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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FUSION SYSTEMS CORPORATION
(Name of Subject Company)
FUSION SYSTEMS CORPORATION
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED
SHARE PURCHASE RIGHTS)
(Title of Class of Securities)
361129
(CUSIP Number of Class of Securities)
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JOSEPH F. GREEVES
SECRETARY
FUSION SYSTEMS CORPORATION
7600 STANDISH PLACE
ROCKVILLE, MD 20855
(301) 251-0300
(Name, Address and Telephone Number of Person
Authorized to Receive Notice and Communications
on Behalf of the Person Filing Statement)
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WITH A COPY TO:
GORDON H. HAYES, JR., ESQ.
TESTA, HURWITZ & THIBEAULT, LLP
125 HIGH STREET
BOSTON, MASSACHUSETTS 02110
(617) 248-7000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Fusion Systems Corporation, a Delaware
corporation (the "Company"), and the address of the principal executive offices
of the Company is 7600 Standish Place, Rockville, Maryland 20855. The title of
the class of equity securities to which this statement relates is the common
stock, par value $0.01 per share, of the Company (the "Common Shares"), together
with the associated preferred share purchase rights (the "Rights" and, together
with the Common Shares, the "Shares") issued pursuant to the Rights Agreement,
dated as of September 8, 1994, as amended as of April 19, 1995 and June 30,
1997, between the Company and BankBoston, N.A. (formerly The First National Bank
of Boston), as Rights Agent (the "Rights Agreement").
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer by ETN Acquisition Corp., a
Delaware corporation (the "Purchaser"), a wholly owned subsidiary of Eaton
Corporation, an Ohio corporation ("Parent"), disclosed in a Tender Offer
Statement on Schedule 14D-1, dated July 7, 1997 (the "Schedule 14D-1"), to
purchase all outstanding Shares at $39.00 net to the seller in cash, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
July 7, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal
(which, together with the Offer to Purchase and any amendments or supplements
thereto, collectively constitute the "Offer").
The Offer is being made by the Purchaser pursuant to an Agreement and Plan
of Merger, dated as of June 30, 1997 (the "Merger Agreement"), among the
Company, the Purchaser and Parent. The Merger Agreement is filed as Exhibit 1 to
this statement and is incorporated herein by reference.
The Company has declared a dividend of Contingent Payment Rights (the
"Contingent Rights") to holders of record on July 25, 1997 of the Company's
Common Shares, having the principal terms set forth below under Item 8, pursuant
to a Contingent Payment Rights Agreement between the Company and a trustee (the
"Trustee") mutually acceptable to the Company, the Parent and the Purchaser
substantially in the form filed as Exhibit 2 to this statement (the "Contingent
Rights Agreement"). The proposed form of Contingent Rights Agreement is
incorporated herein by reference. The Offer is expressly not being made with
respect to the Contingent Rights.
As set forth in the Schedule 14D-1, the address of the principal executive
offices of the Purchaser is c/o Eaton Corporation, Eaton Center, 1111 Superior
Avenue, Cleveland, Ohio 44114-2584.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, is set forth above under Item 1.
(b) Except as set forth in this Item 3(b), to the knowledge of the Company,
there are no material contracts, agreements, arrangements or understandings and
no known actual or potential conflicts of interest between the Company or its
affiliates and Parent or the Purchaser or their respective executive officers,
directors or affiliates.
ARRANGEMENTS WITH PARENT, THE PURCHASER, OR THEIR AFFILIATES
Confidentiality Agreement
The following is a summary of certain material provisions of the
Confidentiality Agreement, dated as of April 7, 1997, between the Company and
Parent (the "Confidentiality Agreement"). This summary does not purport to be
complete and is qualified in its entirety by reference to the complete text of
the Confidentiality Agreement, a copy of which is filed as Exhibit 3 hereto and
is incorporated herein by reference. Capitalized terms not otherwise defined
below shall have the meanings set forth in the Confidentiality Agreement.
The Confidentiality Agreement contains customary provisions pursuant to
which, among other matters, both Parent and the Company agreed to keep
confidential all non-public, confidential or proprietary information furnished
to it by the other relating to the Company, subject to certain exceptions (the
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"Confidential Information") and to use the Confidential Information solely for
the purpose of evaluating a possible transaction involving the Company and
Parent.
In addition to the provisions of the Confidentiality Agreement with respect
to the maintenance of confidentiality and the permitted use of information
provided by or on behalf of the Company, Parent also agreed in the
Confidentiality Agreement to (i) restrictions on initiating communications with
employees, customers, suppliers or distributors, (ii) a mutual non-solicitation
of employees, and (iii) certain standstill restrictions, all of which provisions
are no longer applicable by virtue of the execution of the Merger Agreement.
Exclusivity Agreement
The following is a summary of certain material provisions of the
Exclusivity Agreement, dated June 24, 1997, between the Company and Parent (the
"Exclusivity Agreement"). This summary does not purport to be complete and is
qualified in its entirety by reference to the complete text of the Exclusivity
Agreement, a copy of which is filed as Exhibit 4 hereto and is incorporated
herein by reference. Capitalized terms not otherwise defined below shall have
the meanings set forth in the Exclusivity Agreement.
In the Exclusivity Agreement, the Company agreed to negotiate exclusively
with Parent through July 7, 1997 or, if agreed by both parties, a later date,
with respect to a possible business combination between the Company and Parent.
During this time period, the Company and its affiliates could not solicit or
initiate any inquiries or proposals or participate in discussions or
negotiations regarding any type of acquisition of the Company. In addition,
Parent and the Company agreed that, unless agreed otherwise by both parties,
neither they, nor their affiliates or representatives, would make any public
announcement or disclosure of the existence or details of any discussions and
negotiations concerning the transaction.
Merger Agreement
The following is a summary of the Merger Agreement. Defined terms used
below and not defined herein have the respective meanings assigned to those
terms in the Merger Agreement, a copy of which is filed as Exhibit 1 hereto and
incorporated herein by reference. The Merger Agreement should be read in its
entirety for a more complete description of the matters summarized below.
The Merger Agreement provides that, without the prior written consent of
the Company, the Purchaser may not (i) decrease the amount offered per Share or
change the form of consideration payable in the Offer, (ii) decrease the number
of Shares sought to be purchased in the Offer, (iii) waive the Minimum
Condition, (iv) impose additional conditions to the Offer, or (v) amend any
other term of the Offer in any manner adverse to the holders of Shares. Subject
to the terms of the Offer and the Merger Agreement and the satisfaction of all
the conditions of the Offer as of any expiration date, the Purchaser will accept
for payment and pay for all Shares validly tendered and not withdrawn pursuant
to the Offer as soon as practicable after such expiration date of the Offer,
provided that, if all of the conditions to the Offer are satisfied and more than
75% but less than 90% of the outstanding Shares on a fully diluted basis
(excluding Options which are not exercisable for 30 days) have been validly
tendered and not properly withdrawn in the Offer, the Purchaser will have the
right, in its sole discretion, to extend the Offer from time to time for up to a
maximum of five additional business days in the aggregate, provided the
Purchaser agrees to waive conditions set forth below in paragraphs (b), (c), (f)
and (h) under the subheading, "-- Certain Conditions to the Offer" in this Item
3. The Merger Agreement provides that, without written consent of the Company,
the Purchaser will not accept for payment or pay for any Shares in the Offer if,
as a result, the Purchaser would acquire less than the number of Shares
necessary to satisfy the Minimum Condition.
The Company has represented to Parent in the Merger Agreement that the
Board of Directors, at a meeting duly called and held, has (i) determined by
unanimous vote of its directors that each of the transactions contemplated by
the Merger Agreement, including each of the Offer and the Merger and the
distribution of the Contingent Rights, is fair to and in the best interests of
the Company and its stockholders, (ii) approved the distribution of the
Contingent Rights, (iii) approved the Offer and adopted the Merger Agreement in
accordance with the Delaware General Corporation Law (the "GCL"), (iv)
recommended
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acceptance of the Offer and approval of the Merger Agreement by the Company's
stockholders (if such approval is required by applicable law), and (v) taken all
other action necessary to render Section 203 of the GCL and the Rights
inapplicable to the Offer and the Merger; provided, however, that such
recommendation and approval may be withdrawn, modified or amended to the extent
that the Board of Directors determines in good faith, after consultation with
its outside legal counsel, that failure to take such action would reasonably be
expected to result in a breach of the Board of Directors' fiduciary obligations
under applicable law. The Company further represented that, prior to the
execution of the Merger Agreement, Salomon Brothers Inc ("Salomon Brothers") has
delivered to the Board of Directors its written opinion that the consideration
to be received by the holders of Shares (other than Parent or any of its
affiliates) pursuant to the Offer, the Merger and the Contingent Rights is fair
to the Company's stockholders from a financial point of view.
The Merger Agreement provides that Parent, upon the payment by the
Purchaser for Shares pursuant to the Offer representing at least such number of
Shares as shall satisfy the Minimum Condition, and from time to time thereafter,
is entitled to designate such number of directors, rounded up to the next whole
number, on the Board of Directors as is equal to the product of the total number
of directors on the Board of Directors (determined after giving effect to the
directors so elected pursuant to such provision) multiplied by the percentage
that the aggregate number of Shares beneficially owned by Parent or its
affiliates bears to the total number of Shares then outstanding. The Company
shall, upon request of Parent, promptly take all actions necessary to cause
Parent's designees to be so elected, including, if necessary, seeking the
resignations of one or more existing directors; provided, however, that prior to
the time the Merger becomes effective, the Board of Directors shall always have
at least two members who are neither officers, directors, shareholders or
designees of the Purchaser or any of its affiliates ("Purchaser Insiders"). If
the number of directors who are not Purchaser Insiders is reduced below two
prior to the effective time of the Merger, the remaining director who is not a
Purchaser Insider will be entitled to designate a person to fill such vacancy
who is not a Purchaser Insider and who will be a director not deemed to be a
Purchaser Insider for all purposes of the Merger Agreement. Following the
election or appointment of Parent's designees and prior to the effective time of
the Merger, any amendment or termination of the Merger Agreement by the Company,
any extension by the Company of the time for the performance of any of the
obligations or other acts of Parent or the Purchaser or waiver of any of the
Company's rights thereunder, will require the concurrence of a majority of the
directors of the Company then in office who are not Purchaser Insiders (or in
the case where there are two or fewer directors who are not Purchaser Insiders,
the concurrence of one director who is not a Purchaser Insider) if such
amendment, termination, extension or waiver would be reasonably likely to have
an adverse effect on the minority stockholders of the Company.
THE MERGER. The Merger Agreement provides that, at the effective time of
the Merger, the Purchaser will be merged with and into the Company. Following
the Merger, the separate corporate existence of the Purchaser will cease and the
Company will continue as the Surviving Corporation.
The Certificate of Incorporation of the Company, as in effect immediately
prior to the effective time of the Merger, shall be the Certificate of
Incorporation of the Surviving Corporation, until thereafter amended in
accordance with the provisions thereof and of the Merger Agreement and
applicable law. The By-Laws of the Purchaser in effect at the time of the
effective time of the Merger shall be the By-Laws of the Surviving Corporation
until amended, subject to the provisions of the Merger Agreement relating to
indemnification of directors and officers in accordance with the provisions
thereof and applicable law.
Subject to applicable law, the directors of the Purchaser immediately prior
to the effective time of the Merger will be the initial directors of the
Surviving Corporation and will hold office until their respective successors are
duly elected and qualified, or their earlier death, resignation or removal, and
the officers of the Surviving Corporation will be those persons designated by
Parent and the Purchaser.
By virtue of the Merger and without any action on the part of the holders
thereof, at the effective time of the Merger, each Share issued and outstanding
immediately prior to the effective time of the Merger (other than (i) any Shares
held by Parent, the Purchaser, any wholly owned subsidiary of Parent or the
Purchaser, in the treasury of the Company or by any wholly owned subsidiary of
the Company which Shares, by virtue of the Merger and without any action on the
part of the holder thereof, will be cancelled and retired and will cease to
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exist with no payment being made with respect thereto and (ii) Dissenting
Shares) will be cancelled and retired and will be converted into the right to
receive $39.00 net per Share in cash, payable to the holder thereof, without
interest thereon, upon surrender of the certificate formerly representing such
Share. At the effective time of the Merger, each share of common stock of the
Purchaser, par value $0.01 per share, issued and outstanding immediately prior
to the effective time of the Merger will, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into and become one
validly issued, fully paid and non-assessable share of common stock, par value
$0.01 per share, of the Surviving Corporation. The Contingent Rights will remain
outstanding after the effective time of the Merger in accordance with their
terms.
The Merger Agreement provides that, prior to the effective time of the
Merger, the Board of Directors (or, if appropriate, any committee thereof) will
adopt appropriate resolutions and take all other actions necessary to provide
for the cancellation, effective at the effective time of the Merger, of Options
granted prior to the date of the Merger Agreement under any of the Stock Plans,
without any payment therefor except as described below. Pursuant to the Merger
Agreement, immediately prior to the effective time of the Merger, the Company
shall accelerate the vesting of certain specified Options and each then vested
Option will no longer be exercisable but will entitle each holder thereof, in
cancellation and settlement therefor, to (i) a payment in cash by the Company
(subject to any applicable withholding taxes), at the effective time of the
Merger, equal to the product of (x) the total number of Shares subject to such
vested Option and (y) the excess of the Merger Consideration over the exercise
price per Share subject to such vested Option, and (ii) a payment in cash by the
Surviving Corporation (subject to any applicable withholding taxes), at the
earlier of March 31, 1999 or the redemption date of the Contingent Rights, equal
to the product of (x) the total number of Shares subject to such cancelled
vested Option, and (y) the $5.00 per right redemption price of the Contingent
Rights or the Contingent Payment, as the case may be, if any (the amounts
payable under clauses (i) and (ii) of this sentence being referred to as the
"Cash Payments"). Pursuant to the Merger Agreement, Options which are not vested
and exercisable at the effective time of the Merger will be cancelled at the
effective time of the Merger without any payment therefor. Parent has agreed to
cause the Surviving Corporation to establish a Special Bonus Plan (the "Special
Bonus Plan") for all employees of the Company or any of its subsidiaries who
held Options which were outstanding as of immediately before the effective time
of the Merger which were not then vested and were terminated as of the effective
time of the Merger. The Special Bonus Plan shall provide for a cash payment on
the second anniversary of the effective time of the Merger to each employee who
continues to be an employee of the Surviving Corporation, Parent or any of their
respective subsidiaries on such second anniversary in an amount (subject to any
applicable withholding taxes) equal to the sum of (i) the product of (x) the
total number of Shares subject to such terminated Options and (y) the excess of
the Merger Consideration over the exercise price per Share of such terminated
Options, plus (ii) interest on the amount set forth in clause (i) at a rate of
6% per annum from the effective time of the Merger, plus (iii) the product of
(x) the total number of Shares subject to such terminated Option and (y) the
amount of cash, if any, paid with respect to each Contingent Right pursuant to
the Contingent Rights Agreement. Any employee of the Company who is
involuntarily terminated without cause or whose employment ceases by reason of
death or disability, in each case prior to the second anniversary of the
effective time of the Merger, shall be entitled, promptly following such
termination or cessation of employment (or, in the case of any payment pursuant
to clause (iii) of the preceding sentence, promptly following the later of March
31, 1999 or the date of such termination or cessation of employment), to receive
from the Company a cash payment equal to the amount which such employee would
have received pursuant to the formula in the immediately preceding sentence had
such employee remained employed throughout the period ending on the second
anniversary of the effective time of the Merger.
The Company has represented in the Merger Agreement that the Board of
Directors has taken all necessary action to terminate its 1994 Employee Stock
Purchase Plan effective prior to the beginning of the payment period which would
have commenced on July 1, 1997, and no Options have been or will be issued under
such Stock Plan with respect to any payment period beginning on or after July 1,
1997. All other Stock Plans and any other plan, program or arrangement providing
for the issuance or grant of any other interest in respect of the capital stock
of the Company or any subsidiary will terminate as of the effective time of the
Merger. The Company has agreed to take all reasonable steps to ensure that none
of Parent, the Company or
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any of their respective subsidiaries is or will be bound by any Options, other
options, warrants, rights or agreements which would entitle any person, other
than Parent or its affiliates, to own any capital stock of the Surviving
Corporation or any of its subsidiaries or to receive any payment in respect
thereof other than to the extent provided with respect to the Contingent Rights.
The Company further agreed to use its reasonable best efforts to obtain all
necessary consents to ensure that, after the effective time of the Merger,
holders of Options will have no rights other than the rights of the holders of
vested Options to receive the Cash Payments in cancellation and settlement
thereof.
The Company has agreed pursuant to the Merger Agreement that, if required
by applicable law in order to consummate the Merger, it will (i) convene a
special meeting of its stockholders as soon as practicable following the
acceptance for payment of and payment for Shares by the Purchaser pursuant to
the Offer for the purpose of considering and taking action upon the Merger
Agreement; (ii) prepare and file with the Commission a preliminary proxy
statement relating to the Merger Agreement, and use its reasonable efforts (x)
to obtain and furnish the information required to be included by the Commission
in the Proxy Statement (as defined herein) and, after consultation with Parent,
to respond promptly to any comments made by the Commission with respect to the
preliminary proxy statement and to cause a definitive proxy statement (the
"Proxy Statement") to be mailed to its stockholders and (y) to obtain the
necessary approvals of the Merger and the Merger Agreement by its stockholders;
and (iii) subject to the fiduciary obligations of the Board of Directors under
applicable law as provided in the Merger Agreement, include in the Proxy
Statement the recommendation of the Board of Directors that stockholders of the
Company vote in favor of the approval of the Merger Agreement. Parent has agreed
in the Merger Agreement that it will vote, or cause to be voted, all of the
Shares then owned by it, the Purchaser or any of its other subsidiaries in favor
of the approval of the Merger and the Merger Agreement.
The Merger Agreement further provides that, notwithstanding the foregoing,
if Parent, the Purchaser or any other subsidiary of Parent acquires at least 90%
of the outstanding Shares of the Company pursuant to the Offer or otherwise, the
parties to the Merger Agreement will take all necessary and appropriate action
to cause the Merger to become effective as soon as practicable after the
acceptance for payment of and payment for the Shares by the Purchaser pursuant
to the Offer without a meeting of the stockholders of the Company, in accordance
with Section 253 of the GCL.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Merger Agreement
contains customary representations and warranties with respect to the Company,
including, among other things, (i) with respect to the organization, corporate
powers and qualifications of the Company and each of its significant
subsidiaries; (ii) with respect to the capitalization of the Company and its
significant subsidiaries; (iii) that the execution and delivery of the Merger
Agreement by the Company and the consummation by the Company of the transactions
contemplated therein have been duly and validly authorized and approved by the
Board of Directors and that no other corporate proceedings on the part of the
Company are necessary to authorize or approve the Merger Agreement or to
consummate the transactions contemplated therein (other than, with respect to
the Merger, the approval of the Merger Agreement by the affirmative vote of the
holders of a majority of the then outstanding Shares entitled to vote thereon,
to the extent required by applicable law); (iv) with respect to the absence of
any conflict between the terms and provisions of the Merger Agreement and the
transactions contemplated thereby with any statute, ordinance, rule, regulation,
order, judgment, decree, permit or license, agreements, contracts or other
instruments and obligations; (v) with respect to the accuracy of the documents
filed with the Commission; (vi) with respect to the Company's financial
statements, its financial condition, the amount of cash and cash equivalents the
Company had on hand as of May 23, 1997 and its net working capital as of such
date; (vii) with respect to the compliance of the Company and its subsidiaries
with certain laws relating to the protection of the environment; (viii) that the
Company and its subsidiaries hold all permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities (as defined in the Merger
Agreement) required for the conduct of their respective businesses and are
otherwise in compliance with all applicable laws; (ix) with respect to the
absence, as a result of the transactions contemplated by the Merger Agreement,
of a "change of control" under or other detriment under agreements or
instruments to which the Company or its subsidiaries are bound; (x) with respect
to the absence of certain litigation with respect to the Company; (xi) with
respect to the accuracy and completeness
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of the information supplied by the Company in connection with the Offer, the
Proxy Statement or any other document to be filed with the Commission or any
other Governmental Entity in connection with the transactions contemplated by
the Merger Agreement; (xii) that Section 203 of GCL is not applicable to the
Offer and the Merger and the transactions contemplated by the Merger Agreement;
(xiii) with respect to the Company's employee benefit plans; (xiv) with respect
to patents, trademarks and other intellectual property of the Company and its
subsidiaries; (xv) with respect to certain tax returns required to be filed and
certain taxes required to be paid by the Company and its subsidiaries; (xvi) the
absence of certain events since December 31, 1996, including that there has not
been any change in or effect on the business, assets, liabilities, condition
(financial or otherwise), prospects or results of operations of the Company or
any of its subsidiaries that would reasonably be expected to be materially
adverse to the Company and its subsidiaries taken as a whole (a "Material
Adverse Effect"); (xvii) with respect to certain union and labor matters;
(xviii) with respect to relationships with customers, suppliers, distributors
and sales representatives; (xix) with respect to certain contractual
obligations; (xx) that the Company has taken all necessary action pursuant to
the Rights Agreement to provide that no Triggering Event or Distribution Date
(as each term is defined in the Rights Agreement) will occur, and that Parent,
the Purchaser and their affiliates will not become an Acquiring Person (as
defined in the Rights Agreement), in each case as a result of the announcement,
commencement or consummation of the Offer or Merger, the execution or delivery
of the Merger Agreement or the consummation of the transactions contemplated
thereby; (xxi) with respect to certain product recalls; (xxii) with respect to
certain liabilities in connection with the Company's disposition of its
ultraviolet curing systems business; and (xxiii) with respect to the absence of
brokerage or finders fees or commissions payable in connection with the Merger
Agreement and the transactions contemplated thereby (other than with respect to
fees payable to Salomon Brothers or Venture Advisors, Inc.) and the aggregate
amount of certain fees and expenses in connection with the Merger Agreement and
the transactions contemplated thereby.
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER. The Merger
Agreement contains customary representations and warranties by Parent and the
Purchaser, including, among other things, (i) with respect to the organization,
corporate powers and qualifications of Parent and the Purchaser; (ii) that each
of Parent and the Purchaser has the necessary corporate power and authority to
execute and deliver the Merger Agreement and to consummate the transactions
contemplated thereby; (iii) with respect to the absence of any conflict between
the terms and provisions of the Merger Agreement and the transactions
contemplated thereby with any laws, regulations, agreements, contracts or other
instruments and obligations; (iv) that neither Parent nor any of its
subsidiaries was, immediately prior to the execution of the Merger Agreement, an
"interested stockholder" within the meaning of Section 203 of the GCL; and (v)
that Parent has and will cause the Purchaser to have the funds necessary to
consummate the Offer and the Merger and the transactions contemplated thereby.
COVENANTS. The Merger Agreement obligates the Company and its
subsidiaries, from the date of the Merger Agreement until the effective time of
the Merger, to conduct their operations only in the ordinary and usual course of
business consistent with past practice and obligates the Company and its
subsidiaries to use their reasonable efforts to preserve intact their business
organizations, to keep available the services of their present officers and key
employees and to preserve the good will of those having business relationships
with them. The Merger Agreement also contains specific covenants as to certain
impermissible activities of the Company prior to the effective time of the
Merger, which provide that the Company will not (and will not permit any of its
subsidiaries to) without the prior written consent of Parent: (i) adopt any
amendment to its Certificate of Incorporation or By-Laws or comparable
organizational documents or the Contingent Rights Agreement (as defined herein)
or the Rights Agreement other than the amendment such that the effectuation of
the merger will not cause the Rights under the Rights Agreement to become
exercisable, cause Parent or the Purchaser to be an Acquiring Person, or trigger
other provisions of the Rights Agreement including giving rise to a Distribution
Date or a Triggering Event; (ii) sell, pledge or encumber any stock owned by it
in any of its subsidiaries; (iii) (A) issue, reissue or sell, or authorize the
issuance, reissuance or sale of (1) additional shares of capital stock of any
class, or securities convertible into capital stock of any class, or any rights,
warrants or options to acquire any convertible securities or capital stock,
other than the issuance of Shares (and the related Rights), in accordance with
the terms of the instruments governing such issuance on the date of the Merger
Agreement, pursuant to the exercise of Options outstanding on the date of the
Merger
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Agreement (or, if a Triggering Event by a party other than Parent or the
Purchaser shall occur, Rights), or (2) any other securities in respect of, in
lieu of, or in substitution for, Shares outstanding on the date of the Merger
Agreement other than the Contingent Rights, or (B) make any other changes in its
capital structure; (iv) declare, set aside or pay any dividend or other
distribution (whether in cash, securities or property or any combination
thereof) in respect of any class or series of its capital stock other than
between any of the Company and any of its wholly owned subsidiaries or the
Contingent Rights; (v) split, combine, subdivide, reclassify or redeem, purchase
or otherwise acquire, or propose to redeem or purchase or otherwise acquire, any
shares of its capital stock, or any of its other securities; (vi) increase the
compensation or fringe benefits payable or to become payable to its directors,
officers or employees (whether from the Company or any of its subsidiaries)
other than certain bonuses previously disclosed to Parent, or pay or award any
benefit not required by any existing plan or arrangement to any officer,
director or employee, or grant any severance or termination pay to any officer,
director or other employee of the Company or any of its subsidiaries (other than
as required by existing agreements or policies disclosed to Parent), or enter
into any employment or severance agreement with, any director, officer or other
employee of the Company or any of its subsidiaries or establish, adopt, enter
into, amend or waive any performance or vesting criteria or accelerate vesting
or exercisability under any bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, savings, welfare, deferred
compensation, employment, termination, severance or other employee benefit plan,
agreement, trust, fund, policy or arrangement for the benefit or welfare of any
directors, officers or current or former employees of the Company or its
subsidiaries (any of the foregoing being an "Employee Benefit Arrangement"),
except in each case to the extent required by applicable law or regulation;
(vii) acquire, mortgage, encumber, sell, lease, license or dispose of any assets
(including Intellectual Property (as defined in the Merger Agreement)) or
securities, except pursuant to existing contracts or commitments or the sale or
purchase of goods in the ordinary course of business consistent with past
practice, or enter into any commitment or transaction outside the ordinary
course of business consistent with past practice other than transactions between
a wholly owned subsidiary of the Company and the Company or another wholly owned
subsidiary of the Company, subject to certain specified exceptions; (viii) (A)
incur, assume or pre-pay any long-term debt or incur or assume any short-term
debt, except that the Company and its subsidiaries may incur, assume or pre-pay
debt in the ordinary course of business in amounts and for purposes consistent
with past practice under existing lines of credit, (B) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person except in the
ordinary course of business consistent with past practice, (C) pay, discharge or
satisfy any claims, liabilities or obligations (absolute, accrued, contingent or
otherwise), except in the ordinary course of business consistent with past
practice and in accordance with their terms, (D) make any loans, advances or
capital contributions to, or investments in, any other person, except for loans,
advances, capital contributions or investments between any wholly owned
subsidiary of the Company and the Company or another wholly owned subsidiary of
the Company, (E) authorize or make capital expenditures not provided for in the
Company's capital budget which are in excess of $100,000, (F) accelerate or
delay collection of notes or accounts receivable in advance of or beyond their
regular due dates or the dates when the same would have been collected in the
ordinary course of business consistent with past practice, (G) delay or
accelerate payment of accounts payable beyond or in advance of its due date or
the date such liability would have been paid in the ordinary course of business
consistent with past practice, or (H) vary the Company's inventory practices in
any material respect from the Company's past practices; (ix) settle or
compromise any suit or claim or threatened suit or claim where the amount
involved is greater than $100,000; (x) other than in the ordinary course of
business consistent with past practice, (A) modify, amend or terminate any
contract, (B) waive, release, relinquish or assign any contract (or any of the
Company's rights thereunder), right or claim, or (C) cancel or forgive any
indebtedness owed to the Company or any of its subsidiaries; provided, however,
that the Company may not under any circumstance waive or release any of its
rights under any confidentiality agreement to which it is a party; (xi) make any
tax election not required by law or settle or compromise any tax liability;
(xii) permit any insurance policy naming it as a beneficiary or a loss payable
payee to be cancelled or terminated without notice to the Purchaser, except in
the ordinary course of business consistent with past practice; (xiii) acquire
(by merger, consolidation or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof or, except in the
ordinary course of business consistent with past practice, any assets; (xiv)
enter into any contract or agreement other than in the ordinary course of
business consistent with
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past practice; (xv) except as may be required as a result of a change in law or
in generally accepted accounting principles, make any change in its methods of
accounting, including tax accounting policies and procedures; or (xvi) agree in
writing or otherwise take any of the foregoing prohibited actions or any action
which would cause any representation or warranty in the Merger Agreement to be
or become untrue or incorrect.
