<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT
(PURSUANT TO SECTION 14(d)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
SCHEDULE 13D
(AMENDMENT NO. 2)
(PURSUANT TO SECTION 13(d) OF THE SECURITIES EXCHANGE ACT OF 1934)
CAMBRIDGE SOUNDWORKS, INC.
(NAME OF ISSUER)
CSW ACQUISITION CORPORATION
CREATIVE TECHNOLOGY LTD.
(NAME OF PERSONS FILING STATEMENT)
COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS OF SECURITIES)
132514100
(CUSIP NUMBER OF CLASS OF SECURITIES)
----------------
NG KEH LONG
CREATIVE TECHNOLOGY LTD. &
CSW ACQUISITION CORPORATION
31 INTERNATIONAL BUSINESS PARK
CREATIVE RESOURCE
SINGAPORE 609921
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF PERSONS FILING STATEMENT)
Copies to:
<TABLE>
<S> <C>
JOHN D. DANFORTH STEVEN J. TONSFELDT
CREATIVE LABS, INC. VENTURE LAW GROUP
1901 MCCARTHY BLVD. A PROFESSIONAL CORPORATION
MILPITAS, CA 95035 2800 SAND HILL ROAD
(408) 428-6600 MENLO PARK, CA 94025
(650) 854-4488
</TABLE>
CALCULATION OF FILING FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
TRANSACTION VALUATION AMOUNT OF FILING FEE
- -------------------------------------------------------------------------------
$37,051,942* $7,411**
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
* For purposes of fee calculation only. The total transaction value is based
on 3,804,824 Shares outstanding as of October 23, 1997 less 912,294 Shares
owned by Parent and Purchaser, plus 576,753 Shares reserved for future
issuance pursuant to outstanding stock options, multiplied by the offer
price of $10.68 per Share.
** The amount of the filing fee calculated in accordance with Regulation
240.0-11 of the Securities Exchange Act of 1934 equals 1/50 of 1% of the
value of the shares to be purchased.
[_]Check box if any part of the fee is offset as provided by Rule 0-11(a)(2).
Amount Previously Paid: N/A Filing Parties: N/A
Form or Registration No.: N/A Date Filed: N/A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CUSIP NO. 132514100 14D-1
1.
NAME OF REPORTING PERSONS
SS. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
CREATIVE TECHNOLOGY LTD.
- --------------------------------------------------------------------------------
2.
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [_]
(b) [_]
N/A
- --------------------------------------------------------------------------------
3.
SEC USE ONLY
- --------------------------------------------------------------------------------
4.
SOURCE OF FUNDS
WC
- --------------------------------------------------------------------------------
5.
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(e) OR 2(f) [_]
N/A
- --------------------------------------------------------------------------------
6.
CITIZENSHIP OR PLACE OF ORGANIZATION
SINGAPORE
- --------------------------------------------------------------------------------
7.
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,169,608
- --------------------------------------------------------------------------------
8.
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES
[_]
N/A
- --------------------------------------------------------------------------------
9.
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
28.8%
- --------------------------------------------------------------------------------
10.
TYPE OF REPORTING PERSON
CO
2
<PAGE>
CUSIP NO. 132514100 14D-1
1.
NAME OF REPORTING PERSONS
SS. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
CSW ACQUISITION CORPORATION
- --------------------------------------------------------------------------------
2.
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [_]
(b) [_]
N/A
- --------------------------------------------------------------------------------
3.
SEC USE ONLY
- --------------------------------------------------------------------------------
4.
SOURCE OF FUNDS
AF
- --------------------------------------------------------------------------------
5.
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(e) OR 2(f) [_]
N/A
- --------------------------------------------------------------------------------
6.
CITIZENSHIP OR PLACE OF ORGANIZATION
MASSACHUSETTS
- --------------------------------------------------------------------------------
7.
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,169,608
- --------------------------------------------------------------------------------
8.
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES
[_]
N/A
- --------------------------------------------------------------------------------
9.
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
28.8
- --------------------------------------------------------------------------------
10.
TYPE OF REPORTING PERSON
CO
3
<PAGE>
INTRODUCTION
This Tender Offer Statement on Schedule 14D-1 and Amendment No. 2 to Schedule
13D (this "Statement") relates to the offer by CSW Acquisition Corporation
("Purchaser"), a Massachusetts corporation and a wholly owned subsidiary of
Creative Technology Ltd., a Singapore corporation ("Parent"), to purchase all
outstanding shares of common stock, no par value (the "Shares"), of Cambridge
SoundWorks, Inc., a Massachusetts corporation (the "Company"), at a price of
$10.68 per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated November 3, 1997 (the
"Offer to Purchase"), and the related Letter of Transmittal (which together
constitute the "Offer"), copies of which are attached hereto as Exhibits (a)(1)
and (a)(2), respectively. The Offer is being made pursuant to an Agreement and
Plan of Merger, dated as of October 30, 1997, by and among Parent, the
Purchaser and the Company, which provides, among other things, that as promptly
as practicable after the satisfaction or, if permissible, waiver of the
conditions set forth therein, the Purchaser will be merged with and into the
Company, with the Company continuing as the surviving corporation, and each
issued and outstanding Share (other than any Shares held in the treasury of the
Company or owned by the Purchaser, Parent or any subsidiary of Parent or the
Company, and other than Shares held by stockholders who shall not have voted in
favor of the Merger or consented thereto in writing and who shall have demanded
properly in writing appraisal for such Shares in accordance with the Business
Corporation Law of the Commonwealth of Massachusetts) will be converted into
the right to receive in cash, without interest, an amount equal to the price
paid per Share in the Offer.
The information contained in this Statement concerning the Company,
including, without limitation, information concerning the background of the
transaction, the deliberations, approvals and recommendations of the Board of
Directors of the Company in connection with the transaction, the opinion of the
Company's financial advisor, and the Company's capital structure and historical
financial information, was supplied by the Company. Parent and the Purchaser
take no responsibility for the accuracy of such information.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is Cambridge SoundWorks, Inc., a
Massachusetts corporation (the "Company"), which has its principal executive
offices at 311 Needham Street, Newton, Massachusetts 02164.
(b) The class of equity securities being sought is all the outstanding shares
of common stock, no par value (the "Shares"), of the Company. The information
set forth in the Offer to Purchase under "INTRODUCTION" is incorporated herein
by reference.
(c) The information concerning the principal market in which the Shares are
traded and certain high and low sales prices for the Shares in such principal
market set forth in the Offer to Purchase under "THE OFFER--Price Range of the
Shares" is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) This Statement is filed by the Purchaser and Parent. The
information concerning the name, state or other place of organization,
principal business and address of the principal office of each of Purchaser and
Parent, and the information concerning the name, business address, present
principal occupation or employment and the name, principal business and address
of any corporation or other organization in which such employment or occupation
is conducted, material occupations, positions, offices or employments during
the last five years and citizenship of each of the executive officers and
directors of Purchaser and Parent are set forth in the Offer to Purchase under
"INTRODUCTION," "THE OFFER--Certain Information Concerning the Purchaser and
Parent" and in Schedule I and are incorporated herein by reference.
(e)-(f) During the last five years, none of Purchaser, Parent, nor, to the
best knowledge of Purchaser and Parent, any of the persons listed in Schedule I
of the Offer to Purchase has been (i) convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or (ii) a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a
4
<PAGE>
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any
violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS--Background of the Offer and the Merger," "SPECIAL FACTORS--The Merger
Agreement," "SPECIAL FACTORS--Interests of Certain Persons in the Offer and
the Merger," "THE OFFER--Certain Information Concerning the Purchaser and
Parent" and "THE OFFER--Intercompany Arrangements Between Parent and the
Company" is incorporated herein by reference.
(b) The information set forth in the Offer to Purchase under "INTRODUCTION,"
"SPECIAL FACTORS--Background of the Offer and the Merger," "SPECIAL FACTORS--
Purpose and Structure of the Offer and the Merger; Reasons of Parent and the
Purchaser for the Offer and the Merger," "SPECIAL FACTORS--Plans for the
Company After the Offer and the Merger; Certain Effects of the Offer and the
Merger," "SPECIAL FACTORS--The Merger Agreement," "THE OFFER--Certain
Information Concerning the Company" and "THE OFFER --Certain Information
Concerning the Purchaser and Parent" is incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth in the Offer to Purchase under "THE
OFFER--Financing of the Offer and the Merger" is incorporated herein by
reference.
(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth in the Offer to Purchase under
"INTRODUCTION," "SPECIAL FACTORS--Background of the Offer and the Merger,"
"SPECIAL FACTORS--Purpose and Structure of the Offer and the Merger; Reasons
of Parent and the Purchaser for the Offer and the Merger," "SPECIAL FACTORS--
Plans for the Company After the Offer and the Merger; Certain Effects of the
Offer and the Merger" and "SPECIAL FACTORS--The Merger Agreement" is
incorporated herein by reference.
(f)-(g) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS--Plans for the Company After the Offer and the Merger; Certain Effects
of the Offer and the Merger" and "THE OFFER--Effect of the Offer on the Market
for the Shares; NASDAQ Quotation and Exchange Act Registration" is
incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) The information set forth in the Offer to Purchase under "THE OFFER--
Certain Information Concerning the Purchaser and Parent" is incorporated
herein by reference.
(b) Not applicable.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth in the Offer to Purchase under "INTRODUCTION,"
"SPECIAL FACTORS --Background of the Offer and the Merger," "SPECIAL FACTORS--
Purpose and Structure of the Offer and the Merger; Reasons of Parent and the
Purchaser for the Offer and the Merger," "SPECIAL FACTORS--Plans for the
Company After the Offer and the Merger; Certain Effects of the Offer and the
Merger," "SPECIAL FACTORS--The Merger Agreement" and "THE OFFER--Certain
Information Concerning the Purchaser and Parent" and "THE OFFER--Intercompany
Agreements between Parent and the Company" is incorporated herein by
reference.
5
<PAGE>
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the Offer to Purchase under "THE OFFER--Fees
and Expenses" is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
Not applicable.
ITEM 10. ADDITIONAL INFORMATION.
(a) Not applicable.
(b)-(c) The information set forth in the Offer to Purchase under "THE
OFFER--Certain Legal Matters" is incorporated herein by reference.
(d) The information set forth in the Offer to Purchase under "THE OFFER--
Effect of the Offer on the Market for the Shares; NASDAQ Quotation and
Exchange Act Registration" is incorporated herein by reference.
(e) Not applicable.
(f) The information set forth in the Offer to Purchase and the related
Letter of Transmittal, and the Agreement and Plan of Merger, dated as of
October 30, 1997, by and among Parent, Purchaser and the Company, copies of
which are attached hereto as Exhibits (a)(1), (a)(2) and (c)(1), respectively,
is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<C> <S>
(a)(1) Form of Offer to Purchase, dated November 3, 1997.
(a)(2) Form of Letter of Transmittal.
(a)(3) Form of Letter from Georgeson & Company Inc. to Brokers, Dealers,
Commercial Banks, Trust Companies and Nominees.
(a)(4) Form of Letter from Brokers, Dealers, Commercial Banks, Trust
Companies and Nominees to Clients.
(a)(5) Form of Notice of Guaranteed Delivery.
(a)(6) Form of Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(7) Summary Advertisement as published in The Wall Street Journal on
November 3, 1997.
(a)(8) Text of Press Release, dated October 6, 1997, issued by Cambridge
SoundWorks, Inc. (incorporated herein by reference to Exhibit 1 to
the Schedule 13D (Amendment No. 1) filed by Creative Technology Ltd.
with the SEC on October 8, 1997).
(a)(9) Text of Joint Press Release, dated October 31, 1997, issued by
Cambridge SoundWorks, Inc. and Creative Technology Ltd.
(a)(10) Text of Press Release, dated November 3, 1997, issued by Creative
Technology Ltd.
(b) Not applicable.
(c)(1) Agreement and Plan of Merger, dated as of October 30, 1997, by and
among Creative Technology Ltd., CSW Acquisition Corporation and
Cambridge SoundWorks, Inc.
(c)(2) Employment Agreement, dated February 18, 1997, between the Company
and Thomas J. DeVesto, as amended and restated effective October 29,
1997.
(c)(3) Common Stock and Warrant Purchase Agreement, dated as of February
20, 1997, by and between Creative Technology Ltd. and Cambridge
SoundWorks, Inc.(A)
</TABLE>
6
<PAGE>
<TABLE>
<C> <S>
(c)(4) Common Stock Purchase Warrant, dated as of February 28, 1997, having
Creative Technology Ltd. as Registered Holder.(A)
(c)(5) Investors' Rights Agreement, dated as of February 28, 1997, between
Creative Technology Ltd. and Cambridge SoundWorks, Inc.(A)
(c)(6) Exclusive Distribution Agreement, dated as of February 28, 1997,
between Creative Technology Ltd. and Cambridge SoundWorks, Inc.(A)
(c)(7) Voting Agreement, dated as of February 28, 1997, by and among
Creative Technology Ltd., Cambridge SoundWorks, Inc., Henry E. Kloss
and Thomas J. DeVesto (incorporated herein by reference to Exhibit 1
to the Schedule 13D filed by Creative Technology Ltd. with the SEC on
March 19, 1997).
(c)(8) Mutual Confidentiality and Non-Disclosure Agreement, dated October
18, 1996, between Creative Labs, Inc. and Cambridge SoundWorks, Inc.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
</TABLE>
- --------
(A) Incorporated herein by reference to the Report on Form 10-Q for the fiscal
quarter ended March 30, 1997, filed by Cambridge SoundWorks, Inc. with the
SEC on May 14, 1997.
7
<PAGE>
SIGNATURES
After due inquiry and to the best of his knowledge and belief, each of the
undersigned certifies that the information set forth in this statement is
true, complete and correct.
CREATIVE TECHNOLOGY LTD.
By: /s/ Ng Keh Long
___________________________________
Name: Ng Keh Long
Title: Vice President, Corporate
Treasurer and Acting
Chief Financial Officer
CSW ACQUISITION CORPORATION
By:/s/ Ng Keh Long
___________________________________
Name: Ng Keh Long
Title: Vice President and Treasurer
Dated: November 3, 1997
8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
(a)(1) Form of Offer to Purchase, dated November 3, 1997.
(a)(2) Form of Letter of Transmittal.
(a)(3) Form of Letter from Georgeson & Company Inc. to Brokers, Dealers,
Commercial Banks, Trust Companies and Nominees.
(a)(4) Form of Letter from Brokers, Dealers, Commercial Banks, Trust
Companies and Nominees to Clients.
(a)(5) Form of Notice of Guaranteed Delivery.
(a)(6) Form of Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
(a)(7) Summary Advertisement as published in The Wall Street Journal on
November 3, 1997.
(a)(8) Text of Press Release, dated October 6, 1997, issued by Cambridge
SoundWorks, Inc. (incorporated herein by reference to Exhibit 1 to the
Schedule 13D (Amendment No. 1) filed by Creative Technology Ltd. with
the SEC on October 8, 1997).
(a)(9) Text of Joint Press Release, dated October 31, 1997, issued by
Cambridge SoundWorks, Inc. and Creative Technology Ltd.
(a)(10) Text of Press Release, dated November 3, 1997, issued by Creative
Technology Ltd.
(b) Not applicable.
(c)(1) Agreement and Plan of Merger, dated as of October 30, 1997, by and
among Creative Technology Ltd., CSW Acquisition Corporation and
Cambridge SoundWorks, Inc.
(c)(2) Employment Agreement, dated February 18, 1997, between the Company and
Thomas J. DeVesto, as amended and restated effective October 29, 1997.
(c)(3) Common Stock and Warrant Purchase Agreement, dated as of February 20,
1997, by and between Creative Technology Ltd. and Cambridge
SoundWorks, Inc.(A)
(c)(4) Common Stock Purchase Warrant, dated as of February 28, 1997, having
Creative Technology Ltd. as Registered Holder.(A)
(c)(5) Investors' Rights Agreement, dated as of February 28, 1997, between
Creative Technology Ltd. and Cambridge SoundWorks, Inc.(A)
(c)(6) Exclusive Distribution Agreement, dated as of February 28, 1997,
between Creative Technology Ltd. and Cambridge SoundWorks, Inc.(A)
(c)(7) Voting Agreement, dated as of February 28, 1997, by and among Creative
Technology Ltd., Cambridge SoundWorks, Inc., Henry E. Kloss and Thomas
J. DeVesto (incorporated herein by reference to Exhibit 1 to the
Schedule 13D filed by Creative Technology Ltd. with the SEC on
March 19, 1997).
(c)(8) Mutual Confidentiality and Non-Disclosure Agreement, dated October 18,
1996, between Creative Labs, Inc. and Cambridge SoundWorks, Inc.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
</TABLE>
- --------
(A) Incorporated herein by reference to the Report on Form 10-Q for the fiscal
quarter ended March 30, 1997, filed by Cambridge SoundWorks, Inc. with the
SEC on May 14, 1997.
9
<PAGE>
EXHIBIT 99(a)(1)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CAMBRIDGE SOUNDWORKS, INC.
AT
$10.68 NET PER SHARE
BY
CSW ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
CREATIVE TECHNOLOGY LTD.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON DECEMBER 2, 1997, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THAT
NUMBER OF SHARES THAT, WHEN ADDED TO THE SHARES OWNED BY CREATIVE TECHNOLOGY
LTD. ("PARENT") AS OF THE EXPIRATION OF THE OFFER, SHALL CONSTITUTE TWO-THIRDS
OF THE SHARES OF COMMON STOCK, NO PAR VALUE (THE "SHARES"), OF CAMBRIDGE
SOUNDWORKS, INC. (THE "COMPANY") THEN OUTSTANDING ON A FULLY DILUTED BASIS (AS
DEFINED HEREIN) (THE "MINIMUM SHARE CONDITION"). THE OFFER IS ALSO SUBJECT TO
THE OTHER TERMS AND CONDITIONS DESCRIBED IN THIS OFFER TO PURCHASE. SEE THE
INTRODUCTION AND "THE OFFER -- CERTAIN CONDITIONS OF THE OFFER."
---------------
THE BOARD OF DIRECTORS OF THE COMPANY, BY UNANIMOUS VOTE OF ALL DIRECTORS
PRESENT AND VOTING (WITH THE DIRECTOR WHO IS A DESIGNEE OF PARENT NOT PRESENT
OR PARTICIPATING IN ANY SUCH MEETING OR DISCUSSION), HAS DETERMINED THAT EACH
OF THE OFFER AND THE MERGER (AS DEFINED HEREIN) IS FAIR TO AND IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF THE COMPANY (OTHER THAN PARENT AND CSW
ACQUISITION CORPORATION ("PURCHASER"), AND RECOMMENDS THAT STOCKHOLDERS ACCEPT
THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. SEE "SPECIAL FACTORS
- -- RECOMMENDATIONS OF THE COMPANY BOARD; FAIRNESS OF THE OFFER AND THE
MERGER."
---------------
IMPORTANT
Stockholders who desire to tender all or any portion of their Shares should
either (i) complete and sign the Letter of Transmittal (or facsimile thereof)
that accompanies this Offer to Purchase in accordance with the instructions in
such Letter of Transmittal, have their signature thereon guaranteed if
required by Instruction 1 to such Letter of Transmittal, and mail or deliver
the Letter of Transmittal (or such facsimile) together with the certificates
("Share Certificates") representing the tendered Shares and any other required
documents to State Street Bank and Trust Company (the "Depositary"), or tender
their Shares pursuant to the procedures for book-entry transfer set forth
under "THE OFFER -- Procedure for Accepting the Offer and Tendering Shares" or
(ii) request their broker, dealer, bank, trust company or other nominee to
effect the transaction for them. Stockholders having Shares registered in the
name of a broker, dealer, bank, trust company or other nominee must contact
such broker, dealer, bank, trust company or other nominee if they desire to
tender such Shares.
Stockholders who desire to tender their Shares and whose Share
Certificate(s) are not immediately available, or who cannot comply in a timely
manner with the procedures for book-entry transfer, or who cannot deliver all
required documents to the Depositary prior to the expiration of the Offer, may
tender such Shares by following the procedures for guaranteed delivery set
forth under "THE OFFER -- Procedure for Accepting the Offer and Tendering
Shares."
Questions and requests for assistance may be directed to Georgeson & Company
Inc. (the "Information Agent") at its address and telephone number set forth
on the back cover of this Offer to Purchase. Additional copies of this Offer
to Purchase, the Letter of Transmittal and other related materials may be
obtained from the Information Agent.
---------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
---------------
The date of this Offer to Purchase is November 3, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<C> <S> <C>
INTRODUCTION.............................................................. 1
SPECIAL FACTORS........................................................... 3
1. Background of the Offer and the Merger............................ 3
Recommendations of the Company Board; Fairness of the Offer and
2. the Merger....................................................... 6
3. Opinion of Financial Advisor to the Company....................... 8
Position of Parent and the Purchaser Regarding the Fairness of the
4. Offer and the Merger............................................. 11
5. Purpose and Structure of the Offer and the Merger; Reasons of
Parent and the Purchaser for the Offer and the Merger............ 12
6. Plans for the Company After the Offer and the Merger; Certain
Effects of the Offer and the Merger.............................. 13
7. Rights of Stockholders in the Merger.............................. 13
8. The Merger Agreement.............................................. 14
9. Interests of Certain Persons in the Offer and the Merger.......... 20
10. Share Ownership by Parent and Purchaser........................... 21
11. Beneficial Ownership of Shares.................................... 22
THE OFFER................................................................. 23
1. Terms of the Offer................................................ 23
2. Procedure for Accepting the Offer and Tendering Shares............ 24
3. Withdrawal Rights................................................. 26
4. Acceptance for Payment and Payment for Shares..................... 27
5. Certain Federal Income Tax Consequences........................... 28
6. Price Range of the Shares......................................... 29
7. Certain Information Concerning the Company........................ 30
8. Certain Information Concerning the Purchaser and Parent........... 31
9. Financing of the Offer and the Merger............................. 32
10. Intercompany Arrangements Between Parent and the Company.......... 32
11. Dividends and Distributions....................................... 34
12. Effect of the Offer on the Market for the Shares; NASDAQ Quotation
and Exchange Act Registration.................................... 34
13. Certain Conditions of the Offer................................... 35
14. Certain Legal Matters............................................. 36
15. Fees and Expenses................................................. 38
16. Miscellaneous..................................................... 39
</TABLE>
SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER
SCHEDULE II DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
SCHEDULE III AUDITED FINANCIAL STATEMENTS (AND RELATED NOTES) FOR THE
COMPANY FOR THE FISCAL YEARS ENDED JUNE 29, 1997 AND JUNE 30,
1996
ANNEX A OPINION OF HAMBRECHT & QUIST LLC
ANNEX B RIGHTS OF DISSENTING STOCKHOLDERS UNDER THE MBCL
<PAGE>
TO THE STOCKHOLDERS OF CAMBRIDGE SOUNDWORKS, INC.:
INTRODUCTION
CSW Acquisition Corporation (the "Purchaser"), a Massachusetts corporation
and a wholly owned subsidiary of Creative Technology Ltd., a Singapore
corporation ("Parent"), hereby offers to purchase all outstanding shares of
common stock, no par value (the "Shares"), of Cambridge SoundWorks, Inc., a
Massachusetts corporation (the "Company"), at a price of $10.68 per Share, net
to the seller in cash, without interest (the "Offer Price"), upon the terms
and subject to the conditions set forth in this Offer to Purchase and the
related Letter of Transmittal (this Offer to Purchase and the related Letter
of Transmittal, together with any amendments or supplements hereto or thereto,
collectively constitute the "Offer").
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by the Purchaser
pursuant to the Offer. Parent or the Purchaser will pay all fees and expenses
of State Street Bank and Trust Company, as Depositary (the "Depositary") and
Georgeson & Company Inc., as Information Agent (the "Information Agent"),
incurred in connection with the Offer. See "THE OFFER -- Fees and Expenses."
THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD"), BY UNANIMOUS
VOTE OF ALL DIRECTORS PRESENT AND VOTING (WITH THE DIRECTOR WHO IS THE
DESIGNEE OF PARENT NOT PRESENT OR PARTICIPATING IN ANY SUCH MEETING OR
DISCUSSION), HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER (AS DEFINED
HEREIN) IS FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE
COMPANY (OTHER THAN PARENT AND PURCHASER), AND RECOMMENDS THAT STOCKHOLDERS
ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. SEE "SPECIAL
FACTORS -- RECOMMENDATIONS OF THE COMPANY BOARD; FAIRNESS OF THE OFFER AND THE
MERGER."
HAMBRECHT & QUIST LLC ("HAMBRECHT & QUIST"), FINANCIAL ADVISOR TO THE
COMPANY, HAS DELIVERED TO THE COMPANY BOARD ITS WRITTEN OPINION, DATED OCTOBER
30, 1997, THAT THE CONSIDERATION TO BE RECEIVED BY HOLDERS OF THE COMPANY'S
COMMON STOCK (OTHER THAN PARENT AND ITS AFFILIATES) PURSUANT TO THE OFFER AND
THE MERGER (AS DEFINED HEREIN) WAS FAIR TO SUCH STOCKHOLDERS FROM A FINANCIAL
POINT OF VIEW, AS OF THE DATE OF SUCH OPINION. SEE "SPECIAL FACTORS -- OPINION
OF FINANCIAL ADVISOR TO THE COMPANY." THE FULL TEXT OF THE HAMBRECHT & QUIST
OPINION IS ATTACHED HERETO AS ANNEX A. STOCKHOLDERS ARE URGED TO READ SUCH
OPINION CAREFULLY AND IN ITS ENTIRETY FOR ASSUMPTIONS MADE, MATTERS CONSIDERED
AND LIMITS OF THE REVIEW OF HAMBRECHT & QUIST.
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9"), which is being mailed to stockholders herewith.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THAT
NUMBER OF SHARES THAT, WHEN ADDED TO THE SHARES OWNED BY PARENT AS OF THE
EXPIRATION OF THE OFFER, SHALL CONSTITUTE TWO-THIRDS OF THE SHARES THEN
OUTSTANDING ON A FULLY DILUTED BASIS (AS DEFINED HEREIN) (THE "MINIMUM SHARE
CONDITION"). THE MINIMUM SHARE CONDITION MAY NOT BE WAIVED WITHOUT THE CONSENT
OF THE COMPANY. AS OF OCTOBER 31, 1997, PARENT BENEFICIALLY OWNS 1,169,608
SHARES (OF WHICH 257,314 ARE SUBJECT TO A COMMON STOCK PURCHASE WARRANT) ,
CONSTITUTING APPROXIMATELY 28.8% OF THE CURRENTLY OUTSTANDING SHARES. THE
OFFER IS ALSO SUBJECT TO THE OTHER TERMS AND CONDITIONS DESCRIBED IN THIS
OFFER TO PURCHASE.
The Company has advised the Purchaser that as of October 23, 1997, (i)
3,804,824 Shares were issued and outstanding, (ii) no Shares were held in the
treasury of the Company, (iii) 576,753 Shares were authorized and reserved for
future issuance pursuant to outstanding stock options granted pursuant to the
Company's stock option plan ("Company Options"), (iv) 257,314 Shares were
authorized and reserved for future issuance pursuant to the Common Stock
Purchase Warrant held by Parent (the "Parent Warrant"), and (v) 2,000,000
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Preferred Shares, no par value ("Preferred Shares"), were authorized and
reserved for future issuance. The Company has further advised the Purchaser
that as of October 23, 1997, there were approximately 71 holders of record of
the Shares. Parent currently beneficially owns 1,169,608 Shares (of which
257,314 are subject to the Parent Warrant) which were acquired on February 28,
1997 pursuant to a Common Stock and Warrant Purchase Agreement dated as of
February 20, 1997 between Parent and the Company. The remaining issued and
outstanding Shares are not held by Parent or the Purchaser (the "Non-
Affiliated Shares"). See "SPECIAL FACTORS -- Background of the Offer and the
Merger." For purposes of the Offer, "Fully Diluted Basis" means the number of
Shares that would be outstanding assuming the exercise of all outstanding
Company Options but not assuming exercise of the Parent Warrant. As of October
23, 1997, all of the executive officers and directors of the Company owned
approximately 270,700 Shares and held Company Options to purchase
approximately 517,000 Shares (whether or not vested). The Company has advised
the Purchaser that, to the best of the Company's knowledge, and subject to
applicable securities laws, all of the directors (other than the director who
is the designee of Parent) and all of the executive officers of the Company
presently intend to tender pursuant to the Offer all Shares owned by such
persons. The exercisability of all Company Options will vest in connection
with the consummation of the Offer. Accordingly, based on information
available as of October 23, 1997, and assuming that each of the Company
Options held by the executive officers and directors of the Company are
exercised in full immediately prior to the consummation of the Offer and that
Parent does not elect to exercise the Parent Warrant prior to the consummation
of the Offer, the Minimum Share Condition will be satisfied if, in addition to
the tendering of all of the Shares held by the executive officers and
directors of the Company, approximately 1,221,000 Non-Affiliated Shares are
validly tendered in the Offer and not withdrawn.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of October 30, 1997, by and among Parent, the Purchaser and the Company
(the "Merger Agreement"). The Merger Agreement provides, among other things,
that as soon as practicable after the purchase of Shares pursuant to the Offer
and the satisfaction of the other conditions set forth in the Merger Agreement
and in accordance with the relevant provisions of the Business Corporation Law
of the Commonwealth of Massachusetts (the "MBCL"), the Purchaser will be
merged with and into the Company (the "Merger"). Following consummation of the
Merger, the Company will continue as the surviving corporation (the "Surviving
Corporation"), and will become a wholly owned subsidiary of Parent. At the
effective time of the Merger (the "Effective Time"), each Share issued and
outstanding immediately prior to the Effective Time (other than Shares owned
by Parent, the Purchaser or any subsidiary of Parent or the Company, or Shares
held by stockholders who will have properly demanded and perfected appraisal
rights under the MBCL) will be canceled and converted automatically into the
right to receive in cash, without interest, an amount equal to the price paid
per Share in the Offer (the "Merger Price"). The Merger Agreement is more
fully described under "SPECIAL FACTORS -- The Merger Agreement."
Under the MBCL, if after consummation of the Offer, the Purchaser owns at
least 90% of the Shares then outstanding, the Purchaser will be able to cause
the Merger to occur without a vote of the Company's stockholders. In such
event, Parent, the Purchaser and the Company have agreed to take all necessary
and appropriate action to cause the Merger to become effective in accordance
with the MBCL as promptly as practicable after consummation of the Offer,
without a meeting of the stockholders of the Company. If, however, after
consummation of the Offer, the Purchaser owns less than such number of Shares,
a vote of the Company's stockholders will be required under the MBCL to
approve the Merger, and a significantly longer period of time will be required
to effect the Merger. See "SPECIAL FACTORS -- Purpose and Structure of the
Offer and the Merger; Reasons of Parent and the Purchaser for the Offer and
the Merger," "SPECIAL FACTORS -- The Merger Agreement" and "THE OFFER --
Certain Conditions of the Offer."
No appraisal rights are available in connection with the Offer; however,
stockholders will have appraisal rights in connection with the Merger
regardless of whether the Merger is consummated with or without a vote of the
Company's stockholders. See "SPECIAL FACTORS -- Rights of Stockholders in the
Merger."
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION ABOUT THE OFFER AND THE MERGER. STOCKHOLDERS ARE URGED
TO CAREFULLY READ THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL
IN THEIR ENTIRETY BEFORE MAKING ANY DECISION WITH RESPECT TO THE OFFER.
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SPECIAL FACTORS
1.BACKGROUND OF THE OFFER AND THE MERGER
In September 1996, Mr. Robert Mainiero, Vice President of the Company, and
Mr. Chris Kukshtel, Product Marketing Manager of Creative Labs, Inc., a wholly
owned subsidiary of Parent operating in the United States ("Creative Labs")
had an initial telephone discussion regarding the possibility of Parent
distributing the Company's multimedia speaker products. In mid-September, the
two gentlemen met to continue these discussions.
On October 7, 1996 in Milpitas, California, representatives of the companies
met at Creative Labs' headquarters. Company representatives demonstrated a
number of the Company's speaker products. The parties also discussed
distribution plans for various products. Present at this meeting were Mr.
Thomas DeVesto, President and Chief Executive Officer of the Company, Mr.
Maineiro and Mr. Fred Pinkerton, a Vice President of the Company, Mr. Craig
McHugh, Vice President, General Manager of Creative Labs, Mr. Hock Leow, Vice
President, Multimedia Products of Creative Labs, John Danforth, Vice President
and General Counsel of Creative Labs, Greg Woock, Vice President of Sales for
Creative Labs and Mr. Kukshtel.
Following this meeting, via a series of telephone conferences and a face-to-
face meeting at Comdex in Las Vegas, Nevada during the second week of November
1996, Mr. DeVesto and Mr. McHugh met and continued discussing the terms
regarding a potential distributor relationship, including product launches,
product pricing and distribution channels.
During a conference call the first week of January 1997 among Mr. DeVesto,
Mr. McHugh, Mr. Mainiero, and Ken Fong, Marketing Manager of Creative Labs,
the parties decided that they wanted to pursue the distributor relationship.
Near the end of this conversation, Mr. McHugh inquired as to the possibility
of Parent making an equity investment in the Company. At the conclusion of
this call, Mr. DeVesto stated that he would discuss the possibility of such
equity investment with the Company Board.
Further discussions regarding a potential equity investment, possible
product launch plans, plans for branding existing and future products and
specific potential parameters of an exclusive distribution arrangement for
Parent with respect to the Company's current and future multimedia speaker
products occurred among Messrs. DeVesto, Mainiero and Fong at the Consumer
Electronics Show in Las Vegas during the second week of January 1997. During
these meetings, Mr. Devesto stated that the Company Board had authorized him
to continue discussions with Parent regarding a potential equity investment by
the Parent.
In the last week of January 1997, a meeting took place in the offices of
Creative Labs in Milpitas, California to continue these discussions. Present
at the meeting were Mr. DeVesto, Mr. Mainiero, Mr. Fong, Mr. Pinkerton, Mr.
Sim Wong Hoo, Chairman and Chief Executive Officer of Parent, Mr. Ng Keh Long,
Vice President, Corporate Treasurer and Acting Chief Financial Officer of
Parent, and Mr. Danforth. The meeting consisted of a presentation by Company
management regarding the Company's business and a demonstration of a prototype
of PC Works(TM) -- a three-piece multimedia speaker consisting of two speakers
and a subwoofer. After substantial negotiation, Mr. DeVesto stated that he
would present a proposal to the Company Board in which Parent would, among
other things, (i) purchase 19.5% of the Company's fully diluted equity, and
(ii) receive a warrant to purchase an additional 5.5% of the Company's fully
diluted equity.
During the last week of January 1997, Venture Law Group, outside counsel to
Parent, distributed draft investment and distribution agreements to Peabody &
Arnold, outside counsel to the Company.
During the first week of February 1997, Mr. Leow, Mr. Fong and Ms. Erika
Rottenberg, Associate Counsel for Creative Labs, visited the Company's
headquarters in Newton, Massachusetts. Mr. Leow, Mr. Fong and Ms. Rottenberg
were introduced to the Company Board, toured the Company's facilities, met a
number of the Company's employees, and discussed plans regarding product
distribution and corporate governance issues
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with Mr. DeVesto, Mr. Mainiero and Mr. Wayne Garrett, Vice President of
Finance and Chief Financial Officer of the Company. The parties also discussed
a number of due diligence items and plans regarding product and packaging
issues. Ms. Rottenberg also met with Donald Burnham and William Kelly of
Peabody & Arnold to discuss and negotiate drafts of the agreements necessary
to consummate the acquisition and distribution relationship.
Various due diligence meetings and telephone conferences among the parties
occurred throughout early and mid February 1997.
On February 20, 1997, the Company and Parent entered into definitive
agreements providing for the purchase by Parent of 912,294 shares of Company
common stock at a price of $5.25 per share and issuance to Parent of a warrant
to acquire an additional 257,314 shares of Company common stock at an exercise
price of $6.00 per share, subject to Parent meeting certain performance
milestones. These transactions closed on February 28, 1997. As a part of the
transaction, Parent was granted the right to designate one nominee for
election to the Company Board.
Following completion of the initial equity investment, Parent and the
Company began implementing the distribution arrangement for multimedia speaker
products. Early on in the parties' relationship, Parent began to realize that
the pricing mechanics of the distribution agreement did not permit it to be
competitive in the OEM and bulk speaker businesses, which businesses represent
a majority of the speakers sold worldwide.
Several meetings between the companies occurred between May and July 1997
regarding the working relationship and the Company's new products--PCWorks and
two-piece speaker products. During these meetings, the subject of product
pricing under the distribution arrangement continued to be discussed. During
the third week of June 1997, the parties participated in the E3 Conference in
Atlanta, Georgia, and held meetings with their respective customers. Mr.
DeVesto and Mr. McHugh also met with each other during the conference to
discuss a number of items, including the Parent's belief that the prices the
Company was charging Parent for the Company's products were too high for
Parent to meet the Company's and Parent's mutual distribution volume goals,
and the Company's belief that it would need to increase the prices it was
charging to Parent to meet the Company's profitability goals. Mr. DeVesto and
Mr. McHugh discussed a number of possible solutions to the product pricing
issue, including the possibility of Parent increasing its equity stake in the
Company, modifying the distribution arrangement from an exclusive relationship
to a non-exclusive relationship, or terminating the distribution agreement.
Discussions regarding the Parent acquiring more equity in the Company
continued throughout the summer months. During a telephone conversation
between Mr. DeVesto and Mr. McHugh on August 8, 1997, Mr. DeVesto and Mr.
McHugh agreed that they would present a proposal to their respective teams
regarding Parent acquiring all of the remaining equity of the Company to
determine whether there was any true interest in pursuing such a transaction.
Mr. McHugh of Creative Labs was appointed to the Company Board at a meeting
of the Company Board held on August 13, 1997. Mr. McHugh excused himself from
the Company Board meeting when the Company Board discussed the Company's
margins, channel profitability and prospective strategic business proposals
and direction.
In the second week of September, Hambrecht & Quist was informally retained
by the Company to assist it in connection with the evaluation of the Company's
various strategic alternatives. This arrangement was formalized in an
engagement letter dated September 29, 1997.
After receiving positive indications from both teams, a meeting was held at
Creative Labs' headquarters in Milpitas, California on September 19, 1997
between teams representing the Company and Parent to continue discussions.
Messrs. DeVesto and Garrett from the Company, and Mr. Ng, Mr. McHugh, Mr.
Danforth, Mr. Fong and Ms. Rottenberg from Parent and Creative Labs
participated in the meeting, as did Mr. David Golden, of Hambrecht & Quist,
representing the Company. At this meeting, Mr. Ng indicated that Parent was
prepared to purchase all of the remaining outstanding shares at a price of
$8.40 per share, representing a premium of
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approximately 60% over the then-current trading price for the Company's shares.
The representatives of the Company informed Mr. Ng that they would not be in a
position to support a price at this level, but did indicate that they would
discuss the matter with the Company Board. During this meeting, Mr McHugh
indicated his tentative intention to withdraw from the Company Board in order
to avoid any potential conflict of interest in connection with the Company
Board's consideration of a possible transaction involving Parent acquiring all
remaining equity of the Company. During the fourth week of September, Mr.
DeVesto contacted the representatives of Parent to convey that the Company
Board had considered the Parent's proposal of $8.40 per share and rejected it.
On September 23 and 24, meetings occurred in Lisbon, Portugal between Mr. Sim
and Mr. DeVesto in which Mr. Sim indicated on a preliminary basis that Parent
might consider raising the offered price to a price in the range of $10.00 per
share. Discussions between the two parties continued, with representatives of
the Company inquiring as to the possibility of whether Parent might be willing
to raise its offer. The Company Board discussed the proposal at a meeting held
on September 29, 1997.
During the first week of October 1997, a telephone discussion occurred among
Mr. McHugh, Mr. Danforth, Mr. Fong and Mr. Golden in which Mr. McHugh stated
that the highest price that Parent would be willing to pay was $10.68 per
share. Mr. Golden indicated that he would present and recommend this price to
the Company Board at a meeting to be convened on October 3, 1997. Within a few
days, Mr. Golden telephoned Mr. Danforth and informed him that the Company
wished to proceed toward definitive agreements on the basis of the $10.68 per
Share price.
On October 6, 1997, the Company received an inquiry from The Nasdaq Stock
Market regarding the fact that the trading volume in the Company's stock had
been unusually high for the day. There was also an increase in the trading
price in the Company's stock. In response to this, the Company issued a press
release stating that the Company was in discussions with Parent regarding a
possible acquisition transaction. Trading in the Company's stock was halted for
a period of time on this day.
At the direction of the two parties, counsel for each party began to make
preparations for the transactions beginning in the first week of October.
Various due diligence items were exchanged by the parties. Draft definitive
documents were circulated to the parties by Venture Law Group on October 10,
1997.
On October 15, 1997, Mr. Sim and Mr. Ng from Parent, Mr. McHugh and Ms.
Rottenberg from Creative Labs, and Mr. Michael Graves of Price Waterhouse,
independent accountants to Parent, met at the Company's headquarters with Mr.
DeVesto, Mr. Garrett and Mr. Mainiero of the Company, Joseph Hinkley and Laurie
Bazarian from Peabody & Arnold, Mr. Golden and Mr. Frank Pittilo of Hambrecht &
Quist, and George Neble from Arthur Andersen, independent accountants to the
Company. The representatives from Parent and Creative Labs took a tour of the
Company's headquarters and were introduced to and met with a number of the
Company's department heads in an effort to allow the Parent and Creative Labs
to understand the Company's operating procedures and plans. Mr. Sim, Mr. Ng and
Mr. McHugh, along with Mr. DeVesto, visited two of the Company's stores. Ms.
Rottenberg, Mr. Hinkley and Ms. Bazarian discussed a number of due diligence
items and, in a phone conference with Mr. Steven Tonsfeldt of Venture Law
Group, worked towards negotiating the terms of the Merger Agreement. Mr.
Graves, Mr. Garrett and Mr. Pittilo discussed a number of financial issues
relating to the transaction.
During the remainder of October, the parties continued to negotiate the
transaction documents.
On October 27 and 28, 1997, the Company Board held meetings to discuss the
Offer and the Merger. At the October 27th meeting, Hambrecht & Quist made a
presentation of certain financial analyses it had performed in connection with
its review of the Offer and the Merger. On October 30, 1997 Hambrecht & Quist
rendered its opinion to the Company Board that the consideration to be received
by the holders of Company's common stock (other than Parent and the Purchaser)
pursuant to the Offer and the Merger was fair to such holders from a financial
point of view. Representatives of Peabody & Arnold also gave a presentation
during these meetings regarding the various legal aspects of the transaction as
well as a summary of the principal terms of the Merger
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Agreement. At the conclusion of these meetings, the Company Board authorized
the officers of the Company to proceed with the transaction on terms
consistent with those presented and to execute the Merger Agreement. Mr.
McHugh of Creative Labs did not attend or participate in any meeting of the
Company Board at which the proposed transaction with Parent was discussed or
considered, nor was his input sought by the Company Board in connection with
the proposed transaction.
At various times through the month of October, the Board of Directors of
Parent discussed on an informal basis the proposed Offer and Merger and terms
of the Merger Agreement. At the conclusion of these discussions, by execution
of resolutions by circular dated October 30, 1997, the Parent's Board of
Directors voted unanimously to approve the Merger Agreement and authorized the
officers of Parent to proceed with the transaction on terms consistent with
those discussed.
The Merger Agreement was executed on October 30, 1997, and Parent and the
Company issued a joint press release before the opening of the U.S. stock
markets on October 31, 1997 announcing such execution.
On November 3, 1997, the Purchaser commenced the Offer.
2. RECOMMENDATIONS OF THE COMPANY BOARD; FAIRNESS OF THE OFFER AND THE MERGER
The Company Board. The Company Board (with the director who is the designee
of Parent not present or participating in any meeting or discussion of the
Company Board) has unanimously determined that each of the Offer and the
Merger is fair to, and in the best interests of, the stockholders of the
Company (other than Parent and Purchaser), and the Company Board (with the
director who is the designee of Parent not present or participating in any
meeting or discussion of the Company Board) unanimously recommends that the
Company's stockholders accept the Offer and tender their Shares pursuant to
the Offer. In reaching these determinations, the Company Board considered the
following factors, each of which, in the view of the Company Board, supported
such determinations:
(i) the historical market prices and recent trading activity of the Shares,
including the fact that the $10.68 per share cash consideration to be received
by the stockholders of the Company (other than Parent and Purchaser) in the
Offer and Merger represents a premium of approximately 50% over the reported
closing price on October 3, 1997, the last full trading day preceding the
public announcement of the fact that the Company and Parent were in
discussions regarding a possible acquisition transaction, and a premium of
approximately 74% and 102% over the average closing price for the one-month
and three-month periods, respectively, preceding such date, and the fact that
such price would be payable in cash, thus eliminating any uncertainties in
valuing the consideration to be received by the Company's stockholders;
(ii) the history of the negotiations between the Company Board and its
representatives and Parent and its representatives, including the Company
Board's belief that Parent and the Purchaser would not further increase the
Offer Price and that $10.68 per Share was the highest price that could be
obtained from Parent and the Purchaser;
(iii) the opinion of Hambrecht & Quist that the consideration to be received
by holders of the Company's common stock (other than Parent and the Purchaser)
pursuant to the Offer and the Merger was fair to such stockholders from a
financial point of view, and the report and analysis presented by Hambrecht &
Quist in connection therewith;
(iv) Parent's role as a significant wholesale purchaser of the Company's
products, representing a significant portion of the Company's actual and
projected revenues and the possibility that, if the Merger were not
consummated, the Company and Parent might be unable to resolve a basis upon
which to further pursue their exclusive distribution arrangements, thereby
potentially impacting the Company's future growth and profits. In addition, if
the Company could not find an alternative significant strategic partner, the
Company might potentially be required to pursue alternative financing to fund
the future growth of the Company which might impact the Company's business and
prospects and dilute stockholders' interests in the Company;
(v) the effect of the Minimum Share Condition that, without the consent of
the Company Board, the Offer will not be consummated unless at least that
number of Shares that, when added to the Shares owned by Parent,
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will constitute two-thirds of the Shares then outstanding (on a fully diluted
basis) are validly tendered pursuant to the Offer and not properly withdrawn;
(vi) the availability of appraisal rights in the Merger for the stockholders
of the Company (other than Parent and Purchaser) under the MBCL;
(vii) the possibility that, because of a future decline in the Company's
business, the trading price of the Shares or the stock market in general, the
consideration that the stockholders of the Company (other than Parent and
Purchaser) would obtain in a future transaction might be less advantageous
than the consideration they would receive pursuant to the Offer and the
Merger;
(viii) the review of the possible alternatives to the Offer and Merger
(including the possibility of continuing to operate the Company as an
independent entity in light of the Company's relative size and the presence of
significant competitors in both the retail and wholesale consumer electronics
marketplace), the range of possible benefits and risks to the Company's
stockholders of such alternatives and the timing and the likelihood of
actually accomplishing any such alternatives;
(ix) the likelihood that the proposed acquisition would be consummated,
based in part on the financial condition of Parent;
(x) the terms and conditions of the Merger Agreement;
(xi) the fact that pursuant to the Merger Agreement the Company is not
prohibited from responding to any unsolicited Superior Proposal (as such term
is defined in the Merger Agreement) to acquire the Company, and that, after
giving Parent notice of the receipt of a Superior Proposal and an opportunity
to make an offer which the Company Board determines, in its good faith
judgment, is as favorable as the Superior Proposal, the Company may elect to
terminate the Merger Agreement and pay the termination fee provided for in the
Merger Agreement; and
(xii) the structure of the transaction, which is designed, among other
things, to result in receipt by the stockholders at the earliest practicable
time of the consideration to be paid in the Offer and the fact that the per
Share consideration to be paid in the Offer and the Merger is the same.
Additional Considerations of the Company Board. The members of the Company
Board evaluated the various factors listed above in light of their knowledge
of the business, financial condition and prospects of the Company and based
upon the advice of financial and legal advisors. In light of the number and
variety of factors that the Company Board considered in connection with its
evaluation of the Offer and the Merger, the Company Board did not find it
practicable to assign relative weights to the foregoing factors and,
accordingly, the Company Board did not do so. In addition to the factors
listed above, the Company Board considered the fact that while consummation of
the Offer would result in the stockholders of the Company receiving a premium
for their Shares over the trading prices of the Shares prior to the public
announcement of the fact that Parent and the Company were in discussions
regarding a possible acquisition transaction, consummation of the Offer and
the Merger would eliminate any opportunity for stockholders of the Company
(other than Parent and Purchaser) to participate in the potential future
growth prospects of the Company. The Company Board determined, however, that
(i) the loss of opportunity is reflected in the Offer Price, and (ii) there
are continued business risks associated with independent operations which
could impact the Company's long-term financial prospects.
In addition, the Company Board determined that the Offer and the Merger are
procedurally fair to the stockholders of the Company (other than Parent and
Purchaser) because, among other things (i) the Company Board retained
Hambrecht & Quist as its independent financial advisor to assist it in
evaluating the Offer and the Merger, (ii) the Minimum Share Condition, which
may not be waived without the consent of the Company, was made a condition to
the Offer, (iii) there were deliberations pursuant to which the Company Board
evaluated the Offer and the Merger and alternatives thereto, and (iv) the
$10.68 per Share price and the other terms and
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conditions of the Merger Agreement resulted from active arm's-length
bargaining between representatives of the Company, on the one hand, and
Parent, on the other.
The Company Board recognized that the Merger is not structured to require
the approval of two-thirds of the stockholders of the Company other than
Parent or Purchaser, and that if the Offer is consummated Parent and the
Purchaser will have sufficient voting power to approve the Merger without the
affirmative vote of any other stockholder of the Company. Consummation of the
Offer, however, is conditioned upon, among other things, the Minimum Share
Condition, which may not be waived without consent of the Company. Pursuant to
the Merger Agreement, the purchase by the Purchaser of all Shares validly
tendered in the Offer and not withdrawn is a condition to the Merger.
In making its determinations and recommendations, the Company Board was
aware of the matters set forth under "SPECIAL FACTORS -- Interests of Certain
Persons in the Offer and Merger."
3. OPINION OF FINANCIAL ADVISOR TO THE COMPANY
The Company engaged Hambrecht & Quist to act as its financial advisor in
connection with the Offer and the Merger (collectively, the "Proposed
Transaction") and to render an opinion as to the fairness from a financial
point of view to the stockholders of the Company (other than Parent and the
Purchaser) of the consideration to be received in the Proposed Transaction.
