 1934, as amended (the "EXCHANGE ACT"), to
purchase all outstanding Shares.
C. The Board of Directors of the Company has unanimously resolved
to recommend the acceptance of the Offer and approval of the Merger to the
holders of Shares and determined that the consideration to be paid for each
Share in the Offer and the Merger is fair to the holders of such Shares and
that the Offer and the Merger are in the best interests of the holders of such
Shares.
NOW, THEREFORE, intending to be legally bound hereby, the parties
agree as follows:
ARTICLE I
THE TENDER OFFER
1.1 THE OFFER.
(a) Provided that this Agreement shall not have been
terminated pursuant to Section 7.1 and none of the events set forth in clause
(iii) of Annex I shall have occurred or be existing, Purchaser shall, and
Parent shall cause Purchaser to, within five business days after the public
announcement of the execution of this Agreement commence (within the meaning of
Rule 14d-2 under the Exchange Act) the Offer at the Offer Price.
(b) The obligations of Purchaser to consummate the Offer
and to accept for payment and pay for any of the Shares tendered shall be
subject to the conditions set forth on
<PAGE> 6
Annex I, including that a minimum of not less than fifty-one percent (51%) of
the Shares outstanding on a fully diluted basis (including for purposes of such
calculation all Shares issuable upon exercise of all stock options vested or
scheduled to vest prior to July 31, 1998, 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 "MINIMUM
CONDITION"). The per Share amount shall be net to the seller in cash, upon the
terms and subject to the conditions of the Offer and subject to reduction for
any applicable federal back-up or other applicable withholding or stock
transfer taxes. The Offer shall remain open until 12:00 Midnight, New York
City time, on such date as is twenty (20) business days following the
commencement of the Offer. As used in this Agreement, the "EXPIRATION DATE"
means 12:00 Midnight, New York City time, on such date, unless Purchaser
extends the Offer as permitted by this Agreement, in which case the "Expiration
Date" means the latest time and date to which the Offer is extended.
(c) Purchaser expressly reserves the right to waive any
condition to the Offer (other than the condition set forth in clause (ii) or
(iii)(E) of Annex I), to increase the price per Share payable in the Offer, to
extend the duration of the Offer, or to make any other changes in the terms and
conditions of the Offer; provided, however, that no such change may be made
which decreases the price per Share payable in the Offer, reduces the maximum
number of Shares to be purchased in the Offer, imposes conditions to the Offer
in addition to those set forth in Annex I or amends any other material terms of
the Offer in a manner materially adverse to the Company's stockholders, and
provided, further, that the Offer may not, without the Company's prior written
consent, be extended beyond 120 days from the commencement of the Offer except
as necessary to provide time to satisfy the conditions set forth in Annex I or
as required by any rule, regulation, interpretation or position of the
Securities Exchange Commission (the "SEC") and except that Purchaser may extend
the Offer for up to 20 business days, if as of such date, there shall not have
been tendered at least ninety percent (90%) of the outstanding Shares so that
the Merger could be effected without a meeting of the Company's stockholders in
accordance with applicable provisions of the Delaware General Corporation Law
("DGCL").
(d) The Offer shall be made by means of an offer to
purchase (the "OFFER TO PURCHASE") containing the terms set forth in this
Agreement and the conditions set forth in Annex I. Concurrently with the
commencement of the Offer, Parent and Purchaser shall file with the SEC a
tender offer statement on Schedule 14D-1 reflecting the Offer (together with
all exhibits, amendments and supplements thereto, the "SCHEDULE 14D-1"). The
Schedule 14D-1 will contain or will incorporate by reference the Offer to
Purchase (or portions thereof) and forms of the related letter of transmittal
and summary advertisements (which Schedule 14D-1, Offer to Purchase and other
documents, together with any supplements or amendments thereto, are referred to
herein collectively as the "OFFER DOCUMENTS"). The Company and its counsel
shall be given a reasonable opportunity to review and comment on the Offer
Documents prior to their filing with the SEC or dissemination to the
stockholders of the Company. Parent and Purchaser agree to provide the Company
and its counsel with any comments which Parent, Purchaser or their counsel may
receive from the SEC or the staff of the SEC with respect to such documents
promptly after receipt thereof. Upon the terms and subject to the conditions
of the Offer (including, if the Offer is extended or amended, the terms and
conditions of any such extension or amendment), Purchaser will purchase by
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<PAGE> 7
accepting for payment and will pay for Shares validly tendered and not properly
withdrawn, as promptly as practicable after the Expiration Date. Parent,
Purchaser and the Company agree promptly to correct any information provided by
any of them for use in the Offer Documents that shall have become false or
misleading in any material respect and to provide any information, the omission
of which would make any previously provided information false or misleading in
any material respect, and Parent and Purchaser further agree to take all steps
necessary to cause the Schedule 14D-1 as so corrected to be filed with the SEC
and the other Offer Documents as so corrected to be disseminated to the holders
of Shares, in each case as and to the extent required by applicable federal
securities laws. The Offer Documents will, on the date filed and on the date
first published, sent or given to the Company's stockholders, comply in all
material respects with all provisions of applicable federal securities laws and
the rules and regulations promulgated thereunder.
1.2 COMPANY ACTION.
(a) The Company hereby approves of and consents to the
Offer and represents and warrants that (i) its Board of Directors has
unanimously (A) determined that this Agreement and the transactions
contemplated hereby, including each of the Offer and the Merger, are fair to
and in the best interests of the holders of the Shares, (B) approved and
adopted this Agreement and the transactions contemplated hereby and (C)
resolved to recommend that the stockholders of the Company accept the Offer and
approve and adopt this Agreement and the transactions contemplated hereby and
thereby (provided, however, that subject to the provisions of Section 5.4 such
recommendation may be withdrawn, modified or amended in connection with a
Superior Proposal (as defined in Section 5.4)) and (ii) Alliant Partners
("ALLIANT PARTNERS") has rendered to the Board of Directors of the Company its
written opinion (which opinion is permitted to be included in writing in the
Schedule 14D-9 (as defined in Section 1.2(b)), to the effect that the
consideration to be received by the holders of Shares pursuant to each of the
Offer and (so long as the price per Share equals or exceeds $2.45) the Merger
is fair to the holders of Shares. The Company hereby consents to the inclusion
in the Offer Documents of the recommendation of the Company's Board of
Directors described in clause (i) of this Section 1.2(a), and has obtained the
consent of Alliant Partners to the inclusion in the Schedule 14D-9 of a copy of
the written opinion referred to in clause (ii) above.
(b) The Company shall file with the SEC, concurrently
with the filing by Parent and Purchaser of the Schedule 14D-1, a
Solicitation/Recommendation Statement on Schedule 14D-9 under the Exchange Act
relating to the Offer (together with all exhibits, amendments and supplements
thereto as well as the Information Statement required pursuant to Section 14(f)
under the Exchange Act, collectively the "SCHEDULE 14D-9"), which shall contain
the recommendation of the Company's Board of Directors described in Section
1.2(a), and shall disseminate the Schedule 14D-9 as required by Rule 14d-9
promulgated under the Exchange Act. The Schedule 14D-9, and each amendment
thereto, will, on the date filed, comply in all material respects with the
provisions of applicable federal securities laws. The Company, Parent and
Purchaser agree promptly to correct any information provided by any of them for
use in the Schedule 14D-9 that shall have become false or misleading in any
material respect and to provide any information, the omission of which would
make any previously provided information false or misleading in any material
respect, and the Company further agrees to take all steps necessary to cause
the Schedule 14D-9 as so corrected to be
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<PAGE> 8
filed with the SEC and the Schedule 14D-9 as so corrected to be disseminated to
holders of Shares, in each case as and to the extent required by applicable
federal securities laws. Parent and its counsel shall be given the opportunity
to review and comment on the Schedule 14D-9, and all amendments and supplements
thereto, prior to the time at which such documents and all documents related
thereto are filed with the SEC. The Company shall provide Purchaser and its
counsel with any comments the Company or its counsel may receive from the SEC
with respect to the Schedule 14D-9 promptly after receipt of such comments.
(c) The Company has been advised by all of its directors
and executive officers, that, as of the date of this Agreement, each intends to
tender all outstanding Shares beneficially owned by such person to Purchaser
pursuant to the Offer unless to do so would subject such person to liability
under Section 16(b) of the Exchange Act.
(d) The Company shall promptly furnish Purchaser with
the names and addresses either on preprinted mailing labels or in such
electronic or other form reasonably requested by Parent of all record holders
of Shares and security position listings of Shares held in stock depositories,
each of a recent date, and shall promptly furnish Purchaser with such
additional information, including updated lists of stockholders, mailing labels
and security position listings, and such other assistance as Parent, Purchaser
or their agents may reasonably request in connection with communicating the
Offer and any amendments or supplements thereto to the Company's stockholders.
Subject to the requirements of applicable laws and except for such steps as are
necessary to disseminate the Offer Documents and any other documents necessary
to consummate the Merger, Parent and Purchaser shall hold in confidence the
information contained in any of such labels and lists.
1.3 DIRECTORS. Promptly upon the acquisition by Purchaser
pursuant to the Offer of such number of Shares which satisfies the Minimum
Condition and from time to time thereafter, Parent shall be entitled to
designate a majority of the members of the Company's Board of Directors,
subject to compliance with Section 14(f) of the Exchange Act. The Company
shall, upon request by Parent, promptly increase the size of the Board of
Directors to the extent permitted by its Certificate of Incorporation and/or
secure the resignations of such number of directors as is necessary to enable
Parent's designees to be elected to the Board of Directors and shall use its
reasonable efforts to cause Parent's designees to be so elected. The Company
shall take, at its expense, all action necessary to effect any such election,
including mailing to its stockholders the information required by Section 14(f)
of the Exchange Act and Rule 14f-1 promulgated thereunder in form and substance
reasonably satisfactory to Parent and its counsel. Following the election or
appointment of Parent's designees pursuant to this Section 1.3 and prior to the
Effective Time, any amendment or termination of this Agreement, extension for
the performance or waiver of the obligations or other acts of Parent or
Purchaser or waiver of the Company's rights hereunder, shall require the
concurrence of a majority of the Company's directors (or the concurrence of the
director, if there is only one remaining) then in office who are directors on
the date hereof, or are directors (other than directors designated by Parent in
accordance with this Section 1.3) designated by such persons to fill any
vacancy (the "CONTINUING DIRECTORS"); provided, however, that, if there shall
be no Continuing Directors, such actions may be affected by majority vote of
the entire Board of Directors, except that
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<PAGE> 9
no such action shall amend the terms of this Agreement or waive any right or
obligation under this Agreement in a manner adverse to the stockholders of the
Company.
ARTICLE II
THE MERGER
2.1 THE MERGER. Upon the terms and subject to the conditions
hereof and in accordance with the DGCL, Purchaser shall be merged with and into
the Company as soon as practicable following the satisfaction or waiver, if
permissible, of the conditions set forth in Article VI of this Agreement.
Following the Merger, the Company shall continue as the surviving corporation
(the "SURVIVING CORPORATION") and the separate corporate existence of Purchaser
shall cease. At the election of Parent or Purchaser, any direct or indirect
wholly-owned subsidiary of Parent incorporated under the laws of the State of
Delaware may be substituted for Purchaser as a constituent corporation in the
Merger. As used herein, the term "PURCHASER" shall, upon such substitution,
refer to any such substituted corporation.
2.2 EFFECTIVE TIME. The Merger shall be consummated by and
shall be effective at the time there has been filed as provided by Section 2.14
with the Delaware Secretary of State a certificate or agreement of merger in
such form as is required by, and executed in accordance with, the relevant
provisions of the DGCL, and such other documents as may be required by the
provisions of the DGCL. The time of such filing is referred to as the
"EFFECTIVE TIME."
2.3 EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in applicable sections of the DGCL. As of the Effective Time, the
Company shall be a wholly-owned subsidiary of Parent.
2.4 CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of the Surviving Corporation shall be amended to contain the
substantive provisions of the Certificate of Incorporation of the Purchaser as
in effect at the Effective Time.
2.5 BYLAWS. Subject to Section 5.8 below, the Bylaws of
Purchaser, as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation, until thereafter duly amended in
accordance with applicable law.
2.6 DIRECTORS. The directors of Purchaser immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation
and will hold office from the Effective Time until their respective successors
are duly elected or appointed and qualified in the manner provided in the
Certificate of Incorporation and Bylaws of the Surviving Corporation, as such
instruments may be amended from time to time, either before or after the
Effective Time, or as otherwise provided by law.
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<PAGE> 10
2.7 OFFICERS. The officers of the Purchaser immediately prior
to the Effective Time shall be the initial officers of the Surviving
Corporation, except as Parent may determine and notify the Company in writing
prior to the Effective Time. Such officers of the Surviving Corporation will
hold office from the Effective Time until their respective successors are duly
elected or appointed and qualified in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation, as such instruments may
be amended from time to time, either before or after the Effective Time, or as
otherwise provided by law.
2.8 CONVERSION OF SHARES.
(a) At the Effective Time, by virtue of the Merger and
without any action on the part of Parent, Purchaser, the Company or the holders
of the Shares:
(i) Each Share issued and outstanding
immediately prior to the Effective Time (other than Shares held,
directly or indirectly, by Parent, Purchaser, the Company or any of
their majority-owned subsidiaries, and any Dissenting Shares (as
defined in Section 2.10)) shall automatically be canceled and
extinguished and be converted into the right to receive $2.45, or the
highest amount per Share as is paid pursuant to the Offer (the "MERGER
CONSIDERATION"), in cash, without interest thereon.
(ii) Each Share issued and outstanding
immediately prior to the Effective Time which is owned or held,
directly or indirectly, by Parent, Purchaser, the Company or any of
their majority-owned subsidiaries shall be canceled and extinguished
and cease to exist, without any conversion thereof, and no payment
shall be made with respect thereto.
(iii) Each holder (other than holders referred to
in Section 2.8(a)(ii)) of a certificate representing any Shares shall
after the Effective Time cease to have any rights with respect to such
Shares, except either to receive the Merger Consideration upon
surrender of such certificate, or to exercise such holder's appraisal
rights as provided in Section 2.10 and the DGCL.
(iv) Each share of Common Stock of Purchaser
issued and outstanding immediately prior to the Effective Time shall,
by virtue of the Merger and without any action on the part of the
holder thereof, be converted into and thereafter represent one validly
issued, fully paid and nonassessable share of Common Stock of the
Surviving Corporation.
2.9 COMPANY STOCK OPTIONS. The Company, Parent and Purchaser
hereby acknowledge and agree that Parent shall not assume or continue any
outstanding stock options (the "OUTSTANDING OPTIONS") under any of the
Company's 1989 Stock Option Plan (the "1989 PLAN"), 1992 Directors Stock Option
Plan (the "1992 PLAN"), the 1998 Equity Incentive Plan (the "1998 PLAN") and
options assumed in connection with the Company's acquisition of Orchid
Technology (the "ASSUMED ORCHID OPTIONS") or any other agreement or
arrangement, or substitute any additional options for such outstanding options
(collectively, the "STOCK PLANS"). The Company shall take all actions
necessary to provide that at the Effective Time, (i) each Outstanding Option
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<PAGE> 11
shall be canceled and (ii) in consideration for such cancellation, each holder
of an Outstanding Option shall receive in consideration thereof an amount
(subject to applicable withholding requirements) in cash equal to the product
of (x) the excess, if any, of the Merger Consideration over the per Share
exercise price of each Outstanding Option and (y) the number of Shares subject
to such Outstanding Option. The Company shall take all actions necessary to
effectuate the foregoing including without limitation amending the Stock Plans
and obtaining any necessary consents from holders of Outstanding Options.
2.10 DISSENTING SHARES. Notwithstanding anything in this
Agreement to the contrary, Shares which are outstanding immediately prior to
the Effective Time and which are held by a holder who has not voted in favor of
the Merger or consented thereto in writing and who has demanded appraisal for
such Shares in accordance with Section 262 of the DGCL ("DISSENTING SHARES")
shall not be converted into a right to receive the Merger Consideration
pursuant to Section 2.8, but the holders of Dissenting Shares shall instead be
entitled to receive such consideration as shall be determined pursuant to
Section 262 of the DGCL; provided, however, that if any such holder shall have
failed to perfect or shall withdraw or lose such holder's right of appraisal
and payment under the DGCL, such holder's Shares shall be treated as if they
had been converted as of the Effective Time into the right to receive the
Merger Consideration, without interest thereon, as provided in Section 2.8, and
such Shares shall no longer be Dissenting Shares. The Company shall give
Parent and Purchaser prompt notice of any demands received by the Company for
appraisal of Shares, and of any withdrawals of demands for appraisal, or of any
other instruments served pursuant to Section 262 of the DGCL and received by
the Company. Prior to the Effective Time, Parent and Purchaser shall have the
right to participate in all negotiations and proceedings with respect to such
demands for appraisal. Prior to the Effective Time, the Company shall not,
except with the prior written consent of Parent and Purchaser, make any payment
with respect to, or settle or offer to settle, any such demands. Each holder
of Dissenting Shares shall have only such rights and remedies as are granted to
such holder under Section 262 of the DGCL.
2.11 PAYMENT FOR SHARES.
(a) Prior to the Effective Time, Purchaser shall select
and appoint a bank or trust Company to act as agent for the holders of Shares
(the "PAYING AGENT") to receive and disburse the Merger Consideration to which
holders of Shares shall become entitled pursuant to Section 2.8. At the
Effective Time, Purchaser or Parent shall provide the Paying Agent with
sufficient cash to allow the Merger Consideration to be paid by the Paying
Agent for each Share then entitled to receive the Merger Consideration.
(b) As soon as practicable after the Effective Time,
Purchaser or Parent shall cause the Paying Agent to mail to each record holder
of a certificate or certificates representing Shares which as of the Effective
Time represents the right to receive the Merger Consideration (the
"CERTIFICATES"), a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Paying Agent)
and instructions for use in effecting the surrender of the Certificates for
payment therefor. Upon surrender to the Paying Agent of a Certificate,
together with such letter of transmittal
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<PAGE> 12
duly executed and completed in accordance with the instructions thereto, and
such other documents as may be requested, the holder of such Certificate shall
be entitled to receive in exchange therefor the Merger Consideration and such
Certificate shall forthwith be canceled. No interest shall be paid or accrued
on the Merger Consideration upon the surrender of the Certificates. Until
surrendered in accordance with the provisions of this Section, each Certificate
shall be deemed for all purposes to evidence only the right to receive the
Merger Consideration (without interest thereon), and shall, subject to Section
2.9, have no other right.
(c) If the Merger Consideration (or any portion thereof)
is to be delivered to a person other than the person in whose name the
Certificates surrendered in exchange therefor are registered, it shall be a
condition to the payment that the Certificates so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the person
requesting such payment or delivery shall pay any transfer or other taxes
payable by reason of the foregoing or establish to the satisfaction of the
Surviving Corporation that such tax has been paid or is not applicable.
Notwithstanding the foregoing, neither the Paying Agent nor any party hereto
shall be liable to a holder of Shares for any Merger Consideration delivered to
a public official pursuant to applicable abandoned property, escheat and
similar laws.
(d) Promptly following the date that is nine months
after the Effective Date, the Paying Agent shall return to the Surviving
Corporation all Merger Consideration and other cash, property and instruments
in its possession relating to the transactions described in this Agreement, and
the Paying Agent's duties shall terminate. Thereafter, each holder of a
Certificate formerly representing a Share may surrender such Certificate to the
Surviving Corporation and (subject to applicable abandoned property, escheat
and similar laws) receive in exchange therefor the Merger Consideration
(without interest thereon). Notwithstanding the foregoing, the Surviving
Corporation shall be entitled to receive from time to time all interest or
other amounts earned with respect to any cash deposited with the Paying Agent
as such amounts accrue or become available.
2.12 NO FURTHER RIGHTS OR TRANSFERS. At and after the Effective
Time the holders of Certificates to be exchanged for the Merger Consideration
pursuant to this Agreement shall cease to have any rights as to stockholders of
the Company except for the right to surrender such holder's Certificates in
exchange for payment of the Merger Consideration, and after the Effective Time
there shall be no transfers on the stock transfer books of the Surviving
Corporation of the Shares which were outstanding immediately prior to the
Effective Time. Any Certificates formerly representing Shares presented to the
Surviving Corporation or Paying Agent shall be canceled and exchanged for the
Merger Consideration, as provided in this Article II, subject to applicable law
in the case of Dissenting Shares.
2.13 SUPPLEMENTARY ACTION. If at any time after the Effective
Time, any further assignments or assurances in law or any other things are
necessary or desirable to vest or to perfect or confirm of record in the
Surviving Corporation the title to any property or rights of either the Company
or Purchaser, or otherwise to carry out the provisions of this Agreement, the
officers and directors of the Surviving Corporation are hereby authorized and
empowered, in the name of and on behalf of the Company and Purchaser, to
execute and deliver any and all things necessary or proper
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to vest or to perfect or confirm title to such property or rights in the
Surviving Corporation, and otherwise to carry out the purposes and provisions
of this Agreement.
2.14 CLOSING. Upon the terms and subject to the conditions of
this Agreement, as soon as practicable after all the conditions to the
obligations of the parties hereto to effect the Merger under Article VI of this
Agreement shall have been satisfied or waived, the Company, Parent and
Purchaser shall (i) file with the Secretary of State of the State of Delaware a
certificate or agreement of merger or a certificate of ownership and merger in
such form as may be required by, and executed in accordance with, the relevant
provisions of the DGCL and (ii) take all such other and further actions as may
be required by law to make the Merger effective. Contemporaneous with the
filing referred to in this Section, a closing (the "CLOSING") will be held at
the offices of Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo
Alto, California 94304 or at such other location as the parties may establish
for the purpose of confirming all the foregoing. The date and the time of such
Closing are referred to as the "CLOSING DATE."
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Purchaser, subject
to the exceptions specifically disclosed in writing in the disclosure letter
supplied by the Company to Parent and Purchaser dated as of the date hereof and
certified by a duly authorized officer of the Company (the "COMPANY
SCHEDULES"), as follows:
3.1 ORGANIZATION OF THE COMPANY.
(a) The Company and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation; has the corporate power and
authority to own, lease and operate its assets and property and to carry on its
business as now being conducted (as disclosed by the Company in its publicly
filed reports and publicly announced press releases) and is duly qualified or
licensed 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 activities makes such qualification or licensing necessary, except where
the failure to be so qualified would not have a Material Adverse Effect (as
defined below).
(b) The Company has delivered to Parent a true and
complete list of all of the Company's subsidiaries, indicating the jurisdiction
of incorporation of each subsidiary, the jurisdictions in which such subsidiary
is qualified or licensed, and the Company's and any other person's equity
interest therein. All shares of subsidiaries owned of record by persons other
than the Company are owned beneficially (or the substantive equivalent) by the
Company.
(c) The Company has delivered or made available to
Parent a true and correct copy of the Certificate of Incorporation and Bylaws
of the Company and similar governing
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<PAGE> 14
instruments of each of its subsidiaries, each as amended to date, and each such
instrument is in full force and effect. Neither the Company nor any of its
subsidiaries is in violation of any of the provisions of its Certificate of
Incorporation or Bylaws or equivalent governing instruments.
(d) For the purposes of this Agreement, the term
"MATERIAL ADVERSE EFFECT" means any change, event, violation, inaccuracy,
circumstance or effect that is materially adverse to the business, prospects,
assets (including intangible assets), capitalization, financial condition or
results of operations of the Company and its subsidiaries taken as a whole.