ACCESS TO INFORMATION. The Merger Agreement provides that, until the
effective time of the Merger, the Company will give Parent and the Purchaser and
their representatives full access, during normal business hours, to the offices
and other facilities and to the books and records of the Company and its
subsidiaries, subject to Parent and the Purchaser's maintaining the
confidentiality of any non-public information disclosed to them.
EFFORTS. Subject to the terms and conditions provided in the Merger
Agreement, each of the Company, Parent and the Purchaser shall cooperate and use
reasonable efforts to make all filings necessary or proper under applicable laws
and regulations to consummate and make effective the transactions contemplated
by the Merger Agreement.
Each of the parties also will use its reasonable efforts to obtain as
promptly as practicable all Consents (as defined in the Merger Agreement) of any
Governmental Entity or any other person required in connection with, and waivers
of any Violations (as defined in the Merger Agreement) that may be caused by,
the consummation of the transactions contemplated by the Offer and the Merger
Agreement.
PUBLIC ANNOUNCEMENTS. The Merger Agreement provides that the Company, on
the one hand, and Parent and the Purchaser, on the other hand, agree to consult
promptly with each other prior to issuing any press release or otherwise making
any public statement with respect to the Offer, the Merger and the other
transactions contemplated by the Merger Agreement, agree to provide to the other
party for review a copy of any such press release or statement, and shall not
issue any such press release or make any such public statement prior to such
consultation and review, unless required by applicable law or any listing
agreement with a securities exchange.
EMPLOYEE BENEFIT ARRANGEMENTS. With respect to employee benefit matters,
the Merger Agreement provides that the Company will honor and, from and after
the effective time of the Merger, Parent will cause the Surviving Corporation to
honor, all obligations under specified Employee Benefit Arrangements.
Notwithstanding the foregoing, from and after the effective time of the Merger,
subject to the remainder of this paragraph, the Surviving Corporation will have
the right to amend, modify, alter or terminate any Employee Benefit
Arrangements, provided that any such action will not adversely affect the rights
of any employees or other beneficiaries which shall have arisen thereunder prior
to such amendment, modification, alteration or termination, and shall not affect
any rights or benefits for which the agreement of the other party or a
beneficiary is required.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. The Merger Agreement
provides that, from and after the time the Purchaser purchases Shares pursuant
to the Offer through and including the effective time of the Merger (without
regard to the termination of the Merger Agreement), neither Parent nor the
Purchaser will take any action, nor permit any action to be taken, which would
change or amend the provisions of the Certificate of Incorporation or By-Laws of
the Company in effect on the date of the Merger Agreement relating to limitation
of liability or indemnification or make any modification in the Company's
existing director's and officer's insurance, in each case inconsistent with the
obligations of Parent and the Purchaser under the Merger Agreement. Pursuant to
the Merger Agreement, Parent has agreed that from and after the effective time
of the Merger all rights to indemnification existing at the date of the Merger
Agreement in favor of individuals who at or prior to the effective time of the
Merger were directors or officers of the Company or any of its subsidiaries as
set forth in the Certificate of Incorporation or By-Laws of the Company shall
survive the Merger with respect to matters existing or occurring at or prior to
the effective time of the Merger and shall continue in full force and effect for
a period of six years following the effective time of the Merger. The Merger
Agreement further provides that the Company shall, and from and after the
effective time of the Merger, the Surviving Corporation shall, indemnify, defend
and hold harmless each person who is at the date of the Merger Agreement, or has
been at any time prior to such date or who becomes prior to the effective time
of the Merger, an officer or director of the Company or any of its subsidiaries
(each individually an
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<PAGE> 10
"Indemnified Party" and, collectively, the "Indemnified Parties") against all
losses, claims, damages, costs, expenses (including attorneys' fees and
expenses), liabilities or judgments or amounts that are paid in settlement with
the approval of the Indemnifying Party as a result of or in connection with any
threatened or actual claim, action, suit, proceeding or investigation based on
or arising out of the fact that such person is or was a director or officer of
the Company or any of its subsidiaries or out of or in connection with
activities in such capacity, whether pertaining to any matter existing or
occurring at or prior to the effective time of the Merger and whether asserted
or claimed prior to, or at or after, the effective time of the Merger
("Indemnified Liabilities"), including all Indemnified Liabilities based on, or
arising out of, or pertaining to the Merger Agreement or the transactions
contemplated thereby, in each case to the full extent a corporation is permitted
under the GCL to indemnify any such person and, without limiting the generality
or effect of the foregoing, to the fullest extent provided in the respective
Certificates of Incorporation or By-Laws of the Company and its subsidiaries as
in effect on the date of the Merger Agreement. Parent has agreed to cause the
Surviving Corporation to pay expenses in advance of the final disposition of any
such action or proceeding to each Indemnified Party to the fullest extent
permitted by law and, without limiting the generality or effect of the
foregoing, to the fullest extent provided in the respective Certificates of
Incorporation or By-Laws of the Company and its subsidiaries as in effect on the
date of the Merger Agreement subject to receipt by the Company of an undertaking
by or on behalf of such officer or director contemplated by Section 145(e) of
the GCL. Without limiting the generality or effect of the foregoing, in the
event any such claim, action, suit, proceeding or investigation is brought
against any Indemnified Parties (whether arising before or after the effective
time of the Merger) and, in the opinion of counsel to an Indemnified Party,
under applicable standards of professional conduct, there is a conflict on any
significant issue between the position of the Company and an Indemnified Party
or different defenses may reasonably be expected to exist, the Merger Agreement
provides that the Indemnified Parties may retain counsel which counsel shall be
reasonably satisfactory to the Company (or the Surviving Corporation after the
effective time of the Merger) and the Company shall (or after the effective time
of the Merger, Parent will cause the Surviving Corporation to) pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, however, that (i) Parent
or the Surviving Corporation shall have the right, from and after the purchase
of Shares pursuant to the Offer, to assume the defense thereof (which right
shall not affect the right of the Indemnified Parties to be reimbursed for
separate counsel as specified in the preceding sentence), (ii) the Company and
the Indemnified Parties will cooperate in the defense of any such matter and
(iii) neither Parent, the Company nor the Surviving Corporation shall be liable
for any settlement effected without its prior written consent. The Indemnified
Parties as a group may not retain more than one counsel to represent them with
respect to each such matter unless there is, in the opinion of counsel to an
Indemnified Party, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
Indemnified Parties or unless different defenses may reasonably be expected to
exist. The Company, Parent and the Purchaser have agreed in the Merger Agreement
that all rights to indemnification, including provisions relating to advances of
expenses incurred in defense of any action or suit, existing in favor of the
Indemnified Parties with respect to matters occurring through the effective time
of the Merger, shall survive the Merger and shall continue in full force and
effect for a period of not less than six years from the effective time of the
Merger; provided, however, that all rights to indemnification in respect of any
Indemnified Liabilities asserted or made within such period shall continue until
the disposition of such Indemnified Liabilities. Parent has also agreed that the
Company, and from and after the effective time of the Merger, the Surviving
Corporation will cause to be maintained in effect for not less than six years
(except as provided in the next immediate sentence) from the effective time of
the Merger the current policies of the directors' and officers' liability
insurance maintained by the Company; provided that the Surviving Corporation may
substitute therefor other policies of at least the same coverage amounts and
which contain terms and conditions not less advantageous (other than to a de
minimis extent) to the beneficiaries of the current policies and provided that
such substitution shall not result in any gaps or lapses in coverage with
respect to matters occurring prior to the effective time of the Merger; and
provided further that the Surviving Corporation shall not be required to pay an
annual premium in excess of 125% of the last annual premium paid by the Company
prior to the date of the Merger Agreement and if the Surviving Corporation is
unable to obtain the insurance required by this sentence, it shall obtain as
much comparable insurance coverage as possible for an annual premium equal to
such maximum amount. Notwithstanding the foregoing, at any time
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<PAGE> 11
on or after the second anniversary of the effective time of the Merger, Parent
may, at its election, undertake to provide funds to the Surviving Corporation to
the extent necessary so that the Surviving Corporation may self-insure with
respect to the level and scope of insurance coverage required under the
immediately preceding sentence in lieu of causing to remain in effect any
directors' and officers' liability insurance policy. Parent has agreed to
guarantee the obligations of the Surviving Corporation under the foregoing
indemnification provisions and these provisions will survive consummation of the
Merger and be binding on all successors and assigns.
NOTIFICATION OF CERTAIN MATTERS. Parent and the Company have agreed to
promptly notify each other of (i) the occurrence or non-occurrence of any fact
or event which would be reasonably likely (a) to cause any representation or
warranty contained in the Merger Agreement to be untrue or inaccurate in any
material respect at any time prior to the effective time of the Merger or (b) to
cause any covenant, condition or agreement under the Merger Agreement not to be
complied with or satisfied and (ii) 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 under the Merger Agreement;
provided, however, that no such notification will affect the representations or
warranties of any party or the conditions to the obligations of any party. Each
of the Company, Parent and the Purchaser is also required to give prompt notice
to the other parties of any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by the Merger Agreement.
RIGHTS AGREEMENT. The Company covenants and agrees in the Merger Agreement
that it will not (i) redeem the Rights, (ii) amend the Rights Agreement or (iii)
take any action which would allow any Person (as defined in the Rights
Agreement) other than Parent or the Purchaser to acquire beneficial ownership of
15% or more of the Shares without causing a Distribution Date or a Triggering
Event (as such terms are defined in the Rights Agreement) to occur.
Notwithstanding the foregoing, the Company may upon at least two business days'
prior written notice to Parent take the actions described in clauses (i) or
(iii) of the preceding sentence, if (x) the Board of Directors determines in
good faith, after consultation with its outside legal counsel, that failing to
take such action would reasonably be expected to result in a breach of the
fiduciary duties of the Board of Directors, and (y) prior to such action the
Company will have paid to Parent a fee of $13 million (which amount shall be
paid in lieu of any Termination Fee (as defined below)). The Company has also
agreed pursuant to the Merger Agreement that, neither the Board of Directors nor
the Continuing Directors of the Company will make a determination that Parent,
the Purchaser or any of their respective Affiliates or Associates (as such terms
are defined in the Rights Agreement) is an "Adverse Person" for purposes of the
Rights Agreement.
STATE TAKEOVER LAWS. The Merger Agreement provides that the Company will,
upon the request of the Purchaser, take all reasonable steps to assist in any
challenge by the Purchaser to the validity or applicability to the transactions
contemplated by the Merger Agreement, including the Offer and the Merger, of any
state takeover law.
NO SOLICITATION. The Merger Agreement requires the Company, its affiliates
and their respective officers, directors, employees, representatives and agents
to immediately cease any existing discussions or negotiations, with any parties
with respect to any acquisition or exchange of all or any material portion of
the assets of, or any equity interest in, the Company or any of its subsidiaries
or any business combination with the Company or any of its subsidiaries. The
Merger Agreement further provides that, prior to the effective time of the
Merger, the Company will not authorize or permit any of its subsidiaries or any
of its or its subsidiaries' directors, officers, employees, agents or
representatives, directly or indirectly, to solicit, initiate or encourage, or
furnish or disclose non-public information in furtherance of, any inquiries or
the making of any proposal with respect to any merger, liquidation,
recapitalization, consolidation or other business combination involving the
Company or its subsidiaries or acquisition of any capital stock or any material
portion of the assets (except for acquisitions of assets in the ordinary course
of business consistent with past practice) of the Company or of its
subsidiaries, or any combination of the foregoing (other than the Offer and the
Merger) (an "Acquisition Transaction") or negotiate, explore or otherwise engage
in substantive discussions with any person (other than the Purchaser, Parent or
their respective directors, officers, employees, agents and representatives)
with respect to any Acquisition Transaction or enter into any agreement,
arrangement or understanding requiring it
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to abandon, terminate or fail to consummate the Merger or any other transactions
contemplated by the Merger Agreement; provided that the Company may furnish
information to, and negotiate or otherwise engage in substantive discussions
with, any person who delivers a written proposal for an Acquisition Transaction
if the Board of Directors determines in good faith by a majority vote, after
consultation with its outside legal counsel, that failing to take such action
would reasonably be expected to result in a breach of the fiduciary duties of
the Board of Directors and prior to furnishing non-public information to such
party, the Company shall have entered into a confidentiality agreement
containing terms at least as favorable to the Company as those of the
confidentiality agreement dated April 7, 1997 between Parent and the Company
with respect to the maintenance of confidentiality and the permitted use of
information provided by or on behalf of the Company. The Merger Agreement
further provides that, from and after the execution of the Merger Agreement, the
Company will immediately advise the Purchaser in writing of the receipt,
directly or indirectly, of any discussions, negotiations or proposals relating
to an Acquisition Transaction, identify the offeror and furnish to the Purchaser
a copy of any such proposal, if it is in writing, or a written summary of any
such proposal relating to an Acquisition Transaction if it is not in writing,
and that the Company will promptly advise Parent of any development relating to
such proposal, including results of any discussions or negotiations with respect
thereto.
CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provisions of
the Offer, the Purchaser shall not be required to accept for payment or, subject
to any applicable rules and regulations of the Commission, including Rule
14e-1(c) promulgated under the Exchange Act, pay for any tendered Shares and may
terminate or, subject to the terms of the Merger Agreement, amend the Offer, if
(i) the Minimum Condition shall not have been satisfied, (ii) any applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the regulations thereunder (the "HSR Act") or under any
applicable foreign statutes or regulations shall not have expired or been
terminated prior to the Expiration Date, or (iii) at any time on or after June
30, 1997 and prior to the time of acceptance for payment or payment for any
Shares, any of the following events (each, an "Event") shall occur:
(a) there shall be any action taken, or any statute, rule, regulation,
legislation, interpretation, judgment, order or injunction enacted,
enforced, promulgated, amended, issued or deemed applicable to the Offer,
by any legislative body, court, government or governmental, administrative
or regulatory authority or agency, domestic or foreign, other than the
application of the waiting period provisions of the HSR Act to the Offer or
to the Merger, that, in the reasonable judgment of Parent, would be
expected to, directly or indirectly: (i) make illegal or otherwise prohibit
or materially delay consummation of the Offer or the Merger or seek to
obtain material damages or make materially more costly the making of the
Offer, (ii) prohibit or materially limit the ownership or operation by
Parent or the Purchaser of all or any material portion of the business or
assets of the Company or any of its subsidiaries taken as a whole or compel
Parent or the Purchaser to dispose of or hold separately all or any
material portion of the business or assets of Parent or the Purchaser or
the Company or any of its subsidiaries taken as a whole, or seek to impose
any material limitation on the ability of Parent or the Purchaser to
conduct its business or own such assets, (iii) impose material limitations
on the ability of Parent or the Purchaser effectively to acquire, hold or
exercise full rights of ownership of the Shares, including, without
limitation, the right to vote any Shares acquired or owned by the Purchaser
or Parent on all matters properly presented to the Company's stockholders,
(iv) require divestiture by Parent or the Purchaser of any Shares, or (v)
may, in the reasonable judgment of Parent, be expected to result in a
Material Adverse Effect on the Company; or
(b) there shall be instituted or pending any action or proceeding by
any Governmental Entity seeking, or that would reasonably be expected to
result in, any of the consequences referred to in clauses (i) through (v)
of paragraph (a) above or by any third party for which there is a
substantial likelihood of resulting in any of the consequences referred to
in clauses (i) through (v) of paragraph (a) above; or
(c) any change shall have occurred (or any development shall have
occurred involving prospective changes) in the business, assets,
liabilities, condition (financial or otherwise), prospects or results of
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<PAGE> 13
operations of the Company or any of its subsidiaries that has, or could
reasonably be expected to have, a Material Adverse Effect on the Company;
or
(d) (i) the Board of Directors or any committee thereof shall have
withdrawn, or shall have modified or amended in a manner adverse to Parent
or the Purchaser, the approval, adoption or recommendation, as the case may
be, of the Offer or the Merger Agreement, or approved or recommended any
Acquisition Transaction, (ii) a Person shall have entered into a definitive
agreement or an agreement in principle with the Company with respect to an
Acquisition Transaction, or (iii) the Board of Directors or any committee
thereof shall have resolved to do any of the foregoing; or
(e) the Company and the Purchaser and Parent shall have reached an
agreement that the Offer or the Merger Agreement be terminated, or the
Merger Agreement shall have been terminated in accordance with its terms;
or
(f) any of the representations and warranties of the Company set forth
in the Merger Agreement, when read without any exception or qualification
as to materiality or Material Adverse Effect on the Company, shall not be
true and correct, as if such representations and warranties were made at
the time of such determination (except as to any such representation or
warranty which speaks as of a specific date, which must be untrue or
incorrect as of such specific date) except where the failure to be so true
and correct would not, individually or in the aggregate, reasonably be
expected to (i) have a Material Adverse Effect on the Company, (ii) prevent
or materially delay the consummation of the Offer, (iii) materially
increase the cost of the Offer to the Purchaser or (iv) have a material
adverse effect on the benefits to Parent of the transactions contemplated
by this Agreement; or
(g) the Company shall have failed to perform in any material respect
or to comply in any material respect with any of its material obligations,
covenants or agreements under the Merger Agreement; or
(h) there shall have occurred, and continued to exist, (i) any general
suspension of, or limitation on prices for, trading in securities on the
New York Stock Exchange or on the over-the-counter stock market, as
reported by The Nasdaq Stock Market Inc. ("NASDAQ"), (ii) any decline of at
least 25% in either the Dow Jones Average of Industrial Stocks or the
Standard & Poor's 500 Index from the close of business on the last trading
day immediately preceding the date of the Merger Agreement through the
applicable Expiration Date, (iii) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States, or
(iv) a commencement of a war, armed hostilities or other national or
international crisis involving the United States or a material limitation
(whether or not mandatory) by any Governmental Entity on the extension of
credit by banks or other lending institutions.
The foregoing conditions (including those set forth in clauses (i) and (ii)
of the initial paragraph of this Section) are for the benefit of Parent and the
Purchaser and may be asserted by Parent or the Purchaser regardless of the
circumstances giving rise to any such conditions and may be waived by Parent or
the Purchaser in whole or in part at any time and from time to time in their
reasonable discretion, in each case, subject to the terms of the Merger
Agreement. The failure by Parent or the Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
CONDITIONS TO CONSUMMATION OF THE MERGER. Pursuant to the Merger
Agreement, the respective obligations of Parent, the Purchaser and the Company
to consummate the Merger are subject to the satisfaction, at or before the
Effective Time, of each of the following conditions: (i) the stockholders of the
Company shall have duly approved the transactions contemplated by the Merger
Agreement, if required by applicable law; (ii) the Purchaser shall have accepted
for payment and paid for Shares in an amount sufficient to meet the Minimum
Condition and otherwise pursuant to the Offer in accordance with the terms of
the Merger Agreement; provided, however, that this condition will be satisfied
with respect to the obligation of Parent and the Purchaser to effect the Merger
if the Purchaser fails to accept for payment or pay for Shares pursuant to the
Offer in violation of the terms of the Offer; (iii) the consummation of the
Merger is not restrained, enjoined or prohibited by any order, judgment, decree,
injunction or ruling of a court of competent jurisdiction or any Governmental
Entity and there is not any statute, rule or regulation enacted, promulgated
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<PAGE> 14
or deemed applicable to the Merger by any Governmental Entity which prevents the
consummation of the Merger or has the effect of making the purchase of Shares
illegal; and (iv) any waiting period (and any extension thereof) under the HSR
Act applicable to the Merger shall have expired or terminated.
TERMINATION. The Merger Agreement may be terminated and the Merger may be
abandoned at any time, notwithstanding approval thereof by the stockholders of
the Company (with any termination by Parent also being an effective termination
by the Purchaser): (i) by the mutual written consent of Parent and the Company;
(ii) by the Company if (1) Parent or the Purchaser fails to commence the Offer
by July 7, 1997, (2) Parent or the Purchaser has not accepted for payment and
paid for Shares pursuant to the Offer in accordance with the terms thereof or
the Merger Agreement on or before October 31, 1997 (provided that the Company
may not so terminate the Merger Agreement if it has materially breached the
Merger Agreement); (iii) by Parent or the Company (A) if the Offer is terminated
or withdrawn pursuant to its terms without any Shares being purchased thereunder
or (B) the Merger shall not have been consummated on or before December 31,
1997; provided, however, that neither Parent nor the Company may so terminate
the Merger Agreement if such party shall have materially breached the Merger
Agreement; (iv) by Parent or the Company if any court of competent jurisdiction
or other Governmental Entity shall have issued an order, decree or ruling or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the acceptance for payment of, or payment for, Shares pursuant to
the Offer or the Merger and such order, decree or ruling or other action shall
have become final and nonappealable, provided that the party seeking to
terminate the Merger Agreement shall have used its reasonable efforts to remove
or lift such order, decree or ruling; (v) by the Company if, prior to the
acceptance for payment of Shares pursuant to the Offer, the Board of Directors
approves an Acquisition Transaction, on terms which a majority of the members of
the Board of Directors have determined in good faith (A) after consultation with
Salomon Brothers or another nationally recognized investment banking firm, to be
more favorable to the Company and its stockholders than the transactions
contemplated by the Merger Agreement, taking into account the distribution of
the Contingent Rights, and (B) after consultation with outside legal counsel,
that failure to approve such proposal and terminate the Merger Agreement would
reasonably be expected to result in a breach of fiduciary duties of the Board of
Directors under applicable law; provided that the termination described in this
provision shall not be permissible unless and until the Company shall have
provided the Purchaser and Parent prior written notice at least two business
days prior to such termination that the Board of Directors has authorized and
intends to effect the termination of the Merger Agreement pursuant to this
provision (including copies of all proposed written agreements, arrangements or
understandings, including the forms of any agreements supplied by third parties,
with respect to such Acquisition Transaction (and a description of all material
oral agreements with respect thereto)), the Company shall otherwise be in
compliance with its obligations under the Merger Agreement and on or prior to
such termination shall have paid to Parent the Termination Fee; provided
further, that notwithstanding anything in the Merger Agreement to the contrary
the termination of the Merger Agreement by the Company in compliance with this
provision shall not be deemed to violate other obligations of the Company under
the Merger Agreement; (vi) by Parent if the Company breaches its covenant with
regard to the Rights Agreement or makes certain amendments to the Rights
Agreement, provided, however, such breach occurs prior to the time that
designees of Parent constitute a majority of the Board of Directors; (vii) by
Parent prior to the purchase of Shares pursuant to the Offer, if the Board of
Directors shall have withdrawn or modified (including by amendment of the
Schedule 14D-9) in a manner adverse to the Purchaser its approval or
recommendation of the Offer, the Merger Agreement or the Merger, shall have
approved or recommended an Acquisition Transaction, or shall have resolved to
effect any of the foregoing; or (viii) by Parent prior to the purchase of Shares
pursuant to the Offer, if the Minimum Condition has not been satisfied by the
expiration date of the Offer and on or prior to such date an Acquisition
Transaction has been publicly announced or disclosed.
Pursuant to the Merger Agreement, in the event of the termination of the
Merger Agreement, the Merger Agreement will become void and have no effect,
without any liability on the part of any party or its directors, officers or
shareholders, other than certain specified provisions, which shall survive any
such termination; provided that no party would be relieved from liability for
any breach of the Merger Agreement.
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FEES AND EXPENSES. Except as provided below, whether or not the Merger is
consummated, all costs and expenses incurred in connection with the Offer, the
Merger Agreement and the transactions contemplated by the Merger Agreement will
be paid by the party incurring such expenses. In the event that the Merger
Agreement is terminated pursuant to clauses (v), (vi) or (vii) in the second
preceding paragraph above (or is terminated pursuant to clause (iii)(A) in such
paragraph as a result of the failure to satisfy the conditions set forth above
in paragraphs (d) or (g) under the subheading, "-- Certain Conditions of the
Offer" in this Item 3) then the Company will promptly (and in any event within
one business day after such termination) or in the case of any such termination
by the Company, prior to such termination, pay Parent a termination fee of
$13,000,000 (the "Termination Fee"), provided that in no event shall more than
one Termination Fee be payable by the Company. In the event that the Merger
Agreement is terminated pursuant to clause (viii) in the second preceding
paragraph above and within six months of the date of the termination of the
Merger Agreement a transaction constituting an Acquisition Transaction is
consummated or the Company or any of its subsidiaries enters into an agreement
with respect to, or approves or recommends such a transaction, the Company will
promptly (and in any event within one business day thereafter) pay Parent the
Termination Fee. The prevailing party in any legal action undertaken to enforce
the Merger Agreement or any provision thereof will be entitled to recover from
the other party the costs and expenses (including attorneys' and expert witness
fees) incurred in connection with such action.
AMENDMENT. The Merger Agreement may be amended by the Company, Parent and
the Purchaser at any time before or after any approval of the Merger Agreement
by the stockholders of the Company but, after any such approval, no amendment
will be made which decreases the price to be paid in the Merger or which
adversely affects the rights of the Company's stockholders thereunder without
the approval of such stockholders. The Merger Agreement provides that any
amendment or termination of the Merger Agreement following the election of
Parent's designees to the Board of Directors requires the concurrence of a
majority of the directors of the Board of Directors who are not Purchaser
Insiders (or in the case where there are two or fewer directors who are not
Purchaser Insiders, the concurrence of one director who is not a Purchaser
Insider).
EXTENSION; WAIVER. At any time prior to the effective time of the Merger,
Parent and the Purchaser, on the one hand, and the Company, on the other hand,
may (i) extend the time for the performance of any of the obligations or other
acts of the other, (ii) waive any inaccuracies in the representations and
warranties contained therein of the other or in any document, certificate or
writing delivered pursuant to the Merger Agreement by the other or (iii) waive
compliance by the other with any of the agreements or conditions.
ARRANGEMENTS WITH EXECUTIVE OFFICERS, DIRECTORS OR AFFILIATES OF THE COMPANY
Proxy Disclosure
Certain contracts, agreements, arrangements and understandings between the
Company and its directors, executive officers and affiliates are described on
pages 4-13, 15 and 16 of the Company's Proxy Statement dated as of May 15, 1997
for its 1997 Annual Meeting of Stockholders (the "Proxy Statement"). Pages 4-13,
15 and 16 of the Proxy Statement are filed as Exhibit 5 to this statement and
are incorporated herein by reference.
Consulting and Noncompetition Agreement
Concurrently with the execution of the Merger Agreement, Leslie S. Levine,
the President, Chief Executive Officer and a director of the Company, entered
into a Consulting and Noncompetition Agreement with the Company and Parent (the
"Consulting Agreement") which is filed as Exhibit 6 to this statement and is
incorporated herein by reference. Pursuant to this agreement, Mr. Levine will,
until the earlier of a period of five (5) years from the date of the Merger (a
period which is three years longer than the two-year period provided under his
pre-existing non-competition agreement with the Company) or until he dies or
becomes disabled, render services to the Company regarding business
opportunities in the semiconductor equipment industry and other services
relating to the business of the Company and will not engage in any "Competition
with the Parent/Company" (as such term is defined in the Consulting Agreement).