Hambrecht & Quist rendered its oral opinion, subsequently confirmed in
writing, on October 30, 1997, to the Company's Board that, as of such date,
the consideration to be received by the holders of common stock of the Company
(other than Parent and the Purchaser) was fair to such holders from a
financial point of view. A COPY OF HAMBRECHT & QUIST'S OPINION DATED OCTOBER
30, 1997, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, THE SCOPE
AND LIMITATION OF THE REVIEW UNDERTAKEN AND THE PROCEDURES FOLLOWED BY
HAMBRECHT & QUIST IS ATTACHED AS ANNEX A TO THIS OFFER TO PURCHASE. THE
COMPANY'S STOCKHOLDERS ARE ADVISED TO READ THE OPINION IN ITS ENTIRETY.
Stockholders should note that the opinion was written for the information of
the Board of Directors in connection with their evaluation of the Proposed
Transaction. No limitations were placed on Hambrecht & Quist by the Company's
Board with respect to the investigation made or the procedures followed in
preparing and rendering its opinion.
In its review of the Proposed Transaction, and in arriving at its opinion,
Hambrecht & Quist, among other things: (i) reviewed the publicly available
consolidated financial statements of the Company for recent years and interim
periods to date and certain other relevant financial and operating data of the
Company made available to Hambrecht & Quist from published sources and from
the internal records of the Company; (ii) reviewed certain internal financial
and operating information, including projections, relating to the Company
provided by the management of the Company; (iii) discussed with certain
members of the management of the Company the business, financial condition and
prospects of the Company; (iv) reviewed the publicly available financial
statements of Parent for recent years and interim periods to date and certain
other relevant financial and operating data of Parent made available to
Hambrecht & Quist from published sources; (v) reviewed the recent reported
prices and trading activity for the Company's common stock and compared such
information and certain financial information of the Company with similar
information for certain other companies engaged in businesses Hambrecht &
Quist considered comparable to those of the Company; (vi) reviewed the
financial terms, to the extent publicly available, of certain comparable
merger and acquisition transactions; (vii) reviewed the Merger Agreement; and
(viii) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data Hambrecht & Quist deemed relevant.
Hambrecht & Quist did not independently verify any of the information
concerning the Company or Parent considered in connection with such parties'
review of the Proposed Transaction and, for purposes of its opinion, Hambrecht
& Quist assumed and relied upon the accuracy and completeness of all such
information. In connection with its opinion, Hambrecht & Quist did not prepare
or obtain any independent evaluation or
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appraisal of any of the assets or liabilities of the Company or Parent, nor
did they conduct a physical inspection of the properties and facilities of the
Company or Parent. With respect to the financial forecasts and projections
used in its analysis, Hambrecht & Quist assumed that they reflect the best
currently available estimates and judgments of the expected future performance
of the Company. Hambrecht & Quist also assumed that neither the Company nor
Parent was a party to any pending transactions, including external financings,
recapitalizations or material merger discussions, other than the Proposed
Transaction and those in the ordinary course of conducting their respective
businesses. Hambrecht & Quist's opinion is necessarily based upon market,
economic, financial and other conditions as they exist and can be evaluated as
of the date of this letter and any change in such conditions would require a
reevaluation of their opinion. Hambrecht & Quist was not requested to, and did
not, formally solicit indications of interest from any other parties in
connection with a possible acquisition of, or business combination with, the
Company.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The
summary of the Hambrecht & Quist analyses set forth below does not purport to
be a complete description of the presentation by Hambrecht & Quist to the
Company Board. In arriving at its opinion, Hambrecht & Quist did not attribute
any particular weight to any analyses or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Hambrecht & Quist believes that its analyses
and the summary set forth below must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, or of
the following summary, without considering all factors and analyses, could
create an incomplete view of the processes underlying the analyses set forth
in the Hambrecht & Quist presentation to the Company Board and its opinion. In
performing its analyses, Hambrecht & Quist made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of the Company. The
analyses performed by Hambrecht & Quist (and summarized below) are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to
be appraisals or to reflect the prices at which businesses actually may be
acquired.
The following is a brief summary of certain financial analyses performed by
Hambrecht & Quist in connection with providing its written opinion to the
Company Board on October 30, 1997:
Comparison of Recent Reported Prices and Trading Activity: Hambrecht & Quist
compared the average price and trading activity for the Company's common stock
for a variety of periods prior to October 3, 1997, the last trading day prior
to the public announcement of discussions between the Company and Parent. The
average price for the week prior to October 3, 1997 was $6.95 per share, the
average price for the month prior to October 3, 1997 was $6.14 per share, the
average price for the previous three months prior to October 3, 1997 was $5.29
per share and the average price for the six months prior to October 3, 1997
was $5.16 per share. Additionally, Hambrecht & Quist analyzed the volume
traded at specific prices for the period from January 1, 1995 to October 3,
1997 and found that for 1995 and 1997, the maximum number of shares traded in
the range of $5.20 per share to $5.50 per share. In 1996, the maximum number
of shares traded in the range of $3.70 to $4.00 per share. This compared with
a value of $10.68 per share pursuant to the Offer and Merger.
Premium Analysis: Hambrecht & Quist compared the price per share of the
Offer as of October 30, 1997 to the last sale price of the Company's common
stock on both October 3 (the last trading day prior to the public announcement
of discussions between the Company and Parent) and September 4, 1997 (the
twentieth trading day preceding such announcement) to similar premiums for
certain technology and consumer transactions announced since August 1, 1993.
Hambrecht & Quist analyzed 10 such public company technology transactions and
observed that the average one-day premium and average four-week premium paid
in such transactions was 23% and 27%, respectively. Hambrecht & Quist also
analyzed 10 such public company consumer transactions and observed that the
average one-day premium and average four-week premium paid in such
transactions was 25% and 39%, respectively. This compared with the Offer in
which the one-day premium was 50% and the four-week premium was 114%. Based on
the analysis of premiums paid in comparable transactions, the Company's
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implied equity value ranged from approximately $6.35 per share to $8.92 per
share. This compared with a value of $10.68 per share in the Offer.
Analysis of Publicly Traded Comparable Companies: Hambrecht & Quist compared
selected historical and projected financial information of the Company to
publicly traded companies Hambrecht & Quist deemed to be comparable to the
Company. Such data and ratios included enterprise value to historical revenue,
market value to projected 1997 net income based on management estimates,
market value to projected 1998 net income based
on management estimates, market value to projected 1997 net income based on
published estimates from various brokerage houses ("Wall Street estimates"),
market value to projected 1998 net income based on Wall Street estimates, and
market value to historical book value. Given the Company's recent history of
operating and net losses, analysis of ratios of historic net income, EBIT and
EBITDA was not meaningful. All multiples were based on closing stock prices on
October 23, 1997. Companies viewed as comparable included certain branded
consumer retail companies including Gap, Gucci, Gymboree, Starbucks, Tiffany
and Williams-Sonoma; and selected stereo retailers, stereo manufacturers and
peripherals manufacturers including Boston Acoustics, Inc., Circuit City
Stores, Inc., Good Guys, Inc., Harman International Industries, Inc., Iomega
Corp., Recoton Corp., and Zenith Electronics Corp. Hambrecht & Quist
determined that the average multiple of the last-twelve-months ended June 30,
1997 revenues for the branded retail companies was 2.1. Hambrecht & Quist
determined that the average multiples of calendar-year 1997 estimated net
income and calendar-year 1998 estimated net income were 25.9 and 20.8
respectively. Hambrecht & Quist also determined that the average multiple of
book value for these companies was 6.2. Based on the analysis of these
publicly traded comparable consumer companies, the Company's implied equity
value ranged from approximately $2.51 per share to $26.57 per share. Hambrecht
& Quist determined that the average multiple of the last-twelve-months ended
June 30, 1997 revenues for the stereo retailers, stereo manufacturers and
peripherals manufacturers was 1.1. Hambrecht & Quist determined that the
average multiples of calendar-year 1997 estimated net income and calendar-year
1998 estimated net income were 22.9 and 17.4 respectively. Hambrecht & Quist
also determined that the average multiple of book value for these companies
was 4.0. Based on the analysis of these publicly traded comparable stereo
retailers, stereo manufacturers and peripherals manufacturers companies, the
Company's implied equity value ranged from approximately $2.21 per share to
$14.76 per share.
Discounted Cash Flow Analysis: Hambrecht & Quist analyzed the theoretical
valuation of the Company based on the unlevered discounted cash flow of the
potential financial performance of the Company as calculated by Hambrecht &
Quist. Unlevered free cash flow was derived by taking tax-affected earnings
before interest and taxes ("EBIT"), adding non-cash charges for the relevant
period, and subtracting other anticipated cash needs for the relevant periods.
To estimate the total present value of the Company, before giving effect to
its capital structure, Hambrecht & Quist discounted to present value (1) the
projected stream of after-tax cash flows and (2) the terminal value (the
hypothetical value of selling the enterprise in its entirety at some future
date) of the Company's business using discount rates from 12% to 20%. The
terminal value of the Company was based on multiples of 0.50, 0.75 and 1.00
times the projected revenues for the fiscal year ended June 30, 2002. At a 12%
discount rate, the foregoing analysis yielded an implied equity value for the
Company of $7.51 per share to $15.74 per share; at a 16% discount rate, $6.17
per share to $13.29 per share; and at a 20% discount rate, $5.02 to $11.17 per
share.
Analysis of Selected Merger and Acquisition Transactions: Hambrecht & Quist
compared the Proposed Transaction with selected comparable merger and
acquisition transactions. This analysis included 10 comparable consumer
transactions and 10 comparable technology transactions. In examining these
transactions, Hambrecht & Quist analyzed certain income statement and balance
sheet parameters of the acquired company relative to the consideration
offered. Multiples analyzed included consideration offered to historical
revenue and to historical book value. Given the Company's recent history of
operating and net losses, analysis of multiples of operating and net earnings
were viewed as being not meaningful. Selected consumer transactions analyzed
include Stairmaster Sports/Medical Products/John Rutledge Partners, Starsight
Telecast, Inc./Gemstar International, Inc., Armor All/Clorox, Duracell
International, Inc./The Gillette Company, International Jensen, Inc./Recoton
Corporation, Marietta Corporation/BFMA Holding Corp., Neutrogena Corp./Johnson
& Johnson, Mr. Coffee,
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Inc./Singapore Brands USA, Inc., Gerber Products/Sandoz Ltd. and Goody
Products/Newall Co. The consideration offered in the forgoing transactions was
an average multiple of 2.0 times revenue and 4.3 times book value. Based on
the analysis of these selected merger and acquisition transactions, the
Company's implied equity value ranged from approximately $16.17 per share to
$24.04 per share. Selected technology transactions analyzed include Sterling
Electronics Corporation/Marshall Industries, Wyle Electronics/Raab Karcher AG,
Microcom/Compaq Computer, Compression Labs/V-Tel. U.S. Robotics/3Com, Augat,
Inc./Thomas & Betts Corp, Brooktree Corp./Rockwell International,
NetWorth/Compaq Computer, Conner Peripherals, Inc./Seagate Technology, Inc.,
and Acuity Imaging, Inc./Robotic Vision Systems, Inc. The consideration
offered in the foregoing transactions was an average multiple of 1.4 times
revenue and 4.2 times book value. Based on the analysis of these selected
merger and acquisition transactions, the Company's implied equity value ranged
from approximately $15.73 per share to $17.04 per share.
No company or transaction used in the above analyses is identical to the
Company or Parent or the Proposed Transaction. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the
public trading values of the companies or company to which they are compared.
The foregoing description of Hambrecht & Quist's opinion is qualified in its
entirety by reference to the full text of such opinion which is attached as
Annex A to this Offer to Purchase.
Pursuant to an engagement letter dated September 29, 1997, the Company has
agreed to pay Hambrecht & Quist a fee in connection with its services as
financial advisor to the Board of Directors and the rendering of a fairness
opinion. The fee with respect to the delivery of a fairness opinion is owed
upon the delivery of such opinion, and the fee with respect to financial
advisory services is owed upon the closing of the Merger and is not dependent
upon the value of the transaction. The Company also has agreed to reimburse
Hambrecht & Quist for its reasonable out-of-pocket expenses and to indemnify
Hambrecht & Quist against certain liabilities, including liabilities under the
federal securities laws or relating to or arising out of Hambrecht & Quist's
engagement as financial advisor.
4. POSITION OF PARENT AND THE PURCHASER REGARDING THE FAIRNESS OF THE OFFER
AND THE MERGER
Parent and the Purchaser believe that the consideration to be received by
the stockholders of the Company (other than Parent and Purchaser) pursuant to
the Offer and the Merger is fair to such stockholders. Parent and the
Purchaser base their belief on the following factors: (i) the Company retained
and was advised by independent legal and financial advisors; (ii) the Company
Board (with the director who is the designee of Parent not present or
participating in any such meeting or discussion) determined that the Offer and
the Merger are fair to and in the best interests of the stockholders of the
Company (other than Parent and Purchaser), approved the Merger Agreement and
the transactions contemplated thereby and recommended that the stockholders of
the Company accept the Offer and the Merger; (iii) the $10.68 per Share price
to be paid in the Offer and the Merger and the other terms and conditions of
the Merger Agreement resulted from active arm's-length bargaining between
representatives of the Company, on the one hand, and Parent, on the other;
(iv) the consideration to be paid in the Offer and the Merger represents a
premium of approximately 50% over the reported closing price for the Shares on
October 3, 1997, the last trading day prior to the public announcement of the
fact that the Company and Parent were in discussions regarding a possible
acquisition transaction, and a premium of approximately 74% and 102% over the
average closing price for the one-month and three-month periods, respectively,
preceding such date; (v) the historical financial performance of the Company
and its financial results; and (vi) the presence of the Minimum Share
Condition, which may not be waived without the consent of the Company. Parent
and the Purchaser have reviewed the factors considered by the Company Board in
support of its decisions, as described in the Solicitation/Recommendation
Statement on Schedule 14D-9 and above, and have no basis to question their
consideration of or reliance on such factors. In reaching their conclusions,
Parent and the Purchaser also considered generally the current and historical
market prices for the Shares.
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Neither Parent nor the Purchaser found it practicable to assign, nor did
either of them assign, relative weights to the individual factors considered
in reaching their conclusions as to fairness.
5. PURPOSE AND STRUCTURE OF THE OFFER AND THE MERGER; REASONS OF PARENT AND
THE PURCHASER FOR THE OFFER AND THE MERGER
Purpose and Structure. The purpose of the Offer is for Parent to indirectly
acquire the entire equity interest in the Company. The purpose of the Merger
is for Parent to acquire all of the equity interest in the Company not
acquired pursuant to the Offer. Upon consummation of the Merger, the Company
will become a wholly owned subsidiary of Parent. The acquisition of the entire
equity interest in the Company has been structured as a cash tender offer
followed by a cash merger in order to provide a prompt and orderly transfer of
ownership of the equity interest in the Company held by stockholders of the
Company (other than Parent and Purchaser) from such stockholders to Parent and
to provide the stockholders of the Company (other than Parent and Purchaser)
with cash for all of their Shares.
Under the MBCL and the Company's Articles of Organization, the approval of
the Company Board and, under certain circumstances, the affirmative vote of
the holders of two-thirds of the outstanding Shares are required to approve
and adopt the Merger Agreement and the transactions contemplated thereby,
including the Merger. If the Offer is consummated, Parent and the Purchaser
will have sufficient voting power to cause the approval and adoption of the
Merger Agreement and the transactions contemplated thereby without the
affirmative vote of any other stockholder of the Company. Consummation of the
Offer, however, is conditioned upon satisfaction or waiver of the Minimum
Share Condition, which may not be waived without the consent of the Company.
Pursuant to the Merger Agreement, the purchase by the Purchaser of all Shares
validly tendered in the Offer and not withdrawn is a condition to the Merger.
In the Merger Agreement, the Company has agreed to take all action necessary
to convene a special meeting of its stockholders as promptly as practicable
after the consummation of the Offer for the purpose of considering and taking
action on the Merger Agreement and the transactions contemplated thereby, if
such action is required under the MBCL. Parent and the Purchaser have agreed
that all Shares owned by them and their subsidiaries will be voted in favor of
the Merger Agreement and the transactions contemplated thereby.
Under the MBCL, if, following consummation of the Offer, the Purchaser owns
at least 90% of the Shares then outstanding, the Purchaser will be able to
cause the Merger to occur without a vote of the Company's stockholders. In
such event, Parent, the Purchaser and the Company have agreed to take all
necessary and appropriate action to cause the Merger to become effective as
soon as reasonably practicable after consummation of the Offer without a
meeting of the Company's stockholders. The Purchaser may (x) from time to time
extend (and re-extend) the Offer, if at the scheduled expiration date of the
Offer any of the conditions to the Offer will not have been satisfied or
waived, until such time as such conditions will be satisfied or waived, (y)
extend the Offer for any period required by any rule, regulation,
interpretation or position of the SEC or the staff thereof applicable to the
Offer, or (z) extend (and re-extend) the Offer for any reason on one or more
occasions for an aggregate period of not more than 20 business days beyond the
latest expiration date that would otherwise be permitted under clause (x) or
(y) above if on such expiration date there will not have been tendered at
least that number of Shares necessary to permit the Merger to be effected
without a meeting of the Company's stockholders in accordance with the MBCL.
If, following consummation of the Offer, the Purchaser owns less than 90% of
the Shares then outstanding, a vote of the Company's stockholders will be
required under the MBCL to approve the Merger, and a significantly longer
period of time will be required to effect the Merger. See "THE OFFER --
Certain Conditions of the Offer."
Parent's Reasons for the Offer and the Merger. Parent believes that one of
its most important strategic objectives is to provide to its customers a
complete audio solution in the multimedia area. The existing and planned
multimedia speaker product offerings of the Company are viewed by Parent as
being extremely complimentary to the audio products being offered by Parent.
The strategic fit of the Company's speaker products with the audio products
offered by Parent was the primary reason that Parent made the initial equity
investment
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and entered into the Exclusive Distribution Agreement with the Company in
February 1997. Early on in the parties' relationship, however, Parent reached
the conclusion that the pricing mechanics of the arrangement did not permit it
to be competitive in the OEM and bulk speaker businesses, which represent a
large portion of the world speaker market. While the Company believed it
needed to raise its prices to Parent for the multimedia speaker products,
Parent was of the view that prices being charged were already too high to
permit it to meet the Company's and Parent's mutual distribution volume goals.
Parent considered various alternatives to remedy this pricing issue, including
increasing its equity investment on an incremental basis and restructuring or
terminating the distribution arrangement. However, after substantial
deliberation, Parent concluded that the only way to truly achieve its goal
would be to acquire all of the remaining equity interest in the Company that
it did not already own. In addition, Parent believes that the acquisition of
the Company will strategically position Parent as the personal computer and
consumer electronics markets converge into a single market.
6. PLANS FOR THE COMPANY AFTER THE OFFER AND THE MERGER; CERTAIN EFFECTS OF
THE OFFER AND THE MERGER
Pursuant to the Merger Agreement, promptly upon completion of the Offer,
Parent and the Purchaser intend to effect the Merger in accordance with the
terms of the Merger Agreement. See "SPECIAL FACTORS -- The Merger Agreement."
Parent's management has begun, and intends to continue, a review of the
Company and its assets, corporate structure, capitalization, operations,
properties, policies, management and personnel to determine what changes, if
any, would be desirable in order best to organize and integrate the activities
of the Company and Parent. Parent expressly reserves the right to make any
changes that it deems necessary or appropriate in light of its review or in
light of future developments or that would be desirable to permit Parent to
manage the Company. Except as otherwise disclosed in this Offer to Purchase,
Parent has no present plans or proposals that would result in an extraordinary
corporate transaction involving the Company or any of its subsidiaries, such
as a merger, reorganization, liquidation, relocation of operations, or sale or
transfer of a material amount of assets.
As a result of the Offer, the interest of Parent in the Company's net book
value and net earnings will increase in proportion to the number of Shares
acquired in the Offer. If the Merger is consummated, Parent's interest in such
items and in the Company's equity generally will increase to 100% and Parent
and its subsidiaries will be entitled to all benefits resulting from that
interest, including all income generated by the Company's operations and any
future increase in the Company's value. Similarly, Parent will also bear the
risk of losses generated by the Company's operations and any decrease in the
value of the Company after the Merger. Subsequent to the Merger, current
stockholders of the Company (other than Parent and Purchaser) will cease to
have any equity interest in the Company, will not have the opportunity to
participate in the earnings and growth of the Company after the Merger and
will not have any right to vote on corporate matters. Similarly, stockholders
will not face the risk of losses generated by the Company's operations or
decline in the value of the Company after the Merger.
The Shares are currently traded on The Nasdaq Stock Market, Inc.'s National
Market ("NASDAQ"). See "THE OFFER -- Price Range of the Shares." Following the
consummation of the Merger, the Shares will no longer be quoted on NASDAQ and
the registration of the Shares under the Exchange Act will be terminated.
Accordingly, after the Merger there will be no publicly traded equity
securities of the Company outstanding and the Company will no longer be
required to file periodic reports with the SEC. See "THE OFFER -- Effect of
the Offer on the Market for the Shares; NASDAQ Quotation and Exchange Act
Registration." It is expected that if Shares are not accepted for payment by
the Purchaser pursuant to the Offer and the Merger is not consummated, the
Company's current management, under the general direction of the Company
Board, will continue to manage the Company as an ongoing business.
7. RIGHTS OF STOCKHOLDERS IN THE MERGER
No appraisal rights are available in connection with the Offer. If the
Merger is consummated, however, stockholders of the Company who have not
tendered their Shares will have certain rights under the MBCL to dissent and
demand appraisal of, and to receive payment in cash of the fair value of,
their Shares. Stockholders who perfect such rights by complying with the
procedures set forth in Sections 85-98 of the MBCL will have
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the fair value of their Shares judicially determined in accordance with the
MBCL and will be entitled to receive a cash payment equal to such fair value
from the Surviving Corporation. The fair value so determined could be the same
as or more or less than the Merger Price. See Annex B attached hereto for a
detailed description of appraisal rights under the MBCL, as well as the text of
Sections 85-98.
Parent does not intend to object, assuming the proper procedures are
followed, to the exercise of appraisal rights by any stockholder and the demand
for appraisal of, and payment in cash for the fair value of, the Shares. Parent
intends, however, to cause the Surviving Corporation to argue in an appraisal
proceeding that, for purposes of such proceeding, the fair value of each Share
is less than the Merger Price. In this regard, stockholders should be aware
that opinions of investment banking firms as to the fairness from a financial
point of view (including Hambrecht & Quist's opinion described herein) are not
necessarily opinions as to "fair value" under the MBCL.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING STOCKHOLDERS DOES NOT
PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY
STOCKHOLDERS DESIRING TO EXERCISE ANY AVAILABLE APPRAISAL RIGHTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SECTIONS 85-98
INCLUDED HEREWITH IN ANNEX B. THE PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS
ARE CONDITIONED ON STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF THE MBCL.
8.THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement, a
copy of which appears as an Exhibit to the Tender Offer Statement on Schedule
14D-1 filed by the Purchaser and Parent with the SEC in connection with the
Offer. Such summary is qualified in its entirety by reference to the Merger
Agreement.
The Offer. The Merger Agreement provides for the commencement of the Offer as
promptly as reasonably practicable after the date thereof, but in no event
later than five business days after the initial public announcement of
Purchaser's intention to commence the Offer. The Merger Agreement further
provides that the Purchaser will not, without the consent of the Company,
accept for payment any Shares tendered pursuant to the Offer unless at least
two-thirds of then issued and outstanding Shares (on a fully diluted basis)
will have been validly tendered and not withdrawn prior to the expiration of
the Offer, thereby satisfying the Minimum Share Condition. The obligation of
the Purchaser to accept for payment and pay for Shares tendered pursuant to the
Offer is subject to the satisfaction or waiver of the Minimum Share Condition
and certain other conditions that are described in "THE OFFER -- Certain
Conditions of the Offer." The Purchaser and Parent have agreed that no change
in the Offer may be made which decreases the Offer Price, changes the form of
consideration payable in the Offer or reduces the maximum number of Shares to
be purchased in the Offer or which imposes conditions to the Offer in addition
to those described in "THE OFFER -- Certain Conditions of the Offer." The
Purchaser may (x) from time to time extend (and re-extend) the Offer, if at the
scheduled expiration date of the Offer any of the conditions of the Offer have
not been satisfied or waived, until such time as such conditions have been
satisfied or waived (y) extend the Offer for any period required by any rule,
regulation, interpretation or position of the SEC or the staff thereof
applicable to the Offer or (z) extend (and re-extend) the Offer for any reason
on one or more occasions for an aggregate period of not more than 20 business
days beyond the latest expiration date that would otherwise be permitted under
clause (x) or (y) above, if on such expiration date at least that number of
Shares necessary to permit the Merger to be effected without a meeting of the
Company's stockholders in accordance with the MBCL have not been tendered.
The Merger. The Merger Agreement provides that as soon as practicable after
the purchase of Shares pursuant to the Offer and the satisfaction of the other
conditions set forth in the Merger Agreement and in accordance with the
relevant provisions of the MBCL, the Purchaser will be merged with and into the
Company. As a result of the Merger, the separate corporate existence of the
Purchaser will cease and the Company will continue as the Surviving Corporation
and will become a wholly owned subsidiary of Parent. At the Effective Time (as
defined in the Merger Agreement), each Share issued and outstanding immediately
prior to the Effective Time (other than Shares held in the treasury of the
Company, Shares owned by Parent, the Purchaser or any
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subsidiary of Parent or the Company or Shares held by stockholders who will
have properly demanded and perfected appraisal rights under the MBCL) will be
canceled and converted automatically into the right to receive the Merger
Price.
The Purchaser or the designated paying agent will be entitled to deduct and
withhold from the consideration otherwise payable pursuant to the Merger
Agreement to any holder of Shares such amounts that the Purchaser or the
paying agent is required to deduct and withhold with respect to the making of
such payment under the United States Internal Revenue Code of 1986, as amended
(the "Code"), the rules and regulations promulgated thereunder or any
provision of state, local or foreign tax law.
Pursuant to the Merger Agreement, each share of common stock, par value $.01
per share, of the Purchaser issued and outstanding immediately prior to the
Effective Time will be converted into one validly issued, fully paid and
nonassessable share of common stock, par value $.01 per share, of the
Surviving Corporation.
Promptly upon the purchase by the Purchaser of Shares in the Offer, and from
time to time thereafter, the Purchaser will be entitled to designate that
number of directors, rounded up to the next whole number, on the Company's
Board of Directors that equals the product of (i) the total number of
directors on the Company's Board of Directors (giving effect to the election
of any additional directors pursuant to the Merger Agreement) and (ii) the
percentage that the number of Shares owned by the Purchaser, Parent and any
direct or indirect wholly owned subsidiary of Parent (including Shares
purchased in the Offer) bears to the total number of Shares outstanding at
such time, and to effect the foregoing the Company will upon request by the
Purchaser, at the Company's election, either increase the number of directors
comprising the Company's Board of Directors or seek and accept resignations of
incumbent directors. The first date on which designees of the Purchaser will
constitute a majority of the Company's Board of Directors is referred to as
the "Cut-Off Date." At such times, the Company will use its reasonable best
efforts to cause individuals designated by the Purchaser to constitute the
same percentage of each committee of the Board as such individuals represent
on the Company's Board of Directors.
Following the Cut-Off Date and prior to the Effective Time, the Board of
Directors of the Company will have at least one director who is neither
designated by the Purchaser, an employee of the Company nor otherwise
affiliated with the Purchaser (one or more of such directors, the "Independent
Directors") and any amendment of the Merger Agreement or the Articles of
Organization or Bylaws of the Company, any termination or amendment of the
Merger Agreement by the Company, any extension by the Company of the time for
the performance of any of the obligations or other acts of Parent or the
Purchaser or any exercise or waiver of any of the Company's rights thereunder,
will require the concurrence of a majority of the Independent Directors.
The Merger Agreement provides that the directors of the Purchaser at the
Effective Time will be the initial directors of the Surviving Corporation and
that the officers of the Company at the Effective Time will be the initial
officers of the Surviving Corporation. The Merger Agreement provides that, at
the Effective Time, the Articles of Organization of the Purchaser will be the
Articles of Organization of the Surviving Corporation; provided, however,
that, at the Effective Time, Article I of the Articles of Organization of the
Surviving Corporation will be amended to read as follows: "The name of the
corporation is Cambridge SoundWorks, Inc." The Merger Agreement also provides
that the bylaws of the Purchaser will be the bylaws of the Surviving
Corporation.
At the Effective Time, each holder of an option to purchase shares of
Company common stock (a "Company Option") issued pursuant to the Company's
1993 Stock Option Plan (the "Stock Option Plan") will become entitled to
receive from the Surviving Corporation, for each such Company Option, an
amount in cash equal to the product of (i) the excess, if any, of the Merger
Price over the applicable exercise price of each such Company Option and (ii)
the number of Shares such holder could have purchased had such holder
exercised such Company Option immediately prior to the Effective Time, and
thereafter each such Company Option will be canceled. The Stock Option Plan
will terminate as of the Effective Time and the Company will use reasonable
efforts to ensure that following the Effective Time no holder of options or
any participant in the Stock Option Plan has any right thereunder to acquire
any equity securities of the Company or the Surviving Corporation.
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Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto, including
representations by the Company, Parent and the Purchaser as to corporate
status and the enforceability of the Merger Agreement against each such party
and by the Company as to its capitalization, compliance with law, the accuracy
of financial statements and filings with the SEC and the absence of certain
material adverse changes or events concerning the Company's business from June
29, 1997 to the date of the Merger Agreement.
Covenants of Parent, the Purchaser and the Company. Pursuant to the Merger
Agreement, the Company will, if required by applicable law in order to
consummate the Merger, duly call, give notice of, convene and hold a special
meeting of its stockholders as promptly as practicable following consummation
of the Offer for the purpose of considering and taking action on the Merger
Agreement and the transactions contemplated thereby (the "Stockholders'
Meeting"). At the Stockholders' Meeting, Parent and the Purchaser will cause
all Shares then owned by them to be voted in favor of the approval and
adoption of the Merger Agreement and the transactions contemplated thereby. In
the event that the Purchaser acquires such number of Shares that, when taken
together with the Shares previously owned by Parent and Purchaser, constitute
at least 90% of the outstanding Shares, the parties have agreed to take all
necessary and appropriate action to cause the Merger to become effective, in
accordance with Section 82 of the MBCL, as soon as reasonably practicable
after such acquisition, without a meeting of the stockholders of the Company.
The Merger Agreement provides that the Company will, if required by
applicable law, as soon as practicable following consummation of the Offer,
file a proxy statement with the SEC under the Exchange Act (the "Proxy
Statement"), and will use its best efforts to have the Proxy Statement cleared
by the SEC. Parent, the Purchaser and the Company will cooperate with each
other in the preparation of the Proxy Statement, and the Company will notify
Parent of the receipt of any comments of the SEC with respect to the Proxy
Statement and of any requests by the SEC for any amendment or supplement
thereto or for additional information and will provide promptly to Parent
copies of all correspondence between the Company or any representative of the
Company and the SEC. The Company will give Parent and its counsel the
opportunity to review and comment upon the Proxy Statement prior to its being
filed with the SEC and will give Parent and its counsel the opportunity to
review and comment upon all amendments and supplements to the Proxy Statement
and participate in the preparation of any written responses to requests for
additional information and replies to comments prior to their being filed
with, or sent to, the SEC. The Company and its counsel will be given the
opportunity to review and comment on the Offer documents and any amendments
thereto prior to the filing thereof with the SEC. Parent and the Purchaser
will provide the Company and its counsel with a copy of any written comments
or telephonic notification of any verbal comments Parent or the Purchaser may
receive from the SEC or its staff with respect to the Offer documents promptly
after the receipt thereof and will provide the Company and its counsel with a
copy of any written responses and telephonic notification of any verbal
responses of Parent, the Purchaser or their counsel. Each of the Company,
Parent and the Purchaser agrees to use reasonable efforts, after consultation
with the other parties, to respond promptly to all such comments of and
requests by the SEC and to cause the Proxy Statement and all required
amendments and supplements thereto to be mailed to the holders of Shares
entitled to vote at the Stockholders' Meeting at the earliest practicable
time.
Pursuant to the Merger Agreement, the Company has agreed that neither it nor
any of its employees or directors will initiate or solicit any inquiries in
respect of, or the making of any proposal for, a Third Party Acquisition (as
defined below), or engage in any negotiations concerning a Third Party
Acquisition; provided, however, that if at any time prior to the acceptance
for payment of Shares pursuant to the Offer, the Board of Directors of the
Company determines in good faith, after consultation with outside counsel,
that it is necessary to do so in order to comply with its fiduciary duties to
the Company's stockholders under applicable law, the Company may, in response
to an unsolicited Third Party Acquisition, (x) furnish only such information
with respect to the Company as was delivered to Parent and (y) participate in
the discussions and negotiations regarding such offer; and further provided,
that the Company or its Board of Directors may comply with Rules 14d-9 and
14e-2 promulgated under the Exchange Act with regard to any proposed Third
Party Acquisition. The Company has agreed to notify Parent promptly if any
inquiries relating to or proposals for a Third Party
16
<PAGE>
Acquisition are received by the Company or any negotiations in connection with
a possible Third Party Acquisition are sought to be initiated or continued
with the Company.
Except as set forth below, the Board of Directors of the Company has agreed
not withdraw its recommendation of the Offer or the Merger and other
transactions contemplated hereby or approve or recommend any Third Party
Acquisition. Notwithstanding the preceding sentence, if the Board of Directors
of the Company determines that it is necessary to do so in order to comply
with its fiduciary duties to the Company's stockholders under applicable law,
the Board of Directors may withdraw or alter its recommendation of the Offer
or the Merger, or approve or recommend or cause the Company to enter into an
agreement with respect to a Superior Proposal (as defined below), but in each
case only (i) after providing written notice to Parent advising it that the
Board of Directors has received a Superior Proposal and (ii) if Parent does
not, within five business days (or within two business days with respect to
any amendment to any Superior Proposal) after Parent's receipt of notice, make
an offer which the Board of Directors of the Company determines in its good
faith judgment to be as favorable to the Company's stockholders as such
Superior Proposal; provided, however, that the Company will not be entitled to
enter into any agreement with respect to a Superior Proposal unless the Merger
Agreement is concurrently terminated by its terms. For purposes of the Merger
Agreement, "Third Party Acquisition" means the occurrence of any of the
following events: (i) the acquisition of the Company by merger or otherwise by
any person or entity (which includes a "person" as such term is defined in
Section 13(d)(3) of the Exchange Act) other than Parent, the Purchaser or any
affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of
30% or more of the total assets of the Company (other than the purchase of the
Company's products in the ordinary course of business); (iii) the acquisition
by a Third Party of 30% or more of the outstanding Shares; (iv) the adoption
by the Company of a plan of partial or complete liquidation or the declaration
or payment of an extraordinary dividend; (v) the repurchase by the Company of
30% or more of the outstanding Shares; or (vi) the acquisition by the Company
by merger, purchase of stock or assets, joint venture or otherwise of a direct
or indirect ownership interest or investment in any business whose annual
revenues, net income or assets is equal to or greater than 30% of the annual
revenues, net income or assets of the Company. For purposes of the Merger
Agreement, a "Superior Proposal" means any bona fide proposal to acquire
directly or indirectly for consideration consisting of cash and/or securities
more than 50% of the Shares then outstanding or all or substantially all the
assets of the Company and otherwise on terms which the Board of Directors of
the Company by a majority vote determines in its good faith judgment (based on
consultation with Hambrecht & Quist or another financial adviser of nationally
recognized reputation) to be reasonably capable of being completed (taking
into account all legal, financial, regulatory and other aspects of the
proposal and the person or entity making the proposal, including the
availability of financing therefor) and more favorable to the Company's
stockholders than the Offer and the Merger.
Pursuant to the Merger Agreement, the Company has covenanted and agreed
that, between the date of the Merger Agreement and the Cut-Off Date, unless
Parent otherwise agrees in writing: (i) the businesses of the Company and its
subsidiaries will be conducted only in, and the Company will not take any
action except in, the ordinary course of business and in a manner consistent
with past practice; (ii) the Company will endeavor to preserve substantially
intact the business organization of the Company, to keep available the
services of the current officers and employees of the Company and to preserve
the current relationships of the Company with customers, suppliers and other
persons with which the Company has significant business relations; and (iii)
the Company will not declare or pay dividends, split, combine or reclassify
its stock, issue convertible securities or issue rights, warrants or options
to purchase Shares other than shares issuable upon exercise of warrants or
Company Options outstanding as of the date of the Merger Agreement; amend its
Articles of Organization or Bylaws; acquire or agree to acquire any business
or any corporation or other business organization or division thereof;
authorize any single capital expenditure which is in excess of $50,000 or
capital expenditures which are, in the aggregate, in excess of $150,000;
increase the compensation payable to its officers or employees, except for
increases in accordance with past practices, or grant any severance or
termination pay to, or enter into any employment or severance agreement with
any director, officer or other employee of the Company, or establish or amend
any collective bargaining, compensation, stock option, or other arrangement
for the benefit of any director, officer or employee; make any tax election or
settle or compromise any material federal, state, local or
17
<PAGE>
foreign income tax liability; pay or settle any suit, claim, liability or
obligation, other than the payment, discharge or satisfaction, in the ordinary
course of business and consistent with past practice, of liabilities reflected
or reserved against in the Company's balance sheet dated as of June 29, 1997 as
filed by the Company with the SEC in its Annual Report on Form 10-K for its
fiscal year ended June 29, 1997 or subsequently incurred in the ordinary course
of business and consistent with past practice; or take any action that would
result in any of the representations and warranties of the Company set forth in
this Agreement becoming untrue in any material respect or in any of the
conditions to the Offer or any of the conditions to the Merger not being
satisfied.
The Company and Parent are each obligated under the Merger Agreement to give
each other prompt notice of (i) the occurrence, or non-occurrence, of any event
the occurrence, or non-occurrence, of which would be likely to cause any
representation or warranty contained in the Merger Agreement to be untrue or
inaccurate and (ii) any failure of the Company, Parent or Purchaser, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it thereunder.
The parties have agreed that all rights to indemnification by the Company
existing as of the date of the Merger Agreement in favor of each present and
former director and officer of the Company as provided in the Company's
Articles of Organization or Bylaws or pursuant to any other agreements in
effect as of such date will survive the Merger and will continue in full force
and effect for a period of at least six years from the Effective Time. The
Merger Agreement also provides that the Surviving Corporation will use
commercially reasonable efforts to maintain in effect for six years from the
Effective Time directors' and officers' liability insurance covering those
persons who are currently covered by the Company's directors' and officers'
liability insurance policy on terms comparable to such existing insurance
coverage (including coverage amounts); provided, however, that in no event will
the Surviving Corporation be required to expend more than an amount per year
equal to 125% of current annual premiums paid by the Company for such
insurance. The Surviving Corporation's obligation to maintain such insurance
will, however, terminate at such time following the first anniversary of the
Merger Agreement as Parent, in its sole discretion, agrees in writing to assume
in all respects the general indemnification obligations of the Company with
respect to its directors and officers.
Pursuant to the terms of the Merger Agreement and subject to the conditions
thereof, each of the parties thereto will use its reasonable efforts to take,
or cause to be taken, all appropriate action, and to do, or cause to be done,
all things necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated by the Merger
Agreement, including, without limitation, using its reasonable efforts to
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company and its subsidiaries as are necessary for the consummation of
the transactions and to fulfill the conditions to the Offer and the Merger.
Under the Merger Agreement, Parent and the Company agree to consult with one
another before issuing any press release or otherwise making any public
statements with respect to the Merger Agreement or the transactions
contemplated thereby. Parent and the Company further agree not to issue any
such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with a
national securities exchange to which Parent or the Company is a party.
Conditions to the Merger. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of the following conditions (a) to the extent
required by the MBCL and the Company's Articles of Organization and Bylaws, the
Merger Agreement, the Merger and the transactions contemplated thereby will
have been approved and adopted by the affirmative vote or consent of the
stockholders of the Company, (b) no foreign, United States or state
governmental authority or other agency or commission or foreign, United States
or state court of competent jurisdiction will have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of making the acquisition of Shares
by Parent or the Purchaser or any affiliate of either of them illegal or
otherwise restricting, preventing or prohibiting consummation of the
transactions contemplated by the Merger Agreement,
18
<PAGE>
provided, however, that each of the parties will have used its reasonable
efforts to prevent the entry of any such injunction or other order and to
appeal as promptly as practicable any injunction or other order that may be
entered, (c) the waiting period applicable to the consummation of the Merger
under the Hart-Scott-Rodino Act ("HSR") will have expired or been terminated,
and all other required governmental filings and consents will have been made
or obtained, other than the filing of the Articles of Merger, (d) the
Purchaser will have purchased all Shares validly tendered and not withdrawn
pursuant to the Offer, (e) the representations and warranties of the Company,
Parent and the Purchaser set forth in the Merger Agreement will be true and
correct in all material respects as of the date of the Merger Agreement and
(except to the extent such representations and warranties speak as of an
earlier date) as of the Closing Date of the Merger as though made on and as of
the Closing Date, and (f) the Company, Parent and the Purchaser shall have
performed in all material respects all obligations required to be performed by
each of them under the Merger Agreement at or prior to the Closing Date of the
Merger.
Termination; Certain Payments; Fees and Expenses. The Merger Agreement may
be terminated and the Merger may be abandoned at any time prior to the
Effective Time, notwithstanding any requisite approval of the Merger Agreement
and the transactions contemplated thereby by the stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards of Directors of
the Company, Parent and the Purchaser; (b) by either Parent or the Company if
any court of competent jurisdiction or other governmental authority will have
issued an order, decree, ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the acceptance for payment of,
or payment for, Shares pursuant to the Offer or the Merger and such order,
decree, ruling or other action will have become final and nonappealable; (c)
by either Parent or the Company if (i) the Offer will have terminated or
expired in accordance with its terms without the Purchaser having accepted for
payment any Shares pursuant to the Offer; or (ii) the Purchaser will not have
accepted for payment any Shares pursuant to the Offer within 120 days
following the commencement of the Offer; provided, however, that the right to
terminate the Merger Agreement will not be available to any party the failure
of which (or the failure of the affiliates of which) to perform in any
material respect any of its obligations under the Merger Agreement results in
the failure of any condition set forth in Annex I of the Merger Agreement or
if the failure of such condition results from facts or circumstances that
constitute a material breach of a representation or warranty under the Merger
Agreement by such party; (d) by Parent if (i) prior to the purchase of Shares
pursuant to the Offer, (A) the Board of Directors of the Company or any
committee thereof will have withdrawn or modified in a manner adverse to the
Purchaser or Parent its approval or recommendation of the Offer, the Merger
Agreement, the Merger or any other transaction contemplated by the Merger
Agreement; (B) the Board of Directors of the Company or any committee thereof
will have recommended to the stockholders of the Company acceptance of a Third
Party Acquisition; (C) the Company will have entered into any definitive
agreement with respect to a Third Party Acquisition; or (D) the Board of
Directors of the Company or any committee thereof will have resolved to do any
of the foregoing; or (ii) the Company will have breached in any material
respect any of its representations, warranties, covenants or other agreements
contained in the Merger Agreement which breach cannot be or has not been cured
20 days after the giving of written notice to the Company; or (e) by the
Company if (i) the Board of Directors of the Company will have withdrawn or
modified in a manner adverse to the Purchaser or Parent its approval or
recommendation of the Offer, the Merger Agreement or the Merger in order to
approve the execution by the Company of a definitive agreement providing for
the transactions contemplated by a Superior Proposal, provided that the
Company will have complied with the provisions of the Merger Agreement,
including the notice provisions therein, and will have made simultaneous
payment of the fee contemplated by the Merger Agreement, as described below;
or (ii) Parent or the Purchaser will have breached in any material respect any
of their respective representations, warranties, covenants or other agreements
contained in the Merger Agreement which breach cannot be or has not been cured
20 days after the giving of written notice to Parent or the Purchaser, as
applicable, except, in any case, for such breaches which are not reasonably
likely to affect adversely Parent's or the Purchaser's ability to complete the
Offer or the Merger.
If the Merger Agreement is terminated, the Merger Agreement will become void
and of no effect with no liability on the part of any party hereto, except for
fraud and for willful breach of a material obligation contained herein and
except that the certain agreements contained in the Merger will survive the
termination hereof.
In the event that: (i) the Merger Agreement is terminated (A) pursuant to
Section 8.1(d)(i) or Section 8.1(e)(i) of the Merger Agreement, or (B)
pursuant to Section 8.1(c) or 8.1(d)(ii) of the Merger Agreement, to
19
<PAGE>
the extent that the termination or the failure to accept any Shares for
payment, as the case may be, will relate to the intentional failure of the
Company to perform in any material respect any material covenant or agreement
of it contained in the Merger Agreement or the intentional material breach by
the Company of any material representation or warranty of it contained in the
Merger Agreement; or (ii) any person will have commenced, publicly proposed or
communicated to the Company a proposal with respect to a Third Party
Acquisition and (A) the Offer will have remained open for at least 20 business
days, (B) the Minimum Share Condition will not have been satisfied, (C) the
Merger Agreement will have been terminated and (D) the Company will have
consummated a Third Party Acquisition with any person other than Parent or any
of its affiliates before or within 12 months after the date of such
termination, then, in any such event, the Company will pay Parent promptly
(but in no event later than 1 business day after the first of such events will
have occurred) a fee of $1,250,000, plus an amount, not to exceed $750,000,
equal to Parent's actual and reasonably documented out-of-pocket fees and
expenses incurred by Parent and the Purchaser in connection with the Offer,
the Merger, the Merger Agreement and the consummation of the transactions
contemplated thereby, which amounts will be payable in immediately available
funds.
In the event that (i) Parent or the Purchaser shall willfully or
intentionally breach in any material respect any of their respective
representations, warranties, covenants or other agreements contained in the
Merger Agreement and as a result thereof the Company shall terminate the
Merger Agreement pursuant to Section 8.1 (e)(ii) of such agreement or (ii)
Parent shall elect to terminate the Merger Agreement and fail to proceed to
consummate the Offer or the Merger after all applicable conditions shall have
been satisfied, then, in either of such events, Parent shall pay to the
Company promptly (but in no event later than one business day after the date
of such termination) a fee of $1,250,000, plus an amount, not to exceed
$400,000, equal to the Company's actual and reasonably documented out-of-
pocket fees and expenses incurred by the Company in connection with the Offer,
the Merger, the Merger Agreement and the consummation of the transactions
thereby, which amounts shall be payable in immediately available funds. Such
payment by Parent to the Company shall represent the sole and exclusive remedy
at law or in equity to which the Company and its officers, directors,
representatives and other affiliates shall be entitled in the event the Merger
Agreement shall be terminated in the circumstances contemplated by clauses (i)
and (ii) of this paragraph.
In the event that either the Company or Parent fails to pay any amounts
owing pursuant to the foregoing when due, interest will be paid on such unpaid
amounts, commencing on the date such amounts became due, at a rate equal to
the rate of interest publicly announced by Bank of America NT&SA from time to
time in San Francisco, California, as such bank's "reference rate" plus 3%.
Except as set forth above and in "THE OFFER -- Fees and Expenses," all costs
and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby will be paid by the party incurring such
fees and expenses, whether or not the transactions contemplated by the Merger
Agreement are consummated.
9.INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER
In considering the recommendations of the Company Board with respect to the
Offer and the Merger and the fairness of the consideration to be received in
the Offer and the Merger, stockholders should be aware that certain officers
and directors of the Company have interests in the Offer and the Merger which
are described below and which may be in addition to their interests as
stockholders of the Company. Stockholders also should be aware that Parent and
the Purchaser have certain interests that present actual or potential
conflicts of interest in connection with the Offer and the Merger. The Company
Board was aware of these actual and potential conflicts of interest and
considered them along with the other matters described under "SPECIAL
FACTORS-- Recommendations of the Company Board; Fairness of the Offer and the
Merger."
Company Stock Option Plan. In 1995 the Company's 1993 Stock Option Plan was
amended to provide that in the event of a transaction such as that
contemplated by the Offer all outstanding stock options under such plan will
become fully vested and exercisable with respect to 100% of the Shares covered
thereby. If the
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<PAGE>
Purchaser purchases Shares in the Offer and the Minimum Share Condition is not
waived, the vesting referred to above will be deemed to occur immediately
prior to such purchase. The following table sets forth the number of Company
Options (if fully vested) held by each director and officer of the Company and
the net value in dollars to be received by reason of the consummation of the
Offer:
<TABLE>
<CAPTION>
NAME TITLE NET VALUE
---- ----- ----------
<S> <C> <C>
Thomas J. DeVesto President & CEO $1,281,650
Wayne P. Garrett Vice President-Finance 275,550
Thomas J. Hannaher Vice President-Marketing 246,475
Robert S. Mainiero Vice President-Business 290,550
Sandy Ruby Vice President-Retail 274,350
Thomas E. Brew, Jr. Director 37,440
Franklin S. Browning, Jr. Director 42,400
Leo Kahn Director 37,440
Peter B. Seamans Director 54,440
</TABLE>
Indemnification and Insurance. Under the MBCL, corporations incorporated
under the laws of the Commonwealth of Massachusetts are permitted to indemnify
their current and former directors, officers, employees and agents under
certain circumstances against certain liabilities and expenses incurred by
them by reason of their serving in such capacities. The Company's Articles of
Organization provide that each director and officer will be indemnified by the
Company to the fullest extent permitted under the MBCL against liabilities and
expenses incurred in connection with any threatened, pending or completed
legal action or proceeding to which he or she may be made a party or
threatened to be made a party by reason of being a director of the Company or
a predecessor company, or serving any other enterprise as a director or
officer at the request of the Company. The directors and officers of the
Company have entered into indemnification agreements with the Company for the
purpose of confirming such rights. The Company has also purchased directors'
and officers' liability insurance for the benefit of these persons. The Merger
Agreement provides that the indemnification rights of the directors and
officers of the Company set forth in the Surviving Corporation's charter
documents will not for a period of at least six years be modified in a manner
that adversely affects such persons. Furthermore, Parent has confirmed in the
Merger Agreement that it will cause the Surviving Corporation to honor the
existing indemnification agreements with these persons. And finally, the
Surviving Corporation will be obligated to maintain the directors' and
officers' insurance at the current benefit level for a period of six years
following the closing of the Merger unless, at a time following the first
anniversary of the date of the Merger Agreement, Parent agrees to directly
assume the indemnification obligations of the Surviving Corporation described
above. In that event the Surviving Corporation will not be required to
continue the insurance coverage. See "SPECIAL FACTORS--The Merger Agreement--
Covenants of Parent, the Purchaser and the Company."