3.2 COMPANY CAPITAL STRUCTURE. The authorized capital stock of
the Company consists of 30,000,000 shares of Common Stock, $0.01 par value per
share, of which there were 12,902,565 shares issued and outstanding as of the
date of this Agreement and 5,000,000 shares of Preferred Stock, $0.01 par value
per share, of which no shares are issued or outstanding as of the date of this
Agreement. All outstanding shares of the Company Common Stock are duly
authorized, validly issued, fully paid and nonassessable and are not subject to
preemptive rights created by statute, the Certificate of Incorporation or
Bylaws of the Company or any agreement or document to which the Company is a
party or by which it is bound. As of the date of this Agreement, the Company
had reserved an aggregate of 3,120,084 shares of the Company Common Stock for
issuance to employees, consultants and non-employee directors pursuant to the
1989 Plan, the 1992 Plan, the 1998 Plan and the Assumed Orchid Options, of
which, as of the date of this Agreement, options for an aggregate of 831,867
shares had been exercised, options to purchase an aggregate of 1,317,244 shares
were outstanding and an aggregate of 970,973 shares remained available for
future grants. There are no shares reserved for issuance or issuable under the
Company's Employee Stock Purchase Plan (the "ESPP"). All shares of the Company
Common Stock subject to issuance pursuant to outstanding stock options or
purchase agreements entered into in connection with such plans, upon issuance
on the terms and conditions specified in the instruments pursuant to which they
are issuable, would be duly authorized, validly issued, fully paid and
nonassessable. The Company Schedules list for each person who held restricted
stock or options, the name of the holder of such shares or option, the exercise
price of such option, the number of shares which will have vested at such date,
the vesting schedule for such shares or option and whether the lapsing of the
Company's repurchase rights or exercisability of such option will be
accelerated in any way by the transactions contemplated by this Agreement, and
indicate the extent of acceleration, if any.
3.3 OBLIGATIONS WITH RESPECT TO CAPITAL STOCK. Except as set
forth in Section 3.2, there are no shares of capital stock of the Company, or
any securities exchangeable or convertible into or exercisable for such capital
stock, issued, reserved for issuance or outstanding. Except for securities the
Company owns, directly or indirectly through one or more subsidiaries, there
are no equity securities, partnership interests or similar ownership interests
of any subsidiary of the Company, or any security exchangeable or convertible
into or exercisable for such equity securities, convertible securities,
partnership interests or similar ownership interests, issued, reserved for
issuance or outstanding. Except as set forth in Section 3.2, there are no
options, warrants, equity securities, convertible securities, partnership
interests or similar ownership interests, calls, rights (including preemptive
rights), commitments or agreements of any character to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries are bound,
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obligating the Company or any of its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, or repurchase, redeem or otherwise
acquire, or cause the repurchase, redemption or acquisition, of any shares of
capital stock, equity interests, partnership interests or similar ownership
interests of the Company or any of its subsidiaries or obligating the Company
or any of its subsidiaries to grant, extend, accelerate the vesting of or enter
into any such option, warrant, equity security, call, right, commitment or
agreement. There are no registration rights and, to the knowledge of the
Company, as of the date of this Agreement, there are no voting trusts, proxies
or other agreements or understandings with respect to any equity security of
the Company or with respect to any equity security, partnership interest or
similar ownership interest of any of its subsidiaries.
3.4 AUTHORITY.
(a) The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, have been duly authorized
by all necessary corporate action on the part of the Company, subject only to
the approval and adoption of this Agreement and the approval of the Merger by
the Company's stockholders and the filing and recordation of the Certificate of
Merger pursuant to the DGCL. A vote of the holders of a majority of the
outstanding Shares is required for the Company's stockholders to approve and
adopt this Agreement and approve the Merger. This Agreement has been duly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Parent and, if applicable, Purchaser, constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity. The
execution and delivery of this Agreement by the Company does not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Certificate of Incorporation or Bylaws of the Company or the
equivalent organizational documents of any of its subsidiaries, (ii) subject to
obtaining the approval and adoption of this Agreement and the approval of the
Merger by the Company's stockholders, and subject to such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws and the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), and the securities or antitrust laws of any foreign country
(collectively, the "REGULATORY FILINGS"), conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or subject, which conflict or violation could reasonably be expected to result
in a Material Adverse Effect, or (iii) result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or impair the Company's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of the
Company or any of its subsidiaries pursuant to, any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or its or any of
their respective properties are bound or subject, which conflict
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<PAGE> 16
or violation could reasonably be expected to result in a Material Adverse
Effect. The Company Schedules list all consents, waivers and approvals under
any of the Company's or any of its subsidiaries' agreements, contracts,
licenses or leases required to be obtained in connection with the consummation
of the transactions contemplated hereby.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with any court, administrative agency or
commission or other governmental authority or instrumentality, foreign or
domestic ("GOVERNMENTAL ENTITY"), is required by or with respect to the Company
in connection with the execution and delivery of this Agreement or the
consummation of the Merger, except for (i) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (ii) the
Regulatory Filings, and (iii) such other consents, authorizations, filings,
approvals and registrations which if not obtained or made would not be material
to the Company, or the Surviving Corporation or have a material adverse effect
on the ability of the parties to consummate the Offer or the Merger.
3.5 SEC FILINGS; THE COMPANY FINANCIAL STATEMENTS.
(a) The Company has filed in a timely manner all forms,
reports and documents required to be filed with the SEC since its initial
public offering and has made available to Parent such forms, reports and
documents in the form filed with the SEC. All such required forms, reports and
documents (including those that the Company may file subsequent to the date
hereof) are referred to herein as the "COMPANY SEC REPORTS." As of their
respective dates, the Company SEC Reports (i) were prepared in accordance with
the requirements of the Securities Act of 1933, as amended (the "SECURITIES
ACT"), or the Exchange Act, as the case may be, and the rules and regulations
of the SEC thereunder applicable to such the Company SEC Reports, and (ii) did
not at the time they were filed (or if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
None of the Company's subsidiaries is required to file any forms, reports or
other documents as a public company pursuant to Section 13 of the Exchange Act
with the SEC.
(b) Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the Company
SEC Reports (the "COMPANY FINANCIALS"), including any of the Company SEC
Reports filed after the date hereof until the Closing, (i) complied as to form
in all material respects with the published rules and regulations of the SEC
with respect thereto, (ii) was prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited interim financial statements, as may be permitted by the SEC
on Form 10-Q under the Exchange Act and except that such unaudited interim
financial statements do not include all of the footnotes required under GAAP)
and (iii) fairly presented the consolidated financial position of the Company
and its subsidiaries as at the respective dates thereof and the consolidated
results of the Company's operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring
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year-end adjustments. The balance sheet of the Company contained in the
Company SEC Reports as of March 31, 1998 is hereinafter referred to as the
"COMPANY BALANCE SHEET." Except as disclosed in the Company Financials, since
the date of the Company Balance Sheet neither the Company nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise)
of a nature required to be disclosed on a balance sheet or in the related notes
to the consolidated financial statements prepared in accordance with GAAP which
are, individually or in the aggregate, material to the business, results of
operations or financial condition of the Company and its subsidiaries taken as
a whole, except liabilities (i) provided for in the Company Balance Sheet, or
(ii) incurred since the date of the Company Balance Sheet in the ordinary
course of business consistent with past practices and immaterial in the
aggregate.
(c) The Company has previously furnished to Parent a
complete and correct copy of any amendments or modifications that have not yet
been filed with the SEC but are required to be so filed, with respect to
agreements, documents or other instruments have previously been filed by the
Company with the SEC pursuant to the Securities Act or the Exchange Act.
3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
Company Balance Sheet there has not been: (i) any Material Adverse Effect, (ii)
any material change by the Company in its accounting methods, principles or
practices, except as required by concurrent changes in GAAP, or (iii) any
material revaluation by the Company of any of its assets, including, without
limitation, writing down the value of capitalized inventory or writing off
notes or accounts receivable other than in the ordinary course of business.
3.7 TAXES.
(a) For the purposes of this Agreement, "TAX" or "TAXES"
refers to any and all federal, state, local and foreign taxes, assessments and
other governmental charges, duties, impositions and liabilities relating to
taxes, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) The Company and each of its subsidiaries have timely
filed all federal, state, local and foreign returns, estimates, information
statements and reports ("RETURNS") relating to Taxes required to be filed by
the Company and each of its subsidiaries prior to the date hereof, except such
Returns which are not material to the Company, and have timely paid all Taxes
shown to be due on such Returns. The Company has provided adequate accruals in
accordance with generally accepted accounting principles in its financial
statements for any Taxes that have not been paid, whether or not shown as being
due on any Tax Returns.
(c) Except as is not material to the Company, the
Company and each of its subsidiaries as of the Effective Time will have
withheld with respect to its employees all federal and
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<PAGE> 18
state income taxes, the Federal Insurance Contribution Act ("FICA"), the
Federal Unemployment Tax Act ("FUTA") and other Taxes required to be withheld.
(d) Except as is not material to the Company, neither
the Company nor any of its subsidiaries has been delinquent in the payment of
any Tax nor is there any Tax deficiency outstanding, proposed or assessed
against the Company or any of its subsidiaries, nor has the Company or any of
its subsidiaries executed any waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax.
(e) Except as is not material to the Company, no audit
or other examination of any Return of the Company or any of its subsidiaries is
presently in progress, nor has the Company or any of its subsidiaries been
notified of any request for such an audit or other examination by the Internal
Revenue Service or any state or foreign taxing agency or authority during the
past five fiscal years or in the current fiscal year or any interim period
within the past five fiscal years and/or the current fiscal year.
(f) Except as is not material to the Company, no
adjustment relating to any Returns filed by the Company or any of its
subsidiaries has been proposed formally or informally by any Tax authority to
the Company or any of its subsidiaries or any representative thereof.
(g) Except as is not material to the Company, neither
the Company nor any of its subsidiaries has any liability for unpaid Taxes
which has not been accrued for or reserved on the Company Balance Sheet,
whether asserted or unasserted, contingent or otherwise, which is material to
the Company.
(h) There is no contract, agreement, plan or
arrangement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company or any of its
subsidiaries that, individually or collectively, could give rise to the payment
of any amount that would not be deductible pursuant to Sections 280G, 404 or
162(m) of the Code.
(i) Neither the Company nor any of its subsidiaries has
filed any consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as defined in Section 341(f)(4) of the Code) owned by the Company.
(j) Neither the Company nor any of its subsidiaries is
party to or has any obligation under any tax-sharing or allocation agreement or
arrangement with anyone outside of the Company's consolidated group of
companies.
3.8 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Company Schedules list all real property owned
by the Company. The Company Schedules list all real property leases to which
the Company or any of its subsidiaries is a party and each amendment thereto.
All such current leases are in full force and effect, are valid and
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<PAGE> 19
effective in accordance with their respective terms, and there is not, under
any of such leases, any existing default or event of default (or event which
with notice or lapse of time, or both, would constitute a default) that would
give rise to a claim in an amount greater than $50,000.
(b) The Company and each of its subsidiaries have good
and marketable title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of their tangible properties and assets, real,
personal and mixed, used or held for use in their respective businesses, free
and clear of any liens, pledges, charges, claims, security interests or other
encumbrances of any sort ("LIENS"), except as reflected in the Company
Financials or in the Company Schedules and except for liens for taxes not yet
due and payable and such imperfections of title and encumbrances, if any, which
are not material in character, amount or extent, and which do not materially
detract from the value, or materially interfere with the present use, of the
property subject thereto or affected thereby.
3.9 INTELLECTUAL PROPERTY.
For the purposes of this Agreement, the following terms have the
following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the
following and all rights in, arising out of, or associated
therewith: (i) all United States, international and foreign
patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations
and continuations-in-part thereof; (ii) all inventions
(whether patentable or not), invention disclosures,
improvements, trade secrets, proprietary information, know
how, technology, technical data and customer lists, and all
documentation relating to any of the foregoing; (iii) all
copyrights, copyrights registrations and applications
therefor, and all other rights corresponding thereto
throughout the world; (iv) all industrial designs and any
registrations and applications therefor throughout the
world; (v) all trade names, logos, trademarks and service
marks, trademark and service mark registrations and
applications therefor throughout the world; (vi) all
proprietary databases and data collections and all rights
therein throughout the world; and (vii) any similar or
equivalent rights to any of the foregoing anywhere in the
world.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual
Property that is owned by, or exclusively licensed to, the
Company or any of its subsidiaries.
"REGISTERED INTELLECTUAL PROPERTY" means all United States,
international and foreign: (i) patents and patent
applications (including provisional applications); (ii)
registered trademarks, applications to register trademarks,
intent-to-use applications, or other registrations or
applications related to trademarks; (iii) registered
copyrights and applications for copyright registration; and
(iv) any other Intellectual Property that is the subject of
an application, certificate, filing, registration or other
document issued, filed with, or recorded by any state,
government or other public legal authority other than a
recordation of a Lien.
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<PAGE> 20
(a) The Company Schedules lists all of the Registered
Intellectual Property owned by, or filed in the name of, the Company and each
of its subsidiaries (the "COMPANY REGISTERED INTELLECTUAL PROPERTY").
(b) The Company Schedules lists all proceedings or
actions before any court, tribunal (including the United States Patent and
Trademark Office ("PTO") or equivalent authority anywhere in the world) related
to any Company Intellectual Property.
(c) No Company Intellectual Property or product or
service of the Company or any of its subsidiaries is subject to any proceeding
or outstanding decree, order, judgment, agreement, or stipulation materially
restricting in any manner the use, transfer, or licensing thereof by the
Company or any of its subsidiaries, or which may affect the validity, use or
enforceability of such Company Intellectual Property.
(d) Each item of Company Registered Intellectual
Property is valid and subsisting, all necessary registration, maintenance and
renewal fees in connection with such Registered Intellectual Property have been
made and all necessary documents and certificates in connection with such
Registered Intellectual Property have been filed with the relevant patent,
copyright, trademark or other authorities in the United States or foreign
jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property.
(e) Except as set forth in the Company Schedules: (i)
the Company and each of its subsidiaries owns and has marketable title and
exclusive rights to each item of Company Intellectual Property, including all
Company Registered Intellectual Property listed on the Company Schedules, free
and clear of any Lien; and (ii) the Company together with its subsidiaries is
the exclusive owner of all trademarks and trade names used in connection with
the operation or conduct of the business of such entities, including the sale
of any products or the provision of any services by such entities.
(f) The Company and each of its subsidiaries owns
exclusively, and has good and marketable title to, all copyrighted works that
are products produced, marketed or sold by the Company or any of its
subsidiaries or which any such entity otherwise purports to own.
(g) To the extent that any Intellectual Property has
been developed or created by a third party for the Company or any of its
subsidiaries and is material to the business of the Company and its
subsidiaries taken as a whole, the Company or a subsidiary of the Company has a
written agreement with such third party with respect thereto and such entity
thereby has obtained ownership of, and is the exclusive owner of, all such
Intellectual Property by operation of law or by valid assignment.
(h) Except as set forth in the Company Schedules,
neither the Company nor any of its subsidiaries has transferred ownership of,
or granted any exclusive license with respect to, any Intellectual Property
that is or was Company Intellectual Property, to any third party.
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<PAGE> 21
(i) The Company Schedules list all material contracts,
licenses and agreements to which the Company or any of its subsidiaries is a
party (i) with respect to Company Intellectual Property licensed or transferred
to any third party; or (ii) pursuant to which a third party has licensed or
transferred any Intellectual Property to the Company, with a potential value or
cost in excess of $10,000. The Company Schedules lists any agreements pursuant
to which the Company or any of its subsidiaries has licensed any Company
Intellectual Property or products to any third party that differs in any
material respect from its standard form.
(j) The contracts, licenses and agreements listed on the
Company Schedules are in full force and effect. The consummation of the
transactions contemplated by this Agreement will neither violate nor result in
the breach, modification, cancellation, termination, or suspension of any such
contract, license or agreement. The Company (either directly or through one of
its subsidiaries) is in compliance with, and has not breached any material
term of any such contract, license or agreement and, to the knowledge of the
Company, all other parties to such contract, license and agreement are in
compliance with, and have not breached any material term of, such contract,
license or agreement. Following the Closing Date, Parent and the Surviving
Corporation, either directly or through one or more of its subsidiaries, will
be permitted to exercise all of the Company's and its subsidiaries rights under
the contracts, licenses and agreements listed on the Company Schedules to the
same extent the Company would have been able to had the transactions
contemplated by this Agreement not occurred and without the payment of any
additional amounts or consideration other than ongoing fees, royalties or
payments which the Company or its subsidiaries would otherwise be required to
pay.
(k) The Company Schedules list all contracts, licenses
and agreements between the Company or any of its subsidiaries and any third
party (other than sales made to customers in the ordinary course of business
through the exchange of purchase orders, order acknowledgments and invoices
wherein or whereby the Company or any of its subsidiaries has agreed to, or
assumed, any obligation or duty to warrant, indemnify, hold harmless or
otherwise assume or incur any obligation or liability with respect to the
infringement or misappropriation by the Company or any of its subsidiaries or
such third party of the Intellectual Property of any third party.
(l) The operation of the business of the Company or its
subsidiaries as such business currently is conducted, or is reasonably
contemplated to be conducted, including the Company's design, development,
manufacture, marketing and sale of the products or services of the Company or
its subsidiaries (including with respect to products currently under
development) has not, does not and will not infringe or misappropriate the
Intellectual Property of any third party or constitute unfair competition or
trade practices under the laws of any jurisdiction.
(m) The Company has not received notice from any third
party that the operation of the business of the Company or any of its
subsidiaries or any act, product or service of the same, infringes or
misappropriates the Intellectual Property of any third party or constitutes
unfair competition or trade practices under the laws of any jurisdiction, other
than notice with respect to any claims which have previously been waived or
otherwise resolved (and any such claims which
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<PAGE> 22
have been previously resolved have been fully paid or are fully provided for on
the Company Balance Sheet).
(n) Except as set forth in the Company Schedules, to the
knowledge of the Company, no Person has or is infringing or misappropriating
any Company Intellectual Property.
(o) Except as set forth in the Company Schedules, there
have been, and are, no material claims asserted against the Company or any of
its subsidiaries, or any customer of the Company or any of its subsidiaries
which have not previously been waived or otherwise resolved (and any such
claims which have been previously resolved have been fully paid or are fully
provided for on the Company Balance Sheet), related to infringement of
Intellectual Property.
(p) The Company and each of its subsidiaries have taken
all steps that are reasonably required to protect the rights of the Company and
its subsidiaries in the Company's confidential information and trade secrets or
any trade secrets or confidential information of third parties provided to the
Company or any of its subsidiaries, and, without limiting the foregoing, the
Company and each of its subsidiaries has and enforces a policy requiring each
employee and contractor to execute a proprietary information / confidentiality
agreement substantially in the Company's standard form and to the Company's
knowledge all current and former employees and contractors of the Company and
each of its subsidiaries have executed such an agreement.
3.10 COMPLIANCE; PERMITS; RESTRICTIONS.
(a) Neither the Company nor any of its subsidiaries is,
in any material respect, in conflict with, or in default or violation of (i)
any law, rule, regulation, order, judgment or decree applicable to the Company
or any of its subsidiaries or by which the Company or any of its subsidiaries
or any of their respective properties is bound or subject, or (ii) any material
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
its or any of their respective properties is bound or subject. To the
knowledge of the Company, no investigation or review by any Governmental Entity
is pending or threatened against the Company or any of its subsidiaries, nor
has any Governmental Entity currently indicated an intention to the Company or
any of its subsidiaries in writing to conduct the same. There is no material
agreement, judgment, injunction, order or decree binding upon the Company or
any of its subsidiaries which has or could reasonably be expected to have the
effect of prohibiting or materially impairing any material business practice of
the Company or any of its subsidiaries, any acquisition of material property by
the Company or any of its subsidiaries or the conduct of any material business
by the Company or any of its subsidiaries as currently conducted.
(b) The Company and its subsidiaries hold all permits,
licenses, variances, exemptions, orders and approvals from Governmental
Entities that are material to the operation of the business of the Company
(collectively, the "COMPANY PERMITS"). The Company and its subsidiaries are in
compliance in all material respects with the terms of the Company Permits.
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<PAGE> 23
3.11 LITIGATION. There is no action, suit, proceeding, claim,
arbitration or investigation pending or as to which the Company or any of its
subsidiaries has received any notice of assertion, nor, to the Company's
knowledge, is there a threatened action, suit, proceeding, claim, arbitration
or investigation against the Company or any of its subsidiaries which if
determined adversely to the Company or such subsidiary, could reasonably likely
have a Material Adverse Effect. To the knowledge of the Company, no
Governmental Entity has at any time challenged or questioned in writing the
legal right of the Company or any of its subsidiaries, to manufacture, offer or
sell any of its products in the present manner or style thereof, which has not
been satisfactorily resolved.
3.12 BROKERS' AND FINDERS' FEES. Except for fees payable to
Alliant Partners pursuant to an engagement letter dated October 30, 1996, a
copy of which has been provided to Parent, the Company has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
3.13 EMPLOYEE BENEFIT PLANS.
(a) With respect to each material employee benefit plan,
program, arrangement and 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 trade or business which is under common control with the
Company within the meaning of Section 414 of the Code (the "COMPANY EMPLOYEE
PLANS"), the Company has made available to Parent a true and complete copy of,
to the extent applicable, (i) such Company Employee Plan, (ii) the most recent
annual report (Form 5500), (iii) each trust agreement related to such Company
Employee Plan, (iv) the most recent summary plan description for each Company
Employee Plan for which such a description is required, (v) the most recent
actuarial report relating to any Company Employee Plan subject to Title IV of
ERISA and (vi) the most recent IRS determination letter issued with respect to
any Company Employee Plan.
(b) Each Company Employee Plan which is intended to be
qualified under Section 401(a) of the Code has received a favorable
determination from the IRS covering the provisions of the Tax Reform Act of
1986 stating that such Company Employee Plan is so qualified and nothing has
occurred since the date of such letter that could reasonably be expected to
affect the qualified status of such plan. Each Company Employee Plan has been
operated in all material respects in accordance with its terms and the
requirements of applicable law. Neither the Company nor any ERISA Affiliate of
the Company has incurred or is reasonably expected to incur any material
liability under Title IV of ERISA in connection with any Company Employee Plan.
3.14 EMPLOYEES; LABOR MATTERS. To the Company's knowledge, no
employee of the Company or any of its subsidiaries (i) is in violation of any
term of any employment contract, patent disclosure agreement, non-competition
agreement, or any restrictive covenant to a former employer relating to the
right of any such employee to be employed by the Company or any of its
subsidiaries because of the nature of the business conducted or presently
proposed to be conducted by the Company or any of its subsidiaries or to the
use of trade secrets or proprietary information of others
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<PAGE> 24
and (ii) has given notice to the Company or any of its subsidiaries, nor is the
Company otherwise aware, that any employee intends to terminate his or her
employment with the Company or any of its subsidiaries except for terminations
of a nature and number that are consistent with the Company's prior experience.
To the Company's knowledge, there are no activities or proceedings of any labor
union to organize any employees of the Company or any of its subsidiaries and
there are no strikes, or material slowdowns, work stoppages or lockouts, or
threats thereof by or with respect to any employees of the Company or any of
its subsidiaries. The Company and its subsidiaries are and have been in
compliance in all material respects with all applicable laws regarding
employment practices, terms and conditions of employment, and wages and hours
(including, without limitation, OSHA, ERISA, WARN or any similar state or local
law).
3.15 ENVIRONMENTAL MATTERS.
(a) No underground storage tanks and, except as
reasonably would not be likely to result in a material liability to the Company
and its subsidiaries, no amount of any substance that has been designated by
any Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, but excluding office and janitorial
supplies, (a "HAZARDOUS MATERIAL"), are present, in, on or under any property,
including the land and the improvements, ground water and surface water
thereof, that the Company or any of its subsidiaries has at any time owned,
operated, occupied or leased.
(b) Except as would not be reasonably likely result in a
Material Adverse Effect, neither the Company nor any of its subsidiaries has
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Closing Date, nor has the Company or any of its subsidiaries
disposed of, transported, sold, used, released, exposed its employees or others
to or manufactured any product containing a Hazardous Material (collectively
"HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) The Company and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"COMPANY ENVIRONMENTAL PERMITS") required for the conduct of the Company's and
its subsidiaries' Hazardous Material Activities and other businesses of the
Company and its subsidiaries as such activities and businesses are currently
being conducted.
(d) No material action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to
the Company's knowledge, threatened concerning any Company Environmental
Permit, Hazardous Material or any Hazardous Materials
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Activity of the Company or any of its subsidiaries. The Company is not aware
of any fact or circumstance which could involve the Company or any of its
subsidiaries in any material environmental litigation or impose upon the
Company any material environmental liability.