In consideration,
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Mr. Levine will be paid a fee of $750,000 in a lump sum and $12,500 per month
thereafter during the term of the agreement. In the event that, for any reason,
the Merger shall not take effect, neither Parent nor the Company will have any
obligations to Mr. Levine pursuant to such contract.
Concurrently with the execution of the Merger Agreement, John C. Matthews,
the Senior Vice President of the Company and President of Fusion Semiconductor
Systems Corporation, the Company's principal operating subsidiary, has entered
into an Executive Noncompetition Agreement with the Company and Parent (the
"Noncompetition Agreement") which is filed as Exhibit 7 to this statement and is
incorporated herein by reference. Pursuant to the Noncompetition Agreement,
Parent agreed to grant to Mr. Matthews, effective at the effective time of the
Merger, options to purchase 12,000 shares of the common stock, $0.50 par value
per share, of the Parent at an exercise price equal to the fair market value of
such stock on the date of grant, which will vest in five (5) years if Mr.
Matthews remains continuously employed by the Company or Parent and does not
engage in "Competition with the Parent/Company" (as defined in the
Noncompetition Agreement).
Severance Arrangements
The Company has in place severance agreements with a significant number of
employees, including all of its executive officers, which would be activated if
and when a change in control (as defined in the agreements) of the Company
occurs. The agreements with its executive officers (the "executive severance
agreements") provide for the payment of the following compensation and benefits
upon the termination in certain circumstances of an executive officer's
employment with the Company following a change in control of the Company: (i)
the continuation of their base pay for a period equal to one month for each
$5,000 of base pay up to a maximum of 24 months (the "Base Payment"); (ii)
incentive compensation for the pro-rata portion of the year the executive
officer was employed with the Company (the "Bonus Payment"); (iii) payment in
cash of the amount of any health, life and disability insurance premiums the
Company would have paid on the officer's behalf had the officer been employed
during the payment period established in (i) above or a payment of such premiums
directly to the plan if the executive officer is continuing health insurance
under the Company's plan (the "Medical Payment"); and (iv) a payment for full
executive outplacement up to a maximum of 15% of the officer's base pay and
incentive compensation paid during the twelve-month period prior to the
termination of employment, or payment to the executive officer of said amount
(the "Outplacement Payment" and together with the Base Payment, the Bonus
Payment and the Medical Payment, the "Severance Payments").
Pursuant to these executive severance agreements, whether or not there is a
change in control, each executive officer has agreed to maintain the
confidentiality of Company information and assign to the Company all inventions
and product improvements developed by such person during the term of the
agreement and during the one-year period thereafter. Moreover, each executive
officer has agreed that during the term of his respective employment with the
Company and thereafter for two years, such person will not compete with the
Company by engaging in any capacity in any business which is competitive with
the business of the Company, unless the Company determines that the fulfillment
of such person's duties in the proposed employment would not likely cause the
disclosure or use of any confidential information of the Company.
Mr. Levine and Joseph F. Greeves, Vice President, Chief Financial Officer,
Treasurer and Secretary of the Company, will be terminated in connection with
the Merger and upon such termination will be entitled to the Severance Payments
provided for in their executive severance agreements, which are filed as Exhibit
8 and Exhibit 9, respectively, to this statement and are incorporated herein by
reference. On June 29, 1997, the Board of Directors of the Company (the "Board
of Directors"), acted to accelerate the Severance Payments payable under Messrs.
Levine's and Greeves' executive severance agreements (as well as the Severance
Payments payable under the severance agreements of four other employees being
terminated at the effective time of the Merger) such that the total Severance
Payments will be paid in one lump sum payment immediately prior to the effective
time of the Merger, rather than having the Base Payment being paid out over a
period of up to 24 months following the effective time of the Merger. At the
effective time of the Merger, Messrs. Levine and Greeves will be entitled to
receive lump sum payments of $694,549 and $420,302, respectively, as Severance
Payments under their executive severance agreements with the Company.
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Acceleration of Option Vesting
Immediately prior to the effective time of the Merger, Messrs. Levine and
Greeves will have unvested options (the "Unvested Executive Options") to
purchase up to an aggregate of 47,000 Common Shares and 25,666 Common Shares,
respectively, all of which were granted pursuant to the Company's 1994 Stock
Option Plan (the "1994 Option Plan"). On June 29, 1997, the Board of Directors
acted to accelerate the vesting of the Unvested Executive Options (as well as to
accelerate the vesting of all unvested outstanding options held by four other
employees being terminated upon consummation of the Merger), such that all
outstanding options held by Messrs. Levine and Greeves would be fully-vested
immediately prior to the effective time of the Merger. At the Offer price of
$39.00 per Common Share, the value of such Unvested Executive Options, net of
the applicable exercise prices, is approximately $581,500 and $397,160 for
Messrs. Levine and Greeves, respectively.
In addition, and immediately prior to the effective time of the Merger, the
Company's four non-employee directors will have unvested options (the "Unvested
Director Options") to purchase up to an aggregate of 43,670 Common Shares. Of
the aggregate 43,670 Unvested Director Options, 11,670 Unvested Director Options
were granted under the Company's Non-Employee Director Stock Option Plan (the
"Director Plan") and consist of options to purchase up to an aggregate of 2,501,
2,501, 4,167, and 2,501 Common Shares held by Mr. Tessler, Charles Coulter,
Andrea Geisser and Jon D. Tompkins, respectively. The remaining 32,000 Unvested
Director Options are held by Mr. Tessler and were issued pursuant to the 1994
Option Plan.
Pursuant to the terms of the Director Plan, if the Company is to be
consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise, then all options granted
under the Director Plan that are outstanding but unvested as of the effective
date of such event will become exercisable in full thirty (30) days prior to the
effective date of such event. By operation of the Director Plan, the 11,670
Unvested Director Options issued pursuant to the Director Plan will
automatically become exercisable in full thirty (30) days prior to the effective
time of the Merger. Moreover, on June 29, 1997, the Board of Directors also
acted to accelerate the vesting on the 32,000 Unvested Director Options held by
Mr. Tessler and issued pursuant to the 1994 Option Plan to immediately prior to
the effective time of the Merger. Accordingly, all outstanding options held by
Messrs. Tessler, Coulter, Geisser and Tompkins on June 29, 1997 will be fully
vested immediately prior to the effective time of the Merger. At the Offer price
of $39.00 per Common Share, the value of the Unvested Director Options, net of
the applicable exercise prices, are approximately $464,115, $25,115, $48,539 and
$34,803 for Messrs. Tessler, Coulter, Geisser and Tompkins, respectively.
Pursuant to the Merger Agreement, Mr. Matthews and the other officers and
employees holding unvested options in the Company at the effective time of the
Merger will have their unvested options cancelled without any payment therefor.
At the effective time of the Merger, Parent has agreed to cause the Surviving
Corporation in the Merger to establish the Special Bonus Plan for all employees
of the Company or any of its subsidiaries, including Mr. Matthews, who held
unvested options in the Company which were outstanding immediately before the
effective time of the Merger and which options were terminated as of the
effective time of the Merger. The Special Bonus Plan shall provide for a cash
payment on the second anniversary of the effective time of the Merger to each
employee who continues to be an employee of the surviving corporation in the
Merger, Parent or any of their respective subsidiaries on such second
anniversary in an amount (subject to any applicable withholding taxes) equal to
the sum of (i) the product of (x) the total number of Shares subject to such
terminated options and (y) the excess of $39.00 over the exercise price per
Share of such terminated options, plus (ii) interest on the amount set forth in
clause (i) at a rate of 6% per annum from the effective time of the Merger, plus
(iii) the product of (x) the total number of Shares subject to such terminated
option and (y) the amount of cash, if any, paid with respect to each Contingent
Right pursuant to the Contingent Rights Agreement. Any employee of the Company
who is involuntarily terminated without cause or whose employment ceases by
reason of death or disability, in each case prior to the second anniversary of
the effective time of the Merger, shall be entitled, promptly following such
termination or cessation of employment (or, in the case of any payment pursuant
to clause (iii) of the preceding sentence, promptly following the later of March
31, 1999 or the date of such termination or cessation of employment), to receive
from the Company a cash payment equal to the amount which such employee would
have received
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pursuant to the formula in the immediately preceding sentence had such employee
remained employed throughout the period ending on the second anniversary of the
effective time of the Merger.
Transactions with Venture Advisors, Inc.
On June 29, 1997, the Company entered into a letter agreement with Venture
Advisors, Inc. ("VAI") and a related indemnity agreement (the "VAI Agreement")
which is filed as Exhibit 10 to this statement and is incorporated herein by
reference. Daniel Tessler, Chairman of the Board of Directors, is the President
and controlling stockholder of VAI. Pursuant to the VAI Agreement, the Company
confirmed its engagement of VAI to act as a non-exclusive financial advisor to
the Company with respect to the possible sale of, or other form of business
combination with, the Company. The VAI Agreement provides that the Company will
pay to VAI for its services a fee equal to 93 basis points multiplied by an
amount equal to (i) the number of fully diluted Common Shares outstanding
multiplied by the price per share (without giving effect to amounts received or
receivable under any contingent payment obligation issued by the Company) in a
sale transaction less (ii) the amount of cash of the Company on hand as of the
closing of such a sale transaction. As of March 27, 1997 the amount of cash on
hand of the Company was approximately $112 million as to which no fee would
apply, and if the VAI fee were computed as of such date based on the terms
contained in the offer, the fee payable to VAI would approximate $2.0 million.
However, the amount of cash on hand at the effective time of the Merger will be
the applicable amount of cash to be excluded in the computation of the fee. In
addition, pursuant to the VAI Agreement the Company agreed to reimburse VAI for
its travel and other reasonable out-of-pocket expenses, and to indemnify VAI and
certain related parties against certain liabilities under the federal securities
laws.
The Company paid VAI $1,046,500 for services rendered in connection with
the sale last year of the Company's UV curing business, and paid VAI $275,000 in
1994 for consulting services relating to the Company's initial public offering.
The Company pays VAI $75,000 per annum for the director services of Daniel
Tessler.
Board Of Directors Approvals
All transactions related to the Offer and the Merger and all transactions
involving directors were approved by the unanimous vote of the disinterested
directors, and both the disinterested directors and the full Board of Directors,
voting separately, unanimously approved all transactions related to the Offer
and the Merger.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) BACKGROUND OF THE OFFER
Since August of 1996, the Company has stated on many occasions, including
investor calls, conferences, and in a letter to shareholders, that it wished to
identify strategic business combination opportunities to maximize stockholder
value amidst what it viewed to be an ongoing consolidation of the semiconductor
equipment industry. Toward that end, the Company identified potential
consolidation candidates through extensive review of public documents,
discussions with others in the industry and investment bankers and security
analysts familiar with the industry.
Since October of 1996, the Company has communicated with representatives of
a number of companies in the semiconductor equipment industry and major
investment banking firms, for the express purpose of identifying strategic
business combinations that would offer an opportunity to maximize stockholder
value.
On November 11, 1996, Mr. John C. Matthews, Senior Vice President of the
Company and President of the Company's principal operating subsidiary, Fusion
Semiconducter Systems Corporation, initiated discussions with Mr. Brian Bachman,
a Senior Vice President of the Parent. During the next four months,
representatives of the Company and the Parent exchanged visits and on several
occasions discussed business philosophies and objectives in general, as well as
specific opportunities to cooperate and integrate process technologies and
certain aspects of operations, including evaluating the competitive advantages
that might result from a consolidation.
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In January 1997, Messrs. Tessler, Levine and Matthews met at the Company
with Mr. Bachman and two other Parent executives who are involved in Parent's
semiconductor equipment operations to discuss collaboration with respect to
technology and various approaches for sharing intellectual property, including a
possible joint venture, and certain of the Company's senior executives visited
the headquarters of Parent's semiconductor equipment operations to discuss
Parent's potential strategies with respect to product technology matters and
various mechanisms for potential collaboration.
In February 1997, several of Parent's executives met with Messrs. Tessler,
Levine and Matthews to explore Parent's possible acquisition of the Company.
Issues of possible transaction structure and valuation were raised.
On March 26, 1997, Mr. Tessler met with Stephen R. Hardis, Parent's
Chairman of the Board and Chief Executive Officer, and Mr. Bachman. At this
meeting, Parent expressed interest in principle in an acquisition of, or other
strategic alliance with, the Company. Mr. Tessler, acting on behalf of the
Company, had requested that Parent provide an indication of value before
pursuing further negotiations or the sharing of non-public information. In
response, Parent proposed consideration of an acquisition of all of the
outstanding Shares and vested options at a purchase price of $37.50 per share,
subject to negotiation and approval of definitive terms. Mr. Tessler rejected
this, indicating that the price was too low, but indicated he would be prepared
to provide confidential information subject to an appropriate confidentiality
agreement.
During a meeting of the Board of Directors on March 27, 1997, the status of
discussions with Parent was reviewed and with the management of the Company
advised the Board of Directors that management had reached a preliminary
conclusion that the strategic fit between Parent and the Company could serve as
the basis for a transaction that would be attractive to, and in the best
interests of, the Company's stockholders. On April 7, 1997, the Company and
Parent executed the Confidentiality Agreement filed as Exhibit 3 hereto.
Thereafter, the Company provided Parent with certain non-public information;
Parent conducted independent due diligence investigations into the nature and
quality of the Company's product and process technology, customer relations and
other similar matters, and representatives of the Company and Parent discussed
technical, personnel and organizational matters.
In May 1997, Parent's representatives indicated Parent's willingness to
consider raising its cash acquisition price and acquiring the Company through a
tender offer for all of the outstanding Shares, for a cash payment of $39.00 per
Share, to be followed by a merger, with all non-tendering stockholders receiving
the same consideration of $39.00 per Share in the Merger. This proposal
contemplated cash payment for the net value of all vested options. Parent's
counsel stated that Parent would proceed only if the Company agreed to a 30-day
period of exclusive dealing at or prior to the end of which it was contemplated
that the parties would enter a definitive merger agreement with provisions for
the Board of Directors to consider competing bids in the post-merger agreement
period, consistent with the exercise of their fiduciary duties to the Company's
stockholders, and a break-up fee of 6% of the total consideration payable in the
transaction.
Although the Board of Directors considered the offer to be an attractive
price and a meaningful improvement over the terms proposed in March, the Board
of Directors directed Mr. Tessler to continue negotiations to obtain a higher
offer price and a lower break-up fee, among other modifications. During the
period from May 29 to June 24, 1997, Mr. Tessler held numerous conversations
with representatives of Parent, both in person and telephonically. In that
period, the Board of Directors held three meetings, consisting of a special
telephonic meeting on June 16, 1997, a regular meeting on June 19, 1997 and a
special telephonic meeting on June 23, 1997. In each of those meetings, the
Board of Directors discussed in depth, with management and the Company's legal
and financial advisers, both the status of the negotiations with Parent and the
Company's strategy for maximizing stockholder value.
In these negotiations, Parent indicated a willingness to pay additional
consideration of up to $3.50 per share if the Company's performance in 1998 met
or exceeded certain financial targets. After further attempts by Mr. Tessler to
improve the Parent's offer, Parent's representatives proposed to increase the
potential contingent payment to up to $5.00 per share and to reduce the break-up
fee to 4% of the total consideration payable in the transaction. Parent also
agreed to cash out all vested options at the effective time of the Merger and,
with respect to unvested options, to establish a bonus pool payable to employees
who continue
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employment with the Company for two years following the Merger to provide them
with the equivalent economic value of a vested option. On June 24, 1997, the
Company and Parent entered into the Exclusivity Agreement described in Item 3.
On the morning of June 25, 1997, Parent's legal counsel delivered to the
Company's outside counsel a draft of a proposed merger agreement. Beginning on
June 26, 1997 and continuing through the evening of June 29, 1997, Mr. Tessler
and the Company's legal counsel held various discussions with representatives of
Parent regarding the economic and contractual terms of the proposed merger.
During that period, revised drafts of the proposed merger agreement, the
proposed Contingent Rights Agreement and other related documents were delivered,
reviewed and negotiated. On June 26, 1997, the Board held a special telephonic
meeting, at which the Company's legal and financial advisers were present, to
discuss the status of the negotiations.
In the evening of June 29, 1997, a special meeting of the Board of
Directors was held to consider the terms of the revised Merger Agreement and
related documents. At its prior two meetings, the Board of Directors considered
at length the retention of financial advisers and the financial and other terms
of their engagement. Salomon Brothers made an extensive financial presentation,
including background information and various financial analyses. Salomon
Brothers then delivered its opinion to the Board of Directors to the effect
that, as of the date of such opinion, the per Share consideration to be offered
to the Company's stockholders in the Offer, the Merger and the distribution of
the Contingent Rights is fair, from a financial point of view. A copy of the
Salomon Brothers opinion is attached hereto as Annex II, and should be read in
its entirety. In addition, at that meeting, the Company's legal counsel
reviewed, and the Board of Directors discussed at length, the terms of the Offer
and the Merger Agreement, including the Company's ability to respond to
unsolicited third party proposals and to terminate the Merger Agreement under
certain circumstances, consistent with the fiduciary responsibilities of the
Board of Directors, and the situations which would require the Company to pay a
termination fee to Parent. Following further in-depth discussion of the Offer,
the Merger, the Merger Agreement, the Contingent Rights and other related
matters, the Board of Directors determined that each of the Offer and Merger is
fair to, and in the best interests of, the Company's stockholders, approved and
adopted the Merger Agreement, the execution of such agreement and the
transactions contemplated thereby, and resolved to recommend that the Company's
stockholders accept the Offer and tender their Shares pursuant thereto.
The Merger Agreement was executed before the opening of trading on the
Nasdaq National Market on the morning of June 30, 1997. The Parent and the
Company each issued a press release announcing the execution of the definitive
Merger Agreement.
(B) REASONS FOR THE RECOMMENDATIONS; FACTORS CONSIDERED BY THE BOARD
At the special meeting held on June 29, 1997, the Board of Directors
declared a dividend of the Contingent Rights, unanimously approved the Merger
Agreement, and determined that the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, are fair to and in the
best interests of the holders of the Common Shares, and the Board of Directors
resolved to recommend that stockholders accept the Offer and tender their
Shares. In making such recommendation and approving the Merger Agreement and the
transactions contemplated thereby, the Board considered a number of factors,
including, but not limited to, the following:
(i) the financial and other terms and conditions of the Merger
Agreement, including (a) the proposed structure of the Offer and the Merger
involving a cash tender offer of $39.00 per Share for all outstanding
Shares to be followed by a merger for the same consideration and (b) the
opportunity for the Company's stockholders (or their subsequent
transferees) to receive an additional cash payment of up to a maximum of
$5.00 on March 31, 1999 pursuant to the Contingent Rights;
(ii) the Company's business, financial condition, results of
operations, assets, liabilities, business strategy and prospects, as well
as various risks and uncertainties associated with those prospects,
including the Company's competitive environment, new product development
efforts, and the status of other business initiatives;
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(iii) the fact that the value of $39.00 per share cash price to be
received by the Company's stockholders in both the Offer and Merger
(without taking into account an additional payment, if any, associated with
the Contingent Rights), represented a significant premium over the
enterprise value of the Company's operations -- a valuation method that
focuses on the offered price per share over the per share value of the
Company's core business assets, in each case net of the Company's cash
holdings -- over various periods of time;
(iv) the fact that the value of $39.00 per share cash price to be
received by the Company's stockholders in both the Offer and the Merger
represented a substantial premium over the market prices of the Common
Shares over various periods;
(v) the fact that neither the Offer nor the Merger is subject to any
financing condition, and that Parent has represented that it has possession
of, or has available to it under existing lines of credit, sufficient funds
available to consummate the Offer and the Merger and the transactions
contemplated thereby;
(vi) the written opinion received by the Company from Salomon Brothers
on June 29, 1997 to the effect that as of that date, and based upon its
review and analysis and subject to the assumptions, limitations and
qualifications set forth therein, the consideration to be received by the
Company's stockholders (other than Parent and any of its affiliates)
pursuant to the Merger Agreement, the Offer, the Merger and the Contingent
Rights Agreement (collectively, the "Proposed Transaction") is fair to the
stockholders of the Company from a financial point of view. A copy of the
written opinion dated June 29, 1997 of Salomon Brothers, which sets forth
the assumptions made, procedures followed, other matters considered and
limits of the review by Salomon Brothers, is attached hereto as Annex II.
STOCKHOLDERS ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY;
(vii) the Board of Directors' strategic view that in order to maximize
stockholder value, the Company should participate in the trend of
consolidation and concentration within the semiconductor equipment industry
because the cyclical and capital-intensive nature of the industry favors,
and will continue to favor, companies that are of sufficient size and
financial wherewithal to sell and support products globally and to invest
in leading edge technologies during industry downturns so as to position
themselves for market share gains during cyclical upswings;
(viii) the fact that the Company had carefully considered over several
months a full range of options, including acquiring smaller companies,
merging with similar-sized companies, or being acquired by an existing
semiconductor equipment manufacturer, and that no other compelling
opportunities of these kinds became evident; the Board of Directors
concluded, after a nine month effort to canvass the market for merger and
acquisition possibilities that would maximize value for the Company's
stockholders, that there was not likely to be another financially capable
potential acquiror who would be interested in acquiring the Company on more
attractive terms; and
(ix) the fact that, prior to consummation of the Offer, the Board of
Directors may approve a proposal to be acquired by a third party on terms
which a majority of the members of the Board of Directors have determined
in good faith (i) after consultation with Salomon Brothers or another
nationally recognized investment banking firm, to be more favorable to the
Company and its stockholders than the transactions contemplated by the
Merger Agreement, including the Offer, and (ii) after consultation with
outside legal counsel, that failure to approve such a proposal and
terminate the Merger Agreement would reasonably be expected to result in a
breach of the fiduciary duties of the Board of Directors under applicable
law, and further provided that the Company shall have paid a break-up fee
of $13,000,000 to Parent.
The Board of Directors' approval and recommendation was based on the
totality of the information considered by it. The Board of Directors did not
assign relative weights to the factors considered by it or determine that any
one factor was of primary importance.
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ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company and Salomon Brothers have entered into a letter agreement dated
June 29, 1997 and a related indemnity agreement dated June 27, 1997 (the
"Salomon Brothers Engagement Letter"). Pursuant to the Salomon Brothers
Engagement Letter, Salomon Brothers was engaged to render an opinion relating to
the fairness, from a financial point of view, to the Company's stockholders
other than Parent of the consideration to be offered in the proposed acquisition
of the Company by the Parent. The Salomon Brothers Engagement Letter provides
that the Company will pay to Salomon Brothers for its services (i) a fee of
$100,000, payable upon the execution of the Salomon Brothers Engagement Letter,
(ii) an additional fee of $250,000, payable upon issuance of a press release
relating to the proposed acquisition or upon initial submission of the fairness
opinion to the Board of Directors, and (iii) an additional fee of $200,000
payable upon the consummation of the proposed acquisition. The Company has also
agreed to reimburse Salomon Brothers for all reasonable fees and disbursements
of Salomon Brothers' counsel, not to exceed $10,000 without the prior consent of
the Company, and all of Salomon Brothers' reasonable travel and other
out-of-pocket expenses. The Company has also agreed to indemnify Salomon
Brothers and certain related parties against certain liabilities, including
liabilities under the federal securities laws.
In addition, the Company and VAI entered into the VAI Agreement on June 29,
1997, as described in Item 3(b).
Neither the Company nor any person acting on its behalf has employed,
retained, or compensated any person to make solicitations or recommendations to
the Company's stockholders with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
Except as set forth in this statement, neither the Company nor, to the
knowledge of the Company, any of its executive officers, directors, affiliates
or subsidiaries, has effected any transaction in the Company's securities in the
past 60 days. To the knowledge of the Company, all of its executive officers,
directors, affiliates or subsidiaries who are also stockholders presently intend
either to tender their Shares in the Offer or vote in favor of the Merger.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in this statement, the Company is not engaged in
any negotiation in response to the Offer which relates to or would result in (i)
an extraordinary transaction, such as a merger or reorganization involving the
Company, (ii) a purchase, sale or transfer of a material amount of assets by the
Company, (iii) a tender offer for or other acquisition of securities by or of
the Company, or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as described in this statement, there are no transactions,
resolutions of the Board of Directors, agreements in principle or signed
contracts in response to the Offer that relate to or would result in one or more
of the events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The Information Statement attached hereto as Annex I is being furnished in
connection with the contemplated designation by Parent, pursuant to the Merger
Agreement, of certain persons to be appointed to the Board of Directors other
than at a meeting of the Company's stockholders following the purchase by
Purchaser, pursuant to the Offer, of the number of shares representing not less
than a majority of the outstanding Shares on a fully diluted basis.
Contingent Rights Agreement
On June 29, 1997, the Board of Directors declared a dividend distribution
of one Contingent Right with respect to (i) each Common Share to stockholders of
record at the close of business on July 25, 1997 (the "Record Date"), and (ii)
each Common Share issued between the Record Date and the earlier of December 31,
1997 or the Redemption Date (as defined in the Contingent Rights Agreement) upon
exercise of options to purchase Common Shares issued under the Company's 1984
Stock Option Plan, 1994 Option
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<PAGE> 23
Plan, Director Plan and 1994 Employee Stock Purchase Plan and outstanding on the
Record Date. The Contingent Rights will be distributed on September 23, 1997
(the "Distribution Date") to holders of record as of the Record Date. The
Company shall use reasonable efforts to cause the Contingent Rights to be
registered under the Exchange Act prior to the Distribution Date, although there
can be no assurance that such registration will be effective at such time or at
all. The Contingent Rights shall not be transferable by the holders thereof
unless and until such registration is effective. THERE IS CURRENTLY NO PUBLIC
MARKET FOR THE CONTINGENT RIGHTS, AND THE PRICES AT WHICH THE CONTINGENT RIGHTS
MAY TRADE CANNOT BE PREDICTED. NO ASSURANCE CAN BE GIVEN THAT AN ACTIVE PUBLIC
MARKET FOR THE CONTINGENT RIGHTS WILL DEVELOP OR THAT ANY CONTINGENT PAYMENT
THEREUNDER WILL EVER BE PAID TO HOLDERS THEREOF PURSUANT TO THE CONTINGENT
RIGHTS. Until such securities are fully distributed and an orderly market
develops, the prices at which trading occurs may fluctuate significantly.
Trading prices will be determined by the market and may be influenced by many
factors, including, among others, the depth and liquidity of the market for such
securities, investor perception of the Company, the prospects for payment
pursuant to the Contingent Rights, and general economic and market conditions.
The following is a summary of certain material provisions of the Contingent
Rights and the Contingent Rights Agreement. This summary does not purport to be
complete and is qualified in its entirety by reference to the complete text of
the Contingent Rights Agreement, the form of which is filed as Exhibit 2 hereto
and is incorporated herein by reference.
The Contingent Rights will be unsecured obligations of the Company and will
rank equally with all other unsubordinated indebtedness of the Company. Pursuant
to the Contingent Rights Agreement, if a Change in Control (as defined herein)
of the Company (pursuant to the Offer, the Merger or with or by a party
unaffiliated with Parent or the Purchaser) occurs prior to December 31, 1997
each registered holder of a Contingent Right on the close of business on March
31, 1999 (the "Contingent Payment Date") will be entitled to receive in respect
of each Contingent Right held unless the Contingent Rights have been
extinguished or redeemed pursuant to their terms, the amount (the "Contingent
Payment") of cash determined by the following schedule, where "Net Sales" of the
Company means the amount of net sales reflected on the audited income statement
of the Company and its consolidated subsidiaries for the calendar year beginning
January 1, 1998 and ending December 31, 1998 (the "Contingent Payment Period"):
<TABLE>
<CAPTION>
NET SALES OF THE COMPANY FOR THE
CONTINGENT PAYMENT PERIOD CONTINGENT PAYMENT
-------------------------------------------------------- ------------------
<S> <C>
$149,000,000 or greater................................. $ 5.00
$141,000,000............................................ $ 3.50
$134,000,000............................................ $ 2.25
$127,000,000............................................ $ 1.00
$122,000,000 or less.................................... $ 0.00
</TABLE>
If the Company's Net Sales for the Contingent Payment Period fall between
two of the levels specified in the above schedule, the amount of the Contingent
Payment for each Contingent Right shall be made by interpolation pursuant to a
formula set forth in Section 3.01(c) of the Contingent Rights Agreement.