Change of Control and Severance Agreement. Mr. Wayne Garrett, Vice President
of Finance and Chief Financial Officer of the Company, has entered into a
letter agreement with the Company, dated as of August 4, 1997, which provides
that in the event he is terminated without cause within twelve months after a
change of control of the Company, he will be entitled to severance pay in the
amount of one times his highest annual base salary during the three years
prior to termination of employment. If Mr. Garrett is terminated without cause
absent a change of control event, he will be entitled to three months'
severance pay. Mr. Garrett's annual base salary for the fiscal year ending
June 29, 1997 was approximately $144,000. A "change of control" would be
deemed to have taken place if (i) the Company Board appoints a new Chief
Executive Officer, or (ii) in connection with any tender or exchange offers or
other change in share ownership, a merger or other business combination, or a
sale of assets, the persons who were Directors of the Company before such
transaction cease to constitute a majority of the Company Board after such
transaction. Consummation of the Offer will be deemed a "change of control"
for purposes of Mr. Garrett's letter agreement. A "termination of employment"
includes a resignation by Mr. Garrett in response to any material diminution
of his duties and responsibilities from those currently held by him as Chief
Financial Officer of the Company. "Cause" is defined as willful misconduct,
conviction of a felony or other crime involving moral turpitude, or fraud,
embezzlement or other conduct involving material dishonesty.
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<PAGE>
10.SHARE OWNERSHIP BY PARENT AND PURCHASER
As of November 3, 1997, Parent owns 912,294 Shares which were acquired
pursuant to a Common Stock and Warrant Purchase Agreement with the Company and
holds a currently exercisable warrant to acquire an additional 257,314 Shares.
If Parent were to exercise its warrant, Parent would own approximately 28.8%
of the Shares outstanding and approximately 26.7% of the Shares outstanding on
a Fully Diluted Basis. See "SPECIAL FACTORS -- Background of the Offer and the
Merger." The Purchaser owns no Shares as of the date hereof. Prior to the
Effective Time, if necessary or desirable in connection with the Merger,
Parent may transfer all of its Shares to Purchaser.
11.BENEFICIAL OWNERSHIP OF SHARES
The following table sets forth certain information, as of October 23, 1997,
regarding the ownership of Shares by each person known by the Company to be
the beneficial owner of more than 5% of the outstanding Shares, as well as
each director of the Company, the Chief Executive Officer of the Company,
certain other officers of the Company, and all executive officers and
directors of the Company as a group:
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
OWNED(1) OWNED(2)
------------ -----------
<S> <C> <C>
Thomas J. DeVesto(3)............................... 438,605 11.3%
Wayne P. Garrett................................... 21,666 *
Thomas J. Hannaher................................. 25,394 *
Robert S. Mainiero................................. 15,000 *
Sandy Ruby......................................... 21,666 *
Thomas E. Brew, Jr................................. 8,000 *
Franklin S. Browning, Jr........................... 8,000 *
Leo Kahn........................................... 14,300 *
Craig L. McHugh ................................... -- --
Peter B. Seamans................................... 8,000 *
All executive officers and directors as a group (10
persons).......................................... 560,631 14.0
Creative Technology Ltd.(4)........................ 1,169,608 28.8
William R. Hambrecht (5)........................... 337,000 8.9
Henry E. Kloss..................................... 322,766 8.5
</TABLE>
- --------
* Less than 1%
(1) The Company has advised Parent and the Purchaser that it believes that,
except for the voting arrangements set forth in the Voting Agreement dated
as of February 28, 1997 among Parent, the Company, Mr. Kloss and Mr.
DeVesto (see "THE OFFER--Intercompany Arrangements Between Parent and the
Company--Voting Agreement"), all beneficial owners named in the table have
sole voting and investment power with respect to the Shares they
beneficially own. The Shares shown in the table to be beneficially owned
include any Shares that the person has the right to acquire within 60 days
of October 23, 1997, by the exercise of any Company Option of which the
Company has knowledge. The Shares subject to such Company Options are as
follows: Mr. DeVesto: 74,167 shares; Mr. Garrett: 21,666 shares; Mr.
Hannaher: 25,394 shares; Mr. Mainiero: 15,000 shares; Mr. Ruby: 21,666
shares; Mr. Brew: 8,000 shares; Mr. Browning: 8,000 shares; Mr. Kahn:
8,000 shares; Mr. Seamans: 8,000 shares; and all executive officers and
directors as a group: 189,893 shares.
(2) Percent of the 3,804,824 Shares outstanding as of October 23, 1997,
counting as outstanding for each named person all Shares issuable to such
person on exercise of Company Options that are included in the first
column.
(3) Includes 11,530 shares of Common Stock held by Mr. DeVesto as custodian
for minor children with respect to all of which shares Mr. DeVesto
disclaims beneficial ownership. Also includes a currently exercisable
option to acquire 100,000 shares from Henry E. Kloss.
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<PAGE>
(4) The percentage calculated includes the 257,314 Shares subject to the
Parent Warrant.
(5) According to a report filed with the Securities and Exchange Commission on
Amendment No. 1 to Schedule 13D, dated August 15, 1997, William R.
Hambrecht is the Chairman of Hambrecht & Quist Group ("H&Q Group", which
is the sole parent of Hambrecht & Quist California), Hambrecht & Quist
California ("H&Q California", which is a member of Hambrecht & Quist LLC)
and, Hambrecht & Quist LLC ("H&Q LLC") and is a trustee of the Hambrecht
1980 Revocable Trust ("Trust"). Mr. Hambrecht shares voting and investment
power with respect to the 145,000 shares (3.9%) held by H&Q LLC and
192,000 shares (5.0%) held by the Trust. Mr. Hambrecht disclaims
beneficial ownership as to 337,000 shares. Each of H&Q Group and H&Q
California disclaims beneficial ownership as to 145,000 shares.
23
<PAGE>
THE OFFER
1.TERMS OF THE OFFER
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), the Purchaser will accept for payment and pay for all Shares
validly tendered on or prior to the Expiration Date and not theretofore
withdrawn in accordance with the provisions set forth under "THE OFFER --
Withdrawal Rights." The term "Expiration Date" means 12:00 midnight, New York
City time, on December 2, 1997, unless and until the Purchaser in its sole
discretion, but subject to the terms and conditions of the Merger Agreement,
will have extended the period of time during which the Offer is open, in which
event the term "Expiration Date" will mean the latest time and date at which
the Offer, as so extended by Purchaser, will expire.
The Offer is conditioned upon, among other things, satisfaction (or waiver
with approval of the Company Board) of the Minimum Share Condition and the
other conditions to the Offer set forth under "THE OFFER -- Certain Conditions
of the Offer."
Subject to the applicable rules and regulations of the SEC, the Purchaser
expressly reserves the right, in its sole discretion (but subject to the terms
and conditions of the Merger Agreement), at any time and from time to time,
upon the failure to be satisfied of any of the conditions to the Offer set
forth under "THE OFFER -- Certain Conditions of the Offer," to (i) terminate
or amend the Offer, (ii) extend the Offer and postpone acceptance for payment
of any Shares, or (iii) waive any condition (except, without the consent of
the Company Board, for the Minimum Share Condition), by giving oral or written
notice of such termination, amendment, extension or waiver to the Depositary
and by making a public announcement thereof. During any such extension, all
Shares previously tendered and not properly withdrawn will remain subject to
any such extension, and all Shares previously tendered and not properly
withdrawn will remain subject to the Offer, subject to the right of a
tendering stockholder to withdraw such stockholder's Shares. See "THE OFFER --
Withdrawal Rights." The Purchaser may (x) from time to time extend (and re-
extend) the Offer, if, at the scheduled expiration date of the Offer, any of
the conditions to the Offer will not have been satisfied or waived, until such
time as such conditions will be satisfied or waived, (y) extend the Offer for
any period required by any rule, regulation, interpretation or position of the
SEC or the staff thereof applicable to the Offer, or (z) extend (and re-
extend) the Offer for any reason on one or more occasions for an aggregate
period of not more than 20 business days beyond the latest expiration date
that would otherwise be permitted under clause (x) or (y) above if on such
expiration date there will not have been tendered at least that number of
Shares necessary to permit the Merger to be effected without a meeting of the
Company's stockholders in accordance with the MBCL. UNDER NO CIRCUMSTANCES
WILL INTEREST BE PAID ON THE PURCHASE PRICE FOR TENDERED SHARES, WHETHER OR
NOT THE PURCHASER EXERCISES ITS RIGHT TO EXTEND THE OFFER.
Any termination, amendment, extension or waiver will be followed as promptly
as practicable by public announcement. In the case of an extension, Rule 14e-
1(d) under the Exchange Act requires that the announcement be made no later
than 9:00 a.m., Eastern time, on the next business day after the previously
scheduled Expiration Date in accordance with the public announcement
requirements of Rule 14d-4(c) under the Exchange Act. Subject to applicable
law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which
require that any material change in the information published, sent or given
to stockholders in connection with the Offer be promptly disseminated to
stockholders in a manner reasonably designed to inform stockholders of such
change), and without limiting the manner in which the Purchaser may choose to
make any public announcements, the Purchaser will not have any obligations to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a press release to the Dow Jones News Service. As used herein,
a "business day" means any day other than a Saturday, Sunday or federal
holiday, and consists of the time period from 12:01 a.m. through 12:00
midnight, Eastern Time.
If the Purchaser extends the Offer or if the Purchaser (whether before or
after its acceptance for payment of the Shares) is delayed in its acceptance
for payment of or payment for any Shares validly tendered and not
24
<PAGE>
withdrawn in the Offer or the Purchaser is unable to accept for payment or pay
for such Shares pursuant to the Offer for any reason, then, without prejudice
to Purchaser's rights under the Offer, the Depositary may retain tendered
Shares on behalf of Purchaser, and such Shares may not be withdrawn except to
the extent tendering stockholders are entitled to withdrawal rights as
described in "THE OFFER -- Withdrawal Rights." The ability of the Purchaser to
delay the payment for the Shares that the Purchaser has accepted for payment,
however, is limited by Rule 14e-1(c) under the Exchange Act, which requires
that a bidder pay the consideration offered or return the securities deposited
by or on behalf of holders of securities promptly after the termination or
withdrawal of such bidder's offer.
If the Purchaser or Parent makes a material change in the terms of the Offer
or the information concerning the Offer or waives a material condition of the
Offer, the Purchaser will, or Parent will cause the Purchaser to, disseminate
additional tender offer materials and extend the Offer to the extent required
by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum
period during which an offer must remain open following material changes in
the terms of the Offer or information concerning the Offer, other than a
change in price or a change in the percentage of securities sought, or a
change in the dealer's advisory fee, will depend upon the facts and
circumstances then existing, including the relative materiality of the changed
terms or information. In the SEC's view, an offer should remain open for a
minimum of five business days from the date a material change is first
published, sent or given to securityholders, and, if material changes are made
with respect to information that approaches the significance of price and
share levels, a minimum of ten business days may be required to allow for
adequate dissemination and investor response. With respect to a change in
price or, subject to certain limitations, a change in the percentage of
securities sought or a change in a dealer's solicitation fee, a minimum period
of ten business days from the date of such change is generally required under
the applicable rules and regulations of the SEC to allow for adequate
dissemination to stockholders and investor response.
The Company has provided the Purchaser with the Company's stockholder lists
and security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase, the related Letter of Transmittal
and other relevant materials will be mailed by the Purchaser to stockholders
of record and will be furnished by the Purchaser to brokers, dealers, banks,
trust companies and similar persons whose names, or the names of whose
nominees, appear on such stockholder lists or, if applicable, who are listed
as participants in a clearing agency's security position listing, for
subsequent transmittal to beneficial owners of Shares.
2.PROCEDURE FOR ACCEPTING THE OFFER AND TENDERING SHARES
Valid Tender. For a stockholder to validly tender Shares pursuant to the
Offer, either (i) a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any required signature guarantees, or an
Agent's Message (as defined below) in connection with a book-entry delivery of
Shares, and any other required documents, must be received by the Depositary
at one of its addresses set forth on the back cover of this Offer to Purchase,
and Share Certificates for tendered Shares must be received by the Depositary
at one of such addresses or such Share Certificates must be delivered pursuant
to the procedures for book-entry transfer set forth below (and a Book-Entry
Confirmation (as defined below) received by the Depositary), in each case on
or prior to the Expiration Date or (ii) the tendering stockholder must comply
with the guaranteed delivery procedures set forth below.
Book-Entry Delivery. The Depositary will establish an account with respect
to the Shares at The Depository Trust Company ("DTC") and the Philadelphia
Depositary Trust Company ("PDTC") (DTC and PDTC, each, a "Book-Entry Transfer
Facility" and, collectively, the "Book-Entry Transfer Facilities") for
purposes of the Offer within two business days after the date of this Offer to
Purchase. Any financial institution that is a participant in a Book-Entry
Transfer Facility may make book-entry delivery of Shares by causing the book-
entry transfer system to transfer such Shares into the Depositary's account at
a Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's procedures for such transfer. Although delivery of Shares may be
effected through book-entry transfer into the Depositary's account at a Book-
Entry Transfer Facility, the Letter of Transmittal, properly completed and
duly executed, with any required signature guarantees, or an Agent's Message
(as defined below) in connection with a book-entry transfer, and any other
required
25
<PAGE>
documents, must, in any case, be transmitted to, and received by, the
Depositary at one of its addresses set forth on the back cover of this Offer
to Purchase on or prior to the Expiration Date, or the tendering stockholder
must comply with the guaranteed delivery procedures described below. The
confirmation of a book-entry transfer of Shares into the Depositary's account
at a Book-Entry Transfer Facility as described above is referred to herein as
a "Book-Entry Confirmation." DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER
FACILITY IN ACCORDANCE WITH ITS BOOK-ENTRY PROCEDURES DOES NOT CONSTITUTE
DELIVERY TO THE DEPOSITARY.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of
the Book-Entry Confirmation, which states that the Book-Entry Transfer
Facility has received an express acknowledgment from the participant in the
Book-Entry Transfer Facility tendering the Shares that such participant has
received the Letter of Transmittal and agrees to be bound by the terms of the
Letter of Transmittal and that the Purchaser may enforce such agreement
against such participant.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND SOLE RISK OF THE TENDERING
STOCKHOLDER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED AT
THE DEPOSITARY. IF DELIVERY IS BY MAIL, THEN INSURED OR REGISTERED MAIL WITH
RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ENSURE TIMELY DELIVERY.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal if (i) the Letter of Transmittal is signed by the registered
holder(s) of the Shares (which term, for purposes of this Section, includes
any participant in a Book-Entry Transfer Facility system whose name appears on
a security position listing as the owner of the Shares) tendered therewith and
such registered holder(s) has not completed either the box entitled "Special
Delivery Instructions" or the box entitled "Special Payment Instructions" on
such Letter of Transmittal or (ii) such Shares are tendered for the account of
a bank, broker, dealer, credit union, savings association or other entity that
is a member in good standing of the Securities Transfer Agents Medallion
Program (an "Eligible Institution"). In all other cases, all signatures on the
Letter of Transmittal must be guaranteed by an Eligible Institution. See
Instructions 1 and 5 to the Letter of Transmittal. If the Share Certificates
are registered in the name of a person other than the signer of the Letter of
Transmittal, or if payment is to be made or Share Certificates not validly
tendered or not accepted for payment or not purchased are to be issued or
returned to a person other than the registered holder of the Share
Certificates, the tendered Share Certificates must be endorsed in blank or
accompanied by appropriate stock powers, signed exactly as the name or names
of the registered holder(s) appear on the Share Certificates with the
signatures on such Share Certificates or stock powers guaranteed by an
Eligible Institution. See Instructions 1 and 5 to the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Share Certificates are not immediately
available or the procedures for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Depositary on or prior to the Expiration Date, such Shares may nevertheless be
tendered provided that all of the following guaranteed delivery procedures are
duly complied with:
(1) such tender is made by or through an Eligible Institution;
(2) the Depositary receives (by hand, mail, telegram or facsimile
transmission) on or prior to the Expiration Date, a properly completed and
duly executed Notice of Guaranteed Delivery, substantially in the form
provided by Purchaser; and
(3) the Share Certificates representing all tendered Shares, in proper
form for transfer (or a Book-Entry Confirmation with respect to such
Shares), together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees
(or in the case of Book-Entry Transfer, an Agent's Message) and any other
documents required by the Letter of Transmittal, are received by the
Depositary within three NASDAQ trading days after the date of execution of
such Notice of Guaranteed Delivery. A "NASDAQ trading day" is any day on
which NASDAQ is open for business.
26
<PAGE>
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile transmission or by mail to the Depositary and must include a
guarantee by an Eligible Institution in the form set forth in such Notice of
Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) Share Certificates for (or a timely Book-
Entry Confirmation with respect to) such Shares, (ii) a Letter of Transmittal
(or facsimile thereof) for such Shares, properly completed and duly executed,
with any required signature guarantees, or, in the case of Book-Entry
Transfer, an Agent's Message, and (iii) any other documents required by the
Letter of Transmittal. Accordingly, tendering stockholders may be paid at
different times depending upon when Share Certificates, Book-Entry
Confirmations and such other documents are actually received by the
Depositary. Under no circumstances will interest be paid by the Purchaser on
the purchase price of the Shares to any tendering stockholders, regardless of
any extension of the Offer or any delay in making such payment.
Purchaser's acceptance for payment of Shares validly tendered pursuant to
any of the procedures described above will constitute a binding agreement
between the tendering stockholder and the Purchaser upon the terms and subject
to the conditions of the Offer.
Determination of Validity; Rejection of Shares; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tender of Shares
will be determined by Purchaser, in its sole discretion, which determination
will be final and binding. The Purchaser reserves the absolute right to reject
any or all tenders determined by it not to be in proper form or the acceptance
for payment of or payment for which may, in the opinion of Purchaser's
counsel, be unlawful. The Purchaser also reserves the absolute right to waive
any of the conditions of the Offer (other than the Minimum Share Condition,
which can only be waived with the consent of the Company Board) or any defect
or irregularity in any tender with respect to any particular Shares, or with
respect to those Shares held by any particular stockholder, whether or not
similar conditions, defects or irregularities are waived in the case of other
Shares. No tender of Shares will be deemed to have been validly made until all
defects or irregularities relating thereto have been cured or waived. None of
Parent, Purchaser, any of its affiliates or assigns, the Depositary, the
Information Agent, or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification. Purchaser's
interpretation of the terms and conditions of the Offer (including the Letter
of Transmittal and the instructions thereto) will be final and binding.
Backup Withholding. In order to avoid backup withholding of Federal income
tax on payments of cash pursuant to the Offer, a stockholder tendering Shares
in the Offer must provide the Depositary with such stockholder's correct
taxpayer identification number ("TIN") on a Substitute Form W-9 and certify
under penalties of perjury that such TIN is correct and that such stockholder
is not subject to backup withholding. Certain stockholders (including, among
others, all corporations and certain foreign individuals and entities) are not
subject to backup withholding. If a stockholder does not provide its correct
TIN or fails to provide the certification described above, under Federal
income tax laws, the Depositary will be required to withhold 31% of the amount
of any payment made to such stockholder pursuant to the Offer. All
stockholders tendering Shares pursuant to the Offer should complete and sign
the Substitute Form W-9 included as part of the Letter of Transmittal to
provide the information and certification necessary to avoid backup
withholding (unless an applicable exemption exists and is provided in a manner
satisfactory to the Purchaser and the Depositary). Noncorporate foreign
stockholders should complete and sign a Form W-8, Certificate of Foreign
Status, a copy of which may be obtained from the Depositary, in order to avoid
backup withholding. See Instruction 11 to the Letter of Transmittal.
3.WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 3, tenders of Shares made
pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer
may be withdrawn pursuant to the procedures set forth below at any time
27
<PAGE>
prior to the Expiration Date, and, unless theretofore accepted for payment by
the Purchaser pursuant to the Offer, may also be withdrawn at any time after
January 2, 1998. If the Purchaser extends the Offer, is delayed in its
acceptance for payment of Shares or is unable to purchase Shares validly
tendered pursuant to the Offer for any reason, then without prejudice to
Purchaser's rights under the Offer, the Depositary may nevertheless, on behalf
of the Purchaser, retain tendered Shares and such Shares may not be withdrawn
except to the extent that tendering stockholders are entitled to withdrawal
rights as described in this section. Any such delay will be accompanied by an
extension of the Offer to the extent required by law.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase and
must specify the name of the person having tendered the Shares to be
withdrawn, the number of Shares to be withdrawn if Share Certificates have
been tendered and the name of the registered holder of the Shares to be
withdrawn as set forth on such Share Certificates if different from the name
of the person who tendered the Shares. If Share Certificates have been
delivered or otherwise identified to the Depositary, then, prior to the
physical release of such Share Certificates, the serial numbers shown on such
Share Certificates must be submitted to the Depositary and, unless such Shares
have been tendered by an Eligible Institution, the signatures on the notice of
withdrawal must be guaranteed by an Eligible Institution. If Shares have been
delivered pursuant to the procedures for book-entry transfer as set forth
under "THE OFFER -- Procedure for Accepting the Offer and Tendering Shares,"
any notice of withdrawal must specify the name and number of the account at
the appropriate financial institution that is a member of the system of a
Book-Entry Transfer Facility to be credited with the withdrawn Shares and
otherwise comply with such Book-Entry Transfer Facility's procedures for such
withdrawal, in which case a notice of withdrawal will be effective if
delivered to the Depositary by any method of delivery described in the first
sentence of this paragraph. Withdrawals of tenders of Shares may not be
rescinded, and any Shares properly withdrawn will thereafter be deemed not
validly tendered for purposes of the Offer. Withdrawn Shares may be retendered
by again following one of the procedures described above under "THE OFFER --
Procedure for Accepting the Offer and Tendering Shares" at any time on or
prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by Purchaser, in its sole discretion,
which determination will be final and binding. None of Parent, Purchaser, any
of their affiliates or assigns, the Depositary, the Information Agent, or any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure
to give any such notification.
4.ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
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), the Purchaser will purchase, by accepting for payment, and will
pay for, all Shares validly tendered on or prior to the Expiration Date and
not properly withdrawn in accordance with the terms set forth under "THE OFFER
- -- Withdrawal Rights" promptly after the later to occur of (i) the Expiration
Date or (ii) the satisfaction or waiver (where permissible) of the terms and
conditions set forth under "THE OFFER -- Certain Conditions of the Offer." Any
determination concerning the satisfaction or waiver of such terms and
conditions will be within the sole discretion of Purchaser, which
determination will be final and binding on all holders of Shares. See "THE
OFFER -- Terms of the Offer" and "THE OFFER -- Dividends and Distributions."
Subject to applicable rules of the SEC and the terms and conditions of the
Merger Agreement, the Purchaser expressly reserves the right, in its sole
discretion, to delay acceptance for payment of or payment for Shares in order
to comply in whole or in part with any applicable law. Any such delays will be
effected in compliance with Purchaser's obligation under Rule 14e-1(c) under
the Exchange Act to pay for or return tendered Shares promptly after the
termination or withdrawal of the Offer.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) Share
Certificates (or timely Book-Entry Confirmation of the book-entry transfer of
such Shares into the Depositary's account at a Book-Entry Transfer Facility
pursuant to the procedures set
28
<PAGE>
forth under "THE OFFER -- Procedure for Accepting the Offer and Tendering
Shares"), (ii) the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, together with any required signature guarantees,
or an Agent's Message in connection with a book-entry transfer, and (iii) any
other documents required by the Letter of Transmittal.
For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered to the Purchaser and
not properly withdrawn as, if and when the Purchaser gives oral or written
notice to the Depositary of Purchaser's acceptance for payment of such Shares
pursuant to the Offer. In all cases, upon the terms and subject to the
conditions of the Offer, payment for Shares accepted for payment pursuant to
the Offer will be made by deposit of the purchase price therefor with the
Depositary, which will act as agent for tendering stockholders for the purpose
of receiving payment from the Purchaser and transmitting payment to such
validly tendering stockholders. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID
BY THE PURCHASER ON THE PURCHASE PRICE OF THE SHARES TENDERED PURSUANT TO THE
OFFER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH
PAYMENT. Upon the deposit of funds with the Depositary for the purpose of
making payments to tendering stockholders, Purchaser's obligation to make such
payments will be satisfied and tendering stockholders must thereafter look
solely to the Depositary for payment of amounts owed to them by reason of the
acceptance for payment of Shares pursuant to the Offer. The Purchaser will pay
any stock transfer taxes with respect to the transfer and sale to it or its
order pursuant to the Offer, except as otherwise provided in Instruction 6 of
the Letter of Transmittal, as well as any charges and expenses of the
Depositary and the Information Agent.
If the Purchaser is delayed in its acceptance for payment of, or payment for
tendered Shares or is unable to accept for payment or pay for such Shares
pursuant to the Offer for any reason, then, without prejudice to Purchaser's
rights under the Offer (but subject to Purchaser's obligations under Rule 14e-
1(c) under the Exchange Act to pay for or return the tendered Shares promptly
after the termination or withdrawal of the Offer), the Depositary may,
nevertheless, retain tendered Shares on behalf of Purchaser, and such Shares
may not be withdrawn except to the extent tendering stockholders are entitled
to exercise, and duly exercise, withdrawal rights as described under "THE
OFFER -- Withdrawal Rights."
If any tendered Shares are not purchased pursuant to the Offer because of an
invalid tender or for any reason, Share Certificates for any such Shares will
be returned, without expense, to the tendering stockholder (or, in the case of
Shares delivered by book-entry transfer of such Shares into the Depositary's
account at a Book-Entry Transfer Facility pursuant to the procedures set forth
under "THE OFFER -- Procedure for Accepting the Offer and Tendering Shares,"
such Shares will be credited to an account maintained at the Book-Entry
Transfer Facility), as promptly as practicable after the expiration,
termination or withdrawal of the Offer.
Purchaser reserves the right to transfer or assign, in whole or from time to
time in part, to one or more of Purchaser's subsidiaries or affiliates, the
right to purchase all or any portion of the Shares tendered pursuant to the
Offer, but any such transfer or assignment will not relieve the Purchaser of
its obligations under the Offer or prejudice the rights of tendering
stockholders to receive payment for Shares validly tendered and accepted for
purchase.
5.CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The summary of Federal income tax consequences set forth below is for
general information only and is based on Purchaser's understanding of the law
as currently in effect. The tax consequences to each stockholder will depend
in part upon such stockholder's particular situation. Special tax consequences
not described herein may be applicable to particular classes of taxpayers,
such as financial institutions, broker-dealers, persons who are not citizens
or residents of the United States and stockholders who acquired their Shares
through the exercise of an employee stock option or otherwise as compensation.
ALL STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM, INCLUDING THE
APPLICABILITY AND EFFECT OF THE ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL
OR FOREIGN INCOME AND OTHER TAX LAWS AND OF CHANGES IN SUCH TAX LAWS.
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<PAGE>
The receipt of cash for Shares pursuant to the Offer will be a taxable
transaction for Federal income tax purposes under the Code, and may also be a
taxable transaction under applicable state, local or foreign income and other
tax laws. Generally, for Federal income tax purposes, a tendering stockholder
will recognize gain or loss in an amount equal to the difference between the
cash received by the stockholder pursuant to the Offer and the stockholder's
adjusted tax basis in the Shares tendered by the stockholder and purchased
pursuant to the Offer. For Federal income tax purposes, such gain or loss will
be a capital gain or loss if the Shares are a capital asset in the hands of
the stockholder, and a long-term capital gain or loss if the stockholder's
holding period is more than one year.
A stockholder (other than certain exempt stockholders including, among
others, all corporations and certain foreign individuals and entities) that
tenders Shares may be subject to 31% backup withholding unless the stockholder
provides its TIN and certifies that such number is correct or properly
certifies that it is awaiting a TIN, or unless an exemption applies. A
stockholder who does not furnish its TIN may be subject to a penalty imposed
by the IRS. See "THE OFFER -- Procedure for Accepting the Offer and Tendering
Shares."
If backup withholding applies to a stockholder, the Depositary is required
to withhold 31% from payments to such stockholder. Backup withholding is not
an additional tax. Rather, the amount of the backup withholding can be
credited against the Federal income tax liability of the person subject to the
backup withholding, provided that the required information is given to the
IRS. If backup withholding results in an overpayment of tax, a refund can be
obtained by the stockholder upon filing an appropriate income tax return.
The receipt of cash by stockholders pursuant to the Merger should result in
similar Federal income tax consequences to such stockholders similar to those
described above.
6.PRICE RANGE OF THE SHARES
The Company's common stock is traded over the counter on NASDAQ under the
symbol HIFI. The following table sets forth for the periods indicated the high
and low sale prices of the common stock as reported by NASDAQ.
<TABLE>
<CAPTION>
CAMBRIDGE
SOUNDWORKS,
INC.
-----------
HIGH LOW
----- -----
<S> <C> <C>
FISCAL 1996
Quarter ended September 30, 1995.............................. $7.75 $4.75
Quarter ended December 31, 1995............................... 6.00 4.25
Quarter ended March 31, 1996.................................. 6.375 3.625
Quarter ended June 30, 1996................................... 4.625 3.25
FISCAL 1997
Quarter ended September 30, 1996.............................. 4.75 3.25
Quarter ended December 31, 1996............................... 7.125 3.375
Quarter ended March 31, 1997.................................. 5.875 3.375
Quarter ending June 29, 1997.................................. 5.50 4.625
THREE MONTHS ENDED SEPTEMBER 28, 1997
Quarter ended September 28, 1997.............................. 7.125 4.203
</TABLE>
On October 3, 1997, the last full day of trading prior to the public
announcement of the fact that Parent and the Company were in discussions
regarding a possible acquisition transaction, according to published sources,
the reported closing price of the Shares on NASDAQ was $7.125 per Share. On
October 30, 1997, the last full day of trading prior to the public
announcement of the execution of the Merger Agreement according to published
sources, the closing price of the Shares on NASDAQ was $9.25 per Share. On
October 31, 1997, the last full day of trading prior to the commencement of
the Offer, according to published sources, the closing price of shares on
NASDAQ was $10.375 per share. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR THE SHARES.
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The Company has never declared or paid cash dividends and the Company has
advised the Purchaser that it does not intend to declare any dividend in the
foreseeable future. The ability of the Company to pay dividends is subject to
certain restrictions under certain indebtedness of the Company and under the
Merger Agreement.
7.CERTAIN INFORMATION CONCERNING THE COMPANY
General. The following description of the Company's business has been taken
from the Company's Report on Form 10-K for the fiscal year ended June 29, 1997
(the "10-K"):
Cambridge SoundWorks, Inc. designs and manufactures audio product for home
stereo, home theater, car stereo and multimedia computer audio under the
brand name Cambridge SoundWorks. The Company sells its Cambridge SoundWorks
products and selected audio and video components manufactured by other
companies directly to consumers through its catalog and at its Company-
owned retail stores. The sale of these products from other companies
enables the Company to offer all of the components necessary for complete
stereo and home theater systems. The Company also sells its Cambridge
SoundWorks speakers on a wholesale basis.
Available Information. The Company is subject to the information and
reporting requirements of the Exchange Act and, in accordance therewith, is
required to file periodic reports, proxy statements and other information with
the SEC relating to its business, financial condition and other matters.
Certain information as of particular dates concerning the Company's directors
and officers (including their remuneration and stock options granted to them),
Shares held by them, the principal holders of the Company's securities and any
material interest of such persons in transactions with the Company and certain
other matters is required to be disclosed in proxy statements and annual
reports distributed to the Company's stockholders and filed with the SEC. Such
reports, proxy statements and other information are available for inspection
and copying at the public reference facilities of the SEC located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the SEC located in the Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and in Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies also may be obtained, by
mail, upon payment of the SEC's customary charges by writing to the SEC's
principal office at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC also maintains an Internet site on the World
Wide Web at <http://www.sec.gov> that contains reports, proxy statements and
other information. The information also should be available at The Nasdaq
Stock Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
Directors and Officers. The name, address, principal occupation or
employment, five-year employment history, and citizenship of each director and
executive officer of the Company is set forth in Schedule II hereto.
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Selected Financial Data. The selected financial information of the Company
and its subsidiaries set forth below, and the information set forth in
Schedule III hereto, was excerpted and derived from the Company's 10-K, which
included audited financial statements for the fiscal year ended June 29, 1997,
as filed by the Company with the SEC. More comprehensive financial information
is included in the 10-K (including management's discussion and analysis of
results of operations and financial position) and other documents filed with
the SEC. The following summary financial information is qualified in its
entirety by reference to such documents and all other reports and documents
filed with the SEC and all of the financial statements and related notes
contained therein. Such reports and certain other reports may be examined and
copies may be obtained at the offices of the SEC in the manner set forth in
above. A copy of the financial statements set forth in the 10-K is reproduced
as Schedule III hereto.
CAMBRIDGE SOUNDWORKS, INC.
SELECTED FINANCIAL DATA
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX
YEAR MONTHS YEAR ENDED YEAR YEAR
ENDED ENDED 7/2/95 ENDED ENDED
INCOME STATEMENT DATA: 12/31/94 7/2/95 (UNAUDITED) 6/30/96 6/29/97
---------------------- -------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales...................... $19,432 $15,015 $26,928 $43,585 $51,285
Cost of goods sold............. 10,133 8,697 15,043 25,872 30,965
------- ------- ------- ------- -------
Gross profit................. 9,299 6,318 11,885 17,713 20,320
Sales and marketing expenses... 6,890 5,830 10,406 14,254 18,320
General and administrative
expenses...................... 1,617 1,182 2,197 2,062 2,218
Engineering and development
expenses...................... 669 404 761 679 587
------- ------- ------- ------- -------
Total expenses............... 9,176 7,416 13,364 16,995 21,125
------- ------- ------- ------- -------
Income (loss) from
operations.................. 123 (1,098) (1,479) 718 (805)
Interest income (expense), net. 182 10 150 (301) (220)
------- ------- ------- ------- -------
Income (loss) before
provision (benefit) for
taxes....................... 305 (1,088) (1,329) 417 (1,025)
Provision (benefit) for income
taxes......................... 98 (435) (558) 167 (410)
------- ------- ------- ------- -------
Net income (loss)............ $ 207 $ (653) $ (771) $ 250 (615)
Net income (loss) per common
and common equivalent share. $ .08 $ (.23) $ (.27) $ .09 $ (.19)
Weighed average number of
common and common equivalent
shares outstanding............ 2,461 2,873 2,870 2,922 3,194
Dividends per commons share.... -- -- -- -- --
Balance Sheet Data:
Working capital.............. $ 9,539 $ 8,363 $ 8,363 $ 7,912 $11,079
Total Assets................. 15,947 15,029 15,029 18,130 21,098
Total Stockholders' Equity... 11,703 11,108 11,108 11,361 15,384
</TABLE>
Book value per Share was $4.05 and $3.93 as of 1997, June 29, 1997 and
June 30, 1996, respectively. The ratio of earnings to fixed charges was
(19.8)% and 11.2% as of June 29, 1997 and June 30, 1996, respectively.
Results for Quarter Ended September 28, 1997. On October 31, 1997, the
Company issued the following press release with respect to its financial
results for the fiscal quarter ended September 28, 1997:
Cambridge SoundWorks, Inc. reported today that net sales for the first
quarter ended September 28, 1997 were $13,175,453, up 18% compared to
$11,130,289 a year ago. The Company reported a net loss for the quarter of
$241,177, or $.06 per share, compared to net income of $32,067, or $.01 per
share, for the
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same period last year. The loss was expected because consumer demand for
home stereo and computer sound systems is historically the weakest of the
year during the July through September period.
Contributing to the 18% overall sales increase for the quarter was a
significant 20% overall increase in retail sales with same store
comparisons up 6.4% for the quarter. In addition, wholesale sales increased
approximately 20% for the quarter. The level of catalog sales remained
relatively flat for the quarter compared to the same period last year.
Cambridge SoundWorks, Inc., manufactures 33 different models of home
stereo, car stereo, home theater and computer speakers. It is the country's
first and largest factory-direct stereo company, selling its stereo speaker
products and sound systems in its 27 retail stores in Massachusetts, New
Hampshire, Maine, Connecticut and California. Cambridge SoundWorks'
speakers and sound systems are also offered direct to the consumer through
its national catalog.
CAMBRIDGE SOUNDWORKS, INC.
SELECTED FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
SEPT. 28, SEPT. 29,
1997 1996
----------- -----------
<S> <C> <C>
Net sales.......................................... $13,175,453 $11,130,289
Net income (loss).................................. $ (241,177) $ 32,067
Net income (loss) per share........................ $ (.06) $ .01
Weighted average number of common and common
equivalent shares outstanding..................... 3,803,086 2,892,523
</TABLE>
8. CERTAIN INFORMATION CONCERNING THE PURCHASER AND PARENT
Purchaser. The Purchaser is a Massachusetts corporation and has not carried
on any activities other than in connection with the Offer and the Merger. The
principal offices of the Purchaser are located at 1901 McCarthy Blvd.,
Milpitas, California 94025. The Purchaser is a wholly-owned subsidiary of
Parent.
Parent. Parent is a Singapore corporation. Its principal offices are located
at 31 International Business Park, Creative Resource, Singapore 609921. Parent
and its subsidiaries develop, manufacture, market and sell advanced multimedia
solutions for the PC, entertainment, education, music and productivity tools
market.
The name, citizenship, business address, principal occupation or employment
and five-year employment history and certain other information for each of the
directors and executive officers of the Purchaser and Parent are set forth in
Schedule I hereto.
As of November 3, 1997, Parent beneficially owned 1,169,608 Shares (of which
257,314 Shares are subject to the Parent Warrant) which it acquired in
connection with the Common Stock and Warrant Purchase Agreement with the
Company, representing approximately 28.8% of the Shares outstanding. Prior to
the Effective Time, if necessary or desirable in connection with the Merger,
Parent may transfer all of its Shares to Purchaser. Except as described in this
Offer to Purchase, (i) none of Purchaser, Parent nor, to the best knowledge of
the Purchaser and Parent, any of the persons listed in Schedule I to this Offer
to Purchase or any associate or majority-owned subsidiary of Purchaser, Parent
or any of the persons so listed, beneficially owns or has any right to acquire,
directly or indirectly, any Shares and (ii) none of Purchaser, Parent nor, to
the best knowledge of the Purchaser and Parent, any of the persons or entities
referred to above nor any director, executive officer or subsidiary of any of
the foregoing has effected any transaction in the Shares during the past 60
days.
Except as provided in the Merger Agreement or as otherwise described in this
Offer to Purchase, none of Purchaser, Parent nor, to the best knowledge of the
Purchaser and Parent, any of the persons listed in Schedule I
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<PAGE>
to this Offer to Purchase, has any contract, arrangement, understanding or
relationship with any other person with respect to any securities of the
Company, including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or voting of such
securities, finder's fees, joint ventures, loan or option arrangements, puts or
calls, guarantees of loans, guarantees against loss, guarantees of profits,
division of profits or loss or the giving or withholding of proxies. Except as
set forth in this Offer to Purchase, neither the Purchaser nor Parent nor, to
the best knowledge of the Purchaser and Parent, any of the persons listed on
Schedule I hereto, has had any business relationship or transaction with the
Company or any of its executive officers, directors or affiliates that is
required to be reported under the rules and regulations of the SEC applicable
to the Offer. Except as set forth in this Offer to Purchase, there have been no
contacts, negotiations or transactions between any of Purchaser, Parent, or any
of their subsidiaries or, to the best knowledge of the Purchaser and Parent,
any of the persons listed in Schedule I to this Offer to Purchase, on the one
hand, and the Company or its affiliates, on the other hand, concerning a
merger, consolidation or acquisition, tender offer or other acquisition of
securities, an election of directors or a sale or other transfer of a material
amount of assets.
9. FINANCING OF THE OFFER AND THE MERGER
The total amount of funds required by the Purchaser to consummate the Offer
and the Merger and to pay related fees and expenses is estimated to be
approximately $38 million. The Purchaser intends to obtain all funds needed for
the Offer through a capital contribution, which will be made by Parent to the
Purchaser at the time the shares tendered pursuant to the Offer are accepted
for payment. Parent intends to use its available cash on hand to make this
capital contribution. Neither the Offer nor the Merger is conditioned on
obtaining financing.
10. INTERCOMPANY ARRANGEMENTS BETWEEN PARENT AND THE COMPANY
Common Stock and Warrant Purchase Agreement. Parent and the Company entered
into a Common Stock and Warrant Purchase Agreement dated as of February 20,
1997 (the "Common Stock and Warrant Purchase Agreement"), pursuant to which
Parent purchased 912,294 shares of Common Stock of the Company, at a purchase
price of $5.25 per share, and a warrant to purchase 257,314 shares of Common
Stock of the Company at an exercise price of $6.00 per share.
Common Stock Purchase Warrant. Pursuant to the Common Stock and Warrant
Purchase Agreement, on February 28, 1997, Parent purchased a warrant to
purchase 257,314 shares of Common Stock of the Company (the "Warrant") for a
consideration of $1,000. The exercise price of the shares under the Warrant is
$6.00 per share. The Warrant may be exercised at any time prior to February 28,
2001, provided that (i) the Company will have received a blanket purchase order
from Parent within twenty days of the issuance of the Warrant for the purchase
of at least $3,000,000 of the Company's products during the first twelve months
after the issuance of the Warrant and (ii) concurrently with the issuance of
such purchase order, Parent delivers funds in the amount of $1,000,000 to the
Company to be applied against purchase orders issued by Parent for the
Company's products. Parent has fulfilled the foregoing conditions and is
entitled to exercise the Parent Warrant.
Investors' Rights Agreement. Parent and the Company entered into an
Investors' Rights Agreement dated as of February 28, 1997 (the "Investors'
Rights Agreement"), pursuant to which the Company granted Parent (i) certain
rights to register the shares of Common Stock (including shares issuable upon
exercise of the Warrant) purchased by Parent under the Common Stock and Warrant
Purchase Agreement with the Securities and Exchange Commission, (ii) so long as
Parent holds at least 456,147 shares of Common Stock, a right of first refusal
to purchase, on a pro rata basis, any new securities proposed to be issued by
the Company, subject to certain exceptions, (iii) so long as Parent holds at
least 250,000 shares of Common Stock, a right to receive annual, quarterly and
monthly financial statements from the Company, and (iv) so long as Parent holds
at least 456,147 shares of Common Stock, a right to designate one nominee for
election to the Board of Directors or, if no director on the Board is a
designee of Parent, a right to attend meetings of the Board of Directors as a
nonvoting observer.
Voting Agreement. Parent, the Company, Henry E. Kloss and Thomas J. DeVesto
entered into a Voting Agreement dated as of February 28, 1997, pursuant to
which (i) the Company agreed, at all elections of directors,
34
<PAGE>
to nominate one person designated by Parent, and (ii) Henry Kloss and Thomas
DeVesto agreed to vote all their shares for the election of such nominee. This
Voting Agreement terminates upon the earlier of ten years from the date of the
agreement or at such time that Parent holds less than 456,147 shares of Common
Stock of the Company.
Exclusive Distribution Agreement. Parent and the Company entered into an
Exclusive Distribution Agreement dated as of February 28, 1997 (the
"Distribution Agreement"), pursuant to which the Company granted Parent an
exclusive right to distribute and sell the Company's multimedia products.
Parent's right of exclusive distribution of the Company's multimedia products
is subject to certain performance milestones described in the Distribution
Agreement.
Non-Disclosure Agreement. The Company and Creative Labs, a wholly owned
subsidiary of Parent, entered into a Mutual Confidentiality and Non-Disclosure
Agreement dated October 18, 1996, pursuant to which the Company and Creative
Labs agreed to treat and maintain all proprietary and confidential information
received from the other in confidence. As a term of the Merger Agreement,
Parent and the Company have agreed that all of the information passed between
them in connection with their respective review and evaluation of the Offer
and the Merger would be deemed subject to this Agreement.
DeVesto Employment Agreement. On February 18, 1997, Mr. DeVesto, President
and Chief Executive Officer of the Company, entered into an Employment
Agreement with the Company providing for the employment of Mr. DeVesto for a
three-year period terminating on February 17, 2000. As compensation for such
service for the first year under the agreement, Mr. DeVesto is to receive an
annual base salary of not less than $385,000. This salary will be subject to
adjustment as determined in the discretion of the Company Board. Under the
agreement, Mr. DeVesto has also agreed to certain non-competition and non-
solicitation provisions effective during the term of his employment with the
Company and for a one-year period thereafter. Both the Company and Mr. DeVesto
have agreed to give the other six months' prior notice in the event that one
of them intends to terminate the employment of Mr. DeVesto. In the event that
either the Company or Mr. DeVesto elects to terminate his employment with the
Company at any time, Mr. DeVesto will be entitled to receive a lump sum
payment equal to one-year's base salary in consideration for his agreements
with respect to non-competition and non-solicitation. In connection with the
negotiation of the Merger Agreement and the transactions contemplated thereby,
Parent requested that Mr. DeVesto agree to certain clarifications to his
Employment Agreement, principally relating to the effect of the Company
failing to give a full six months' notice prior to terminating Mr. DeVesto's
employment with the Company. Mr. DeVesto consented to these clarifications,
and the Employment Agreement was amended and restated to incorporate these
changes effective October 29, 1997.
11. DIVIDENDS AND DISTRIBUTIONS
If, on or after October 30, 1997, the Company should declare or pay any
dividend on the Shares or make any other distribution (including the issuance
of additional shares of capital stock pursuant to a stock dividend or stock
split, the issuance of other securities or the issuance of rights for the
purchase of any securities) with respect to the Shares that is payable or
distributable to stockholders of record on a date prior to the transfer to the
name of the Purchaser or its nominee or transferee on the Company's stock
transfer records of the Shares purchased pursuant to the Offer, then, without
prejudice to Purchaser's rights under "THE OFFER -- Certain Conditions of the
Offer," (i) the Offer Price per Share payable by the Purchaser pursuant to the
Offer will be reduced (subject to the Merger Agreement) to the extent any such
dividend or distribution is payable in cash, and (ii) any non-cash dividend,
distribution or right will be received and held by the tendering stockholder
for the account of the Purchaser and will be required to be promptly remitted
and transferred by each tendering stockholder to the Depositary for the
account of Purchaser, accompanied by appropriate documentation of transfer.
Pending such remittance and subject to applicable law, the Purchaser will be
entitled to all the rights and privileges as owner of any such non-cash
dividend, distribution or right and may withhold the entire purchase price or
deduct from the purchase price the amount or value thereof, as determined by
the Purchaser in its sole discretion.
35
<PAGE>
12. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; NASDAQ QUOTATION AND
EXCHANGE ACT REGISTRATION
The purchase of Shares by the Purchaser pursuant to the Offer will reduce the
number of Shares that might otherwise trade publicly, will reduce the number of
holders of Shares and could thereby adversely affect the liquidity and market
value of the remaining publicly held Shares.
NASDAQ Listing. Depending upon the number of Shares purchased pursuant to the
Offer, the Shares may no longer meet the standards for continued inclusion in
NASDAQ. According to NASDAQ's published guidelines, the Shares would not be
eligible to be included for listing if, among other things, the number of
publicly held Shares falls below 500,000, the number of holders of Shares falls
below 400 or the aggregate market value of such publicly held Shares falls
below $3,000,000. If these standards are not met, the Shares might continue to
be listed on The Nasdaq SmallCap Market, Inc., but if the number of holders of
the Shares falls below 300, or if the number of publicly held Shares falls
below 100,000, or if the aggregate market value of such publicly held Shares
falls below $200,000 or there are not at least two registered and active market
makers (one of which may be a market maker entering a stabilizing bid), NASDAQ
rules provide that the securities would no longer qualify for inclusion in
NASDAQ and NASDAQ would cease to provide any quotations. Shares held directly
or indirectly by an officer or director of the Company or by a beneficial owner
of more than 10% of the Shares will ordinarily not be considered as being
publicly held for purposes of these standards. In the event the Shares are no
longer eligible for NASDAQ quotation, quotations might still be available from
other sources. The extent of the public market for the Shares and the
availability of such quotations would, however, depend upon the number of
holders of such Shares remaining at such time, the interest in maintaining a
market in such Shares on the part of securities firms, the possible termination
of registration of such Shares under the Exchange Act as described below and
other factors.
On October 22, 1997, the Company received a letter from The Nasdaq Stock
Market, Inc. ("Nasdaq"), dated October 22, 1997 (the "Nasdaq Letter"),
concerning the private placement to Parent on February 28, 1997 of 912,294
shares of the Company's common stock and a Warrant to purchase 257,314 shares
of the common stock of the Company. The Nasdaq Letter states that Nasdaq has
determined that the private placement may have occurred in violation of
Marketplace Rule 4460(i)(1)(b) of The Nasdaq Stock Market. Marketplace Rule
4460(i)(1)(b) generally requires an issuer with shares traded on The Nasdaq
Stock Market to obtain shareholder approval when an issuance of its stock would
result in a change of control of the issuer.
Nasdaq has requested that the Company provide to Nasdaq, by no later than
November 4, 1997, a summary and supporting documentation as to why shareholder
approval was not obtained for the private placement to Parent. If the Company's
submission is deemed not to warrant continued listing on The Nasdaq Stock
Market, the Nasdaq Letter states that Nasdaq will immediately send the Company
a formal notice of deficiency and commence the process of delisting the
Company's common stock from The Nasdaq Stock Market. The Nasdaq Letter states
that no delisting action will be taken until the Company has had adequate time
to respond to Nasdaq's formal notice.
The Company believes that the private placement to Parent did not result in a
change of control of the Company and that no grounds exist for the delisting of
the Company's shares from The Nasdaq Stock Market. However, in the event that
the Offer is not consummated and the Company's common stock is delisted from
The Nasdaq Stock Market, such delisting would likely have an adverse effect
upon the trading value of the Company's Common Stock, the Company's ability to
effect equity financings, and, accordingly, could have a material adverse
effect upon the Company.
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<PAGE>
Purchaser has been advised by the Company that as of October 23, 1997, there
were approximately 71 holders of record of the Shares.