3.16 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth
in the Company Schedules, neither the Company nor any of its subsidiaries is a
party to or is bound by:
(a) any employment or consulting agreement, contract or
commitment with any officer or director level employee or member of the
Company's Board of Directors, other than those that are terminable by the
Company or any of its subsidiaries on no more than thirty days notice without
liability or financial obligation, except to the extent general principles of
wrongful termination law may limit the Company's or any of its subsidiaries'
ability to terminate employees at will and except for potential liabilities for
future actions by the Company to the extent covered by the WARN Act;
(b) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation right plan, stock
purchase plan or restricted stock purchase agreement, any of the benefits of
which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement;
(c) any agreement of indemnification or guaranty not
entered into in the ordinary course of business other than indemnification
agreements between the Company or any of its subsidiaries and any of its
officers or directors;
(d) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company or any of its subsidiaries to
engage in any line of business or compete with any person or granting any
exclusive distribution rights;
(e) any agreement, contract or commitment currently in
force relating to the disposition or acquisition of a material portion of the
assets of the Company and its subsidiaries or any ownership interest in any
corporation, partnership, joint venture or other business enterprise; or
(f) any material joint marketing or development
agreement.
Neither the Company nor any of its subsidiaries, nor to the Company's
knowledge any other party to a Company Contract (as defined below), has
breached, violated or defaulted under, or received notice that it has breached
violated or defaulted under, any of the material terms or conditions of any of
the agreements, contracts or commitments to which the Company or any of its
subsidiaries is a party or by which it is bound of the type described in
clauses (a) through (f) above (any such agreement, contract or commitment, as
well as any agreement, contract or commitment that is an exhibit to any Company
SEC Report, a "COMPANY CONTRACT") in such a manner as would
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permit any other party to cancel or terminate any such Company Contract, or
would permit any other party to seek damages, which could reasonably likely
have a Material Adverse Effect.
3.17 CHANGE OF CONTROL PAYMENTS. The Company Schedules set forth
each plan, agreement or other arrangement or obligation pursuant to which any
amounts may become payable or any additional rights or benefits may accrue
(whether currently or in the future) in favor of any current or former
employee, officer or director of the Company as a result of or in connection
with the Offer and/or the Merger, and the nature and amount of any such
obligation.
3.18 BOARD APPROVAL. The Board of Directors of the Company has,
as of the date of this Agreement (i) determined that this Agreement and the
transactions contemplated hereby, including each of the Offer and the Merger,
are fair to and in the best interests of the holders of the Shares, (ii)
approved and adopted this Agreement and the transactions contemplated hereby
and (iii) resolved to recommend that the stockholders of the Company accept the
Offer and approve and adopt this Agreement and the transactions contemplated
hereby and thereby.
3.19 FAIRNESS OPINION. The Company's Board of Directors has
received a written opinion from Alliant Partners to the effect that the
consideration to be received by the holders of Shares pursuant to each of the
Offer and the Merger is fair to the holders of Shares.
3.20 OFFER DOCUMENTS. Neither the Schedule 14D-9, nor any of the
information supplied by the Company for inclusion in the Offer Documents,
shall, at the respective times that the Schedule 14D-9, the Offer Documents or
any amendments or supplements thereto are filed with the SEC or are first
published, sent or given to stockholders, as the case may be, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
Schedule 14D-9 will comply in all material respects as to form and substance
with the requirements of the Exchange Act and the rules and regulations
thereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser, jointly and severally, represent and warrant to
the Company that:
4.1 ORGANIZATION AND QUALIFICATION. Each of Parent and
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, and has all
requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as it is now being conducted.
4.2 CORPORATE POWER, AUTHORIZATION AND ENFORCEABILITY. Each of
Parent and Purchaser has full corporate power and authority to enter into this
Agreement and to perform its obligations hereunder and to consummate all the
transactions contemplated hereby. The execution
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and delivery of this Agreement by Parent and Purchaser, the performance by each
of Parent and Purchaser of their respective obligations hereunder and the
consummation by Parent and Purchaser of the transactions contemplated hereby
have been duly and validly authorized by the Board of Directors of each of
Parent and Purchaser and no other corporate action on the part of Parent or
Purchaser are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby (other than the filing and recordation of
appropriate merger documents as required by the DGCL and the Regulatory Filings
which shall be made prior to the Closing). This Agreement has been duly
executed and delivered by each of Parent and Purchaser and is a legal, valid
and binding obligation of each of Parent and Purchaser, enforceable against
Parent and Purchaser in accordance with its terms.
4.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Assuming satisfaction of all applicable requirements
referred to in Section 4.3 (b) below, the execution and delivery of this
Agreement by Parent and Purchaser, the compliance by Parent and Purchaser with
the provisions hereof and the consummation by Parent and Purchaser of the
transactions contemplated hereby will not conflict with or violate (i) any
statute, law, ordinance, rule, regulation, order, writ, judgment, award,
injunction, decree or ruling applicable to Parent or Purchaser or any of their
properties, other than such conflicts or violations which individually or in
the aggregate do not and will not have a material adverse effect on the
business, properties, assets, results of operations or financial condition of
Parent and Purchaser, taken as a whole, or (ii) conflict with or violate the
Certificate of Incorporation or Bylaws of Parent or Purchaser.
(b) Other than in connection with or in compliance with
the provisions of the DGCL, the Exchange Act, the "takeover" or "blue sky" laws
of various states and the HSR Act, (i) neither Parent nor Purchaser is required
to submit any notice, report, registration, declaration or other filing with
any Governmental Entity in connection with the execution or delivery of this
Agreement by Parent and Purchaser or the performance by Parent and Purchaser of
their obligations hereunder or the consummation by Parent and Purchaser of the
transactions contemplated by this Agreement and (ii) no waiver, consent,
approval, order or authorization of any Governmental Entity is required to be
obtained by Parent or Purchaser in connection with the execution or delivery of
this Agreement by Parent and Purchaser or the performance by Parent and
Purchaser of their obligations hereunder or the consummation by Parent and
Purchaser of the transactions contemplated by this Agreement. None of the
information supplied by Parent or Purchaser for inclusion in the information
statement to be sent to the Company's stockholders to consider the Merger, as
appropriate (such proxy statement or information statement, as amended or
supplemented, is referred to as the "PROXY STATEMENT"), shall, at the date the
Proxy Statement (or any amendment thereof or supplement thereto) is first
mailed to stockholders or at the time of the meeting of the Company's
stockholders to consider the Merger (the "COMPANY STOCKHOLDERS' MEETING"),
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein in light of the circumstances under which they were made, not
misleading.
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4.4 SCHEDULE 14D-1. Neither the Schedule 14D-1 nor the Offer
Documents, nor any of the information supplied by Parent and Purchaser for
inclusion in the Schedule 14D-9, shall at the respective times the Schedule
14D-1 or the Offer Documents or any amendments or supplements thereto are filed
with the SEC or are first published, sent or given to stockholders of the
Company or upon the expiration of the Offer, as the case may be, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made not misleading
(except for information supplied by the Company for inclusion in the Schedule
14D-1 and the Offer Documents, as to which Parent and Purchaser make no
representation). None of the information supplied by Parent or Purchaser for
inclusion in the Proxy Statement shall, at the date the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to stockholders, at
the time of the Company Stockholders' Meeting and at the Effective Time,
contain any untrue statement of a material fact or omit to state a material
fact required to be stated or necessary in order to make the statements made
therein in light of the circumstances under which they were made, not
misleading.
4.5 AVAILABLE FUNDS. Parent has or has available to it, and
will make available to Purchaser, all funds necessary to satisfy all of
Parent's and Purchaser's obligations under this Agreement and in connection
with the transaction contemplated hereby, including, without limitation, the
obligation to purchase all outstanding Shares pursuant to the Offer and the
Merger and to pay all related fees and expenses in connection with the Offer
and the Merger and any financing necessary to consummate the Offer and the
Merger has been committed as of the date hereof.
ARTICLE V
COVENANTS
The following provisions shall apply during the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms and the Effective Time (or, in the case of
Sections 5.8 and 5.14 until the covenant terminates by its term).
5.1 CONDUCT OF BUSINESS BY THE COMPANY. The Company (which for
the purposes of this Article 4 shall include the Company and its subsidiaries
taken as a whole) agrees, except to the extent that Parent shall otherwise
consent in writing, to carry on its business diligently and in accordance with
good commercial practice and to carry on its business in the usual, regular and
ordinary course, in substantially the same manner as heretofore conducted and
in compliance with all applicable laws and regulations, to pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, to pay
or perform other material obligations when due, and use its commercially
reasonable efforts consistent with past practices and policies to preserve
intact its present business organization, keep available the services of its
present officers and employees and preserve its relationships with customers,
suppliers, distributors, licensors, licensees, and others with which it has
business dealings. In addition, the Company will promptly notify Parent of any
material event involving its business or operations.
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In addition, except as permitted by the terms of this Agreement (other
than as provided in Article 5.1 of the Company Schedules or required under
agreements existing as of the date hereof and described in the Company
Schedules together with a description of any action contemplated thereunder),
without the prior written consent of Parent, the Company shall not do any of
the following, and shall not permit any of its subsidiaries to do any of the
following:
(a) Waive any stock repurchase rights, accelerate, amend
or change the period of exercisability of options or restricted stock, or
reprice options granted under any employee, consultant or director stock plans
or authorize cash payments in exchange for any options granted under any of
such plans;
(b) Grant any severance or termination pay to any
director, officer or employee except payments in amounts consistent with
policies and past practices or pursuant to written agreements outstanding, or
policies existing, on the date hereof and as previously disclosed in writing to
the other, or adopt any new severance plan, or provide any other compensation
or benefit to any employee, officer or director that would accrue or become
payable as a result of or in connection with the Offer and/or Merger;
(c) Transfer or license to any person or entity or
otherwise extend, amend or modify in any material respect any rights to the
Company Intellectual Property or other proprietary rights, or enter into grants
to future patent rights, other than in the ordinary course of business,
consistent with past practice;
(d) Declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any capital
stock or split, combine or reclassify any capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock;
(e) Repurchase or otherwise acquire, directly or
indirectly, any shares of capital stock except pursuant to rights of repurchase
of any such shares under any employee, consultant or director stock plan
existing on the date hereof (which repurchase rights the Company shall be
obligated to exercise if the repurchase price is less than the Offer Price);
(f) Issue, deliver, sell, authorize or propose the
issuance, delivery or sale of, any shares of capital stock or any securities
convertible into shares of capital stock, or subscriptions, rights, warrants or
options to acquire any shares of capital stock or any securities convertible
into shares of capital stock, or enter into other agreements or commitments of
any character obligating it to issue any such shares or convertible securities,
other than the issuance of Shares pursuant to the exercise of stock options
therefor outstanding as of the date of this Agreement;
(g) Cause, permit or propose any amendments to any
charter document or Bylaw (or similar governing instruments of any
subsidiaries);
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(h) Acquire or agree to acquire by merging or
consolidating with, or by purchasing any equity interest in or a material
portion of the assets of, or by any other manner, any business or any
corporation, partnership interest, association or other business organization
or division thereof, or otherwise acquire or agree to acquire any assets which
are material, individually or in the aggregate, to the business of the Company,
or enter into any joint ventures, strategic partnerships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose
of any properties or assets which are material, individually or in the
aggregate, to the business of the Company, except in the ordinary course of
business consistent with past practice;
(j) Incur any indebtedness for borrowed money in excess
of $100,000 (other than ordinary course trade payables or pursuant to existing
credit facilities in the ordinary course of business) or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire debt securities, or guarantee any debt securities of others;
(k) Adopt or amend any employee benefit or employee
stock purchase or employee option plan, or enter into any employment contract,
pay any special bonus or special remuneration to any director or employee, or
increase the salaries or wage rates of its officers or employees other than in
the ordinary course of business, consistent with past practice, or change in
any material respect any management policies or procedures;
(l) Pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business;
(m) Make any grant of exclusive distribution or other
resale rights to any third party; or
(n) Agree in writing or otherwise to take any of the
actions described in (a) through (m) above.
5.2 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) Subject to and in accordance with the terms and
conditions of that certain letter dated April 8, 1998 between Parent and the
Company (the "CONFIDENTIALITY AGREEMENT"), the Company and its subsidiaries
shall, and the Company and its subsidiaries shall use all reasonable commercial
efforts to cause its officers, directors, employees and agents to, afford the
officers, employees and agents of Parent, Purchaser and their affiliates and
the attorneys, accountants, banks, other financial institutions and investment
banks working with Parent or Purchaser, and their respective officers,
employees and agents, complete access at all reasonable times to its officers,
employees, agents, properties, books, records and contracts, and shall furnish
Parent, Purchaser and their affiliates and the attorneys, banks, other
financial institutions and investment banks working
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with Parent or Purchaser, all financial, operating and other data and
information as they reasonably request.
(b) Subject to the requirements of law, Parent and
Purchaser shall, and shall use all commercially reasonable efforts to cause
their officers, employees and agents, and the attorneys, banks, other financial
institutions and investment banks who obtain such information to, hold all
information obtained pursuant to this Agreement or the Confidentiality
Agreement in accordance with the terms and conditions of the Confidentiality
Agreement.
(c) No investigation pursuant to this Section 5.2 shall
affect any representations or warranties of the parties herein or the
conditions to the obligations of the parties hereto.
5.3 PROXY MATERIAL; STOCKHOLDERS' MEETING.
(a) The Company and each of Parent and Purchaser shall
prepare and file, or shall cause to be prepared and filed, with the SEC those
documents, schedules and amendments and supplements thereto required to be
filed with respect to the transactions contemplated by this Agreement. To the
extent required by the DGCL or other applicable law, the Company, acting
through its Board of Directors, shall, cause the Company Stockholders' Meeting
to be duly called (including establishing the record date, if requested, to be
a date immediately after the date the Purchaser first purchases any Shares
pursuant to the Offer) and shall give notice of, convene and hold the Company
Stockholders' Meeting as soon as practicable, and at such time and place
designated by Parent or Purchaser, for the purpose of approving the Merger,
this Agreement and any other actions contemplated hereby which require the
approval of the Company's stockholders. The Company shall recommend to its
stockholders approval of the Merger and take all reasonable actions necessary
to solicit such approval. The Company shall use all reasonable commercial
efforts to obtain and furnish the information required to be included by it in
the Proxy Statement and, after consultation with Parent and Purchaser, shall
respond promptly to any comments of the SEC relating to any preliminary proxy
statement regarding the Merger and the other transactions contemplated by this
Agreement and to cause the Proxy Statement to be mailed to its stockholders,
all at the earliest practicable time. Whenever any event occurs which should
be set forth in an amendment or supplement to the Proxy Statement or any other
filing required to be made with the SEC with respect to the Proxy Statement or
the Company Stockholders' Meeting, each party shall promptly inform the other
of such occurrence and cooperate in filing with the SEC and/or mailing to the
Company's stockholders such amendment or supplement. The Proxy Statement and
all amendments and supplements thereto shall comply with applicable law and be
in form and substance reasonably satisfactory to each of Parent and Purchaser
and the Company. Subject to compliance with applicable fiduciary duties, the
Company, acting through its Board of Directors, shall include in the Proxy
Statement the unanimous recommendation of its Board of Directors that
stockholders of the Company vote in favor of the approval and adoption of this
Agreement and the Merger and shall disclose that each of the Company's
directors and executive officers intend to tender all outstanding shares
beneficially owned by such persons to Purchaser pursuant to the offer unless to
do so would subject such person to liability under Section 16(b) of the
Exchange Act. The Company shall use all reasonable commercial efforts to
solicit from stockholders of the Company proxies in favor of such
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approval and adoption and shall take all other actions necessary or, in the
reasonable judgment of Parent and Purchaser, advisable to secure the vote or
consent of the Company's stockholders required by the DGCL to effect the
Merger.
(b) Notwithstanding the foregoing, in the event that
Purchaser shall acquire at least ninety percent (90%) of the outstanding
Shares, the parties hereto agree, at the request of Purchaser, subject to
Article VI, to take all necessary and appropriate action to cause the Merger to
become effective as soon as reasonably practicable after such acquisition,
without a meeting and without a vote of the Company's stockholders, in
accordance with the DGCL.
5.4 NO SOLICITATION.
(a) From and after the date of this Agreement until the
earlier of the Effective Time or termination of this Agreement pursuant its
terms, the Company and its subsidiaries shall not, and will instruct their
respective directors, officers, employees, representatives, investment bankers,
agents and affiliates not to, directly or indirectly, (i) solicit or encourage
submission of, any proposals or offers by any person, entity or group of such
entity (other than Parent and its affiliates, agents and representatives), or
(ii) participate in any discussions or negotiations with, or disclose any
non-public information concerning the Company or any of its subsidiaries to, or
afford any access to the properties, books or records of the Company or any of
its subsidiaries to, or otherwise assist or facilitate, or enter into any
agreement or understanding with, any person, entity or group (other than Parent
and its affiliates, agents and representatives), in connection with any
Acquisition Proposal with respect to the Company. For the purposes of this
Agreement, an "ACQUISITION PROPOSAL" with respect to an entity means any
proposal or offer relating to (i) any merger, consolidation, sale or license of
substantial assets or similar transactions of such entity (other than sales of
assets or inventory in the ordinary course of business or as permitted under
the terms of this Agreement), (ii) sale of 10% or more of the outstanding
shares of capital stock of the Company (including without limitation by way of
a tender offer or an exchange offer), (iii) the acquisition by any person of
beneficial ownership or a right to acquire beneficial ownership of, or the
formation of any "group" (as defined under Section 13(d) of the Exchange Act
and the rules and regulations thereunder) which beneficially owns, or has the
right to acquire beneficial ownership of, 10% or more of the then outstanding
shares of capital stock of the entity (except for acquisitions for passive
investment purposes only in circumstances where the person or group qualifies
for and files a Schedule 13G with respect thereto or qualifies for and files a
Schedule 13D with respect thereto, indicating that the acquisition of such
shares is for passive investment purposes only, and such person or group does
not subsequently file an amendment to such 13D indicating that such shares were
not acquired for passive investment purposes only and the Minimum Condition is
not satisfied); or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing. The Company will immediately cease any and all existing activities,
discussions or negotiations with any parties conducted previously with respect
to any of the foregoing. The Company will (i) notify Parent as promptly as
practicable if any inquiry or proposal is made or any information or access is
requested in connection with an Acquisition Proposal or potential Acquisition
Proposal and (ii) as promptly as practicable notify Parent of the terms and
conditions of any such Acquisition Proposal. In addition, subject to the other
provisions of this
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Section 5.4(a), from and after the date of this Agreement until the earlier of
the Effective Time and termination of this Agreement pursuant to its terms, the
Company and its subsidiaries will not, and will instruct their respective
directors, officers, employees, representatives, investment bankers, agents and
affiliates not to, directly or indirectly, make or authorize any public
statement, recommendation or solicitation in support of any Acquisition
Proposal made by any person, entity or group (other than Parent or Purchaser);
provided, however, that nothing herein shall prohibit the Company' Board of
Directors from taking and disclosing to the Company' stockholders a position
with respect to a tender offer pursuant to Rules 14d-9 and 14e-2 promulgated
under the Exchange Act.
(b) Notwithstanding the provisions of paragraph (a)
above, prior to consummation of the Offer, the Company may, to the extent the
Board of Directors of the Company determines, in good faith, after consultation
with outside legal counsel, that the Board's fiduciary duties under applicable
law require it to do so, participate in discussions or negotiations with, and,
subject to the requirements of paragraph (c), below, furnish information to any
person, entity or group after such person, entity or group has delivered to the
Company in writing, an unsolicited bona fide Acquisition Proposal which the
Board of Directors of the Company in its good faith reasonable judgment
determines, after consultation with its independent financial advisors, would
result in a transaction more favorable than the Offer and the Merger to the
stockholders of the Company [from a financial point of view] and for which
financing, to the extent required, is then committed or which, in the good
faith reasonable judgment of the Board of Directors of the Company (based upon
the advice of independent financial advisors), is reasonably capable of being
financed by such person, entity or group and which is reasonably likely to be
consummated (a "SUPERIOR PROPOSAL"). In the event the Company receives a
Superior Proposal, nothing contained in this Agreement (but subject to the
terms hereof) will prevent the Board of Directors of the Company from
recommending such Superior Proposal to the Company's stockholders, if the Board
determines, in good faith, after consultation with outside legal counsel, that
such action is required by its fiduciary duties under applicable law; provided,
however, that the Company shall not recommend to its stockholders a Superior
Proposal for a period of not less than 48 hours after Parent's receipt of a
copy of such Superior Proposal (or a description of the terms and conditions
thereof, if not in writing).
(c) Notwithstanding anything to the contrary herein,
the Company will not provide any non-public information to a third party
unless: (x) the Company provides such non-public information pursuant to a
nondisclosure agreement with terms regarding the protection of confidential
information at least as restrictive as such terms in the Confidentiality
Agreement; and (y) such non-public information has been previously delivered to
Parent.
5.5 PUBLIC ANNOUNCEMENTS. Parent and Purchaser on the one hand
and the Company on the other hand will consult with each other before issuing
any press release or otherwise making any public statements with respect to
this Agreement, the Offer or the Merger or the other transactions contemplated
hereby, and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by law. This
Section 5.5 shall supersede any conflicting provisions in the Confidentiality
Agreement.
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5.6 NOTIFICATION OF CERTAIN MATTERS.
(a) The Company shall give prompt notice (which notice
shall state that it is delivered pursuant to Section 5.6(a) of this Agreement)
in writing to Parent, and Parent and Purchaser shall give prompt notice in
writing to the Company, of (i) the occurrence, or failure to occur, of any
event which occurrence or failure would be likely to cause any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date of this Agreement through the
Effective Time and (ii) any failure of the Company, Parent or Purchaser, as the
case may be, or of any officer, director, employee or agent thereof, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement; provided, however, no such notification
shall affect the representations or warranties of the parties or the conditions
to the obligations of the parties hereunder.
(b) The Company shall give prompt notice in writing
(which notice shall state that it is delivered pursuant to Section 5.6(b) of
this Agreement) to Parent of (i) any act, omission to act, event or occurrence
which, with the passage of time or otherwise, would likely have a Material
Adverse Effect on the Company and (ii) any material contingent liability of the
Company or any of its subsidiaries for which such party reasonably believes it
will, with the passage of time or otherwise, become liable; provided, however,
that no such notification shall affect the representations or warranties of the
parties or the conditions to the obligations of the parties hereunder.
5.7 ACTIONS BY COMPANY. Subject to the terms and conditions
hereof, the Company shall, and shall cause its subsidiaries to, cooperate with
Parent and Purchaser and take all such actions as may be reasonably requested
by Parent and Purchaser to accomplish the Merger.
5.8 OFFICERS' AND DIRECTORS' INDEMNIFICATION.
(a) All rights to indemnification existing in favor of
the current directors and officers of the Company ( the "INDEMNIFIED PERSONS")
for acts and omissions occurring prior to the Effective Time, as provided in
the Company's Certificate of Incorporation and/or Bylaws (as in effect as of
the date of this Agreement) and as provided in the indemnification agreements
between the Company and the Indemnified Persons (as in effect as of the date of
this Agreement), shall survive the Offer and the Merger for a period of not
less than four years after the Effective Time; provided, however, that if, at
any time prior to the fourth anniversary of the Effective Time, any Indemnified
Persons delivers to Parent or the Surviving Corporation a written notice
asserting a claim for indemnification, then the claim asserted in such notice
shall survive the fourth anniversary of the Effective Time until such time as
such claim is fully and finally resolved. The Certificate of Incorporation and
Bylaws of the Surviving Corporation will contain provisions with respect to
exculpation and indemnification that are at least favorable to current
Indemnified Persons as those contained in the Certificate of Incorporation and
Bylaws of the Company as in effect on the date hereof, which provisions will
not be amended, repealed or otherwise modified from the Effective Time until
the fourth anniversary of the date on which the Merger becomes effective in any
manner that would adversely affect the rights thereunder of any such
Indemnified Person.
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(b) From the Effective Time until the fourth anniversary of the
date on which the Merger becomes effective, Parent shall maintain in effect,
for the benefit of the Indemnified Persons with respect to acts or omissions
occurring prior to the Effective Time, the directors' and officers' liability
insurance policy currently carried: provided, however, that Parent may
substitute for such policy or policies of materially equivalent coverage for
acts or commissions prior to the Effective Date and provided, further, that
Parent shall not be obligated to maintain such coverage for policy limits which
would cause the annual cost of such coverage to exceed $397,248, representing
150% of the cost of such coverage paid by the Company in fiscal year 1998 and,
provided, further, that if the annual premiums of such insurance coverage
exceed such amount, Parent shall be obligated to obtain a policy with the
greatest coverage available for a cost not exceeding such amount.