Pursuant to the Contingent Rights Agreement, a "Change of Control" of the
Company shall be deemed to have occurred if:
(i) there shall be consummated any reorganization, recapitalization,
consolidation or merger, or sale, lease, exchange, or other transfer (in
one transaction or a series of related transactions) of all or
substantially all of the assets, of the Company (a "Business Combination"),
in each case, unless, following such Business Combination, (a) all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of, as of the date of determination, the outstanding
shares of Common Stock of the Company (the "Outstanding Common Shares") and
outstanding voting securities having a right to vote generally in the
election of directors (the "Outstanding Voting Securities") immediately
prior to such Business Combination beneficially own (within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), directly or indirectly, more than
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<PAGE> 24
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transactions owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination of the
Outstanding Common Shares and Outstanding Voting Securities, as the case
may be, (b) no Person (as defined in the Contingent Rights Agreement)
(excluding any corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 25% or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting securities of such
corporation and (c) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Board of Directors of the Company as of the date of the
Contingent Rights Agreement; or
(ii) the stockholders of the Company shall approve any plan or
proposal for the liquidation or dissolution of the Company; or
(iii) any person (as such term is used in the Sections 13(d) and
14(d)(2) of the Exchange Act) other than the Company, or any employee
benefit plan sponsored by the Company, shall become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of securities of
the Company representing twenty-five percent (25%) or more of either (i)
the then Outstanding Common Shares or (ii) the Outstanding Voting
Securities; provided, however, that an acquisition by any corporation
pursuant to a transaction which complies with clauses (a), (b), and (c) of
paragraph (i) above shall not be deemed to be a Change of Control; or
(iv) individuals which constituted the Board of Directors of the
Company as of the date of the Contingent Rights Agreement shall cease for
any reason to constitute at least a majority thereof.
The Company may, at its option, at any time after the occurrence of a
Change of Control, redeem the then outstanding Contingent Rights, in whole or in
part, at $5.00 per Contingent Right, without interest. In addition, the
Contingent Rights shall be extinguished without payment therefor and will have
no further force and effect (i) on December 31, 1997, if no Change of Control
has occurred prior to such date or (ii) on March 31, 1999 if the Net Sales of
the Company for the Contingent Payment Period shall not have exceeded
$122,000,000.
Pursuant to the Contingent Rights Agreement, the Company must use
reasonable efforts during the Contingent Payment Period to operate its business
in the ordinary course and substantially as operated heretofore; provided,
however, that the foregoing shall not prevent the Company from operating the
business of the Company in accordance with its business judgment to enhance the
growth and profitable development of the Company's business, so long as the
Company is not motivated by an intention to diminish the value of the Contingent
Rights. The Company must cause all properties used or useful in the conduct of
its business or the business of any subsidiary of the Company to be maintained
and kept in good condition, repair and working order and supplied with all
necessary equipment and must cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that the foregoing shall not prevent the Company from discontinuing the
operation or maintenance of any of such properties if such discontinuance is, as
determined by the Board of Directors in good faith, desirable in the conduct of
its business or the business of any subsidiary of the Company. The Contingent
Rights Agreement also provides that, prior to January 1, 1999, the Company will
not sell or transfer a substantial portion of the assets of the Company, other
than in the ordinary course of business or pursuant to a transaction which
constitutes a sale of all or substantially all of the Company's assets, unless
the Company shall have called for the redemption of all of the then outstanding
Contingent Rights. In addition, the Contingent Rights Agreement provides that
the Company must not
24
<PAGE> 25
engage in material transactions with Affiliates other than subsidiaries of the
Company, or material transactions with other persons which are primarily for the
benefit of such Affiliates, which would reduce Net Sales during the Contingent
Payment Period, except on terms that are comparable to those that would be
obtained from unaffiliated parties on an arms-length basis. The Company is also
prohibited from merging or consolidating with or into any other Person (as
defined in the Contingent Rights Agreement) or from selling or conveying all or
substantially all of its assets to any Person, unless (i) either the Company
remains as the continuing corporation or such Person is organized under the laws
of the United States of America or any State thereof and expressly assumes the
due and punctual payment of the Contingent Rights and the performance and
observance of all covenants and conditions under the Contingent Rights
Agreement, and (ii) the Company or such successor corporation, as the case may
be, is not, immediately after such merger or consolidation, or such sale or
conveyance, in default in performance of any such covenant or condition.
The following will be "Events of Default" under the Contingent Rights
Agreement: (i) default in the payment of the Contingent Payment when the same
shall become due and payable, and continuance of such default for a period of 30
days; or (ii) default in the performance, or breach, of any covenant of the
Company in the Contingent Rights Agreement, and continuance of such default or
breach for a period of 90 days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the Trustee
by the registered holders of at least 25% of the outstanding Contingent Rights,
a written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default"; (iii) a court
having jurisdiction in the premises shall enter a decree or order for relief in
respect of the Company in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar
official) of the Company or for any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and such decree or order
shall remain unstayed and in effect for a period of 60 consecutive days; or (iv)
the Company shall commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consent to the
entry of an order for relief in an involuntary case under any such law, or
consent to the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee or sequestrator or similar official, of the Company
or for any substantial part of its property, or make any general assignment for
the benefit of creditors.
If a default in payment of the Contingent Payment occurs when and as such
Contingent Payment becomes due and payable and such default continues for a
period of 30 days, then upon demand of the Trustee, the Company will pay the
Contingent Payment to the Trustee for the benefit of the registered holders of
the Contingent Rights, as well as any other amount sufficient to cover the costs
and expenses of collection of such Contingent Payment. In addition, if an Event
of Default has occurred, and has not been waived and is continuing, the Trustee
may in its discretion proceed to protect and enforce the rights vested in it by
the Contingent Rights Agreement by such appropriate judicial proceedings as the
Trustee shall deem most effectual to protect and enforce any such rights.
No registered holder of the Contingent Rights has any right by virtue of
the Contingent Rights Agreement to institute any action or proceeding at law or
in equity or in bankruptcy or otherwise, unless the registered holders of 25% of
the then outstanding Contingent Rights make a written request upon the Trustee
to institute such action or proceedings in its own name as trustee under the
Contingent Rights Agreement and have offered the Trustee reasonable indemnity as
it may require against any costs, expenses and liabilities that the Trustee may
incur. The right of any registered holder of the Contingent Rights to receive
payment of the Contingent Payments payable on or after the Contingent Payment
Date, or to institute suit for the enforcement of any such payment, will not be
impaired or affected with the consent of such holder. The registered holders of
a majority of the then outstanding Contingent Rights may waive certain Events of
Default and its consequences, except a default in respect of a covenant or
provision of the Contingent Rights Agreement which cannot be modified or amended
without the consent of the registered holder of each Contingent Right affected.
The Contingent Rights Agreement provides that the Trustee shall, within 90
days after the occurrence of a default, give to the registered holders of the
Contingent Rights notice of all uncured defaults known to it, but
25
<PAGE> 26
the Trustee shall be protected in withholding such notice if it in good faith
determines that the withholding of such notice is in the interest of such
registered holders.
Without the consent of any of the registered holders of the Contingent
Rights, the Company and the Trustee may modify and amend the Contingent Rights
Agreement, in the form satisfactory to the Trustee, (i) in order to convey,
transfer, assign, mortgage or pledge any property or assets to the Trustee as
security for the Contingent Rights, (ii) to provide for a guarantee by any
Person (as defined in the Contingent Rights Agreement) of some or all of the
obligations of the Company under the Contingent Rights Agreement for the benefit
of the registered holders of the Contingent Rights, (iii) to add further
covenants, restrictions, conditions or provisions to the Contingent Rights
Agreement as the Company's Board of Directors and the Trustee consider to be for
the protection of the registered holders of the Contingent Rights, (iv) to cure
any ambiguity or to make changes that do not adversely affect the interests of
the registered holders of the Contingent Rights in any material respect. With
the consent of not less than a majority of the registered holders of the then
outstanding Contingent Rights, the Company and the Trustee may modify and amend
the Contingent Rights Agreement and the Contingent Rights for the purpose of
adding, eliminating or changing any provision therein, or to modifying in any
manner the rights of the registered holders of the Contingent Rights under the
Contingent Rights Agreement; provided, however, that no such amendment will,
without the consent of the registered holder of each then outstanding Contingent
Right, (i) modify the definition of Contingent Payment Period, Contingent
Payment, Contingent Payment Date, or Net Sales as such terms are defined in the
Contingent Rights Agreement, or otherwise reduce the amounts payable in respect
of the Contingent Rights or (ii) reduce the amount of the outstanding Contingent
Rights.
The Company has not yet executed a definitive Contingent Rights Agreement
with a financial institution to serve as trustee thereunder. Pending such
execution, the Company reserves its rights, subject to the consent of Parent, to
alter the form of Contingent Rights Agreement, including an amendment to replace
the contemplated use of a trustee in favor of the use of a payment agent. No
such alteration or amendment will affect the financial terms or time periods
applicable to the Contingent Rights.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following discussion
summarizes certain of the federal income tax consequences associated with the
distribution, holding and disposition of the Contingent Rights. Due to the lack
of controlling authority and the complexity of the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury Regulations promulgated thereunder,
applicable judicial decisions and administrative rulings, all of which are
subject to change, the federal income tax consequences associated with the
distribution, holding and disposition of the Contingent Rights are unclear. The
following discussion is limited to the material federal income tax aspects of
the distribution, holding and disposition of the Contingent Rights to a Company
stockholder who is a citizen or resident of the United States and who, at all
relevant times, holds the Contingent Rights and Company Common Shares as capital
assets. The following discussion does not address potential foreign, state,
local and other tax consequences, nor does it address tax consequences with
respect to holders of Company stock options or warrants, nor does it address
taxpayers subject to special treatment under the federal income tax law such as
life insurance companies, tax-exempt organizations, S corporations and taxpayers
subject to the alternative minimum tax. In addition, the following discussion
does not apply to Contingent Rights holders who acquire Contingent Rights in the
secondary market or to Company stockholders who acquired their shares upon the
exercise of employee stock options or otherwise as compensation. The Company has
not sought a ruling from the Internal Revenue Service or an opinion from counsel
concerning the federal income tax consequences associated with the distribution,
holding or disposition of the Contingent Rights and does not intend to do so.
ALL STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL, FOREIGN, STATE AND LOCAL TAX CONSEQUENCES OF THE DISTRIBUTION, HOLDING
AND DISPOSITION OF THE CONTINGENT RIGHTS.
While the matter is not free from doubt, the distribution of Contingent
Rights is likely to be treated as a dividend distribution on the Common Shares
and the Contingent Rights are likely to be characterized for federal income tax
purposes as "debt instruments" (rather than as equity) on which all payments are
contingent. Assuming that the Contingent Rights constitute "debt instruments,"
the federal income tax
26
<PAGE> 27
consequences of the distribution, holding and disposition of the Contingent
Rights generally should be as follows:
(i) Each Common Share stockholder should be treated as having received a
dividend (taxable as ordinary income) in an amount equal to the fair market
value of the Contingent Rights on the date of the distribution. The fair market
value is expected to be the market price for the Contingent Rights on that date.
(ii) Each Common Share stockholder's initial basis in his or her
Contingent Rights will be equal to the fair market value of such Contingent
Rights on the date of distribution, and the holding period with respect to such
Contingent Rights will not include such stockholder's holding period for his or
her Common Shares.
(iii) The Contingent Rights will be subject to the original issue discount
("OID") rules of the Code and Treasury Regulations that apply to contingent
payment debt obligations. Accordingly, as described more fully below, holders of
the Contingent Rights may be required to recognize interest income in advance of
the receipt of the corresponding cash payment. Moreover, in view of the
contingent nature of the obligation, it is possible that a holder will (a) not
receive a cash payment, or (b) receive an amount less than the amount of
interest income previously accrued. In that event, upon maturity or other
disposition of the Contingent Rights, the holder should be entitled to make
adjustments to the amounts previously accrued and taken into income, as
described below.
The total amount of interest income that would be required to be taken into
account by a holder with respect to a Contingent Right, prior to any adjustments
made upon retirement or other disposition of the Contingent Right, would be
equal to the excess, if any, of the amounts projected to be paid on the
Contingent Right at maturity ("Projected Payments") over the Contingent Right's
"issue price."
Projected Payments generally are calculated based on a projected payment
schedule and a yield at which the Company would issue a fixed rate debt
instrument with terms and conditions similar to those of the Contingent Right,
determined by the Company as of the date of the distribution of the Contingent
Right. The Company has not yet determined the Projected Payments schedule that
it will use to calculate the OID accruals with respect to the Contingent Rights.
Once determined, the Projected Payments schedule will remain fixed throughout
the term of the Contingent Rights, unless the amount of the payment becomes
fixed more than six months before the payment is due. In that event, an
adjustment will be made in an amount equal to the difference between the present
value of the amount that is fixed and the present value of the Projected
Payments. The "issue price" of a Contingent Right is the fair market value of
such right on the date of distribution. A holder of a Contingent Right would be
required to recognize interest income annually as it accrued on the Contingent
Right on the basis of a constant yield method. In general, the amount of
interest income required to be recognized annually by a Contingent Right holder
would increase with each successive taxable year.
As noted above, upon maturity of a Contingent Right, appropriate
adjustments would be made to reconcile any difference between the actual payment
made on retirement of the Contingent Right and the Projected Payments. If the
actual payment, if any, made on retirement to a holder of a Contingent Right
were to exceed the Projected Payments, such excess would be treated as
additional interest income to the holder in the then current taxable year. If
the actual payment, if any, received by a Contingent Right holder were to be
less than the Projected Payments, such difference would be applied first to
reduce the amount of interest income required to be recognized by the holder in
the then current year. Any excess would be treated as an ordinary loss for the
then current taxable year to the extent of the aggregate interest income
recognized by the Contingent Right holder on its Contingent Right in prior
taxable years and then as a capital loss.
A Contingent Right holder's tax basis in a Contingent Right generally would
be equal initially to the fair market value of the Contingent Right received as
a dividend, increased by the amount of interest includible in income in respect
of the Contingent Right, as described above. Gain or loss recognized by a holder
upon the sale or other taxable disposition of a Contingent Right would be
measured by the difference between the amount realized and the holder's adjusted
tax basis therein. Any gain generally would be treated as additional interest
income to the Contingent Right holder. Any loss generally would be treated first
as ordinary loss to the
27
<PAGE> 28
extent of the aggregate amount of interest included by the holder with respect
to the Contingent Right as of the date of maturity or disposition, and then as a
capital loss.
(iv) Distribution of the Contingent Rights and payments thereon will be
reported to the extent required by the Code to the Common Share stockholders and
the Internal Revenue Service. Such amounts distributed to U.S. persons will
ordinarily not be subject to withholding of U.S. federal income tax. However,
backup withholding of such tax at a rate of 31% may apply to certain
stockholders by reason of events specified in Section 3406 of the Code and the
Treasury Regulations promulgated thereunder, which include failure of a
stockholder to supply the Company or its agent with such stockholder's taxpayer
identification number.
If the Contingent Rights are properly treated as equity rather than as debt
instruments for federal income tax purposes, or if the distribution of
Contingent Rights is properly treated as payment in part for Common Shares,
different consequences would result that could be more or less favorable to
holders of Contingent Rights.
STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS CONCERNING
THE FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION, HOLDING AND DISPOSING
OF CONTINGENT RIGHTS.
Rights Agreement
On September 8, 1994, the Board of Directors declared a dividend of one
preferred stock purchase right (a "Right") for each outstanding Common Share to
stockholders of record at the close of business on September 19, 1994 (the
"Record Date"). Each Right entitles the registered holder to purchase from the
Company a unit consisting one one-hundredth of a share (a "Unit") of Series A
Junior Participating Preferred Stock, $.01 par value per share (the "Preferred
Stock"), at a purchase price of $40.00 per Unit (the "Purchase Right"), subject
to adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and BankBoston, N.A.
(formerly The First National Bank of Boston), as Rights Agent (the "Rights
Agent"), a copy of which was filed as Exhibit 4.1 to Form 8-K dated September 8,
1994. On April 19, 1995, the Board of Directors and the Rights Agent amended the
Rights Agreement (the "First Amendment"). The First Amendment was filed as
Exhibit No. 4.2 to Form 8-K dated April 19, 1995. On June 30, 1997, the Board of
Directors of the Company and the Rights Agent amended the Rights Agreement (the
"Second Amendment"). A description of the Rights under the Rights Agreement, as
amended to date, is set forth below.
The Rights are attached to all certificates representing Common Shares
outstanding, and no separate Rights Certificates have been distributed. The
Rights will separate from the Common Shares and a Distribution Date will occur
upon the earlier of (i) 10 days following a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") other than
Parent or any Affiliate of Parent, has acquired, or obtained the right to
acquire, beneficial ownership of more than 15% of the outstanding Common Shares
(the "Stock Acquisition Date"), (ii) 10 business days following the commencement
of a tender offer or exchange offer that may result in a person or group
beneficially owning 15% or more of such outstanding Common Shares, other than a
tender offer initiated by Parent or an Affiliate of Parent or (iii) 10 business
days after the Continuing Directors (as defined in the Rights Agreement) of the
Company shall declare any Person to be an Adverse Person, upon a determination
that such Person, alone or together with its affiliates and associates, has
become the Beneficial Owner of an amount of Common Shares which the Continuing
Directors determine to be substantial (which amount shall in no event be less
than 10% of the shares of Common Shares then outstanding) and a majority of the
Continuing Directors (with the concurrence of a majority of the Independent
Directors (as defined in the Rights Agreement)) determines, after reasonable
inquiry and investigation, including consultation with such persons as such
directors shall deem appropriate, that (a) such beneficial ownership by such
person is intended to cause the Company to repurchase the Common Shares
beneficially owned by such person or to cause pressure on the Company to take
action or enter into such transaction or series of transactions intended to
provide such person with short-term financial gain under circumstances where
such directors determine that the best long-term interests of the Company and
its stockholders would not be served by taking such action or entering into such
transaction
28
<PAGE> 29
or series of transactions at that time or (b) such beneficial ownership is
causing or is reasonably likely to cause a material adverse impact (including,
but not limited to, impairment of relationships with customers, impairment of
the Company's ability to maintain its competitive position or impairment of the
Company's business reputation or ability to deal with government agencies) on
the business or prospects of the Company.
Until the Distribution Date (or earlier redemption or expiration of the
Rights), (i) the Rights will be evidenced by the Common Share certificates and
will be transferred with and only with such Common Share certificates, (ii) new
Common Share certificates issued after the Record Date will contain a notation
incorporating the Rights Agreement by reference and (iii) the surrender for
transfer of any certificates for Common Shares outstanding, even without such
notation, will also constitute the transfer of the Rights associated with the
Common Shares represented by such certificate. Pursuant to the Rights Agreement,
the Company reserves the right to require prior to the occurrence of a
Triggering Event (as defined below) that, upon any exercise of Rights, a number
of Rights may be exercised so that only whole shares of Preferred Stock will be
issued.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on September 19, 2004, unless earlier redeemed or
exchanged by the Company as described below.
As soon as practicable after the Distribution Date, separate certificates
evidencing the Rights ("Rights Certificates") will be mailed to holders of
record of the Common Shares as of the close of business on the Distribution Date
and, thereafter, such separate Rights Certificates alone will represent the
Rights. Except as otherwise determined by the Board of Directors and except in
connection with Common Shares issued upon the exercise of employee stock options
issuable under employee stock benefit plans or upon the conversion of
convertible securities issued hereafter, only Common Shares issued prior to the
Distribution Date will be issued with Rights.
In the event the Continuing Directors determine that a Person is an Adverse
Person or, at any time following the Distribution Date, (i) the Company is the
surviving corporation in a merger with an Acquiring Person and its Common Shares
are not changed or exchanged, (ii) a Person becomes the beneficial owner of more
than 15% of the then outstanding Common Shares (except pursuant to an offer for
all outstanding Common Shares which the Independent Directors determine to be
fair to, and otherwise in the best interests of, the Company and its
stockholders), (iii) an Acquiring Person engages in one or more "self-dealing"
transactions as set forth in the Rights Agreement, or (iv) during such time as
there is an Acquiring Person, an event occurs which results in such Acquiring
Person's ownership interest being increased by more than 1% (e.g., a reverse
stock split), each holder of a Right will thereafter have the right to receive,
upon exercise, that number of Common Shares (or, in certain circumstances, cash,
property or other securities of the Company) which equals the exercise price of
the Right divided by one-half of the current market price (as defined in the
Rights Agreement) of the Common Shares at the date of the occurrence of the
event. However, Rights are not exercisable following the occurrence of any of
the events set forth above until such time as the Rights are no longer
redeemable by the Company as set forth below. Notwithstanding any of the
foregoing, following the occurrence of any of the events set forth in this
paragraph, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by an Acquiring Person or Adverse
Person will be null and void. The events set forth in this paragraph are
referred to as "Section 11(a)(ii) Events."
In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation (other than a merger which
follows an offer determined by the Board of Directors to be fair as described in
clause (ii) of the preceding paragraph), or (ii) more than 50% of the Company's
assets or earning power is sold or transferred, each holder of a Right (except
Rights which previously have been voided as set forth above) shall thereafter
have the right to receive, upon exercise, that number of shares of common stock
of the acquiring company which equals the exercise price of the Right divided by
one-half of the current market price (as defined in the Rights Agreement) of
such common stock at the date of the occurrence of the event. The events set
forth in this paragraph and the Section 11(a)(ii) Events are collectively
referred to as "Triggering Events;" provided that no Triggering Event shall be
deemed to occur by reason of the approval,
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<PAGE> 30
execution or delivery of the Merger Agreement, the announcement or consummation
of the Offer or the Merger or the consummation of the other transactions
contemplated by the Merger Agreement.
At any time after the occurrence of a Section 11(a)(ii) Event, a majority
of the Continuing Directors (as defined in the Rights Agreement) may exchange
the Rights (other than Rights owned by an Acquiring Person or Adverse Person
which have become void), in whole or in part, at an exchange ratio of one Common
Share, or one Common Stock Equivalent (as defined in the Rights Agreement), per
Right (subject to adjustment).
The Purchase Price payable, and the number of Units of Preferred Stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Stock, (ii) if holders of the Preferred Stock are granted certain rights or
warrants to subscribe for Preferred Stock or convertible securities at less than
the current market price of the Preferred Stock, or (iii) upon the distribution
to holders of the Preferred Stock of evidences of indebtedness or assets
(excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Preferred Stock on the last
trading date prior to the date of exercise.
In general, the Company may redeem the Rights in whole, but not in part, at
any time until ten days following the Stock Acquisition Date, at a price of
$0.01 per Right (payable in cash, Common Shares or other consideration deemed
appropriate by the Board of Directors). Under certain circumstances set forth in
the Rights Agreement, the decision to redeem shall require the concurrence of a
majority of the Continuing Directors. The Company may not redeem the Rights if
the Continuing Directors have previously declared a Person to be an Adverse
Person. After the redemption period has expired, the Company's right of
redemption may be reinstated if either (i) an Acquiring Person reduced his
beneficial ownership to less than 15% of the outstanding Common Shares in a
transaction or series of transactions not involving the Company, or (ii) the
Board of Directors approves the merger of the Company with, or acquisition of
the Company by, a Person unrelated to the Acquiring Person. Immediately upon the
action of the Board of Directors ordering redemption of the Rights, with, where
required, the concurrence of the Continuing Directors, the Rights will terminate
and the only right of the holders of Rights will be to receive the $0.01 per
Right redemption price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Shares (or other consideration) of the Company or for
common stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors of the Company prior to the earlier to occur of the
determination that a Person is an Adverse Person or the Distribution Date. After
the earlier of such events, the provisions of the Rights Agreement may be
amended by the Board of Directors (in certain circumstances with the concurrence
of the Continuing Directors) in order to cure any ambiguity, to make changes
which do not adversely affect the interests of holders of Rights (excluding the
interest of any Acquiring Person or any Adverse Person), or to shorten or
lengthen any time period under the Rights Agreement; provided, however, that no
amendment to adjust the time period governing redemption shall be made at such
time as the Rights are not redeemable.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following exhibits are filed herewith:
30
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit 1 Agreement and Plan of Merger dated as of June 30, 1997 among Parent,
Purchaser and the Company.
Exhibit 2 Form of Contingent Rights Agreement between the Company and a trustee
mutually acceptable to the Company, Parent and the Purchaser.
Exhibit 3 Confidentiality Agreement dated as of April 7, 1997 between the Company
and Parent.
Exhibit 4 Exclusivity Agreement dated June 25, 1997, between the Company and
Parent.
Exhibit 5 Excerpt from the Company's Proxy Statement dated as of May 15, 1997
(inclusive of pages 4-13, 15 and 16 thereof).
Exhibit 6 Consulting and Noncompetition Agreement dated as of June 30, 1997, by
and among Parent, Leslie S. Levine and the Company.
Exhibit 7 Executive Noncompetition Agreement dated as of June 30, 1997 by and
among Parent, John C. Matthews and the Company.
Exhibit 8 Employment Agreement dated as of March 8, 1993 between Leslie S. Levine
and the Company.
Exhibit 9 Employment Agreement dated as of May 1, 1995 between Joseph F. Greeves
and the Company.
Exhibit 10 Engagement Letter dated as of June 29, 1997 between the Company and
Venture Advisors, Inc. and related indemnity agreement.
Exhibit 11 Rights Agreement, dated as of September 8, 1994, between the Company
and the Rights Agent (incorporated herein by reference from Form 8-K
dated September 8, 1994).
Exhibit 12 First Amendment to Rights Agreement, dated as of April 19, 1995,
between the Company and the Rights Agent (incorporated herein by
reference from Form 8-K dated April 19, 1995).
Exhibit 13 Second Amendment to Rights Agreement, dated as of June 30, 1997,
between the Company and the Rights Agent.
</TABLE>
31
<PAGE> 32
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Fusion Systems Corporation
By: /s/ LESLIE S. LEVINE
----------------------------------
Leslie S. Levine
President, Chief Executive
Officer, and Director
Dated: July 7, 1997
32
<PAGE> 33
ANNEX I
FUSION SYSTEMS CORPORATION
7600 STANDISH PLACE
ROCKVILLE, MD 20855
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
NO VOTE OR OTHER ACTION OF THE COMPANY'S
STOCKHOLDERS IS REQUIRED IN CONNECTION WITH
THIS INFORMATION STATEMENT. NO PROXIES ARE BEING
SOLICITED AND YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY
This Information Statement, which is being mailed on or about July 7, 1997
to the holders of shares of the common stock, par value $0.01 per share (the
"Common Shares"), of Fusion Systems Corporation, a Delaware corporation (the
"Company"), is being furnished in connection with the designation by Eaton
Corporation, an Ohio corporation ("Parent"), of persons (the "Parent Designees")
to the Board of Directors of the Company (the "Board"). Such designation is to
be made pursuant to an Agreement and Plan of Merger dated as of June 30, 1997
(the "Merger Agreement") among the Company, Parent and ETN Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of Parent ("Purchaser").