Margin Regulations. The Shares are currently "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which has the effect, among other things, of
allowing brokers to extend credit on the collateral of such Shares for the
purpose of buying, carrying or trading in securities ("Purpose Loans").
Depending upon factors similar to those described above regarding the
continued listing, public trading and market quotations of the Shares, it is
possible that, following the purchase of the Shares pursuant to the Offer, the
Shares would no longer constitute "margin securities" for the purposes of the
margin regulations of the Federal Reserve Board and therefore could no longer
be used as collateral for Purpose Loans made by brokers.
Exchange Act Registration. The Shares are currently registered under the
Exchange Act. Such registration may be terminated upon application by the
Company to the SEC if the Shares are not listed on a national securities
exchange and there are fewer than 300 record holders. The termination of the
registration of the Shares under the Exchange Act would substantially reduce
the information required to be furnished by the Company to holders of Shares
and to the SEC and would make certain provisions of the Exchange Act, such as
the short-swing profit recovery provisions of Section 16(b), the requirement
of furnishing a proxy statement in connection with stockholders' meetings and
the requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions, no longer applicable to the Shares. In addition,
"affiliates" of the Company and persons holding "restricted securities" of the
Company may be deprived of the ability to dispose of such securities pursuant
to Rule 144 under the Securities Act. If registration of the Shares under the
Exchange Act were terminated, the Shares would no longer be "margin
securities" or be eligible for NASDAQ reporting. The Purchaser currently
intends to seek to cause the Company to terminate the registration of the
Shares under the Exchange Act as soon after consummation of the Offer as the
requirements for termination of registration are met.
13. CERTAIN CONDITIONS OF THE OFFER
Any other provision of the Offer notwithstanding, the Purchaser will not be
required to accept for payment or pay for any Shares tendered pursuant to the
Offer, and may terminate or amend the Offer and may postpone the acceptance
for payment of and payment for Shares tendered, if (i) the Minimum Share
Condition shall not have been satisfied, (ii) any applicable waiting period
under the HSR Act shall not have expired or been terminated prior to the
expiration of the Offer, or (iii) at any time on or after the date of the
Merger Agreement and before the acceptance of such Shares for payment or the
payment therefor, any of the following conditions exist:
(a) a preliminary or permanent injunction or other order by any federal,
state or foreign court which prevents the acceptance for payment of, or
payment for, some of or all the Shares shall have been issued and shall remain
in effect;
(b) there shall have been instituted or be pending any action or proceeding
by any Governmental Entity (i) challenging the acquisition by the Purchaser of
Shares or otherwise seeking to restrain, materially delay or prohibit the
consummation of the Offer or the Merger or seeking damages that would make the
Offer, the Merger or any other transaction contemplated hereby materially more
costly to Parent or the Purchaser, (ii) seeking to prohibit or limit
materially the ownership or operation by the Purchaser or Parent of all or a
material portion of the business or assets of the Company, or to compel the
Purchaser or Parent to dispose of or hold separate all or a material portion
of the business or assets of the Company or the Purchaser or Parent, as a
result of the Offer or the Merger, (iii) seeking to impose or confirm
limitations on the ability of Parent or the Purchaser effectively to exercise
full rights of ownership of the Shares, including, without limitation, the
right to vote the Shares purchased by it on all matters properly presented to
the Company's stockholders, including, without limitation, the approval and
adoption of the Merger Agreement and the transactions contemplated hereby, or
(iv) seeking to require divestiture by Parent, the Purchaser or any other
affiliate of Parent of any Shares;
37
<PAGE>
(c) there shall have been any action taken, or any statute, rule, regulation
or order enacted, promulgated or issued or deemed applicable to the Offer, the
Merger or any other transaction contemplated hereby, Parent, the Company or
any affiliate of Parent or the Company by any Governmental Entity, except for
the waiting period provisions of the HSR Act, which is reasonably likely to
result, directly or indirectly, in any of the consequences referred to in
clauses (i) through (iv) of paragraph (b) above;
(d) any change or effect that, individually or in the aggregate, is or is
reasonably likely to constitute a Material Adverse Effect shall have occurred
following the date of the Merger Agreement;
(e) the Company shall have breached or failed to perform in any material
respect any of its obligations, covenants or agreements under the Merger
Agreement; or
(f) any representation or warranty of the Company in the Merger Agreement
that is qualified as to materiality shall not be true and correct or any such
representation or warranty that is not so qualified shall not be true and
correct in any material respect, in each case when made and at and as of such
time as if made at and as of such time.
(g) there shall have occurred (i) any general suspension of, or limitation
on prices for, trading in securities on the Nasdaq National Market; (ii) a
declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States or Canada; (iii) a commencement of a war or
armed hostilities or other national or international calamity directly or
indirectly involving the United States or Canada; or (iv) in the case of any
of the foregoing existing on the date hereof, a material acceleration or
worsening thereof;
(h) (i) it shall have been publicly disclosed or the Purchaser shall have
otherwise learned that beneficial ownership (determined for the purposes of
this paragraph as set forth in Rule 13d-3 promulgated under the Exchange Act)
of a majority of then outstanding Shares have been acquired by any person
other than Parent or any of its affiliates, or (ii)(A) the Board of Directors
of the Company or any committee thereof shall have withdrawn or modified in a
manner adverse to Parent or the Purchaser the approval or recommendation of
the Offer, the Merger or the Merger Agreement, or approved or recommended any
Third Party Acquisition or any other acquisition of Shares other than the
Offer and the Merger, or (B) the Board of Directors of the Company or any
committee thereof shall have resolved to do any of the foregoing;
(i) the Merger Agreement shall have been terminated in accordance with its
terms.
The foregoing conditions are for the sole benefit of the Purchaser and
Parent. The foregoing rights of the Purchaser will be available regardless of
the circumstances giving rise to any such conditions (including any action or
omission to act of the Purchaser) and, subject to Section 1.1(a) of the Merger
Agreement, may be waived by the Purchaser or Parent in whole or in part at any
time and from time to time in their sole discretion. Any determination by the
Purchaser will be final and binding upon all parties including tendering
stockholders.
The failure by the Purchaser or Parent at any time to exercise any of the
foregoing rights will not be deemed a waiver of any such right; the waiver of
any such right with respect to particular facts and other circumstances will
not be deemed a waiver with respect to any other facts and circumstances; and
each such right will be deemed an ongoing right which may be asserted at any
time and from time to time.
14. CERTAIN LEGAL MATTERS
General. Except as described in this section, based on its review of
publicly available filings of the Company with the SEC and other publicly
available information regarding the Company, the Purchaser is not aware of any
license or regulatory permit that appears to be material to the business of
the Company and its subsidiaries, taken as a whole, that might be adversely
affected by Purchaser's acquisition of Shares as contemplated herein or of any
approval or other action by or with any domestic, foreign, or international
government authority or administrative or regulatory agency that would be
required for the acquisition or ownership of the Shares by Purchaser. Should
any such approval or other action be required, the Purchaser currently
contemplates that such approval or other action will be sought, except as
described below under "State
38
<PAGE>
Takeover Laws." While, except as otherwise expressly described in this
section, the Purchaser does not presently intend to delay the acceptance for
payment of or payment for Shares tendered pursuant to the Offer pending the
outcome of any such matter, there can be no assurance that any such approval
or other action, if needed, would be obtained without substantial conditions
or that failure to obtain any such approval or other action might not result
in consequences adverse to the Company's business or that certain parts of the
Company's business might not have to be divested of if such approvals were not
obtained or such other actions were not taken, any of which could cause the
Purchaser to decline to accept for payment or pay for any Shares tendered.
Purchaser's obligations to accept for payment or pay for the Shares tendered
pursuant to the Offer is subject to the certain conditions set forth in this
Offer, including the conditions set forth above in this paragraph and with
respect to litigation and governmental action as contemplated herein. See "THE
OFFER -- Certain Conditions of the Offer."
Federal Regulatory Approval. Except as otherwise noted in this Section, no
federal regulatory approval is required for the Purchaser to complete the
Offer and consummate the Merger.
State Takeover Laws. Chapter 110F of the Massachusetts General Laws
("Chapter 110F") prohibits a corporation with 200 or more stockholders from
engaging in a "Business Combination" (as defined in Chapter 110F) with an
"Interested Stockholder" (defined generally as a person who, together with
affiliates and associates, owns 5% or more of such corporation's outstanding
voting stock, or as an affiliate or associate of such corporation who,
together with affiliates and associates, owned 5% or more of such
corporation's outstanding voting stock, or as an affiliate or associate of
such corporation who, together with affiliates and associates, owned 5% or
more of such corporation's outstanding voting stock at any time within the
immediately preceding three-year period) for three years following the date
such person became an Interested Stockholder. The provisions are not
applicable when (i) prior to the date the stockholder became an Interested
Stockholder, the board of directors of the corporation approved either the
Business Combination or the transaction that resulted in the stockholder
becoming an Interested Stockholder, (ii) upon consummation of the transaction
that resulted in the stockholder becoming an Interested Stockholder, such
Interested Stockholder owned at least 90% of the outstanding voting stock of
the corporation, not including shares owned by directors who are also officers
and by certain employee stock plans or (iii) on or subsequent to the date the
stockholder becomes an Interested Stockholder, the Business Combination is
approved by the board of directors of the corporation and authorized at a
meeting of stockholders, and not by written consent, by the affirmative vote
of the holders of at least two-thirds of the outstanding voting stock entitled
to vote thereon, excluding shares owned by the Interested Stockholder. These
restrictions generally do not apply to Business Combinations with an
Interested Stockholder that are proposed subsequent to the public announcement
of, and prior to the consummation or abandonment of, certain mergers, sales of
a majority of a corporation's assets or tender offers for 50% or more of the
corporation's voting stock. Based on the foregoing, the Company has advised
Parent that the restrictions of Chapter 110F will not apply to the Offer and
Merger. Chapter 110F allows corporations to elect not to be subject to the
preceding provisions of the Massachusetts law. The Company has not so elected.
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
and the rules that have been promulgated thereunder by the Federal Trade
Commission (the "FTC"), certain transactions (including certain transactions
involving the proposed acquisition of in excess of 15%, 25% and 50% of the
equity interest of a target corporation) may not be consummated unless certain
information has been furnished to the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the FTC and certain waiting period
requirements have been satisfied (the "HSR Requirements").
Under the provisions of the HSR Act applicable to the Offer, the purchase of
Shares under the Offer may not be consummated until the expiration of a
fifteen calendar day waiting period following the required filing. The
Purchaser (on behalf of Parent) anticipates that it will file a Notification
and Report Form with respect to the Offer on November 4, 1997. The Company
filed a Notification and Report Form with respect to the Offer on November 3,
1997. Accordingly, if the Purchaser's filing is in fact made on November 4,
1997, the waiting period with respect to the Offer will expire at 11:59 p.m.,
New York City time, on November 19, 1997, unless the Parent receives a request
for additional information or documentary material, or the Antitrust Division
and the FTC terminate the waiting period prior thereto. If, within such
fifteen day period, either the Antitrust Division or the FTC requests
additional information or material from the Parent concerning the Offer, the
waiting period
39
<PAGE>
will be extended and would expire at 11:59 p.m., New York City time, on the
tenth calendar day after the date of substantial compliance by the Parent with
such request. Only one extension of the waiting period pursuant to a request
for additional information is authorized by the HSR Act. Thereafter, such
waiting period may be extended only by court order or with the consent of the
Parent. In practice, complying with a request for additional information or
material can take a significant amount of time. In addition, if the Antitrust
Division or the FTC raises substantive issues in connection with a proposed
transaction, the parties may engage in negotiations with the relevant
governmental agency concerning possible means of addressing those issues and
may agree to delay consummation of the transaction while such negotiations
continue. Expiration or termination of applicable waiting periods under the HSR
Act is a condition to the Purchaser's obligation to accept for payment and pay
for Shares tendered pursuant to the Offer.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares
by the Purchaser pursuant to the Offer. At any time before or after the
purchase of Shares pursuant to the Offer by Purchaser, the FTC or the Antitrust
Division could take such action under the antitrust laws as it deems necessary
or desirable in the public interest, including seeking to enjoin the purchase
of Shares pursuant to the Offer or seeking the divestiture of Shares purchased
by the Purchaser or the divestiture of substantial assets of Parent, the
Company or their respective subsidiaries. Private parties and state attorneys
general may also bring legal action under federal or state antitrust laws under
certain circumstances. Based upon an examination of information available to
Parent relating to the businesses in which Parent, the Company and their
respective subsidiaries are engaged, Parent and the Purchaser believe that
neither the Offer nor the Merger will violate the antitrust laws. Nevertheless,
there can be no assurance that a challenge to the Offer on antitrust grounds
will not be made or, if such a challenge is made, what the result would be. See
"THE OFFER -- Certain Conditions of the Offer."
15. FEES AND EXPENSES
Except as set forth below, the Purchaser will not pay any fees or commissions
to any broker, dealer or other person for soliciting tenders of Shares pursuant
to the Offer.
Purchaser and Parent have retained Georgeson & Company Inc. to be the
Information Agent and State Street Bank and Trust Company to be the Depositary
in connection with the Offer. The Information Agent may contact holders of
Shares by mail, telephone, telecopy, telegraph and personal interview and may
request banks, brokers, dealers and other nominee stockholders to forward
materials relating to the Offer to beneficial owners.
As compensation for acting as Information Agent in connection with the Offer,
Georgeson & Company Inc. will be paid a fee of $7,000 and will also be
reimbursed for certain out-of-pocket expenses and may be indemnified against
certain liabilities and expenses in connection with the Offer, including
certain liabilities under the federal securities laws. The Purchaser will pay
the Depositary a fee of $10,000 for its services in connection with the Offer,
plus reimbursement for out-of-pocket expenses, and will indemnify the
Depositary against certain liabilities and expenses in connection therewith,
including certain liabilities under federal securities laws. Brokers, dealers,
commercial banks and trust companies will be reimbursed by the Purchaser for
customary handling and mailing expenses incurred by them in forwarding material
to their customers.
The following is an estimate of expenses to be incurred in connection with
the Offer and the Merger:
<TABLE>
<S> <C>
Financial Advisor Fees and Expenses............................. $ 425,000
Legal Fees...................................................... $ 400,000
Accounting Fees................................................. 20,000
Printing and Mailing............................................ 250,000
Advertising..................................................... 60,000
Filing Fees..................................................... 10,000
Miscellaneous (including Depositary and Information Agent fees
and expenses).................................................. 50,000
----------
Total.......................................................... $1,215,000
==========
</TABLE>
40
<PAGE>
16. MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the
securities, blue sky or other laws of such jurisdiction. The Purchaser may, in
its discretion, however, take such action as it may deem necessary to make the
Offer in any jurisdiction and extend the Offer to holders of Shares in any
such jurisdiction. In any jurisdiction where the securities, blue sky or other
laws require the Offer to be made by a licensed broker or dealer, the Offer
will be deemed to be made on behalf of the Purchaser by one or more registered
brokers or dealers licensed under the laws of such jurisdiction.
No person has been authorized to give any information or to make any
representation on behalf of the Purchaser not contained herein or in the
Letter of Transmittal and, if given or made, such information or
representation must not be relied upon as having been authorized. Neither the
delivery of this Offer to Purchase nor any purchase pursuant to the Offer
will, under any circumstances, create any implication that there has been no
change in the affairs of the Purchaser or the Company since the date as of
which information is furnished or the date of this Offer to Purchase.
Parent and the Purchaser have filed with the SEC a Tender Offer Statement on
Schedule 14D-1, together with exhibits, pursuant to Rule 14d-3 under the
Exchange Act, and Parent, the Purchaser and the Company have filed with the
SEC a Rule 13e-3 Transaction Statement on Schedule 13E-3, together with
exhibits, pursuant to Rule 13e-3 under the Exchange Act, furnishing certain
additional information with respect to the Offer. In addition, the Company has
filed with the SEC a Solicitation/Recommendation Statement Schedule 14D-9,
together with exhibits, pursuant to Rule 14d-9 under the Exchange Act, setting
forth the recommendations of the Company Board with respect to the Offer and
the reasons for such recommendations and furnishing certain additional related
information. Such Schedules and any amendments thereto, including exhibits,
may be inspected and copies may be obtained from the SEC in the manner set
forth under "THE OFFER -- Certain Information Concerning the Company" (except
that they will not be available at the regional offices of the SEC).
CSW ACQUISITION CORPORATION
November 3, 1997
41
<PAGE>
SCHEDULE I
DIRECTORS AND THE EXECUTIVE OFFICERS
OF PURCHASER AND PARENT
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The following table sets forth
the name, principal occupation or employment at the present time and during
the last five years, and the name and business address of any corporation or
other organization in which such employment is conducted or was conducted of
each director and executive officer of Parent. The business address of each
executive officer of Parent is 31 International Business Park, Creative
Resource, Singapore 609921; unless otherwise set forth below. Each occupation
set forth opposite a person's name, unless other indicated, refers to
employment with Parent. Directors are indicated with an asterisk.
<TABLE>
<CAPTION>
NAME, AGE, ADDRESS AND YEAR OTHER BUSINESS
FIRST APPOINTED OR ELECTED PRESENT POSITION EXPERIENCE
--------------------------- ---------------- --------------
<C> <C> <S>
*Sim Wong Hoo, 42 Chairman of the Board N/A
First appointed: 1981 and Chief Executive
First became director: 1981 Officer
Ng Keh Long, 38 Vice President, Prior to joining Parent
First appointed: 1993 Corporate Treasurer and in 1993, Mr. Ng was a
Acting Chief Financial Senior Manager at Price
Officer and Company Waterhouse where he was
Secretary employed for over 10
years.
*Tan Lip-Bu, 37 Director General Partner of
First became director: 1990 Walden Group of venture
capital funds since
1984. Mr. Tan is a
director of several
private and public
companies in the United
States, Taiwan,
Singapore and Malaysia
with which the Walden
Group is associated.
*Tang Chun Choy, 49 Director Managing Director of the
First became director: 1990 Walden International
Investment Group. Prior
to joining Walden in
1989, Mr. Tang was the
General Manager of
Chemical Bank in
Singapore. Mr. Tang
holds directorships in
various companies in
which the Walden Group
has made investments.
*Lee Kheng Nam, 49 Director Responsible for
First became director: 1991 strategic investments in
new technologies and
venture capital funds at
the Singapore
Technologies group since
1983. Mr. Lee holds
directorships in several
companies based in the
U.S., China and
Singapore in which the
Singapore Technologies
group has made
investments.
</TABLE>
I-1
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER. The following table sets forth
the name, principal occupation or employment at the present time and during the
last five years, and the name and business address of any corporation or other
organization in which such employment is conducted or was conducted of each
director and executive officer of Purchaser. The business address of each
executive officer of Purchaser is 1901 McCarthy Boulevard, Milpitas, California
95035, unless otherwise set forth below. Each occupation set forth opposite a
person's name, unless other indicated, refers to employment with Purchaser. The
Purchaser's Director is indicated with an asterisk.
<TABLE>
<CAPTION>
NAME, AGE, ADDRESS AND FIRST
YEAR APPOINTED OR ELECTED PRESENT POSITION OTHER BUSINESS EXPERIENCE
---------------------------- ---------------- -------------------------
<C> <C> <S>
John D. Danforth, 39 President Mr. Danforth has been Vice
First appointed: 1997 President and General Counsel
of Creative Labs, Inc. since
1995 and General Counsel since
1994. He was a partner with
Morrison & Foerster from 1989
to 1994.
*Ng Keh Long, 38 Vice President, Mr. Ng joined Parent in April
Creative Technology Ltd. Treasurer and 1993 as Financial Controller
31 International Business Director and held various financial
Park positions until May 1996 when
Creative Resource he was appointed Vice
Singapore 609921 President, Corporate Treasurer
First appointed: 1997 and Acting Chief Financial
First became director: 1997 Officer. Prior to joining
Parent in 1993, Mr. Ng was a
Senior Manager at Price
Waterhouse where he was
employed for over 10 years.
Erika Rottenberg, 35 Vice President Ms. Rottenberg has been
First appointed: 1997 and Secretary Associate Counsel of Creative
Labs since September 1996. She
was an associate with Cooley
Godward from 1992 to 1996.
</TABLE>
I-2
<PAGE>
SCHEDULE II
DIRECTORS AND THE EXECUTIVE OFFICERS
OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. The following table sets
forth the name, principal occupation or employment at the present time and
during the last five years, and the name and business address of any
corporation or other organization in which such employment is conducted or was
conducted of each director and executive officer of the Company. The business
address of each executive officer of the Company is 311 Needham Street,
Newton, Massachusetts 02164, unless set forth below. Each occupation set forth
opposite a person's name, unless otherwise indicated, refers to employment
with the Company. Directors are indicated with an asterisk.
<TABLE>
<CAPTION>
NAME, AGE, ADDRESS AND YEAR
FIRST APPOINTED OR ELECTED PRESENT POSITION OTHER BUSINESS EXPERIENCE
--------------------------- ---------------- -------------------------
<C> <C> <S>
*Thomas J. DeVesto, 50, President and Chief From 1985 to 1988, Mr.
First appointed: 1988 Executive Officer DeVesto was a consultant
First became director: 1988 to ITT Corporation and
represented ITT in
connection with its
relationship with Kloss
Video Corporation. From
1978 to 1985, he was Vice
President of Sales and
Marketing of Kloss Video
Corporation. From 1976
through 1978, Mr. DeVesto
held various sales
management positions in
the international and
domestic divisions of
Advent.
Wayne P. Garrett, 41 Vice President-Finance, From 1983 through 1995,
First appointed: 1995 Chief Financial Officer, Mr. Garrett was employed
Treasurer and Clerk by Argus Management Corp.
as a management
consultant. From 1978 to
1981, he was employed as
an auditor by Price
Waterhouse.
Thomas J. Hannaher, 45 Vice President-Marketing From 1979 through 1993,
First appointed: 1993 Mr. Hannaher owned and
operated an advertising
and marketing agency and
provided consulting
services to a number of
companies, including the
Company, Boston
Acoustics, NAD, Tweeter
and Apple Computer.
Robert S. Mainiero, 41 Vice President-Business From 1993 through 1995,
First Appointed: 1996 Development Mr. Mainiero was Vice
President-Sales for
a/d/s. From 1985 through
1993 he served as Zone
Manager for Alpine
Electronics of America
and previously served as
Assistant National Sales
Manager of Kloss Video
Corporation.
Sandy Ruby, 56 Vice President-Retail From 1985 through 1995,
First Appointed: 1995 Mr. Ruby was a systems
consultant and Vice
President of Practicorp
International. From 1968
through 1984, Mr. Ruby
was a founder and Chief
Executive Officer of Tech
HiFi, a 70-store consumer
electronics retail chain.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, ADDRESS AND YEAR OTHER BUSINESS
FIRST APPOINTED OR ELECTED PRESENT POSITION EXPERIENCE
--------------------------- ---------------- --------------
<C> <C> <S>
*Thomas E. Brew, Jr., 55 Director Mr. Brew has been the
First became director: 1995 President, Chief
Executive Officer and a
director of Kurzweil
Applied Intelligence,
Inc. since November
1994. From 1979 through
1994 he was co-founder
and Executive Vice
President of Argus
Management Corp.
*Franklin S. Browning, Jr., 69 Director Mr. Browning co-founded
First became director: 1996 the Boston advertising
agency Humphrey Browning
McDoughall in 1970. He
was Chairman of HBM
until 1983.
*Leo Kahn, 80 Director Mr. Kahn has been a
First became director: 1995 partner of United
Properties since 1985,
and a director of Big V
Supermarkets and of
Grossman's, Inc., since
1986. In 1948 Mr. Kahn
was a founder, President
and Chief Executive
Officer of Purity
Supreme, Inc., and co-
founder of Staples, Inc.
in 1986.
*Craig L. McHugh, 40 Director Mr. McHugh has been Vice
First became director: 1997 President, General
Manager of Creative
Labs, Inc. since January
1996. He joined Creative
in October 1993 as
General Manager of
Worldwide OEM and later
served as Vice President
of Sales and Marketing.
Prior to Creative. Mr.
McHugh was Vice
President of Sales and
Marketing at Trace, Inc.
and was also a member of
their Board of
Directors.
*Peter B. Seamans, 73 Director Mr. Seamans has been a
First became director: 1996 partner with the law
firm of Peabody & Arnold
since 1957. He
previously served as a
director of Kloss Video
Corporation and Advent
Corporation and
currently serves on the
board of the Peabody
Essex Museum and the USS
Constitution Museum.
</TABLE>
II-2
<PAGE>
SCHEDULE III
CAMBRIDGE SOUNDWORKS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, JUNE 29,
1996 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash.................................................. $ 87,421 $ 58,043
Accounts receivable, net.............................. 2,431,670 719,855
Income tax refund receivable.......................... -- 404,434
Inventories........................................... 11,405,352 14,816,618
Prepaid expenses...................................... 187,247 181,150
Deferred tax asset.................................... 570,000 613,653
----------- -----------
Total Current Assets................................. 14,681,690 16,793,753
PROPERTY AND EQUIPMENT, AT COST:
Production equipment and tooling...................... 407,925 580,192
Office equipment and furniture........................ 1,148,610 1,367,080
Leasehold improvements................................ 2,544,495 3,938,224
Motor vehicles........................................ 180,290 250,252
----------- -----------
4,281,320 6,135,748
Less Accumulated depreciation and amortization........ 1,135,478 1,995,287
----------- -----------
Net Property and Equipment........................... 3,145,842 4,140,461
OTHER ASSETS........................................... 302,880 163,900
----------- -----------
Total Assets......................................... $18,130,412 $21,098,204
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under line of credit....................... $ 3,395,557 $ 1,915,713
Accounts payable...................................... 2,123,773 2,148,399
Accrued expenses...................................... 979,689 914,978
Customer prepayments and other current liabilities.... 270,707 735,279
----------- -----------
Total Current Liabilities............................ 6,769,726 5,714,369
Comments (Notes 5, 8 and 9)
STOCKHOLDERS' EQUITY:
Preferred stock, no par value-
2,000,000 shares authorized -- --
Common stock, no par value-
10,000,000 shares authorized
2,889,399 shares and 3,803,027 shares issued and
outstanding at June 30, 1996 and June 29, 1997,
respectively......................................... 10,346,710 14,984,557
Retained earnings..................................... 1,013,976 399,278
----------- -----------
Total Stockholders' Equity........................... 11,360,686 15,383,835
Total Liabilities and Stockholders' Equity........... $18,130,412 $21,098,204
</TABLE>
The accompanying notes are an integral part of these financial statements.
III-1
<PAGE>
CAMBRIDGE SOUNDWORKS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, ENDED JULY 2, JULY 2, JUNE 30, JUNE 29,
1994 1995 1995 1996 1997
------------ ------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales............... $19,431,892 $15,014,837 $26,927,699 $43,585,017 $51,285,380
Cost of Goods Sold...... 10,133,001 8,696,852 15,043,196 25,871,582 30,965,293
----------- ----------- ----------- ----------- -----------
Gross profit.......... 9,298,891 6,317,985 11,884,503 17,713,435 20,320,087
Sales and Marketing
Expense................ 6,890,254 5,829,589 10,406,100 14,253,742 18,320,541
General and
Administrative
Expenses............... 1,616,323 1,182,245 2,196,623 2,061,351 2,217,765
Engineering and
Development Expenses... 669,179 403,773 760,590 679,637 586,901
----------- ----------- ----------- ----------- -----------
Total expenses........ 9,175,756 7,415,607 13,363,313 16,994,730 21,125,207
----------- ----------- ----------- ----------- -----------
Income (loss) from
operations........... 123,135 (1,097,622) (1,478,810) 718,705 (805,120)
Interest Income......... 187,241 23,078 164,735 -- --
Interest Expense........ (5,225) (13,325) (15,343) (300,870) (219,578)
----------- ----------- ----------- ----------- -----------
Income (loss) before
provisions (benefit)
for income taxes..... 305,151 (1,087,869) (1,329,418) 417,835 (1,024,698)
Provision (Benefit) for
Income Taxes........... 98,000 (435,000) (558,000) 167,000 $ (410,000)
----------- ----------- ----------- ----------- -----------
Net income (loss)..... $ 207,151 $ (652,869) $ (771,418) $ 250,835 $ (614,698)
Net Income (Loss) per
Common and Common
Equivalent Share....... $ .08 $ (.23) $ (.27) $ .09 $ (.19)
Weighted Average Number
of Common and Common
Equivalent Shares
outstanding............ 2,461,169 2,872,617 2,869,626 2,922,323 3,193,692
</TABLE>
The accompanying notes are an integral part of these financial statements.
III-2
<PAGE>
CAMBRIDGE SOUNDWORKS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK STOCK-
---------------------- RETAINED HOLDERS'
SHARES AMOUNT EARNINGS EQUITY
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1993.... 1,456,580 334,750 1,208,859 1,543,609
Initial Public Offering of
Common Stock, net of
Issuance costs of $1,344,793. 1,410,000 9,935,207 -- 9,935,207
Exercise of stock options.... 5,000 16,800 -- 16,800
Net income................... -- -- 207,151 207,151
---------- ----------- ---------- -----------
Balance, December 31, 1994.... 2,871,580 10,286,757 1,416,010 11,702,767
Exercise of stock options.... 17,244 57,940 -- 57,940
Net loss..................... -- -- (652,869) (652,869)
---------- ----------- ---------- -----------
Balance, July 2, 1995......... 2,888,824 10,344,697 763,141 11,107,838
Exercise of stock options.... 575 2,013 -- 2,013
Net income................... -- -- 250,835 250,835
---------- ----------- ---------- -----------
Balance, June 30, 1996........ 2,889,399 $10,346,710 $1,013,976 $11,360,686
Issuance of common stock, net
of
Issuance costs of $156,649... 912,294 4,632,895 -- 4,632,895
Exercise of stock options.... 1,334 4,952 -- --
Net loss..................... -- -- (614,698) (614,698)
---------- ----------- ---------- -----------
Balance, June 29, 1997........ $3,803,027 $14,984,557 $ 399,278 $15,383,835
</TABLE>
The accompanying notes are an integral part of these financial statements.
III-3
<PAGE>
CAMBRIDGE SOUNDWORKS, INC.
STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, JULY 2, JULY 2, JUNE 30, JUNE 29,
1994 1995 1995 1996 1997
------------ ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from
Operating Activities:
Net Income (Loss)..... $ 207,151 $ (652,869) $ (771,418) $ 250,835 $ (614,698)
Adjustments to reconcile
net income (loss) to
net cash used in
operating activities:
Depreciation and
amortization.......... 276,915 286,482 499,888 744,009 1,096,147
Deferred (prepaid)
income taxes.......... 233,000 (308,000) 100,000 (284,000) (43,653)
Changes in current
assets and liabilities:
Accounts receivable,
net................... (312,583) (427,164) (692,644) (1,628,623) 1,711,815
Income tax refund
receivable............ (667,000) 286,072 (380,928) 380,928 (404,434)
Inventories............ (5,761,353) (2,189,452) (7,165,942) (881,725) (3,411,266)
Prepaid expenses....... (148,824) 164,622 207,569 (70,038) 6,097
Preopening costs....... (717,719) 560,114 (157,605) 157,605 --
Accounts payable....... 2,192,488 (6,161) 2,304,890 (1,205,555) 24,626
Accrued expenses....... 145,121 (131,269) 172,171 496,513 (64,711)
Customer prepayments
and other current
liabilities........... 59,575 (185,085) (13,943) 161,589 464,572
---------- ---------- ---------- ---------- ----------
Net cash used in
operating activities. (4,493,229) (2,602,710) (5,897,962) (1,878,462) (1,235,505)
Cash Flows From
Investing Activities:
Purchases of property
and equipment......... (2,136,742) (850,943) (2,698,048) (1,224,649) (2,090,766)
Increase in other
assets................ (46,800) (15,830) (54,156) (223,923) 138,890
---------- ---------- ---------- ---------- ----------
Net cash used in
investing activities... (2,183,542) (866,733) (2,752,204) (1,448,572) (1,951,876)
Cash flows from
Financing Activities:
Borrowings under line
of credit, net........ -- -- -- 3,395,557 (1,479,844)
Repayment of capital
lease obligation...... (47,812) -- (42,345) -- --
Sale of common stock,
net of issuance costs. 9,935,207 -- -- -- 4,632,895
Exercise of stock
options............... 16,800 57,940 74,740 2,013 4,952
---------- ---------- ---------- ---------- ----------
Net cash provided by
financing activities. 9,904,195 57,940 32,395 3,397,570 3,158,003
Net (Decrease) Increase
in Cash................ 3,227,424 (3,411,543) (8,617,771) 70,536 (29,378)
Cash, Beginning of
Period................. 201,004 3,428,428 8,634,656 16,885 87,421
Cash, End of Period..... $3,428,428 $ 16,885 $ 16,885 $ 87,421 $ 58,043
Supplemental Disclosure
of Cash Flow
Information:
Cash paid during the
period for:
Income taxes........... $ 561,563 $ 77,500 $ 157,500 $ 145,500 $ 66,100
Interest............... $ 5,225 $ 13,325 $ 14,490 $ 276,454 $ 233,257
</TABLE>
The accompanying notes are an integral part of these financial statements.
III-4
<PAGE>
CAMBRIDGE SOUNDWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Including data applicable to unaudited periods)
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Cambridge SoundWorks, Inc. (the "Company") was organized in 1988. The
Company designs and manufactures speakers for stereo, home theater and
multimedia computers. The Company markets its products and sells other audio
and video components through its mail-order catalog, Company-owned retail
stores and other methods of distribution, including large retail chains
throughout the United States.
The accompanying financial statements reflect the application of certain
accounting policies described in this note and elsewhere in the accompanying
notes to financial statements. The preparation of these financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
(a) Change in Fiscal Year
On March 14, 1995, the Company's Board of Directors approved a change in the
Company's fiscal year. The Company's fiscal year ends on the Sunday nearest
the end of June. Included in the accompanying financial statements are
unaudited statements of income and cash flows for the year ended July 2, 1995.
These financial statements have been prepared on a basis consistent with those
of audited periods.
(b) Credit Card Policy
The Company generally does not extend credit to catalog and Company-owned
retail store customers, except through third-party credit cards, including its
branded Cambridge SoundWorks credit card. Credit under these accounts is
extended by third parties, and, accordingly, the Company bears no financial
risk under these agreements except in the case of fraud. The Company's
agreements with third-party credit companies provide for the electronic
processing of credit approvals and the electronic submission of transactions.
Upon the submission of these transactions to the credit card companies,
payment is transmitted to the Company's bank account. Accordingly, the Company
records these amounts as cash upon the electronic submission of the
transaction to the appropriate processing agency.
The Company pays fees to third-party credit card companies. These fees range
from .75% to 3.75% of the amount financed. These fees were approximately
$371,000, $198,000, $423,000, $597,000 and $963,000 for the years ended
December 31, 1994, for the six-month period ended July 2, 1995, and for the
years ended July 2, 1995, June 30, 1996 and June 29, 1997, respectively, and
are included in selling and marketing expenses in the accompanying statements
of operations.
(c) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 29,
1996 1997
----------- -----------
<S> <C> <C>
Raw materials and work-in-process...................... $ 3,823,302 $ 3,010,897
Finished goods......................................... 7,582,050 11,805,721
----------- -----------
$11,405,352 $14,816,618
</TABLE>
Inventories consist of materials, labor and overhead.
III-5
<PAGE>
(d) Prepaid Expenses
The Company offers its products and those of others directly to consumers
through its mail-order catalog. Direct mail costs related to catalog mailings,
including printing and postage, which constitute direct-response advertising,
are classified as prepaid expenses and are expensed over the estimated useful
life of each catalog, typically two to six months, commencing on the date of
the mailing.
(e) Preopening Costs
Throughout fiscal 1995 and during the first half of fiscal 1996, the Company
opened numerous retail stores. The Company incurred direct costs prior to the
opening of these new stores and amortized the preopening costs over periods of
up to nine months.
(f) Depreciation and Amortization
The Company provides for depreciation and amortization using the straight-
line method by charges to operations in amounts estimated to allocate the cost
of the assets over their estimated useful lives as follows:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
- -------------------- ---------------------
<S> <C>
Production equipment and tooling.......................... 3-5 Years
Office equipment and furniture............................ 5 Years
Leasehold improvements.................................... Life of lease
Motor vehicles............................................ 3 Years
</TABLE>
(g) Customer Prepayments
Advance payments received from customers are classified as customer
prepayments and recognized as revenue when the products are shipped.
(h) Revenue Recognition and Warranty Costs
The Company recognizes revenue from product sales, net of estimated future
sales returns, at the time of shipment. The Company has not provided for any
warranty reserves, as warranty costs incurred by the Company have not been
significant.
(i) Net Income (Loss) per Common and Common Equivalent Share
Net income (loss) per share data are computed using the weighted average
number of shares of common stock outstanding during each period. Common
equivalent shares from stock options have been included in the computation
using the treasury stock method only when their effect would be dilutive.
Fully diluted net income (loss) per share data have not been separately
presented, as the difference from primary net income (loss) per share data is
insignificant.
On March 3, 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held
common stock or potential common stock. This statement is effective for fiscal
years ending after December 15, 1997 and early adoption is not permitted. When
adopted, the statement will require restatement of prior years' earnings per
share. The Company will adopt this statement for its fiscal year ended June
28, 1998. The Company believes that the adoption of SFAS No. 128 will not have
a material effect on its financial statements.
(j) Engineering and Development Expenses
Engineering and development expenses are charged to operations as incurred.
III-6
<PAGE>
(k) Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk are principally accounts receivable. This credit risk with
respect to accounts receivable relates primarily to the following customers to
whom the Company has substantial sales.
<TABLE>
<CAPTION>
PERCENTAGE
OF ACCOUNTS
RECEIVABLE
CUSTOMERS
-------------
A B C
--- --- ---
<S> <C> <C> <C>
Year Ended June 30, 1996......................................... 85% -- --
Year Ended June 29, 1997......................................... 3% 13% 36%
</TABLE>
To reduce the credit risk, the Company routinely assesses the financial
strength of this and other customers and, as a consequence, believes that its
accounts receivable credit risk exposure is limited. The Company maintains an
allowance for potential credit losses but historically has not experienced any
significant credit losses related to an individual customer or groups of
customers in any particular industry or geographic area.
The estimated fair value of the Company's financial instruments, which
include cash, accounts receivable and borrowings under the line of credit,
approximates their carrying value.
NOTE 2. SIGNIFICANT CUSTOMERS
During the six-month period and years ended July 2, 1995 and June 30, 1996,
one customer accounted for approximately 23%, 13% and 22% of net sales,
respectively. This customer accounted for substantially all of the Company's
accounts receivable at June 30, 1996. During the years ended December 31, 1994
and June 29, 1997, there were no customers that accounted for greater than 10%
of net sales.
NOTE 3. LINE OF CREDIT
In April 1995, the Company entered into a $5 million demand discretionary
line of credit (line of credit) with The First National Bank of Boston. As of
June 29, 1997, subsequent amendments to the agreement increased the maximum
borrowings under the line of credit to $8 million based upon certain
percentages of eligible accounts receivable and inventory, as defined. The
line of credit is secured by all assets of the Company. Borrowings under the
line of credit accrue interest at the bank's prime rate (8.5% at June 29,
1997) plus .25%. Based on the line of credit lending formula, as defined, the
Company had available for borrowing, approximately $3.7 million at June 29,
1997.
NOTE 4. INCOME TAXES
The Company follows Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes. Under SFAS No. 109, the Company recognizes a
current tax liability or asset for current taxes payable or refundable and a
deferred tax liability or asset for the estimated future tax effects of
temporary differences to the extent they are realizable.
III-7
<PAGE>
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
SIX-MONTH
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DEC. 31, JULY 2, JULY 2, JUNE 30, JUNE 29,
IN THOUSANDS 1994 1995 1995 1996 1997
- ------------ -------- --------- ----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal....................... $(104) $(107) $(508) $345 $(281)
State......................... (31) (20) (150) 106 (85)
----- ----- ----- ---- -----
(135) (127) (658) 451 (366)
----- ----- ----- ---- -----
Deferred:
Federal....................... 196 (266) 61 (216) (33)
State......................... 37 (42) 39 (68) (11)
----- ----- ----- ---- -----
233 (308) 100 (284) (44)
----- ----- ----- ---- -----
Total provision (benefit)...... $ 98 $(435) $(558) $167 $(410)
----- ----- ----- ---- -----
</TABLE>
Pursuant to the provisions of SFAS No. 109, as of June 30, 1996 and June 29,
1997, the Company recorded deferred tax assets of approximately $570,000 and
$614,000, respectively. These deferred tax assets primarily result from timing
differences in the recognition of revenues and expenses for tax and financial
reporting purposes. The sources of these differences and the approximate
amount of each are as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 29,
1996 1997
-------- --------
<S> <C> <C>
Inventory reserve....................................... $244,000 $216,000
Net operating loss carryforward and other credit
carryforwards.......................................... 66,000 45,000
Other reserves.......................................... 97,000 103,000
Depreciation............................................ 175,000 350,000
Valuation allowance..................................... (12,000) (100,000)
-------- --------
$570,000 $614,000
</TABLE>
At June 29, 1997, the Company had available net operating loss carryforwards
of approximately $96,000. These net operating loss carryforwards may be used
to reduce future taxable income, if any. These carryforwards expire through
2012 and are subject to review and possible adjustment by the appropriate
taxing authorities.
Due to the uncertainty of the realization of certain of these potential tax
benefits, the Company has recorded a valuation allowance against a portion of
its deferred tax assets.
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
SIX-
MONTH
PERIOD
YEAR ENDED YEAR YEAR YEAR
ENDED JULY ENDED ENDED ENDED
DEC. 31, 2, JULY 2, JUNE 30, JUNE 29,
IN THOUSANDS 1994 1995 1995 1996 1997
- ------------ -------- ------ ----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory tax rate.............. 34.0% (34.0)% (34.0)% 34.0% (34.0)%
State taxes, net of federal
benefit........................ 6.3 (6.3) (6.3) 6.3 (6.3)
Research and development
credits........................ (8.2) -- (1.7) -- --
Other........................... -- 0.3 -- (0.3) 0.3
---- ----- ----- ---- -----
Effective tax rate.............. 32.1% (40.0)% (42.0)% 40.0% (40.0)%
==== ===== ===== ==== =====
</TABLE>
III-8
<PAGE>
NOTE 5. COMMITMENTS
The Company conducts its operations in leased facilities and leases certain
equipment under operating lease agreements. These operating leases expire
through December 2011. Future minimum lease payments under these operating
leases are approximately as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- -----------
<S> <C>
1998............................................................. $ 3,083,000
1999............................................................. 3,063,000
2000............................................................. 2,554,000
2001............................................................. 2,435,000
2002............................................................. 2,466,000
Thereafter....................................................... 8,919,000
-----------
$22,520,000
</TABLE>
The Company is also obligated to pay for certain operating and other
expenses in accordance with the terms of its various leases.
Total rent expense under these leases for the years ended December 31, 1994,
the six-month period ended July 2, 1995 and the years ended July 2, 1995, June
30, 1996 and June 29, 1997 was approximately $320,000, $576,000, $799,000,
$1,929,000 and $2,886,000 respectively.
NOTE 6. STOCKHOLDERS' EQUITY
(a) Issuance of Common Stock
The Company entered into a Common Stock and Warrant Purchase Agreement dated
as of February 20, 1997 (the "Purchase Agreement"), with Creative Technology
Ltd., a Singapore corporation. Pursuant of the terms of the Purchase
Agreement, the Company sold and issued to Creative Technology Ltd. (i) 912,294
shares of common stock of the Company at a purchase price of $5.25 per share,
and (ii) a warrant to purchase 257,314 shares of common stock of the Company
at an exercise price of $6.00 per share at a purchase price of $1,000 in the
aggregate.
(b) Preferred Stock
The Company has authorized 2,000,000 shares of no par preferred stock. The
Board of Directors has full authority to issue this stock and to fix the
voting powers, preferences, rights, qualifications, limitations or
restrictions thereof, including dividend rights, conversion rights, redemption
privileges and liquidation preferences, and the number of shares constituting
any series or designation of such series. With regard to dividends, redemption
privileges and liquidation preferences, any particular series of preferred
stock may rank junior to, on parity with, or senior to any other series of
preferred stock or the common stock.
(c) Stock Option Plans
The Company's 1993 Stock Option Plan as amended (the 1993 Plan) is
administered by the Board of Directors and authorizes the Company to issue
options to purchase up to 620,000 shares that have been reserved by the
Company. Under the terms of the 1993 Plan, the Company may grant employees
either incentive stock options or nonqualified stock options to purchase
shares of the Company's common stock, at a price not less than the fair market
value at the date of grant, which vest over periods determined by the Board of
Directors. In addition, the Company may grant nonqualified options to
nonemployees.
Under a separate plan, on February 1, 1993, the Board of Directors and
stockholders granted a former officer an option to purchase 22,244 shares of
common stock at an exercise price of $3.36 per share, the fair market value of
the common stock at the date of grant as determined by the Board of Directors,
pursuant to an Incentive Stock Option Plan and Agreement. As of July 2, 1995,
the former officer had exercised all options under this plan.
III-9
<PAGE>
The following table summarizes stock option activity under the stock option
plans for the years ended December 31, 1994 the six-month period ended July 2,
1995 and the years ended June 30, 1996 and June 29, 1997:
<TABLE>
<CAPTION>
NUMBER
OF WEIGHTED AVERAGE
SHARES OPTION PRICE
-------- ----------------
<S> <C> <C>
Outstanding, December 31, 1993....................... 22,244 $3.36
Granted............................................. 101,120 8.01
Terminated.......................................... (21,440) 8.00
Exercised........................................... (5,000) 3.36
-------- -----
Outstanding, December 31, 1994....................... 96,924 7.19
Granted............................................. 169,200 4.12
Terminated.......................................... (18,320) 6.14
Exercised........................................... (17,244) 3.36
-------- -----
Outstanding, July 2, 1995............................ 230,560 5.42
Granted............................................. 356,780 4.86
Terminated.......................................... (142,190) 5.40
Exercised........................................... (575) 3.50
-------- -----
Outstanding June 29, 1996............................ 444,575 5.01
Granted............................................. 187,820 4.01
Terminated.......................................... (50,795) 5.82
Exercised........................................... (1,334) 3.71
-------- -----
Outstanding June 29, 1997............................ 580,266 $3.92
-------- -----
Exercisable, June 29, 1997........................... 230,235 $4.81
-------- -----
</TABLE>
The range of actual exercise prices for options outstanding and options
exercisable as of June 29, 1997 was $3.50 to $8.02.
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 requires the
measurement of the fair value of stock options or warrants to be included in
the statement of operations or disclosed in the notes to financial statements.
The Company has determined that it will continue to account for stock-based
compensation for its employees under the Accounting Principles Board Option
No. 25 and elect the disclosure-only alternative under SFAS No. 123 for stock-
based compensation awarded in 1996 and 1997 using the Black-Scholes option
pricing model prescribed by SFAS No. 123. The underlying assumptions used are
as follows:
<TABLE>
<CAPTION>
YEARS ENDED
-----------------
JUNE 30, JUNE 29,
1996 1997
-------- --------
<S> <C> <C>
Risk-free interest rate...................................... 6.13% 6.51%
Expected dividend yield...................................... -- --
Expected lives............................................... 7 7
Expected volatility.......................................... 60.1% 60.1%
Weighted average remaining contractual life of options
outstanding (years)......................................... 8.5 8.6
</TABLE>
III-10
<PAGE>
The weighted average grant date fair value of options granted during the
years ended June 29, 1997 and June 30, 1996 under these plans is $3.15 and
$2.68, respectively. Had compensation cost for the Company's stock option
plans been determined consistent with SFAS No. 123, pro forma net loss and net
loss per share would have been:
<TABLE>
<CAPTION>
JUNE 30, JUNE 29,
1996 1997
-------- ----------
<S> <C> <C>
Net income (loss):
As reported............................................. $250,835 $ (614,698)
Pro forma............................................... (21,011) (1,137,701)
Net income (loss) per share:
As reported............................................. .09 (.19)
Pro forma............................................... (.01) (.36)
</TABLE>
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
Simultaneous with the Common Stock and Warrant Purchase Agreement, the
Company entered into an exclusive distribution agreement with Creative
Technology Ltd. which has a life of three years.
The Warrant has been valued at approximately $385,000 using the fair value
method approach as prescribed in SFAS 123. The Warrant value will be amortized
over the life of the relevant distribution agreement.
NOTE 7. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 29,
1996 1997
-------- --------
<S> <C> <C>
Marketing Expenses............................................ $192,294 $400,296
Other......................................................... 787,395 514,682
-------- --------
$979,689 $914,978
-------- --------
</TABLE>
NOTE 8. RELATED PARTIES
In February 1994, the Company entered into a License Agreement with Henry
Kloss, a stockholder of the Company, whereby the Company and Mr. Kloss agreed
under certain conditions to the use of Mr. Kloss's name on the Company's
products. The License Agreement between the Company and Mr. Kloss provided
that the Company has the perpetual right to use his name on products that
Mr. Kloss designed or had a substantial role in designing, subject to
termination, as to any product whose appearance or performance specifications
are materially changed by the Company without Mr. Kloss's consent. Upon
termination of Mr. Kloss's employment as described above, the Company could
not thereafter use his name generically or in connection with a product unless
the Company had previously done so, unless Mr. Kloss consents to such use.
Under this agreement, the Company was not required to make any payments to Mr.
Kloss for the right to use his name.
In April 1996, the Company entered into a Consulting Agreement with Henry
Kloss, with respect to the selection and design by the Company for current and
future products, expiring in September 1999. Pursuant to the Consulting
Agreement, the Employment Agreement between the Company and Mr. Kloss was
effectively terminated, with no additional payments due. The Consulting
Agreement called for annual payments to Mr. Kloss of $330,000, plus certain
fringe benefits, such as described therein through September 1996 with annual
payments thereafter of $110,000, plus certain fringe benefits, as described
therein from September 1996 through September 1999.
Effective September 30, 1996, Henry Kloss terminated the Consulting
Agreement dated April 24, 1996 which he had entered into with the Company to
provide general and specific advice, counsel and assistance to the Company
with respect to the selection and design by the Company of its current and
future products. At the same time, Mr. Kloss notified the Company of his
intention not to stand for reelection as a Director. Mr. Kloss
III-11
<PAGE>
continues on an informal basis to act as a consultant to the Company for which
he is paid $10,565 per month but for which there is no formal written
agreement. This arrangement can be terminated by either party at will.