(c) The provisions of this Section 5.8 shall survive the
consummation of the Merger and expressly are intended to benefit each of the
Indemnified Persons.
[5.9 INTENTIONALLY LEFT BLANK]
5.10 ADDITIONAL AGREEMENTS.
(a) Subject to the terms and conditions hereof, each of
the parties to this Agreement agrees to use all commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement
(including consummation of the Offer and the Merger) and to cooperate with each
other in connection with the foregoing.
(b) Subject to the terms and conditions hereof, each of
the parties to this Agreement agrees to use (i) all commercially reasonable
efforts to obtain all necessary waivers, consents and approvals from other
parties to loan agreements, leases, licenses and other contracts, and (ii) all
commercially reasonable efforts to obtain all necessary consents, approvals and
authorizations as required to be obtained under any federal, state or foreign
law or regulations, including, but not limited to, those required under the HSR
Act, to defend all lawsuits or other legal proceedings challenging this
Agreement or the consummation of the transactions contemplated hereby, to lift
or rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions
contemplated hereby, to effect all necessary registrations and filings,
including, but not limited to, filings under the HSR Act and submissions of
information requested by Governmental Entities, and to fulfill all conditions
to this Agreement.
5.11 OTHER ACTIONS BY THE COMPANY. If any "fair price,"
"moratorium," "control share acquisition," "shareholder protection" or other
form of antitakeover statute, regulation or charter provision or contract is or
shall become applicable to the Offer or the Merger or the transactions
contemplated hereby, the Company shall grant such approvals and take such
actions as are necessary under such laws and provisions so that the
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and otherwise act to eliminate or minimize the
effects of such statute, regulation, provision or contract on the transactions
contemplated hereby.
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5.12 SECTION 203 OF THE DGCL. The Company will not approve any
acquisition of shares of Common Stock by any person (other than Parent,
Purchaser or their respective affiliates) which would result in such person
becoming an "interested stockholder" (as such term is defined in Section 203 of
the DGCL) or otherwise become subject to Section 203 of the DGCL.
5.13 STOCKHOLDER LITIGATION. The Company shall give Parent the
opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and its directors relating to any of the
transactions contemplated by this Agreement until the purchase of Shares
pursuant to the Offer, and thereafter, notwithstanding the initial sentence of
this Article V, shall give Parent the opportunity to direct the defense of such
litigation and, if Parent so chooses to direct such litigation, Parent shall
give the Company and its directors an opportunity to participate in such
litigation; provided, however, that no settlement of such litigation shall be
agreed to without Parent's consent; and provided further that no settlement
requiring a payment by a director shall be agreed to without such director's
consent, which consent, in either case, shall not be unreasonably withheld or
delayed.
5.14 SECTION 401(K) PLAN TERMINATION; ESPP TERMINATION. The
Company will promptly take any and all actions necessary and appropriate to
terminate the Company's 401(k) plan and the ESPP, including without limitation
(i) adoption of resolutions by the Company's board of directors terminating the
401(k) plan and the ESPP immediately prior to the Effective Time and (ii)
timely delivery of any notices required under the terms of the 401(k) plan and
the ESPP. The Company's 401K in effect as of the date hereof shall, to the
extent practicable, remain in effect until Company employees are allowed to
participate in a comparable Employee Benefit Plan of Parent. With respect to
such comparable Employee Benefit Plan of Parent, such plan shall give full
credit to each Company employee for each participant's respective period of
service with the Company prior to the Effective Time for all purposes for which
such period of service is relevant to benefits provided under such benefit plan
of Parent. From and after the Effective Time, Parent shall provide employees
of the Company with the opportunity to participate in any employee stock option
or other incentive compensation plan of Parent or Purchaser on substantially
the same terms and subject to substantially the same conditions as are
available to similarly situated employees of Parent and Purchaser, provided for
any employee that such employee otherwise fulfills all eligibility criteria.
ARTICLE VI
CONDITIONS OF MERGER
6.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of each of the
following conditions:
(a) If required by the DGCL, this Agreement and the
Merger shall have been approved and adopted by the requisite vote of the
stockholders of the Company.
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(b) Any waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated.
(c) Shares shall have been purchased pursuant to the
Offer.
(d) No temporary restraining order, preliminary or
permanent injunction, judgment or other order, decree or ruling nor any
statute, rule, regulation or order shall be in effect which would (i) make the
acquisition or holding by Parent or its affiliates of Shares or shares of
Common Stock of the Surviving Corporation illegal or otherwise prevent the
consummation of the Merger, (ii) prohibit Parent's or Purchaser's ownership or
operation of, or compel Parent or Purchaser to dispose of or hold separate, all
or a material portion of the business or assets of Purchaser, the Company or
any subsidiary of the Company thereof, (iii) compel Parent, Purchaser or the
Company to dispose of or hold separate all or a material portion of the
business or assets of Parent or any such subsidiary or the Company or any such
subsidiary, (iv) impose material limitations on the ability of Parent or
Purchaser or their affiliates effectively to exercise full ownership and
financial benefits of the Surviving Corporation, or (v) impose any condition to
the Offer, this Agreement or the Merger that is materially adverse to the party
objecting thereto.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated, at any time
prior to the Effective Time, whether before or after approval by the
stockholders of the Company:
(a) by mutual written agreement of the Boards of
Directors of Parent and the Company;
(b) by either Parent or the Company:
(i) if the Offer shall be terminated or
expire without any Shares having been purchased pursuant to the Offer;
provided, however, that a party shall not be entitled to terminate
this Agreement pursuant to this Section 7.1(b)(i) if it is in material
breach of its representations and warranties, covenants or other
obligations under this Agreement; or
(ii) if any court of competent
jurisdiction in the United States or other United States governmental
body shall have issued an order, decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting the Offer or
the Merger and such order, decree, ruling or other action shall have
become final and nonappealable;
(c) by Parent:
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(i) if the Board of Directors of the
Company or any committee thereof shall have approved, or recommended
(and not rescinded such recommendation within two (2) business days)
that stockholders of the Company accept or approve, an Acquisition
Proposal by a third party;
(ii) if the Board of Directors of the
Company or any committee thereof shall have withdrawn or modified (and
not rescinded such recommendation within two (2) business days) its
approval of, or recommendation that the stockholders of the Company
accept or approve (as the case may be), the Offer, this Agreement and
the Merger;
(iii) if the Company shall have failed to
include in the Schedule 14D-9 the recommendation of the Board of
Directors of the Company that the stockholders of the Company accept
the Offer;
(iv) prior to the purchase of Shares
pursuant to the Offer, in the event that the conditions to the Offer
set forth in clause (i) or (ii) of Annex I shall not be satisfied or
if any of the events set forth in clause (iii) thereof shall have
occurred; provided in the case of an event set forth in clause (iii),
item (A), (B), (C), (F) or (H) of Annex I that if such event is and
continues to be reasonably probable of being cured by the date which
is 20 business days after commencement of the Offer, Parent shall not
terminate this Agreement pursuant to this Section 7 (c)(iv) as a
result of such event until the date that is 20 business days after the
commencement of the Offer; or
(v) prior to the purchase of Shares
pursuant to the Offer if the Company is in material breach of any of
its covenants or obligations under this Agreement, or any
representation or warranty of the Company contained in this Agreement
shall have been incorrect, in any material respect, when made or shall
have since ceased to be true and correct in any material respect;
provided, that, if such breach is curable through exercise of the
Company's commercially reasonable efforts, then Parent may not
terminate this Agreement under this Section 7.1(c)(v) unless the
breach is not cured within 10 days after giving notice to the Company;
(d) by the Company:
(i) if the Offer shall not have been
commenced in accordance with Section 1.1, or Parent or Purchaser shall
have failed to purchase validly tendered Shares in violation of the
terms of the Offer within ten business days after the expiration of
the Offer; provided, however, that the Company shall not be entitled
to terminate this Agreement pursuant to Section 7.1(d)(i) if it is in
material breach of its representations and warranties, covenants or
other obligations under this Agreement;
(ii) if the Board of Directors of the
Company has resolved to, and in fact does, recommend to the Company's
Stockholders that they accept a Superior Proposal, provided that all
the provisions of Section 5.4 have been fully complied with, and
provided
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further that the Company shall have paid to Parent the entire Break-up
Fee as provided in Section 7.3(b); or
(iii) prior to the purchase of Shares
pursuant to the Offer, if Parent or Purchaser is in material breach of
any of its covenants or obligations under this Agreement, or any
representation or warranty of Parent or Purchaser contained in this
Agreement shall have been incorrect, in any material respect, when
made or shall have since ceased to be true and correct in any material
respect; provided, that, if such breach is curable through exercise of
the Parent's or Purchaser's commercially reasonable efforts, then the
Company may not terminate this Agreement under this Section
7.1(d)(iii) unless the breach is not cured within 10 days after giving
notice to the Parent.
7.2 PROCEDURE AND EFFECT OF TERMINATION.
(a) In the event of the termination of this Agreement by
the Company or Parent or both of them pursuant to Section 7.1, the terminating
party shall provide written notice of such termination to the other party and
this Agreement shall forthwith become void and there shall be no liability on
the part of Parent, Purchaser or the Company, except as set forth in this
Section 7.2 and in Sections 5.2(b) and 7.3, The foregoing shall not relieve any
party for liability for damages actually incurred as a result of any breach of
this Agreement. Sections 5.2(b), 7.2, 7.3 and Article VIII shall survive the
termination of this Agreement.
7.3 FEES AND EXPENSES.
(a) Except as otherwise provided in this Agreement and
whether or not the transactions contemplated by the Offer and this Agreement
are consummated, all costs and expenses incurred in connection with the
transactions contemplated by the Offer and this Agreement shall be paid by the
party incurring such expenses.
(b) The Company shall pay the Parent, in same day funds,
upon demand, a fee of $2,000,000 (the "BREAK-UP FEE"), if any of the following
shall occur:
(i) if the Board of Directors of the
Company or any committee thereof shall have approved, or recommended
that stockholders of the Company accept or approve, an Acquisition
Proposal by a third party, or shall have resolved to do any of the
foregoing;
(ii) if the Board of Directors of the
Company or any committee thereof shall have withdrawn or modified its
unanimous approval of, or unanimous recommendation that the
stockholders of the Company accept or approve (as the case may be),
the Offer, this Agreement and the Merger, or shall have resolved to do
any of the foregoing;
(iii) if the Company shall have failed to
include in the
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Schedule 14D-9 the unanimous recommendation of the Board of Directors
of the Company that the stockholders of the Company accept the Offer;
or
(iv) the following shall occur: (A)
prior to the Effective Time, any person, entity or "GROUP" (as that
term is used in Section 13(d)(3) of the Exchange Act), shall
beneficially own (as that term is used in Section 13(d)(3) of the
Exchange Act), or shall have acquired, 25% or more of the Shares, or
shall have been granted any option or right, conditional or otherwise,
to acquire 25% or more of the Shares (the "25% PERSON"), which Shares
are not tendered to Parent in connection with the Offer, (B) the
Minimum Condition shall not be met as of the Expiration Date and (C)
either (1) the 25% Person shall, at any time within twelve (12) months
of the expiration of the Offer, effect the Acquisition (as defined
below) of the Company or enter into an agreement with the Company or
commence a tender offer to effect such an Acquisition, and the
transactions contemplated thereby are subsequently consummated at any
time, or (2) any person other than Parent or any affiliate of Parent
effects the Acquisition of the Company during 1998, or during 1998
enters into an agreement with the Company or commences a tender offer
for the Acquisition of the Company and the transactions contemplated
thereby are subsequently consummated at any time, in any such case
under this clause (2) at a purchase price equivalent to a price per
Share in excess of $2.45. For the purposes hereof, an "ACQUISITION"
of the Company shall mean any merger, consolidation or other
reorganization, any tender offer or other transaction or series of
related transactions involoving the acquisition of securities of the
Company, or any sale or license of all or substantially all the
business or assets of the Company, unless the shareholders of the
Company prior to such transaction or series of related transactions
retain following such transaction or series of related transactions
(in respect of their equity interest in the Company prior thereto)
more than 50% of the voting equity securities of the surviving or
successor corporation to the business of the Company.
(c) The Break-up Fee is payable to compensate Parent and
Purchaser for their direct and indirect costs and expenses associated with the
negotiation and execution of this Agreement and the undertaking of the
transactions contemplated herein in the event of the occurrence of all of the
events set forth in clauses (i), (ii), (iii) and (iv) of paragraph (b) above,
and shall constitute liquidated damages with respect to (but solely with
respect to) the events itemized in clauses (i), (ii), (iii) and /or (iv) of
paragraph (b) above. However, the right to the payment of the Break-up Fee
shall be in addition to any other damages or remedies at law or in equity to
which Parent or Purchaser may be entitled as a result of the Company's
violation or breach of any other term or provision of this Agreement.
7.4 AMENDMENT. This Agreement may be amended by each of the
parties by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that (i) such
amendment shall be in writing signed by all of the parties hereto, (ii) any
such waiver, amendment or supplement by the Company shall be effective as
against the Company only if approved by a majority of the Continuing Directors
and (iii) after adoption of this Agreement and the Merger by the stockholders
of the Company, no amendment may be made without the further approval of the
stockholders of the Company which reduces the Merger
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Consideration or the Offer Price or changes the form thereof or changes any
other terms and conditions of this Agreement if the changes, alone or in the
aggregate, would materially adversely affect the stockholders of the Company.
7.5 WAIVER. At any time prior to the Effective Time, whether
before or after the Company's Stockholders Meeting, any party hereto, by action
taken by its Board of Directors, may (i) extend the time for the performance of
any of the obligations or other acts of any other party hereto or (ii) subject
to the provisions of Section 7.4, waive compliance with any of the agreements
of any other party or with any conditions to its own obligations. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of such
party by a duly authorized officer of such party; provided that any such
extension or waiver by the Company after the Offer has been completed shall be
effective against the Company only if approved by a majority of the Continuing
Directors. Notwithstanding the above, any waiver given shall not apply to any
other or subsequent failure of compliance with agreements of the other party or
conditions to its own obligations.
ARTICLE VIII
MISCELLANEOUS
8.1 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by rule of law or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible given the original intent of the parties.
8.2 NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing, shall be effective when received and shall
in any event be deemed to have been received and to be effective (i) on the
date of delivery, if hand delivered (ii) three days after deposit in U.S. mail
if sent via certified mail return receipt requested, postage prepaid or (iii)
the first business day after the business day of deposit with Federal Express
or similar carrier for overnight delivery, as return receipt requested and
freight prepaid and shall be sent to the parties at the following addresses (or
at such other address for a party as shall be specified by similar notice,
except that notices of changes of address shall be effective upon receipt):
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(a) If to Parent or Purchaser:
Diamond Multimedia Systems, Inc.
2880 Junction Avenue
San Jose, California 95134
Attention: William J. Schroeder
James Walker
Telecopier No.: (408) 325-7070
With copies to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Jeffrey D. Saper, Esq.
Howard S. Zeprun, Esq.
Telecopier No.: (650) 493-6811
and to:
Boardwalk Acquisition Corporation
2880 Junction Avenue
San Jose, CA 95134
Attention: William J. Schroeder
James Walker
Telecopier No.: (408) 325-7070
(b) If to the Company:
Micronics Computers, Inc.
45365 Northport Loop West
Fremont, California 94538
Telecopier No.: (510) 770-1863
With copies to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Attention: Gail E. Suniga, Esq.
Telecopier No.: (650) 254-0857
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Alliant Partners
435 Tasso Street, Third Floor
Palo Alto, California 94301
Attention: James L. Kochman
Telecopier No.: (650) 325-7692
8.3 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; NO
ASSIGNMENT. This Agreement, Annex I, the documents delivered pursuant hereto
or in connection herewith and the Confidentiality Agreement (i) constitute the
entire agreement and supersede all other prior agreements and undertakings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof, (ii) are not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder (except as expressly
set forth in Section 5.9 with respect to present officers and directors of the
Company), and (iii) may not be assigned, except that Purchaser may assign their
rights hereunder in whole or in part to one or more direct or indirect
subsidiaries or affiliates of Parent which, in written instruments reasonably
satisfactory to the Company, shall agree to make all representations and
warranties of Purchaser set forth herein and shall agree to assume all of such
party's obligations hereunder and be bound by all of the terms and conditions
of this Agreement; provided, however, that no such assignment shall relieve the
assignor of its obligations hereunder.
8.4 INTERPRETATION; KNOWLEDGE.
(i) When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. Unless otherwise specifically stated herein in any
particular case, the words "INCLUDE," "INCLUDES" and "INCLUDING" when used
herein shall be deemed in each case to be followed by the words
"without_limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. When reference is made herein to
"THE BUSINESS OF" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference to
the subsidiaries of an entity shall be deemed to include all direct and
indirect subsidiaries of such entity.
(ii) For purposes of this Agreement, the term "KNOWLEDGE"
means, with respect to any matter in question, that any of the Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer or Controller (or
principal accounting officer if different from the foregoing) of the parties,
as the case may be, have knowledge of such matter.
(iii) In this Agreement, any reference to any
"subsidiary"of any party shall mean any association, corporation, individual,
partnership, trust, or any other entity or organization in which such party has
a direct or indirect equity ownership interest of more than 50%. In this
Agreement, any reference to any action, suit, proceeding, claim, arbitration,
or investigation being "pending" or "threatened" shall mean that the relevant
party shall have either been served thereunder or otherwise notified of the
existence thereof.
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8.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.6 OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise
provided herein, any and all remedies herein expressly conferred upon a party
will be deemed cumulative with and not exclusive of any other remedy conferred
hereby, by law or equity or otherwise upon such party, and the exercise by a
party of any one remedy will not preclude the exercise of any other remedy.
The parties hereto agree that irreparable damage would occur in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction in
addition to any other remedy, without proving actual damages, to which they are
entitled at law or in equity.
8.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of law thereof; provided that issues involving the corporate governance of any
of the parties hereto shall be governed by their respective jurisdictions of
incorporation. Each of the parties hereto irrevocably consents to the
exclusive jurisdiction of any state or federal court within the Northern
District of California, in connection with any matter based upon or arising out
of this Agreement or the matters contemplated herein, other than issues
involving the corporate governance of any of the parties hereto, agrees that
process may be served upon them in any manner authorized by the laws of the
State of California for such persons and waives and covenants not to assert or
plead any objection which they might otherwise have to such jurisdiction and
such process.
8.8 RULES OF CONSTRUCTION. The parties hereto agree that they
have been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
8.9 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO 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 THE PARTIES IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
8.10 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the parties set forth herein shall be deemed
to be continuing from the date hereof to the time Parent acquires the Shares
pursuant to the Offer.
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IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
Diamond Multimedia Systems, Inc.
By: /s/ WILLIAM J. SCHROEDER
--------------------------------------
William J. Schroeder, President and
Chief Executive Officer
Boardwalk Acquisition Corporation
By: /s/ WILLIAM J. SCHROEDER
--------------------------------------
William J. Schroeder, President
Micronics Computers, Inc.
By: /s/ CHARLES J. HART
--------------------------------------
Charles J. Hart, President and
Chief Executive Officer
*****SIGNATURE PAGE--AGREEMENT AND PLAN OF MERGER*****
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ANNEX I
CONDITIONS OF THE OFFER
The term "AGREEMENT" as used in this Annex I shall mean the Agreement
and Plan of Merger to which this Annex I is attached, and all capitalized terms
used in this Annex I and not defined in this Annex I shall have the respective
meanings set forth in the Agreement.
Notwithstanding any other provision of the Offer, and in addition to
(and not in limitation of) Purchaser's rights to extend and amend the Offer at
any time, Purchaser shall not be required to accept for payment, purchase or
pay for, or may terminate or amend the Offer and may postpone the acceptance
of, and payment for, subject to Rule 14e-1(c) under the Exchange Act (whether
or not any Shares have theretofore been accepted for payment or paid for
pursuant to the Offer), any Shares tendered pursuant to the Offer if:
(i) any waiting period (and any extension thereof) under
the HSR Act applicable to the purchase of Shares pursuant to the Offer
shall not have expired or been terminated;
(ii) the Minimum Condition is not satisfied;
(iii) at any time on or after the date of the Agreement,
any of the following events shall be determined by Parent or Purchaser
to have occurred through no fault of Parent or Purchaser:
(A) there shall have been any action taken or
threatened, or any statute, rule, regulation, judgment, temporary
restraining order, preliminary or permanent injunction or other order,
decree or ruling promulgated, enacted, entered, enforced or deemed
applicable to the Offer or the Merger by any Governmental Entity could
reasonably be expected to, directly or indirectly, (1) make the
acceptance for payment or the payment for, or the purchase of some or
all of the Shares pursuant to the Offer illegal or otherwise
materially prohibit, delay or restrict consummation of the Offer or
the Merger or the consummation of any transaction contemplated by the
Agreement, (2) require the divestiture by Parent, Purchaser, the
Company or any of their respective subsidiaries taken as a whole of
all or any material portion of the business, assets or property of any
of them or any Shares or impose any material limitation on the ability
of any of them to conduct their business and own such assets,
properties or Shares, in each case, as a result of the Offer the
Merger or the transactions contemplated thereby (3) impose any
material limitation on the ability of Parent or Purchaser to acquire
or hold or to exercise effectively all rights of ownership of the
Shares, including the right to vote any Shares purchased by any of
them on all matters properly presented to the stockholders of the
Company, including, without limitation, the adoption and approval of
the Agreement and the Merger (4) result in a material diminution in
the benefits expected to be derived by Parent or Purchaser as a result
of the transactions contemplated by
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<PAGE> 47
the Offer or the Agreement, (5) impose any material condition to the
Offer, the Agreement or the Merger unacceptable to Parent or
Purchaser; or
(B) the Company shall have failed to obtain all
of the consents of third parties set forth in Schedule 3.9 of the
Agreement by the Expiration Date if such failure would result in a
Material Adverse Effect; or
(C) the Company shall have breached, or failed to
comply with, in any material respect, any of its covenants or
obligations under the Agreement or any representation or warranty of
the Company in the Agreement shall have been incorrect, in any
material respect when made or on and as of the date of any scheduled
expiration or consummation of the Offer.
(D) the Board of Directors of the Company or any
committee thereof shall have (1) withdrawn or modified (including
without limitation, by amendment of the Company's Schedule 14D-9) in a
manner adverse to Parent or Purchaser its approval or recommendation
of the Offer, the Merger or the Agreement, (2) approved or recommended
any Acquisition Proposal by a third party other than the Offer and the
Merger, (3) publicly resolved to do any of the foregoing, or (4) upon
a request to reaffirm the Company's approval or recommendation of the
Offer, the Agreement or the Merger, the Board of Directors of the
Company shall fail to do so within two business days after such
request is made, in any event described in the Section (D), so long as
such withdrawal modification, approval, recommendation, resolution or
failure has not been rescinded within two business days; or
(E) the Agreement shall have been terminated in
accordance with its terms; or
(F) there shall have occurred any Material
Adverse Effect on the Company, or any event, fact or change which
could reasonably be expected to result in a Material Adverse Effect on
the Company;
which in the sole but reasonable judgment of Parent in such case, and
regardless of the circumstances makes it inadvisable to proceed with the Offer
or with acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Parent, Purchaser
and their permitted assignees and may be asserted by Parent or Purchaser
regardless of the circumstances (including any action or inaction by Parent or
Purchaser or any of their assignees) giving rise to such condition. Except as
specified in Section 1.1(c), all the foregoing conditions may be waived by
Parent or Purchaser in whole or in part at any time and from time to time in
the sole discretion of Parent or Purchaser. The failure by Parent or Purchaser
at any time to exercise its rights with respect to the foregoing conditions
shall not be deemed a waiver of any such condition, and each condition shall be
deemed an ongoing condition with respect to which Parent or Purchaser may
assert its rights at any time prior to the completion of the Offer and from
time to time. Any determination by Parent or
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Purchaser concerning any event described in this Annex I shall be
binding upon all persons to whom the Offer is made.