Pursuant to the Merger Agreement, among other things, the Purchaser
commenced a tender offer on July 7, 1997 to purchase all of the issued and
outstanding Common Shares (together with associated preferred share purchase
rights issued pursuant to the Rights Agreement, dated as of September 8, 1994,
as amended April 19, 1995 and June 30, 1997, between the Company and BankBoston,
N.A. (formerly the First National Bank of Boston), as Rights Agent, the
"Shares") at a price of $39.00 per Share, net to the seller in cash, as
described in the Purchaser's Offer to Purchase dated July 7, 1997 and the
related Letter of Transmittal (which Offer to Purchase and related Letter of
Transmittal together constitute the "Offer"). The Offer is scheduled to expire
at 12:00 midnight, New York City time, on Friday, August 1, 1997, unless
extended. The Offer is subject to, among other things, the condition that a
number of shares representing not less than a majority of the outstanding Shares
on a fully diluted basis be validly tendered prior to the expiration of the
Offer and not withdrawn (the "Minimum Condition"). The Merger Agreement also
provides for the merger of the Purchaser with and into the Company (the
"Merger") as soon as practicable after the consummation of the Offer. Following
the consummation of the Merger (the "Effective Time"), the Company will be the
surviving corporation and a wholly owned subsidiary of Parent. In the Merger,
each share issued and outstanding immediately prior to the Effective Time (other
than shares held by the Parent, the Purchaser, in the treasury of the Company or
by any subsidiary of the Parent, the Purchaser or the Company, all of which will
be cancelled, and other than shares, if any, held by stockholders who have
perfected rights as dissenting stockholders under Delaware law) will be
converted into the right to receive cash in the amount of $39.00. On June 29,
1997, the Board declared a dividend of Contingent Payment Rights to holders of
record of Common Shares on July 25, 1997 (the "Contingent Rights"). The Offer is
not being made for the Contingent Rights and the Contingent Rights will not be
changed or affected by the Merger, and shall remain outstanding after the
Effective Time in accordance with their terms.
The Merger Agreement provides that promptly upon the purchase by the
Purchaser of Shares representing at least a majority of the Shares then actually
outstanding, the Company shall, upon the request of the Parent, take all actions
necessary to cause a proportionate number of the directors of the Company to
consist of the Parent Designees, including by accepting the resignations of one
or more existing directors; provided that prior to the Merger, the Board of
Directors shall always have at least two members who are not Parent Designees.
Such actions may require the Company to increase the size of the Board.
I-1
<PAGE> 34
Following the election or appointment of the Parent Designees and prior to
the Effective Time, any amendment or termination of the Merger Agreement by the
Company, any extension by the Company of the time for the performance of any of
the obligations or waiver of any of the Company's rights under the Merger
Agreement will require the concurrence of a majority of the directors of the
Company then in office who were not designated by Parent (or if there are two or
fewer members who are not Parent Designees, the concurrence of at least one
director who is not a Parent Designee) if such amendment, termination, extension
or waiver would be reasonably likely to have an adverse effect on the minority
stockholders of the Company.
The terms of the Merger Agreement, a summary of the events leading up to
the Offer and the execution of the Merger Agreement and other information
concerning the Offer and the Merger are contained in the Offer to Purchase and
in the Solicitation/Recommendation Statement on Schedule 14D-9 of the Company
(the "Schedule 14D-9") with respect to the Offer, copies of which are being
delivered to stockholders of the Company contemporaneously herewith. Certain
other documents (including the Merger Agreement) were filed with the Securities
and Exchange Commission (the "SEC") as exhibits to the Tender Offer Statement on
Schedule 14D-1 of Purchaser and Parent (the "Schedule 14D-1"). The exhibits to
the Schedule 14D-9 and the Schedule 14D-1 may be examined at, and copies thereof
may be obtained from, the regional offices of and public reference facilities
maintained by the SEC (except that the exhibits thereto cannot be obtained from
the regional offices of the SEC) in the manner set forth in Sections 8 and 9 of
the Offer to Purchase.
No action is required by the stockholders of the Company in connection with
the election or appointment of the Parent Designees to the Board. However,
Section 14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the mailing to the Company's stockholders of the information set
forth in this Information Statement prior to a change in a majority of the
Company's directors otherwise than at a meeting of the Company's stockholders.
The information contained in this Information Statement concerning Parent,
the Purchaser and the Parent Designees has been furnished to the Company by such
persons, and the Company assumes no responsibility of the accuracy or
completeness of such information. The Schedule 14D-1 indicates that the
principal executive offices of the Purchaser and Parent are located at Eaton
Center, 1111 Superior Avenue, Cleveland, Ohio 44114-2584.
GENERAL
The Common Shares are the only class of voting securities of the Company
outstanding. Each share is entitled to one vote. As of June 27, 1997, there were
7,492,935 Common Shares issued and outstanding.
THE PARENT DESIGNEES
Parent has informed the Company that each of the Parent Designees listed
below has consented to act as a director of the Company.
It is expected that the Parent Designees may assume office at any time
following the purchase by the Purchaser of such number of Shares representing at
least a majority of the outstanding Shares on a fully diluted basis, which
purchase cannot be earlier than August 1, 1997, and that, upon assuming office,
the Parent Designees will thereafter constitute at least a majority of the
Board.
Biographical information concerning each of the Parent Designees is
presented below.
PARENT DESIGNEES
STEPHEN R. HARDIS Director of Parent since 1983. Chairman and Chief
Executive Officer of Parent. Mr. Hardis served as Executive Vice
President -- Finance and Administration of Parent prior to April, 1986, was
elected Vice Chairman in 1986 and designated Chief Financial and Administrative
Officer, and became Chief Executive Officer in September, 1995 and Chairman in
January, 1996. He joined Parent in 1979. Mr. Hardis is a director of KeyCorp,
Lexmark International Group, Inc., Nordson Corporation and Progressive
Corporation. Director of the Purchaser.
I-2
<PAGE> 35
ALEXANDER M. CUTLER Director of Parent since 1993. President and Chief
Operating Officer of Parent. Mr. Cutler joined Cutler-Hammer, Inc. in 1975,
which was subsequently acquired by Parent, and became President of Parent's
Industrial Group in 1986. Mr. Cutler was named President of the Controls Group
in 1989, Executive Vice President -- Operations in 1991, and was elected
Executive Vice President and Chief Operating Officer -- Controls in September,
1993 and assumed his current position in September, 1995. Director of the
Purchaser.
GERALD L. GHERLEIN Executive Vice President and General Counsel of Parent
since September 4, 1991. Director, Vice President and Assistant Secretary of the
Purchaser.
ADRIAN T. DILLON Executive Vice President -- Chief Financial and Planning
Officer of Parent since April 1997. Vice President -- Chief Financial and
Planning Officer of Parent from September 1995 to April 1997; Vice
President -- Planning of Parent from 1991 to 1995. Director, IVHS Technology,
Inc. and Eaton VORAD Technologies. Vice President and Assistant Treasurer of the
Purchaser.
BRIAN R. BACHMAN Senior Vice President -- Semiconductor and Specialty
Systems of Parent since January 1, 1996. Vice President, Philips Semiconductor
from October 1991 to December 1995. President of the Purchaser.
EARL R. FRANKLIN Secretary and Associate General Counsel of Parent since
September 1, 1991. Secretary of the Purchaser.
ROBERT E. PARMENTER Vice President and Treasurer of Parent since January 1,
1997. Assistant Treasurer, Director of Domestic Finance of Parent for more than
the past five years. Treasurer of the Purchaser.
COMPANY INFORMATION
The following information is excerpted from the Company's Proxy Statement
dated as of May 15, 1997 for its 1997 Annual Meeting of Stockholders:
I-3
<PAGE> 36
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of the Record Date certain information
regarding beneficial ownership of the Corporation's Common Stock by: (i) each
person or entity who, to the knowledge of the Corporation, owned beneficially
more than 5% of the shares of Common Stock of the Corporation outstanding at
such date; (ii) each director or nominee for director of the Corporation; (iii)
each executive officer identified in the Summary Compensation Table set forth
below under "Compensation and Other Information Concerning Directors and
Officers"; and (iv) all directors, nominees for election to the Board of
Directors and executive officers of the Corporation as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENTAGE OF COMMON
OF BENEFICIAL OWNER OF OWNERSHIP(1) STOCK OUTSTANDING
- -------------------------------------------------------- ----------------- --------------------
<S> <C> <C>
J. & W. Seligman & Co. Incorporated
100 Park Avenue
New York, NY 10017 (2)................................ 1,024,358 13.7
Magten Asset Management Corp.
35 East 21st Street
New York, NY 10010(3)................................. 417,600 5.6
Mellon Bank Corporation
c/o Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, PA 15258(4)............................... 440,000 5.9
Leslie S. Levine(5)..................................... 212,283 2.8
John C. Matthews(6)..................................... 132,026 1.8
Joseph F. Greeves(7).................................... 14,036 *
Steven F. Hodlin(8)..................................... 2,667 *
A. David Harbourne(9)................................... 10,000 *
Daniel Tessler(10)...................................... 104,999 1.4
Charles J. Coulter(11).................................. 29,435 *
Jon D. Tompkins(12)..................................... 10,999 *
Andrea Geisser(13)...................................... 2,500 *
Directors, Nominees and Executive Officers as a group (9
persons)(14).......................................... 518,945 6.9
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Except as otherwise noted, each person or entity named in the table has
sole voting and investment power with respect to the shares.
(2) According to a Schedule 13G/A filed with the Securities and Exchange
Commission on February 13, 1997, J. & W. Seligman has sole voting power for
1,003,828 shares and sole dispositive power for 1,024,358 shares.
(3) According to a Schedule 13G filed with the Securities and Exchange
Commission on February 13, 1997, Magten has shared voting power on 350,900
shares and shared dispositive power on 417,600 shares.
(4) According to a Schedule 13G filed with the Securities and Exchange
Commission on January 31, 1997, Mellon has sole voting power of 372,000
shares, sole dispositive power of 398,000 and shared dispositive power of
41,000 shares.
(5) Includes 160,261 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter. Also
includes 6,390 shares of Common Stock held by his wife, Marsha Levine and
11,700 shares of Common Stock held by his daughter, Rachel Levine. Mr.
Levine disclaims beneficial ownership of such shares.
(6) Includes 90,045 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter. Also
includes 1,891 shares held in joint tenancy with his wife, Patricia
Matthews.
I-4
<PAGE> 37
(7) Includes 13,334 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(8) Includes 2,667 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(9) Mr. Harbourne left the Corporation in September 1996 in connection
with the sale of the Corporation's UV curing business.
(10) Includes 87,499 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(11) Includes 19,717 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(12) Includes 9,999 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(13) Includes 2,500 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(14) Includes 386,022 shares issuable upon the exercise of outstanding
stock options exercisable on the Record Date or within 60 days
thereafter.
THE CURRENT BOARD OF DIRECTORS
The Corporation's Board of Directors is currently fixed at five (5)
members, all of whom are outside, non-employee directors except for Mr. Levine.
The Corporation's Amended and Restated By-Laws divide the Corporation's Board of
Directors into three classes. The members of each class of directors serve for
staggered three-year terms. Messrs. Levine and Tessler are Class I directors.
The Board is also composed of two Class II directors (Messrs. Coulter and
Tompkins) and one Class III director (Mr. Geisser) whose terms expire upon the
election and qualification of directors at the Annual Meeting of Stockholders to
be held in 1999 and 1998, respectively. The following table sets forth the name
and position of each director, the year each director was first elected, the
year such director's term will expire and the class of director:
<TABLE>
<CAPTION>
DIRECTOR'S NAME AND YEAR DIRECTOR FIRST POSITION(S) WITH YEAR TERM CLASS OF
BECAME A DIRECTOR THE CORPORATION WILL EXPIRE DIRECTOR
- ------------------------------------------ ----------------------------------- ----------- --------
<S> <C> <C> <C>
Leslie S. Levine (1991)................... President, Chief Executive Officer 2000 I
and Director
Daniel Tessler (1973)..................... Chairman of the Board of Directors 2000 I
Charles J. Coulter (1983)................. Director 1999 II
Jon D. Tompkins (1994).................... Director 1999 II
Andrea Geisser (1996)..................... Director 1998 III
</TABLE>
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
LESLIE S. LEVINE, 56, A founder of the Corporation, has served as President
and Chief Executive Officer of the Corporation since July 1992. Mr. Levine has
served as a Director of the Corporation since December 1991. From 1983 to 1992,
Mr. Levine was Executive Vice President for Finance and Administration of the
Corporation. He holds a Ph.D. in physics from Columbia University.
DANIEL TESSLER, 53, has been a Director of the Corporation since 1973 and
Chairman of the Board of Directors since February 1994. Mr. Tessler has served
as Chairman and Chief Executive Officer of Fusion
I-5
<PAGE> 38
Lighting, Inc. since 1994, and as chairman of Tessler and Cloherty, Inc. and
Venture Advisors, Inc., private investment firms, since 1980 and 1991,
respectively.
CHARLES J. COULTER, 71, has been a Director of the Corporation since 1983.
Mr. Coulter served as President of American Research & Development, a venture
capital firm, from 1972 to June 1992. Mr. Coulter serves as a director of Antex
Biologics Inc.
ANDREA GEISSER, 54, has served as a Director of the Corporation since June
1996. Mr. Geisser has served as a Managing Director of Fenway Partners, Inc., a
principal investing firm specializing in middle-market acquisitions, since July
1994, and a partner of the general partner of its affiliated investment
partnership since the organization of such partnership in January 1995. Prior to
joining Fenway Partners, Mr. Geisser served Butler Capital Corporation ("BCC")
as a managing director from February 1989 until June 1994, acting as a director
of many of BCC's portfolio companies. Mr. Geisser is a director of Van de Kamp's
Inc. Mr. Geisser is also a director of several Fenway portfolio companies and a
trustee of Corporate Property Investors, a real estate investment trust.
JON D. TOMPKINS, 56, has served as a Director of the Corporation since
December 1994. Mr. Tompkins has served as President and Chief Executive Officer
of Tencor Instruments since April 1991 and as chairman of the board of directors
of Tencor Instruments since November 1993. Mr. Tompkins serves as a director of
Varian Associates, a manufacturer of semiconductor equipment, and as a director
of SEMI/SEMATECH, an association of U.S. semiconductor equipment and materials
companies.
EXECUTIVE OFFICERS
JOHN C. MATTHEWS, 57, has been with the Corporation since 1979 and
currently serves as Senior Vice President. In March 1996, he was appointed
President, Fusion Semiconductor Systems Corporation ("Fusion Semiconductor"), a
wholly-owned subsidiary of the Corporation. Mr. Matthews served as Senior Vice
President of Fusion Semiconductor from 1993 until 1996, and as Vice President
(Semiconductor) from 1983 to 1993. Prior to that time, he served as Marketing
Manager of Fusion UV Curing.
JOSEPH F. GREEVES, 40, joined the Corporation as Vice President, Chief
Financial Officer, Treasurer and Secretary in May 1995. Prior to joining the
Corporation, Mr. Greeves served as Executive Vice President and Chief Financial
Officer of Ogden Environmental and Energy Services, Co., Inc., a division of
Ogden Corporation which provided consulting services, lab services, remediation
services and independent power production on a worldwide basis.
STEVEN F. HODLIN, 42, joined the Corporation as Director, Corporate Quality
in February 1995. He was appointed Vice President, Corporate Quality in December
1995. Prior to joining the Corporation, Mr. Hodlin served as Vice President,
Quality and Reliability Systems for Penril Datability Networks. He has been a
Malcolm Baldrige Quality Award Examiner since 1994 and a U.S. Senate
Productivity Award examiner since 1992.
Executive officers of the Corporation are elected by the Board of Directors
on an annual basis and serve until their successors have been duly elected and
qualified.
I-6
<PAGE> 39
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met eight times during the fiscal year ended
December 31, 1996. The Audit Committee of the Board of Directors, of which
Messrs. Coulter, Geisser and Tompkins are currently members, reviews, with the
independent accountants and management, the annual financial statements and
independent accountants' opinion, reviews the results of the examination of the
Corporation's financial statements by the independent accountants, recommends
the retention of the independent accountants to the Board of Directors and
periodically reviews the Corporation's accounting policies and internal
accounting and financial controls. During the fiscal year ended December 31,
1996, the Audit Committee met five times. The Board of Directors also has
appointed a Compensation Committee, whose members currently are Messrs. Coulter,
Geisser and Tompkins. The Compensation Committee, which held seven meetings
during the fiscal year ended December 31, 1996, is responsible for administering
the Corporation's stock ownership plans and for reviewing and approving
compensation matters concerning the executive officers of the Corporation. The
Board of Directors does not currently have a standing nominating committee. Each
of the directors attended at least 75% of the aggregate of all meetings of the
Board of Directors and of all Committees on which he serves.
I-7
<PAGE> 40
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION SUMMARY
The following table sets forth certain information with respect to the
annual and long-term compensation of the Corporation's Chief Executive Officer
and each of the Corporation's four other most highly compensated executive
officers (collectively, the "Named Executive Officers") for the fiscal years
ended December 31, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------
----------------------------- OPTION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) AWARDS (#)(1) COMPENSATION($)(2)
- ------------------------------------- ---- ---------- --------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Leslie S. Levine..................... 1996 $ 244,125 $ 85,000 27,000 $11,085
President and Chief 1995 217,632 165,000 30,000 11,610
Executive Officer 1994 196,711 142,800 70,261 11,987
John C. Matthews..................... 1996 162,409 75,000 22,000 10,635
Senior Vice President and 1995 150,274 91,000 30,000 11,610
President, Fusion 1994 139,612 82,000 40,045 11,987
Semiconductor
Joseph F. Greeves (3)................ 1996 152,116 58,700 19,000 5,584
Vice President and Chief 1995 87,234 44,000 20,000 152
Financial Officer 1994 -- -- -- --
Steven F. Hodlin (4)................. 1996 121,730 30,000 10,750 5,178
Vice President - 1995 84,865 21,000 8,000 192
Corporate Quality 1994 -- -- -- --
A. David Harbourne (5)............... 1996 114,812 30,000 0 9,486
Senior Vice President and 1995 150,274 61,000 30,000 10,800
President, UV Curing 1994 139,612 82,000 31,954 11,177
</TABLE>
- ---------------
(1) Includes options granted in 1997 for services performed in 1996.
(2) Includes premiums paid on life insurance policies and contributions by the
Corporation to 401(k) plan for the benefit of the Named Executive Officers.
(3) Mr. Greeves joined the Corporation in May 1995.
(4) Mr. Hodlin joined the Corporation in February 1995.
(5) Mr. Harbourne left the Corporation in September 1996 in connection with the
sale of the Corporation's UV curing business.
I-8
<PAGE> 41
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made to the
Named Executive Officers pursuant to the Corporation's stock plans during the
year ended December 31, 1996:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
------------------------------------------------ REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(1)
OPTIONS IN FISCAL PRICE EXPIRATION -------------------
NAME GRANTED(#) YEAR ($/SHARE) DATE 5%($) 10%($)
- ---------------------------- ---------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Leslie S. Levine............ 12,000 5.72% $ 19.50 9/19/06 $147,160 $372,935
John C. Matthews............ 12,000 5.72 19.50 9/19/06 147,160 372,935
Joseph F. Greeves........... 15,000 7.14 19.50 9/19/06 183,950 466,168
Steven F. Hodlin............ 7,000 3.33 19.50 9/19/06 85,843 217,545
A. David Harbourne.......... 0 -- -- -- -- --
</TABLE>
- ---------------
(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%) on
the market value of the Corporation's Common Stock on the date of option
grant over the term of the options. These numbers are calculated based on
rules promulgated by the Securities and Exchange Commission and do not
reflect the Corporation's estimate of future stock price growth. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the timing of such exercises and the future performance of the
Corporation's Common Stock. There can be no assurance that the rates of
appreciation assumed in this table can be achieved or that the amounts
reflected will be received by the individuals.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END VALUES
The following table sets forth information with respect to options to
purchase the Corporation's Common Stock granted to the Named Executive Officers
under the Corporation's stock plans, including (i) the number of shares of
Common Stock purchased upon exercise of options during the fiscal year ended
December 31, 1996; (ii) the net value which would have been realized upon such
exercise had such shares been sold; (iii) the number of unexercised options
outstanding at December 31, 1996; and (iv) the value of such unexercised options
at December 31, 1996.
I-9
<PAGE> 42
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBERS OF UNEXERCISED VALUE(2) OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE DECEMBER 31, 1996(#) DECEMBER 31, 1996($)(2)
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------- ----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Leslie S. Levine...... -- $ -- 136,840/55,421 $1,432,381/$139,275
John C. Matthews...... -- -- 76,696/45,349 732,734/88,411
Joseph F. Greeves..... -- -- 6,667/28,333 0/26,250
Steven F. Hodlin...... -- -- 2,667/12,333 0/12,250
A. David Harbourne.... 51,954 323,920 0/0 0/0
</TABLE>
- ---------------
(1) Amounts disclosed in this column were calculated based on the difference
between the fair market value of the Corporation's Common Stock on the date
of exercise and the exercise price of the options in accordance with
regulations promulgated under the Securities Exchange Act of 1934, as
amended, and do not reflect amounts received by the Named Executive
Officers.
(2) Value is based on the difference between the option exercise price and the
fair market value at December 31, 1996, the last day during fiscal year 1996
for which market prices are available ($21.25 per share as quoted on the
Nasdaq National Market), multiplied by the number of shares underlying the
option.
STOCK PLANS
The Corporation currently has three stock ownership plans: the 1994 Stock
Option Plan, the 1994 Non-Employee Director Stock Option Plan, and the 1994
Employee Stock Purchase Plan. In addition, as of the Record Date, options to
purchase an aggregate of 196,732 shares of Common Stock were outstanding under
the Corporation's 1984 Stock Option Plan, which expired on December 31, 1993.
SEVERANCE AGREEMENTS
The Corporation has in place severance agreements, which would be activated
if and when a change in control (as defined in the agreements) of the
Corporation occurs, with a significant number of employees including all of its
executive officers. The agreements with its executive officers provide for the
payment of the following compensation and benefits upon the termination in
certain circumstances of an executive officer's employment with the Corporation
following a change in control of the Corporation: (i) the continuation of their
base pay for a period equal to one month for each $5,000 of base pay up to a
maximum of 24 months; (ii) incentive compensation for the pro-rata portion of
the year the executive officer was employed with the Corporation; (iii) payment
in cash of the amount of any health, life and disability insurance premiums the
Corporation would have paid on the officer's behalf had the officer been
employed during the payment period established in (i) above or a payment of such
premiums directly to the plan if the executive officer is continuing health
insurance under the Corporation's plan; and (iv) a payment for full executive
outplacement to a maximum of 15% of the officer's base pay and incentive
compensation paid during the twelve-month period prior to the termination of
employment, or payment to the executive officer of said amount. Mr. Levine's
severance agreement includes one additional event constituting a change of
control under his agreement; this added definition provides that a change of
control shall be deemed to have occurred when, during any consecutive two-year
period, the individuals who at the beginning of such period constituted the
Board of Directors of the Corporation (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Corporation was approved by a vote of 66- 2/3% of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Corporation then in office.
Pursuant to these agreements, whether or not there is a change in control,
each executive officer has agreed to maintain the confidentiality of Corporation
information and assign to the Corporation all inventions
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<PAGE> 43
and product improvements related to the Corporation's business operations
developed by such person during the term of the agreement and during the
one-year period thereafter. Moreover, each executive officer has agreed that
during the term of his respective employment with the Corporation and thereafter
for two years, such person will not compete with the Corporation by engaging in
any capacity in any business which is competitive with the business of the
Corporation, unless the Corporation determines that the fulfillment of such
person's duties in the proposed employment would not likely cause the disclosure
or use of any confidential information of the Corporation.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Corporation's executive compensation program is administered by the
compensation committee of the Board of Directors (the "Compensation Committee"),
which is comprised entirely of non-employee directors. Pursuant to authority
delegated by the Board of Directors, the Compensation Committee is responsible
for reviewing and administering the Corporation's stock ownership plans and
reviewing and approving compensation matters concerning the executive officers
of the Corporation.
The Corporation's executive compensation program is designed to provide
levels of compensation that assist the Corporation in attracting, motivating and
retaining qualified executive officers and aligning the financial interests of
the Corporation's executive officers with those of its stockholders by providing
a competitive compensation package based on corporate, separate business unit
and individual performance. Compensation under the executive compensation
program is comprised of cash compensation in the form of salary and annual
incentive bonuses, and long-term incentive awards in the form of stock option
grants. In addition, the compensation program is comprised of various benefits,
including medical and insurance plans, and the Corporation's 1994 Employee Stock
Purchase Plan and 401(k) profit-sharing plan. These plans are generally
available to all U.S. employees of the Corporation.
BASE SALARY
Compensation levels for each of the Corporation's executive officers,
including the Chief Executive Officer, are generally set within the range of
salaries that the Compensation Committee believes are paid to executive officers
with comparable qualifications, experience and responsibilities at similar
companies. In setting compensation levels, the Compensation Committee seeks to
align total executive compensation levels with corporate performance.
Accordingly, base salary levels are set at what the Compensation Committee
believes are at the low-end of base salaries paid to executive officers with
comparable qualifications, experience and responsibilities at similar companies,
while providing relatively higher cash bonus and incentive award opportunities.
In addition, the Compensation Committee generally takes into account such
factors as (i) the Corporation's past financial performance and future
expectations; (ii) business unit performance and future expectations; (iii)
individual performance and experience; and (iv) past salary levels. The
Compensation Committee does not assign relative weights or rankings to these
factors, but instead makes a determination based upon the consideration of all
of these factors as well as the progress made with respect to the Corporation's
long-term goals and strategies. Generally, salary decisions for the
Corporation's executive officers are made by the Compensation Committee near the
beginning of each calendar year.
Fiscal 1996 base salaries were determined by the Compensation Committee
after reviewing the base compensation paid to executive officers at other
semiconductor and high-tech equipment manufacturing companies. Base salary
levels for each of the Corporation's executive officers, other than the Chief
Executive Officer, were also based upon evaluations and recommendations made by
the Chief Executive Officer.
INCENTIVE COMPENSATION
Each executive officer is eligible to receive a cash bonus at the end of
the fiscal year based upon the Corporation's performance, as well as individual
and business unit performance. Additional bonuses may be awarded during the
fiscal year to reward an executive officer for superior performance. Generally,
bonus awards for each of the Corporation's executive officers, other than the
Corporation's Chief Executive Officer, are based upon the recommendations of the
Corporation's Chief Executive Officer. Bonuses are intended to be
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<PAGE> 44
a significant portion of an executive officer's total compensation and are
distributed shortly after the end of the fiscal year.
Fiscal 1996 annual bonus amounts for each of the Corporation's executive
officers were determined by the Compensation Committee after reviewing
information assembled by The Radford Group on comparative salary and bonus
arrangements at comparable companies. Bonus amounts for each of the executive
officers, other than the Chief Executive Officer, were also based upon
evaluations and recommendations made by the Chief Executive Officer. In respect
of the fiscal year ended December 31, 1996, annual bonuses totaling $278,700
were awarded to the Corporation's executive officers based upon a combination of
corporate and individual performance. Of the annual bonuses awarded to executive
officers in respect of fiscal 1996, Mr. Levine received $85,000 and Messrs.
Greeves, Harbourne, Hodlin and Matthews, collectively, received $193,700.
STOCK OPTIONS
Stock options are the principal vehicle used by the Corporation for the
payment of long-term compensation, to provide a stock-based incentive to improve
the Corporation's financial performance and to assist in the recruitment,
motivation and retention of key professional and managerial personnel. The
Corporation's stock option plans are administered by the Compensation Committee.
To date, the Compensation Committee has not granted stock options at less than
fair market value.