Mr. Kloss, former Chairman of the Board of Directors of the Company and former
Director of Product Development, provided consulting services to the Company
during the year ended June 29, 1997 for which he has received $179,000 from
the Company.
NOTE 9. EMPLOYMENT AGREEMENTS
On February 14, 1997, the Company entered into a three year agreement with
Thomas J. DeVesto (the "Employment Agreement") employing him in the capacity
as President and Chief Executive Officer. Pursuant to the Employment
Agreement, which provides for an initial salary of no less than $385,000 with
such adjustments thereto after the first year which the Board of Directors may
approve, Mr. DeVesto is also entitled to certain fringe benefits, including
the right to participate in all bonus and benefit programs that the Company
makes available to its employees and an annual $8,000 car allowance. The
Employment Agreement may be terminated by any party on six month's prior
notice for any reason in which event Mr. DeVesto is entitled to a payment
equal to his then annual salary in consideration for an agreement not to
compete for one year following the termination of employment.
NOTE 10. BENEFIT PLAN
During fiscal 1996, the Company adopted the Cambridge SoundWorks 401(k) Plan
(the "Plan"), a voluntary savings plan for all eligible employees, as defined.
The Plan is a qualified benefit plan in accordance with Section 401(k) of the
Internal Revenue Code. Under the terms of the Plan, participants may
contribute a certain percentage of their annual compensation, up to a defined
maximum. The Company may, but is not obligated to, make a matching
contribution up to a certain percentage of each participant's contribution.
For the year ended June 30, 1996 and June 29, 1997, the Company did not make a
matching contribution to the Plan.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cambridge SoundWorks, Inc.:
We have audited the accompanying balance sheets of Cambridge SoundWorks,
Inc. (a Massachusetts corporation) as of June 30, 1996 and June 29, 1997, and
the related statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1994, the six-month period ended July 2, 1995 and
the years ended June 30, 1996 and June 29, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cambridge SoundWorks, Inc.
as of June 30, 1996 and June 29, 1997, and the results of its operations and
its cash flows for the year ended December 31, 1994, for the six-month period
ended July 2, 1995 and for the years ended June 30, 1996 and June 29, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
July 28, 1997
III-12
<PAGE>
ANNEX A
HAMBRECHT & QUIST LLC
ONE BUSH STREET
SAN FRANCISCO, CA
94104
(415)576-3300
October 30, 1997
Confidential
The Board of Directors
Cambridge SoundWorks, Inc.
333 Needham Street
Newton, Massachusetts 02164
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of common stock, no par value
per share (the "Common Stock"), Cambridge SoundWorks Inc. (the "Company") of
the consideration to be received by such holders in connection with a proposed
transaction as set forth below.
We understand that the Company, Creative Technology Ltd., ("Creative") and CSW
Acquisition Corporation (the "Purchaser") propose to enter into an Agreement
and Plan of Merger (the "Agreement") dated as of October 30, 1997. The terms
of the Agreement provide, among other things, that (i) the Purchaser will
promptly commence a tender offer (the "Offer") to purchase for cash all of the
outstanding shares of Common Stock at a purchase price of $10.68 per share,
net to the seller in cash, upon the terms and subject to the conditions set
forth in the Agreement and certain ancillary documents to be filed with the
Securities and Exchange Commission; and (ii) the Purchaser will subsequently
be merged (the "Merger") with and into the Company in a transaction which will
provide all remaining holders of shares of Common Stock (other than the
Company, Creative, the Purchaser or their respective subsidiaries, and holders
who have perfected their appraisal rights under Massachusetts law) with $10.68
per share in cash. The Offer and the Merger constitute the "Proposed
Transaction."
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment banking
services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic
transactions, corporate restructurings, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. We have acted as a financial
advisor to the Board of Directors of the Company in connection with the
Proposed Transaction, and we will receive a fee for our services, which
include the rendering of this opinion.
In the past, we have provided investment banking and other financial advisory
services to the Company and have received fees for rendering these services.
In particular, Hambrecht & Quist acted as lead managing underwriter in the
Company's initial public offering in 1994. In the ordinary course of business,
Hambrecht & Quist acts as a market maker and broker in the publicly traded
securities of the Company and receives customary compensation in connection
therewith, and also provides research coverage for the Company. In the
ordinary course of business, Hambrecht & Quist actively trades in the equity
and derivative securities of the Company for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities. In addition, Hambrecht & Quist and its
affiliates currently own approximately 337,000 shares of Company Common Stock.
SAN FRANCISCO . NEW YORK . BOSTON
MEMBERS NEW YORK STOCK EXCHANGE^. AMERICAN STOCK EXCHANGE^. PACIFIC STOCK
EXCHANGE
<PAGE>
The Board of Directors
Cambridge SoundWorks, Inc.
Page 2
In connection with our review of the Proposed Transaction, and in arriving at
our opinion, we have, among other things:
(i) reviewed the publicly available consolidated financial statements of
Creative for recent years and interim periods to date and certain other
relevant financial and operating data of Creative made available to us
from published sources;
(ii) reviewed the financial statements of the Company for recent years and
interim periods to date and certain other relevant financial and
operating data of the Company made available to us from published
sources and from the internal records of the Company;
(iii) reviewed certain internal financial and operating information
relating to the Company, including certain financial projections,
prepared by the management of the Company;
(iv) discussed the business, financial condition and prospects of the
Company with certain of its officers;
(v) reviewed the recent reported prices and trading activity for the common
stock of the Company and compared such information and certain
financial information for the Company with similar information for
certain other companies engaged in businesses we consider comparable;
(vi) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(vii) reviewed the Agreement; and
(viii) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning the Company or Creative
considered in connection with our review of the Proposed Transaction, and we
have not assumed any responsibility for independent verification of such
information. We have not undertaken any independent valuation or appraisal of
any of the assets or liabilities of the Company or Creative; nor have we
conducted a physical inspection of the properties and facilities of either
company. With respect to the financial forecasts and projections used in our
analysis, we have assumed that they reflect the best currently available
estimates and judgments of the expected future financial performance of the
Company. For purposes of this Opinion, we have assumed that neither the Company
nor Creative is a party to any pending transactions, including external
financings, recapitalizations or material merger discussions, other than the
Proposed Transaction and those activities undertaken in the ordinary course of
conducting their respective businesses. Our opinion is necessarily based upon
market, economic, financial and other conditions as they exist and can be
evaluated as of the date of this letter and any change in such conditions would
require a reevaluation of this opinion. We were not requested to, and did not,
formally solicit indications of interest from any other parties in connection
with a possible acquisition of, or business combination with, the Company.
It is understood that this letter is addressed to and for the information of
the Board of Directors in connection with their evaluation of the Proposed
Transaction and may not be used for any other purpose without our prior written
consent; provided, however, that this letter may be reproduced in full in any
filing with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934. This letter does not constitute a recommendation to any
stockholder of the Company as to whether such stockholder should accept the
Offer.
<PAGE>
The Board of Directors
Cambridge SoundWorks, Inc.
Page 3
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the consideration to be received by the holders of Company Common Stock in the
Proposed Transaction is fair to such holders from a financial point of view. We
express no opinion, however, as to the adequacy or financial fairness of any
consideration received in the Proposed Transaction by Creative or any of its
affiliates.
Very truly yours,
HAMBRECHT & QUIST LLC
/s/ David Golden
By _______________________________________
David Golden
Managing Director
<PAGE>
ANNEX B
RIGHTS OF DISSENTING STOCKHOLDERS UNDER THE MBCL
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF THE MBCL, ANY STOCKHOLDER WHO
IS CONSIDERING EXERCISING DISSENTERS' RIGHTS SHOULD CONSULT HIS OR HER LEGAL
ADVISOR.
STATUTORY APPRAISAL PROCEDURES. The following is a brief summary of the
statutory procedures to be followed by a holder of Shares at the Effective
Time who does not wish to accept the per Share cash consideration pursuant to
the Merger (a "Remaining Stockholder") in order to dissent from the Merger and
perfect appraisal rights under Massachusetts law. THIS SUMMARY IS NOT INTENDED
TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTIONS 85-98
OF THE MBCL, THE TEXT OF WHICH IS SET FORTH IN THIS ANNEX B HERETO. ANY
REMAINING STOCKHOLDER CONSIDERING DEMANDING APPRAISAL IS ADVISED TO CONSULT
LEGAL COUNSEL. APPRAISAL RIGHTS WILL NOT BE AVAILABLE UNLESS AND UNTIL THE
MERGER (OR A SIMILAR BUSINESS COMBINATION) IS CONSUMMATED.
If the Merger is effected as a "short-form" merger after expiration of the
Offer or is effected as a "long-form" merger following approval by the
required vote of stockholders of the Company, the Remaining Stockholders and
stockholders who did not vote for the Merger, respectively, may, by complying
with Sections 85 through 98 of the MBCL, be entitled to appraisal and
dissenters' rights as described therein ("Dissenters' Rights"). The
stockholders of record of Shares who are eligible to, and do, exercise their
Dissenters' Rights with respect to the Merger are referred to herein as
"Dissenting Stockholders," and the shares of stock with respect to which they
exercise Dissenters' Rights are referred to herein as "Dissenting Shares." If
a stockholder of the Company has a beneficial interest in Shares that are held
of record in the name of another person, and such stockholder desires to
perfect whatever Dissenters' Rights such beneficial stockholder may have, such
beneficial stockholder must act promptly to cause the stockholder of record
timely and properly to follow the steps summarized below.
Pursuant to the MBCL, a stockholder of the Company may dissent from the
proposed corporate action to approve the Merger Agreement and receive the
right to an appraisal of such stockholder's shares. A copy of Sections 85
through 98 of the MBCL are set forth below.
If the Merger is consummated, the Dissenting Stockholders will be entitled,
if they strictly comply with the provisions of the MBCL, to have the fair
value of their shares judicially determined and paid to them. THE FOLLOWING
DISCUSSION IS NOT A COMPLETE STATEMENT OF THE MBCL RELATING TO DISSENTERS'
RIGHTS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTIONS 85 THROUGH
98 OF THE MBCL SET FORTH BELOW. This discussion and Sections 85 through 98 of
the MBCL should be reviewed carefully by any stockholder who wishes to
exercise statutory Dissenters' Rights or wishes to preserve the right to do
so, since failure to comply with the required procedures will result in the
loss of such rights. A stockholder of the Company who tenders its Shares and
does not properly withdraw such Shares, or votes for the adoption and approval
of the Merger Agreement will be deemed to have waived such stockholder's right
to exercise Dissenters' Rights with respect to all Shares held by such
stockholder. Any stockholder who is considering dissenting should consult his
or her legal advisor.
To exercise Dissenters' Rights, if the Merger is not being effected as a
"short-form" merger but, rather, is being consummated following approval
thereof at a meeting of the Company's stockholders (a "long-form" merger), a
stockholder must file with the Company, before the special meeting of the
stockholders of the Company for the purpose of voting for the Merger (the
"Special Meeting"), a written objection to the Merger stating that the
stockholder will exercise the stockholder's right to dissent if the Merger is
effective and giving the address of the stockholder to which the Surviving
Corporation shall mail notice in the event that the Merger is effective, and
the stockholder must not vote in favor of the Merger Agreement. If the Merger
is being effected as a "short-form" merger without a vote or meeting of the
Company's Stockholders, a stockholder must
B-1
<PAGE>
make a written demand for appraisal of such stockholder's shares within 20
days after the mailing of the notice that the Merger is effective. The failure
to consent to the Merger or the return of a proxy by a stockholder with
instructions to vote such stockholder's Shares covered thereby against the
Merger Agreement and the Merger (or abstaining from voting) is not sufficient
to satisfy the requirement of delivering written objection to the Company. A
vote in favor of the Merger Agreement will waive such stockholder's
Dissenters' Rights. However, a stockholder's failure to vote on the Merger
Agreement will not in itself be a waiver of such stockholder's Dissenters'
Rights. A stockholder who dissents and demands Dissenters' Rights must do so
as to all Shares held by such stockholder. A stockholder may not assert
Dissenters' Rights with respect to less than all of such stockholder's Shares.
Within 10 days after the Effective Date of the Merger, the Surviving
Corporation must give written notice that the Merger has become effective to
each Remaining Stockholder and each stockholder who gave notice before the
Special Meeting of such stockholder's objection to the Merger and who did not
vote in favor of the Merger Agreement. The giving of such notice shall not be
deemed to create any rights in such shareholder receiving such notice to
demand payment for such shares.
If the Remaining Stockholder did not vote in favor of the Merger Agreement,
such stockholder may, within 20 days after the mailing of the notice that the
Merger is effective, make written demand (the "Demand Notice") on the
Surviving Corporation for the payment of the fair value of such stockholder's
Dissenting Shares. Any stockholder failing to make demand for payment within
the 20-day period shall be bound by the Merger.
Pursuant to the MBCL, the fair value of the Dissenting Shares is the value
thereof as of the day immediately preceding the Special Meeting, exclusive of
any element of value arising from the expectation or accomplishment of the
Merger. Such determination shall be binding on all such stockholders even if
the fair value so determined is less than the Merger price.
Within 30 days after the expiration of the Dissenting Stockholders' 20 day
notice period, the Surviving Corporation receiving demand for payment by the
Dissenting Stockholder must deliver to the Dissenting Stockholder payment of
the fair value of the shares.
If, within 60 days of the Effective Date of the Merger, the Dissenting
Stockholder and the Surviving Corporation do not agree as to the fair value of
the Dissenting Shares, then within 120 days after the Effective Date of the
Merger, the Dissenting Stockholder may file a petition with any court of
competent jurisdiction in Essex County, Massachusetts (the "Court") requesting
a determination of the value of such stockholder's Dissenting Shares. The
Surviving Corporation must, within 10 days after the service of the filing of
a petition described above, file with the office of the clerk of the Court in
which the petition was filed a verified list of the names and addresses of all
Dissenting Stockholders. A notice of the time and place of the hearing on the
petition will then be sent to all of the individuals on that list.
At the hearing on the petition, the Court will determine the stockholders
who have complied with the MBCL and have become entitled to Dissenters' Rights
and will appoint one or more qualified appraisers to determine the value of
the Dissenting Shares, who shall file a report with the Court. After a hearing
on the appraisal(s), the Court shall determine the fair value of the
Dissenting Shares and shall direct payment of that value by the Surviving
Corporation, together with interest thereon, beginning 91 days after the
Effective Date of the Merger, subject to receipt of duly endorsed certificates
for the Dissenting Shares. All court costs, including appraisers' fees, shall
be allocated by the Court in a manner it determines to be fair and equitable.
THERE CAN BE NO ASSURANCE THAT SUCH FAIR VALUE WILL BE EQUAL TO OR GREATER
THAN THE MERGER PRICE. IF THE FAIR VALUE OF SUCH SHARES IS DETERMINED TO BE
LESS THAN SUCH MERGER PRICE, HOLDERS OF DISSENTING SHARES WILL NOT BE ENTITLED
TO RECEIVE THE MERGER PRICE OF $10.68 PER SHARE.
B-2
<PAGE>
Upon consummation of the Merger, each Dissenting Stockholder will cease to
have any rights of a stockholder except the right to be paid the fair value of
the Dissenting Shares and the right to receive other distributions, if any,
payable to stockholders of record prior to the Effective Date of the Merger
and any other rights under applicable Massachusetts law.
Under Massachusetts statutory law, procedures relating to dissenters' rights
are stated to be the exclusive remedy available to a stockholder objecting to
the Merger, except upon grounds that the Merger will be or is illegal or
fraudulent as to such stockholder. However, in Coggins v. New England Patriots
Football Club, Inc. 397 Mass. 525 (1986), the Massachusetts Supreme Judicial
Court held that dissenting stockholders are not limited to the statutory
remedy of judicial appraisal in certain circumstances.
APPRAISAL RIGHTS CANNOT BE EXERCISED AT THIS TIME. THE INFORMATION SET FORTH
ABOVE IS FOR INFORMATIONAL PURPOSES ONLY WITH RESPECT TO ALTERNATIVES
AVAILABLE TO STOCKHOLDERS IF THE MERGER (OR ANY SIMILAR BUSINESS COMBINATION)
IS CONSUMMATED.
STOCKHOLDERS WHO SELL SHARES IN THE OFFER WILL NOT BE ENTITLED TO EXERCISE
APPRAISAL RIGHTS WITH RESPECT THERETO BUT, RATHER, WILL RECEIVE THE PRICE PAID
IN THE OFFER THEREFOR.
B-3
<PAGE>
BUSINESS CORPORATION LAW
OF THE COMMONWEALTH OF MASSACHUSETTS
SECTION 85. DISSENTING STOCKHOLDER; RIGHT TO DEMAND PAYMENT FOR STOCK;
EXCEPTION
A stockholder in any corporation organized under the laws of Massachusetts
which shall have duly voted to consolidate or merge with another corporation
or corporations under the provisions of sections seventy-eight or seventy-nine
who objects to such consolidation or merger may demand payment for his stock
from the resulting or surviving corporation and an appraisal in accordance
with the provisions of sections eighty-six to ninety-eight, inclusive, and
such stockholder and the resulting or surviving corporation shall have the
rights and duties and follow the procedure set forth in those sections. This
section shall not apply to the holders of any shares of stock of a constituent
corporation surviving a merger if, as permitted by subsection (c) of section
seventy-eight, the merger did not require for its approval a vote of the
stockholders of the surviving corporation.
SECTION 86. SECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES
If a corporation proposes to take a corporate action as to which any section
of this chapter provides that a stockholder who objects to such action shall
have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have
such right unless (1) he files with the corporation before the taking of the
vote of the stockholders on such corporate action, written objection to the
proposed action stating that he intends to demand payment for his shares if
the action is taken and (2) his shares are not voted in favor of the proposed
action.
SECTION 87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF
MEETING; FORM
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to
create any rights in any stockholder receiving the same to demand payment for
his stock, and the directors may authorize the inclusion in any such notice of
a statement of opinion by the management as to the existence or non-existence
of the right of the stockholders to demand payment for their stock on account
of the proposed corporate action. The notice may be in such form as the
directors or officers calling the meeting deem advisable, but the following
form of notice shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meting and
effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) whose shares are not
voted in favor of such action has or may have the right to demand in writing
from the corporation (or, in the case of a consolidation or merger, the name
of the resulting or surviving corporation shall be inserted), within twenty
days after the date of mailing to him of notice in writing that the corporate
action has become effective, payment for his shares and an appraisal of the
value thereof. Such corporation and any such stockholder shall in such cases
have the rights and duties and shall follow the procedure set forth in
sections 88 to 98, inclusive, of chapter 156B of the General Laws of
Massachusetts."
SECTION 88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were
B-4
<PAGE>
not voted in favor of the approval of such action, that the action approved at
the meeting of the corporation of which he is a stockholder has become
effective. The giving of such notice shall not be deemed to create any rights
in any stockholder receiving the same to demand payment for this stock. The
notice shall be sent by registered or certified mail, addressed to the
stockholder at his last known address as it appears in the records of the
corporation.
SECTION 89. DEMAND FOR PAYMENT; TIME FOR PAYMENT
If within twenty days after the date of mailing of a notice under subsection
(e) of section eighty-two, subsection (f) of section eighty-three, or section
eighty-eight, any stockholder to whom the corporation was required to give
such notice shall demand in writing from the corporation taking such action,
or in the case of a consolidation or merger from the resulting or surviving
corporation, payment for his stock, the corporation upon which such demand is
made shall pay to him the fair value of this stock within thirty days after
the expiration of the period during which such demand may be made.
SECTION 90. DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county
where the corporation in which such objecting stockholder held stock had or
has its principal office in the commonwealth.
SECTION 91. PARTIES TO SUIT TO DETERMINE VALUE; SERVICE
If the bill is filed by the corporation, it shall name as parties respondent
all stockholders who have demanded payment for their shares and with whom the
corporation has not reached agreement as to the value thereof. If the bill is
filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders who have demanded payment for their shares
and with whom the corporation has not reached agreement as to the value
thereof, and service of the bill shall be made upon the corporation by
subpoena with a copy of the bill annexed. The corporation shall file with its
answer a duly verified list of all such other stockholders, and such
stockholders shall thereupon be deemed to have been added as parties to the
bill. The corporation shall give notice in such form and returnable on such
date as the court shall order to each stockholder party to the bill by
registered or certified mail, addressed to the last known address of such
stockholder as shown in the records of the corporation, and the court may
order such additional notice by publication or otherwise as it deems
advisable. Each stockholder who makes demand as provided in section eighty-
nine shall be deemed to have consented to the provisions of this section
relating to notice, and the giving of notice by the corporation to any such
stockholder in compliance with the order of the court shall be a sufficient
service of process on him. Failure to give notice to any stockholder making
demand shall not invalidate the proceedings as to other stockholders to whom
notice was properly given, and the court may at any time before the entry of a
final decree make supplementary orders of notice.
SECTION 92. DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE
After hearing the court shall enter a decree determining the fair value of
the stock of those stockholders who have become entitled to the valuation of
and payment for their shares, and shall order the corporation to make payment
of such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates presenting such stock if certificated or, if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and
shall be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
B-5
<PAGE>
SECTION 93. REFERENCE TO SPECIAL MASTER
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report
the same to the court, all in accordance with the usual practice in suits in
equity in the superior court.
SECTION 94. NOTATION ON STOCK CERTIFICATES OF PENDENCY OF BILL
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in
its records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
SECTION 95. COSTS; INTEREST
The costs of the bill, including the reasonable compensation and expenses of
any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided
in this chapter shall be paid by the corporation. Interest shall be paid upon
any award from the date of the vote approving the proposed corporate action,
and the court may on application of any interested party determine the amount
of interest to be paid in the case of any stockholder.
SECTION 96. DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT
Any stockholder who has demanded payment for his stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled
to the payment of dividends or other distribution on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the date of the vote approving the proposed corporate
action) unless:
(1) a bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation, or
in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of this objections to and an
acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
SECTION 97. STATUS OF SHARES PAID FOR
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the
resulting or surviving corporation into which the shares of such objecting
stockholder would have been converted had he not objected to such
consolidation or merger shall have the status of treasury stock or securities.
SECTION 98. EXCLUSIVE REMEDY; EXCEPTION
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground
that such corporate action will be or is illegal or fraudulent as to him.
B-6
<PAGE>
EXHIBIT 99(a)(2)
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
CAMBRIDGE SOUNDWORKS, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED NOVEMBER 3, 1997
BY
CSW ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
CREATIVE TECHNOLOGY LTD.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON DECEMBER 2, 1997, UNLESS THE OFFER IS EXTENDED.
The Depositary:
STATE STREET BANK AND TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
STATE STREET BANK STATE STREET BANK STARS
AND TRUST COMPANY AND TRUST COMPANY Securities Transfer
Corporate Reorganization Corporate Reorganization and Reporting Services, Inc.
P.O. Box 9061 70 Campanelli Drive c/o Boston Equiserve LP
Boston, Massachusetts 02205-8686 Braintree, Massachusetts 02184 55 Broadway, Third Floor
New York, New York 10006
</TABLE>
By Facsimile:
(For Eligible Institutions Only)
(781) 794-6333
Confirm Facsimile by Telephone:
(781) 794-6388
---------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER OTHER THAN AS
LISTED ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER
OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9
PROVIDED BELOW.
<PAGE>
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders of Cambridge
SoundWorks, Inc. either if certificates ("Share Certificates") representing
shares of common stock, no par value (the "Shares"), are to be forwarded
herewith or, unless an Agent's Message (as defined in the Offer to Purchase)
is utilized, if delivery of Shares is to be made by book-entry transfer to an
account maintained by The First National Bank of Boston (the "Depositary") at
The Depository Trust Company ("DTC") or Philadelphia Depository Trust Company
("PDTC") (DTC and PDTC, each, a "Book-Entry Transfer Facility" and
collectively, the "Book-Entry Transfer Facilities") pursuant to the procedures
set forth under "THE OFFER-- Procedures for Accepting the Offer and Tendering
Shares" in the Offer to Purchase dated November 3, 1997 (the "Offer to
Purchase"). DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN
ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE DEPOSITARY.
Stockholders whose Share Certificates are not immediately available or who
cannot deliver their Share Certificates and all other required documents to
the Depositary on or prior to the expiration date of the Offer or who are
unable to complete the procedure for book-entry transfer prior to the
expiration date of the Offer may nevertheless tender their Shares pursuant to
the guaranteed delivery procedures set forth under "THE OFFER--Procedures for
Accepting the Offer and Tendering Shares" in the Offer to Purchase. See
Instruction 2 below.
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO
AN ACCOUNT MAINTAINED BY THE DEPOSITARY AT A BOOK-ENTRY TRANSFER FACILITY
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
Check Box of Applicable Book-Entry Transfer Facility and provide Account
Number and Transaction Code Number:
<TABLE>
<S> <C>
[_] The Depository Trust Company Account Number: _____________________________
[_] Philadelphia Depository Trust Company Transaction Code Number: ____________________
</TABLE>
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY (PLEASE INCLUDE A
PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY) AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s): ___________________________________________
Window Ticket Number (if any): _____________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Institution which Guaranteed Delivery: _____________________________
If Delivered by Book-Entry Transfer to the Book-Entry Transfer Facility:
Check Box of Applicable Book-Entry Transfer Facility and provide Account
Number and Transaction Code Number:
<TABLE>
<S> <C>
[_] The Depository Trust Company Account Number: _____________________________
[_] Philadelphia Depository Trust Company Transaction Code Number: ____________________
</TABLE>
2
<PAGE>
DESCRIPTION OF SHARES BEING TENDERED
(SEE INSTRUCTIONS 3 AND 4)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
NAME(S) AND ADDRESS(ES) OR REGISTERED HOLDER(S) SHARE CERTIFICATE(S) TENDERED
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY)
- -----------------------------------------------------------------------------------------------------------
CERTIFICATE
NUMBER(S)* TOTAL NUMBER OF NUMBER OF
APPEARING ON SHARE SHARES REPRESENTED BY SHARES
CERTIFICATE(S) CERTIFICATES TENDERED TENDERED**
- -----------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
TOTAL SHARES:
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Certificate numbers are not required if tender is made by book-entry
transfer.
** If you desire to tender fewer than all Shares represented by any
certificate listed above, please indicate in this column the number of
Shares you wish to tender. Otherwise, all Shares represented by such
certificate will be deemed to have been tendered. See Instruction 4.
NOTE: SIGNATURE(S) MUST BE PROVIDED BELOW.
PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY.
3
<PAGE>
LADIES AND GENTLEMEN:
The undersigned hereby tenders to CSW Acquisition Corporation ("Purchaser"),
a Massachusetts corporation and a wholly owned subsidiary of Creative
Technology Ltd., a Singapore corporation ("Parent"), the above-described
shares of common stock, no par value (the "Shares"), of Cambridge SoundWorks,
Inc., a Massachusetts corporation (the "Company"), pursuant to Purchaser's
offer to purchase all outstanding Shares at $10.68 per Share, net to the
seller in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated November 3, 1997 (the "Offer to Purchase"), receipt
of which is hereby acknowledged, and in this Letter of Transmittal (which,
together with the Offer to Purchase and any amendments or supplements thereto
or hereto, collectively constitute the "Offer").
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith, in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, Purchaser all
right, title and interest in and to all the Shares that are being tendered
hereby and all dividends, distributions (including, without limitation,
distributions of additional Shares) and rights declared, paid or distributed
in respect of such Shares on or after October 30, 1997 (collectively,
"Distributions") and irrevocably appoints State Street Bank and Trust Company
(the "Depositary") the true and lawful agent and attorney-in-fact of the
undersigned with respect to such Shares and all Distributions, with full power
of substitution (such power of attorney being deemed to be an irrevocable
power coupled with an interest), to (i) deliver certificates representing
Shares ("Share Certificates") and all Distributions, or transfer ownership of
such Shares and all Distributions on the account books maintained by a Book-
Entry Transfer Facility, together, in either case, with all accompanying
evidences of transfer and authenticity, to or upon the order of Purchaser,
(ii) present such Shares and all Distributions for transfer on the books of
the Company and (iii) receive all benefits and otherwise exercise all rights
of beneficial ownership of such Shares and all Distributions, all in
accordance with the terms of the Offer.
The undersigned hereby irrevocably appoints Ng Keh Long, Sim Wong Hoo, John
D. Danforth and Erika Rottenberg as attorneys and proxies of the undersigned,
each with full power of substitution, to vote in such manner as such attorney
and proxy or his or her substitute shall, in his sole discretion, deems proper
and otherwise act (by written consent or otherwise) with respect to all the
Shares tendered hereby which have been accepted for payment by Purchaser prior
to the time of such vote or other action and all Shares and other securities
issued in Distributions in respect of such Shares, which the undersigned is
entitled to vote at any meeting of stockholders of the Company (whether annual
or special and whether or not an adjourned or postponed meeting) or consent in
lieu of any such meeting or otherwise. This proxy and power of attorney is
coupled with an interest in the Shares tendered hereby, is irrevocable and is
granted in consideration of, and is effective upon, the acceptance for payment
of such Shares by Purchaser in accordance with the terms of the Offer. Such
acceptance for payment shall revoke all other proxies and powers of attorney
granted by the undersigned at any time with respect to such Shares (and all
Shares and other securities issued in Distributions in respect of such
Shares), and no subsequent proxy or power of attorney shall be given or
written consent executed (and if given or executed, shall not be effective) by
the undersigned with respect thereto. The undersigned understands that, in
order for Shares to be deemed validly tendered, immediately upon Purchaser's
acceptance of such Shares for payment, Purchaser must be able to exercise full
voting and other rights with respect to such Shares, including, without
limitation, voting at any meeting of the Company's stockholders then
scheduled.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby and all Distributions, and that when such Shares are accepted for
payment by Purchaser, Purchaser will acquire good, marketable and unencumbered
title thereto and to all Distributions, free and clear of all liens,
restrictions, charges and encumbrances, and that none of such Shares and
Distributions will be subject to any adverse claim. The undersigned, upon
request, shall execute and deliver all additional documents deemed by the
Depositary or Purchaser to be necessary or desirable to complete the sale,
assignment and transfer of the Shares tendered hereby and all Distributions.
In addition, the undersigned shall remit and transfer promptly to the
Depositary for the account of Purchaser all Distributions in respect of the
Shares tendered hereby, accompanied by appropriate documentation of transfer,
and pending such remittance and transfer or appropriate assurance thereof,
Purchaser shall be entitled to all rights and privileges as owner of each such
Distribution and may withhold the entire purchase price of the Shares tendered
hereby, or deduct from such purchase price, the amount or value of such
Distribution as determined by Purchaser in its sole discretion.
4
<PAGE>
No authority herein conferred or agreed to be conferred shall be affected
by, and all such authority shall survive, the death or incapacity of the
undersigned. All obligations of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned. Except as stated in the Offer to Purchase, this tender is
irrevocable. See "THE OFFER--Withdrawal Rights" in the Offer to Purchase.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in the Offer to Purchase under "THE OFFER--Procedure
for Accepting the Offer and Tendering Shares" and in the instructions hereto
will constitute the undersigned's acceptance of the terms and conditions of
the Offer. Purchaser's acceptance of such Shares for payment will constitute a
binding agreement between the undersigned and Purchaser upon the terms and
subject to the conditions of the Offer. Without limiting the foregoing, if the
price to be paid in the Offer is amended in accordance with the Offer, the
price to be paid to the undersigned will be the amended price notwithstanding
the fact that a different price is stated in this Letter of Transmittal. The
undersigned recognizes that under certain circumstances set forth in the Offer
to Purchase, Purchaser may not be required to accept for payment any of the
Shares tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions," please issue the check for the purchase price of all Shares
purchased, and return all Share Certificates not purchased or not tendered in
the name(s) of the registered holder(s) appearing above under "Description of
Shares Tendered." Similarly, unless otherwise indicated in the box entitled
"Special Delivery Instructions," please mail the check for the purchase price
of all Shares purchased and all Share Certificates not tendered or not
purchased (and accompanying documents, as appropriate) to the address(es) of
the registered holder(s) appearing above under "Description of Shares
Tendered." In the event that the boxes entitled "Special Payment Instructions"
and "Special Delivery Instructions" are both completed, please issue the check
for the purchase price of all Shares purchased and return all Share
Certificates not purchased or not tendered in the name(s) of, and mail such
check and Share Certificates to, the person(s) so indicated. Unless otherwise
indicated herein in the box entitled "Special Payment Instructions," please
credit any Shares tendered hereby and delivered by book-entry transfer, but
which are not purchased, by crediting the account at the Book-Entry Transfer
Facility designated above. The undersigned recognizes that Purchaser has no
obligation, pursuant to the Special Payment Instructions, to transfer any
Shares from the name of the registered holder(s) thereof if Purchaser does not
purchase any of the Shares tendered hereby.
The undersigned understands that Purchaser reserves the right to transfer or
assign, in whole at any time, or in part from time to time, to one or more of
its affiliates, the right to purchase all or any portion of the Shares
tendered pursuant to the Offer, but any such transfer or assignment will not
relieve Purchaser of its obligations under the Offer and will in no way
prejudice the rights of tendering stockholders to receive payment for Shares
validly tendered and accepted for payment pursuant to the Offer.
[_]CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN HAVE
BEEN LOST OR DESTROYED AND SEE INSTRUCTION 9.
Number of Shares represented by the lost or destroyed certificates: ________
5
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Share
Certificates not tendered or not
purchased and/or the check for the
purchase price of the Shares
purchased are to be issued in the
name of and sent to someone other
than the undersigned, or if Shares
tendered by book-entry transfer
which are not purchased are to be
returned by credit to an account
maintained at the Book-Entry
Transfer Facility other than the
account indicated above.
Issue: [_] Check
[_] Certificate(s)
To:
___________________________________
NAME (PLEASE PRINT)
___________________________________
ADDRESS
___________________________________
ZIP CODE
___________________________________
TAXPAYER IDENTIFICATION OR SOCIAL
SECURITY NUMBER
(ALSO COMPLETE SUBSTITUTE FORM W-9
BELOW)
Credit unpurchased Shares delivered
by book-entry transfer to the Book-
Entry Transfer Facility account at:
[_] The Depository Trust Company
[_] Philadelphia Depository Trust Company
-----------------------------------
ACCOUNT NUMBER
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 4, 5, 6 AND
7)
To be completed ONLY if Share
Certificates not tendered or not
purchased and/or the check for the
purchase price of the Shares
purchased are to be sent to
someone other than the
undersigned, or to the undersigned
at an address other than that
shown above.
Mail: [_] Check
[_] Certificate(s)
To:
___________________________________
NAME (PLEASE PRINT)
___________________________________
ADDRESS
___________________________________
ZIP CODE
___________________________________
TAXPAYER IDENTIFICATION OR SOCIAL
SECURITY NUMBER
6
<PAGE>
SIGN HERE
(AND COMPLETE SUBSTITUTE FORM W-9 BELOW)
X ___________________________________________________________________________
X ___________________________________________________________________________
SIGNATURE(S) OF HOLDER(S)
Dated:__________________________, 1997
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
Share Certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by Share Certificates and
documents transmitted herewith. If a signature is by an officer on behalf of
a corporation or by an executor, administrator, trustee, guardian, attorney-
in-fact, agent or other person acting in a fiduciary or representative
capacity, please provide the following information. See Instructions 1 and
5.)
-----------------------------------------------------------------------------
NAME (PLEASE PRINT)
-----------------------------------------------------------------------------
CAPACITY (FULL TITLE)
-----------------------------------------------------------------------------
ADDRESS
-----------------------------------------------------------------------------
ZIP CODE
------------------------------------- -------------------------------------
(AREA CODE) TELEPHONE NO. TAX IDENTIFICATION OR SOCIAL
SECURITY NO.
(COMPLETE SUBSTITUTE FORM W-9
BELOW)
SIGNATURE GUARANTEE
(IF REQUIRED--SEE INSTRUCTIONS 1 AND 5)
-----------------------------------------------------------------------------
AUTHORIZED SIGNATURE
-----------------------------------------------------------------------------
NAME (PLEASE PRINT)
------------------------------------- -------------------------------------
FULL TITLE NAME OF FIRM
-----------------------------------------------------------------------------
ADDRESS
-----------------------------------------------------------------------------
ZIP CODE
--------------------------------------
(AREA CODE) TELEPHONE NO.
DATED: _______________________________
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
To complete the Letter of Transmittal, you must do the following:
.Fill in the box entitled "Description of Shares Being Tendered."
.Sign and date the Letter of Transmittal in the box entitled "Sign Here."
.Fill in and sign in the box entitled "Substitute Form W-9."
In completing the Letter of Transmittal, you may (but are not required to)
also do the following:
. If you want the payment for any Shares purchased issued in the
name of another person, complete the box entitled "Special Payment
Instructions."
. If you want any certificate for Shares not tendered or Shares not
purchased issued in the name of another person, complete the box
entitled "Special Payment Instructions."
. If you want any payment for Shares or certificate for Shares not
tendered or purchased delivered to an address other than that
appearing under your signature, complete the box entitled "Special
Delivery Instructions."
If you complete the box entitled "Special Payment Instructions" or
"Special Delivery Instructions," you must have your signature guaranteed
by an Eligible Institution (as defined in Instruction 1 below) unless
the Letter of Transmittal is signed by an Eligible Institution.
1. GUARANTEE OF SIGNATURES. All signatures on this Letter of Transmittal
must be guaranteed by a bank, broker, dealer, credit union, savings
association or other entity that is a member in good standing of the
Securities Transfer Agents Medallion Program (an "Eligible Institution"),
unless (i) this Letter of Transmittal is signed by the registered holder(s)
(which term, for purposes of this document, shall include any participant in a
Book-Entry Transfer Facility whose name appears on a security position listing
as the owner of Shares) of the Shares tendered hereby and such holder(s) has
not completed either the box entitled "Special Payment Instructions" or the
box entitled "Special Delivery Instructions" herein or (ii) such Shares are
tendered for the account of an Eligible Institution. If a Share Certificate is
registered in the name of a person other than the person signing this Letter
of Transmittal, or if payment is to be made, or a Share Certificate not
accepted for payment and not tendered is to be returned to a person other than
the registered holder(s), then such Share Certificate must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear on such Share Certificate, with the
signatures on such Share Certificate or stock powers guaranteed as described
above. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES. This Letter of
Transmittal is to be used either if Share Certificates are to be forwarded
herewith or, unless an Agent's Message (as defined below) is used, if Shares
are to be delivered by book-entry transfer pursuant to the procedure set forth
under "THE OFFER--Procedure for Accepting the Offer and Tendering Shares" in
the Offer to Purchase. Share Certificates representing all physically tendered
Shares, or confirmation of a book-entry transfer, if such procedure is
available, into the Depositary's account at one of the Book-Entry Transfer
Facilities ("Book-Entry Confirmation") of all Shares delivered by book-entry
transfer together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), or an Agent's Message in the case of book-
entry transfer, and any other documents required by this Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth herein prior to the expiration date of the Offer. If Share Certificates
are forwarded to the Depositary in multiple deliveries, a properly completed
and duly executed Letter of Transmittal must accompany each such delivery.
Stockholders whose Share Certificates are not immediately available, who
cannot deliver their Share Certificates and all other required documents to
the Depositary prior to the expiration date of the Offer or who cannot
complete the procedure for delivery by book-entry transfer on a timely basis
may tender their Shares pursuant to the guaranteed delivery procedure
8
<PAGE>
described under "THE OFFER--Procedure for Accepting the Offer and Tendering
Shares" in the Offer to Purchase. Pursuant to such procedure: (i) such tender
must be made by or through an Eligible Institution; (ii) a properly completed
and duly executed Notice of Guaranteed Delivery, substantially in the form
made available by Purchaser, must be received by the Depositary prior to the
expiration date of the Offer; and (iii) the Share Certificates representing
all physically delivered Shares in proper form for transfer by delivery, or
Book-Entry Confirmation of all Shares delivered by book-entry transfer, in
each case together with a Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees
(or, in the case of a book-entry transfer, an Agent's Message), and any other
documents required by this Letter of Transmittal, must be received by the
Depositary within three NASDAQ trading days after the date of execution of
such Notice of Guaranteed Delivery, all as described under "THE OFFER--
Procedure for Accepting the Offer and Tendering Shares" in the Offer to
Purchase. A "NASDAQ trading day" is any day on which The Nasdaq Stock Market,
Inc.'s National Market ("NASDAQ") is open for business.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of
the Book-Entry Confirmation, which states that the Book-Entry Transfer
Facility has received an express acknowledgment from the participants in the
Book-Entry Transfer Facility tendering the Shares that such participant has
received this Letter of Transmittal and agrees to be bound by the terms of
this Letter of Transmittal and that Purchaser may enforce such agreement
against such participant.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES AND
ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH A BOOK-ENTRY TRANSFER
FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY
(INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION).
IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. By execution of this Letter of
Transmittal (or facsimile hereof), all tendering stockholders waive any right
to receive any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein under "Description of
Shares Tendered" is inadequate, the certificate numbers, the number of Shares
represented by such Share Certificates and the number of Shares tendered
should be listed on a separate schedule and attached hereto.
4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If fewer than all the Shares represented by any Share Certificate
delivered to the Depositary herewith are to be tendered hereby, fill in the
number of Shares which are to be tendered in the box entitled "Number of
Shares Tendered." In such cases, a new certificate representing the remainder
of the Shares that were represented by the Share Certificates delivered to the
Depositary herewith will be sent to each person signing this Letter of
Transmittal, unless otherwise provided in the box entitled "Special Delivery
Instructions" herein as soon as practicable after the expiration or
termination of the Offer. All Shares represented by Share Certificates
delivered to the Depositary will be deemed to have been tendered unless
otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written
on the face of the Share Certificates evidencing such Shares without
alteration, enlargement or any other change whatsoever.
If any Share tendered hereby is owned of record by two or more persons, all
such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in the names of
different holders, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of such
Shares.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of Share Certificates or separate
stock powers are required, unless payment is to be made to, or Share
Certificates not tendered or not purchased are to be issued in the name of, a
person other than the registered holder(s), in which case, the Share
9
<PAGE>
Certificate(s) representing the Shares tendered hereby must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear on such Share Certificate(s).
Signatures on such Share Certificate(s) and stock powers must be guaranteed by
an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
representing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such Share Certificate(s). Signatures on
such Share Certificate(s) and stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any certificate or stock power is signed by
a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory
to Purchaser of such person's authority to so act must be submitted.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction 6,
Purchaser will pay all stock transfer taxes with respect to the sale and
transfer of any Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price of any Shares purchased is to be made to, or
Share Certificate(s) representing Shares not tendered or not purchased are to
be issued in the name of, a person other than the registered holder(s), the
amount of any stock transfer taxes (whether imposed on the registered
holder(s), such other person or otherwise) payable on account of the transfer
to such other person will be deducted from the purchase price of such Shares
purchased, unless evidence satisfactory to Purchaser of the payment of such
taxes, or exemption therefrom, is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE SHARE CERTIFICATES REPRESENTING THE
SHARES TENDERED HEREBY.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase
price of any Shares tendered hereby is to be issued, or Share Certificate(s)
representing Shares not tendered or not purchased are to be issued, in the
name of a person other than the person(s) signing this Letter of Transmittal
or if such check or any such Share Certificate is to be sent to someone other
than the person(s) signing this Letter of Transmittal or to the person(s)
signing this Letter of Transmittal but at an address other than that shown in
the box entitled "Description of Shares Tendered" herein, the appropriate
boxes in this Letter of Transmittal must be completed. Stockholders delivering
Shares tendered hereby by book-entry transfer may request that Shares not
purchased be credited to an account maintained at a Book-Entry Transfer
Facility as such stockholder may designate in the box entitled "Special
Payment Instructions" herein. If no such instructions are given, all such
Shares not purchased will be returned by crediting the same account at the
Book-Entry Transfer Facility as the account from which such Shares were
delivered.
8. WAIVER OF CONDITIONS. The conditions of the Offer may be waived, in whole
or in part, by Purchaser, in its sole discretion (other than the Minimum Share
Condition (as defined in the Offer to Purchase), which may not be waived
without the consent of the Company at any time and from time to time, in the
case of any Shares tendered. See "THE OFFER--Certain Conditions of the Offer"
in the Offer to Purchase.
9. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Share Certificate(s) have
been lost, destroyed or stolen, the stockholder should promptly notify the
Depositary by checking the box immediately preceding the special
payment/special delivery instructions, indicating the number of Shares lost
and delivering the Letter of Transmittal. The stockholder will then be
contacted and provided with instructions as to the procedures for replacing
the Share Certificate(s). This Letter of Transmittal and related documents
cannot be processed until the procedures for replacing lost, destroyed or
stolen certificates have been followed.
10. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Information Agent at their
address or telephone number set forth below. Additional copies of the Offer to
Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and
the Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 may be obtained from the Information Agent or from
brokers, dealers, commercial banks or trust companies.
10
<PAGE>
11. SUBSTITUTE FORM W-9. Each tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9 which is provided under "Important Tax Information" below,
and to certify, under penalties of perjury, that such number is correct and
that such stockholder is not subject to backup withholding of Federal income
tax. If a tendering stockholder has been notified by the Internal Revenue
Service that such stockholder is subject to backup withholding, such
stockholder must cross out item (2) of the Certification box of the Substitute
Form W-9, unless such stockholder has since been notified by the Internal
Revenue Service that such stockholder is no longer subject to backup
withholding. Failure to provide the information on the Substitute Form W-9 may
subject the tendering stockholder to 31% Federal income tax withholding on the
payment of the purchase price of all Shares purchased from such stockholder.
If the tendering stockholder has not been issued a TIN and has applied for one
or intends to apply for one in the near future, such stockholder should write
"Applied For" in the space provided for the TIN in Part I of the Substitute
Form W-9, and sign and date the Substitute Form W-9 and the Certificate of
Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I
and the Depositary is not provided with a TIN within 60 days, the Depositary
will withhold 31% on all payments of the purchase price to such stockholder
until a TIN is provided to the Depositary.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF), TOGETHER WITH
ANY REQUIRED SIGNATURE GUARANTEES, OR, IN THE CASE OF A BOOK-ENTRY TRANSFER,
AN AGENT'S MESSAGE, AND ANY OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE
DEPOSITARY PRIOR TO THE EXPIRATION OF THE OFFER, AND EITHER SHARE
CERTIFICATES FOR TENDERED SHARES MUST BE RECEIVED BY THE DEPOSITARY OR SHARES
MUST BE DELIVERED PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER, IN EACH
CASE PRIOR TO THE EXPIRATION DATE OF THE OFFER, OR THE TENDERING STOCKHOLDER
MUST COMPLY WITH THE PROCEDURES FOR GUARANTEED DELIVERY.
11
<PAGE>
IMPORTANT TAX INFORMATION
Under the Federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required by law to provide the Depositary (as payer)
with such stockholder's correct TIN on Substitute Form W-9 below. If such
stockholder is an individual, the TIN is such stockholder's social security
number. If the Depositary is not provided with the correct TIN, the
stockholder may be subject to a $50 penalty imposed by the Internal Revenue
Service and payments that are made to such stockholder with respect to Shares
purchased pursuant to the Offer may be subject to backup withholding of 31%.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such individual must submit a Form W-8, signed under penalties of
perjury, attesting to such individual's exempt status. A Form W-8 can be
obtained from the Depositary. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions. A stockholder should consult his or her tax advisor as to such
stockholder's qualification for an exemption from backup withholding and the
procedure for obtaining such exemption.
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will
be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained from the Internal Revenue
Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depositary of such stockholder's correct TIN by
completing the form below certifying that (a) the TIN provided on Substitute
Form W-9 is correct (or that such stockholder is awaiting a TIN) and (b) that
(i) such stockholder has not been notified by the Internal Revenue Service
that such stockholder is subject to backup withholding as a result of a
failure to report all interest or dividends or (ii) the Internal Revenue
Service has notified such stockholder that such stockholder is no longer
subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the record holder of the Shares
tendered hereby. If the Shares are in more than one name or are not in the
name of the actual owner, consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional guidance
on which number to report. If the tendering stockholder has not been issued a
TIN and has applied for a number or intends to apply for a number in the near
future, the stockholder should write "Applied For" in the space provided for
the TIN in Part I, and sign and date the Substitute Form W-9 and the
Certificate of Awaiting Taxpayer Identification Number. If "Applied For" is
written in Part I and the Depositary is not provided with a TIN within 60
days, the Depositary will withhold 31% of all payments of the purchase price
to such stockholder until a TIN is provided to the Depositary.
12
<PAGE>
PAYER'S NAME: STATE STREET BANK AND TRUST COMPANY
PART 1--PLEASE PROVIDE YOUR
TIN IN THE BOX AT RIGHT AND ----------------------
CERTIFY BY SIGNING AND SOCIAL SECURITY NUMBER
DATING BELOW. OR EMPLOYER
IDENTIFICATION NUMBER
----------------------
(If awaiting TIN write
"Applied for")
------------------------------------------------------
SUBSTITUTE
FORM W-9
DEPARTMENT OF PART 2--Check the box if you are not subject to
THE TREASURY backup withholding under the provision of Section
INTERNAL 3406(a)(1)(C) of the Internal Revenue Code because
REVENUE (1) you have not been notified that you are subject
SERVICE to backup withholding as a result of failure to
report all interest or dividends or (2) the Internal
Revenue Service has notified you that you are no
PAYER'S REQUEST longer subject to backup withholding.
FOR TAXPAYER
IDENTIFICATION
NUMBER (TIN)
AND CERTIFICATION [_]
--------------------------------------------------------
CERTIFICATION--UNDER PENALTIES OF PERJURY, I
CERTIFY THAT THE INFORMATION PROVIDED ON THIS
FORM IS TRUE, CORRECT, AND COMPLETE.
Signature: _______________________ Dated: ___________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. ADDITIONALLY,
FAILURE TO PROVIDE SUCH INFORMATION MAY RESULT IN A PENALTY IMPOSED BY THE
INTERNAL REVENUE SERVICE. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR"
INSTEAD OF A TIN IN THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered
an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security
Administration Office or (b) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number by the time of payment, 31% of all payments of the
purchase price made to me will be withheld until I provide a number.