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<PAGE> 1
LOGO
May 18, 1998
Dear Stockholder:
We are pleased to inform you that on May 11, 1998, Micronics Computers,
Inc. (the "Company") entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Diamond Multimedia Systems, Inc. ("Diamond") and its wholly
owned subsidiary Boardwalk Acquisition Corporation (the "Purchaser"). Pursuant
to the Merger Agreement the Purchaser has commenced a tender offer (the "Offer")
to purchase all of the outstanding shares of the Company's common stock, par
value $.01 per share ("Common Stock"), for a cash price of $2.45 per share. The
Offer is conditioned upon, among other things, the tender of at least 51% of the
Common Stock outstanding on a partially diluted basis. The Merger Agreement
provides that following consummation of the Offer, the Purchaser will be merged
with and into the Company (the "Merger") and those shares of Common Stock that
are not acquired in the Offer will be converted into the right to receive $2.45
per share in cash. The Merger consideration is subject to upward adjustment at
Diamond's discretion.
The Board of Directors has unanimously approved the Merger Agreement, the
Offer and the Merger and determined that the terms of the Offer and the Merger
are fair to, and in the best interests of, the Company and the holders of the
Common Stock, and unanimously recommends that the Company's stockholders accept
the Offer and tender their shares of Common Stock pursuant to the Offer. In
arriving at its recommendation, the Board of Directors considered the factors
described in the accompanying Schedule 14D-9, including the opinion of the
Company's financial advisor, Alliant Partners ("Alliant"), to the effect that
the consideration to be received by the holders of the Common Stock is fair from
a financial point of view. A copy of Alliant's written opinion, which sets forth
the assumptions made, procedures followed and matters considered in, and the
limitations on, the review by Alliant in rendering its opinion is attached to
the Schedule 14D-9 as Appendix I.
The accompanying Offer to Purchase sets forth all of the terms of the
Offer. Additionally, the enclosed Schedule 14D-9 sets forth additional
information regarding the Offer and the Merger relevant to making an informed
decision. We urge you to read these materials carefully and in their entirety.
Very truly yours,
LOGO
Charles J. Hart
President and Chief Executive Officer
<PAGE> 1
Exhibit 3
DIAMOND MULTIMEDIA
FOR IMMEDIATE RELEASE
<TABLE>
<CAPTION>
<S> <C>
Contacts:
Ken Wirt, Vice President, Corporate Marketing Jim Walker, Sr VP & Chief Financial Officer
Diamond Multimedia Systems, Inc. Diamond Multimedia Systems, Inc.
Voice: (408) 324-7376 Voice: (408) 325-7333
Fax: (408) 325-7827 Fax: (408) 325-7956
[email protected] [email protected]
</TABLE>
DIAMOND MULTIMEDIA TO ACQUIRE MICRONICS/ORCHID
Combination Provides Diamond Entry into Multimedia Systems Board Business
and Consolidates Voodoo2 Business
SAN JOSE, Calif.--May 11, 1998--Diamond Multimedia Systems, Inc. (NASDAQ:DIMD),
a leader in interactive multimedia acceleration, and Micronics Computers, Inc.
(NASDAQ:MCRN) announced today that the two firms have entered into a definitive
agreement for Diamond to acquire Micronics at a price of $2.45 per share in
cash, or approximately $31.6 million.
Diamond Multimedia expects to initiate a cash tender offer within five business
days and intends to complete the transaction in June 1998, subject to regulatory
approval and other customary conditions. The offer has been approved by the
Boards of Directors of both Micronics and Diamond Multimedia. The acquisition of
Micronics will enable Diamond's entry into the multimedia systems board business
and support the consolidation of Voodoo2-based computer gaming boards.
Multimedia Systems Boards
As multimedia peripherals become an increasingly important factor in the design
and sales of personal computer systems, and as the personal computer converges
with low-cost digital appliances, Diamond Multimedia anticipates an expanding
market for integrated systems boards that combine the attributes of both
low-cost and multimedia capabilities. Diamond's acquisition of Micronics
therefore comprises two strategic initiatives: first, Diamond intends to
leverage Micronics' existing motherboard business through Diamond's worldwide
procurement, sales and customer support infrastructure, including the sale of
Micronics' Twister LX, Redstone and Helios motherboards which support the
Pentium II, up to dual 400 MHz processors, the accelerated graphics port (AGP)
and front side bus speeds up to 100 MHz. Second, Diamond intends to combine
Micronics' motherboard expertise and highly-qualified engineering team with
Diamond's multimedia and communications expertise to develop integrated
multimedia systems boards for the sub-$1,000 PC market and the emerging set-top,
media center and Internet appliance market.
PC Gaming Market
The PC gaming market has experienced rapid growth over the past year. Diamond
has been the leader in supplying PC gaming boards with its award-winning Monster
Sound and, in graphics, its Monster 3D and Monster 3D II products based on the
Voodoo Graphics and Voodoo2 chipsets, respectively, from 3Dfx Interactive
(NASDAQ:TDFX - news). Micronics/Orchid is also a supplier of Voodoo Graphics and
Voodoo2-based PC gaming boards. Diamond Multimedia intends to continue the
Orchid Righteous
<PAGE> 2
3D brand in the computer gaming market and to coordinate the marketing of the
Righteous 3D and Monster 3D brands to their respective target markets worldwide.
"The acquisition of Micronics provides Diamond with an entry into the market
for multimedia systems boards," said Bill Schroeder, president and CEO of
Diamond Multimedia. "The addition of the systems board business coupled with
the consolidation of the PC gaming business provides strong synergy between
Diamond and Micronics."
"Diamond's worldwide procurement, channel penetration and brand strength, plus
the addition of Diamond's multimedia and communications capabilities to
Micronics' traditional motherboard design strengths, make this a great fit,"
said Charles Hart, president and CEO of Micronics.
Financial Considerations
Diamond Multimedia intends to finance the acquisition of Micronics with
existing cash and the approximately $20 million in cash currently held by
Micronics. Diamond Multimedia expects to commence a tender offer promptly at
$2.45 per share for all outstanding shares of Micronics. The offer is also
subject to the condition that at least fifty-one percent (51%) of the shares
are tendered. If the tender offer is successful, it will be followed as
promptly as possible by a merger in which any remaining shares of Micronics
stock will be converted into the right to receive $2.45 per share in cash.
"Diamond expects to take a one-time charge during the second quarter in
connection with the acquisition of Micronics," said Jim Walker, senior vice
president and CFO of Diamond Multimedia. "We anticipate this charge will be
comprised of both expensed in-process R&D and the costs associated with the
integration of the two businesses. However, on an ongoing basis, we do not
expect this deal to be dilutive." Diamond Multimedia was advised in the
acquisition by Broadview Associates, LLC.
Diamond Multimedia Systems, Inc.
Diamond Multimedia is driving the interactive multimedia market by providing
advanced solutions for home, business and professional desktop computer users,
enabling them to create, access and experience compelling new media content
from their desktops and through the Internet. Diamond accelerates multimedia
from the Internet to the hard drive with products that include the Stealth and
Viper series of media accelerators, the Monster series of entertainment 3D and
sound accelerators, the Fire series of professional 3D and SCSI accelerators,
and the Supra series of modems. Diamond also markets DVD and video phone kits.
Diamond's common stock is traded on the Nasdaq Stock Market under the symbol
DIMD, and its web site address is www.diamondmm.com.
Micronics/Orchid
Micronics is an independent supplier of high performance motherboards and
multimedia peripherals, sold under the Orchid brand, for personal computers and
servers. Based in Fremont, California, Micronics markets its products worldwide
to computer system manufacturers, system integrators, value added resellers
and the distribution channel. The company's toll-free sales number is
800/577-0977. Web sites are www.micronics.com and www.orchid.com.
Except for historical information contained herein, the matters set forth in
this press release, such as statements relating to the Company's ability to
successfully exploit technological and market developments, the expansion of
the systems board market, the ability of Diamond to leverage Micronics'
motherboard business, the synergy of Diamond and Micronics with respect to the
PC gaming market and the supply of multimedia systems boards, the timing and
success of new product introductions by the Company and its competitors, and
the Company's ability to invest in new technologies and to enhance its existing
systems are forward-looking statements that are subject to risks and
uncertainties, including the impact of competitive products and pricing and
alternative technological advances, the timely and successful development and
market acceptance of new products and upgrades to existing products, the
impact, if any, of the announcement of the proposed acquisition on the
Company's business, the ability of the Company to successfully integrate the
business and operations of Micronics if the acquisition is
<PAGE> 3
consummated, and other risks as detailed from time to time in Diamond
Multimedia's SEC filings, including its most recent Forms 10-K and 10-Q.
How to Contact Diamond Multimedia
There are many ways to reach Diamond for sales support, technical assistance,
driver updates and general information:
Internet Web Site: http://www.diamondmm.com
Diamond Multimedia's Headquarters and
Multimedia Division: 408/325-7000; Fax: 408/325-7070
Communications Division (Supra brand modems)
Main Phone Number: 360/604-1400; Fax: 360/604-1401
European Division (Germany): +49-8151-266-0;
(UK): +44-1189-444400; (France) +33-1-55381600
Korean Office (Seoul): +82-2-551-2700; Fax: +82-2-551-2710
Japanese Office (Tokyo); +81-3-5695-8401; Fax: +81-3-5695-8403
ASEAN Office (Singapore): +65-353-9511; Fax: +65-353-9510
Hong Kong Office: +852-2375-9023; Fax: +852-2375-9021
Australian Office (Sydney); +61-2-9460-2355; Fax: +61-2-9460-2360
Swedish Office: +46-417-40060; Fax: +46-417-40054
Product Support (Voice), United States: 541-967-2450;
Europe (Germany) +49-8151-266-330;
Europe (UK) +44-1189-444444; TDD/TTY Support 541-967-2451 Product Support (Fax),
United States: 541/967-2401; Europe (Germany) +49-8151-266-331;
Europe (UK): +44-1189-444445; (France) +33-1-47561139
Pre-sales Information: 1-800/468-5846
Investor Relations: 408/325-7476; 1-888/474-3463 (U.S. and Canada) 24-(Hour
Fax-On-Demand Service: 1-800/380-0030 FTP site: ftp.diamondmm.com BBS:
541/967-2444 (to 33.6 Kbps); Europe (Germany) BBS at +49-8151-266333 (to 28.8
Kbps) or +49-8151-266334 (ISDN); Europe (UK) at +44-1189-444415 (to 33.6 Kbps)
Note To Editors: Monster 3D and Supra are either trademarks or registered
trademarks of Diamond Multimedia Systems, Inc. Monster(R) is a registered
trademark of Monster Cable. Viper(R) is a registered trademark of Directed
Electronics, Inc., Used under License. All other trademarks referenced are the
service mark, trademark or registered trademark of their respective
manufacturers. This announcement relates to products whose introductions and
sales are in North America. The product name, contents, prices and
availability may differ elsewhere in the world according to local factors and
requirements.
- ---------------
Contact:
Diamond Multimedia Systems, Inc.
Ken Wirt, 408/325-7376 (VP, Corporate Marketing)
[email protected]
Jim Walker, 408/325-7333 (Sr. VP and CFO)
[email protected]
<PAGE> 1
Exhibit 4
May 7, 1998
Board of Directors
Micronics Computers, Inc.
45365 Northport Loop West
Fremont, CA 94538-6417
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Micronics Computers, Inc. ("Micronics") of the
Company valuation of $31.6 million in cash for the acquisition of 100% of the
shares outstanding, plus a payment of $484,000 for the net value of vested stock
options of Micronics by Diamond Multimedia Systems, Inc. ("Diamond"), as of May
7, 1998.
Alliant Partners, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
private placements, mergers and acquisitions, and corporate partnering
transactions.
In arriving at our opinion, we have reviewed the Agreement and Plan of Merger
and financial and other information that was publicly available or furnished to
us by Micronics. We also have reviewed certain internal financial reports and
forecasts for Micronics prepared by their management and have held discussions
with members of the senior management of Micronics regarding the historic and
current business operations and future prospects of Micronics including their
expectations for certain strategic benefits of the transaction. In addition,
Alliant Partners analyzed the stock market value of Micronics, compared certain
financial data of Micronics with those of various other companies engaged in
businesses we considered comparable and whose securities are traded in public
markets, reviewed the overall risks presented by the business plan, reviewed
prices paid in certain other similar business transactions, analyzed the future
cash flows of the company as projected by Micronics management, and conducted
such other financial studies, analyses and investigations as we deemed
appropriate for purposes of this opinion.
We have assumed, without independent verification, the accuracy, completeness
and fairness of all of the financial and other information regarding Micronics
that has been provided to us by them and their representatives. We did not make
any independent evaluation of Micronics's businesses nor did we review any of
their corporate records.
Based on the foregoing and such other factors as we deem relevant, we are of the
opinion as of the date hereof, that the Micronics company valuation of $2.45 per
share, and the acquisition of vested stock options, is fair, from a financial
point of view, to the Micronics shareholders.
Sincerely yours,
/s/ ALLIANT PARTNERS
Alliant Partners
<PAGE> 1
DIRECTORS' COMPENSATION
The Company has a compensation plan for directors who are not employees,
consultants or independent contractors of the Company ("Outside Directors"). For
the period subsequent to November 1995, each Outside Director receives
compensation for his services as a director at an annual rate of $24,000 (the
"Base Fee"). Each Outside Director also receives an additional $1,500 per annum
for each committee of the Board upon which the director serves. Outside Director
fees are paid quarterly. This plan was suspended by the Board in August 1995 and
was reinstated in November 1995. Prior to November 1995, the Base Fee received
by each Outside Director for his services as a director was set at an annual
rate of $30,000 ($60,000 for the Chairman of the Board, if an Outside Director).
During fiscal 1997, Mr. Shelander received $27,000 and Ms. Simon received
$15,000 ($6,000 of which was accrued but not yet paid) as compensation as
directors of the Company. Mr. Timmins received no compensation as a director
during fiscal 1997. Outside Directors are also reimbursed for their reasonable
and necessary expenses incurred on the Company's behalf.
Outside Directors are eligible for automatic option grants under the
1992 Directors Stock Option Plan (the "Directors Plan"). The Directors Plan
provides for the automatic grant of an option for 30,000 shares (60,000 shares
for the Chairman of the Board, if an Outside Director) of the Company's Common
Stock when an individual first becomes an Outside Director. If the individual is
still an Outside Director when his initial option under the Directors Plan has
completed vesting, he is automatically granted a second option for the same
number of shares. All options granted under the Directors Plan have an exercise
price equal to the fair market value of the Company's Common Stock on the date
of grant, become exercisable at a rate of one-sixth of the shares every six
months, and expire five years after the date of grant.
CERTAIN TRANSACTIONS
On or about November 17, 1997 a principal stockholder of the Company,
the Lindner Fund, sold approximately 200,000 shares of the Company's Common
Stock in the open market. On November 24, 1997, the Company purchased 1,208,900
shares of its Common Stock from the Lindner Fund in the open market after being
contacted by the Lindner fund's broker with an offer to sell additional shares
to the Company. The Company paid $2.00 per share in cash for the Common Stock
held by the Lindner Fund. The Sales price of the Company's Common Stock in the
open market prior to the sale was $ 2.25 per share, resulting in a purchase by
the Company of the Lindner Fund Common Stock at a price below market and a sale
by the Lindner Fund of its complete holdings of the Company's capital stock.
In September 1997, the Company and Shanker Munshani, the Company's then
current President and Chief Executive Officer, agreed to terminate Mr.
Munshani's employment and his position as a director of the Company. In order to
provide continuity for the Company's management, the Company entered into a
nine-month consulting arrangement pursuant to the terms of a written Consulting
Agreement. Under the Consulting Agreement, Mr. Munshani will be paid $19,166.67
per month for his consulting services not to exceed ten hours per week during
the nine-month consulting period and will receive COBRA insurance benefits at
the Company's expense. Mr. Munshani's options will continue to vest during the
consulting period. The Consulting Agreement contains a mutual general release
and restates Mr. Munshani's continuing obligation to maintain the
confidentiality of the Company's proprietary and confidential information.
Charles J. Hart, the Company's current President and Chief Executive
Officer, entered into an Employment Agreement with the Company in connection
with his initial hiring on February 6, 1998, under which Mr. Hart serves as the
Company's Chief Executive Officer and a director of the Company.
Pursuant to his Employment Agreement, Mr. Hart's initial salary is
$20,000 per month until August 1998, at which time his monthly salary increases
to $22,000 per month. Subject to the discretion of the board, Mr. Hart's salary
may increase to $25,000 in February 1999. Mr. Hart is also eligible to receive a
$50,000 bonus
-3-
<PAGE> 2
if the Company's operating income in any quarter is $500,000 or more and has
increased over the preceding quarter. Bonuses will be paid at the discretion of
the board.
The Employment Agreement also provides for the grant of 350,000 shares
of the Company's Common Stock under option, which options were granted $1.8125
per share, the closing price of the Company's stock on the day preceding the
effective date of the grant, and which vest over a four-year period. Options for
an additional 200,000 shares of the Company's Common Stock may be granted to Mr.
Hart if the Company meets certain milestones during the two-year term of the
Employment Agreement.
Finally, the Employment Agreement provides that if Mr. Hart's employment
is terminated by the Company without good cause during the two-year term of the
Agreement, then Mr. Hart would receive a severance payment equal to $22,000
($25,000 after February 1999) times the number of months Mr. Hart had been
employed by the Company up to a maximum of twelve months.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of February 15,
1998 with respect to the beneficial ownership of the Company's Common Stock by:
(a) each stockholder known by the Company to be the beneficial owner of more
than 5% of the Company's Common Stock; (b) each director; (c) each of the
Company's executive officers who earned in excess of $100,000 from the Company
during fiscal 1997, and one highly compensated executive officer who was not
serving as an executive officer at the end of fiscal 1997 (together, the "Named
Officers"); and (d) all executive officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
- ------------------- ------------ ------------
<S> <C> <C>
Dimensional Fund Advisors(3)................ 790,900 6.1%
1299 Ocean Ave., 11th Floor
Santa Monica, CA 90401
Ira Albert(4)............................... 759,500 5.9%
1304 SW 160th Ave., Ste. 209
Ft. Lauderdale, FL 33326
Capital Technology, Inc..................... 692,800 5.4%
8314 Pineville Matthews Road
Charlotte, NC 28226
Shanker Munshani(5)......................... 183,469 1.4%
William E. Shelander(6)..................... 71,167 *
William Crouch(7) .......................... 22,083 *
Bill R. Finley(8) .......................... 21,461 *
Wun-Yann Liao(9)............................ 49,815 *
Larry Smith(10) ............................ 24,583 *
Diane Simon(11) ............................ 10,000 *
Jim Timmins(12)............................. 5,000 *
Charles J. Hart(13) ........................ * *
All current officers and directors
as a group (8 persons)(14).................. 387,578 2.9%
</TABLE>
- ----------
-4-
<PAGE> 3
*Less than 1%.
(1) Unless otherwise indicated below, the persons named in the table have sole
voting and sole investment power with respect to all shares beneficially
owned, subject to community property laws where applicable.
(2) Percentage ownership is based upon 12,902,565 shares of Common Stock
outstanding as of February 15, 1998.
(3) Based on information supplied by Dimensional Fund Advisors in a Schedule
13G filed with the Securities and Exchange Commission on February 10,
1998. Dimensional Fund Advisors Inc. ("Dimensional"), a registered
investment advisor, is deemed to have beneficial ownership of 790,900
shares of the Company's Common Stock, all of which are held in portfolios
of DFA Investment Dimensions Group Inc., a registered open-end investment
company, or in series of the DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust and DFA Participation Group Trust,
investment vehicles for qualified employee benefit plans, all for which
Dimensional serves as investment manager. Dimensional disclaims beneficial
ownership of all such shares.
(4) Based on information supplied by Mr. Albert in a Schedule 13G filed with
the Securities and Exchange Commission on February 21, 1997. Includes
335,000 shares held by Albert Investment Associates, L.P. and 422,500
shares held by various accounts over which Mr. Albert has discretionary
dispository authority.
(5) Comprised of 19,406 shares owned by Mr. Munshani and 164,063 shares
subject to options exercisable within 60 days after February 15, 1998. Mr.
Munshani is a consultant to the Company.
(6) Comprised of 17,000 shares owned by Mr. Shelander and 54,167 shares
subject to options exercisable within 60 days after February 15, 1998. Mr.
Shelander is an executive officer of the Company and continues to be a
director of the Company.
(7) Represents 22,083 shares subject to options exercisable within 60 days
after February 15, 1998. Mr. Crouch is an executive officer of the
Company.
(8) Comprised of 2,086 shares owned by Mr. Finley and 19,375 shares subject to
options exercisable within 60 days after February 15, 1998. Mr. Finley is
an executive officer of the Company.
(9) Comprised of 14,815 shares owned by Mr. Liao and 35,000 shares subject to
options exercisable within 60 days after February 15, 1998. Mr. Liao is an
executive officer of the Company.
(10) Represents 24,583 shares subject to options exercisable within 60 days
after February 15, 1998. Mr. Smith is an executive officer of the Company.
(11) Represents 10,000 shares subject to options exercisable within 60 days
after February 15, 1998. Ms. Simon is a director of the Company.
(12) Represents 5,000 shares subject to options exercisable within 60 days
after February 15, 1998. Mr. Timmins is a director of the Company.
(13) Mr. Hart has been granted options for the purchase of up to 350,000 shares
of the Company's Common Stock, none of which will be exercisable within 60
days after February 1998. Mr. Hart is an executive officer of the Company.
(14) Comprised of 53,307 shares owned and 334,271 shares subject to options
exercisable within 60 days of February 15, 1998, representing the shares
referenced in notes (5) through (13) above.
-5-
<PAGE> 4
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded, earned or paid
for services rendered in all capacities to the Company and its subsidiaries
during each of the fiscal years 1995, 1996 and 1997 to the Named Officers. This
information includes the dollar values of base salaries, bonus awards, the
number of stock options granted and certain other compensation, if any, whether
paid or deferred. The Company does not grant SARs and has no long-term
compensation benefits other than stock options.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION ALL OTHER
ANNUAL COMPENSATION AWARDS-OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) (NO. OF SHARES) ($)(2)
- --------------------------- ---- --------------------- --------------- ------
<S> <C> <C> <C> <C>
William E. Shelander(3) ....... 1997 $ 31,615 -- 100,000 $ 43
Chairman of the Board and 1996 22,500 -- -- --
Chief Executive Officer 1995 23,625 -- 30,000 --
William Crouch ................ 1997 $145,000 -- 55,000 $ 1,359
Vice President 1996 16,731 -- -- 279
Sales and Marketing 1995 -- -- -- --
Bill R. Finley ................ 1997 $ 99,615 -- 65,000 $ 1,144
Vice President, Finance 1996 -- -- -- --
Chief Financial Officer 1995 -- -- -- --
and Secretary
Wun-Yann Liao ................. 1997 $146,731 -- 15,000 $ 1,860
Vice President 1996 162,039 -- 50,000 1,541
Operations 1995 141,678 $ 6,270 10,000 1,362
Larry Smith ................... 1997 $119,327 -- 65,000 $ 754
Vice President 1996 16,058 -- -- 227
Engineering 1995 -- -- -- --
Shanker Munshani .............. 1997 $270,000 -- 75,000 $ 2,242
Former President, Chief 1996 198,269 -- 100,000 1,656
Executive Officer and 1995 146,154 $ 8,859 100,000 847
Secretary
</TABLE>
- ----------
(1) Represents bonuses earned for services rendered during the fiscal year
listed, even if paid after the end of the fiscal year.
(2) Perquisites are excluded as their aggregate value did not meet the reporting
threshold of the lesser of $50,000 or 10% of the individual's salary plus
bonus. Represents insurance premiums paid by the Company with respect to
term life insurance for the benefit of the Named Officers ($206 and $77 for
Messrs. Liao and Munshani, respectively, in fiscal 1995; $279, $376, $227
and $791 for Messrs. Crouch, Liao, Smith and Munshani, respectively, in
fiscal 1996; and $43, $453, $497, $588, and $918 for Messrs. Shelander,
Crouch, Liao, Smith and Munshani, respectively, in fiscal 1997), and Company
matching contributions to the Company's 401(k) plan ($1,156 and $770 for
Messrs. Liao and Munshani, respectively, in fiscal 1995; $1,165 and $865 for
Messrs. Liao and Munshani, respectively, in fiscal 1996; and $906, $1,144,
$1,363, $166, and $1,324 for Messrs. Crouch, Finley, Liao, Smith, and
Munshani, respectively, in fiscal 1997).