Generally, stock options are granted to eligible employees from time to
time based primarily upon the individual's actual and/or potential contributions
to the Corporation and the Corporation's financial performance. Stock options
are designed to align the interests of the Corporation's executive officers with
those of its stockholders by encouraging executive officers to enhance the value
of the Corporation, the price of the Common Stock and, hence, the stockholders'
return. In addition, the exercisability of stock options over a period of time
is designed to defer the receipt of compensation by the option holder, thus
creating an incentive for the individual to remain with the Corporation. The
Corporation periodically grants new options to provide continuing incentives for
future performance.
During the fiscal year ended December 31, 1996, options to purchase an
aggregate of 46,000 shares of Common Stock were awarded to the Corporation's
executive officers. Of such options, 12,000 were granted to Mr. Levine and an
aggregate of 34,000 were granted to the Corporation's other executive officers.
OTHER BENEFITS
The Corporation also has various broad-based employee benefit plans.
Executive officers participate in these plans on the same terms as eligible,
non-executive employees, subject to any legal limits on the amounts that may be
contributed or paid to executive officers under these plans. The Corporation
offers a stock purchase plan, under which employees may purchase Common Stock at
a discount, and a 401(k) profit-sharing plan, which permits employees to invest
in a wide variety of funds on a pre-tax basis. The Corporation also maintains
insurance and other benefit plans for its employees.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally limits the tax deduction to $1 million for compensation paid
to any of the executive officers unless certain requirements are met. The
Compensation Committee has considered these requirements and the related
regulations. It is the Compensation Committee's present intention that, so long
as it is consistent with its overall compensation objectives, substantially all
executive compensation shall be deductible for federal income tax purposes.
MR. LEVINE'S COMPENSATION
Consistent with the executive compensation policies described above of
providing relatively low base salaries combined with higher incentive bonuses,
the Compensation Committee determined the base salary, incentive bonus and stock
options received by Mr. Levine, the Corporation's President and Chief Executive
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<PAGE> 45
Officer, for services rendered in fiscal 1996. For the fiscal year ended
December 31, 1996, Mr. Levine received $244,125 in base salary and was awarded a
bonus of $85,000 based upon a combination of individual and corporate
performance. Mr. Levine's bonus compensation for fiscal 1996 was approximately
35% of his base salary. In addition, in fiscal 1996 Mr. Levine was granted
options to purchase 12,000 shares of Common Stock and in fiscal 1997 Mr. Levine
was granted options to purchase 15,000 shares of Common Stock for services
performed in 1996.
RESPECTFULLY SUBMITTED BY
THE COMPENSATION COMMITTEE
Charles J. Coulter
Andrea Geisser
Jon D. Tompkins
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Corporation's Board of Directors has established a Compensation
Committee consisting of Messrs. Coulter, Geisser and Tompkins. No person who
served as a member of the Compensation Committee was, during the past fiscal
year, an officer or employee of the Corporation or any of its subsidiaries, was
formerly an officer of the Corporation or any of its subsidiaries, or had any
relationship requiring disclosure herein. No executive officer of the
Corporation served as a member of the compensation committee of another entity
(or other committee of the Board of Directors performing equivalent functions
or, in the absence of any such committee, the entire Board of Directors), one of
whose executive officers served as a director of the Corporation.
COMPENSATION OF DIRECTORS
The Corporation's non-employee directors receive a fee of $15,000 per year
for service as a member of the Board of Directors, other than the Chairman of
the Board of Directors who receives $75,000. All directors are reimbursed for
expenses incurred in connection with attending Board of Directors and committee
meetings. Non-employee directors are also automatically granted options to
purchase shares of the Corporation's Common Stock pursuant to the 1994
Non-Employee Director Stock Option Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1992, the Corporation transferred selected assets of its imaging
business unit to a wholly-owned subsidiary, Fusion Lighting, Inc. ("Fusion
Lighting") and distributed the stock of Fusion Lighting to the shareholders of
the Corporation in proportion to their holdings of Fusion Systems Corporation
stock.
The Corporation continues to sublease a facility to Fusion Lighting and
provides limited administrative services such as data management services. The
Corporation has also provided additional services including materials
procurement, shipping and receiving, and accounting to Fusion Lighting.
Additionally, the Corporation's former Japanese subsidiary (sold in connection
with the sale of the UV curing business) purchased and resold certain imaging
products from Fusion Lighting to fulfill preexisting contractual commitments.
See Note 9 of Notes to the Corporation's Consolidated Financial Statements
contained in the Corporation's Report on Form 10-K and also in the Corporation's
Annual Report to Shareholders.
Daniel Tessler, Chairman of the Board of Directors of the Corporation, also
serves as Chairman of the Board of Directors and Chief Executive Officer of
Fusion Lighting. Leslie S. Levine, a director and President and Chief Executive
Officer of the Corporation, also serves as a director and President of Fusion
Lighting. As of April 10, 1997, Mr. Tessler and Mr. Levine beneficially owned
approximately 6% and 4%, respectively, on a Common Stock equivalent basis of
Fusion Lighting, and 8% and 4%, respectively, of a series of non-convertible
preferred stock of Fusion Lighting. An affiliate of Mr. Tessler also owned
warrants, not presently exercisable, to acquire an additional 7% of Fusion
Lighting at such date. A summary of the above-described
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<PAGE> 46
transactions between the Corporation and Fusion Lighting in the fiscal year
ended December 31, 1996 is as follows (in thousands):
<TABLE>
<S> <C>
Purchase of equipment from Fusion Lighting................................. $ 78
Procurement of materials and fixed assets for Fusion Lighting.............. 51
Corporate services and sales support provided to Fusion Lighting........... 1,047
Building sublease rent..................................................... 190
</TABLE>
The amount receivable from Fusion Lighting as of December 31, 1996 was
$241,000.
At the time of the Corporation's sale of the UV curing business to Fairey
Group, plc ("Fairey") in September of 1996, in a separate transaction, Fusion
Lighting received $5 million from Fairey, in consideration for a mutual
non-compete agreement, a cross license of technology, a change of corporate name
of Fusion Lighting and a right of first opportunity to serve as Fusion
Lighting's exclusive distributor for certain of its products which have
application to UV curing.
In 1996, the Corporation paid Venture Advisors, Inc. ("VAI") $1,046,500 for
services rendered in connection with the sale of the UV curing business. Mr.
Tessler, Chairman of the Board of Directors of the Corporation, is the President
and controlling stockholder of VAI. The Corporation also received additional
consulting services from VAI totaling $67,500.
The Corporation has adopted a policy whereby all transactions between the
Corporation and its officers, directors and affiliates shall be on terms no less
favorable to the Corporation than could be obtained from unrelated third parties
and shall be approved by a majority of the disinterested members of the
Corporation's Board of Directors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Corporation's directors,
executive officers and holders of more than 10% of the Corporation's Common
Stock (collectively, "Reporting Persons") to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock of the Corporation. Such persons are
required by regulations of the SEC to furnish the Corporation with copies of all
such filings. Based on its review of the copies of such filings received by it
with respect to the fiscal year ended December 31, 1996 and written
representations from certain Reporting Persons, the Corporation believes that
all Reporting Persons complied with all Section 16(a) filing requirements in the
fiscal year ended December 31, 1996, except for the following: Mr. Geisser filed
a late Form 3.
I-14
<PAGE> 47
ANNEX II
[LETTERHEAD OF SALOMON BROTHERS INC]
June 29, 1997
Board of Directors
Fusion Systems Corporation
7600 Standish Place
Rockville, MD 20855
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of common stock, par value $.01 per share ("Company
Common Stock"), of Fusion Systems Corporation (the "Company"), of the
consideration to be received by such holders in connection with the Agreement
and Plan of Merger, dated as of June 30, 1997 (the "Merger Agreement"), among
the Company, Eaton Corporation ("Parent") and ETN Acquisition Corp. ("Sub"), a
wholly owned subsidiary of Parent. The Merger Agreement provides for, among
other things, a tender offer by Sub to acquire all the outstanding Company
Common Stock (the "Tender Offer") for $39.00 per share in cash (the "Cash
Consideration") and for a subsequent merger of Sub with the Company pursuant to
which each outstanding share of Company Common Stock (other than shares with
respect to which appraisal rights are exercised) will be converted into the
right to receive the Cash Consideration (the "Merger"). In addition, the Company
proposes to declare a distribution, in respect of each share of Company Common
Stock as of a record date prior to the consummation of the Tender Offer, of a
right to receive up to an additional $5.00 per share in cash if the Company's
net sales for the year ending December 31, 1998 exceed certain levels specified
in the Contingent Payment Rights Agreement ( the "Contingent Payment Rights
Agreement," and together with the Merger Agreement, Tender Offer and the Merger,
the "Transaction").
In connection with rendering our opinion, we have reviewed certain publicly
available information concerning the Company and certain other financial
information concerning the Company, including financial forecasts, that were
provided to us by the Company. We have discussed the past and current business
operations, financial condition and prospects of the Company with certain
officers and employees of the Company. We have also considered such other
information, financial studies, analyses, investigations and financial economic
and market criteria that we deemed relevant.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of the information reviewed by us
for the purpose of this opinion and we have not assumed any responsibility for
independent verification of such information. With respect to the financial
forecasts of the Company, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of the Company, and we express no opinion with
respect to such forecasts or the assumptions on which they are based. We have
not assumed any responsibility for any independent evaluation or appraisal of
any of the assets (including properties and facilities) or liabilities of the
Company.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion does not address the Company's
underlying business decision to effect the Transaction, and we express no view
on the effect on the Company of the Transaction and related transactions. Our
opinion is directed only to the fairness, from a financial point of view, of the
consideration to be received by the holders of Company Common Stock (other than
Parent and any of its affiliates) pursuant to the Transaction and does not
constitute a recommendation concerning whether such holders should accept the
Tender Offer or how such holders should vote with respect to the Merger
Agreement or the Merger.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the Merger and will receive a fee for our services, a portion
of which was paid upon execution by the Company of the engagement letter with
respect to the Transaction, a portion of which is payable upon initial delivery
of this
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<PAGE> 48
fairness opinion and the remainder of which is payable upon consummation of the
Transaction. In the ordinary course of business, we may actively trade the
securities of the Company and Parent for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. In addition, we have previously rendered certain investment
banking and financial advisory services to the Company for which we have
received customary compensation.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be received by the holders of Company Common
Stock (other than Parent and any of its affiliates) pursuant to the Transaction
is fair to such holders from a financial point of view.
Very truly yours,
/s/ Salomon Brothers Inc
SALOMON BROTHERS INC
II-2
<PAGE> 1
EXHIBIT 1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
June 30, 1997, by and among Eaton Corporation, an Ohio corporation ("Parent"),
ETN Acquisition Corp., a Delaware corporation and a subsidiary of Parent (the
"Purchaser"), and Fusion Systems Corporation, a Delaware corporation (the
"Company").
WHEREAS, the respective Boards of Directors of Parent, the
Purchaser and the Company have approved the acquisition of the Company by Parent
on the terms and subject to the conditions set forth in this Agreement;
WHEREAS, the Company has declared a dividend of Contingent
Payment Rights (the "Contingent Rights") to holders of the Company's common
stock, par value $.01 per share (the "Common Shares"), having the terms set
forth in Exhibit A which will be issued pursuant to a Contingent Payment Rights
Agreement (the "Contingent Payment Rights Agreement") between the Company and
BankBoston, N.A., as trustee or such other mutually acceptable trustee (the
"Trustee");
WHEREAS, pursuant to this Agreement the Purchaser has agreed
to commence a tender offer (the "Offer") to purchase all of the outstanding
Common Shares (including the associated preferred share purchase rights (the
"Rights") issued pursuant to the Rights Agreement, dated as of September 8,
1994, as amended as of April 19, 1995 and June 30, 1997, between the Company and
The First National Bank of Boston, as Rights Agent (the "Rights Agreement"),
which Rights together with the Common Shares are hereinafter referred to as the
"Shares"), at a price per Share of $39.00 net to the seller in cash (the "Offer
Price"), it being understood that the Offer is not being made with respect to
the Contingent Rights;
WHEREAS, the Board of Directors of the Company (the "Company
Board") has, in light of and subject to the conditions set forth herein, (i)
approved the Offer and (ii) adopted this Agreement and is recommending that the
Company's stockholders accept the Offer, tender their Shares to the Purchaser
and approve this Agreement;
WHEREAS, the respective Boards of Directors of the Purchaser
and the Company have approved the merger of the Purchaser with and into the
Company, as set forth below (the "Merger"), in accordance with the General
Corporation Law of
<PAGE> 2
the State of Delaware (the "GCL") and upon the terms and subject to the
conditions set forth in this Agreement, whereby each of the issued and
outstanding Common Shares not owned directly or indirectly by Parent, the
Purchaser or the Company will be converted into the right to receive $39.00 in
cash; and
WHEREAS, Parent, the Purchaser and the Company desire to make
certain representations, warranties, covenants and agreements in connection with
the Offer and the Merger and also to prescribe various conditions to the Offer
and the Merger;
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, Parent, the Purchaser and the Company agree as follows:
ARTICLE I.
THE OFFER
SECTION 1.01 The Offer.
(a) Provided that this Agreement shall not have been
terminated in accordance with Article VIII hereof and none of the events set
forth in Annex I hereto (the "Tender Offer Conditions") shall have occurred, as
promptly as practicable but in no event later than the fifth business day from
the date of this Agreement, Parent shall cause the Purchaser to commence (within
the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended
(including the rules and regulations promulgated thereunder, the "Exchange
Act")) an offer to purchase all outstanding Shares at the Offer Price, shall,
after affording the Company a reasonable opportunity to review and comment
thereon, file all necessary documents with the Securities and Exchange
Commission (the "SEC") in connection with the Offer (the "Offer Documents") and
shall use reasonable efforts to consummate the Offer, subject to the terms and
conditions thereof. The obligation of the Purchaser to accept for payment or pay
for any Shares tendered pursuant thereto will be subject only to the
satisfaction of the conditions set forth in Annex I hereto.
(b) Without the prior written consent of the Company,
the Purchaser shall not decrease the Offer Price or
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<PAGE> 3
change the form of consideration payable in the Offer, decrease the number of
Shares sought to be purchased in the Offer, impose additional conditions to the
Offer or amend any other term of the Offer in any manner adverse to the holders
of Common Shares. The Offer shall remain open until the date that is 20 business
days (as such term is defined in Rule 14d-1(c)(6) under the Exchange Act) after
the commencement of the Offer (the "Expiration Date"), unless the Purchaser
shall have extended the period of time for which the Offer is open pursuant to,
and in accordance with, the two succeeding sentences or as may be required by
applicable law, in which event the term "Expiration Date" shall mean the latest
time and date as the Offer, as so extended, may expire. If at any Expiration
Date, any of the Tender Offer Conditions are not satisfied or waived by the
Purchaser, the Purchaser may extend the Offer from time to time. Subject to the
terms of the Offer and this Agreement and the satisfaction of all the Tender
Offer Conditions as of any Expiration Date, the Purchaser will accept for
payment and pay for all Shares validly tendered and not withdrawn pursuant to
the Offer as soon as practicable after such expiration date of the Offer;
provided that, if all of the Tender Offer Conditions are satisfied and more than
75% but less than 90% of the outstanding Common Shares on a fully diluted basis
(excluding Options (as defined herein) which are not exercisable for 30 days)
have been validly tendered and not withdrawn in the Offer, the Purchaser shall
have the right, in its sole discretion, to extend the Offer from time to time
for up to a maximum of five additional business days in the aggregate for all
such extensions provided the Purchaser agrees to waive the conditions set forth
in paragraphs (b), (c), (f) and (h) of Annex I. Without the prior written
consent of the Company, the Purchaser shall not accept for payment or pay for
any Shares in the Offer if, as a result, Purchaser would acquire less than the
number of Shares necessary to satisfy the Minimum Condition (as defined in Annex
I hereto).
(c) Parent and the Purchaser represent that the Offer
Documents will comply in all material respects with the provisions of applicable
federal securities laws and, on the date filed with the SEC and on the date
first published, sent or given to the 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 made
therein, in light of the circumstances under which they were made, not
misleading, except that no representation is made by Parent or the Purchaser
with respect to information supplied by the Company in writing for inclusion in
the Offer Documents. Each of Parent
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<PAGE> 4
and the Purchaser, on the one hand, and the Company, on the other hand, agrees
promptly to correct any information provided by it for use in the Offer
Documents if and to the extent that it shall have become false or misleading in
any material respect and the Purchaser further agrees to take all steps
necessary to cause the Offer Documents as so corrected to be filed with the SEC
and to be disseminated to stockholders of the Company, in each case, as and to
the extent required by applicable federal securities laws.
SECTION 1.02 Company Actions.
(a) The Company shall, after affording Parent a
reasonable opportunity to review and comment thereon, file with the SEC and mail
to the holders of Common Shares, as promptly as practicable on the date of the
filing by Parent and the Purchaser of the Offer Documents, a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with any
amendments or supplements thereto, the "Schedule 14D-9") reflecting the
recommendation of the Company Board that holders of Shares tender their Shares
pursuant to the Offer and shall disseminate the Schedule 14D-9 as required by
Rule 14d-9 promulgated under the Exchange Act. The Schedule 14D-9 will set
forth, and the Company hereby represents, that the Company Board, at a meeting
duly called and held, has (i) determined by unanimous vote of its directors that
each of the transactions contemplated hereby, including each of the Offer and
the Merger and the distribution of the Contingent Rights, is fair to and in the
best interests of the Company and its stockholders, (ii) approved the
distribution of the Contingent Rights, (iii) approved the Offer and adopted this
Agreement in accordance with the GCL, (iv) recommended acceptance of the Offer
and approval of this Agreement by the Company's stockholders (if such approval
is required by applicable law), and (v) taken all other action necessary to
render Section 203 of the GCL and the Rights inapplicable to the Offer and the
Merger; provided, however, that such recommendation and approval may be
withdrawn, modified or amended to the extent that the Company Board determines
in good faith, after consultation with its outside legal counsel, that failure
to take such action would reasonably be expected to result in a breach of the
Company Board's fiduciary obligations under applicable law. The Company further
represents that, prior to the execution hereof, Salomon Brothers Inc ("Salomon
Brothers"), has delivered to the Company Board its written opinion that, as of
June 29, 1997, the consideration to be received by the holders of Common Shares
(other than Parent or any of its affiliates) pursuant to the Offer, the Merger
and the Contingent Rights is fair to the Company's stockholders from a financial
point of view. The Company hereby con-
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<PAGE> 5
sents to the inclusion in the Offer Documents of the recommendations of the
Company Board described in this Section 1.02(a).
(b) The Company represents that the Schedule 14D-9
will comply in all material respects with the provisions of applicable federal
securities laws and, on the date filed with the SEC and on the date first
published, sent or given to the 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 made therein,
in light of the circumstances under which they were made, not misleading, except
that no representation is made by the Company with respect to information
supplied by Parent or the Purchaser in writing for inclusion in the Schedule
14D-9. Each of the Company, on the one hand, and Parent and the Purchaser, on
the other hand, agree promptly to correct any information provided by either of
them for use in the Schedule 14D-9 if and to the extent that it shall have
become false or misleading, and the Company further agrees to take all steps
necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC
and to be disseminated to the holders of Shares, in each case, as and to the
extent required by applicable federal securities law.
(c) In connection with the Offer, the Company will
promptly furnish the Purchaser with mailing labels, security position listings,
any available non-objecting beneficial owner lists and any available listing or
computer list containing the names and addresses of the record holders of the
Common Shares as of the most recent practicable date and shall furnish the
Purchaser with such additional available information (including, but not limited
to, updated lists of holders of Common Shares and their addresses, mailing
labels and lists of security positions and non-objecting beneficial owner lists)
and such other assistance as the Purchaser or its agents may reasonably request
in communicating the Offer to the Company's record and beneficial 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 Merger, Parent, the Purchaser and their affiliates,
associates, agents and advisors, shall keep such information confidential and
use the information contained in any such labels, listings and files only in
connection with the Offer and the Merger and, should the Offer terminate or if
this Agreement shall be terminated, will deliver to the Company all copies of
such information then in their possession.
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SECTION 1.03 Directors.
(a) Subject to compliance with applicable law,
promptly upon the payment by the Purchaser for Shares pursuant to the Offer
representing at least such number of Shares as shall satisfy the Minimum
Condition, and from time to time thereafter, Parent shall be entitled to
designate such number of directors, rounded up to the next whole number, on the
Company Board as is equal to the product of the total number of directors on the
Company Board (determined after giving effect to the directors elected pursuant
to this sentence) multiplied by the percentage that the aggregate number of
Common Shares beneficially owned by Parent or its affiliates bears to the total
number of Common Shares then outstanding, and the Company shall, upon request of
Parent, promptly take all actions necessary to cause Parent's designees to be so
elected, including, if necessary, seeking the resignations of one or more
existing directors; provided, however, that prior to the Effective Time (as
defined in Section 2.02), the Company Board shall always have at least two
members who are neither officers, directors or designees of the Purchaser or any
of its affiliates ("Purchaser Insiders"). If the number of directors who are not
Purchaser Insiders is reduced below two prior to the Effective Time, the
remaining director who is not a Purchaser Insider shall be entitled to designate
a person to fill such vacancy who is not a Purchaser Insider and who shall be a
director not deemed to be a Purchaser Insider for all purposes of this
Agreement.
(b) The Company's obligations to appoint Parent's
designees to the Board shall be subject to Section 14(f) of the Exchange Act and
Rule 14f-1 thereunder. The Company shall promptly take all actions required
pursuant to such Section and Rule in order to fulfill its obligations under this
Section 1.03 and shall include in the Schedule 14D-9 such information with
respect to the Company and its officers and directors as is required under such
Section and Rule in order to fulfill its obligations under this Section 1.03.
Parent will supply any information with respect to itself and its officers,
directors and affiliates required by such Section and Rule to the Company.
(c) Following the election or appointment of Parent's
designees pursuant to this Section 1.03 and prior to the Effective Time, any
amendment or termination of this Agreement by the Company, any extension by the
Company of the time for the performance of any of the obligations or other acts
of Parent or the Purchaser or waiver of any of the Company's rights hereunder,
will require the concurrence of a
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<PAGE> 7
majority of the directors of the Company then in office who are not Purchaser
Insiders (or in the case where there are two or fewer directors who are not
Purchaser Insiders, the concurrence of one director who is not a Purchaser
Insider) if such amendment, termination, extension or waiver would be reasonably
likely to have an adverse effect on the minority stockholders of the Company.
ARTICLE II
THE MERGER
SECTION 2.01 The Merger. Upon the terms and subject to the
satisfaction or waiver of the conditions hereof, and in accordance with the
applicable provisions of this Agreement and the GCL, at the Effective Time the
Purchaser shall be merged with and into the Company. Following the Merger, the
separate corporate existence of the Purchaser shall cease and the Company shall
continue as the surviving corporation (the "Surviving Corporation").
SECTION 2.02 Effective Time. As soon as practicable after the
satisfaction or waiver of the conditions set forth in Sections 7.01(a) and
7.01(b), but subject to Sections 7.01(c) and 7.01(d), the Company shall execute,
in the manner required by the GCL, and deliver to the Secretary of State of the
State of Delaware a duly executed and verified certificate of merger, and the
parties shall take such other and further actions as may be required by law to
make the Merger effective. The time the Merger becomes effective in accordance
with applicable law is referred to herein as the "Effective Time."
SECTION 2.03 Effects of the Merger. The Merger shall have the
effects set forth in the GCL. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time, all the properties, rights,
privileges, powers and franchises of the Company and the Purchaser shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and the Purchaser shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 2.04 Certificate of Incorporation and ByLaws of the
Surviving Corporation.
(a) The Certificate of Incorporation of the Company,
as in effect immediately prior to the Effective
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<PAGE> 8
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended in accordance with the provisions thereof and hereof
and applicable law.
(b) The By-Laws of the Purchaser in effect at the
Effective Time shall be the By-Laws of the Surviving Corporation until amended,
subject to the provisions of Section 6.06 of this Agreement, in accordance with
the provisions thereof and applicable law.
SECTION 2.05 Directors. Subject to applicable law, the
directors of the Purchaser immediately prior to the Effective Time shall be the
initial directors of the Surviving Corporation and shall hold office until their
respective successors are duly elected and qualified, or their earlier death,
resignation or removal.
SECTION 2.06 Officers. The individuals specified by Parent
prior to the Effective Time shall be the initial officers of the Surviving
Corporation and shall hold office until their respective successors are duly
elected and qualified, or their earlier death, resignation or removal.
SECTION 2.07 Conversion of Common Shares; Effect on Contingent
Rights. (a) At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, each Common Share issued and
outstanding immediately prior to the Effective Time (other than (i) any Common
Shares held by Parent, the Purchaser, any wholly owned subsidiary of Parent or
the Purchaser, in the treasury of the Company or by any wholly owned subsidiary
of the Company, which Common Shares, by virtue of the Merger and without any
action on the part of the holder thereof, shall be cancelled and retired and
shall cease to exist with no payment being made with respect thereto and (ii)
Dissenting Shares (as defined in Section 3.01)), shall be cancelled and retired
and shall be converted into the right to receive $39 in cash (the "Merger
Price"), payable to the holder thereof, without interest thereon, upon surrender
of the certificate formerly representing such Common Share.
(b) The Contingent Rights shall not be changed or
affected by the Merger and shall remain outstanding after the Effective Time in
accordance with their terms.
SECTION 2.08 Conversion of Purchaser Common Stock. The
Purchaser has outstanding 10 shares of common stock, par value $.01 per share,
all of which are entitled to vote with respect to approval of this Agreement. At
the Effective Time, each share of common stock of the Purchaser issued and
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<PAGE> 9
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into and become one validly issued, fully paid and non-assessable share of
common stock, par value $.01 per share, of the Surviving Corporation.
SECTION 2.09. Options; Stock Plans. Prior to the Effective
Time, the Company Board (or, if appropriate, any committee thereof) shall adopt
appropriate resolutions and take all other actions necessary to provide for the
cancellation, effective at the Effective Time, of all the outstanding stock
options (the "Options") heretofore granted under any stock option or similar
plan of the Company (the "Stock Plans"), without any payment therefor except as
otherwise provided in this Section 2.09. Immediately prior to the Effective
Time, the Company shall accelerate the vesting of all Options which are listed
on Section 2.09 of the Company Disclosure Schedule and each then vested Option
shall no longer be exercisable but shall entitle each holder thereof, in
cancellation and settlement therefor, to (i) a payment in cash by the Company
(subject to any applicable withholding taxes), at the Effective Time, equal to
the product of (x) the total number of Common Shares subject to such vested
Option and (y) the excess of the Merger Price over the exercise price per Common
Share subject to such vested Option, and (ii) a payment in cash by the Surviving
Corporation (subject to any applicable withholding taxes) at the earlier of
March 31, 1999 or the redemption date of the Contingent Rights equal to the
product of (x) the total number of Common Shares subject to such cancelled
vested Option and (y) the Redemption Price or the Contingent Payment (as such
terms are defined in the Contingent Payment Rights Agreement), as the case may
be, if any (the amounts payable under clauses (i) and (ii) being referred to as
the "Cash Payments"). The Company Board has taken all necessary action to
terminate the 1994 Employee Stock Purchase Plan effective prior to the beginning
of the payment period which would have commenced on July 1, 1997, and no Options
have been or will be issued under such Stock Plan with respect to any payment
period beginning on or after July 1, 1997. All other Stock Plans and any other
plan, program or arrangement providing for the issuance or grant of any other
interest in respect of the capital stock of the Company or any subsidiary shall
terminate as of the Effective Time. The Company will take all reasonable steps
to ensure that none of Parent, the Company or any of their respective
subsidiaries is or will be bound by any Options, other options, warrants, rights
or agreements which would entitle any Person, other than Parent or its
affiliates, to own any capital stock of the Surviving Corporation
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<PAGE> 10
or any of its subsidiaries or to receive any payment in respect thereof other
than, to the extent provided herein, with respect to the Contingent Rights. The
Company will use its reasonable best efforts to obtain all necessary consents to
ensure that after the Effective Time, holders of Options will have no rights
other than the rights of the holders of vested Options to receive the Cash
Payment in cancellation and settlement thereof.