Signature: ________________________________________________ Dated: _________
13
<PAGE>
Questions and requests for assistance or additional copies
of the Offer to Purchase, Letter of Transmittal and
other tender offer materials may be directed to the
Information Agent as set forth below:
THE INFORMATION AGENT FOR THE OFFER IS:
[LOGO OF GEORGESON & COMPANY APPEARS HERE]
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll Free: (800) 223-2064
----------------
14
<PAGE>
The related Letter of Transmittal and Share Certificates for your Shares
should be sent or delivered by you, your broker, dealer, commercial bank or
trust company to the Depositary at its addresses set forth below. Facsimile
copies of the Letters of Transmittal will be accepted.
The Depositary:
STATE STREET BANK AND TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
STATE STREET BANK STATE STREET BANK STARS
AND TRUST COMPANY AND TRUST COMPANY Securities Transfer
Corporate Reorganization Corporate Reorganization and Reporting Services, Inc.
P.O. Box 9061 70 Campanelli Drive c/o Boston Equiserve LP
Boston, Massachusetts 02205-8686 Braintree, Massachusetts 02184 55 Broadway, Third Floor
New York, New York 10006
</TABLE>
By Facsimile:
(For Eligible Institutions Only)
(781) 794-6333
Confirm Facsimile by Telephone:
(781) 794-6388
---------------
Stockholders should contact the Information Agent or their broker, dealer,
commercial bank or trust company for assistance concerning the Offer. Requests
for additional copies of the Offer to Purchase and Letters of Transmittal may
also be directed to the Information Agent.
The Information Agent:
[LOGO OF GEORGESON & COMPANY APPEARS HERE]
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll Free: (800) 223-2064
<PAGE>
EXHIBIT 99(a)(3)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CAMBRIDGE SOUNDWORKS, INC.
AT
$10.68 NET PER SHARE
BY
CSW ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
CREATIVE TECHNOLOGY LTD.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON DECEMBER 2, 1997, UNLESS THE OFFER IS EXTENDED.
November 3, 1997
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
We have been engaged by CSW Acquisition Corporation ("Purchaser"), a
Massachusetts corporation and a wholly owned subsidiary of Creative Technology
Ltd., a Singapore corporation ("Parent"), to act as Information Agent in
connection with Purchaser's offer to purchase, upon the terms and subject to
the conditions set forth in the Offer to Purchase, dated November 3, 1997 (the
"Offer to Purchase"), and the related Letter of Transmittal (which together
constitute the "Offer"), all of the outstanding shares of common stock, no par
value (the "Shares"), of Cambridge SoundWorks, Inc. (the "Company") at $10.68
per Share, net to the seller in cash.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THAT
NUMBER OF SHARES THAT, WHEN ADDED TO THE SHARES OWNED BY PARENT AS OF THE
EXPIRATION OF THE OFFER, SHALL CONSTITUTE TWO-THIRDS OF THE SHARES THEN
OUTSTANDING ON A FULLY DILUTED BASIS (THE "MINIMUM SHARE CONDITION"). THE
MINIMUM SHARE CONDITION MAY NOT BE WAIVED WITHOUT THE CONSENT OF THE COMPANY.
For your information and for forwarding to your clients for whom you hold
Shares registered in your name or in the name of your nominee, or who hold
Shares registered in their own names, we are enclosing the following
documents:
1. Offer to Purchase dated November 3, 1997;
2. Letter of Transmittal to be used by holders of Shares in accepting the
Offer and tendering Shares;
3. Notice of Guaranteed Delivery to be used to accept the Offer if (i)
certificates representing such Shares ("Share Certificates") are not
immediately available, (ii) time will not permit all required documents to
reach State Street Bank and Trust Company (the "Depositary"), on or prior
to the expiration date of the Offer or (iii) the procedure for book-entry
transfer, as set forth in the Offer to Purchase, cannot be completed on a
timely basis;
4. Letter to stockholders from Thomas J. DeVesto, President and Chief
Executive Officer of the Company, together with the
Solicitation/Recommendation Statement on Schedule 14D-9 filed by the
Company with the Securities and Exchange Commission;
<PAGE>
5. Letter to Clients which may be sent to your clients for whose accounts
you hold Shares in your name or the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the
Offer;
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
7. Return envelope addressed to the Depositary.
Upon the terms and subject to the conditions of the Offer, Purchaser will
purchase, by accepting for payment, and will pay for, all Shares validly
tendered on or prior to the expiration date promptly after the later to occur
of (i) the expiration date of the Offer and (ii) the satisfaction or waiver
(where permissible) of the conditions set forth under "THE OFFER--Certain
Conditions of the Offer" in the Offer to Purchase. For purposes of the Offer,
Purchaser will be deemed to have accepted for payment, and thereby purchased,
tendered Shares if, as and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance of such Shares for payment. In all cases,
payment for Shares accepted for payment pursuant to the Offer will be made
only after timely receipt by the Depositary of (i) the Share Certificates or
timely confirmation of a book-entry transfer of such Shares, if such procedure
is available, into the Depositary's account at a Book-Entry Transfer Facility
(as defined in the Offer to Purchase) pursuant to the procedures set forth
under "THE OFFER--Procedure for Accepting the Offer and Tendering Shares" in
the Offer to Purchase, (ii) the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, or an Agent's Message (as defined under
"THE OFFER--Procedure for Accepting the Offer and Tendering Shares" in the
Offer to Purchase) and (iii) any other documents required by the Letter of
Transmittal.
Purchaser will not pay any fees or commissions to any broker or dealer or
any other person (other than the Depositary and the Information Agent, as
described under "THE OFFER--Fees and Expenses" in the Offer to Purchase) in
connection with the solicitation of tenders of Shares pursuant to the Offer.
Purchaser will, however, reimburse you for customary mailing and handling
expenses incurred by you in forwarding any of the enclosed materials to your
clients.
Purchaser will pay or cause to be paid any stock transfer taxes payable
incident to the transfer to it of validly tendered Shares, except as otherwise
provided in Instruction 6 of the Letter of Transmittal. Backup tax withholding
at a 31% rate may be required, however, unless the required tax identification
information is provided. See "Important Tax Information" contained in the
Letter of Transmittal.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS
AS PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 2, 1997, UNLESS THE OFFER IS
EXTENDED.
In order to take advantage of the Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Depositary, and Share Certificates representing the tendered Shares should be
delivered or such Shares should be tendered by book-entry transfer, all in
accordance with the Instructions set forth in the Letter of Transmittal and
the Offer to Purchase.
If holders of Shares wish to tender their Shares, but it is impracticable
for them to forward their Share Certificates or other required documents prior
to the desired date of tender, a tender may be effected by following the
guaranteed delivery procedure specified under "THE OFFER--Procedures for
Accepting the Offer and Tendering Shares" in the Offer to Purchase.
Any inquiries you may have with respect to the Offer should be addressed to
Georgeson & Company Inc. (the "Information Agent") at the address and
telephone number set forth on the back cover page of the Offer to Purchase.
2
<PAGE>
Additional copies of the enclosed material may be obtained from the
Information Agent by calling (212) 440-9800 (call collect), or from brokers,
dealers, commercial banks or trust companies.
Very truly yours,
Georgeson & Company Inc.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE
YOU OR ANY OTHER PERSON AS AN AGENT OF PARENT, PURCHASER, THE DEPOSITARY,
OR THE INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU
OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF
ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS
AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE>
EXHIBIT 99 (a)(4)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CAMBRIDGE SOUNDWORKS, INC.
AT
$10.68 NET PER SHARE
BY
CSW ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
CREATIVE TECHNOLOGY LTD.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON DECEMBER 2, 1997, UNLESS THE OFFER IS EXTENDED.
November 3, 1997
To Our Clients:
Enclosed for your consideration is an Offer to Purchase, dated November 3,
1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which
together constitute the "Offer") in connection with the offer by CSW
Acquisition Corporation ("Purchaser"), a Massachusetts corporation and a
wholly owned subsidiary of Creative Technology Ltd., a Singapore corporation
("Parent"), to purchase, upon the terms and subject to the conditions of the
Offer, all of the outstanding shares of common stock, no par value (the
"Shares"), of Cambridge SoundWorks, Inc. (the "Company") at $10.68 per Share,
net to the seller in cash.
If you wish to tender Shares but (i) certificates representing such Shares
("Share Certificates") are not immediately available, (ii) time will not
permit such Share Certificates and all other documents required by the Letter
of Transmittal to reach State Street Bank and Trust Company (the "Depositary")
on or prior to the expiration date of the Offer or (iii) the procedure for
book-entry transfer, as set forth in the Offer to Purchase, cannot be
completed on a timely basis, you may nevertheless tender such Shares pursuant
to the guaranteed delivery procedure described under "THE OFFER--Procedure for
Accepting the Offer and Tendering Shares" in the Offer to Purchase. See
Instruction 2 of the Letter of Transmittal. Delivery of documents to a Book-
Entry Transfer Facility (as defined in the Offer to Purchase) in accordance
with the Book-Entry Transfer Facility's procedures does not constitute
delivery to the Depositary.
THE ENCLOSED MATERIAL IS BEING SENT TO YOU AS THE BENEFICIAL OWNER OF SHARES
HELD BY US FOR YOUR ACCOUNT BUT NOT REGISTERED IN YOUR NAME. WE ARE THE HOLDER
OF RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN
BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS.
THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND
CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish us to tender on your behalf
any or all of the Shares held by us for your account, pursuant to the terms
and conditions set forth in the Offer.
Your attention is directed to the following:
1. The tender offer price is $10.68 per Share, net to the seller in cash
without interest.
2. The Offer is being made for all of the outstanding Shares.
<PAGE>
3. The Board of Directors of the Company (with the director who is a
designee of Parent not present or participating in any meeting or
discussion), has unanimously determined that each of the Offer and the
Merger (as defined in the Offer to Purchase) is fair to, and in the best
interests of, the stockholders of the Company (other than Parent and
Purchaser), and recommends that stockholders accept the Offer and tender
their Shares pursuant to the Offer.
4. The Offer and withdrawal rights expire at 12:00 Midnight, New York
City time, on December 2, 1997, unless the Offer is extended.
5. The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the expiration of the Offer at least
that number of shares that, when added to the shares owned by Parent as of
the expiration of the Offer, shall constitute two-thirds of the Shares then
outstanding on a fully diluted basis (the "Minimum Share Condition"). The
Minimum Share Condition may not be waived without the consent of the
Company.
6. Tendering stockholders will not be obligated to pay brokerage fees or
commissions, solicitation fees or, except as set forth in Instruction 6 of
the Letter of Transmittal, stock transfer taxes on the purchase of Shares
by Purchaser pursuant to the Offer. The Offer is made solely by the Offer
to Purchase and the related Letter of Transmittal and is being made to all
holders of Shares. The Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Shares in any jurisdiction in
which the making of the Offer or the acceptance thereof would not be in
compliance with the securities, blue sky or other laws of such
jurisdiction. Purchaser may, however, in its discretion, take such action
as it may deem necessary to make the Offer in any jurisdiction and extend
the Offer to holders of Shares in such jurisdiction. In any jurisdiction
where the securities, blue sky or other laws require the Offer to be made
by a licensed broker or dealer, the Offer shall be deemed to be made on
behalf of Purchaser by one or more registered brokers or dealers licensed
under the laws of such jurisdiction. If you wish to have us tender any or
all of your Shares, please so instruct us by completing, executing and
returning to us the instruction form contained in this letter. An envelope
in which to return your instructions to us is enclosed. If you authorize
the tender of your Shares, all such Shares will be tendered unless
otherwise specified on the instruction form contained in this letter.
PLEASE FORWARD YOUR INSTRUCTIONS TO US AS SOON AS POSSIBLE TO ALLOW US
AMPLE TIME TO TENDER SHARES ON YOUR BEHALF PRIOR TO EXPIRATION OF THE
OFFER.
2
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE
FOR CASH ALL OUTSTANDING SHARES
OF
CAMBRIDGE SOUNDWORKS, INC.
The undersigned acknowledges receipt of your letter and the enclosed Offer
to Purchase, dated November 3, 1997 (the "Offer to Purchase"), and the related
Letter of Transmittal (which together constitute the "Offer"), in connection
with the offer by CSW Acquisition Corporation ("Purchaser"), a Massachusetts
corporation and a wholly owned subsidiary of Creative Technology Ltd., a
Singapore corporation ("Parent"), to purchase, upon the terms and subject to
the conditions of the Offer, all of the outstanding shares of common stock, no
par value (the "Shares"), of Cambridge SoundWorks, Inc. (the "Company"), at
$10.68 per Share, net to the undersigned in cash.
This will instruct you to tender to Purchaser on my behalf the number of
Shares indicated below (or if no number is indicated in either appropriate
space below, all Shares) held by you (or your nominee) for the account of the
undersigned, upon the terms and subject to the conditions set forth in the
Offer.
Account Number: ____________________________________________________________
NUMBER OF SHARES TO BE TENDERED (check ONE box):
[_] All Shares [_] ____________ Shares
(UNLESS OTHERWISE INDICATED, IT WILL BE ASSUMED THAT ALL SHARES HELD BY US FOR
YOUR ACCOUNT ARE TO BE TENDERED)
SIGN HERE
X __________________________________________________________________________
X __________________________________________________________________________
SIGNATURE(S)
_____________________________________________________________________________
NAME(S) (PLEASE PRINT)
_____________________________________________________________________________
ADDRESS(ES)
_____________________________________________________________________________
ZIP CODE
______________________________________ _____________________________________
(AREA CODE) TELEPHONE NO. TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER(S)
DATED: ____________________________
3
<PAGE>
EXHIBIT 99(a)(5)
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
CAMBRIDGE SOUNDWORKS, INC.
TO
CSW ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
CREATIVE TECHNOLOGY LTD.
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
This Notice of Guaranteed Delivery (or one substantially in the form hereof)
must be used to accept the Offer (as defined herein) if (i) certificates
("Share Certificates") representing shares of common stock, no par value (the
"Shares"), of Cambridge SoundWorks, Inc., a Massachusetts corporation, are not
immediately available, (ii) time will not permit all required documents to
reach State Street Bank and Trust Company (the "Depositary"), on or prior to
the expiration date of the Offer or (iii) the procedure for book-entry
transfer, as set forth in the Offer to Purchase, cannot be completed on a
timely basis. This Notice of Guaranteed Delivery may be delivered by hand or
mail or transmitted by telegram or facsimile to the Depositary. See "THE
OFFER-- Procedure for Accepting the Offer and Tendering Shares" in the Offer
to Purchase.
The Depositary:
STATE STREET BANK AND TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
STATE STREET BANK STATE STREET BANK STARS
AND TRUST COMPANY AND TRUST COMPANY Securities Transfer
Corporate Reorganization Corporate Reorganization and Reporting Services, Inc.
P.O. Box 9061 70 Campanelli Drive c/o Boston Equiserve LP
Boston, Massachusetts 02205-8686 Braintree, Massachusetts 02184 55 Broadway, Third Floor
New York, New York 10006
</TABLE>
By Facsimile:
(For Eligible Institutions Only)
(781) 794-6333
Confirm Facsimile by Telephone:
(781) 794-6388
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER
OTHER THAN AS LISTED ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX IN THE LETTER OF TRANSMITTAL.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to CSW Acquisition Corporation, a
Massachusetts corporation and a wholly owned subsidiary of Creative Technology
Ltd., a Singapore corporation, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated November 3, 1997 (the "Offer to
Purchase"), and the related Letter of Transmittal (which together constitute
the "Offer"), receipt of each of which is hereby acknowledged, the number of
Shares indicated below pursuant to the guaranteed delivery procedures set
forth under "THE OFFER--Procedure for Accepting the Offer and Tendering
Shares" in the Offer to Purchase:
_____________________________________ _____________________________________
NAME(S) OF RECORD HOLDER(S) NUMBER OF SHARES
_____________________________________ _____________________________________
CERTIFICATE NOS. (IF AVAILABLE)
_____________________________________
ADDRESS(ES) Check box (and indicate account
number) if Shares
will be tendered by book-entry
transfer effected by:
_____________________________________
ZIP CODE [_] The Depository Trust Company
_____________________________________ [_] Philadelphia Depository Trust
(AREA CODE) TELEPHONE NO. Company
_____________________________________
ACCOUNT NUMBER
X ___________________________________ DATED: __________________, 1997
X ___________________________________ DATED: __________________, 1997
(SIGNATURE(S) OF RECORD HOLDER(S)
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a bank, broker, dealer, credit union, savings association
or other entity that is a member in good standing of the Securities Transfer
Agents Medallion Program (an "Eligible Institution"), hereby guarantees
delivery to the Depositary, at one of its addresses set forth above, of Share
Certificates tendered hereby in proper form for transfer, or confirmation of
the book-entry transfer of Shares into the Depositary's account at The
Depository Trust Company or Philadelphia Depository Trust Company, in either
case together with delivery of a properly completed and duly executed Letter
of Transmittal (or facsimile thereof) with any required signature guarantee,
or an Agent's Message (as defined in the Offer to Purchase), and any other
documents required by the Letter of Transmittal, within three NASDAQ trading
days after the date of execution of this Notice of Guaranteed Delivery.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
Share Certificates to the Depositary within the time period indicated herein.
Failure to do so may result in financial loss to such Eligible Institution.
_____________________________________ _____________________________________
NAME OF FIRM AUTHORIZED SIGNATURE
_____________________________________ _____________________________________
ADDRESS NAME (PLEASE PRINT)
_____________________________________ _____________________________________
ZIP CODE TITLE
_____________________________________ _____________________________________
(AREA CODE) TELEPHONE NO. DATE
NOTE: DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE
SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL
2
<PAGE>
EXHIBIT 99(a)(6)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
Social security numbers have nine digits separated by two hyphens: i.e. 000-
00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- ---------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF--
- ---------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, any one
of the
individuals(1)
3. Husband and wife (joint The actual owner
account) of the account
or, if joint
funds, either
person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if
account) the minor is the
only contributor,
the minor(1)
6. Account in the name of The ward, minor,
guardian or committee or incompetent
for a designated ward, person(3)
minor, or incompetent
person
7. a. The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also
trustee)
b. So-called trust The actual
account that is not a owner(1)
legal or valid trust
under State Law
8. Sole proprietorship The owner(4)
account
- ---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF--
- ---------------------------------------------
<S> <C>
9. A valid trust, estate The legal entity
or pension trust (Do not furnish
the identifying
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account The partnership
held in the name of
the business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or
nominee nominee
15. Account with the The public
Department of entity
Agriculture in the
name of a public
entity (such as a
State or local
government, school
district, or prison)
that receives
agricultural program
payments
- ---------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service (the
"IRS") and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments including
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of 1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one non-resident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including the exempt-interest dividends
under section 852).
. Payments described in section 6049(b)(5) to non-resident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT
TO THE PAYER, IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup with-
holding. For details, see the regulations under sections 6041, 6041A(a), 6045,
6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Beginning January 1, 1984, payers
must generally withhold 20% of taxable interest, dividend, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and
convincing evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
EXHIBIT 99(a)(7)
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell Shares (as defined below). The Offer (as defined below) is
made solely by the Offer to Purchase, dated November 3, 1997, and the
related Letter of Transmittal, and is being made to all holders of
Shares. The Offer is not being made to (nor will tenders be accepted
from or on behalf of) holders of Shares in any jurisdiction in which
the making of the Offer or the acceptance thereof would not be in
compliance with the securities, blue sky or other laws of such
jurisdiction. Purchaser (as defined below) may, in its
discretion, however, take such action as it may deem necessary
to make the Offer in any jurisdiction and extend the Offer to
holders of Shares in such jurisdiction. In any jurisdiction
where the securities, blue sky or other laws require the
Offer to be made by a licensed broker or dealer, the
Offer shall be deemed to be made on behalf of Purchaser
by one or more registered brokers or dealers licensed
under the laws of such jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CAMBRIDGE SOUNDWORKS, INC.
AT
$10.68 NET PER SHARE
BY
CSW ACQUISITION CORPORATION
A WHOLLY-OWNED SUBSIDIARY OF
CREATIVE TECHNOLOGY LTD.
CSW Acquisition Corporation, a Massachusetts corporation ("Purchaser") and a
wholly-owned subsidiary of Creative Technology Ltd., a Singapore corporation
("Parent"), is offering to purchase all outstanding shares of common stock, no
par value (the "Shares"), of Cambridge SoundWorks, Inc., a Massachusetts
corporation (the "Company"), at a price of $10.68 per Share, net to the seller
in cash, without interest, upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated November 3, 1997 (the "Offer to
Purchase") and the related Letter of Transmittal (collectively, the "Offer").
The purpose of the Offer is to enable Parent to acquire all of the equity
interest in the Company that it does not currently own. As of November 3,
1997, Parent beneficially owns 1,169,608 Shares representing approximately
28.8% of the outstanding Shares. Following consummation of the Offer,
Purchaser intends to effect the Merger described below.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON DECEMBER 2, 1997, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THAT
NUMBER OF SHARES THAT, WHEN ADDED TO THE SHARES OWNED BY PARENT AS OF THE
EXPIRATION OF THE OFFER, SHALL CONSTITUTE TWO-THIRDS OF THE SHARES THEN
OUTSTANDING ON A FULLY-DILUTED BASIS (THE "MINIMUM SHARE CONDITION") AND (II)
THE EARLY TERMINATION OR EXPIRATION OF ALL APPLICABLE WAITING PERIODS UNDER
THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED,
APPLICABLE TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER.
<PAGE>
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of October 30, 1997 (the "Merger Agreement"), by and among Parent,
Purchaser and the Company. The Merger Agreement provides that, among other
things, as soon as practicable after the purchase of Shares pursuant to the
Offer and the satisfaction of the other conditions set forth in the Merger
Agreement, and in accordance with the relevant provisions of the Business
Corporation Law of the Commonwealth of Massachusetts (the "MBCL"), Purchaser
will be merged with and into the Company (the "Merger"). Following
consummation of the Merger, the Company will continue as the surviving
corporation (the "Surviving Corporation") and will become a wholly- owned
subsidiary of Parent. At the effective time of the Merger (the "Effective
Time"), each Share issued and outstanding immediately prior to the Effective
Time (other than Shares owned by Purchaser, Parent or any subsidiary of Parent
or the Company, and other than Shares held by stockholders who shall have
properly demanded and perfected appraisal rights in accordance with the MBCL)
will be cancelled and converted automatically into the right to receive the
price per Share paid pursuant to the Offer, in cash, without interest.
THE BOARD OF DIRECTORS OF THE COMPANY, BY UNANIMOUS VOTE OF ALL DIRECTORS
PRESENT AND VOTING (WITH THE DIRECTOR WHO IS A DESIGNEE OF PARENT NOT PRESENT
OR PARTICIPATING IN ANY SUCH MEETING OR DISCUSSION), HAS DETERMINED THAT EACH
OF THE OFFER AND THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE
STOCKHOLDERS OF THE COMPANY (OTHER THAN PARENT AND PURCHASER), AND RECOMMENDS
THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE
OFFER.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered to Purchaser and not
properly withdrawn as, if and when Purchaser gives oral or written notice to
State Street Bank and Trust Company (the "Depositary") of Purchaser's
acceptance for payment of such Shares. In all cases, upon the terms and
subject to the conditions of the Offer, payment for Shares accepted for
payment pursuant to the Offer will be made by deposit of the purchase price
therefore with the Depositary, which will act as agent for tendering
stockholders for the purpose of receiving payments from Purchaser and
transmitting payment to such validly tendering stockholders. Under no
circumstances will interest be paid by Purchaser on the purchase price of the
Shares tendered pursuant to the Offer, regardless of any extension of the
Offer or any delay in making such payment. In all cases, payment for Shares
accepted for payment pursuant to the Offer will be made only after timely
receipt by the Depositary of (i) the certificates representing such Shares or
timely confirmation of a book-entry transfer of such Shares into the
Depositary's account at a Book-Entry Transfer Facility (as defined in the
Offer to Purchase) pursuant to the procedures set forth in the Offer to
Purchase, (ii) the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, with any required signature guarantees or, in the
case of a book-entry transfer, an Agent's Message (as defined in the Offer to
Purchase), and (iii) any other documents required pursuant to the Letter of
Transmittal.
Subject to the applicable rules and regulations of the Securities and
Exchange Commission, Purchaser expressly reserves the right, in its sole
discretion (but subject to the terms and conditions of the Merger Agreement),
at any time and from time to time, upon the existence of any of the conditions
of the Offer set forth in the Offer to Purchase, to (i) terminate or amend the
Offer, (ii) extend the Offer and postpone acceptance for payment of any
Shares, or (iii) waive any condition (except, without the consent of the
Company, for the Minimum Share Condition), by giving oral or written notice of
such termination, amendment, extension or waiver to the Depositary and by
making a public announcement thereof. In the case of an extension, such public
announcement will be made no later than 9:00 a.m., Eastern time, on the next
business day after the previously scheduled expiration of the Offer. During
any such extension, all Shares previously tendered and not properly withdrawn
will remain subject to the Offer, subject to the right of a tendering
stockholder to withdraw such stockholder's Shares. Purchaser may (x) from time
to time extend (and re-extend) the Offer, if at the scheduled expiration date
of the Offer any of the conditions of the Offer have not been satisfied or
waived, until such time as such conditions have been satisfied or waived, (y)
extend the Offer for any period required by any rule, regulation,
interpretation or position of the SEC or the staff thereof applicable to the
Offer, or (z) extend (and re-extend) the Offer for any reason on one or more
occasions for an aggregate period of not more than 20 business
2
<PAGE>
days beyond the latest expiration date that would otherwise be permitted under
clause (x) or (y) above if on such expiration date at least that number of
Shares necessary to permit the Merger to be effected without a meeting of the
Company's stockholders in accordance with the MBCL have not been tendered.
Tenders of Shares made pursuant to the Offer are irrevocable except that
such Shares may be withdrawn at any time prior to 12:00 Midnight, New York
City time, on December 2, 1997 (or the latest time and date at which the
Offer, if extended by Purchaser, shall expire) and, unless theretofore
accepted for payment by Purchaser pursuant to the Offer, may also be withdrawn
at any time after January 2, 1997. For the withdrawal to be effective, a
written, telegraphic or facsimile transmission notice of withdrawal must be
timely received by the Depositary at one of its addresses set forth on the
back cover of the Offer to Purchase and must specify the name of the person
having tendered the Shares to be withdrawn, the number of Shares to be
withdrawn if Share certificates have been tendered, and the name of the
registered holder of such Shares to be withdrawn as set forth on such Share
certificates if different from the name of the person who tendered such
Shares. If certificates representing Shares to be withdrawn have been
delivered or otherwise identified to the Depositary, then, prior to the
physical release of such certificates, the serial numbers shown on such
certificates must be submitted to the Depositary and, unless such Shares have
been tendered by an Eligible Institution (as defined in the Offer to
Purchase), the signature(s) on the notice of withdrawal must be guaranteed by
an Eligible Institution. If Shares have been tendered pursuant to the
procedures for book-entry transfer (as set forth in the Offer to Purchase),
any notice of withdrawal must specify the name and number of the account at a
Book-Entry Transfer Facility to be credited with the withdrawn Shares and
otherwise comply with such Book-Entry Transfer Facility's procedures for such
withdrawal. All questions as to the form and validity (including the time of
receipt) of any notice of withdrawal will be determined by Purchaser, in its
sole discretion, which determination will be final and binding.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, is contained in the Offer to Purchase and is incorporated herein by
reference.
The Company has provided Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to
holders of Shares. The Offer to Purchase and the related Letter of Transmittal
will be mailed to record holders of Shares whose names appear on the Company's
stockholder list and will be furnished to brokers, dealers, commercial banks,
trust companies and similar persons whose names, or the names of whose
nominees, appear on the stockholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of Shares.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS
MADE WITH RESPECT TO THE OFFER.
Questions and requests for assistance or for additional copies of the Offer
to Purchase and the related Letter of Transmittal and other tender offer
materials may be directed to the Information Agent as set forth below, and
copies will be furnished promptly at Purchaser's expense. No fees or
commissions will be paid to brokers, dealers or other persons (other than the
Information Agent and Depositary, as set forth in the Offer to Purchase) for
soliciting tenders of Shares pursuant to the Offer. Additional copies of the
Offer to Purchase, the Letter of Transmittal and all other tender offer
materials may be obtained from the Information Agent or from brokers, dealers,
commercial banks and trust companies, and will be furnished promptly at
Purchaser's expense.
The Information Agent for the Offer is:
[LOGO OF GEORGESON & COMPANY APPEARS HERE]
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect:(212)440-9800
All Others Call Toll Free:(800)223-2064
November 3, 1997
3
<PAGE>
EXHIBIT 99 (a)(9)
CREATIVE TO ACQUIRE CAMBRIDGE SOUNDWORKS TO PROVIDE THE COMPLETE PC AUDIO
EXPERIENCE
SINGAPORE, Oct. 31 -- Creative Technology Ltd. (Nasdaq: CREAF), the world's
------------------------
leading provider of multimedia technology for the personal computer, today
announced that it has entered into a definitive agreement to acquire Cambridge
---------
SoundWorks, Inc. (Nasdaq: HIFI) of Newton, MA.
- ----------------
Cambridge SoundWorks is the renowned speaker manufacturer and retailer famous
for its high-performance home theater, home stereo and car stereo speaker
systems as well as its critically acclaimed multimedia speakers. The multimedia
speakers --MicroWorks(TM), SoundWorks(R) and newly developed PCWorks(TM) -- use
premium-quality, amplified subwoofer/satellite speaker technology derived from
the company's many years of experience in the home audio business. These
speakers deliver a wide-range of truly convincing, phenomenally clear sound --
including crisp highs, a rich mid-range and remarkable bass -- all with an
incredibly small footprint and at extremely affordable prices.
Creative plans to commence the tender offer on Monday, November 3, 1997 at a
tender price of US$10.68 per each share of Cambridge SoundWorks. Creative
estimates that the acquisition will cost approximately US$38 million, in the
aggregate. The tender offer is scheduled to expire at midnight EST, Tuesday,
December 2, 1997, unless extended. Creative intends to acquire the Cambridge
SoundWorks shares through a wholly-owned subsidiary of Creative. If the tender
offer is consummated, Creative will be obliged to acquire any remaining
outstanding Cambridge SoundWorks shares for cash at the same price as the tender
price. Thereafter, the Creative subsidiary will be merged with and into
Cambridge SoundWorks.
Creative currently owns approximately 25 percent of Cambridge SoundWorks'
shares. The tender offer is subject to several conditions, including the tender
of a minimum number of shares which, when added to Creative's existing stake,
will represent two-thirds of the outstanding Cambridge SoundWorks shares
calculated on a fully-diluted basis, and other customary conditions. The
transaction is subject to regulatory approval and other conditions.
"The acquisition of Cambridge SoundWorks furthers Creative's goal of providing
its customers with the highest quality PC audio experience for an unbelievable
value," said Sim Wong Hoo, chairman and chief executive officer of Creative
Technology Ltd. "It is our strategy to offer a comprehensive line of leading-
edge technology that turns an ordinary PC into 'The Coolest PC.' By combining
the Cambridge SoundWorks speakers with our Sound Blaster(R) AWE64 family of
audio cards; our newly released,
<PAGE>
second generation PC-DVD(TM) Encore(TM) solution; and our Graphics Blaster(TM)
Exxtreme(TM) line, Creative becomes the only company that offers the complete,
highest performance, home theater-quality audio solutions in the PC industry."
"Creative's leadership position in the industry and its tremendous distribution
program, combined with Cambridge SoundWorks' technology, puts us in a position
to advance our goals and to become the leading provider of multimedia speakers
for the PC in the world," said Thomas J. DeVesto, president and chief executive
officer of Cambridge SoundWorks. "This relationship will also allow us to have
access to Creative's cutting edge research and development resources which will
enable us to explore new technologies and break into new territories in our
drive to provide the most realistic sound to our customers."
As with Creative's products, Cambridge SoundWorks' products are among the most
highly-regarded in the consumer electronics and computer industries. In the
November 4, 1997 issue of PC Magazine, columnist John Dvorak states: "If you're
looking for a set of fantastic-sounding speakers for your PC, I recommend the
incredible $100 PCWorks from Cambridge SoundWorks. It's an amazing deal, and I
was stunned by the quality." He goes on to say: "Heck, just order these
speakers. They're fabulous."
Cambridge SoundWorks manufactures 33 different models of home stereo, car
stereo, home theater and computer speakers. Its speakers and sound systems are
also sold through the company's retail stores and through its national catalog.
Creative Technology Ltd., is the world's leading provider of advanced multimedia
solutions for personal computers, including sound, graphics, communications and
video conferencing products. The company's Sound Blaster technology has been
accepted as the worldwide standard sound platform for PCs, and the company's
global distribution network is among the most extensive in the multimedia
industry. Creative is focused on enhancing the overall user experience by
providing powerful, enabling, high-value technology for the mass market.
NOTE: Sound Blaster and Blaster are registered trademarks, PC-DVD, Encore,
Graphics Blaster and Exxtreme are trademarks of Creative Technology Ltd. in the
United States and/or other countries. Cambridge SoundWorks and SoundWorks are
registered trademarks, and MicroWorks and PCWorks are trademarks of Cambridge
SoundWorks, Inc. in the United States and/or other countries. All other products
mentioned herein are trademarks of their respective owners and are hereby
recognized as such.
<PAGE>
EXHIBIT 99(a)(10)
CONTACT: RICK MYLLENBACK
CREATIVE LABS, INC.
(408) 434-5700
INTERNET: [email protected]
CREATIVE TECHNOLOGY LTD. BEGINS PREVIOUSLY
ANNOUNCED TENDER OFFER OF $10.68 PER SHARE
FOR ALL REMAINING SHARES OF CAMBRIDGE SOUNDWORKS, INC.
Singapore, November 3, 1997--Creative Technology Ltd.'s wholly owned
subsidiary, CSW Acquisition Corporation, has today begun its $10.68 per share
cash tender offer for all of the shares of Cambridge SoundWorks, Inc.,
excluding those shares already owned by Creative Technology Ltd.
On October 31, 1997, Creative Technology Ltd. announced that it entered into
a definitive merger agreement with Cambridge SoundWorks, Inc. Under this
agreement, following the completion of the tender offer, Creative Technology
Ltd. will acquire all remaining Cambridge SoundWorks, Inc. shares in a second-
step merger at the same cash price of $10.68 per share. Creative Technology
Ltd. currently owns approximately 25 percent of the shares of Cambridge
SoundWorks, Inc.
The terms and conditions of the tender offer are included in offering
documents being filed today with the Securities and Exchange Commission, and
will be sent to stockholders of Cambridge SoundWorks, Inc. The tender offer is
conditioned upon, among other things, there being validly tendered, and not
withdrawn prior to the expiration of the offer, at least that number of shares
of Cambridge SoundWorks, Inc. that, when added to the shares owned by Creative
Technology Ltd., constitutes two-thirds of the shares of Cambridge SoundWorks,
Inc. then outstanding on a fully diluted basis.
The tender offer will expire at midnight on December 2, 1997, unless
extended.
Creative Technology Ltd. develops, manufactures and markets a wide array of
advanced multimedia solutions for the PC, entertainment, education, music and
productivity tools markets. Creative Technology Ltd.'s products are marketed
through both the original equipment manufacturers and retail channels under a
variety of trademarks, including the "Blaster" family name. Sound Blaster has
become the multimedia industry's de facto audio standard. Sound Blaster is an
audio platform consisting of a sound card or chipset, software drivers and
bundled software applications that enable PCs to produce high quality audio.
Creative Technology Ltd.'s corporate headquarters and primary manufacturing
are based in Singapore, with sales, distribution and research and development
being carried out through an extensive, global network of subsidiaries located
in North America, Europe, Asia and Africa.
Cambridge SoundWorks, Inc. designs and manufactures audio products for home
stereo, home theater, car stereo and multimedia computers under the brand name
Cambridge SoundWorks. Cambridge SoundWorks, Inc. sells its Cambridge
SoundWorks products and selected audio and video components manufactured by
other companies directly to consumers through its catalog and its Company-
owned retail stores.
<PAGE>
EXHIBIT (C)(1)
AGREEMENT AND PLAN OF MERGER
dated as of
October 30, 1997
by and among
CREATIVE TECHNOLOGY LTD.
CSW ACQUISITION CORPORATION
AND
CAMBRIDGE SOUNDWORKS, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE OFFER....................................................... 1
1.1 The Offer......................................................... 1
1.2 Company Action.................................................... 3
1.3 Directors......................................................... 4
ARTICLE II THE MERGER..................................................... 5
2.1 Merger............................................................ 5
2.2 Conversion of Shares.............................................. 6
2.3 Exchange of Certificates.......................................... 6
2.4 Dissenting Shares................................................. 7
2.5 Articles of Organization and Bylaws of the Surviving Corporation.. 8
2.6 Directors and Officers of the Surviving Corporation............... 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER..... 8
3.1 Corporate Organization............................................ 9
3.2 Authority......................................................... 9
3.3 Consents And Approvals; No Violation.............................. 9
3.4 Brokers and Finders............................................... 10
3.5 Financing......................................................... 10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... 10
4.1 Corporate Organization............................................ 10
4.2 Capitalization.................................................... 11
4.3 Subsidiaries...................................................... 11
4.4 Authority......................................................... 11
4.5 Consents and Approvals; No Violation.............................. 12
4.6 Proxy or Information Statement.................................... 12
4.7 Conduct of Business............................................... 13
4.8 SEC Documents..................................................... 14
4.9 Litigation........................................................ 14
4.10 Labor Agreements and Actions..................................... 15
4.11 Certain Agreements and Employee Benefit Plans.................... 15
4.12 Taxes............................................................ 17
4.13 Absence of Certain Changes or Events............................. 18
4.14 Title to Properties: Absence of Liens and Encumbrances:
Condition of Equipment........................................... 18
4.15 Intellectual Property............................................ 19
4.16 Material Contracts............................................... 20
4.17 Proprietary Information and Inventions Agreements................ 20
4.18 No Conflict of Interest.......................................... 20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.19 Takeover Statutes Inapplicable................................... 21
4.20 Brokers and Finders.............................................. 21
SECTION V COVENANTS OF THE COMPANY AND PARENT............................. 21
5.1 Conduct of Business of the Company................................ 21
5.2 Stockholder Meeting; Proxy Material............................... 23
5.3 Third Party Acquisitions.......................................... 24
ARTICLE VI ADDITIONAL AGREEMENTS.......................................... 26
6.1 Access to Information............................................. 26
6.2 Legal Conditions to Offer and Merger.............................. 26
6.3 Confidentiality Agreement......................................... 27
6.4 Public Announcements.............................................. 27
6.5 Indemnification and Directors' and Officers' Insurance............ 27
6.6 Company Stock Option Plans........................................ 28
6.7 Certain Employee Benefits Matters................................. 28
6.8 Notice of Certain Events.......................................... 29
6.9 Obligations of Purchaser.......................................... 29
6.10 Voting of Shares................................................. 29
6.11 Expenses......................................................... 29
6.12 Takeover Statutes................................................ 29
ARTICLE VII CONDITIONS.................................................... 30
7.1 Conditions of Each Party's Obligation to Effect the Merger........ 30
7.2 Conditions to Obligations of Parent and the Purchaser............. 30
7.3 Conditions to Obligations of the Company.......................... 31
ARTICLE VIII TERMINATION.................................................. 31
8.1 Termination....................................................... 31
8.2 Effect of Termination............................................. 32
8.3 Certain Payments.................................................. 33
ARTICLE IX GENERAL PROVISIONS............................................. 34
9.1 Nonsurvival of Representations, Warranties and Agreements......... 34
9.2 Amendments and Waivers............................................ 34
9.3 Severability...................................................... 34
9.4 Interpretation.................................................... 34
9.5 Assignment........................................................ 35
9.6 Counterparts...................................................... 35
9.7 Titles and Subtitles.............................................. 35
9.8 Notices........................................................... 35
9.9 Entire Agreement.................................................. 36
9.10 No Third Party Beneficiaries..................................... 36
9.11 Governing Law and Venue; Waiver of Jury Trial.................... 36
</TABLE>
-ii-
<PAGE>
INDEX OF DEFINED TERMS
----------------------
DEFINED TERM REFERENCE
- ------------ ---------
Agreement Preamble
CERCLA (S) 4.7(c)
Certificates (S) 2.3(a)
Closing Date (S) 2.1(b)
Code (S) 4.11(a)
Common Stock Recitals
Company Preamble
Company Advisors (S) 5.3(a)
Company Disclosure Schedule Article IV
Company Financial Statements (S) 4.8
Company IP Rights (S) 4.15(a)
Confidentiality Agreement (S) 6.3
Constituent Corporation (S) 2.1(a)
Cut-off Date (S) 1.3(a)
Dissenting Shares (S) 2.4(a)
Dissenting Stockholder (S) 2.4(a)
Effective Time (S) 2.1(b)
Environmental Laws (S) 4.7(c)
ERISA (S) 4.11(b)
Exchange Act (S) 1.1(a)
Exchange Agent (S) 2.3(a)
Financial Advisor (S) 1.2(a)
Fully Diluted Shares (S) 4.2
Governmental Entity (S) 3.3
Hazardous Materials (S) 4.7(c)
HSR Act (S) 3.3
Independent Directors (S) 1.3(c)
Information Statement (S) 4.6
IRS (S) 4.11(b)
ISO (S) 4.11(c)
Material Adverse Effect (S) 4.1
Material Contracts (S) 4.16
Material Plans (S) 4.11(b)
MBCL Recitals
Merger Recitals
Merger Agreement Annex I
Merger Price (S) 2.2(a)
Minimum Share Condition (S) 1.1(a)
-iii-
<PAGE>
DEFINED TERM REFERENCE
- ------------ ---------
Notice of Superior Proposal (S) 5.3(b)
Offer Recitals
Offer Documents (S) 1.1(b)
Parent Preamble
Parent Disclosure Schedule Article III
Permits (S) 4.7(b)
Preferred Stock (S) 4.2
Proxy Statement (S) 4.6
Purchaser Preamble
Schedule 13E-3 (S) 1.1(b)
Schedule 14D-1 (S) 1.1(b)
Schedule 14D-9 (S) 1.2(b)
SEC (S) 1.1(a)
SEC Documents (S) 4.8
Securities Act (S) 4.8
Shares Recitals
Stock Option Plan (S) 4.2
Stock Options (S) 4.2
Stockholders' Meeting (S) 5.2(a)
Superior Proposal (S) 5.3(b)
Surviving Corporation (S) 2.1(a)
Takeover Statutes Inapplicable (S) 4.19
Taxes (S) 4.12(a)
Tendered Shares (S) 1.1(a)
Third Party (S) 5.3(b)
Third Party Acquisition (S) 5.3(b)
Warrants (S) 4.2
-iv-
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of October
---------
30, 1997, is entered into by and among Creative Technology Ltd., a Singapore
corporation ("Parent"), CSW Acquisition Corporation, a Massachusetts corporation
------
and a wholly owned subsidiary of Parent (the "Purchaser"), and Cambridge
---------
SoundWorks, Inc., a Massachusetts corporation (the "Company").
-------
RECITALS
--------
A. Parent presently owns an aggregate of 912,294 shares of common stock,
no par value ("Common Stock") of the Company and holds a warrant to purchase an
------------
additional 257,314 shares of Common Stock.
B. The respective Boards of Directors of the Company, Parent and the
Purchaser have approved the acquisition of the Company by the Purchaser and, in
furtherance of such acquisition, Parent proposes to cause the Purchaser to make
a cash tender offer (the "Offer") for all of the outstanding shares of Common
-----
Stock (the "Shares") on the terms specified herein.
------
C. The Board of Directors of the Company has approved the Offer and
recommended that it be accepted by the stockholders of the Company.
D. The Boards of Directors of the Company and the Purchaser deem it
advisable and in the best interests of the stockholders of such corporations to
effect the merger (the "Merger") of the Purchaser with and into the Company
------
following the consummation of the Offer, all pursuant to this Agreement and in
accordance with the Business Corporation Law of the Commonwealth of
Massachusetts (the "MBCL").
----
The parties hereby agree as follows:
ARTICLE I
THE OFFER
1.1 THE OFFER.
----------
(a) Subject to the provisions of this Agreement and provided that none
of the conditions identified in subparagraphs (a) - (i) in Annex I hereto shall
-------
have occurred and be continuing, Parent shall cause the Purchaser to, as
promptly as reasonably practicable after the date hereof, but in no event later
than five (5) business days following the initial public announcement of the
Purchaser's intention to commence the Offer, commence (within the meaning of
Rule 14d-2(a) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) the Offer for all of the outstanding Shares at a price of
- -------------
$10.68 per Share, net to the seller in cash. The obligation of the Purchaser to
accept for payment and to pay for any Shares tendered shall be subject only (i)
to such number of Shares, when added to the number of Shares already owned by
Parent, the Purchaser or any direct or indirect wholly owned subsidiary
<PAGE>
of Parent, as shall constitute two-thirds of the Company's Fully Diluted Shares
(as defined in Section 4.2) being validly tendered prior to the expiration or
termination of the Offer and not withdrawn (the "Minimum Share Condition") and
-----------------------
(ii) to the other conditions to the Offer set forth in Annex I. The Purchaser
-------
may at anytime transfer or assign to one or more corporations directly or
indirectly wholly owned by Parent the right to purchase all or any portion of
the Shares tendered pursuant to the Offer (the "Tendered Shares"), but no such
---------------
assignment shall relieve the Purchaser of its obligations hereunder. The
Purchaser expressly reserves the right to waive any of the conditions to the
Offer set forth in Annex I and to modify the terms and conditions of the Offer;
-------
provided, however, that, without the prior written consent of the Company, the
- -------- -------
Purchaser shall not amend or modify the terms of the Offer to (i) reduce the
cash price to be paid pursuant to the Offer, (ii) reduce the number of Shares as
to which the Offer is made, (iii) change the form of consideration to be paid in
the Offer, (iv) modify or waive the Minimum Share Condition, or (v) impose
conditions to its obligation to accept for payment or pay for the Tendered
Shares other than those set forth in Annex I. Subject to the terms and
-------
conditions thereof, the Offer shall expire at midnight, New York City time, on
the date that shall be 20 business days after the date the Offer on which shall
be commenced. The Offer may not be extended without the Company's prior written
consent; provided, however, that the Purchaser may (x) from time to time extend
-------- -------
(and re-extend) the Offer, if at the scheduled expiration date of the Offer any
of the conditions to the Offer shall not have been satisfied or waived, until
such time as such conditions shall be satisfied or waived; (y) extend the Offer
for any period required by any rule, regulation, interpretation or position of
the Securities and Exchange Commission (the "SEC") or the staff thereof
---
applicable to the Offer; or (z) extend (and re-extend) the Offer for any reason
on one or more occasions for an aggregate period of not more than 20 business
days beyond the latest expiration date that would otherwise be permitted under
clause (x) or (y) above if on such expiration date there shall not have been
tendered at least that number of Shares necessary to permit the Merger to be
effected without a meeting of the Company's stockholders in accordance with the
MBCL.
(b) As soon as reasonably practicable on the date of commencement of
the Offer, the Purchaser shall file with the SEC (i) a Tender Offer Statement on
Schedule 14D-1 (together with all amendments and supplements thereto, the
"Schedule 14D-1") with respect to the Offer and (ii) a Rule 13e-3 Transaction
- ---------------
Statement on Schedule 13E-3 (together with all amendments and supplements
thereto, the "Schedule 13E-3") with respect to the Offer and the other
--------------
transactions contemplated hereby. The Schedule 14D-1 and the Schedule 13E-3
shall contain or shall incorporate by reference an offer to purchase and a
related letter of transmittal and summary advertisement (such Schedule 14D-1,
Schedule 13E-3 and Offer to Purchase and the documents included therein or
incorporated therein by reference pursuant to which the Offer shall be made,
together with any supplements or amendments thereto, the "Offer Documents").
---------------
The Company shall execute and join in the filing of the Schedule 13E-3. Parent
and the Purchaser agree that the Offer Documents shall comply as to form in all
material respects with the Exchange Act and the rules and regulations
promulgated thereunder and, on the date filed with the SEC and on the date first
published, sent or given to the Company's stockholders, shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that no representation is
-2-
<PAGE>
made by Parent or the Purchaser with respect to information supplied by the
Company or any of its representatives which is included in the Offer Documents.
Each of Parent, the Purchaser and the Company agrees to correct promptly any
information provided by it for use in the Offer Documents if and to the extent
that such information shall have become false or misleading, and each of Parent
and the Purchaser further agrees to take all steps necessary to amend or
supplement the Offer Documents and to cause the Offer Documents as so amended or
supplemented to be filed with the SEC and to be disseminated to the Company's
stockholders, in each case as and to the extent required by applicable federal
securities laws. The Company and its counsel shall be given a reasonable
opportunity to review the Offer Documents and all amendments and supplements
thereto prior to their filing with the SEC or dissemination to stockholders of
the Company. Parent and the Purchaser agree to provide the Company and its
counsel any comments Parent, the Purchaser or their counsel may receive from the
SEC or its staff with respect to the Offer Documents promptly after the receipt
of such comments.
(c) Subject to the terms and conditions of the Offer, the Purchaser
shall pay for Shares which have been validly tendered and not withdrawn pursuant
to the Offer as promptly as practicable following expiration of the Offer.
1.2 COMPANY ACTION.
---------------
(a) The Company hereby approves of and consents to the Offer and
represents that at a meeting duly called and held the Board of Directors of the
Company has (i) by unanimous vote of all directors present and voting (with all
directors who are designees of Parent abstaining), approved and adopted this
Agreement and the transactions contemplated hereby and determined that the Offer
and the Merger are in the best interests of the Company and its stockholders
(other than Parent and the Purchaser) and on terms that are fair to such
stockholders, and (ii) recommended that the Company's stockholders (other than
Parent and the Purchaser) accept the Offer and tender all of their Shares in
connection therewith and, if required under the MBCL, approve this Agreement and
the transactions contemplated hereby. The Company represents that its Board of
Directors has received the written opinion of Hambrecht & Quist LLC (its
"Financial Advisor") that the consideration to be received by the holders of
- ------------------
Shares (other than Parent and the Purchaser and Dissenting Stockholders (as
defined in Section 2.4)) pursuant to each of the Offer and the Merger is fair to
such holders from a financial point of view, and that a complete and correct
signed copy of such opinion has been delivered on or prior to the date hereof by
the Company to Parent. The Company hereby consents to the inclusion in the
Offer Documents the recommendation of the Company's Board of Directors described
in the immediately preceding sentence. The Company has been authorized by its
Financial Advisor to permit, subject to the prior review by its Financial
Advisor, the inclusion of the fairness opinion (or a reference thereto) in the
Offer Documents, the Schedule 14D-9 (as defined in Section 1.2(b)) and the Proxy
Statement (as defined in Section 4.6).