(3) Salary includes $27,000, $22,500 and $23,625 in fees paid to Mr. Shelander
as director fees in fiscal 1997, 1996 and 1995 respectively.
-6-
<PAGE> 5
STOCK OPTIONS AND OPTION GRANTS IN FISCAL 1997
The following table sets forth information concerning option grants
during the fiscal year ended September 30, 1997 to each of the Named Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------- VALUE AT ASSUMED
ANNUAL RATES OF STOCK
% of Options PRICE APPRECIATION
Options Granted to Exercise FOR OPTION TERM(1)
Granted Employees in Price Expiration --------------------
NAME (#)(2) Fiscal Year(3) ($/Sh) Date 5%($) 10%($)
- -------- ------- -------------- ----- ---- ------- ------
<S> <C> <C> <C> <C> <C> <C>
William E. Shelander . 100,000 10.2% $ 2.44 09/02 $ 67,344 $148,812
William Crouch ....... 55,000 5.6 2.38-2.44 12/01-03/02 28,180 69,826
Bill R. Finley ....... 65,000 6.6 2.44-2.48 01/02-03/02 44,395 98,095
Wun-Yann Liao ........ 15,000 1.5 2.44 03/02 10,102 22,322
Larry Smith .......... 65,000 6.6 2.38-2.44 12/01-03/02 34,914 84,707
Shanker Munshani ..... 75,000 7.7 2.44 03/02 50,508 111,609
</TABLE>
- ----------
(1) The 5% and 10% assumed rates of annual compound stock price appreciation
are mandated by rules of the SEC and do not represent the Company's
estimate or projection of future Common Stock prices. No value is reported
for options that expired without being exercised.
(2) Stock options are granted with an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant. Options
generally become exercisable (a) as to grants made to optionees who have
not yet received an option under the plan and who have been hired by, or
commenced their relationship with, the Company within one year prior to
the grant date of the first such option, as to 25% of the shares subject
to the option on a date one year after the vesting start date specified by
the Board (generally, the hire date), with the remainder to vest in equal
amounts per month over the following three-year period and (b) as to
options granted to all other optionees, in equal amounts per month over
the four-year period commencing with the vesting start date specified by
the Board (generally the date of grant).
(3) The Company granted options to purchase 979,200 shares in fiscal 1997.
The following table sets forth information concerning the number and value
of unexercised stock options held at September 30, 1997 by each of the Named
Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED VALUE OPTIONS AT 9/30/97 AT 9/30/97 ($)(1)
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ----------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
William E. Shelander -- -- 20,000 110,000 -- --
William Crouch ..... -- -- 13,542 41,458 -- --
Bill R. Finley ..... -- -- 0 65,000 -- --
Wun-Yann Liao ...... -- -- 25,208 49,792 $ 1,094 $ 2,658
Larry Smith ........ -- -- 13,542 51,458 -- --
Shanker Munshani ... -- -- 125,000 150,000 -- --
</TABLE>
- ----------
(1) These values have not been and may never be realized. They are based on the
positive spread between the respective exercise prices of outstanding stock
options and the closing price of the Company's Common Stock on September 30,
1997 ($2.25).
-7-
<PAGE> 6
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
REGARDING EXECUTIVE COMPENSATION
The Compensation Committee and the full Board generally reviews base
salary levels for officers each February. The Compensation Committee establishes
the general compensation policy of the Company for all executive officers and
recommends specific salary levels to the full Board.
To arrive at base salary levels, the Company's Human Resources
Department provides the Compensation Committee with executive compensation data
from a group of similar size high-technology companies. The factors used to
determine the participants in the survey group include annual revenue, industry,
growth rate and geography. The Company's executive level positions, including
the Chief Executive Officer ("CEO"), were matched to comparable survey positions
and competitive market compensation levels to determine base salary, target
incentives and target total cash compensation. Practices of such companies with
respect to stock option grants are also reviewed and compared.
In preparing the performance graph for this Proxy Statement (see page
11), the Company used the Nasdaq Computer Manufacturer Index ("NCM Index") as
its published line of business index. The companies in the executive
compensation survey group prepared by the Human Resources Department are
substantially similar to the companies contained in the NCM Index in that they
are all computer or computer component manufacturers. However, the NCM Index
includes companies located throughout the United States and the executive
compensation survey is restricted to companies that are located in northern
California.
The executive compensation survey data are reviewed with the CEO for
each executive level position and, are currently reviewed by the Board as to the
CEO's compensation. During fiscal 1997, the CEO's salary was based on
competitive market conditions as of the time his employment agreement was
entered into, as described below.
Fiscal Year 1997 Executive Compensation
The practice of the Company during fiscal 1997 was to establish base
salaries at the approximate median of comparative positions included in the
executive compensation survey data. In any case where the Board or the CEO
believed an executive officer was not working at a level expected of him, or was
exceeding the Board's or CEO's expectations, the executive officer's base
compensation was adjusted upward or downward, as appropriate. In any case where
the services of a particular executive officer were sought by the Company's
competitors, the executive officer's base compensation may then have been raised
to meet or exceed any competitive offers of competitors. The foregoing
information, along with the CEO's recommendations of base salary for fiscal 1997
for each executive officer, was presented to the Compensation Committee and then
to the full Board at the time salary levels were approved and again for
particular executive officers at various times throughout the year when the
executive officer was promoted or other changes in the officer's status were
made. At that time, the Board reviewed the recommendations outlined above and
established a base salary level for the executive officer in question.
Secondly, the Board believes that the compensation of the CEO and other
executive officers should be influenced by the Company's overall performance. As
a result, once base salary was determined, an additional portion of the
compensation of each executive was contingent upon corporate performance under
the Company's Bonus and Profit Sharing Plans. Under these plans, semi-annual
cash awards may be made to employees based upon the Company's overall
performance measured by pre-tax income. No distributions were made under either
plan for fiscal 1997.
The Bonus Plan provides for semi-annual distribution of cash awards to
employees and executive officers, excluding the CEO. The total amount of the
distribution to participants in the Plan (the "Bonus Pool") is based upon a
percentage of pre-tax income, not to exceed 6%. Up to 40% of the Bonus Pool, at
the discretion of the Board, may be allocated for distribution to executive
officers as a group and the remainder to other employees of the Company.
Allocations for the CEO are made by the Board, if the CEO is eligible for a
bonus under the Bonus Plan, and further allocation among executive officers is
made by the CEO, in each case, based upon merit. Further allocation among
non-officer employees is made, again based upon merit, by the CEO and Company
department heads as to employees they supervise. No distribution was made under
the Bonus Plan for fiscal 1997.
-8-
<PAGE> 7
Under the Profit Sharing Plan, semi-annual cash distributions are made
to all employees in amounts not to exceed 4% of pretax income. No distribution
was made under the Profit Sharing Plan with respect to fiscal 1997.
Third, the Board believes that stock options play an important role in
attracting and retaining qualified personnel because they provide personnel with
a reward directly tied to increased stock values. Stock options are granted at
fair market value to executive officers when they first join the Company. In
individual cases, follow-on options are granted, again at fair market value on
the date of grant, to executives after the initial options are partially or
fully vested. Both initial and follow-on options are granted based upon an
analysis, made by the Compensation Committee of the Board, of equity incentives
offered to executives in equivalent positions by similar companies with whom the
Company competes for available executive talent and, with respect to follow-on
options, the Committee's or the CEO's determination of whether or not the
executive officer's performance warrants an additional grant. Reference is made
to page 8 of this Proxy Statement for information on grants made to executive
officers during fiscal 1997.
CEO Compensation
In September 1997, the Company and Shanker Munshani, the Company's then
current President and Chief Executive Officer, agreed to terminate Mr.
Munshani's employment and his position as a director of the Company. Prior to
the termination of Mr. Munshani's employment with the Company, Mr. Munshani's
annual salary was $270,000 subject to increase and to a bonus arrangement as
determined by the Company's Board of Directors pursuant to the terms of an
Employment Agreement. Mr. Munshani also was not eligible to participate in the
Bonus Plan and the Profit Sharing Plan. The standards under which Mr. Munshani's
compensation was set were the same standards as apply to other executive
officers of the Company.
Charles J. Hart, the Company's current President and Chief Executive
Officer, was hired in February 1998 pursuant to a two-year Employment Agreement
that was entered into after arms-length negotiations.
Pursuant to his Employment Agreement, Mr. Hart's initial salary is
$20,000 per month until August 1998, at which time his monthly salary increases
of $22,000 per month. Subject to the discretion of the board, Mr. Hart's salary
may increase to $25,000 in February 1999. Mr. Hart is also eligible to receive a
$50,000 bonus if the Company's operating income in any quarter is $500,000 or
more and has increased over the preceding quarter. Bonuses will be paid at the
discretion of the Board. The Employment Agreement provides that if Mr. Hart's
employment is terminated by the Company without good cause during the term of
the Agreement, then Mr. Hart would receive a severance payment equal to $22,000
($25,000 after February 1999) times the number of months Mr. Hart had been
employed by the Company up to a maximum of twelve months.
Mr. Hart's Employment Agreement also provides for the grant of 350,000
shares of the Company's Common Stock under option, which options were granted at
$1,8125 per share, the closing price of the Company's stock on the day preceding
the effective date of the grant, and which vest over a four-year period. Options
for an additional 200,000 shares of the Company's Common Stock may be granted to
Mr. Hart if the Company meets certain milestones during the two-year term of the
Employment Agreement. The primary purpose of the option grants is to provide a
strong incentive for Mr. Hart to increase the value of the Company' stock during
the term of his employment with the Company.
The Board believed it necessary to provide the compensation package to
Mr. Hart that is described above in order to encourage Mr. Hart to accept
employment with, and thereafter remain employed by, the Company. This package
was agreed by the Company after taking into account the compensation packages
offered by the Company's competitors described above and the compensation
packages being requested by other CEO's.
This report on compensation is given by the Compensation Committee of
the Board of Directors:
Diane Simon Jim Timmins
-9-
<PAGE> 8
COMPARISON OF STOCKHOLDER RETURN
The graph below compares the cumulative stockholder return on the Common
Stock of the Company from September 30, 1998 to September 30, 1997 with the
cumulative return on the Nasdaq Market Index (U.S. Companies) and the Nasdaq
Computer Manufacturers Index over the same period (assuming the investment of
$100 in the Company's Common Stock and in each of the indexes on September 30,
1998 and reinvestment of all dividends).
COMPARISON OF CUMULATIVE TOTAL RETURN
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
CRSP Total Return Index for 09/30/92 09/30/93 09/30/94 09/29/95 09/30/96 09/30/97
- --------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Micronics Computers, Inc. 100.0 167.9 110.7 132.1 60.7 64.3
Nasdaq Stock Market 100.0 131.0 132.1 182.4 216.5 297.1
(US Companies)
Nasdaq Computer 100.0 104.9 116.8 207.1 270.6 387.4
Manufacturers Stocks SIC
3570-3579 US & Foreign
</TABLE>
Notes:
A. The lines represent monthly index levels derived from compounded
daily returns that include all dividends.
B. The indexes are reweighted daily, using the market
capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a
trading day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 09/30/92.
-10-
<PAGE> 1
Exhibit 6
MICRONICS COMPUTERS, INC.
1992 DIRECTORS STOCK OPTION PLAN
As Adopted April 28, 1992
and Amended through February 14, 1996
1. PURPOSE. This Stock Option Plan (this "Plan") established to
provide equity incentives for nonemployee members of the Board of Directors of
Micronics Computers, Inc., (the "Company") who are not eligible under the
Company's 1989 Stock Option Plan, by granting such persons options to purchase
shares of stock of the Company.
2. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become
effective on the date that it is adopted by the Board of Directors (the "Board")
of the Company. This Plan shall be approved by the shareholders of the Company
within twelve months after the date this Plan is adopted by the Board. Upon the
effective date of this Plan, options under this Plan ("Options") may be granted
provided that, in the event that shareholder approval is not obtained within the
time period provided herein, this Plan, and all Options granted hereunder, shall
terminate. No Option that is issued as a result of any increase in the number of
shares authorized to be issued under this Plan shall be exercised prior to the
time such increase has been approved by the shareholders of the Company and all
such Options granted pursuant to such increase shall similarly terminate if such
shareholder approval is not obtained. So long as the Company is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, the Company
will comply with the requirements of Rule 16b-3 with respect to shareholder
approval.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan shall
be nonqualified stock options ("NQSOs"). The shares of stock that may be
purchased upon exercise of Options granted under this Plan (the "Shares") are
shares of the Common Stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan is 300,000 Shares, subject to
adjustment as provided in this Plan. If any Option is terminated for any reason
without being exercised in whole or in part, the Shares thereby released from
such Option shall be available for purchase under other Options subsequently
granted under this Plan. At all times during the term of this Plan, the Company
shall reserve and keep available such number of Shares as shall be required to
satisfy the requirements of outstanding Options under this Plan.
5. ADMINISTRATION. This Plan shall be administered by the Board or by
a committee of not less than two members of the Board appointed to administer
this Plan (the "Committee"). As used in this Plan, references to the Committee
shall mean either such Committee or the Board if no committee has been
established. The interpretation by the Committee of any of the provi-
-1-
<PAGE> 2
Micronics Computers, Inc.
1992 Directors Stock Option Plan
As Amended through February 14, 1996
sions of this Plan or any Option granted under this Plan shall be final and
binding upon the Company and all persons having an interest in any Option or any
Shares purchased pursuant to an Option.
6. ELIGIBILITY AND AWARD FORMULA.
6.1 Eligibility. Options may be granted only to directors of
the Company who are not employees, consultants or independent contractors of the
Company or any Parent, Subsidiary or Affiliate of the Company, as those terms
are defined in Section 18 below ("Optionees").
6.2 Initial Grant. Each Optionee who is a member of the Board
on the effective date of the first registration statement on Form S-8 filed
under the Securities Act of 1933, as amended (the "Act"), concerning this Plan
is automatically granted an Option for 30,000 Shares on such effective date;
provided that, the Chairman of the Board, if any, instead shall be granted an
Option for 60,000 Shares. Thereafter, each Optionee who becomes a member of the
Board, or who is already a member of the Board but becomes the Chairman of the
Board, for the first time will automatically be granted an Option for 30,000
Shares on the date such Optionee is first elected to the Board or first becomes
Chairman of the Board, as the case may be. An individual who concurrently
becomes a member of the Board for the first time and the Chairman of the Board
will be granted an Option for 60,000 Shares in total on the date of such
concurrent events.
6.3 Succeeding Grants. If, on the date his or her most recent
Option grant completes vesting, the Optionee is still a member of the Board, the
Optionee will again automatically be granted an Option for 30,000 Shares,
provided that any such Option to be granted to the Chairman of the Board, if
any, will instead be granted for 60,000 Shares if the most recent Option granted
that has completed vesting was for 60,000 shares.
6.4 Maximum Shares. The maximum number of Shares that may be
issued to any one director under this Plan is 60,000 for directors other than
the Chairman of the Board and 120,000 for the Chairman of the Board. No grant
will be made, however, if such grant will cause the number of Shares issued or
subject to outstanding Options under this Plan to exceed the number specified in
Section 4 above.
7. TERMS AND CONDITIONS OF OPTIONS. Subject to the following and to
Section 6 above:
7.1 Form of Option Grant. Each Option granted under this Plan
shall be evidenced by a written Stock Option Grant ("Grant") in such form (which
need not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
7.2 Vesting. The date this Plan is effective under the Act, as
to an Option initially granted to one who is an Optionee on such effective date,
the date an Optionee becomes a member of the Board for the first time, as to the
first Option granted to a future Optionee, and the
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<PAGE> 3
Micronics Computers, Inc.
1992 Directors Stock Option Plan
As Amended through February 14, 1996
date a succeeding Option is granted, for an Option described in Section 6.3
above, is referred to in this Plan as the "Start Date" for such Option. Each
Option granted under the Plan will vest as to one-sixth of the Shares subject to
it on a date six calendar months after the Option's Start Date and shall vest as
to an additional one-sixth of the Shares each six calendar month period
thereafter, so long as the Optionee continuously remains a director of the
Company.
7.3 Exercise Price. The exercise price of an Option shall be
the Fair Market Value (as defined in Section 18) of the Shares, at the time that
the Option is granted.
7.4 Term. Subject to earlier termination due to cessation of
the Optionee's status as a member of the Board due to death, disability or any
other reason, each Option shall be exercisable for a period of five years after
the date of its grant.
8. EXERCISE OF OPTIONS.
8.1 Notice. Options may be exercised only by delivery to the
Company of a written notice and exercise agreement in a form approved by the
Committee, stating the number of Shares being purchased, the restrictions
imposed on the Shares and such representations and agreements regarding the
Optionee's investment intent and access to information as may be required by the
Company to comply with applicable securities laws, together with payment in full
of the exercise price for the number of Shares being purchased.
8.2 Payment. Payment for the Shares may be made (a) in cash
(by check), (b) by surrender of shares of Common Stock of the Company that have
been owned by Optionee for more than six (6) months (and which have been paid
for within the meaning of SEC Rule 144 and, if such shares were purchased from
the Company by use of a promissory note, such note has been fully paid with
respect to such shares) or were obtained by the Optionee in the open public
market, having a Fair Market Value equal to the exercise price of the Option;
(c) by waiver of compensation due or accrued to Optionee for services rendered;
(d) provided that a public market for the Company's stock exists, through a
"same day sale" commitment from the Optionee and a broker-dealer that is a
member of the National Association of Securities Dealers (an "NASD Dealer")
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the Shares so purchased to pay for the exercise price and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the
exercise price directly to the Company; (e) provided that a public market for
the Company's stock exists, through a "margin" commitment from the Optionee and
an NASD Dealer whereby the Optionee irrevocably elects to exercise the Option
and to pledge the Shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the exercise price,
and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company or (f) by any combination of
the foregoing.
8.3 Withholding Taxes. Prior to issuance of the Shares upon
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable.
-3-
<PAGE> 4
Micronics Computers, Inc.
1992 Directors Stock Option Plan
As Amended through February 14, 1996
8.4 Limitations on Exercise. Notwithstanding the exercise
periods set forth in the Grant, exercise of an Option shall always be subject to
the following limitations:
(a) An Option shall not be exercisable until such time
as the Plan or, in the case of Options granted pursuant to an amendment to the
number of shares that may be issued pursuant to the Plan, the amendment has been
approved by the shareholders of the Company in accordance with Section 16
hereof.
(b) An Option shall not be exercisable unless such
exercise is in compliance with the Securities Act of 1933, as amended, and all
applicable state securities laws, as they are in effect on the date of exercise.
(c) The Committee may specify a reasonable minimum
number of Shares that may be purchased on any exercise of an Option, provided
that such minimum number will not prevent the Optionee from exercising the full
number of Shares as to which the Option is then exercisable.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, an Option shall be exercisable only by the Optionee or by the
Optionee's guardian or legal representative, unless otherwise permitted by the
Committee. No Option may be sold, pledged, assigned, hypothecated, transferred
or disposed of in any manner other than by will or by the laws of descent and
distribution.
10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a shareholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
of exercise, except as provided in this Plan. The Company shall provide to each
Optionee a copy of the annual financial statements of the Company, at such time
after the close of each fiscal year of the Company as they are released by the
Company to its shareholders.
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such Options shall be
proportionately adjusted, subject to any required action by the Board or
shareholders of the Company and compliance with applicable securities laws;
provided, however, that no certificate or scrip representing fractional shares
shall be issued upon exercise of any Option and any resulting fractions of a
Share shall be ignored.
12. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option
granted under this Plan shall confer on any Optionee any right to continue as a
director of the Company.
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<PAGE> 5
Micronics Computers, Inc.
1992 Directors Stock Option Plan
As Amended through February 14, 1996
13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of
Shares upon exercise of any Options shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without limitation
compliance with the Act, any required approval by the Commissioner of
Corporations of the State of California, compliance with all other applicable
state securities laws and compliance with the requirements of any stock exchange
or national market system on which the Shares may be listed. The Company shall
be under no obligation to register the Shares with the Securities and Exchange
Commission or to effect compliance with the registration or qualification
requirement of any state securities laws, stock exchange or national market
system.
14. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself or its assignee(s) in the Grant (a) a right of
first refusal to purchase any Shares that an Optionee (or a subsequent
transferee) may propose to transfer to a third party and (b) a right to
repurchase any or all Shares held by an Optionee upon the Optionee's termination
of service with the Company for any reason within a specified time as determined
by the Committee at the time of grant at the Optionee's original purchase price,
the fair market value of such Shares as determined by the Committee in good
faith or a price determined by a formula or other provision as set forth in the
Grant.
15. CORPORATE TRANSACTIONS.
15.1 Assumption or Replacement of Options by Successor.
In the event of:
(a) a dissolution or liquidation of the Company,
(b) a merger or consolidation in which the Company is
not the surviving corporation (other than a merger or consolidation
with a wholly owned subsidiary, a reincorporation of the Company in a
different jurisdiction, or other transaction in which there is no
substantial change in the stockholders of the Company or their
relative stock holdings and the Options granted under this Plan are
assumed, converted or replaced by the successor corporation, which
assumption will be binding on all Optionees),
(c) a merger in which the Company is the surviving
corporation but after which the stockholders of the Company (other
than any stockholder merges (or which owns or controls another
corporation which merges) with the Company in such merger) cease to
own at least 90% of the issued and outstanding capital stock or other
equity interests in the Company,
(d) the sale of all or substantially all of the assets
of the Company, or
-5-
<PAGE> 6
Micronics Computers, Inc.
1992 Directors Stock Option Plan
As Amended through February 14, 1996
(e) any other transaction which qualifies as a
"corporate transaction" under Section 424(a) of the Internal Revenue
Code of 1986, as amended (the "Code") wherein the stockholders of the
Company give up all of their equity interest in the Company (except
for the acquisition, sale or transfer of all or substantially all of
the outstanding shares of the Company from or by the stockholders of
the Company),
then, subject to Section 15.3 below, any or all outstanding Options may be
assumed, converted or replaced by the successor corporation (if any), which
assumption, conversion or replacement will be binding on all Optionees. In the
alternative and subject to Section 15.3 below, the successor corporation may
substitute equivalent Options or provide substantially similar consideration to
Optionees as was provided to stockholders (after taking into account the
existing provisions of the Options). The successor corporation may also issue,
in place of outstanding Shares of the Company held by the Optionee,
substantially similar shares or other property subject to repurchase
restrictions no less favorable to the Optionee.
15.2 Termination of Options. In the event of a transaction
described in clauses (a) through (e) of Section 15.1 and provided that the
successor corporation (if any) does not assume or substitute all outstanding
Options as provided above, such Options will expire on (and if the Company has
reserved to itself a right to repurchase shares issued upon exercise of Options
at the original purchase price of such shares, such right shall terminate upon)
such transaction at such time and on such conditions as the Board shall
determine upon twenty (20) days advance written notice to Optionees holding
outstanding Options.
15.3 Acceleration of Vesting. In the event of a merger
described in either clause (b) or (c) of Section 15.1 above, the sale of all or
substantially all of the assets of the Company as a going concern in a single
transaction or series of related transactions or the sale or transfer of a
majority of the outstanding shares of the Company by the stockholders of the
Company in a single transaction or a series of related transactions other than
market transactions to unrelated purchasers (an "Acquisition") and:
a) if the successor corporation, if any (the
"Successor"), does not assume or substitute Options as provided above
in Section 15.1, then each outstanding Option that is not totally
"Vested" (as defined in the Option or Exercise Agreement) shall
immediately accelerate and become exercisable in full under the terms
described by the Board in the notice described in the last sentence
of Section 15.2; or
b) if the Successor assumes or substitutes
Options as provided above in Section 15.1, but any Optionee's
employment with the Successor or any Parent, Subsidiary of Affiliate
of the Successor (as the definitions for such terms shall be revised
to substitute the Successor for the Company) is terminated by the
Successor, such Parent,
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<PAGE> 7
Micronics Computers, Inc.