SECTION 2.10 Stockholders' Meeting.
(a) If required by applicable law in order to
consummate the Merger, the Company, acting through the Company Board, shall, in
accordance with applicable law:
(i) duly call, give notice of, convene and
hold a special meeting of its stockholders (the "Special Meeting") as
soon as practicable following the acceptance for payment of and payment
for Common Shares by the Purchaser pursuant to the Offer for the
purpose of considering and taking action upon this Agreement;
(ii) prepare and file with the SEC a
preliminary proxy statement relating to this Agreement, and use its
reasonable efforts (x) to obtain and furnish the information required
to be included by the SEC in the Proxy Statement (as hereinafter
defined) and, after consultation with Parent, to respond promptly to
any comments made by the SEC with respect to the preliminary proxy
statement and cause a definitive proxy statement (the "Proxy
Statement") to be mailed to its stockholders and (y) to obtain the
necessary approvals of the Merger and this Agreement by its
stockholders; and
(iii) subject to the fiduciary obligations
of the Company Board under applicable law as provided in Section
1.02(a), include in the Proxy Statement the recommendation of the
Company Board that stockholders of the Company vote in favor of the
approval of this Agreement.
(b) Parent agrees that it will vote, or cause to be
voted, all of the Common Shares then owned by it, the Purchaser or any of its
other subsidiaries in favor of the approval of the Plan of Merger and of this
Agreement.
SECTION 2.11 Merger Without Meeting of Stockholders.
Notwithstanding Section 2.10, in the event that Parent, the Purchaser or any
other subsidiary of Parent shall acquire at least 90% of the outstanding Common
Shares pursuant to the
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<PAGE> 11
Offer or otherwise, the parties hereto agree to take all necessary and
appropriate action to cause the Merger to become effective as soon as
practicable after the acceptance for payment of and payment for Common Shares by
the Purchaser pursuant to the Offer without a meeting of stockholders of the
Company, in accordance with Section 253 of the GCL.
ARTICLE III
DISSENTING SHARES; PAYMENT FOR SHARES
SECTION 3.01. Dissenting Shares. Notwithstanding Section 2.07,
Common Shares outstanding immediately prior to the Effective Time and held by a
holder who has not voted in favor of the Merger or consented thereto in writing
and who has demanded appraisal for such Common Shares in accordance with the GCL
("Dissenting Shares") shall not be converted into a right to receive the Merger
Price, unless such holder fails to perfect or withdraws or otherwise loses his
right to appraisal. If after the Effective Time such holder fails to perfect or
withdraws or loses his right to appraisal, such Common Shares shall be treated
as if they had been converted as of the Effective Time into a right to receive
the Merger Price. The Company shall give Parent prompt notice of any demands
received by the Company for appraisal of Common Shares, and Parent shall have
the right to participate in all negotiations and proceedings with respect to
such demands. The Company shall not, except with the prior written consent of
Parent, make any payment with respect to, or settle or offer to settle, any such
demands.
SECTION 3.02. Payment for Common Shares.
(a) From and after the Effective Time, such bank or
trust company as shall be mutually acceptable to Parent and the Company shall
act as paying agent (the "Paying Agent") in effecting the payment of the Merger
Price in respect of certificates (the "Certificates") that, prior to the
Effective Time, represented Common Shares entitled to payment of the Merger
Price pursuant to Section 2.07. Promptly following the Effective Time, Parent or
the Purchaser shall deposit, or cause to be deposited, with the Paying Agent the
aggregate Merger Price to which holders of Common Shares shall be entitled at
the Effective Time pursuant to Section 2.07.
(b) Promptly after the Effective Time, Parent shall
cause the Paying Agent to mail to each record holder of Certificates that
immediately prior to the Effective Time
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<PAGE> 12
represented Common Shares a form of letter of transmittal which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Paying Agent
and instructions for use in surrendering such Certificates and receiving the
Merger Price in respect thereof. Upon the surrender of each such Certificate,
the Paying Agent shall pay the holder of such Certificate the Merger Price
multiplied by the number of Common Shares formerly represented by such
Certificate, in consideration therefor, and such Certificate shall forthwith be
cancelled. Until so surrendered, each such Certificate (other than Certificates
representing Common Shares held by Parent or the Purchaser, any wholly owned
subsidiary of Parent or the Purchaser, in the treasury of the Company or by any
wholly owned subsidiary of the Company or Dissenting Shares) shall represent
solely the right to receive the aggregate Merger Price relating thereto. No
interest or dividends shall be paid or accrued on the Merger Price. If the
Merger Price (or any portion thereof) is to be delivered to any person other
than the person in whose name the Certificate formerly representing Common
Shares surrendered therefor is registered, it shall be a condition to such right
to receive such Merger Price that the Certificate so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
person surrendering such Common Shares shall pay to the Paying Agent any
transfer or other taxes required by reason of the payment of the Merger Price to
a person other than the registered holder of the Certificate surrendered, or
shall establish to the satisfaction of the Paying Agent that such tax has been
paid or is not applicable.
(c) Promptly following the date which is 180 days
after the Effective Time, the Paying Agent shall deliver to the Surviving
Corporation all cash, Certificates and other documents in its possession
relating to the transactions described in this Agreement, and the Paying Agent's
duties shall terminate. Thereafter, each holder of a Certificate formerly
representing a Common Share may surrender such Certificate to the Surviving
Corporation and (subject to applicable abandoned property, escheat and similar
laws) receive in consideration therefor the aggregate Merger Price relating
thereto, without any interest or dividends thereon.
(d) After the Effective Time, there shall be no
transfers on the stock transfer books of the Surviving Corporation of any Common
Shares which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates formerly representing Common Shares are
presented to the Surviving Corporation or the Paying Agent,
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<PAGE> 13
they shall be surrendered and cancelled in return for the payment of the
aggregate Merger Price relating thereto, as provided in this Article III.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and the
Purchaser as follows:
SECTION 4.01 Organization and Qualification; Subsidiaries. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each of the Company's Significant
Subsidiaries (as defined herein) is a corporation duly organized, validly
existing and, with respect to the Company's Significant Subsidiaries that are
incorporated or organized in a jurisdiction in the United States of America, in
good standing under the laws of the jurisdiction of its incorporation. The
Company and each of its subsidiaries has the requisite corporate power and
authority to own, operate or lease its properties and to carry on its business
as it is now being conducted, and is duly qualified or licensed to do business,
and, with respect to the Company and the Company's Significant Subsidiaries that
are incorporated or organized in a jurisdiction in the United States of America,
is in good standing, in each jurisdiction in which the nature of its business or
the properties owned, operated or leased by it makes such qualification,
licensing or good standing necessary, except where the failure to have such
power or authority, or the failure to be so qualified, licensed or in good
standing, would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on the Company. The term "Material Adverse Effect
on the Company," as used in this Agreement, means any change in or effect on the
business, assets, liabilities, condition (financial or otherwise), prospects or
results of operations of the Company or any of its subsidiaries that would
reasonably be expected to be materially adverse to the Company and its
subsidiaries taken as a whole. The Company has heretofore made available to
Parent and the Purchaser a complete and correct copy of the certificate of
incorporation and the by-laws or comparable organizational documents, each as
amended to the date hereof, of the Company and each of its Significant
Subsidiaries and has made available a complete and correct copy of the Rights
Agreement as amended to the date hereof. A "Significant Subsidiary" of any
person means the subsidiaries identified on Section 4.02 of the Company
Disclosure Schedule as a
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"Significant Subsidiary" and any subsidiary or person that constitutes a
significant subsidiary of such person within the meaning of Rule 1-02(v) of
Regulation S-X.
SECTION 4.02 Capitalization; Subsidiaries. The authorized
capital stock of the Company consists of 40,000,000 Common Shares and 5,000,000
shares of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of
which 100,000 shares are designated Series A Junior Participating Preferred
Stock, par value $.01 per share (the "Junior Preferred Stock"). As of the close
of business on June 27, 1997, 7,492,935 Common Shares were issued and
outstanding, all of which are entitled to vote on this Agreement, and 438,920
Common Shares were held in treasury. The Company has no shares of Preferred
Stock issued and outstanding. The Company has no shares reserved for issuance,
except that, as of June 27, 1997, there were 865,392 Common Shares reserved for
issuance pursuant to outstanding Options and rights granted under the Stock
Plans and 100,000 shares of Series A Junior Participating Preferred Stock
reserved for issuance upon exercise of the Rights. Section 4.02 of the
disclosure schedule delivered to Parent by the Company prior to the date hereof
(the "Company Disclosure Schedule") sets forth the holders of all outstanding
Options and the number, exercise prices, vesting schedules and expiration dates
of each grant to such holders. Since January 1, 1997, the Company has not issued
any shares of capital stock except pursuant to the exercise of Options
outstanding as of such date; provided, however, that not more than 10,000 Common
Shares are reserved for issuance as of June 30, 1997 pursuant to the exercise of
options (the "Purchase Plan Options") granted prior to the date of this
Agreement pursuant to the Company's 1994 Employee Stock Purchase Plan. All the
outstanding Common Shares are, and all Common Shares which may be issued
pursuant to the exercise of outstanding Options will be, when issued in
accordance with the respective terms thereof, duly authorized, validly issued,
fully paid and nonassessable and are not subject to, nor were they issued in
violation of, any preemptive rights. There are no bonds, debentures, notes or
other indebtedness having general voting rights (or convertible into securities
having such rights) ("Voting Debt") of the Company or any of its subsidiaries
issued and outstanding. Except as set forth in this Section 4.02, and except for
the Contingent Rights and the Rights, there are no existing options, warrants,
calls, subscriptions or other rights, agreements, arrangements or commitments of
any character to which the Company or any of its subsidiaries is a party or by
which any of them is bound, obligating the Company or any of its subsidiaries to
issue, transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or
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<PAGE> 15
Voting Debt of, or other equity interest in, the Company or any of its
subsidiaries or securities convertible into or exchangeable for such shares or
equity interests or obligating the Company or any of its subsidiaries to grant,
extend or enter into any such option, warrant, call, subscription or other
right, agreement, arrangement or commitment. Except as contemplated by this
Agreement or the Rights Agreement and except for the Company's obligations in
respect of the Options under the Stock Plans, there are no outstanding
contractual obligations of the Company or any of its subsidiaries to repurchase,
redeem or otherwise acquire any Common Shares or the capital stock of the
Company or any of its subsidiaries. Each of the outstanding shares of capital
stock of each of the Company's Significant Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable, and, except as set forth in
Section 4.02 of the Company Disclosure Schedule, such shares of the Company's
Significant Subsidiaries are owned by the Company or by a subsidiary of the
Company in each case free and clear of any lien, claim, option, charge, security
interest, limitation, encumbrance and restriction of any kind (any of the
foregoing being a "Lien"). Set forth in Section 4.02 of the Company Disclosure
Schedule is a complete and correct list of each subsidiary (direct or indirect)
of the Company and indicates whether such subsidiary is a Significant
Subsidiary. No entity in which the Company owns, directly or indirectly, less
than a 50% equity interest is, individually or when taken together with all such
other entities, material to the business of the Company and its subsidiaries
taken as a whole.
SECTION 4.03 Authority Relative to this Agreement and Related
Matters. The Company has all necessary corporate power and authority to execute
and deliver this Agreement and, except for any required approval by the
Company's stockholders in connection with consummation of the Merger, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized and
approved by the Company Board and no other corporate proceedings on the part of
the Company are necessary to authorize or approve this Agreement or to
consummate the transactions contemplated hereby (other than, with respect to the
Merger, the approval of this Agreement by the affirmative vote of the holders of
a majority of the then outstanding Common Shares entitled to vote thereon, to
the extent required by applicable law). This Agreement has been duly and validly
executed and delivered by the Company and, assuming the due and valid
authorization, execution and delivery of this Agreement by Parent and the
Purchaser, constitutes a valid and binding obligation
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<PAGE> 16
of the Company enforceable against the Company in accordance with its terms.
SECTION 4.04 No Conflict; Required Filings and
Consents.
(a) Assuming (i) the filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
are made and the waiting periods thereunder have been terminated or have
expired, (ii) the requirements of the Exchange Act and any applicable state
securities, "blue sky" or takeover law are met, (iii) the filing of the
certificate of merger and other appropriate merger documents, if any, as
required by the GCL, is made and (iv) approval of this agreement by the holders
of a majority of the Common Shares, if required by the GCL, is received, none of
the execution and delivery of this Agreement by the Company, the consummation by
the Company of the transactions contemplated hereby or compliance by the Company
with any of the provisions hereof will (i) conflict with or violate the
Certificate of Incorporation or By-Laws of the Company or the comparable
organizational documents of any of its Significant Subsidiaries, (ii) except as
disclosed on Section 4.04(a) of the Company Disclosure Schedule, result in a
breach or violation of, a default under or the triggering of any payment or
other material obligations pursuant to, any of the Company's existing Employee
Benefit Arrangements (as hereinafter defined) or any grant or award made under
any of the foregoing, (iii) conflict with or violate any statute, ordinance,
rule, regulation, order, judgment, decree, permit or license applicable to the
Company or any of its subsidiaries, or by which any of them or any of their
respective properties or assets may be bound or affected, or (iv) result in a
violation or breach of or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
any loss of any benefit, or the creation of any Lien on any of the properties or
assets of the Company or any of its subsidiaries (any of the foregoing referred
to in clause (ii), (iii) or this clause (iv) being a "Violation") pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties may be bound or affected,
other than, in the case of clause (iii) or (iv) above, any such Violations that,
individually or in the aggregate, would not (A) reasonably be expected to have a
Material Adverse Effect
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<PAGE> 17
on the Company, (B) impair the ability of the Company to perform its obligations
under this Agreement or (C) prevent or materially delay consummation of any
transactions contemplated by this Agreement.
(b) None of the execution and delivery of this
Agreement by the Company, the consummation by the Company of the transactions
contemplated hereby or compliance by the Company with any of the provisions
hereof will require any consent, waiver, approval, authorization or permit of,
or registration or filing with or notification to (any of the foregoing being a
"Consent"), any government or subdivision thereof, domestic, foreign or
supranational or any administrative, governmental or regulatory authority,
agency, commission, tribunal or body, domestic, foreign or supranational (a
"Governmental Entity"), except for (i) compliance with any applicable
requirements of the Exchange Act, (ii) the filing of the certificate of merger
pursuant to the GCL, (iii) compliance with the HSR Act and any requirements of
any foreign or supranational antitrust laws, and (iv) such filings,
authorizations, orders and approvals (which to the Company's knowledge are set
forth on Section 4.04(b) of the Company Disclosure Schedule) as (A) may be
required under the laws of any foreign country in which the Company or any of
its subsidiaries conducts any business or owns any property or assets or (B) as
to which failure to obtain or make would not (x) reasonably be expected to have
a Material Adverse Effect on the Company or (y) prevent or materially delay the
consummation of any of the transactions contemplated by this Agreement.
SECTION 4.05 SEC Reports and Financial Statements.
(a) The Company has filed with the SEC all forms,
reports, schedules, registration statements and definitive proxy statements
required to be filed by the Company with the SEC since January 1, 1994 (as they
have been amended since the time of their filing, and including any documents
filed as exhibits thereto, collectively, the "SEC Reports") and has heretofore
made available to Parent complete and correct copies of all such forms, reports,
schedules, registration statements, and proxy statements. As of their respective
dates, the SEC Reports (including but not limited to any financial statements or
schedules included or incorporated by reference therein) complied in all
material respects with the requirements of the Exchange Act or the Securities
Act of 1933, as amended (the "Securities Act"), and the rules and regulations of
the SEC promulgated thereunder applicable, as the case may be, to such SEC
Reports, and none of the SEC Reports contained any untrue statement of a
material fact or
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omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading.
(b) The consolidated balance sheets as of December
31, 1996 and 1995 and the consolidated statements of income, common
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996 (including the related notes and schedules thereto) of
the Company contained in the Company's Form 10-K, as amended prior to the date
hereof, for the fiscal year ended December 31, 1996 present fairly the
consolidated financial position and the consolidated results of operations and
cash flows of the Company and its consolidated subsidiaries as of the dates or
for the periods presented therein and were prepared in accordance with United
States generally accepted accounting principles ("GAAP") consistently applied
during the periods involved except as otherwise noted therein, including the
related notes.
(c) Except as reflected, reserved against or
otherwise disclosed in the financial statements of the Company included in the
SEC Reports filed prior to the date of this Agreement or as set forth in Section
4.05(c) of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries have any liabilities or obligations (absolute, accrued, fixed,
contingent or otherwise) other than liabilities incurred in the ordinary course
of business consistent with past practice since December 31, 1996 which would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company.
(d) The Company has heretofore furnished to Parent a
complete and correct copy of any amendments or modifications which have not yet
been filed with the SEC to agreements, documents or other instruments which
previously had been filed by the Company with the SEC pursuant to the Securities
Act and the rules and regulations promulgated thereunder or the Exchange Act and
the rules and regulations promulgated thereunder.
(e) As of May 23, 1997, the Company had on hand cash
and cash equivalents (collectively, "Cash") of at least $110,440,000 and Net
Working Capital of at least $129,901,000. For purposes of this Agreement, "Net
Working Capital" shall mean, as of any date of determination, the remainder of
(1) Total Current Assets less (2) Total Current Liabilities, in each case as of
such date, calculated in the same manner, using the same methods, as the line
items on the
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Company's balance sheet as reported in the Company's Form 10-K, as amended prior
to the date hereof, for the fiscal year ended December 31, 1996 (the "Balance
Sheet").
SECTION 4.06 Environmental Matters.
(a) The business and operations of the Company and its
subsidiaries comply in all material respects with all applicable Environmental
Laws. The Company and its subsidiaries have obtained all material Governmental
Permits relating to Environmental Laws necessary for the operation of their
businesses; all such material Governmental Permits are set forth on Schedule
4.06 and are in full force and effect and the Company and its subsidiaries are
in compliance in all material respects with all terms and conditions of such
permits. To the best knowledge of the Company, neither the Company nor its
subsidiaries is subject to, and no facts exist that would form the basis for,
any investigation by, order from or claim by any person (including without
limitation any Governmental Entity or prior owner or operator of any of the
Company Property) respecting (i) any Environmental Law, (ii) any Remedial Action
or (iii) any claim arising from the Release or threatened Release of a
Contaminant into the environment. Neither the Company nor any of its
subsidiaries is subject to any judicial or administrative proceeding, order,
judgment, decree or settlement alleging or addressing a violation of or
liability under any Environmental Law.
(b) Neither the Company nor any of its subsidiaries has (i)
reported a Release of a hazardous substance pursuant to Section 103(a) of
CERCLA, or any state equivalent; (ii) filed a notice pursuant to Section 103(c)
of CERCLA; or (iii) filed any notice under any applicable Environmental Law
reporting a violation of any applicable Environmental Law. There is not now with
respect to the operations of the Company or any of its subsidiaries, nor to the
best knowledge of the Company has there ever been, on or in any Company
Property: (A) any Release, (B) any treatment, recycling, storage or disposal of
any hazardous waste, as that term is defined under RCRA or any state equivalent,
or (C) any underground storage tank or surface impoundment or landfill or waste
pile, except for such events which would not, individually or in the aggregate,
have a Material Adverse Effect on the Company.
(c) There is not now on or in any Company Property any
polychlorinated biphenyls (PCB) used in the Company's operations in pigments,
hydraulic oils, electrical transformers or other equipment.
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(d) To the best knowledge of the Company, any
asbestos-containing material or presumed asbestos-containing material which is
on or part of any Company Property is in good repair according to the current
standards and practices governing such material, and its presence or condition
does not violate any currently applicable Environmental Law. None of the
products manufactured, distributed or sold by the Company or any of its
subsidiaries contained asbestos or asbestos-containing material.
(e) For purposes of this Section:
(i) "Company Property" means any real or
personal property, plant, building, facility, structure, underground
storage tank, equipment or unit, or other asset now or, to the
Company's knowledge, previously owned, leased or operated primarily by
the Company or any of its present or, to the Company's knowledge, past
subsidiaries.
(ii) "CERCLA" means the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, and
any regulations promulgated thereunder.
(iii) "Contaminant" means any waste,
pollutant, hazardous or toxic substance or waste, petroleum,
petroleum-based substance or waste, special waste, hazardous material
or any constituent of any such substance, waste or material.
(iv) "Environmental Law" means all federal,
state and local laws or regulations relating to or addressing the
environment, health or safety, including but not limited to CERCLA,
OSHA and RCRA and any state equivalent thereof.
(v) "Governmental Permits" means any
permits, licenses, certificates, orders, consents, authorizations,
franchises and other approvals from, or required by, any Governmental
Entity that are used by, or are necessary to own and to operate, the
business of the Company and its subsidiaries as currently configured
and operated, together with any applications for the issuance, renewal,
modification or extension thereof and all supporting information and
analyses.
(vi) "OSHA" means the Occupational Safety
and Health Act, as amended, and any regulations promulgated
thereunder.
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(vii) "RCRA" means the Resource Conservation
and Recovery Act, as amended, and any regulations promulgated
thereunder.
(viii) "Release" means release, spill,
emission, leaking, pumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration of a Contaminant into the environment
or into or out of any Company Property, including the movement of
Contaminants through or in the air, soil, surface water, groundwater or
Company Property.
SECTION 4.07 Compliance with Applicable Laws. Except with
respect to Environmental Laws which are covered in Section 4.06, the Company and
its subsidiaries hold all material permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities (the "Company Permits"). The
Company and its subsidiaries are in compliance with the terms of the Company
Permits, except for such failures to comply which would not, individually or in
the aggregate, be reasonably expected to have a Material Adverse Effect on the
Company. Except with respect to Environmental Laws which are covered in Section
4.06, the business operations of the Company and its subsidiaries have been
conducted in compliance with all laws, ordinances and regulations of any
Governmental Entity, except for possible violations which could not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect on the Company.
SECTION 4.08 Change of Control. Except as set forth on Section
4.08 of the Company Disclosure Schedule, the transactions contemplated by this
Agreement will not constitute a "change of control" under, require the consent
from or the giving of notice to a third party pursuant to, permit a third party
to terminate or accelerate vesting or repurchase rights or create any other
detriment under the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, lease, contract, agreement or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which any of
them or any of their properties or assets may be bound, except where the adverse
consequences resulting from such change of control or where the failure to
obtain such consents or provide such notices would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company; provided, however, that the foregoing exception will not be applicable
to any (i) note, bond, mortgage, indenture, contract, agreement or other
instrument or obligation relating to (x) indebtedness of the Company or any of
its subsidiaries with an outstanding principal amount of more than $100,000 or
(y) annual revenues
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to the Company of more than $150,000 or (ii) employment, compensation,
termination or severance agreement, instrument or obligation of the Company or
any of its subsidiaries. The total amounts payable to the executives identified
in Section 4.08 of the Company Disclosure Schedule, as a result of the
transactions contemplated by this Agreement and/or any subsequent employment
termination (including any cash-out or acceleration of options and restricted
stock and any "gross-up" payments with respect to any of the foregoing), based
on compensation data applicable as of the date hereof will not exceed the amount
set forth on such schedule.
SECTION 4.09 Litigation. There is no suit, claim, action,
proceeding or investigation pending or, to the knowledge of the Company,
threatened, against the Company or any of its subsidiaries, individually or in
the aggregate, which would reasonably be expected to have a Material Adverse
Effect on the Company and its subsidiaries or could prevent or materially delay
the consummation of the transactions contemplated by this Agreement. Except as
disclosed in the SEC Reports filed prior to the date of this Agreement, neither
the Company nor any of its subsidiaries is subject to any outstanding order,
writ, injunction or decree which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on the Company or could
prevent or materially delay the consummation of the transactions contemplated
hereby.
SECTION 4.10 Information. None of the information supplied by
the Company in writing (other than projections of future financial performance)
specifically for inclusion or incorporation by reference in (i) the Offer
Documents, (ii) the Proxy Statement or (iii) any other document to be filed with
the SEC or any other Governmental Entity in connection with the transactions
contemplated by this Agreement (the "Other Filings") will, at the respective
times filed with the SEC or other Governmental Entity and, in addition, in the
case of the Proxy Statement, at the date it or any amendment or supplement is
mailed to stockholders, at the time of the Special Meeting and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The Proxy Statement will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder, except that no representation is made by the Company with respect to
statements made therein based on information supplied by Parent or the Purchaser
in writing specifically for inclusion in the Proxy Statement.
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SECTION 4.11 Certain Approvals. The Company Board has taken
any and all necessary and appropriate action to render inapplicable to the
Offer, the Merger and the transactions contemplated by this Agreement the
provisions of Section 203 of the GCL. No other state takeover statute or similar
statute or regulation applies or purports to apply to the Offer, the Merger or
the transactions contemplated by this Agreement.
SECTION 4.12 Employee Benefit Plans.
(a) Section 4.12(a) of the Company Disclosure
Schedule includes a complete list of all employee benefit plans, programs, and
other arrangements providing benefits to any employee or former employee or
beneficiary or dependent thereof, whether or not written, and whether covering
one person or more than one person, sponsored or maintained by the Company or
any of its subsidiaries or to which the Company or any of its subsidiaries
contributes or is obligated to contribute ("Plans"). Without limiting the
generality of the foregoing, the term "Plans" includes all employee welfare
benefit plans within the meaning of Section 3(1) of the Employee Retirement
Income Security Act of 1974, as amended, and the regulations thereunder
("ERISA") and all employee pension benefit plans within the meaning of Section
3(2) of ERISA.
(b) With respect to each Plan, the Company has made
available to Parent a true, correct and complete copy of: (i) each writing
constituting a part of such Plan, including without limitation all plan
documents, benefit schedules, trust agreements, and insurance contracts and
other funding vehicles; (ii) the most recent Annual Report (Form 5500 Series)
and accompanying schedule, if any; (iii) the current summary plan description,
if any; (iv) the most recent annual financial report, if any; (v) the most
recent actuarial report, if any; and (vi) the most recent determination letter
from the Internal Revenue Service (the "IRS"), if any. Except as specifically
provided in the foregoing documents made available to Parent, there are no
amendments to any Plan that have been adopted or approved nor has the Company or
any of its subsidiaries undertaken to make any such amendments.
(c) Section 4.12(c) of the Company Disclosure
Schedule identifies each Plan that is intended to be a "qualified plan" within
the meaning of Section 401(a) of the Internal Revenue Code of 1986, as amended,
and the Treasury Regulations thereunder (the "Code") ("Qualified Plans"). The
IRS has issued a favorable determination letter with respect
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to each Qualified Plan that has not been revoked, and there are no existing
circumstances nor any events that have occurred that could adversely affect the
qualified status of any Qualified Plan or the related trust. Schedule 4.12(c)
identifies each Plan which is intended to meet the requirements of Code
Section 501(c)(9), and each such plan meets such requirements and provides no
disqualified benefits (as such term is defined in Code Section 4976(b).
(d) All contributions required to be made to any Plan
by applicable law or regulation or by any plan document or other contractual
undertaking, and all premiums due or payable with respect to insurance policies
funding any Plan, for any period through the date hereof have been timely made
or paid in full or, to the extent not required to be made or paid on or before
the date hereof, have been fully reflected in the financial statements of the
Company included in the SEC Reports to the extent required under generally
accepted accounting principles.
(e) The Company and each of its subsidiaries has
complied, and is now in compliance, in all material respects with all provisions
of ERISA, the Code and all laws and regulations applicable to the Plans. There
is not now, nor do any circumstances exist that could give rise to, any
requirement for the posting of security with respect to a Plan or the imposition
of any lien on the assets of the Company or any of its subsidiaries under ERISA
or the Code. No prohibited transaction has occurred with respect to any Plan.