(b) As soon as reasonably practicable on the date of commencement of
the Offer, the Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 with respect to the Offer (together with all
amendments and supplements thereto, the "Schedule 14D-9") containing the
--------------
recommendation of the Company's Board of
-3-
<PAGE>
Directors described above in Section 1.2(a) and shall mail the Schedule 14D-9 to
the stockholders of the Company. The Company agrees that the Schedule 14D-9
shall comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations promulgated thereunder and, on the
date filed with the SEC and on the date first published, sent or given to the
Company's stockholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that no representation is
made by the Company with respect to information supplied by Parent or the
Purchaser or any of their respective representatives which is included in the
Schedule 14D-9. Each of the Company, Parent and the Purchaser agrees to correct
promptly any information provided by it for use in the Schedule 14D-9 if and to
the extent that such information shall have become false or misleading, and the
Company further agrees to take all steps necessary to amend or supplement the
Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented to
be filed with the SEC and disseminated to the Company's stockholders, in each
case as and to the extent required by applicable federal securities laws. Parent
and its counsel shall be given a reasonable opportunity to review the Schedule
14D-9 and all amendments and supplements thereto prior to their filing with the
SEC or dissemination to stockholders of the Company. The Company agrees to
provide Parent and its counsel with any comments the Company or its counsel may
receive from the SEC or its staff with respect to the Schedule 14D-9 promptly
after the receipt of such comments.
(c) In connection with the Offer, the Company shall, or shall cause
its transfer agent to, furnish the Purchaser promptly with mailing labels
containing the names and addresses of the record holders of Common Stock as of a
recent date and of those persons becoming record holders subsequent to such
date, together with copies of all lists of stockholders, security position
listings and computer files and all other information in the Company's
possession or control regarding the beneficial owners of Common Stock, and shall
furnish to the Purchaser such information and assistance (including updated
lists of stockholders, security position listings and computer files) as the
Purchaser may reasonably request in communicating the Offer to the Company's
stockholders. Subject to the requirements of applicable law, and except for
such steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Offer or the Merger, Parent and the
Purchaser and their agents shall hold in confidence the information contained in
any such labels, listings and files, will use such information only in
connection with the Offer and the other transactions contemplated hereby and, if
this Agreement shall be terminated, will deliver, and will use their reasonable
efforts to cause their agents to deliver, to the Company all copies of such
information then in their possession or control.
1.3 DIRECTORS.
----------
(a) Promptly upon the purchase by the Purchaser of Shares in the
Offer, and from time to time thereafter, the Purchaser shall be entitled to
designate that number of directors, rounded up to the next whole number, on the
Company's Board of Directors that equals the product of (i) the total number of
directors on the Company's Board of Directors (giving effect to the election of
any additional directors pursuant to this Section 1.3) and (ii) the
-4-
<PAGE>
percentage that the number of Shares owned by the Purchaser, Parent and any
direct or indirect wholly owned subsidiary of Parent (including Shares purchased
in the Offer) bears to the total number of Shares outstanding at such time, and
to effect the foregoing the Company shall upon request by the Purchaser, at the
Company's election, either increase the number of directors comprising the
Company's Board of Directors or seek and accept resignations of incumbent
directors. The first date on which designees of the Purchaser shall constitute a
majority of the Company's Board of Directors is referred to in this Agreement as
the "Cut-Off Date." At such times, the Company will use its reasonable best
------------
efforts to cause individuals designated by the Purchaser to constitute the same
percentage as such individuals represent on the Company's Board of Directors of
each committee of the Board.
(b) The Company shall promptly take all actions required pursuant to
Section 14(f) and Rule 14f-1 of the Exchange Act in order to fulfill its
obligations under this Section 1.3 and shall include in the Schedule 14D-9 such
information with respect to the Company and its officers and directors as is
required under Section 14(f) and Rule 14f-1 to fulfill such obligations. The
Purchaser will supply to the Company and be solely responsible for any
information with respect to itself and its nominees, officers, directors and
affiliates required by Section 14(f) and Rule 14f-1.
(c) Following the Cut-Off Date and prior to the Effective Time (as
defined below), the Board of Directors of the Company shall have at least one
director who is neither designated by the Purchaser, an employee of the Company
nor otherwise affiliated with the Purchaser (one or more of such directors, the
"Independent Directors") and any amendment of this Agreement or the Articles or
---------------------
Organization or Bylaws of the Company, any termination or amendment of this
Agreement by the Company, any extension by the Company of the time for the
performance of any of the obligations or other acts of Parent or the Purchaser
or any exercise or waiver of any of the Company's rights hereunder, will require
the concurrence of a majority of the Independent Directors.
ARTICLE II
THE MERGER
2.1 MERGER.
-------
(a) At the Effective Time (as defined in Section 2.1(b) below) and
subject to the terms and conditions hereof and the provisions of the MBCL, the
Purchaser will be merged with and into the Company in accordance with the MBCL,
the separate existence of the Purchaser shall thereupon cease and the Company
shall continue as the surviving corporation (the "Surviving Corporation"). The
---------------------
Purchaser and the Company are sometimes hereinafter referred to collectively as
the "Constituent Corporations."
------------------------
(b) Subject to the terms and conditions hereof, the Merger shall be
consummated as promptly as practicable after the expiration of the Offer and the
Stockholders' Meeting (as defined in Section 5.2), if any, by duly filing
appropriate articles of merger, in such form as is required by, and executed in
accordance with, the relevant provisions of the MBCL
-5-
<PAGE>
The Merger shall be effective at such time as the articles of merger are duly
filed with the Secretary of State of the Commonwealth of Massachusetts in
accordance with the MBCL or at such later time as is specified in the articles
of merger (the "Effective Time"). Prior to such filing, a closing shall take
--------------
place at the offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park,
California, or at such other place as the parties shall agree, for the purpose
of confirming the satisfaction or waiver of the conditions contained in Article
VII hereof. The date on which such closing shall occur is referred to herein as
the "Closing Date."
------------
(c) The separate corporate existence of the Company, as the Surviving
Corporation, with all its purposes, objects, rights, privileges, powers,
certificates and franchises, shall continue unimpaired by the Merger. The
Surviving Corporation shall succeed to all the properties and assets of the
Constituent Corporations and to all debts, choses in action and other interests
due or belonging to the Constituent Corporations and shall be subject to and
responsible for all the debts, liabilities and duties of the Constituent
Corporations with the effect set forth in Section 80 of the MBCL.
2.2 CONVERSION OF SHARES. At the Effective Time and by virtue of the
--------------------
Merger and without any action on the part of the holders of the capital stock of
the Constituent Corporations:
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than (i) Shares to be canceled pursuant to Section 2.2(b)
below and (ii) Dissenting Shares (as defined in Section 2.4)) shall be converted
into the right to receive in cash an amount per Share equal to the highest price
paid per Share pursuant to the Offer (the "Merger Price");
------------
(b) Each Share held in the treasury of the Company and each Share
owned by Parent, the Purchaser or the Company, or by any direct or indirect
wholly owned subsidiary of any of them, shall be canceled and retired without
payment of any consideration therefor; and
(c) Each share of common stock, par value $.01 per share, of the
Purchaser issued and outstanding immediately prior to the Effective Time shall
be converted into one validly issued, fully paid and nonassessable share of
common stock, par value $.01 per share, of the Surviving Corporation.
2.3 EXCHANGE OF CERTIFICATES.
------------------------
(a) From and after the Effective Time, a bank or trust company to be
designated by Parent with the concurrence of the Company shall act as exchange
agent (the "Exchange Agent") in effecting the exchange of the Merger Price for
--------------
certificates which prior to the Effective Time represented Shares and which as
of the Effective Time represent the right to receive the Merger Price (the
"Certificates"). Promptly after the Effective Time, the Exchange Agent shall
- -------------
mail to each record holder of Certificates a form of letter of transmittal and
instructions for use in surrendering such Certificates and receiving the Merger
Price therefor in a form approved by Parent and the Company. At or prior to the
Effective Time, the Purchaser
-6-
<PAGE>
shall deposit in trust with the Exchange Agent immediately available funds in an
amount sufficient to pay the Merger Price for all such Shares to the Company's
stockholders as contemplated by this Section 2.3. Upon the surrender of each
Certificate and the issuance and delivery by the Exchange Agent of the Merger
Price for the Shares represented thereby in exchange therefor, the Certificate
shall forthwith be canceled. Until so surrendered and exchanged, each
Certificate shall represent solely the right to receive the Merger Price for the
Shares represented thereby, without any interest thereon. Upon the surrender and
exchange of such an outstanding Certificate, the holder thereof shall receive
the Merger Price multiplied by the number of Shares represented by such
Certificate, without any interest thereon. If any cash is to be paid to a name
other than that in which the Certificate surrendered in exchange therefor is
registered, it shall be a condition to such payment or exchange that the person
requesting such payment or exchange shall pay to the Exchange Agent any transfer
or other taxes required by reason of the payment of such cash to a name other
than that of the registered holder of the Certificate surrendered, or such
person shall establish to the satisfaction of the Exchange Agent that such tax
has been paid or is not applicable. Notwithstanding the foregoing, neither the
Exchange Agent nor any party hereto shall be liable to a holder of Certificates
for any part of the Merger Price payments made to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(b) Promptly following the sixth month after the Effective Time, the
Exchange Agent shall return to the Surviving Corporation all cash relating to
the transactions described in this Agreement, and the Exchange Agent's duties
shall terminate. Thereafter, each holder of a Certificate may surrender such
Certificate to the Surviving Corporation and (subject to applicable abandoned
property, escheat and similar laws) receive in exchange therefor the Merger
Price for such Shares, without any interest thereon, but shall have no greater
rights against the Surviving Corporation than may be accorded to general
creditors of the Surviving Corporation under applicable law. At and after the
Effective Time, holders of Certificates shall cease to have any rights as
stockholders of the Company except for the right to surrender such Certificates
in exchange for the Merger Price for such Shares or to perfect their right of
appraisal with respect to their Shares pursuant to the applicable provisions of
the MBCL and Section 2.4 below, and there shall be no transfers on the stock
transfer books of the Company or the Surviving Corporation of any Shares that
were outstanding immediately prior to the Merger.
2.4 DISSENTING SHARES.
------------------
(a) Notwithstanding the provisions of Section 2.2 or any other
provision of this Agreement to the contrary, Shares that are issued and
outstanding immediately prior to the Effective Time and are held by stockholders
who shall have properly demanded appraisal of such Shares in accordance with the
MBCL ("Dissenting Shares") shall not be converted into the right to receive the
-----------------
Merger Price at the Effective Time, unless and until the holder of such
Dissenting Shares shall have failed to perfect or shall have effectively
withdrawn or lost such right to appraisal and payment under the MBCL. If a
holder of Dissenting Shares (a "Dissenting Stockholder") shall have so failed to
----------------------
perfect or shall have effectively withdrawn or lost such right to appraisal and
payment, then, as of the Effective Time or the occurrence of such
-7-
<PAGE>
event, whichever last occurs, such Dissenting Shares shall be converted into and
represent solely the right to receive the Merger Price, without any interest
thereon, as provided in Section 2.2.
(b) The Company shall give Parent (i) prompt notice of any written
demands for appraisal, withdrawals of demands for appraisal and any other
instruments served pursuant to Section 89 of the MBCL received by the Company,
and (ii) the opportunity to direct all negotiations and proceedings with respect
to such demands for appraisal. The Company shall not, except with the prior
written consent of Parent, make any payment with respect to any demands for
appraisal or settle or offer to settle any such demands.
2.5 ARTICLES OF ORGANIZATION AND BYLAWS OF THE SURVIVING CORPORATION.
-----------------------------------------------------------------
(a) Subject to the terms of Section 6.5(a), at the Effective Time the
Articles of Organization of the Purchaser, as in effect immediately prior to the
Effective Time, shall be the Articles of Organization of the Surviving
Corporation until thereafter amended as provided by law and such Articles of
Organization; provided, however, that Article I of the Articles of Organization
-------- --------
of the Surviving Corporation shall be amended to read as follows: "The name of
the corporation is Cambridge SoundWorks, Inc."
(b) Subject to the terms of Section 6.5(a), the Bylaws of the
Purchaser, as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation until thereafter amended as provided by law,
the Articles of Organization of the Surviving Corporation or such Bylaws.
(c) Following the Effective Time, the purpose of the Surviving
Corporation shall be to carry on the business of the Company as conducted prior
to the Effective Time. The Surviving Corporation shall only be authorized to
issue 1,000 shares of common stock, par value $.01 per share.
2.6 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION.
---------------------------------------------------
At the Effective Time, the directors of the Purchaser immediately prior to the
Effective Time shall become the directors of the Surviving Corporation, each of
such directors to hold office, subject to the applicable provisions of the
Articles Organization and Bylaws of the Surviving Corporation, until the next
annual stockholders' meeting of the Surviving Corporation and until their
successors shall be duly elected or appointed and qualified. At the Effective
Time, the officers of the Purchaser immediately prior to the Effective Time
shall become the officers of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PARENT AND THE PURCHASER
Parent and the Purchaser hereby jointly and severally represent and warrant
to the Company that, except as and to the extent set forth in a Disclosure
Schedule (the "Parent Disclosure Schedule") delivered to the Company on or prior
--------------------------
to the date hereof setting forth
-8-
<PAGE>
additional exceptions specified therein to the representations and warranties
contained in this Article III, which Disclosure Schedule shall identify
exceptions by specific Section references:
3.1 CORPORATE ORGANIZATION.
-----------------------
(a) Parent is a corporation duly organized, validly existing and in
good standing under the laws of Singapore.
(b) The Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Massachusetts. The
Purchaser has not engaged in any business since it was incorporated other than
in connection with the transactions contemplated by this Agreement. Parent owns
all of the outstanding capital stock of the Purchaser.
3.2 AUTHORITY. Each of Parent and the Purchaser has the full corporate
---------
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly approved by the respective
Boards of Directors of Parent and the Purchaser and no other corporate
proceedings on the part of Parent or the Purchaser are necessary to consummate
the transactions so contemplated (other than, with respect to the Merger, the
filing and recordation of the appropriate merger documents as required by the
MBCL). This Agreement has been duly executed and delivered by each of Parent and
the Purchaser and, assuming the due authorization, execution and delivery
thereof by the Company, constitutes a valid and binding obligation of each of
Parent and the Purchaser, enforceable against such parties in accordance with
its terms.
3.3 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution
------------------------------------
and delivery of this Agreement by Parent and the Purchaser nor the consummation
by Parent and the Purchaser of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of their respective
charter documents, or (ii) assuming compliance with the matters referred to in
clause (iii) below, constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or give rise to a
right of termination, cancellation or acceleration of any obligation contained
in or to the loss of a benefit under, or result in the creation of any lien or
other encumbrance upon any of the properties or assets of Parent or the
Purchaser under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease agreement or other agreement,
instrument, obligation, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Parent or the
Purchaser, or to which either of them or any of their respective properties or
assets may be subject, except for such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens or other
encumbrances, which, individually or in the aggregate, will not have a material
adverse effect on Parent and its subsidiaries taken as a whole or prevent or
materially delay consummation of the Offer or the Merger, or (iii) require any
consent, approval, authorization or permit of, or filing with or notification
to, any court, administrative agency, commission or other governmental or
regulatory authority or instrumentality, domestic or foreign (a "Governmental
------------
Entity"), except
-9-
<PAGE>
(A) pursuant to the Exchange Act, (B) filing articles of merger pursuant to the
MBCL, (C) filings required under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), and the termination or expiration of
-------
the waiting periods thereunder, (D) filings necessary to comply with state
securities or "blue sky" laws, or (E) consents, approvals, authorizations,
permits, filings or notifications which if not obtained or made will not,
individually or in the aggregate, have a material adverse effect on Parent and
its subsidiaries taken as a whole or prevent or materially delay consummation of
the Offer or the Merger.
3.4 BROKERS AND FINDERS. Neither Parent nor the Purchaser has
-------------------
employed any broker or finder or incurred any liability for any fee or
commission to any broker, finder or intermediary in connection with the
transactions contemplated hereby.
3.5 FINANCING. The Purchaser has or will have, prior to the
---------
expiration of the Offer and the Effective Time of the Merger, sufficient cash or
cash-equivalent funds available to purchase all of the Shares outstanding in the
Offer and the Merger, to provide adequate working capital for the Company
following the Effective Time and to pay all related fees and expenses incurred
in connection with the Offer and the Merger.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to Parent and the Purchaser
that, except as and to the extent set forth in a Disclosure Schedule (the
"Company Disclosure Schedule") delivered to Parent on or prior to the date
- -----------------------------
hereof setting forth additional exceptions specified therein to the
representations and warranties contained in this Article IV, which Disclosure
Schedule shall identify exceptions by specific Section references:
4.1 CORPORATE ORGANIZATION. The Company is a corporation duly
----------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has all requisite corporate power and
authority and all necessary governmental approvals to own or lease and operate
its properties and assets and to carry on its business as it is now being
conducted, and is duly qualified or licensed as a foreign corporation to do
business and in good standing in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties owned or
leased by it makes such qualification or licensing necessary, except where the
failure to be so organized, existing, in good standing, qualified or licensed
would not have a Material Adverse Effect. As used herein, the term "Material
--------
Adverse Effect" means any change or effect that, individually or in the
- --------------
aggregate, is or is reasonably likely to be materially adverse to the business,
operations, properties, prospects, condition (financial or otherwise), assets or
liabilities (including, without limitation, contingent liabilities) of the
Company.
4.2 CAPITALIZATION . The authorized capital stock of the Company
--------------
consists of 10,000,000 shares of Common Stock and 2,000,000 shares of preferred
stock, no par value ("Preferred Stock"). As of the close of business on October
---------------
23, 1997, (i) 3,804,824 shares of
-10-
<PAGE>
Common Stock were issued and outstanding, (ii) no shares of Preferred Stock were
issued and outstanding, (iii) 576,753 shares of Common Stock were reserved for
issuance upon the exercise of outstanding options to acquire shares of Common
Stock ("Stock Options"), (iv) 257,314 shares of Common Stock were reserved for
-------------
issuance upon the exercise of outstanding warrants to acquire shares of Common
Stock ("Warrants"), and (v) no shares of Common Stock were held by the Company
--------
in its treasury. The number of issued and outstanding shares of Common Stock at
any time taken together with the number of shares of Common Stock reserved for
issuance upon the exercise of outstanding Stock Options, but excluding the
number of shares of Common Stock reserved for issuance upon the exercise of
outstanding Warrants, at such time is referred to herein as the "Fully Diluted
-------------
Shares." All Stock Options were issued by the Company pursuant to the terms of
- ------
its 1993 Stock Option Plan (as amended, the "Stock Option Plan"). All of the
-----------------
issued and outstanding shares of Common Stock are validly issued, fully paid and
nonassessable and are not subject to preemptive rights created by statute, the
Articles of Organization or Bylaws of the Company or any agreement to which the
Company is a party or by which the Company or its assets is bound. Except as
disclosed in this Section 4.2, there are no shares of capital stock of the
Company issued or outstanding, and except for the Stock Options and the
Warrants, there are no outstanding subscriptions, options, warrants, rights,
convertible securities or other agreements or commitments of any character
(including, without limitation, rights which will or could become exercisable as
a result of this Agreement or any transaction contemplated hereby) relating to
the issued or unissued capital stock or other securities of the Company
obligating the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of the Company or
obligating the Company to grant, extend or enter into any subscription, option,
warrant, right, convertible security or other similar agreement or commitment.
There are no voting trusts or other agreements or understandings to which the
Company is a party with respect to the voting of the capital stock of the
Company.
4.3 SUBSIDIARIES. The Company does not own, directly or
------------
indirectly, any equity or similar interest in, or any interest convertible into
or exchangeable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
4.4 AUTHORITY. The Company has the full corporate power and
---------
authority to enter into this Agreement, to perform its obligations hereunder 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 approved by the Board of Directors of the Company and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated (other than, with
respect to the Merger, the approval and adoption of this Agreement by the
stockholders of the Company if and to the extent required by applicable law, and
the filing and recordation of the appropriate merger documents as required by
the MBCL). This Agreement has been duly executed and delivered by, and,
assuming the due authorization, execution and delivery thereof by Parent and the
Purchaser, constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
-11-
<PAGE>
4.5 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution
------------------------------------
and delivery of this Agreement by the Company nor the consummation by the
Company of the transactions contemplated hereby will (i) conflict with or result
in any breach or violation of any provision of the Articles of Organization or
Bylaws of the Company, or (ii) constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or give rise
to a right of termination, cancellation or acceleration of any obligation
contained in or to the loss of a benefit under, or result in the creation of any
lien or other encumbrance upon any of the properties or assets of the Company
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or to
which it or any of its properties or assets may be subject, except for such
violations, conflicts, breaches, terminations, accelerations or creations of
liens or other encumbrances, which will not have a Material Adverse Effect, or
(iii) require any consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Entity, except (A) pursuant to the Exchange
Act, (B) filing articles of merger pursuant to the MBCL, (C) filings under the
HSR Act and the termination or expiration of the waiting periods thereunder, (D)
filings necessary to comply with state securities or "blue sky" laws, or (E)
consents, approvals, authorizations, permits, filings or notifications which if
not obtained or made will not have a Material Adverse Effect or prevent or
materially delay consummation of the Offer or the Merger.
4.6 PROXY OR INFORMATION STATEMENT. If the MBCL shall require a
------------------------------
Stockholders' Meeting (as defined in Section 5.2 below) to be convened in
connection with the Merger, the proxy statement to be provided to stockholders
of the Company in connection with the Stockholders' Meeting (together with the
amendments and supplements thereto, the "Proxy Statement") and all amendments
---------------
thereof and supplements thereto shall, and if the MBCL shall not require a
Stockholders' Meeting to be convened in connection with the Merger, the
information statement to be provided to stockholders of the Company in
connection with the Merger, if any (together with the amendments and supplements
thereto, the "Information Statement") shall, comply as to form in all material
---------------------
respects with the applicable requirements of the Exchange Act and the rules and
regulations promulgated thereunder, and shall not, at the time of (i) first
mailing thereof or (ii) in the case of the Proxy Statement, the Stockholders'
Meeting to be held in connection with the Merger, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that (x) no
representation is made by the Company with respect to information supplied by
Parent or any affiliates or representatives of Parent or the Purchaser for
inclusion in the Proxy Statement or Information Statement, as the case may be,
and (y) no representation is made with respect to a Proxy Statement or
Information Statement, as the case may be, prepared by the Company and provided
to the Company's stockholders at any time following the Cut-Off Date.
4.7 CONDUCT OF BUSINESS.
-------------------
(a) The business of the Company, as presently conducted, is not being
conducted in default or violation of any term, condition or provision of (i) its
respective charter
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<PAGE>
or bylaws, or (ii) any note, bond, mortgage, indenture, deed of trust, lease,
agreement, or other instrument or obligation of any kind to which the Company is
a party or by which the Company or any of its properties or assets may be bound,
or (iii) any federal, state, local or foreign statue, law, ordinance, rule,
regulation, judgment, decree, order, concession, grant, franchise, permit or
license or other governmental authorization or approval applicable to the
Company, excluding from the foregoing clauses (ii) and (iii) defaults or
violations that could not reasonably be expected to have a Material Adverse
Effect.
(b) The Company has all licenses, permits, orders or approvals of, and
have made all required registrations with, all Governmental Entities that are
material to the conduct of the business of the Company (collectively,
"Permits"). To the Company's knowledge, (i) all Permits are in full force and
-------
effect; (ii) no material violations are or have been recorded in respect of any
Permit; and (iii) no proceeding is pending or threatened to revoke or limit any
Permit.
(c) The Company has not received any written communication from a
Governmental Entity that alleges that the Company is not in compliance with any
Environmental Law (as defined below). The Company has no knowledge of any
environmental materials or information, including on-site or off-site disposal
or releases of Hazardous Materials (as defined below), that could reasonably be
expected to have a Material Adverse Effect. As used in this Agreement, the term
"Environmental Laws" means any applicable treaties, laws, regulations,
------------------
enforceable requirements, orders, decrees or judgments issued, promulgated or
entered into by any Governmental Entity, which relate to (A) pollution or
protection of the environment or (B) the generation, storage, use, handling,
disposal or transportation of or exposure to Hazardous Materials, including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Resource Conservation
-- --- ------
and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq., the Federal Water
-- ---
Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq., the Clean
-- ---
Air Act of 1970, as amended, 42 U.S.C. Section 7401 et seq., the Toxic
-- ---
Substances Control Act of 1976, 15 U.S.C. Section 2601 et seq., the Hazardous
-- ---
Materials Transportation Act, 49 U.S.C. Section 1801 et seq., and any similar
-- ---
or implementing state or local law, and all amendments or regulations
promulgated thereunder; and the term "Hazardous Materials" means all explosive
-------------------
or regulated radioactive materials or substances, biological hazards, genotoxic
or mutagenic hazards, hazardous or toxic substances, medical wastes or other
wastes or chemicals, petroleum or petroleum distillates, asbestos or asbestos-
containing materials, and all other materials or chemicals regulated pursuant to
any Environmental Law, including materials listed in 49 C.F.R. Section 172.101
and materials defined as hazardous pursuant to Section 101(14) of CERCLA.
4.8 SEC DOCUMENTS. The Company has filed all required reports,
-------------
schedules, forms, statements and other documents with the SEC since July 2, 1995
(the "SEC Documents"). As of their respective dates, the SEC Documents complied
-------------
in all material respects 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 promulgated thereunder applicable to such SEC
Documents, and, at the time of filing, none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be
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<PAGE>
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents (the "Company
-------
Financial Statements") comply as to form in all material respects with
- --------------------
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the financial position of the Company as of the dates thereof and its
statements of operations, stockholders' equity and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal and
recurring year-end audit adjustments which were and are not expected to be
material). Except as and to the extent set forth on the balance sheet of the
Company as at June 29, 1997, including the notes thereto, the Company has no
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise) which would be required to be reflected on a balance sheet, or in the
notes thereto, prepared in accordance with generally accepted accounting
principles, except for liabilities and obligations incurred in the ordinary
course of business consistent with past practice since June 29, 1997 which could
not reasonably be expected to have a Material Adverse Effect. The Company has
heretofore delivered to Parent complete and correct copies of all of the SEC
Documents and all amendments and modifications thereto, as well as, to the
extent any shall exist, all amendments and modifications that have not been
filed by the Company with the SEC to all agreements, documents and other
instruments that previously had been filed by the Company with the SEC and are
currently in effect.
4.9 LITIGATION. There is no suit, action or proceeding pending or,
----------
to the knowledge of the Company, threatened against the Company that,
individually or in the aggregate, could reasonably be expected to (i) have a
Material Adverse Effect, (ii) materially impair the ability of the Company to
perform its obligations under this Agreement, or (iii) prevent the consummation
of any of the transactions contemplated by this Agreement, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity
outstanding against the Company having, or that could reasonably be expected to
have, any such effect.
4.10 LABOR AGREEMENTS AND ACTIONS.
----------------------------
(a) The Company is not bound by or subject to (and none of its assets
or properties is bound by or subject to) any written or oral, express or
implied, contract, commitment or arrangement with any labor union, and no labor
union has requested or, to the knowledge of the Company, has sought to represent
any of the employees, representatives or agents of the Company. There is no
strike or other labor dispute involving the Company pending, or to the knowledge
of the Company threatened, which could have a Material Adverse Effect, nor is
the Company aware of any labor organization activity involving its employees.
(b) The employment of each officer and employee of the Company is
terminable at the will of the Company, and the Company has not entered into any
oral or written agreements with any of its officers or employees that provide
for severance or termination pay or acceleration of vesting on stock options or
restricted stock.
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<PAGE>
(c) The Company has complied in all material respects with all
applicable state and federal equal employment opportunity laws and with other
laws related to employment.
(d) The Company is not aware that any officer or key employee, or that
any group of key employees, intends to terminate such officer's or employee's
employment with the Company, nor does the Company have any present intention to
terminate the employment of any officer or key employee. Each officer and key
employee of the Company is currently devoting 100% of his or her business time
attending to the affairs of the Company.
4.11 CERTAIN AGREEMENTS AND EMPLOYEE BENEFIT PLANS.
----------------------------------------------
(a) The Company is not a party to any written (i) employment,
severance, collective bargaining or consulting agreement not terminable on 60
days' or less notice, (ii) agreement with any executive officer or other key
employee of the Company (A) the benefits of which are contingent, or the terms
of which are materially altered, upon the occurrence of a transaction involving
the Company of the nature of any of the transactions contemplated by this
Agreement, (B) providing any term of employment or compensation guarantee
extending for a period longer than one year, or (C) providing severance benefits
or other benefits after the termination of employment of such executive officer
or key employee regardless of the reason for such termination of employment,
(iii) agreement, plan or arrangement under which any person may receive payments
subject to the tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), or (iv) agreement or plan, including, without
----
limitation, any stock option plan, stock appreciation right plan, restricted
stock plan or stock purchase plan, the benefits of which would 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.
(b) Schedule 4.11(b) contains a true and complete summary or list of,
or otherwise describes (i) all employee benefit plans (within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and all bonus, stock option, stock purchase, restricted stock,
-----
incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, severance or other benefit plans, programs or
arrangements, and all employment, termination, severance or other contracts or
agreements to which the Company is a party, with respect to which the Company
has any obligations which are material in amount and which are maintained,
contributed to or sponsored by the Company for the benefit of any current or
former employee, officer or director of the Company and (ii) each employee
benefit plan for which the Company could incur liability under Section 4069 of
ERISA, in the event such plan were terminated, or under Section 4212(c) of
ERISA, or in respect of which the Company remains secondarily liable under
Section 4204 of ERISA (collectively, the "Material Plans"). Each Material Plan
--------------
is in writing and the Company has previously provided to Parent a true and
complete copy of each Material Plan and a true and complete copy of each
material document prepared in connection with each such Material Plan including,
without limitation: (i) a copy of each trust or other funding arrangement, (ii)
the most current summary plan
-15-
<PAGE>
description and summary of material modifications, (iii) the most recently filed
Internal Revenue Service ("IRS") Form 5500, (iv) the most recently received IRS
---
determination letter for each such Material Plan, and (v) the most recently
prepared actuarial report and financial statement in connection with each such
Material Plan. The Company has no express or implied commitment (i) to create,
incur liability with respect to or cause to exist any other employee benefit
plan, program or arrangement, (ii) to enter into any contract or agreement to
provide compensation or benefits to any individual, or (iii) to modify, change
or terminate any Material Plan, other than with respect to a modification,
change or termination required by ERISA or the Code. To the extent applicable,
the Material Plans comply with the requirements of ERISA and the Code, and any
Material Plan intended to be qualified under Section 401(a) of the Code has been
determined by the Internal Revenue Service to be so qualified and has been so
qualified during the period from its adoption to date. No Material Plan is
covered by Title IV of ERISA or Section 412 of the Code. Neither the Company nor
any officer or director of the Company has incurred any liability or penalty
under Sections 4975 through 4980 of the Code or Title I of ERISA. To the
knowledge of the Company, each Material Plan has been maintained and
administered in all material respects in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code, which are applicable to such
Material Plans. There are no pending or anticipated claims against or otherwise
involving any of the Material Plans and no suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of Material Plan
activities) has been brought, or to the knowledge of the Company is threatened,
against or with respect to any such Material Plan. All material contributions,
reserves or premium payments required to be made or accrued as of the date
hereof to the Material Plans have been made or accrued.
(c) Schedule 4.11(c) contains a true and correct list of each person
who holds any Stock Option as of the date hereof, together with (i) the number
of shares of Common Stock subject to such Stock Option, (ii) the date of grant
of such Stock Option, (iii) the extent to which such Stock Option is currently
vested or scheduled to vest by December 15, 1997, (iv) the exercise price of
such Stock Option, (v) whether such Stock Option is intended to qualify as an
incentive stock option within the meaning of Section 422(b) of the Code (an
"ISO"), and (vi) the expiration date of such Stock Option. Schedule 4.11(c)
---
also sets forth the aggregate number of ISO's and nonqualified Stock Options
outstanding as of the date hereof.
4.12 TAXES.
-----
(a) The Company (i) has filed when due (taking into account
extensions) with the appropriate federal, state, local, foreign and other
governmental agencies, all tax returns, estimates and reports required to be
filed by it, (ii) either paid when due and payable or established adequate
reserves or otherwise accrued all requisite federal, state, local or foreign
taxes, levies, imposts, duties, licenses and registration fees and charges of
any nature whatsoever, and unemployment and social security taxes and income tax
withholding, including interest and penalties thereon ("Taxes") and there are
-----
and will be no tax deficiencies claimed in writing and received by the Company
in respect of any period preceding the Effective Time that, in the aggregate,
would result in any tax liability in excess of the amount of the reserves or
accruals, and (iii) have established or will establish in accordance with its
normal accounting practices and
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<PAGE>
procedures accruals and reserves that, in the aggregate, are adequate for the
payment of all Taxes not yet due and payable and attributable to any period
preceding the Effective Time.
(b) No taxes, interest, penalties, assessments or deficiencies have
been threatened or claimed in a writing and received by the Company by any
taxing authority in respect of any tax returns filed by the Company (or any
predecessor corporations). Neither the Company nor any predecessor corporation
has executed or filed with the IRS or any other taxing authority any agreement
or other document extending, or having the effect of extending, the period of
assessment or collection of any Taxes. The Company is not currently being
audited by any taxing authority nor has it received notice of a proposed audit
pertaining to Taxes. There are no tax liens on any assets of the Company or any
affiliate, except for Taxes not yet due and payable. The accruals and reserves
for taxes reflected in the balance sheet of the Company as at June 29, 1997 are
in all material respects adequate to cover all Taxes accruable through the date
thereof (including interest and penalties, if any, thereon and Taxes being
contested) in accordance with generally accepted accounting principles.
(c) The Company neither is a party to, is bound by, nor has any
obligation under any tax sharing or similar agreement.
(d) The Company is not required to include in income (i) any amount in
respect of any adjustment under Section 481 of the Code, (ii) any deferred
intercompany transaction, or (iii) any installment sale gain, where the
inclusion in income would result in a tax liability materially in excess of the
reserves therefor. The Company has not given a consent under Section 341(f) of
the Code. The Company is not, nor has it been at any time, a "United States
real property holding corporation" within the meaning of Section 897(c)(2) of
the Code.
(e) The Company is not a party to any agreement, contract or
arrangement that may result, separately or in the aggregate, in the payment of
any "excess parachute payment" within the meaning of Section 280G of the Code by
reason of the consummation of the Offer or the Merger, determined without regard
to Section 280G(b)(4) of the Code. No acceleration of the vesting schedule for
any property that is substantially unvested within the meaning of the
regulations under Section 83 of the Code will occur in connection with the
transactions contemplated by this Agreement. The Company is not nor has it been
subject to any accumulated earnings tax or personal holding company tax. The
Company does not own stock in (i) a passive foreign investment company within
the meaning of Section 1296 of the Code or (ii) a controlled foreign corporation
within the meaning of Section 957 of the Code. The Company is not obligated
under any agreement with respect to industrial development bonds or other
obligations with respect to which the excludibility from gross income of the
holder for federal income tax purposes could be affected by the transactions
contemplated hereunder. The Company has no unrecaptured overall foreign loss
within the meaning of Section 904(f) of the Code and has not participated in or
cooperated with an international boycott within the meaning of Section 999 of
the Code. The Company does not own any property of a character the transfer of
which would give rise to (x) a revaluation of such property for purposes of any
ad valorem or similar tax, or (y) any documentary, stamp or other transfer tax.
The Company has no "excess
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<PAGE>
loss account" for purposes of the Treasury Regulations promulgated under Section
1502 of the Code.
4.13 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 29, 1997, except as
------------------------------------
contemplated by this Agreement or disclosed in any SEC Document filed since such
date and prior to the date of this Agreement, the Company has conducted its
business only in the ordinary course consistent with past practice, and there
has not been (i) any damage, destruction or loss, whether covered by insurance
or not, having or which, insofar as reasonably can be foreseen, in the future
would have a Material Adverse Effect, (ii) any declaration, setting aside or
payment of any dividend (whether in cash, stock or property) with respect to
Common Stock, or any redemption, purchase or other acquisition of any of its
securities, (iii) any change in the business, operations, properties, prospects,
condition (financial or otherwise), assets or liabilities (including, without
limitation, contingent liabilities) of the Company having a Material Adverse
Effect, (iv) any labor dispute, other than routine matters, none of which is
material to the Company, (v) any entry into any material commitment or
transaction (including, without limitation, any borrowing or capital
expenditure) other than in the ordinary course of business consistent with past
practice, (vi) any material change by the Company in its accounting methods,
principles or practices, (vii) any revaluation by the Company of any asset
(including, without limitation, any writing down of the value of inventory or
writing off of notes or accounts receivable), or (viii) any increase in or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any officers or key employees of the Company.
4.14 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF
--------------------------------------------------------------------
EQUIPMENT.
- ----------
(a) The Company does not own any real property.
(b) All of the existing real property leases to which the Company is a
party have been previously delivered to Buyer. Schedule 4.14(b) sets forth a
complete and accurate list of all real property leased by the Company.
(c) The Company owns or has valid leasehold interests in all of its
tangible properties and assets (real, personal and mixed) used in its business,
free and clear of any liens (other than liens for Taxes that are not yet
delinquent), charges, pledges, security interests or other encumbrances, except
as reflected in the Company Financial Statements and except for such
imperfections of title and encumbrances, if any, that are not substantial in
character, amount or extent, and that do not and are not reasonably likely to
materially detract from the value, or interfere with the use of the property
subject thereto or affected thereby. The Company has delivered to Buyer correct
and complete copies of each lease identified in Schedule 4.14(b) and such leases
are valid and enforceable by the Company in accordance with their terms. The
Company has received no notice that, and, to the Company's knowledge, no
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<PAGE>
circumstance exists which, with the passage of time or the giving of notice or
both, could constitute a default under any such leases.
(d) Each item of machinery and equipment owned or leased by the
Company is (i) adequate for the conduct of the business of the Company
consistent with its past practice, (ii) suitable for the uses to which it is
currently employed, (iii) in good operating condition, ordinary wear and tear
excepted, and (iv) regularly and properly maintained.
4.15 INTELLECTUAL PROPERTY.
---------------------
(a) The Company either owns, or has a valid license with respect to,
all patents, copyrights, trademarks, trade secrets and other intellectual
property used in, by, or necessary to, the operation or conduct of its business
as presently conducted (such intellectual property and the rights thereto are
collectively referred to herein as the "Company IP Rights").
-----------------
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
material breach of any instrument or agreement governing any patent, copyright,
trademark, trade secret or other intellectual property rights licensed by, or
to, the Company, will not cause the forfeiture or termination or give rise to a
right of forfeiture or termination of any Company IP Rights or materially impair
the right of the Company, the Surviving Corporation or Parent in or to use,
sell, enforce license or otherwise exploit any Company IP Rights or portion
thereof.
(c) Neither the operation of the Company's business, the Company IP
Rights nor the manufacture, marketing, license, sale or intended use of any
product, service or technology currently licensed, manufactured, created,
distributed, authored, used, sold or under development by the Company (i)
violates in any material respect any license or agreement between the Company
and any third party or (ii) infringes any patents, copyright trademark, trade
secret or other intellectual property right of any other party. There is no
pending or, to the knowledge of the Company, threatened claim or litigation
contesting the validity, ownership or right to use, sell, enforce, license or
dispose of any Company IP Rights, nor has the Company received any written
notice asserting that any Company IP Rights or the proposed use, sale, license
or disposition thereof conflicts or will conflict with the rights of any other
party.
4.16 MATERIAL CONTRACTS. Except as disclosed in the SEC Documents,
------------------
there are no agreements, understandings or proposed transactions between the
Company and any of its officers, directors, affiliates, or any affiliate
thereof. Except as reflected in the SEC Documents, there are no agreements,
understandings, instruments, contracts or proposed transactions to which the
Company is a party or by which it is bound that involve (i) obligations
(contingent or otherwise) of, or payments to, the Company in excess of $25,000,
other than purchase orders in individual amounts of less than $100,000 received
in the ordinary course of business, (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company, or (iii) the
grant of rights to manufacture, produce, assemble, license, market, or sell its
products to any other person or affect the Company's exclusive right to develop,
manufacture, assemble, distribute, market or sell its products (the "Material
--------
Contracts"). To the knowledge of the Company: (i) each Material Contract is in
- ---------
full force and effect except as the same may have
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<PAGE>
expired in accordance with its terms; (ii) the Company has not received any
written assertion of default under any Material Contract; and (iii) the Company
does not reasonably expect nor has it received any notice related to any
termination or material change to, or proposal with respect to, any of the
Material Contracts as a result of the transactions contemplated by this
Agreement. The Company is not a party to, nor has it any obligation under, any
contract or agreement, written or oral, which contains any covenants, currently
or prospectively limiting the freedom of the Company to engage in any line of
business anywhere in the world or to compete with any entity anywhere in the
world.
4.17 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each current and
-------------------------------------------------
former employee, consultant and officer of the Company has executed an agreement
with the Company regarding confidentiality and proprietary information
substantially in the form or forms attached to Schedule 4.17. The Company is not
aware that any of its employees or consultants is in violation thereof, and the
Company will use its best efforts to prevent any such violation. All consultants
to or vendors of the Company with access to confidential information of the
Company are parties to a written agreement substantially in the form or forms
attached to Schedule 4.17 under which, among other things, each such consultant
or vendor is obligated to maintain the confidentiality of confidential
information of the Company. The Company is not aware that any of its consultants
or vendors are in violation thereof, and the Company will use its best efforts
to prevent any such violation.
4.18 NO CONFLICT OF INTEREST. Except as expressly disclosed in the
-----------------------
SEC Documents, the Company is not indebted, directly or indirectly, to any of
its officers or directors or to their respective spouses or children, in any
amount whatsoever other than in connection with expenses or advances of expenses
incurred in the ordinary course of business or relocation expenses of employees.
To the Company's knowledge, none of the Company's officers or directors, or any
members of their immediate families, directly or indirectly, are indebted to the
Company or have any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation which competes with the
Company except that officers, directors and/or stockholders of the Company may
own stock in (but not exceeding two percent of the outstanding capital stock of)
any publicly traded company that may compete with the Company. To the Company's
knowledge, none of the Company's officers or directors or any member of their
immediate families is, directly or indirectly, interested in any material
contract with the Company. The Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
4.19 TAKEOVER STATUTES INAPPLICABLE. No "fair price," "moratorium,"
------------------------------
"control share acquisition" or other similar anti-takeover statute or regulation
(each a "Takeover Statute") is applicable to the Company, the Shares, the Offer,
----------------
the Merger or any of the other transactions contemplated by this Agreement. The
Company has heretofore delivered to Parent a complete and correct copy of the
resolutions of the Board of Directors of the Company approving the Offer, the
Merger and this Agreement, and such approval is sufficient to render
inapplicable to the Offer, the Merger, this Agreement and the transactions
contemplated by this Agreement the provisions of Chapters 110C and 110F of the
Massachusetts Corporation-Related Laws to the
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<PAGE>
extent, if any, that such statutes are applicable to such transactions and this
Agreement. On or prior to the date hereof, the Company has taken all corporate
action necessary to cause the restrictions set forth in Chapters 110D and 110E
of the Massachusetts Corporation-Related Laws to be inapplicable to the Offer
and the Merger and other similar transactions involving the Company and its
stockholders.
4.20 BROKERS AND FINDERS. Except for Hambrecht & Quist LLC and the
-------------------
fees payable by the Company to such firm described in an engagement letter dated
September 29, 1997, a complete and correct copy of which has been provided to
Parent on or prior to the date hereof, the Company has not employed any broker
or finder or incurred any liability for any fee or commission to any broker,
finder or intermediary in connection with the transactions contemplated hereby.
SECTION V
COVENANTS OF THE COMPANY AND PARENT
5.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by
----------------------------------
this Agreement, during the period commencing on the date of this Agreement and
continuing until the Cut-Off Date or until the termination of this Agreement in
accordance with its terms, the Company shall conduct its operations in the
ordinary and usual course consistent with past practice, and the Company will
endeavor to preserve intact its business organization, to keep available the
services of its officers and employees and to maintain satisfactory relations
with suppliers, contractors, distributors, licensors, licensees, customers and
others having business relationships with it. Without limiting the generality
of the foregoing and except as provided in this Agreement, prior to the Cut-Off
Date, the Company shall not directly or indirectly do, or propose to do, any of
the following, without the prior written consent of Parent:
(a) Declare or pay any dividends on or make any other distribution in
respect of any of the capital stock of the Company;
(b) Split, combine or reclassify any of the capital stock of the
Company or issue or authorize any other securities in respect of, in lieu of or
in substitution for, shares of the capital stock of the Company or repurchase,
redeem or otherwise acquire any shares of the capital stock of the Company;
(c) Issue, deliver, encumber, sell or purchase any shares of the
capital stock of the Company or any securities convertible into, or rights,
warrants, options or other rights of any kind to acquire, any such shares of
capital stock, other convertible securities or any other ownership interest
(including, without limitation, any phantom interest) (other than the issuance
of Common Stock upon the exercise of outstanding Stock Options and Warrants);
(d) Amend or otherwise change its Articles of Organization or Bylaws
(or other comparable organizational document);
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<PAGE>
(e) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof;
(f) Sell, lease, license or otherwise dispose of any of its assets
(including the Company IP Rights), other than in the ordinary course of business
consistent with its past practices;
(g) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or guarantee
any debt securities of others, other than in the ordinary course of business
consistent with past practice;
(h) Enter into any contract or agreement other than in the ordinary
course of business consistent with past practice;
(i) Authorize any single capital expenditure which is in excess of
$50,000 or capital expenditures which are, in the aggregate, in excess of
$150,000;
(j) Increase the compensation payable or to become payable to its
officers or employees, except for increases in accordance with past practices in
salaries or wages of employees of the Company who are not officers of the
Company, or grant any severance or termination pay to, or enter into any
employment or severance agreement with any director, officer or other employee
of the Company, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee;
(k) Take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect to
accounting policies or procedures (including, without limitation, procedures
with respect to cash management, the payment of accounts payable and the
collection of accounts receivable);
(l) Make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability, or execute or file with
the IRS or any other taxing authority any agreement or other document extending,
or having the effect of extending, the period of assessment or collection of any
taxes;
(m) Amend or modify the warranty policy of the Company;
(n) Pay, discharge, satisfy, settle or compromise any suit, 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 and consistent with past practice, of liabilities
reflected or reserved against in the Company's balance sheet dated as of June
29, 1997 as filed by the Company with the SEC in its Annual Report on Form 10-K
for its fiscal year ended June 29, 1997 or subsequently incurred in the ordinary
course of business and consistent with past practice; or
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<PAGE>
(o) Take any action that would result in any of the representations
and warranties of the Company set forth in this Agreement becoming untrue in any
material respect or in any of the conditions to the Offer or any of the
conditions to the Merger set forth in Article VII not being satisfied.
5.2 STOCKHOLDER MEETING; PROXY MATERIAL.
-----------------------------------
(a) If this Agreement is required by the MBCL to be approved by the
Company's stockholders, then the Company shall cause a meeting of its
stockholders (the "Stockholders' Meeting") to be duly called and held as soon as
---------------------
reasonably practicable for the purpose of voting on the approval and adoption of
this Agreement and the transactions contemplated hereby. The Board of Directors
of the Company shall, subject to the terms of Section 5.3(b), recommend approval
and adoption of this Agreement and the Merger by the Company's stockholders. In
connection with such meeting, the Company (i) shall promptly prepare and file
with the SEC, use all reasonable efforts to have cleared by the SEC and
thereafter mail to its stockholders as promptly as practicable the Proxy
Statement and all other proxy materials for such meeting, (ii) shall notify
Parent of the receipt of any comments of the SEC with respect to the Proxy
Statement and of any requests by the SEC for any amendment or supplement thereto
or for additional information and shall provide to Parent promptly copies of all
correspondence between the Company or any representative of the Company and the
SEC, (iii) shall give Parent and its counsel the opportunity to review the Proxy
Statement prior to its being filed with the SEC and shall give Parent and its
counsel the opportunity to review all amendments and supplements to the Proxy
Statement and all responses to requests for additional information and replies
to comments prior to their being filed with, or sent to, the SEC, (iv) shall,
subject to the fiduciary duties of its Board of Directors as advised by counsel,
use all reasonable efforts to obtain the necessary approvals by its stockholders
of this Agreement and the transactions contemplated hereby and (v) shall
otherwise comply with all legal requirements applicable to such meeting.
(b) Notwithstanding the foregoing, in the event that Purchaser shall
acquire at least 90% of the then outstanding Shares, the parties hereto agree,
at the request of Purchaser, subject to the provisions of Article VII, to take
all necessary and appropriate action to cause the Merger to become effective, in
accordance with Section 82 of the MBCL, as soon as reasonably practicable after
such acquisition, without a meeting of the stockholders of the Company.