1992 Directors Stock Option Plan
As Amended through February 14, 1996
Subsidiary or Affiliate without "cause" within one year after the
Acquisition, then the outstanding Options held by the terminated
employee, as so substituted or assumed, shall provide that they will
likewise immediately accelerate and become exercisable in full on the
date of such termination. For purposes hereof "cause" for termination
of any Optionee's employment will exist at any time after the
happening of one or more of the following events: (i) Optionee's
conviction of a felony involving moral turpitude; (ii) any willful
act or acts of dishonesty undertaken by the Optionee and intended to
result in substantial gain or personal enrichment of Optionee,
directly or indirectly, at the expense of the Successor, such Parent,
Subsidiary or Affiliate; (iii) any willful act or misconduct which is
materially and demonstrably injurious to the Successor, such Parent,
Subsidiary or Affiliate; (iv) substantial and repeated neglect of
Optionee's responsibility, or malfeasance thereof, that remains
uncured after thirty (30) days written notice of such neglect; or (v)
the death or disability (within the meaning of Section 22(e)(3 of the
Code) of the Optionee.
15.4 Other Treatment of Options. Subject to any greater
rights granted to Optionees under the foregoing provisions of this Section 15,
in the event of the occurrence of any transaction described in Section 15.1, any
outstanding Options will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
16. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
terminate or amend this Plan but not the terms of any outstanding option;
provided, however, that the Committee shall not, without the approval of the
shareholders of the Company, increase the total number of Shares available under
this Plan (except by operation of the provisions of Sections 4 and 11 above) or
change the class of persons eligible to receive Options. Further, the provisions
in Sections 6 and 7 of this Plan shall not be amended more than once every six
(6) months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act or the rules thereunder. In any case, no
amendment of this Plan may adversely affect any then outstanding Options or any
unexercised portions thereof without the written consent of the Optionee.
17. TERM OF PLAN. Options may be granted pursuant to this Plan from
time to time within a period of ten (10) years from the date this Plan is
adopted by the Board of Directors.
18. CERTAIN DEFINITIONS. As used in this Plan, the following terms
shall have the following meanings:
18.1 "Parent" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if, at the time of
the granting of the Option, each of such corporations other than the Company
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
-7-
<PAGE> 8
Micronics Computers, Inc.
1992 Directors Stock Option Plan
As Amended through February 14, 1996
18.2 "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
18.3 "Affiliate" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
18.4 "Fair Market Value" shall mean the fair market value of
the Shares as determined by the Committee from time to time in good faith. If a
public market exists for the Shares, the Fair Market Value shall be the average
of the last reported bid and asked prices for the common stock of the Company on
the last trading day prior to the date of determination, or, in the event the
common stock of the Company is listed on the NASDAQ National Market System, the
Fair Market Value shall be the average of the high and low prices of the common
stock on the option grant date as quoted on the NASDAQ National Market System
and reported in the Wall Street Journal.
----------------------------------------
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<PAGE> 9
MICRONICS COMPUTERS, INC.
DIRECTORS NONQUALIFIED STOCK OPTION GRANT
Optionee:
Address:
Total Shares Subject to Option:
Exercise Price Per Share:
Date of Grant:
Expiration Date:
1. GRANT OF OPTION. Micronics Computers, Inc., a California
corporation (the "Company"), has granted to the optionee named above
("Optionee") an option (this "Option") to purchase the total number of shares of
Common Stock of the Company set forth above (the "Shares") at the exercise price
per share set forth above (the "Exercise Price"), subject to all of the terms
and conditions of this Grant and the Company's 1992 Directors Stock Option Plan,
as amended to the date hereof (the "Plan"). Unless otherwise defined herein,
capitalized terms used herein shall have the meanings ascribed to them in the
Plan.
2. EXERCISE PERIOD OF OPTION. Subject to the terms and conditions of
the Plan and this Grant, this Option shall become exercisable as to one-sixth of
the Shares on the date six calendar months after the Date of Grant, and as to an
additional one-sixth of the Shares each six calendar month period thereafter, so
long as the Optionee continuously remains a member of the Board of Directors of
the Company (a "Board Member"). This Option may not be exercised until the Plan
or, in the case of Options granted pursuant to an amendment to the number of
shares that may be issued under the Plan, the amendment has been approved by the
shareholders of the Company as set forth in the Plan.
3. RESTRICTION ON EXERCISE. This Option may not be exercised unless
such exercise is in compliance with the Securities Act of 1933, as amended (the
"Act"), and all applicable state securities laws, as they are in effect on the
date of exercise, and the requirements of any stock exchange or national market
system on which the Company's Common Stock may be listed at the time of
exercise. Optionee understands that the Company is under no obligation to
register, qualify or list the Shares with the Securities and Exchange Commission
(the "SEC"), any state securities commission or any stock exchange or national
market system to effect such compliance.
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Micronics Computers, Inc.
Directors Nonqualified Stock Option Grant
4. TERMINATION OF OPTION. Except as provided below in this Section,
this Option shall terminate and may not be exercised if Optionee ceases to be a
Board Member. The date on which Optionee ceases to be a Board Member shall be
referred to as the "Termination Date."
4.1 Termination Generally. If Optionee ceases to be a Board
Member for any reason except death or disability, this Option, to the extent
(and only to the extent) that it would have been exercisable by Optionee on the
Termination Date, may be exercised by Optionee within six (6) months and one (1)
day after the Termination Date, but in no event later than the Expiration Date.
4.2 Death or Disability. If Optionee ceases to be a Board
Member because of the death of Optionee or the disability of Optionee within the
meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended,
this Option, to the extent (and only to the extent) that it would have been
exercisable by Optionee on the Termination Date, may be exercised by Optionee
(or Optionee's legal representative) within twelve (12) months after the
Termination Date, but in no event later than the Expiration Date.
5. MANNER OF EXERCISE.
5.1 Exercise Agreement. This Option shall be exercisable by
delivery to the Company of an executed written Directors Stock Option Exercise
Agreement in the form attached hereto as Exhibit A, or in such other form as may
be approved by the Board or the committee thereof that administers the Plan,
which shall set forth Optionee's election to exercise some or all of this
Option, the number of Shares being purchased, any restrictions imposed on the
Shares and such other representations and agreements as may be required by the
Company to comply with applicable securities laws.
5.2 Payment. Payment for the Shares may be made (a) in cash
(by check), (b) by surrender of shares of Common Stock of the Company that have
been owned by Optionee for more than six (6) months (and which have been paid
for within the meaning of SEC Rule 144 and, if such shares were purchased from
the Company by use of a promissory note, such note has been fully paid with
respect to such shares) or were obtained by the Optionee in the open public
market, having a Fair Market Value equal to the exercise price of the Option;
(c) by waiver of compensation due or accrued to Optionee for services rendered;
(d) provided that a public market for the Company's stock exists, through a
"same day sale" commitment from the Optionee and a broker-dealer that is a
member of the National Association of Securities Dealers (an "NASD Dealer")
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the Shares so purchased to pay for the exercise price and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the
exercise price directly to the Company; (e) provided that a public market for
the Company's stock exists, through a "margin" commitment from the Optionee and
an NASD Dealer whereby the Optionee irrevocably elects to exercise the Option
and to pledge the Shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the exercise price,
and whereby
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Micronics Computers, Inc.
Directors Nonqualified Stock Option Grant
the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company or (f) by any combination of
the foregoing.
5.3 Withholding Taxes. Prior to the issuance of the Shares
upon exercise of this Option, Optionee shall pay or make adequate provision for
any applicable federal or state withholding obligations of the Company.
5.4 Issuance of Shares. Provided that such notice and payment
are in form and substance satisfactory to counsel for the Company, the Company
shall cause the Shares to be issued in the name of Optionee or Optionee's legal
representative.
6. NONTRANSFERABILITY OF OPTION. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or by the Optionee's
guardian or legal representative, unless otherwise permitted by the Committee.
No Option may be sold, pledged, assigned, hypothecated, transferred or disposed
of in any manner other than by will or by the laws of descent and distribution.
7. INTERPRETATION. Any dispute regarding the interpretation of this
Grant shall be submitted by Optionee or the Company to the Company's Board of
Directors or the committee thereof that administers the Plan, which shall review
such dispute at its next regular meeting. The resolution of such a dispute by
the Board or committee shall be final and binding on the Company and on
Optionee. Nothing in the Plan or this Grant shall confer on Optionee any right
to continue as a Director, employee, officer or consultant of the Company.
8. ENTIRE AGREEMENT. The Plan and the Directors Stock Option Exercise
Agreement are incorporated herein by this reference. This Grant, the Plan and
the Stock Option Exercise Agreement constitute the entire agreement of the
parties hereto and supersede all prior undertakings and agreements with respect
to the subject matter hereof.
MICRONICS COMPUTERS, INC.
By:________________________________________
Shanker Munshani, President
ACCEPTANCE
Optionee hereby acknowledges receipt of a copy of the Plan, represents
that Optionee has read and understands the terms and provisions thereof, and
accepts this Option subject to all the terms and conditions of the Plan and this
Grant. Optionee acknowledges that there may be adverse tax consequences upon
exercise of this Option or disposition of the Shares and that Optionee should
consult a qualified tax advisor prior to such exercise or disposition.
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Micronics Computers, Inc.
Directors Nonqualified Stock Option Grant
-----------------------------------------
[OPTIONEE]
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EXHIBIT A
DIRECTORS STOCK OPTION EXERCISE AGREEMENT
This Agreement is made this ___ day of ___________, 19___, between
Micronics Computers, Inc. (the "Company"), and the optionee named below
("Optionee") with respect to the Directors Nonqualified Stock Option Grant dated
as of the Date of Option Grant set forth below (the "Grant") issued to the
Optionee under the Company's 1992 Directors Stock Option Plan (the "Plan").
Optionee: Diane Simon
Social Security Number: __________________________________________________
Address: c/o Lumina Office Products
1821 Zanker Road, San Jose, CA 95112
Number of Shares Purchased: __________________________________________________
Price per Share: $2.8125
Aggregate Purchase Price: __________________________________________________
Date of Option Grant: February 27, 1997
Optionee hereby delivers to the Company the Aggregate Purchase Price, to the
extent permitted in the Grant, as follows (check as applicable and complete):
[ ] in cash in the amount of $__________, receipt of which is acknowledged
by the Company;
[ ] by delivery of ________ fully-paid, nonassessable and vested shares
of the Common Stock of the Company owned by Optionee for at least six
(6) months prior to the date hereof (and which have been paid for
within the meaning of SEC Rule 144), or obtained by Optionee in the
open public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market
Value of $_______________ per share;
[ ] by the waiver hereby of compensation due or accrued to Optionee for
services rendered in the amount of $________________________;
[ ] through a "same-day-sale" commitment, delivered herewith, from Optionee
and the NASD Dealer named therein in the amount of
$________________________; or
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Micronics Computers, Inc.
Directors Stock Option Exercise Agreement
[ ] through a "margin" commitment, delivered herewith from Optionee and the
NASD Dealer named therein in the amount of
$_______________________________.
The Company and Optionee hereby agree as follows:
1. PURCHASE OF SHARES. On this date and subject to the terms and
conditions of this Agreement, Optionee hereby exercises the Grant with respect
to the Number of Shares Purchased set forth above of the Company's Common Stock
(the "Shares") at an aggregate purchase price equal to the Aggregate Purchase
Price set forth above and the Price per Share set forth above. The term "Shares"
refers to the Shares purchased under this Agreement and includes all securities
received in replacement of the Shares and as a result of stock dividends or
stock splits in respect of the Shares. Capitalized terms used herein that are
not defined herein have the definitions ascribed to them in the Plan or the
Grant.
2. REPRESENTATIONS OF PURCHASER. Optionee represents and warrants to the
Company that Optionee acknowledges that Optionee has received, read and
understood the Plan and the Grant and agrees to abide by and be bound by their
terms and conditions.
3. COMPLIANCE WITH SECURITIES LAWS. Optionee understands that the Shares
have been registered on Form S-8 under the Securities Act of 1933, as amended.
4. MARKET STANDOFF AGREEMENT. Optionee agrees in connection with any
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any public offering of the Company's securities,
Optionee will not sell or otherwise dispose of any Shares without the prior
written consent of the Company or such underwriters, as the case may be, for a
period of time from the effective date of such registration as the Company or
the underwriters may specify for directors generally.
5. STOP-TRANSFER NOTICES. Optionee understands and agrees that, in order
to ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop-transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
6. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER
ADVERSE TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF
THE SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE. IN PARTICULAR, OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED
WITH OPTIONEE'S TAX ADVISORS CONCERNING THE ADVISABILITY OF FILING A SECTION
83(b) ELECTION WITH THE INTERNAL REVENUE SERVICE.
7. ENTIRE AGREEMENT. The Plan and Grant are incorporated herein by
reference. This Agreement, the Plan and the Grant constitute the entire
agreement of the parties and supersede in
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Micronics Computers, Inc.
Directors Stock Option Exercise Agreement
their entirety all prior undertakings and agreements of the Company and Optionee
with respect to the subject matter hereof, and are governed by California law
except for that body of law pertaining to conflict of laws.
8. TITLE. Optionee desires to take title to the Shares as follows:
( ) Individual, as separate property
( ) Husband and wife, as community property
( ) Joint Tenants
( ) Tenants in Common
( ) Other (e.g., corporation, partnership, custodian, trust, etc.):
---------------------------------------------------
---------------------------------------------------
The exact spelling of name(s) under which title to the Shares is to be taken is:
- --------------------------------------------------------------------------------
Submitted by: Accepted by:
OPTIONEE: (print name) MICRONICS COMPUTERS, INC.
________________________________ By:________________________________
(signature)
Dated:___________________________ Dated:______________________________
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Exhbit 7
MICRONICS COMPUTERS, INC.
1989 STOCK OPTION PLAN
As First Adopted November 10, 1989
and Amended through February 14, 1996
1. PURPOSE. This 1989 Stock Option Plan ("Plan") is established as a
compensatory plan to attract, retain and provide equity incentives to selected
persons to promote the financial success of Micronics Computers, Inc. (the
"Company"). Capitalized terms not previously defined herein are defined in
Section 17 of this Plan.
2. TYPES OF OPTIONS AND SHARES. Options granted under this Plan (the
"Options") may be either (a) incentive stock options ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(b) nonqualified stock options ("NQSOs"), as designated at the time of grant.
The shares of stock that may be purchased upon exercise of Options granted under
this Plan (the "Shares") are shares of the Common Stock of the Company.
3. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan shall not exceed 2,500,000 (post
1-for-3 reverse stock split) in total, subject to adjustment as provided in this
Plan. If any Option is terminated for any reason without being exercised in
whole or in part, the Shares thereby released from such Option shall be
available for purchase under other Options subsequently granted under this Plan.
At all times during the term of this Plan, the Company shall reserve and keep
available such number of Shares as shall be required to satisfy the requirements
of outstanding Options under this Plan.
4. ELIGIBILITY. Options may be granted to employees, officers,
directors, consultants, independent contractors and advisors (provided such
consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction) of the Company or any Parent, Subsidiary or Affiliate of the
Company. ISOs may be granted only to employees (including officers and directors
who are also employees) of the Company or a Parent or Subsidiary of the Company.
The Committee (as defined in Section 14) in its sole discretion shall select the
recipients of Options ("Optionees"). An Optionee may be granted more than one
Option under this Plan. The Company may also, from time to time, assume
outstanding options granted by another company, whether in connection with an
acquisition of such other company or otherwise, by either (a) granting an option
under this Plan in replacement of the option assumed by the Company, or (b)
treating the assumed option as if it had been granted under this Plan if the
terms of such assumed option could be applied to an option granted under this
Plan. Such assumption shall be permissible if the holder of the assumed option
would have
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Micronics Computers, Inc.
1989 Stock Option Plan
been eligible to be granted an option hereunder if the other company had applied
the rules of this Plan to such grant.
5. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine
whether each Option is to be an ISO or an NQSO, the number of Shares subject to
the Option, the exercise price of the Option, the period during which the Option
may be exercised, and all other terms and conditions of the Option, subject to
the following:
5.1 Form of Option Grant. Each Option granted under this Plan
shall be evidenced by a written Stock Option Grant (the "Grant") in such form
(which need not be the same for each Optionee) as the Committee shall from time
to time approve.
5.2 Date of Grant. The date of grant of an Option shall be the
date on which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee. The Grant representing the Option will be
delivered to the Optionee with a copy of this Plan within a reasonable time
after the date of grant.
5.3 Exercise Price. The exercise price of an Option shall be not
less than 100% of the Fair Market Value of the Shares on the date the Option is
granted. The exercise price of any ISO granted to a person owning more than l0%
of the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary of the Company ("Ten Percent Shareholder") shall not be
less than 110% of the Fair Market Value of the Shares on the date the Option is
granted.
5.4 Exercise Period. Options shall be exercisable within the
times or upon the events determined by the Committee as set forth in the Grant;
provided, however, that no Option shall be exercisable upon the expiration of
ten (10) years after the date the Option is granted, and provided further that
no ISO granted to a Ten Percent Shareholder shall be exercisable upon the
expiration of five (5) years after the date the Option is granted.
5.5 Limitations on ISOs. The aggregate Fair Market Value
(determined as of the time an Option is granted) of stock with respect to which
ISOs are exercisable for the first time by an Optionee during any calendar year
(under this Plan or under any other incentive stock option plan of the Company
or any Parent or Subsidiary of the Company) shall not exceed $100,000. If the
Fair Market Value of stock with respect to which ISOs are exercisable for the
first time by an Optionee during any calendar year exceeds $100,000, the Options
for the first $100,000 worth of stock to become exercisable in such year shall
be ISOs and the Options for the amount in excess of $100,000 that becomes
exercisable in that year shall be NQSOs. In the event that the Code or the
regulations promulgated thereunder are amended after the effective date of this
Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISOs, such different limit shall be incorporated
herein and shall apply to any Options granted after the effective date of such
amendment.
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Micronics Computers, Inc.
1989 Stock Option Plan
5.6 Options Non-Transferable. Options granted under this Plan,
and any interest therein, shall not be transferable or assignable by the
Optionee, and may not be made subject to execution, attachment or similar
process, otherwise than by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the Optionee only by the Optionee;
provided that NQSOs held by an Optionee who is not an officer or director of the
Company or other person (in each case, an "Insider") whose transactions in the
Company's Common Stock are subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), may be transferred to such family
members, trusts and charitable institutions as the Committee, in its sole
discretion, shall approve at the time of the grant of such Option.
5.7 Assumed Options. In the event the Company assumes an option
granted by another company, the terms and conditions of such option shall remain
unchanged (except the exercise price and the number and nature of shares
issuable upon exercise, which will be adjusted appropriately pursuant to Section
425(c) of the Code.) In the event the Company elects to grant a new option
rather than assuming an existing option (as specified in Section 4), such new
option need not be granted at Fair Market Value on the date of grant and may
instead be granted with a similarly adjusted exercise price.
6. EXERCISE OF OPTIONS.
6.1 Notice. Options may be exercised only by delivery to the
Company of a written exercise agreement in a form approved by the Committee
(which need not be the same for each Optionee), stating the number of Shares
being purchased, the restrictions imposed on the Shares, if any, and such
representations and agreements regarding the Optionee's investment intent and
access to information, if any, as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
6.2 Payment. Payment for the Shares may be made in cash (by
check) or, where approved by the Committee in its sole discretion and where
permitted by law: (a) by cancellation of indebtedness of the Company to the
Optionee; (b) by surrender of shares of Common Stock of the Company that have
been owned by the Optionee for more than six (6) months (and which have been
paid for within the meaning of SEC Rule 144 and, if such Shares were purchased
from the Company by use of a promissory note, such note has been fully paid with
respect to such shares) or were obtained by the Optionee in the open public
market having a Fair Market Value equal to the exercise price of the Option; (c)
by instructing the Company to withhold Shares otherwise issuable pursuant to an
exercise of the Option having a Fair Market Value equal to the exercise price of
the Option (including the withheld Shares); (d) by waiver of compensation due or
accrued to Optionee for services rendered; (e) provided that a public market for
the Company's stock exists, through a "same day sale" commitment from the
Optionee and a broker-dealer that is a member of the National Association of
Securities Dealers (an "NASD Dealer") whereby the Optionee irrevocably elects to
exercise the Option and to sell a portion of the Shares so purchased to pay for
the exercise price and whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the exercise price directly to the Company; (f)
provided that a
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Micronics Computers, Inc.
1989 Stock Option Plan
public market for the Company's stock exists, through a "margin" commitment from
the Optionee and an NASD Dealer whereby the Optionee irrevocably elects to
exercise the Option and to pledge the Shares so purchased to the NASD Dealer in
a margin account as security for a loan from the NASD Dealer in the amount of
the exercise price, and whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the exercise price directly to the Company; or (g) by
any combination of the foregoing.
6.3 Withholding Taxes. Prior to issuance of the Shares upon
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable.
6.4 Limitations on Exercise. Notwithstanding the exercise periods
set forth in the Grant, exercise of an Option shall always be subject to the
following limitations:
(a) If an Optionee ceases to be employed by the Company or any
Parent, Subsidiary or Affiliate of the Company for any reason except death or
disability, the Optionee may exercise such Optionee's ISOs to the extent (and
only to the extent) that it would have been exercisable upon the date of
termination, within thirty (30) days after the date of termination (or such
shorter time period as may be specified in the Grant), provided that, if
Optionee is an Insider and the Company is subject to Section 16(b) of the
Exchange Act, the Optionee's Option may be exercisable for a period of time
sufficient to allow such Optionee to avoid having a matching purchase and sale
under Section 16(b), with any extension beyond thirty (30) days from termination
of employment deemed to be as an NQSO, and provided further that in no event may
an Option be exercisable later than the expiration date of the Option.
(b) If an Optionee's employment with the Company or any Parent,
Subsidiary or Affiliate of the Company is terminated because of the death of the
Optionee or disability of Optionee within the meaning of Section 22(e)(3) of the
Code, such Optionee's ISOs may be exercised to the extent (and only to the
extent) that it would have been exercisable by the Optionee on the date of
termination, by the Optionee (or the Optionee's legal representative) within
ninety (90) days after the date of termination (or such shorter time period as
may be specified in the Grant), but in any event no later than the expiration
date of the ISOs.
(c) The Committee shall have discretion to determine whether the
Optionee has ceased to be employed by the Company or any Parent, Subsidiary or
Affiliate of the Company and the effective date on which such employment
terminated.
(d) In the case of an Optionee who is a director, independent
consultant, contractor or advisor, the Committee will have the discretion to
determine whether the Optionee is "employed by the Company or any Parent,
Subsidiary or Affiliate of the Company" pursuant to the foregoing Sections.
(e) The Committee may specify a reasonable minimum number of
Shares that may be purchased on any exercise of an Option, provided that such
minimum number will not
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Micronics Computers, Inc.
1989 Stock Option Plan
prevent the Optionee from exercising the full number of Shares as to which the
Option is then exercisable.
(f) An Option shall not be exercisable unless such exercise is in
compliance with the Securities Act of 1933, as amended (the "1933 Act"), all
applicable state securities laws and the requirements of any stock exchange or
national market system upon which the Shares may then be listed, as they are in
effect on the date of exercise. The Company shall be under no obligation to
register the Shares with the Securities and Exchange Commission ("SEC") or to
effect compliance with the registration, qualification or listing requirements
of any state securities laws or stock exchange, and the Company shall have no
liability for any inability or failure to do so.
7. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Grant (a) a right of
first refusal to purchase all Shares that an Optionee (or a subsequent
transferee) may propose to transfer to a third party and/or (b) a right to
repurchase a portion of or all Shares held by an Optionee upon the Optionee's
termination of employment or service with the Company or its Parent, Subsidiary
or Affiliate of the Company for any reason within a specified time as determined
by the Committee at the time of grant at the Optionee's original purchase price,
the Fair Market Value of such Shares or a price determined by a formula or other
provision set forth in the Grant.
8. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. The Committee shall
have the power to modify, extend or renew outstanding Options and to authorize
the grant of new Options in substitution therefor, provided that any such action
may not, without the written consent of the Optionee, impair any rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered shall be treated in accordance with Section 425(h)
of the Code. The Committee shall have the power to reduce the exercise price of
outstanding options; provided, however, that the exercise price per share may
not be reduced below the minimum exercise price that would be permitted under
Section 5.3 of this Plan for options granted on the date the action is taken to
reduce the exercise price.
9. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a shareholder with respect to any Shares subject to an Option until
such Option is properly exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to such date,
except as provided in this Plan. The Company shall provide to each Optionee a
copy of the annual financial statements of the Company, at such time after the
close of each fiscal year of the Company as such statements are released by the
Company to its shareholders.
10. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted
under this Plan shall confer on any Optionee any right to continue in the employ
of, or other relationship with, the Company or any Parent, Subsidiary or
Affiliate of the Company or limit in any way the right of the Company or any
Parent, Subsidiary or Affiliate of the Company to terminate the Optionee's
employment or other relationship at any time, with or without cause.
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Micronics Computers, Inc.
1989 Stock Option Plan
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration, or
if a substantial portion of the assets of the Company are distributed, without
consideration in a spin-off or similar transaction, to the shareholders of the
Company, the number of Shares available under this Plan and the number of Shares
subject to outstanding Options and the exercise price per share of such Options
shall be proportionately adjusted, subject to any required action by the Board
of Directors (the "Board") or shareholders of the Company and compliance with
applicable securities laws; provided, however, that a fractional share shall not
be issued upon exercise of any Option and any fractions of a Share that would
have resulted shall either be cashed out at Fair Market Value or the number of
shares issuable under the Option shall be rounded to the nearest whole number,
or as otherwise determined by the Committee; and provided further that the
exercise price may not be decreased to below the par value, if any, for the
Shares.
12. CORPORATE TRANSACTIONS.
12.1 Assumption or Replacement of Options by Successor. In the
event of:
(a) a dissolution or liquidation of the Company;
(b) a merger or consolidation in which the Company is not the
surviving corporation (other than a merger or consolidation with a
wholly owned subsidiary, a reincorporation of the Company in a different
jurisdiction, or other transaction in which there is no substantial
change in the stockholders of the Company or their relative stock
holdings and the Options granted under this Plan are assumed, converted
or replaced by the successor corporation, which assumption will be
binding on all Optionees);
(c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company (other than any
stockholder which merges (or which owns or controls another corporation
which merges) with the Company in such merger) cease to own at least 90%
of the issued and outstanding capital stock or other equity interests in
the Company;
(d) the sale of all or substantially all of the assets of the
Company; or
(e) any other transaction which qualifies as a "corporate
transaction" under Section 424(a) of the Code wherein the stockholders
of the Company give up all of their equity interest in the Company
(except for the acquisition, sale or transfer of all or substantially
all of the outstanding shares of the Company from or by the stockholders
of the Company),
then, subject to Section 12.3 below, any or all outstanding Options may be
assumed, converted or replaced by the successor corporation (if any), which
assumption, conversion or replacement will
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Micronics Computers, Inc.
1989 Stock Option Plan
be binding on all Optionees. In the alternative and subject to Section 12.3
below, the successor corporation may substitute equivalent Options or provide
substantially similar consideration to Optionees as was provided to stockholders
(after taking into account the existing provisions of the Options). The
successor corporation may also issue, in place of outstanding Shares of the
Company held by the Optionee, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Optionee.
12.2 Termination of Options. In the event such successor
corporation (if any) refuses to assume or substitute Options, as provided above,
pursuant to a transaction described in Section 12.1, such Options will expire on
(and if the Company has reserved to itself a right to repurchase shares issued
upon exercise of Options at the original purchase price of such shares, such
right shall terminate upon) such transaction at such time and on such conditions
as the Board shall determine upon twenty (20) days advance written notice to
Optionees holding outstanding Options.
12.3 Acceleration of Vesting. In the event of a merger described
in either clause (b) or (c) of Section 12.1 above, the sale of all or
substantially all of the assets of the Company as a going concern in a single
transaction or series of related transactions or the sale or transfer of a
majority of the outstanding shares of the Company by the stockholders of the
Company in a single transaction or a series of related transactions other than
market transactions to unrelated purchasers (an "Acquisition") and:
(a) if the successor corporation, if any (the "Successor"),
refuses to assume or substitute Options as provided above in Section
12.1, then each outstanding Option that is not totally "Vested" (as
defined in the Option or Exercise Agreement) shall immediately
accelerate and become exercisable in full under the terms described by
the Board in the notice described in the last sentence of Section 12.2;
or
(b) if the Successor assumes or substitutes Options as provided
above in Section 12.1, but any Optionee's employment with the Successor
or any Parent, Subsidiary of Affiliate of the Successor (as the
definitions for such terms shall be revised to substitute the Successor
for the Company) is terminated by the Successor, such Parent, Subsidiary
or Affiliate without "cause" within one year after the Acquisition, then
the outstanding Options held by the terminated employee, as so
substituted or assumed, shall provide that they will likewise
immediately accelerate and become exercisable in full on the date of
such termination. For purposes hereof "cause" for termination of any
Optionee's employment will exist at any time after the happening of one
or more of the following events: (i) Optionee's conviction of a felony
involving moral turpitude; (ii) any willful act or acts of dishonesty
undertaken by the Optionee and intended to result in substantial gain or
personal enrichment of Optionee, directly or indirectly, at the expense
of the Successor, such Parent, Subsidiary or Affiliate; (iii) any
willful act or misconduct which is materially and demonstrably injurious
to the Successor, such Parent, Subsidiary or Affiliate; (iv) substantial
and repeated neglect of Optionee's responsibility, or malfeasance
thereof, that remains uncured after thirty (30) days written notice of
such neglect;
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<PAGE> 8
Micronics Computers, Inc.
1989 Stock Option Plan
or (v) the death or disability (within the meaning of Section 22(e)(3 of
the Code) of the Optionee.
12.4 Other Treatment of Options. Subject to any greater rights
granted to Optionees under the foregoing provisions of this Section 12, in the
event of the occurrence of any transaction described in Section 12.1, any
outstanding Options will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
13. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become effective
on the date that it is adopted by the Board of the Company. This Plan shall be
approved by the shareholders of the Company, in any manner permitted by
applicable corporate law, within twelve months before or after the date this
Plan is adopted by the Board. Thereafter, no later than twelve (12) months after
the Company becomes subject to Section 16(b) of the Exchange Act, the Company
will comply with the requirements of Rule 16b-3 with respect to shareholder
approval.
14. ADMINISTRATION. This Plan may be administered by the Board or a
committee appointed by the Board (the "Committee"). If, at the time the Company
registers under the Exchange Act, the Board is not comprised entirely of
Disinterested Persons, the Board shall appoint a Committee consisting of not
less than two (2) persons (who are members of the Board), each of whom is a
Disinterested Person. As used in this Plan, references to the "Committee" shall
mean either such committee or the Board if no committee has been established.
The interpretation by the Committee of any of the provisions of this Plan or any
Option granted under this Plan shall be final and binding upon the Company and
all persons having an interest in any Option or any Shares purchased pursuant to
an Option. The Committee may delegate the authority to grant Options under this
Plan to Optionees who are not Insiders of the Company to officers of the
Company.
15. TERM OF PLAN. Options may be granted pursuant to this Plan from time
to time within a period of ten (10) years from the earlier of the date on which
this Plan is adopted by the Board or the date this Plan is approved by the
shareholders of the Company.
16. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
terminate or amend this Plan in any respect including (but not limited to)
amendment of any form of Grant, exercise agreement or instrument to be executed
pursuant to this Plan; provided, however, that the Committee shall not, without
the approval of the holders of a majority of the outstanding voting shares of
the Company, amend this Plan in any manner that requires such shareholder
approval pursuant to the IRC or the regulations promulgated thereunder as such
provisions apply to ISO plans or pursuant to the Exchange Act or Rule 16b-3 (or
its successor) promulgated thereunder.
17. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall
have the following meanings:
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<PAGE> 9
Micronics Computers, Inc.
1989 Stock Option Plan
17.1 "Parent" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
17.2 "Subsidiary" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if, at the time
of granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
17.3 "Affiliate" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
17.4 "Disinterested Person" shall have the meaning set forth in
Rule 16b-3(c)(2) as promulgated by the SEC under Section 16(b) of the Exchange
Act, as such rule is amended from time to time and as interpreted by the SEC.
17.5 "Fair Market Value" shall mean the fair market value of the
Shares as determined by the Committee from time to time in good faith. If a
public market exists for the Shares, the Fair Market Value shall be the average
of the last reported bid and asked prices for Common Stock of the Company on the
last trading day prior to the date of determination or, in the event the Common
Stock of the Company is listed on a stock exchange or on the Nasdaq National
Market, the Fair Market Value shall be the closing price on such exchange or
quotation system on the last trading day prior to the date of determination.
---------------------------------------------
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<PAGE> 1
Exhibit 8
MICRONICS COMPUTERS, INC.
EMPLOYMENT AGREEMENT
This Agreement is entered into as of February 6, 1998 (the "Effective
Date") by and between Micronics Computers, Inc., a Delaware corporation (the
"Company"), having its principal place of business at 45365 Northport Loop West,
Fremont, California 94538, and Charles J. Hart ("Mr. Hart"), residing at
One Vintage Court, Woodside, CA 94062. In consideration of the terms and
conditions set forth in this Agreement, the parties agree as follows:
1. EMPLOYMENT AND DUTIES.
1.1 APPOINTMENT. On the Effective Date, the Company hereby
employs Mr. Hart and Mr. Hart hereby accepts employment with the Company upon
the terms and conditions set forth in this Agreement. During the term of this
Agreement, Mr. Hart will be Chief Executive Officer of the Company and his
duties will be executive in nature, consistent with his title. Initially, he
will report to Wm. E. Shelander, Chairman of the Board of Directors of the
Company (the "Board"). Mr. Hart has been elected to the Board and will be
renominated at the April 1997 annual meeting of the Company's stockholders. Mr.
Hart hereby represents and warrants to the Company that he is free to enter into
and fully perform this Agreement and the documents referred to herein.
1.2 NATURE OF EMPLOYMENT. During the term of his employment with
the Company, Mr. Hart will devote his full skill, efforts, business time and
attention to his employment with the Company. Mr. Hart will not perform services
for compensation for any entity or person other than the Company without the
prior express written consent of the Company after approval by resolution of the
Board. However, Mr. Hart may participate in investment or other activities
unrelated to employment for another for compensation to the extent that such
activities do not preclude or conflict with his employment under this Agreement.
2. TERM. The term of this Agreement will commence as of the Effective
Date and will terminate on the earlier of the death of the Mr. Hart or on the
second anniversary of the date of this Agreement (the "Expiration Date").
3. COMPENSATION AND EXPENSES. In consideration for the services to be
rendered to the Company under this Agreement in all capacities, including,
without limitation, services as an officer, employee, director or member of any
committee of the Board of the Company or any subsidiary thereof, during the term
of this Agreement, Mr. Hart will be paid as follows:
3.1 SALARY. During the period from the Effective Date to August
3, 1998 ("Period One"), Mr. Hart will be paid $20,000 per month. From August 3,
1998 to February 2,
<PAGE> 2
Micronics/Hart
Employment Agreement
1999 ("Period Two"), Mr. Hart will be paid $22,000 per month, and on and after
February 2, 1999 ("Period Three"), subject to the discretion of the Board, Mr.
Hart will be paid a salary of $25,000 per month. Changes during Period Three,
either up or down, will be determined by the Board, in its sole discretion, at
any time or from time to time. Any such salary will be payable in installments,
as earned, less any normal payroll deductions, in accordance with prevailing
payroll practices of the Company from time to time and will be proportionately
reduced to the extent that Mr. Hart is not working full time for the Company.
For purposes of this Section 3.l, "full time" will be defined by the Company's
policy, as amended from time to time, concerning the number of hours that must
be worked by an individual to be considered a full-time employee and, if no
policy is set, "full time" shall mean at least 40 hours per week.
3.2 QUARTERLY BONUSES. The Board, in its sole discretion, may
determine by resolution to pay Mr. Hart all or any portion of the following
quarterly bonuses upon the achievement of the following milestones in any
Quarter (defined below):
3.2.1 Definitions.
(a) "Quarter" shall mean a three-month period
commencing on the first day of January, April, July or October in any calendar
year during the term of this Agreement and until April 1, 2000 so long as Mr.
Hart is employed full-time by the Company for the entire three-month period,
with the first such Quarter to commence on January 1, 1998 and the last such
Quarter to commence January 1, 2000.
(b) "Operating Income" shall mean the Company's
actual income from operations, determined in accordance with generally accepted
accounting principles for financial reporting purposes, consistently applied,
after review or audit of the Company's independent auditors in each case.
3.2.2 Operating Income Bonus. If Operating Income for any
Quarter (the "First Quarter") is $500,000 or more and Operating Income for the
following Quarter (the "Second Quarter") exceeds Operating Income for the First
Quarter, then Mr. Hart will be eligible to receive a $50,000 bonus for the First
Quarter. For example, (a) if Operating Income earned for the Quarter that
commenced on January 1, 1998 is $500,000 and Operating Income is $500,000.01 for
the Quarter commencing on April 1, 1998, then Mr. Hart will be eligible to
receive a $50,000 bonus for the Quarter that commenced on January 1, 1998, and
(b) if Operating Income is $499,999.01 for the Quarter commencing on October 1,
1999 and is $500,000.01 for the Quarter commencing on January 1, 2000, then Mr.
Hart will not be eligible for a bonus for the Quarter commencing on October 1,
1999.
3.4 WHEN BONUS EARNED AND PAID. Each bonus provided for under
this Section 3 will be paid to Mr. Hart within 20 days after the Board has
approved the same, in its discretion, by resolution duly adopted at a meeting or
by written consent and Operating Income has been determined for the Quarters in
question. For purposes of such meeting or written consent, Mr. Hart may be
counted to establish a quorum, Mr. Hart's vote will not be counted in connection
with such approval and such approval may occur subsequent to the termination of
this
2
<PAGE> 3
Micronics/Hart
Employment Agreement
Agreement. Accordingly, computation of any amount available for distribution
will not be construed to create Mr. Hart's rights to receive "wages" until Board
approval has been obtained and such 20 day period has run.
3.5 BENEFITS. During the term of this Agreement, Mr. Hart will
not be entitled to any payments under the Company's Cash Bonus Plan or its
Profit Sharing Plan. Except as to participation in such Plans, Mr. Hart will be
provided with such vacation, disability, insurance and other benefits as are
provided to the Company's employees generally.
3.6 EXPENSES. The Company will reimburse Mr. Hart for all
reasonable and necessary expenses incurred by Mr. Hart in connection with the
Company's business, provided that such expenses are deductible to the Company,
are in accordance with applicable policy set by the Board or Company management
from time to time and are properly documented and accounted for in accordance
with the policy of the Company and with the requirements of the Internal Revenue
Service.
4. COMPANY STOCK.
4.1 OPTION GRANT. As of the Effective Date, Mr. Hart has been
granted an option pursuant to the Company's 1989 Stock Option Plan (the "Plan")
for the purchase in the aggregate of 350,000 shares of the Company's Common
Stock, exercisable at an exercise price per share equal to the per share closing
price of the Company's Common Stock on February 5, 1998. The option vests as to
87,500 shares on February 6, 1999 and the remaining 262,500 shares vest as to an
equal number of shares each month over the following three-year period, for a
total vesting period of four years. This option is an Incentive Stock Option
with respect to the first $100,000 worth of stock that vests in each year. In
accordance with the Plan, all options accelerate vesting upon certain
acquisitions of the Company. However, the Company and Mr. Hart agree that such
accelerated vesting will not apply to two-thirds of the shares of Common Stock
subject to the option described in this Section 4.1 if the acquisition
transaction is closed by the Company within six months after the Effective Date.
4.2 ADDITIONAL OPTIONS. Additional options will be granted to Mr.
Hart under the Plan (or any successor plan) subsequent to the execution of this
Agreement at an exercise price equal to the closing price of the Company's
Common Stock on the Nasdaq National Market on the day preceding the date of
Board approval of such grant (a) for an additional 100,000 shares approximately
six months after the Effective Date and (b) for an additional 100,000 shares
upon completion of two consecutive Quarters in which Operating Income exceeds
$500,000 in each such Quarter, assuming in each case that Mr. Hart remains
continuously employed by the Company through the date of grant. Each option
described in this Section 4.2 will vest in arrears as to an equal number of
shares each month over a four-year period commencing on the date of grant and
will qualify as an Incentive Stock Option to the extent possible given the
$100,000 per annum vesting restriction imposed by applicable tax laws relating
to Incentive Stock Options. Any further options granted to Mr. Hart will be at
the sole discretion of the Board.
3
<PAGE> 4
Micronics/Hart
Employment Agreement
5. COLLATERAL AGREEMENTS. Mr. Hart and the Company acknowledge that they
have entered into, or will enter into prior to February 6, 1998, an
Indemnification Agreement and a Confidentiality and Proprietary Rights Agreement
(the "Proprietary Rights Agreement") in standard form used by the Company with
its employees generally. Such Agreements will not terminate as a result of
expiration or termination of this Agreement and thereafter will continue in full
force and effect in accordance with their terms.
6. TERMINATION OF EMPLOYMENT DURING TERM.
6.1 DEFINITIONS.
6.1.1 "Good Cause" shall mean (a) habitual neglect or
malfeasance of duty that continues uncured after 30 days notice by the Company
to Mr. Hart, (b) a material act of dishonesty, (c) conviction of a felony, (d)
inability to render services under this Agreement for any period in excess of 90
days out of any twelve-month period (whether due to ill health or otherwise),
(e) failure to cure or cease repeated or a serious violation or violations of
the Company's published and written rules, or of the directions of the Board,
that remain or remains uncured 30 days after receipt of written notice thereof
or (f) material or repeated breach of this Agreement or of the Proprietary
Rights and Confidentiality Agreement to be entered into by the Company and Mr.
Hart as provided in Section 5 above that remains uncured 30 days after receipt
of written notice thereof.
6.1.2 "Severance." If Mr. Hart's employment with the
Company is terminated by the Company without Good Cause during Period One, then
"Severance" will mean $120,000. If such termination occurs during Period Two,
"Severance" will mean $22,000 times the number of full months that Mr. Hart has
served as an employee under the terms of this Agreement (the "Service Period"),
and if such termination occurs during Period Three, "Severance" will mean an
amount equal to twelve months' of Mr. Hart's monthly salary then-current at the
time of such termination.
6.2 TERMINATION BY MR. HART. Mr. Hart, in his sole discretion,
may terminate his employment with the Company at any time prior to the
Expiration Date upon giving the Company at least 45 days prior written notice
delivered to any other member of the Board at such Board member's last known
address. Such termination will also terminate this Agreement.
6.3 TERMINATION BY THE COMPANY. The Company, in the sole
discretion of the Board, may terminate Mr. Hart's employment prior to the
Expiration Date, with or without Good Cause. Termination by the Company for Good
Cause will terminate this Agreement. However, if termination is without Good
Cause (a) the Company must give Mr. Hart at least seven days' prior written
notice, (b) Severance will be paid to Mr. Hart, payable over six months if such
termination occurs during Period One, over the number of full months that is
equal to the Service Period if such termination occurs during Period Two and
over a twelve month period if such termination occurs during Period Three and
(c) during any time that Severence is paid to Mr. Hart, the Company will provide
COBRA benefits to Mr. Hart and his immediate family at the Company's expense.
Payments of Severance will be made in equal amounts at such times as
4
<PAGE> 5
Micronics/Hart
Employment Agreement
Mr. Hart would have been paid had he remained employed by the Company to the
date of each payment so long as Mr. Hart does not materially breach the terms of
the Proprietary Rights Agreement. This Agreement will be terminated in every
other respect as of the date Mr. Hart ceases to be an employee of the Company
subsequent to a termination by the Company without Good Cause.
6.4 TERMINATION AS A DIRECTOR. Any termination of Mr. Hart's
status as an employee of the Company will also automatically terminate Mr.
Hart's status as an officer and as a director serving on the Board, without any
further action having to be taken by any person or entity. However, Mr. Hart
agrees to provide such written resignations therefrom as the Company may
reasonably request.
7. GENERAL PROVISIONS.
7.1 ARBITRATION. Mr. Hart and the Company will submit to binding
arbitration in any controversy or claim arising out of, or relating to, this
Agreement or any breach hereof, provided, however, that the Company retains its
right to, and shall not be prohibited, limited or in any other way restricted
from, seeking or obtaining equitable relief from a court having jurisdiction
over the parties. Such arbitration shall be conducted in accordance with the
Rules of the American Arbitration Association in effect at that time, and
judgment upon the determination or award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. Cost of the arbitration
(including, without limitation, reasonable attorney's fees and disbursements)
will be borne by the losing party in such arbitration as determined the
arbitrator(s) thereof. Notwithstanding the foregoing, any controversy or claim
arising out of, or relating both to this Agreement or any breach hereof and to a
breach of one or more of the Agreements described in Section 5 above will not be
subject to arbitration pursuant to this Section 7.1 but may be litigated in any
court having jurisdiction thereof.
7.2 ENFORCEABILITY. If any provision of this Agreement shall be
found by any arbitrator(s) or court of competent jurisdiction to be invalid or
unenforceable, the parties hereby waive such provision to the extent that it is
found to be invalid or unenforceable and to the extent that to do so would not
deprive one of the parties of the substantial benefit of its bargain. Such
provision shall, to the extent allowable by law and the preceding sentence, be
modified by such arbitrator(s) or court so that it becomes enforceable and, as
modified, shall be enforced as any other provision hereof, all the other
provisions continuing in full force and effect. Remedies provided for in this
Agreement are cumulative and are in addition to any other right or remedy
granted to any party by contract, at law, in equity or otherwise.
7.3 NO WAIVER. The failure by either party at any time to require
performance or compliance by the other of any of its obligations or agreements
shall in no way affect the right to require such performance or compliance at
any time thereafter. The waiver by either party of a breach of any provision
hereof shall not be taken or held to be a waiver of any preceding or succeeding
breach of such provision or as a waiver of the provision itself. No waiver
5
<PAGE> 6
Micronics/Hart
Employment Agreement
of any kind shall be effective or binding, unless it is in writing and is signed
by the party against whom such waiver is sought to be enforced.
7.4 ASSIGNMENT. This Agreement and all rights hereunder are
personal to Mr. Hart and may not be transferred or assigned by Mr. Hart at any
time. The Company may assign its rights, together with its obligations
hereunder, to any parent, subsidiary, affiliate or successor, in connection with
any sale, transfer or other disposition of all or substantially all of its
business and assets, provided, however, that any such assignee assumes the
Company's obligations hereunder. This Agreement shall be binding upon, and inure
to the benefit of, the permitted successors and personal representatives of the
respective parties hereto.
7.5 WITHHOLDING. All sums payable to Mr. Hart hereunder shall be
reduced by federal, state, local and other withholding and similar taxes or
payments required by applicable law.
7.6 ENTIRE AGREEMENT; AMENDMENT. Except as specifically provided
herein, this Agreement constitutes the entire and only agreement between the
parties relating to employment of Mr. Hart by the Company and his status as an
officer and director of the Company. This Agreement supersedes and cancels any
and all previous contracts, arrangements or understandings with respect thereto.
This Agreement may be amended, modified, superseded, canceled, renewed or
extended only by an agreement in writing executed by both parties hereto.
7.7 NOTICES. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given when delivered personally or mailed by certified mail,
return receipt requested, postage prepaid to the address of the relevant party
as set forth above or as may be changed by notice given hereafter in accordance
with the provisions of this Section 7.7.
7.8 GENERAL INTERPRETATION. The headings contained in this
Agreement are for reference purposes only and shall in no way affect the meaning
or interpretation of this Agreement. In this Agreement, the singular includes
the plural, the plural includes the singular, and the masculine gender includes
both male and female referents. This Agreement maybe executed in two or more
counterparts, each of which shall be deemed to be an original but all of which,
taken together, constitute one and the same agreement. This Agreement and the
rights and obligations of the parties hereto shall be construed in accordance
with the laws of the State of California, without giving effect to the
principles of conflict of laws.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
6
<PAGE> 7
MR. HART: MICRONICS COMPUTERS, INC.
Micronics/Hart
Employment Agreement
/s/ CHARLES J. HART By: /s/ WM. E. SHELANDER
- ------------------------------- ----------------------------------------
Charles J. Hart Wm. E. Shelander, Authorized Signatory
7