5.3 THIRD PARTY ACQUISITIONS.
------------------------
(a) The Company agrees that neither it nor any of its employees or
directors shall, and it shall direct and use its best efforts to cause its
agents and representatives (including its Financial Advisor or any other
investment banker and any attorney or accountant retained by it (collectively,
"Company Advisors")), not to, directly or indirectly, initiate, solicit,
- -----------------
encourage or otherwise facilitate any inquiries in respect of, or the making of
any proposal for, a Third Party Acquisition (as defined in Section 5.3(b)
below). The Company further agrees that neither it nor any of its employees or
directors shall, and it shall direct and use its best efforts to
-23-
<PAGE>
cause all Company Advisors not to, directly or indirectly, engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any Third Party (as defined in Section 5.3(b) below)
relating to the proposal of a Third Party Acquisition, or otherwise facilitate
any effort or attempt to make or implement a Third Party Acquisition; provided,
--------
however, that if at any time prior to the acceptance for payment of Shares
- -------
pursuant to the Offer, the Board of Directors of the Company determines in good
faith, after consultation with outside counsel, that it is necessary to do so in
order to comply with its fiduciary duties to the Company's stockholders under
applicable law, the Company may, in response to an inquiry, proposal or offer
for a Third Party Acquisition which was not solicited subsequent to the date
hereof, (x) furnish only such information with respect to the Company to any
such person pursuant to a customary confidentiality agreement as was delivered
to Parent prior to the execution of this Agreement and (y) participate in the
discussions and negotiations regarding such inquiry, proposal or offer; and
further provided, that nothing contained in this Agreement shall prevent the
- ------- --------
Company or its Board of Directors from complying with Rules 14d-9 and 14e-2
promulgated under the Exchange Act with regard to any proposed Third Party
Acquisition. The Company shall immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any Third Parties
conducted heretofore with respect to any of the foregoing. The Company shall
take the necessary steps to promptly inform all Company Advisors of the
obligations undertaken in this Section 5.3 (a). The Company agrees to notify
Parent promptly if (i) any inquiries relating to or proposals for a Third Party
Acquisition are received by the Company or any of the Company Advisors, (ii) any
confidential or other non-public information about the Company is requested from
the Company or any of the Company Advisors, or (iii) any negotiations or
discussions in connection with a possible Third Party Acquisition are sought to
be initiated or continued with the Company or any of the Company Advisors
indicating, in connection with such notice, the principal terms and conditions
of any proposals or offers, including the identity of the offering party, and
thereafter shall keep Parent informed in writing, on a reasonably current basis,
on the status and terms of any such proposals or offers and the status of any
such negotiations or discussions. The Company also agrees promptly to request
each person or entity that has heretofore executed a confidentiality agreement
in connection with its consideration of acquiring the Company, if any, to return
all confidential information heretofore furnished to such person or entity by or
on behalf of the Company.
(b) Except as permitted by this Section 5.3(b), the Board of Directors
of the Company shall not withdraw its recommendation of the Offer or the Merger
and other transactions contemplated hereby or approve or recommend, or cause the
Company to enter into any agreement with respect to, any Third Party
Acquisition. Notwithstanding the preceding sentence, if the Board of Directors
of the Company determines in its good faith judgment, after consultation with
outside counsel, that it is necessary to do so in order to comply with its
fiduciary duties to the Company's stockholders under applicable law, the Board
of Directors may withdraw or alter its recommendation of the Offer or the Merger
and the other transactions contemplated hereby, or approve or recommend or cause
the Company to enter into an agreement with respect to a Superior Proposal (as
defined below), but in each case only (i) after providing written notice to
Parent (a "Notice of Superior Proposal") advising Parent that the Board of
---------------------------
Directors has received a Superior Proposal, specifying the material terms and
conditions of such Superior Proposal and identifying the person or entity making
such Superior Proposal and (ii) if
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<PAGE>
Parent does not, within five (5) business days (or within two (2) business days
with respect to any amendment to any Superior Proposal which was noticed at
least five (5) days prior to such amendment) after Parent's receipt of the
Notice of Superior Proposal, make an offer which the Board of Directors of the
Company determines in its good faith judgment (based on the advise of its
Financial Advisor or another financial adviser of nationally recognized
reputation) to be as favorable to the Company's stockholders as such Superior
Proposal; provided, however, that the Company shall not be entitled to enter
-------- -------
into any agreement with respect to a Superior Proposal unless this Agreement is
concurrently terminated by its terms pursuant to Section 8.1(e)(i). For purposes
of this Agreement, "Third Party Acquisition" means the occurrence of any of the
-----------------------
following events: (i) the acquisition of the Company by merger or otherwise by
any person or entity (which includes a "person" as such term is defined in
Section 13(d)(3) of the Exchange Act) other than Parent, the Purchaser or any
affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of
-----------
30% or more of the total assets of the Company (other than the purchase of the
Company's products in the ordinary course of business); (iii) the acquisition by
a Third Party of 30% or more of the outstanding Shares; (iv) the adoption by the
Company of a plan of partial or complete liquidation or the declaration or
payment of an extraordinary dividend; (v) the repurchase by the Company of 30%
or more of the outstanding Shares; or (vi) the acquisition by the Company by
merger, purchase of stock or assets, joint venture or otherwise of a direct or
indirect ownership interest or investment in any business whose annual revenues,
net income or assets is equal to or greater than 30% of the annual revenues, net
income or assets of the Company. For purposes of this Agreement, a "Superior
--------
Proposal" means any bona fide proposal to acquire directly or indirectly for
- --------
consideration consisting of cash and/or securities more than 50% of the Shares
then outstanding or all or substantially all the assets of the Company and
otherwise on terms which the Board of Directors of the Company by a majority
vote determines in its good faith judgment (based on consultation with its
Financial Advisor or another financial adviser of nationally recognized
reputation) to be reasonably capable of being completed (taking into account all
legal, financial, regulatory and other aspects of the proposal and the person or
entity making the proposal, including the availability of financing therefor)
and more favorable to the Company's stockholders than the Offer and the Merger.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 ACCESS TO INFORMATION. Between the date of this Agreement and the
---------------------
Cut-Off Date, the Company will afford to Parent and its authorized
representatives for the transactions contemplated hereby reasonable access at
all reasonable times to the officers, employees, agents, properties, offices and
all other facilities, books and records of the Company as Parent may reasonably
request. Additionally, the Company will permit Parent and its authorized
representatives for the transactions contemplated hereby to make such
inspections of the Company and its operations at all reasonable times as it may
reasonably require and will cause its officers, employees and agents to furnish
Parent with such financial and operating data and other information with respect
to the business and properties of the Company as Parent may from time to time
reasonably request. No investigation pursuant to this Section 6.1 shall affect
any representation or warranty in this Agreement of any party hereto or any
condition to the
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<PAGE>
obligations of the parties hereto. All activities contemplated by this Section
6.1 shall be deemed to be within the scope of the Confidentiality Agreement (as
defined in Section 6.3 below).
6.2 LEGAL CONDITIONS TO OFFER AND MERGER.
-------------------------------------
(a) The Company will take all reasonable actions necessary to comply
promptly with all legal requirements which may be imposed on the Company with
respect to the Offer and the Merger (including furnishing all information
required under the HSR Act) and will take all reasonable actions necessary to
cooperate promptly with and furnish information to the Purchaser or Parent in
connection with any such requirements imposed upon the Purchaser or Parent in
connection with the Offer and the Merger. The Company will take all reasonable
actions necessary to obtain (and will take all reasonable actions necessary to
cooperate promptly with the Purchaser and Parent in obtaining) any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity, or other third party, required to be obtained or made by the Company (or
by the Purchaser or Parent) in connection with the Offer or the Merger or the
taking of any action contemplated thereby or by this Agreement. In addition to
the foregoing, prior to the Effective Time, the parties shall take, or cause to
be taken, all such actions as may be necessary or appropriate in order to
effectuate, as expeditiously as practicable, the Offer and the Merger and the
other transactions contemplated by this Agreement, including any necessary
consents and waivers.
(b) The Purchaser and Parent will take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed on
them with respect to the Offer and the Merger (including furnishing all
information required under the HSR Act) and will take all reasonable actions
necessary to cooperate promptly with and furnish information to the Company in
connection with any such requirements imposed upon the Company in connection
with the Offer and the Merger. The Purchaser and Parent will take all
reasonable actions necessary to obtain (and will take all reasonable actions
necessary to cooperate promptly with the Company in obtaining) any consent,
authorization, order or approval of, or exemption by, any Governmental Entity,
or other third party, required to be obtained or made by the Purchaser or Parent
(or by the Company) in connection with the Offer or the Merger or the taking of
any action contemplated thereby or by this Agreement.
6.3 CONFIDENTIALITY AGREEMENT. The Company and Parent acknowledge that the
-------------------------
Mutual Confidentiality and Non-Disclosure dated October 18, 1996 Agreement
between the Company and a wholly owned subsidiary of Parent (the
"Confidentiality Agreement") shall remain in full force and effect at all times
-------------------------
prior to the Effective Time and after any termination of this Agreement, and
such parties agree to comply with the terms of such Agreement.
6.4 PUBLIC ANNOUNCEMENTS. The Purchaser, Parent and the Company will
--------------------
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Offer, the Merger or any transaction
contemplated hereby and shall not issue any such press release or make any such
public statement except as they may mutually agree unless required so to do by
law or by obligations pursuant to any listing agreement with any national
securities exchange or the National Association of Securities Dealers, Inc. The
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<PAGE>
Company and Parent have agreed as to the form of joint press release announcing
execution of this Agreement.
6.5 INDEMNIFICATION AND DIRECTORS' AND OFFICERS' INSURANCE.
-------------------------------------------------------
(a) The Articles of Organization and the Bylaws of the Surviving
Corporation shall contain the respective provisions that are set forth, as of
the date of this Agreement, in Article 6B of the Articles of Organization of the
Company, which provisions shall not be amended, repealed or otherwise modified
for a period of six years from the Effective Time in any manner that would
affect adversely the rights thereunder of individuals who at or at any time
prior to the Effective Time were entitled to indemnification thereunder unless
such modification shall be required by law.
(b) The Surviving Corporation shall honor and fulfill in all respects
the obligations of the Company pursuant to indemnification agreements with the
Company's directors and officers existing at or before the Effective Time.
(c) The Surviving Corporation shall use commercially reasonable
efforts to maintain in effect for six years from the Effective Time (except as
otherwise contemplated by subsection (d) below) directors' and officers'
liability insurance covering those persons who are currently covered by the
Company's directors' and officers' liability insurance policy on terms
comparable to such existing insurance coverage (including coverage amounts);
provided, however, that in no event shall the Surviving Corporation be required
- -------- -------
to expend pursuant to this Section 6.5 more than an amount per year equal to
125% of current annual premiums paid by the Company for such insurance (which
premiums the Company represents and warrants to be $36,000 in the aggregate)
and provided, further that if the annual premiums exceed such amount, the
-------- -------
Surviving Corporation shall be obligated to obtain a policy with the greatest
coverage available for a cost not exceeding such amount.
(d) The parties acknowledge that the Surviving Corporation's
obligation to use reasonably commercial efforts to maintain insurance shall
terminate at such time following the first anniversary of this Agreement as
Parent, in its sole discretion, shall agree in writing to assume in all respects
the obligations of the Surviving Corporation with respect to those
indemnification rights contemplated by subsections (a) and (b) above. If
Parent shall elect to assume such obligations, it shall provide prompt written
notice thereof to each of the persons who shall be directors or executive
officers of the Company as of the Effective Time.
(e) This Section 6.5 shall survive the consummation of the Offer and
the Merger, is intended to benefit the Company, the Surviving Corporation and
each indemnified party, shall be binding on all successors and assigns of the
Surviving Corporation, and shall be enforceable by the indemnified parties.
6.6 COMPANY STOCK OPTION PLAN.
--------------------------
(a) At the Effective Time, each outstanding Stock Option heretofore
granted under the Stock Option Plan, outstanding immediately prior to the
consummation of the
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Offer and fully vested shall be exchanged, in whole and not in part and in a
manner consistent with the terms of the Stock Option Plan, for a cash payment
from the Company in an amount (subject to any applicable withholding tax) equal
to the product of (i) the excess of the Merger Price over the per share exercise
price of the Stock Option, multiplied by (ii) the number of Shares covered by
the Stock Option immediately prior to the Effective Time.
(b) The Stock Option Plan shall terminate as of the Effective Time and
the Company shall use reasonable efforts to ensure that following the Effective
Time no holder of options or any participant in the Stock Option Plan shall have
any right thereunder to acquire any equity securities of the Company or the
Surviving Corporation.
6.7 CERTAIN EMPLOYEE BENEFITS MATTERS. Employees of the Company at the
---------------------------------
Effective Time will be provided with employee benefit plans by the Surviving
Corporation or Parent which are consistent with those employee benefits being
provided to such employees immediately prior to the Effective Time or, in the
discretion of Parent, are in the aggregate no less favorable to such employees
than those provided from time to time by Parent and its subsidiaries to
similarly situated employees. If any employee of the Company becomes a
participant in any employee benefit plan, program, policy or arrangement of
Parent or one of its subsidiaries, such employee shall be given credit for all
service prior to the Effective Time with the Company to the extent permissible
under such plan, program, policy or arrangement.
6.8 NOTICE OF CERTAIN EVENTS. The Company shall notify Parent, and
---------------------------
Parent shall promptly notify the Company, of:
(i) receipt of any notice or other communication from any person
alleging that the consent of such person is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) receipt of any notice or other communication from any
Governmental Entity in connection with the transactions contemplated by this
Agreement;
(iii) receipt of notice that any actions, suits, claims,
investigations or proceedings have been commenced or, to the knowledge of the
Company, threatened against, or involving the Company or Parent, as applicable,
which, if pending on the date of this Agreement, would have been required to
have been disclosed pursuant to Section 4.9 or which relate to the consummation
of the transactions contemplated by this Agreement;
(iv) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of it (and, in the case of Parent, of the Purchaser) contained in this Agreement
to be untrue or inaccurate; and
(v) any failure of the Company, Parent or the Purchaser, as the case
may be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
-------- -------
of any notice pursuant to this Section 6.8 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
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<PAGE>
6.9 OBLIGATIONS OF PURCHASER. Parent will take all action necessary
---------------
to cause the Purchaser to perform its obligations under this Agreement and to
consummate the Merger on the terms and conditions set forth in this Agreement.
6.10 VOTING OF SHARES. Parent agrees to cause Purchaser (i) to vote all
----------------
Shares beneficially owned by it in favor of adoption of this Agreement and the
Merger at the Stockholders' Meeting, if any such meeting shall be required by
the MBCL, and (ii) if no Stockholders' Meeting shall be required by the MBCL,
file the articles of merger providing for the Merger of Purchaser with and into
the Company as soon as reasonably practicable under applicable regulatory
requirements and law.
6.11 EXPENSES. Except as otherwise provided in Section 8.3, whether or not
--------
the Merger shall be consummated, all costs and expenses incurred in connection
with this Agreement and the Merger and the other transactions contemplated
hereby shall be paid by the party incurring such cost or expense.
6.12 TAKEOVER STATUTES. If any Takeover Statute is or may become
-----------------
applicable to the Offer, the Merger or the other transactions contemplated by
this Agreement, each of Parent and the Company and their respective Boards of
Directors shall grant such approvals and take such lawful actions as are
necessary to ensure that such transactions may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise act to
eliminate or minimize the effects of such statute and any regulations
promulgated thereunder on such transactions.
ARTICLE VII
CONDITIONS
7.1 CONDITIONS OF EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
----------------------------------------------------------
The respective obligation of each party to effect the Merger is subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) STOCKHOLDER APPROVAL. If required by the MBCL, this Agreement and
--------------------
the Merger shall have been approved and adopted by the affirmative vote or
consent of the stockholders of the Company to the extent required by the MBCL
and the Articles of Organization of the Company.
(b) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
----------------------------
preliminary or permanent injunction or other order issued by any Governmental
Entity of competent jurisdiction nor any statute, rule, regulation or executive
order promulgated or enacted by any Governmental Entity, nor other legal
restriction, restraint or prohibition, preventing the consummation of the Merger
shall be in effect; provided, however, that each of the parties shall have used
-------- -------
reasonable efforts to prevent the entry of any such injunction or other order
and to appeal as promptly as practicable any injunction or other order that may
be entered.
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<PAGE>
(c) REGULATORY CONSENTS. The waiting period applicable to the
--------------------
consummation of the Merger under the HSR Act shall have expired or been
terminated, and, other than filing the articles of merger, all filings with any
Governmental Entity required to be made prior to the Effective Time by the
Company or Parent or any of their respective subsidiaries, with, and all
government consents required to be obtained prior to the Effective Time by the
Company or Parent or any of their respective subsidiaries in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by the Company, Parent and the Purchaser shall
have been made or obtained (as the case may be), except where the failure to so
make or obtain will not result in a Material Adverse Effect.
(d) THE OFFER. Shares shall have been purchased pursuant to the
---------
Offer.
7.2 CONDITIONS TO OBLIGATIONS OF PARENT AND THE PURCHASER. The
------------------------------------------------------
obligations of Parent and the Purchaser to effect the Merger are also subject to
the satisfaction or waiver by Parent prior to the Effective Time of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing Date as though made on and as of the Closing Date.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
-----------------------------------------
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date.
7.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of
----------------------------------------
the Company to effect the Merger is also subject to the satisfaction or waiver
by the Company prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------
warranties of Parent and the Purchaser set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an earlier
date) as of the Closing Date as though made on and as of the Closing Date.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND THE PURCHASER. Each of
------------------------------------------------------
Parent and the Purchaser shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date.
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ARTICLE VIII
TERMINATION
8.1 TERMINATION. This Agreement may be terminated and the Merger
-----------
may be abandoned at any time prior to the Effective Time, notwithstanding any
requisite approval of this Agreement and the transactions contemplated hereby by
the stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards of
Directors of the Company, Parent and the Purchaser;
(b) by either Parent or the Company if any court of competent
jurisdiction or other governmental authority shall have issued an order, decree,
ruling or taken any other action permanently restraining, enjoining or otherwise
prohibiting the acceptance for payment of, or payment for, Shares pursuant to
the Offer or the Merger and such order, decree, ruling or other action shall
have become final and nonappealable;
(c) by either Parent or the Company if (i) the Offer shall have
terminated or expired in accordance with its terms without the Purchaser having
accepted for payment any Shares pursuant to the Offer; or (ii) the Purchaser
shall not have accepted for payment any Shares pursuant to the Offer within 120
days following the commencement of the Offer; provided, however, that the right
-------- --------
to terminate this Agreement pursuant to this Section 8.1(c) shall not be
available to any party the failure of which (or the failure of the affiliates of
which) to perform in any material respect any of its obligations under this
Agreement results in the failure of any condition set forth in Annex I or if the
------
failure of such condition results from facts or circumstances that constitute a
material breach of a representation or warranty under this Agreement by such
party;
(d) by Parent if (i) prior to the purchase of Shares pursuant to the
Offer, (A) the Board of Directors of the Company or any committee thereof shall
have withdrawn or modified in a manner adverse to the Purchaser or Parent its
approval or recommendation of the Offer, this Agreement, the Merger or any other
transaction contemplated by this Agreement; (B) the Board of Directors of the
Company or any committee thereof shall have recommended to the stockholders of
the Company acceptance of a Third Party Acquisition; (C) the Company shall have
entered into any definitive agreement with respect to a Third Party Acquisition;
or (D) the Board of Directors of the Company or any committee thereof shall have
resolved to do any of the foregoing; or (ii) the Company shall have breached in
any material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement which breach cannot be or has not been
cured 20 days after the giving of written notice to the Company; or
(e) by the Company if (i) the Board of Directors of the Company shall
have withdrawn or modified in a manner adverse to the Purchaser or Parent its
approval or recommendation of the Offer, this Agreement or the Merger in order
to approve the execution by the Company of a definitive agreement providing for
the transactions contemplated by a Superior Proposal, provided that the Company
--------
shall have complied with the provisions of Section 5.3,
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<PAGE>
including the notice provisions therein, and shall have made simultaneous
payment of the fee contemplated by Section 8.3 below; or (ii) Parent or the
Purchaser shall have breached in any material respect any of their respective
representations, warranties, covenants or other agreements contained in this
Agreement which breach cannot be or has not been cured 20 days after the giving
of written notice to Parent or the Purchaser, as applicable, except, in any
case, for such breaches which are not reasonably likely to affect adversely
Parent's or the Purchaser's ability to complete the Offer or the Merger.
8.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
---------------------
Section 8.1, this Agreement shall become void and of no effect with no liability
on the part of any party hereto, except for fraud and for willful breach of a
material obligation contained herein and except that the agreements contained in
Sections 6.3, 6.11 and 8.3 shall survive the termination hereof.
8.3 CERTAIN PAYMENTS.
----------------
(a) In the event that:
(i) this Agreement is terminated (A) pursuant to
Section 8.1(d)(i) or Section 8.1(e)(i), or (B) pursuant to Section 8.1(c) or
8.1(d)(ii) to the extent that the termination or the failure to accept any
Shares for payment, as the case may be, shall relate to the intentional failure
of the Company to perform in any material respect any material covenant or
agreement of it contained in this Agreement or the intentional material breach
by the Company of any material representation or warranty of it contained in
this Agreement; or
(ii) any person shall have commenced, publicly
proposed or communicated to the Company a proposal with respect to a Third Party
Acquisition and (A) the Offer shall have remained open for at least 20 business
days, (B) the Minimum Share Condition shall not have been satisfied, (C) this
Agreement shall have been terminated pursuant to Section 8.1 and (D) the Company
shall have consummated a Third Party Acquisition with any person other than
Parent or any of its affiliates before or within 12 months after the date of
such termination, then, in any such event, the Company shall pay Parent promptly
(but in no event later than one business day after the first of such events
shall have occurred) a fee of $1,250,000, plus an amount, not to exceed
----
$750,000, equal to Parent's actual and reasonably documented out-of-pocket fees
and expenses incurred by Parent and the Purchaser in connection with the Offer,
the Merger, this Agreement and the consummation of the transactions contemplated
hereby, which amounts shall be payable in immediately available funds.
(b) In the event that (i) Parent or the Purchaser shall willfully or
intentionally breach in any material respect any of their respective
representations, warranties, covenants or other agreements contained in this
Agreement and as a result thereof the Company shall terminate this Agreement
pursuant to Section 8.1 (e)(ii) or (ii) Parent shall elect to terminate this
Agreement and fail to proceed to consummate the Offer or the Merger after all
applicable conditions shall have been satisfied, then, in either of such events,
Parent shall pay to the Company promptly (but in no event later than one
business day after the date of such termination) a fee of $1,250,000, plus an
----
amount, not to exceed $400,000, equal to the Company's actual and reasonably
documented out-of-pocket fees and expenses incurred by the Company in
connection with the Offer, the Merger, this Agreement and the consummation of
the transactions contemplated hereby, which amounts shall be payable in
immediately available funds.
-32-
<PAGE>
Such payment by Parent to the Company shall represent the sole and exclusive
remedy at law or in equity to which the Company and its officers, directors,
representatives and other affiliates shall be entitled in the event this
Agreement shall be terminated in the circumstances contemplated by clauses (i)
and (ii) of this subsection.
(c) In the event that the Company or Parent shall fail to pay any
amounts owing pursuant to the foregoing when due, interest shall be paid on such
unpaid amounts, commencing on the date such amounts became due, at a rate equal
to the rate of interest publicly announced by Bank of America NT&SA from time to
time in San Francisco, California, as such bank's "reference rate" plus 3%.
ARTICLE IX
GENERAL PROVISIONS
9.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
---------------------------------------------------------
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall not survive the Merger or
termination of this Agreement, as the case may be, except for the agreements
contained in Sections 6.5, 6.6 and 6.7 of this Agreement, each of which shall
survive the Merger, and the agreements contained in Sections 6.3, 6.11 and 8.3,
each of which shall survive termination of this Agreement.
9.2 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or
----------------------
waived only with the written consent of the parties. Any amendment or waiver
effected in accordance with this Section 9.2 shall be binding upon the parties
and their respective successors and assigns.
9.3 SEVERABILITY. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision hereof shall
not affect the validity or enforceability of any of the other provisions hereof.
If any provision of this Agreement, or the application thereof to any person or
any circumstance, is illegal, invalid or unenforceable, (a) a suitable and
equitable provisions shall be substituted therefor in order to carry out, so far
as may be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (b) the remainder of this Agreement and the
application of such provisions to other persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, the
application thereof, in any other jurisdiction.
9.4 INTERPRETATION. The table of contents and Article, Section and
--------------
subsection headings herein are for convenience of reference only, do not
constitute a part of this Agreement and shall not be deemed to limit or
otherwise affect any of the provisions hereof. Where a reference in this
Agreement is made to a Section, Schedule, Annex or Exhibit, such reference shall
be to a Section of, or Schedule, Annex or Exhibit to, this Agreement, unless
otherwise
-33-
<PAGE>
indicated. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein. The definitions contained in this Agreement
are applicable to the singular as well as the plural forms of such terms and to
the masculine as well as to the feminine and neuter genders of such term. Any
agreement, instrument or statute defined or referred to herein or if any
agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statues and
references to all attachments thereto and instruments incorporated therein.
References to a person are also to its permitted successors and assigns and, in
the case of an individual, to his or her heirs and estate, as applicable.
9.5 ASSIGNMENT. Except as set forth in Section 1.1(a), this Agreement
----------
shall not be assignable by operation of law or otherwise and any attempted
assignment of this Agreement in violation of this sentence shall be void.
9.6 COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
9.7 TITLES AND SUBTITLES. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.8 NOTICES. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the regular mail as certified or
registered mail with postage prepaid, if such notice is addressed to the party
to be notified at such party's address or facsimile number as set forth below,
or as subsequently modified by written notice in accordance with this Section
9.8:
(a) If to Parent or the Purchaser:
Creative Technology Ltd.
31 International Business Park
Creative Resource
Singapore 609921
Attn: Ng Keh Long
Vice President, Treasurer and
Acting Chief Financial Officer
Telecopy: 011-65-5690-0441
with a copy to:
-34-
<PAGE>
Creative Labs, Inc.
1901 McCarthy Blvd.
Milpitas, CA 95035
Attn: John D. Danforth
Vice President and General Counsel
Telecopy: 408-428-6699
and a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attn: Steven J. Tonsfeldt
Telecopy: 650-854-1121
(b) If to the Company:
Cambridge SoundWorks, Inc.
311 Needham Street
Newtown, MA 02164
Attn: Thomas J. DeVesto
President and Chief Executive Officer
Telecopy: 617-332-9229
with a copy to:
Peabody & Arnold
50 Rowes Wharf
Boston, MA 02110
Attn: Joseph D.S. Hinkley
Telecopy: 617-951-2125
9.9 ENTIRE AGREEMENT. This Agreement (and the Schedules, Annexes
----------------
and Exhibits), together with the Confidentiality Agreement the product of all of
the parties hereto, and constitutes the entire agreement between such parties
pertaining to the subject matter hereof, and merges all prior negotiations and
drafts of the parties with regard to the transactions contemplated herein. Any
and all other written or oral agreements existing between the parties hereto
regarding such transactions are expressly canceled.
9.10 NO THIRD PARTY BENEFICIARIES. Except as provided in Section 6.5(d),
----------------------------
this Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
-35-
<PAGE>
9.11 GOVERNING LAW; WAIVER OF JURY TRIAL
-----------------------------------
(a) EXCEPT TO THE EXTENT THAT THE LAW OF THE COMMONWEALTH OF
MASSACHUSETTS SHALL BE MANDITORILY APPLICABLE TO THE MERGER AND THE RIGHTS OF
THE STOCKHOLDERS OF THE COMPANY, THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN
AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN
ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE
CONFLICT OF LAW PRINCIPLES THEREOF.
(b) The parties agree that irreparable damage would occur and that the
parties would not have any adequate remedy at law in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement, this being in addition to any other remedy to which they are entitled
at law or in equity.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER (II) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER (III) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.11.
-36-
<PAGE>
The parties have caused this Agreement to be signed by their respective
duly authorized officers, all as of the date first written above.
CREATIVE TECHNOLOGY LTD.
By: /s/ Sim Wong Hoo
-------------------------------------
Name: Sim Wong Hoo
--------------------------------------
Title: Chairman and Chief Executive Officer
-------------------------------------
By: /s/ Ng Keh Long
-------------------------------------
Name: Ng Keh Long
--------------------------------------
Title: Vice President, Corporate Treasurer
-------------------------------------
and Acting Chief Financial Officer
-------------------------------------
CSW ACQUISITION CORPORATION
By: /s/ Ng Keh Long
-------------------------------------
Name: Ng Keh Long
--------------------------------------
Title: Vice President and Treasurer
-------------------------------------
By: /s/ Erika Rottenberg
-------------------------------------
Name: Erika Rottenberg
--------------------------------------
Title: Vice President and Secretary
-------------------------------------
CAMBRIDGE SOUNDWORKS, INC.
By: /s/ Thomas J. DeVesto
-------------------------------------
Name: Thomas J. DeVesto
--------------------------------------
Title: President and Chief Executive
-------------------------------------
Officer
-------------------------------------
By: /s/ Wayne P. Garrett
-------------------------------------
Name: Wayne P. Garrett
--------------------------------------
Title: Vice President, Finance, and
-------------------------------------
Chief Financial Officer
-------------------------------------
-37-
<PAGE>
ANNEX I
CONDITIONS OF THE OFFER
DEFINED TERMS. Capitalized terms used in this Annex I and not otherwise
defined shall have the meanings attributed thereto in the Agreement and Plan of
Merger, dated as of October 30, 1997 (the "Merger Agreement"), by and among
----------------
Parent, the Purchaser and the Company.
CONDITIONS OF THE OFFER. Subject to the terms of the Offer and this
Agreement, the Purchaser shall not be required to accept for payment or pay for
any Shares tendered pursuant to the Offer, and may terminate or amend the Offer
and may postpone the acceptance for payment of and payment for Shares tendered,
if (i) the Minimum Share Condition shall not have been satisfied, (ii) any
applicable waiting period under the HSR Act shall not have expired or been
terminated prior to the expiration of the Offer, or (iii) at any time on or
after the date of the Merger Agreement and before the acceptance of such Shares
for payment or the payment therefor, any of the following conditions exists:
(a) a preliminary or permanent injunction or other order by any
federal, state or foreign court which prevents the acceptance for payment of, or
payment for, some of or all the Shares shall have been issued and shall remain
in effect;
(b) there shall have been instituted or be pending any action or
proceeding by any Governmental Entity (i) challenging the acquisition by the
Purchaser of Shares or otherwise seeking to restrain, materially delay or
prohibit the consummation of the Offer or the Merger or seeking damages that
would make the Offer, the Merger or any other transaction contemplated hereby
materially more costly to Parent or the Purchaser, (ii) seeking to prohibit or
limit materially the ownership or operation by the Purchaser or Parent of all or
a material portion of the business or assets of the Company, or to compel the
Purchaser or Parent to dispose of or hold separate all or a material portion of
the business or assets of the Company or the Purchaser or Parent, as a result of
the Offer or the Merger, (iii) seeking to impose or confirm limitations on the
ability of Parent or the Purchaser effectively to exercise full rights of
ownership of the Shares, including, without limitation, the right to vote the
Shares purchased by it on all matters properly presented to the Company's
stockholders, including, without limitation, the approval and adoption of the
Merger Agreement and the transactions contemplated hereby, or (iv) seeking to
require divestiture by Parent, the Purchaser or any other affiliate of Parent of
any Shares;
(c) there shall have been any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Offer, the Merger or any other transaction contemplated hereby, Parent, the
Company or any affiliate of Parent or the Company by any Governmental Entity,
except for the waiting period provisions of the HSR Act, which is reasonably
likely to result, directly or indirectly, in any of the consequences referred to
in clauses (i) through (iv) of paragraph (b) above;
<PAGE>
(d) any change or effect that, individually or in the aggregate, is or
is reasonably likely to constitute a Material Adverse Effect shall have occurred
following the date of the Merger Agreement;
(e) the Company shall have breached or failed to perform in any
material respect any of its obligations, covenants or agreements under the
Merger Agreement; or
(f) any representation or warranty of the Company in the Merger
Agreement that is qualified as to materiality shall not be true and correct or
any such representation or warranty that is not so qualified shall not be true
and correct in any material respect, in each case when made and at and as of
such time as if made at and as of such time.
(g) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the Nasdaq National Market;
(ii) a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States or Canada; (iii) a commencement of a war
or armed hostilities or other national or international calamity directly or
indirectly involving the United States or Canada; or (iv) in the case of any of
the foregoing existing on the date hereof, a material acceleration or worsening
thereof;
(h) (i) it shall have been publicly disclosed or the Purchaser shall
have otherwise learned that beneficial ownership (determined for the purposes of
this paragraph as set forth in Rule 13d-3 promulgated under the Exchange Act) of
a majority of the then outstanding Shares have been acquired by any person other
than Parent or any of its affiliates, or (ii)(A) the Board of Directors of the
Company or any committee thereof shall have withdrawn or modified in a manner
adverse to Parent or the Purchaser the approval or recommendation of the Offer,
the Merger or the Merger Agreement, or approved or recommended any Third Party
Acquisition or any other acquisition of Shares other than the Offer and the
Merger, or (B) the Board of Directors of the Company or any committee thereof
shall have resolved to do any of the foregoing;
(i) the Merger Agreement shall have been terminated in accordance with
its terms.
The foregoing conditions are for the sole benefit of the Purchaser and
Parent. The foregoing rights of the Purchaser shall be available regardless of
the circumstances giving rise to any such conditions (including any action or
omission to act of the Purchaser) and, subject to Section 1.1(a) of the Merger
Agreement, may be waived by Purchaser or Parent in whole or in part at any time
and from time to time in their sole discretion. Any determination by the
Purchaser will be final and binding upon all parties including tendering
stockholders.
The failure by the Purchaser or Parent at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right; the waiver
of any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances; and
each such right shall be deemed an ongoing right which may be asserted at any
time and from time to time.
<PAGE>
EXHIBIT (C)(2)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 18th day of February,
1997, is entered into by Cambridge Soundworks, Inc., a Massachusetts
corporation with its principal place of business at 311 Needham Street,
Newton, Massachusetts 02164 (the "Company"), and Thomas J. DeVesto, 835 Old
Post Road, Cotuit, Massachusetts 02635 (the "Employee").
The Company desires to employ the Employee, and the Employee desires to be
employed by the Company. In consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the
parties agree as follows:
1. Term of Employment. The Company hereby agrees to employ the Employee, and
the Employee hereby accepts employment with the Company, upon the terms set
forth in this Agreement, for the period commencing as of February 18, 1997
(the "Commencement Date") and ending on February 17, 2000 (such period, as it
may be extended, the "Employment Period"), unless sooner terminated in
accordance with the provisions of Section 4.
2. Title; Capacity. The Employee shall serve as President and Chief
Executive Officer or in such other position as the Company or its Board of
Directors (the "Board") may determine from time to time. The Employee shall be
based at the Company's headquarters in Newton, Massachusetts, or such place or
places in the continental United States as the Board shall determine. The
Employee shall be subject to the supervision of, and shall have such authority
as is delegated to him by, the Board or such officer of the Company as may be
designated by the Board.
The Employee hereby accepts such employment and agrees to undertake the
duties and responsibilities inherent in such position and such other duties
and responsibilities as the Board or its designee shall from time to time
reasonably assign to him. The Employee agrees to devote his entire business
time, attention and energies to the business and interests of the Company
during the Employment Period. The Employee agrees to abide by the rules,
regulations, instructions, personnel practices and policies of the Company and
any changes therein which may be adopted from time to time by the Company. The
Employee acknowledges receipt of copies of all such rules and policies
committed to writing as of the date of this Agreement.
3. Compensation and Benefits.
3.1 Salary. The Company shall pay the Employee, in monthly installments,
an annual base salary not less than $385,000 for the one-year period
commencing on the Commencement Date. Such salary shall be subject to
increase thereafter as determined by the Board. In addition, the Company
shall pay the Employee an $8000 annual car allowance.
3.2 Fringe Benefits. The Employee shall be entitled to participate in all
bonus and benefit programs that the Company establishes and makes available
to its employees, if any, to the extent that the Employee's position,
tenure, salary, age, health and other qualifications make him eligible to
participate. The Employee shall be entitled to three weeks paid vacation
per year, to be taken at such times as may be approved by the Board or its
designee.
3.3 Reimbursement of Expenses. The Company shall reimburse the Employee
for all reasonable travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of
his duties, responsibilities or services under this Agreement, upon
presentation by the Employee of documentation, expense statements, vouchers
and/or such other supporting information as the Company may request,
provided, however, that the amount available for such travel, entertainment
and other expenses may be fixed in advance by the Board.
C-1
<PAGE>
4. Employment Termination. The employment of the Employee by the Company
pursuant to this Agreement shall terminate upon the occurrence of any of the
following:
4.1 Expiration of the Employment Period in accordance with Section 1.
4.2 Thirty days after the death or disability of the Employee. As used in
this Agreement, the term "disability" shall mean the inability of the
Employee, due to a physical or mental disability, for a period of 90 days,
whether or not consecutive, during any 360-day period to perform the
services contemplated under this Agreement. A determination of disability
shall be made by a physician satisfactory to both the Employee and the
Company, provided that if the Employee and the Company do not agree on a
physician, the Employee and the Company shall each select a physician and
these two together shall select a third physician, whose determination as
to disability shall be binding on all parties;
4.3 At the election of either party, upon not less than six months' prior
written notice of termination; provided, however, that if the remaining
Employment Period under this Agreement at the time of such notice shall be
less than six months, then the required notice of termination period shall
be such remaining Employment Period.
5. Effect of Termination.
5.1 Termination for Death or Disability. If the Employee's employment is
terminated by death or because of disability pursuant to Section 4.2, the
Company shall pay to the estate of the Employee or to the Employee, as the
case may be, the compensation which would otherwise be payable to the
Employee up to the end of the month in which the termination of his
employment because of death or disability occurs.
5.2 Termination at Election of Either Party. In the event the Employee's
employment is terminated at the election of either party pursuant to
Section 4.3, the Company shall pay to the Employee the compensation payable
to him pursuant to Section 6(d) in consideration of his covenants in
Section 6 provided, however, that in the event of a failure by the Employee
to give six months' prior notice of termination, the Employee shall not be
entitled to receive any compensation in excess of the amount set forth in
Section 6 (d); provided further, however, that in the event of a failure by
the Company to give the prior notice of termination required by Section
4.3, in addition to the one year's base salary payment required by Section
6(d), the Employee shall be entitled to receive a lump sum payment equal to
the base salary the Employee would otherwise have earned between the date
of termination and the earlier of the (i) end of the Employment Period or
(ii) end of the required six months' notice period.
5.3 Survival. The provisions of Section 6 shall survive the termination
of this Agreement.
6. Non-Compete.
(a) During the Employment Period and for a period of one year after the
termination or expiration thereof, the Employee will not directly or
indirectly:
(i) as an individual proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, or in any other
capacity whatsoever (other than as the holder of not more than one
percent (1%) of the total outstanding stock of a publicly held
company), engage in the business of developing, producing, marketing or
selling products of the kind or type developed or being developed,
produced, marketed or sold by the Company while the Employee was
employed by the Company; or
(ii) recruit, solicit or induce, or attempt to induce, any employee
or employees of the Company to terminate their employment with, or
otherwise cease their relationship with, the Company; or
(iii) solicit, divert or take away, or attempt to divert or to take
away, the business or patronage of any of the clients, customers or
accounts, or prospective clients, customers or accounts, of the Company
which were contacted, solicited or served by the Employee while
employed by the Company.
C-2
<PAGE>
(b) If any restriction set forth in this Section 6 is found by any court
of competent jurisdiction to be unenforceable because it extends for too
long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend only over the
maximum period of time, range of activities or geographic area as to which
it may be enforceable.
(c) The restrictions contained in this Section 6 are necessary for the
protection of the business and goodwill of the Company and are considered
by the Employee to be reasonable for such purpose. The Employee agrees that
any breach of this Section 6 will cause the Company substantial and
irrevocable damage and therefore, in the event of any such breach, in
addition to such other remedies which may be available, the Company shall
have the right to seek specific performance and injunctive relief.
(d) In consideration for his agreements in this Section 6, the Company
shall pay to the Employee in a lump sum immediately upon the termination or
expiration of the Employment Period a total amount equal to one year's base
salary as in effect as of the date of such termination or expiration.
7. Notices. All notices required or permitted under this Agreement shall be
in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed to the other party at the address shown above, or
at such other address or addresses as either party shall designate to the
other in accordance with this Section 7.
8. Pronouns. Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular forms of nouns and pronouns shall include the plural, and
vice versa.
9. Entire Agreement. This Agreement constitutes the entire agreement between
the parties and supersedes all prior agreements and understandings, whether
written or oral, relating to the subject matter of this Agreement.
10. Amendment. This Agreement may be amended or modified only by a written
instrument executed by both the Company and the Employee.
11. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Massachusetts.
12. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of both parties and their respective successors and assigns,
including any corporation with which or into which the Company may be merged
or which may succeed to its assets or business, provided, however, that the
obligations of the Employee are personal and shall not be assigned by him.
13. Miscellaneous.
13.1 No delay or omission by the Company in exercising any right under
this Agreement shall operate as a waiver of that or any other right. A
waiver or consent given by the Company on any one occasion shall be
effective only in that instance and shall not be construed as a bar or
waiver of any right on any other occasion.
13.2 The captions of the sections of this Agreement are for convenience
of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
13.3 In case any provision of this Agreement shall be invalid, illegal or
otherwise unenforceable, the validity, legality and enforceability of the
remaining provisions shall in no way be affected or impaired thereby.
C-3
<PAGE>
13.4 Capitalized terms used herein but not otherwise defined shall have
the meanings given them in the Agreement and Plan of Merger to be entered
into among the Company, Creative Technology Ltd. and CSW Acquisition
Corporation (the "Merger Agreement").
13.5 The parties acknowledge that the handwritten changes to this
Agreement set forth herein shall only become effective upon the Effective
Time of the Merger.
13.6 The parties further acknowledge that the payments to be made to the
Employee pursuant to Sections 5.2 and 6(d) shall represent the Employee's
sole and exclusive remedy with respect to any termination of the Employee's
employment hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
CAMBRIDGE SOUNDWORKS, INC.
By: /s/ Wayne P. Garrett
----------------------------------
Title: Vice President and Chief
Financial Officer
EMPLOYEE
By: /s/ Thomas J. Devesto
----------------------------------
Thomas J. Devesto
The parties acknowledge that the foregoing clarifications of this Agreement
are agreed to as of October 29, 1997.
By: /s/ Thomas J. DeVesto
----------------------------------
Thomas J. DeVesto
October 29, 1997
CAMBRIDGE SOUNDWORKS, INC.
By: /s/ Wayne P. Garrett
----------------------------------
Wayne P. Garrett
October 29, 1997
CREATIVE TECHNOLOGY LTD.
By: /s/ Ng Keh Long
----------------------------------
Ng Keh Long
October 29, 1997
4
<PAGE>
EXHIBIT (C)(8)
MUTUAL CONFIDENTIALITY AND
--------------------------
NON-DISCLOSURE AGREEMENT
------------------------
This Agreement is made and entered into on the 18th day of October,
1996.
BETWEEN:-
(1) Creative Labs, Inc. having its principal offices at 1901 McCarthy
Boulevard, Milpitas, CA 95035 ("Creative").
(2) Cambridge SoundWorks, a Massachusetts corporation having its principal
offices at 311 Needham St., Newton, MA 02164 ("CSW").
WHEREAS:
1. Creative and CSW are engaged in discussions with respect to a possible
business or financial arrangement or venture between them relating to
multimedia technology, and speakers, and amplifiers.
2. In connection therewith disclosure of certain information which is
proprietary/confidential to the parties may become necessary or
desirable.
3. Each party is willing to disclose such Proprietary/Confidential
Information to the other parties upon the terms and conditions herein
set forth and each party is willing to maintain the confidentiality of
such information disclosed to it by the other parties in accordance with
the terms and conditions hereof.
NOW THEREFORE, in consideration of the disclosure of such
Proprietary/Confidential Information and the mutual covenants and promises
herein contained, it is agreed as follows:-
1. INTERPRETATION
--------------
For the purposes of this Agreement "Proprietary /Confidential
Information" shall mean any and all proprietary, secret information,
technical data or know-how related to any aspect of either party's
business or technology including, without limitation, data, know-how,
formulae, designs, photographs, drawings specification, software
programs and samples and any other material bearing or incorporating any
such information which is disclosed by one party to the other, which
information, data or know-how is marked or stipulated as being
"Proprietary," "Confidential," "Strictly Private" or otherwise, using
words of similar significance. Such disclosure may be made either
directly or indirectly, in writing, orally or by drawings, plans or
inspection of products, materials parts or equipment.
2. UNDERTAKINGS OF THE PARTIES
---------------------------
Each party hereby undertakes to treat and maintain all
Proprietary/Confidential Information received from any of the other
parties in confidence. With respect thereto, each party hereby
undertakes and agrees as follows:-
i) For a period of 5 years from the date of this Agreement, the
receiving party shall not publish, disseminate nor disclose any
Proprietary/Confidential Information received from any of the
other parties to any third party except to those of its own
employees having a valid need to know the information in the
course of employment and such disclosure shall be on terms not
less restrictive than those herein contained.
ii) The receiving party shall use the same degree of care to avoid
disclosure or use of the Proprietary/Confidential Information as
it uses in respect of its own information of like importance but
in no case less than a reasonable degree of care.
iii) The receiving party shall in accordance with the request of the
other parties, either return all copies, recording and tangible
manifestations of Proprietary/Confidential Information or
destroy the same following a determination by any of the parties
not to enter into any arrangement or venture with each other of
the kind contemplated herein or upon the termination of any
related memorandum of understanding or agreement entered into
between the parties or upon the written request of the
disclosing party.
3. EXCEPTIONS
----------
The aforesaid restrictions on the parties shall not apply to any
Proprietary/Confidential Information which:-
i) can be proved by documentary evidence to be such
Proprietary/Confidential Information that was already in the
possession of the receiving party and at its free disposal
before the disclosure hereunder to it;
ii) is received by the receiving party from third parties without
accompanying secrecy or confidentiality obligations and not in
violation of any duty of confidence under this agreement;
<PAGE>
iii) is independently developed by the receiving party;
iv) is or becomes generally available to the public in printed
publications in general circulation through no act or default on the
part of the receiving party or its agents or employees;
v) is furnished to a third party by a party hereto who owns such
Proprietary/Confidential Information without similar restriction on
the third party's rights;
vi) is approved for release by written authorisation of the other party;
or
vii) is disclosed pursuant to any requirement or request by operation of
law provided that the receiving party shall prior to disclosure
notify the disclosing party of any such requirement or request.
4. OWNERSHIP
---------
All Proprietary/Confidential Information disclosed pursuant to this
Agreement, shall be and remain the property of the disclosing party. Nothing
in this Agreement shall be construed as granting or conferring any rights by
license or otherwise, expressly, impliedly or otherwise for any of the
Proprietary/Confidential Information disclosed by the disclosing party
hereunder. All Proprietary/Confidential Information, existing in written
form or recorded in any other tangible medium, shall be returned to the
disclosing party upon its request, together with any reproductions or
copies thereof. Further, upon the disclosing party's requests, notes,
memoranda and reports which incorporates the Proprietary/Confidential
Information shall, without exception, be destroyed.
5. ORAL DISCLOSURE
---------------
In the event the disclosing party of such Proprietary/Confidential
Information orally discloses the information to the receiving party, the
disclosing party agrees to promptly notify the receiving party of the
confidentiality of such oral disclosure and reduce to writing such
Proprietary/Confidential Information and submit the same to the receiving
party within 15 days of such oral disclosure, failing which the receiving
party shall not be bound by the confidentiality obligations as herein
provided as regards the said Proprietary/Confidential Information
disclosed orally.
6. AUTHORISATION
-------------
Each party agrees that necessary authorisations, permits or licenses
including export licenses as may be required will be obtained prior to the
exportation/disclosure of any Proprietary/Confidential Information
relating to the technology of the other party. The disclosing party shall
notify the receiving party of the need to obtain any required
authorisations, permits and licenses and/or the need to comply with any
relevant laws or regulations relating to the disclosure. The disclosing
party shall obtain the required authorisations, permits and licenses.
7. SURVIVAL
--------
The aforesaid obligations of the receiving party shall survive the
termination of this Agreement.
8. LIMITED WARRANTY
----------------
Each party hereto warrants that it has the right to disclose the
Proprietary/Confidential Information which it discloses to the other
parties and that the Proprietary/Confidential Information disclosed is, to
the best of its knowledge, correct. Nothing contained in this agreement
shall be construed to obligate any party to disclose any information to
the other parties.
9. REMEDY FOR BREACH
-----------------
It is understood and agreed between the parties that any breach of the
obligations of confidentially contained in this Agreement may cause the
disclosing party irreparable loss. Accordingly, and in addition to any
other remedies a party may have at law or equity, the disclosing party
shall be entitled to obtain injunctive relief against the receiving party
to prevent any further or continuing breach of the receiving party's
obligations or additional damage to the disclosing party in the event such
loss is in fact incurred by the disclosing party as a result of the breach
or is imminent.
10. SEVERABILITY
------------
If, for any reason, a court of competent jurisdiction finds any provision
of this Agreement, or any portion hereof, to be unenforceable, such
decision shall not affect the validity of the remaining portion, which
remaining portion shall continue in full force and effect as if this
Agreement had been executed with the invalid portion thereof eliminated
therefrom.
In the event that a portion of this Agreement shall be declared to be
invalid, then the parties agree, that they shall, in good faith, negotiate
with one another to replace such invalid provision with a valid provision
as similar as possible to that which had been held to be invalid.
<PAGE>
11. TERMINATION
-----------
This Agreement shall govern all matters referred to herein until
terminated by either party upon thirty days written notice to the other or
in accordance with this Agreement. Upon termination, all information and
derivatives shall be returned to the respective parties. Notwithstanding
the termination, each party shall continue to fulfil its obligations
hereunder for a period of five (5) years thereafter.
12. MISCELLANEOUS
-------------
Any notice or communication to be given under this Agreement shall be
given if delivered in writing to the intended recipient at the address and
marked for the attention of the person set out in this Agreement or as may
be notified from time to time by the party concerned.
This Agreement shall be fully binding upon, inure to the benefit of and be
enforceable by the parties hereto, their legal representatives and other
respective successors and assigns. Each party shall not make any
assignment of this Agreement or any interest therein without the prior
written consent of the other party.
The failure of any party to insist upon or enforce strict performance of
any of the provisions of this Agreement or to exercise any rights or
remedies under this Agreement shall not be construed as a waiver or
relinquishment to any extent of such party's rights to assert or rely upon
any such provisions, rights or remedies in that or any other instance;
rather the same shall remain in full force and effect.
The terms of this Agreement are confidential and shall not be disclosed to
third parties without the written consent of all parties, except to the
extent required by a court or regulatory agency of competent jurisdiction.
13. GOVERNING LAW
-------------
This Agreement shall be governed by, construed and enforced in accordance
with California Law.
IN WITNESS WHEREOF, the parties have hereunto set their hands the day and year
first written above.
CREATIVE LABS, INC. CAMBRIDGE SOUNDWORKS
Signature: /s/ Dan Banerje Signature: /s/ Robert S. Mainiero
______________________ _______________________
Name: Dan Banerje Name: /s/ Robert S. Mainiero
___________________________ ____________________________
Designation: Director, OEM Sales Designation:
____________________
October 27, 1996