(f) No Plan is subject to Title IV or Section 302 of
ERISA or Section 412 or 4971 of the Code. Without limiting the generality of the
foregoing, no Plan is a "multiemployer plan" within the meaning of Section
4001(a)(3) of ERISA (a "Multiemployer Plan") or a plan that has two or more
contributing sponsors at least two of whom are not under common control, within
the meaning of Section 4063 of ERISA and which is subject to Title IV of ERISA
(a "Multiple Employer Plan"), nor has the Company or any of its subsidiaries, or
any of their respective ERISA Affiliates (as defined in the next sentence), at
any time since September 2, 1974, contributed to or been obligated to contribute
to any Multiemployer Plan or Multiple Employer Plan. An "ERISA Affiliate" means
any entity, trade or business that is a member of a group described in Section
414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes
the Company or any of its subsidiaries, or that is a member of the same
"controlled group" as the Company or any of its subsidiaries, pursuant to
Section 4001(a)(14) of ERISA.
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(g) There does not now exist, nor do any
circumstances exist that could result in, any liability under (i) Title IV of
ERISA, (ii) section 302 of ERISA, (iii) sections 412 and 4971 of the Code, (iv)
the continuation coverage requirements of section 601 et seq. of ERISA and
section 4980B of the Code, or (v) corresponding or similar provisions of foreign
laws or regulations, other than a liability that arises solely out of, or relate
solely to, the Plans, that would be a liability of the Company or any of its
subsidiaries following the Closing. Without limiting the generality of the
foregoing, none of the Company, its subsidiaries nor any ERISA Affiliate of the
Company or any of its subsidiaries has engaged in any transaction described in
Section 4069 or Section 4204 or 4212 of ERISA.
(h) Neither the Company nor any of its subsidiaries
has any liability for life, health, medical or other welfare benefits to former
employees or beneficiaries or dependents thereof, except for health continuation
coverage as required by Section 4980B of the Code or Part 6 of Title I of ERISA
and at no expense to the Company and its subsidiaries.
(i) There are no pending or threatened claims (other
than claims for benefits in the ordinary course), lawsuits or arbitrations which
have been asserted or instituted against the Plans, any fiduciaries thereof with
respect to their duties to the Plans or the assets of any of the trusts under
any of the Plans which could reasonably be expected to result in any material
liability of the Company or any of its subsidiaries to the Pension Benefit
Guaranty Corporation, the Department of Treasury, the Department of Labor or any
Multiemployer Plan.
SECTION 4.13 Intellectual Property.
(a) Set forth on Section 4.13(a) of the Company
Disclosure Schedule is a list of all material patents, patent applications,
patent disclosures, trademark registrations and trademark applications, service
mark registrations and service mark applications, certification mark
registrations and certification mark applications, copyright registrations and
copyright registration applications, mask works registrations and mask works
registration applications, both domestic and foreign, which are owned by the
Company or any of its subsidiaries. The assets described on Section 4.13(a) of
the Company Disclosure Schedule and all computer software, trade secrets,
trademarks, trade names, service marks, certification marks, copyrights,
know-how, methods, processes,
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procedures, apparatus, equipment, industrial property, discoveries, inventions,
designs, drawings, plans, specifications, engineering data, manuals, development
projects, research and development work in progress, technology or other
proprietary rights or confidential information which are owned or used by the
Company or any of its subsidiaries are referred to as the "Intellectual
Property." Except as otherwise indicated on Section 4.13(a) of the Company
Disclosure Schedule, the Company and its subsidiaries own all right, title and
interest in and to the Intellectual Property validly and beneficially, free and
clear of all material Liens, with the sole and exclusive right to use the same,
subject to those licenses listed on Section 4.13(b) of the Company Disclosure
Schedule.
(b) Set forth on Section 4.13(b) of the Company
Disclosure Schedule is a list of (i) all material licenses, assignments and
other transfers of Intellectual Property granted to others by the Company or any
of its subsidiaries, and (ii) all material licenses, assignments and other
transfers of patents, trade names, trademarks, service marks, copyrights, mask
works registrations, software, trade secrets, know-how, technology or other
proprietary rights or information granted to the Company or any of its
subsidiaries by others. Except as set forth in Section 4.13(b) of the Company
Disclosure Schedule, none of the licenses, assignments or other transfers
described above is subject to termination or cancellation or change in its terms
or provisions as a result of this Agreement or the transactions provided for in
this Agreement.
(c) To the knowledge of the Company, there is no
material unauthorized use, infringement or misappropriation of any Intellectual
Property.
(d) Except as disclosed in Section 4.13(d) of the
Company Disclosure Schedule, no material claim with respect to the Intellectual
Property has been asserted or, to the best knowledge of the Company, is
threatened by any person nor does the Company know of any valid ground for any
bona fide claims (i) to the effect that the manufacture, sale or use of any
product or process as used (currently or in the past) or offered or proposed for
use or sale by the Company infringes on any copyright, trade secret, patent,
tradename or other intellectual property right of any person, (ii) against the
Company relating to the use of any Intellectual Property, or (iii) challenging
the ownership, validity or effectiveness of any Intellectual Property. To the
Company's best knowledge, all granted and issued patents and all registered
trademarks and service marks listed in Section 4.13(a)
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of the Company Disclosure Schedule and all copyrights held by the Company are
valid, enforceable and subsisting.
(e) No material Intellectual Property is subject to
any outstanding order, judgment, decree, stipulation or agreement restricting in
any manner the licensing, assignment or other transfer, use or enforceability
thereof by the Company. The Company has not entered into any agreement to
indemnify any other person against any charge of infringement of any
Intellectual Property, except indemnities agreed to in the ordinary course of
business included as part of the Company's license agreements. The Company has
the exclusive right to file, prosecute and maintain all applications and
registrations with respect to Intellectual Property.
SECTION 4.14 Taxes.
(a) The Company and each of its subsidiaries has
filed all federal, state, local and foreign income Tax Returns (as hereinafter
defined) required to be filed by it, and all other material Tax Returns required
to be filed by it, and has paid or caused to be paid all Taxes (as hereinafter
defined) shown as due and payable on such Tax Returns in respect of the periods
covered by such returns and has made adequate provision in the Company's
financial statements for payment of all Taxes anticipated to be payable in
respect of all taxable periods or portions thereof ending on or before the date
hereof, except where the failures to so file or pay or make adequate provision
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Company. Section 4.14 of the Company Disclosure
Schedule lists the periods through which the Tax Returns required to be filed by
the Company or any of its subsidiaries have been examined by the IRS or other
appropriate taxing authority, or the period during which any assessments may be
made by the IRS or other appropriate taxing authority has expired. All material
deficiencies and assessments asserted as a result of such examinations or other
audits by federal, state, local or foreign taxing authorities have been paid,
fully settled or adequately provided for in the Company's financial statements,
and no issue or claim has been asserted in writing for Taxes by any taxing
authority for any prior period, the adverse determination of which would result
in a deficiency which could have a Material Adverse Effect on the Company, other
than those heretofore paid or provided for in the Company's financial
statements. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Return of the Company or
any of its subsidiaries. Neither the Company nor any of its subsidiaries has
filed a consent pursuant to Section 341(f) of the
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Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of
a subsection (f) asset (as such term is defined in Section 341(f)(2) of the
Code) owned by the Company or any of its subsidiaries. Neither the Company nor
any of its subsidiaries is a party to any agreement, contract or arrangement
that could result, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code or that would
not be deductible pursuant to the terms of Section 162(m) of the Code. Neither
the Company nor any of its subsidiaries (i) has been a member of a group filing
consolidated returns for federal income tax purposes (except for the group of
which the Company is the common parent), or (ii) is a party to a Tax sharing or
Tax indemnity agreement or any other agreement of a similar nature that remains
in effect.
(b) For purposes of this Agreement, the term "Taxes"
means all taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, excise, property, sales, transfer, license,
payroll, withholding, capital stock and franchise taxes, imposed by the United
States or any state, local or foreign government or subdivision or agency
thereof, including any interest, penalties or additions thereto. For purposes of
this Agreement, the term "Tax Return" means any report, return or other
information or document required to be supplied to a taxing authority in
connection with Taxes.
SECTION 4.15 Absence of Certain Changes. Except as disclosed
in the SEC Reports filed prior to the date of this Agreement or as otherwise
disclosed on Section 4.15 of the Company Disclosure Schedule, since December 31,
1996 (i) there has not been any Material Adverse Effect on the Company; (ii) the
businesses of the Company and each of its subsidiaries have been conducted only
in the ordinary course and in a manner consistent with past practice; (iii)
neither the Company nor any of its subsidiaries has incurred any material
liabilities (direct, contingent or otherwise) or engaged in any material
transaction or entered into any material agreement or commitments outside the
ordinary course of business; (iv) neither the Company nor any of its
subsidiaries has taken any action referred to in Section 6.01 hereof except as
permitted thereby; or (v) there has not been any revaluation by the Company or
any of its subsidiaries of any material assets, including but not limited to
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business.
SECTION 4.16 Labor Matters. No employees of the Company or of
any of its subsidiaries are represented by any
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labor union or any collective bargaining organization. No labor organization or
group of employees of the Company or any of its subsidiaries has made a pending
demand for recognition or certification, and there are no representation or
certification proceedings or petitions seeking a representation proceeding
presently pending or threatened to be brought or filed, with the National Labor
Relations Board or any other labor relations tribunal or authority, which would
reasonably be expected to have a Material Adverse Effect on the Company.
SECTION 4.17 Relationships with Customers, Suppliers,
Distributors and Sales Representatives. Except as set forth in Section 4.17 of
the Company Disclosure Schedule, the Company has not received written notice
that any customer, supplier, distributor or sales representative intends to
cancel, terminate or otherwise modify its relationship with the Company or any
subsidiary which would reasonably be expected to have a Material Adverse Effect
on the Company.
SECTION 4.18 Contracts. Section 4.18 of the Company Disclosure
Schedule lists all written or oral contracts, agreements, guarantees, leases
(each a "Contract") to which the Company or any of its subsidiaries is a party
and which fall within any of the following categories: (i) Contracts not entered
into in the ordinary course of business, (ii) joint venture, partnership and
like agreements, (iii) Contracts containing covenants purporting to limit the
freedom of the Company or any of its subsidiaries to compete in any line of
business in any geographic area or to hire or solicit any individual or group of
individuals, (iv) Contracts which after the Effective Time would have the effect
of limiting the freedom of Parent or its subsidiaries (other than the Company
and its subsidiaries) to compete in any line of business in any geographic area
or to hire any individual or group of individuals, (v) Contracts which contain
minimum purchase conditions or requirements or other terms that restrict or
limit the purchasing relationships of the Company or any of its subsidiaries,
(vi) Contracts relating to any outstanding commitment for capital expenditures
in excess of $100,000, (vii) indentures, mortgages, promissory notes, loan
agreements, guarantees of amounts in excess of $100,000, letters of credit or
other agreements or instruments of the Company or any of its subsidiaries or
commitments for the borrowing or the lending of amounts in excess of $100,000 by
the Company or any of its subsidiaries or providing for the creation of any
charge, security interest, encumbrance or lien upon any of the assets of the
Company or any of its subsidiaries and (viii) Contracts with or for the benefit
of any
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affiliate of the Company (other than subsidiaries of the Company). All of the
Contracts required to be disclosed by this Section 4.18 are valid and binding
obligations of the Company or a subsidiary of the Company and the valid and
binding obligation of each other party thereto, except such Contracts which if
not so valid and binding would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on the Company. Neither the
Company nor any of its subsidiaries nor, to the knowledge of the Company, any
other party thereto is in violation of or in default in respect of, nor has
there occurred an event or condition which with the passage of time or giving of
notice (or both) could constitute a default under, any such Contract except such
violations or defaults under such Contracts which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company.
SECTION 4.19 Rights Agreement. The Company and the Company
Board have authorized all necessary action to amend the Rights Agreement
(without redeeming the Rights) so that none of the execution or delivery of this
Agreement, the making of the Offer, the acquisition of Common Shares pursuant to
the Offer or the consummation of the Merger will (i) cause any Rights issued
pursuant to the Rights Agreement to become exercisable or to separate from the
stock certificates to which they are attached, (ii) cause Parent, the Purchaser
or any of their Affiliates or Associates to be an Acquiring Person (as each such
term is defined in the Rights Agreement) or (iii) trigger other provisions of
the Rights Agreement, including giving rise to a Distribution Date or a
Triggering Event (as each such term is defined in the Rights Agreement), and
such amendment shall be in full force and effect from and after the date hereof.
SECTION 4.20 Product Recalls. The Company is not aware of any
pattern or series of claims against the Company or any of its subsidiaries which
reasonably could be expected to result in a generalized product recall relating
to products sold by the Company or any of its subsidiaries, regardless of
whether such product recall is formal, informal, voluntary or involuntary.
SECTION 4.21 Sale of UV Curing Business. The Company is not
aware of any pending or threatened claim against the Company or any of its
subsidiaries, whether for indemnification, retained liabilities or otherwise,
arising out of or related to the sale by the Company of its ultraviolet curing
systems business to affiliates of Fairey Group, plc pursuant to a Purchase
Agreement, dated as of August 14, 1996, a
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true, correct and complete copy of which has previously been made available to
Parent.
SECTION 4.22 Brokers. Except for the engagement of Salomon
Brothers and Venture Advisors, Inc. ("VAI"), an affiliate of Daniel Tessler,
Chairman of the Company Board, none of the Company, any of its subsidiaries, or
any of their respective officers, directors or employees has employed any broker
or finder or incurred any liability for any brokerage fees, commissions or
finder's fees in connection with the transactions contemplated by this
Agreement. The Company has previously delivered to Parent a copy of the
Company's engagement letters with Salomon Brothers and VAI. The aggregate Merger
Fees owed or which will be owing by the Company and its subsidiaries in
connection with the Offer, the Merger and the transactions contemplated by this
Agreement will not exceed the amount set forth in Section 4.22 of the Company
Disclosure Schedule. "Merger Fees" means all fees and expenses paid or payable
by or on behalf of the Company or any of its subsidiaries to all attorneys,
accountants, investment bankers, financial advisors and other experts and
advisors incident to negotiation, preparation, execution and consummation of
this Agreement and the transactions contemplated hereby, and all amounts payable
to any officer, director or significant employee of the Company or any of its
subsidiaries whose Options are covered by Schedule 2.09 arising out of severance
of employment following consummation of the transactions contemplated by this
Agreement or otherwise attributable to the consummation of the transactions
contemplated by this Agreement, exclusive of payments in respect of Options.
SECTION 4.23 Opinion of Salomon Brothers. The Company has
received the written opinion of Salomon Brothers to the effect that, as of June
29, 1997, the consideration to be received by the holders of Common Shares
(other than Parent or any of its affiliates) pursuant to the Offer, the Merger
and the Contingent Rights, is fair to the Company's stockholders from a
financial point of view. The Company has previously delivered to Parent a copy
of such opinion.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PARENT AND THE PURCHASER
Parent and the Purchaser represent and warrant to the Company
as follows:
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SECTION 5.01 Organization and Qualification. Parent is a
corporation duly organized, validly existing and in good standing under the laws
of Ohio and each material subsidiary of Parent is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization. The Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Parent and each of
its material subsidiaries (including the Purchaser) has the requisite corporate
power and authority to own, operate or lease its properties and to carry on its
business as it is now being conducted, and is duly qualified or licensed to do
business, and is in good standing, in each jurisdiction in which the nature of
its business or the properties owned, operated or leased by it makes such
qualification, licensing or good standing necessary, except where the failure to
have such power or authority, or the failure to be so qualified, licensed or
in good standing, would not have a Material Adverse Effect on Parent. The term
"Material Adverse Effect on Parent", as used in this Agreement, means any
change in or effect on the business, assets, liabilities, condition (financial
or otherwise), prospects or results of operations of Parent or any of its
subsidiaries that would be materially adverse to Parent and its subsidiaries
taken as a whole.
SECTION 5.02 Authority Relative to this Agreement. Each of
Parent and the Purchaser has all necessary corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Parent and
the Purchaser and the consummation by Parent and the Purchaser of the
transactions contemplated hereby have been duly and validly authorized and
approved by the respective Boards of Directors of Parent and the Purchaser and
by Parent as sole stockholder of the Purchaser and no other corporate
proceedings on the part of Parent or the Purchaser are necessary to authorize or
approve this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by each of Parent and the
Purchaser and, assuming the due and valid authorization, execution and delivery
by the Company, constitutes a valid and binding obligation of each of Parent and
the Purchaser enforceable against each of them in accordance with its terms.
SECTION 5.03 No Conflict; Required Filings and Consents.
(a) Assuming (i) the filings required under the HSR
Act are made and the waiting periods thereunder have
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terminated or have expired, (ii) the requirements of the Exchange Act and any
applicable state securities, "blue sky" or takeover law are met and (iii) the
filing of the certificate of merger and other appropriate merger documents, if
any, as required by the GCL, is made, none of the execution and delivery of this
Agreement by Parent or the Purchaser, the consummation by Parent or the
Purchaser of the transactions contemplated hereby or compliance by Parent or the
Purchaser with any of the provisions hereof will (i) conflict with or violate
the organizational documents of Parent or the Purchaser, (ii) conflict with or
violate in any material respect any statute, ordinance, rule, regulation, order,
judgment, decree, permit or license applicable to Parent or the Purchaser or any
of their subsidiaries, or by which any of them or any of their respective
properties or assets may be bound or affected, or (iii) result in a Violation
pursuant to any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Parent or
the Purchaser or any of their subsidiaries is a party or by which Parent or the
Purchaser or any of their subsidiaries or any of their respective properties or
assets may be bound or affected, which would prevent or materially delay the
consummation of the transactions contemplated hereby.
(b) None of the execution and delivery of this
Agreement by Parent and the Purchaser, the consummation by Parent and the
Purchaser of the transactions contemplated hereby or compliance by Parent and
the Purchaser with any of the provisions hereof will require any Consent of any
Governmental Entity, except for (i) compliance with any applicable requirements
of the Exchange Act and any state securities "blue sky" or takeover law, (ii)
the filing of a certificate of merger pursuant to the GCL, and (iii) compliance
with the HSR Act and any requirements of any foreign or supranational antitrust
laws.
SECTION 5.04 Information. None of the information supplied or
to be supplied by Parent and the Purchaser in writing specifically for inclusion
in (i) the Schedule 14D-9, (ii) the Proxy Statement or (iii) the Other Filings
will, at the respective times filed with the SEC or such other Governmental
Entity and, in addition, in the case of the Proxy Statement, at the date it or
any amendment or supplement is mailed to stockholders, at the time of the
Special Meeting and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
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SECTION 5.05 Financing. Parent has possession of, or has
available to it under existing lines of credit, sufficient funds to consummate
the transactions contemplated by this Agreement, and will cause the Purchaser to
have sufficient funds available to consummate the Offer and the Merger and the
transactions contemplated hereby.
SECTION 5.06 Delaware Law. Neither Parent nor any of its
subsidiaries was, immediately prior to the execution of this Agreement, an
"interested stockholder" within the meaning of Section 203 of the GCL.
ARTICLE VI
COVENANTS
SECTION 6.01 Conduct of Business of the Company. Except as
required by this Agreement or otherwise with the prior written consent of
Parent, during the period from the date of this Agreement to the Effective Time,
the Company will, and will cause each of its subsidiaries to, conduct its
operations only in the ordinary and usual course of business consistent with
past practice and will use its reasonable efforts, and will cause each of its
subsidiaries to use its reasonable efforts, to preserve intact the business
organization of the Company and each of its subsidiaries, to keep available the
services of its and their present officers and key employees, and to preserve
the good will of those having business relationships with it, including, without
limitation, maintaining satisfactory relationships with licensors, suppliers,
distributors, customers and others having business relationships with the
Company. Without limiting the generality of the foregoing, and except as
otherwise required by this Agreement, the Company will not, and will not permit
any of its subsidiaries to, prior to the Effective Time, without the prior
written consent of Parent:
(a) adopt any amendment to its Certificate of
Incorporation or By-Laws or comparable organizational documents or the Rights
Agreement (other than the amendment contemplated by Section 4.19) or the
Contingent Payment Rights Agreement;
(b) sell, pledge or encumber any stock owned by it in
any of its subsidiaries;
(c) (i) issue, reissue or sell, or authorize the
issuance, reissuance or sale of (A) additional shares of capital stock of any
class, or securities convertible into
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capital stock of any class, or any rights, warrants or options to acquire any
convertible securities or capital stock, other than the issuance of Common
Shares (and the related Rights), in accordance with the terms of the instruments
governing such issuance on the date hereof, pursuant to the exercise of Options
outstanding on the date hereof (or, if a Triggering Event (as defined in the
Rights Agreement) by a party other than Parent or the Purchaser shall occur,
Rights) or (B) any other securities in respect of, in lieu of, or in
substitution for, Common Shares outstanding on the date hereof, other than the
Contingent Rights or (ii) make any other changes in its capital structure;
(d) declare, set aside or pay any dividend or other
distribution (whether in cash, securities or property or any combination
thereof) in respect of any class or series of its capital stock other than (i)
between any of the Company and any of its wholly owned subsidiaries or (ii) the
Contingent Rights;
(e) split, combine, subdivide, reclassify or redeem,
purchase or otherwise acquire, or propose to redeem or purchase or otherwise
acquire, any shares of its capital stock, or any of its other securities;
(f) increase the compensation or fringe benefits
payable or to become payable to its directors, officers or employees (whether
from the Company or any of its subsidiaries) other than an aggregate of $8,000
in bonuses previously disclosed to Parent, or pay or award any benefit not
required by any existing plan or arrangement to any officer, director or
employee (including, without limitation, the granting of stock options, stock
appreciation rights, shares of restricted stock or performance units pursuant to
the Stock Plans or otherwise), or grant any severance or termination pay to any
officer, director or other employee of the Company or any of its subsidiaries
(other than as required by existing agreements or policies described in the
Company Disclosure Schedule), or enter into any employment or severance
agreement with, any director, officer or other employee of the Company or any of
its subsidiaries or establish, adopt, enter into, amend or waive any performance
or vesting criteria or accelerate vesting or exercisability under any bonus,
profit sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, savings, welfare, deferred compensation, employment, termination,
severance or other employee benefit plan, agreement, trust, fund, policy or
arrangement for the benefit or welfare of any directors, officers or current or
former employees of the Company or its subsidiaries (any of the foregoing being
an
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"Employee Benefit Arrangement"), except, in each case, to the extent required
by applicable law or regulation;
(g) acquire, mortgage, encumber, sell, lease, license
or dispose of any assets (including Intellectual Property) or securities, except
pursuant to existing contracts or commitments or the sale or purchase of goods
in the ordinary course of business consistent with past practice, or enter into
any commitment or transaction outside the ordinary course of business consistent
with past practice other than transactions between a wholly owned subsidiary of
the Company and the Company or another wholly owned subsidiary of the Company,
provided that nothing herein shall prevent the Company from extending until
December 31, 1997 an agreement to provide benefits administration services to
Lighting, and extending the Company's MIS support for Lighting until the later
of June 30, 1998 or the Company's cessation of use of the Company's ASK Man Man
software system, in each case on their current terms and conditions;
(h) (i) incur, assume or pre-pay any long-term debt
or incur or assume any short-term debt, except that the Company and its
subsidiaries may incur, assume or pre-pay debt in the ordinary course of
business in amounts and for purposes consistent with past practice under
existing lines of credit, (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person except in the ordinary course of business
consistent with past practice, (iii) pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, contingent or otherwise), except
in the ordinary course of business consistent with past practice and in
accordance with their terms, (iv) make any loans, advances or capital
contributions to, or investments in, any other person, except for loans,
advances, capital contributions or investments between any wholly owned
subsidiary of the Company and the Company or another wholly owned subsidiary of
the Company, (v) authorize or make capital expenditures not provided for in the
Company's capital budget included in Section 6.01(h) of the Company Disclosure
Schedule which are in excess of $100,000, (vi) accelerate or delay collection of
notes or accounts receivable in advance of or beyond their regular due dates or
the dates when the same would have been collected in the ordinary course of
business consistent with past practice, (vii) delay or accelerate payment of
accounts payable beyond or in advance of its due date or the date such liability
would have been paid in the ordinary course of business consistent with past
practice, or (viii) vary the Company's inventory practices in any material
respect from the Company's past practices;
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(i) settle or compromise any suit or claim or
threatened suit or claim where the amount involved is greater than $100,000;
(j) other than in the ordinary course of business
consistent with past practice, (i) modify, amend or terminate any contract, (ii)
waive, release, relinquish or assign any contract (or any of the Company's
rights thereunder), right or claim, or (iii) cancel or forgive any indebtedness
owed to the Company or any of its subsidiaries; provided, however, that the
Company may not under any circumstance waive or release any of its rights under
any confidentiality agreement to which it is a party;
(k) make any tax election not required by law or
settle or compromise any tax liability;
(l) permit any insurance policy naming it as a
beneficiary or a loss payable payee to be canceled or terminated without notice
to the Purchaser, except in the ordinary course of business consistent with past
practice;
(m) acquire (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership or other business
organization or division thereof or, except in the ordinary course of business
consistent with past practice, any assets;
(n) enter into any contract or agreement other than
in the ordinary course of business consistent with past practice;
(o) except as may be required as a result of a change
in law or in generally accepted accounting principles, make any change in its
methods of accounting, including tax accounting policies and procedures; or
(p) agree in writing or otherwise to take any of the
foregoing actions prohibited under this Section 6.01 or any action which would
cause any representation or warranty in this Agreement to be or become untrue or
incorrect.
SECTION 6.02 Access to Information. From the date of this
Agreement until the Effective Time, the Company will, and will cause its
subsidiaries, and each of their respective officers, directors, employees,
counsel, advisors and representatives (collectively, the "Company
Representatives") to, give Parent and the Purchaser and their respective
officers, employees, counsel, advisors and representatives (collectively, the
"Parent Representatives") full access, during
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normal business hours, to the offices and other facilities and to the books and
records of the Company and its subsidiaries and will cause the Company
Representatives and the Company's subsidiaries to furnish Parent, the Purchaser
and the Parent Representatives with such financial and operating data and such
other information with respect to the business and operations of the Company and
its subsidiaries as Parent and the Purchaser may from time to time reasonably
request. The Company shall furnish promptly to Parent and the Purchaser a copy
of each report, schedule, registration statement and other document filed by it
or its subsidiaries during such period pursuant to the requirements of federal
or state securities laws. Parent and the Purchaser agree that any information
furnished pursuant to this Section 6.02 will be subject to the provisions of the
letter agreement dated April 7, 1997 between the Parent and the Company (the
"Confidentiality Agreement"), it being understood that the provisions set forth
in the eighth, ninth and tenth paragraphs thereof shall have no further force
and effect.
SECTION 6.03 Efforts.
(a) Subject to the terms and conditions provided
herein, each of the Company, Parent and the Purchaser shall, and the Company
shall cause each of its subsidiaries to, cooperate and use reasonable efforts to
make, or cause to be made, all filings necessary or proper under applicable laws
and regulations to consummate and make effective the transactions contemplated
by this Agreement, including but not limited to cooperation in the preparation
and filing of the Offer Documents, the Schedule 14D-9, the distribution of
Contingent Rights and any actions or filings related thereto, the Proxy
Statement, any required filings under the HSR Act, or other foreign filings and
any amendments to any thereof.
In addition, if at any time prior to the Effective
Time any event or circumstance relating to either the Company or Parent or the
Purchaser or any of their respective subsidiaries should be discovered by the
Company or Parent, as the case may be, which should be set forth in an amendment
to the Offer Documents or Schedule 14D-9, the discovering party will promptly
inform the other party of such event or circumstance. If at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, including the execution of additional instruments,
the proper officers and directors of each party to this Agreement shall take all
such necessary action.
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(b) Each of the parties will use its reasonable
efforts to obtain as promptly as practicable all Consents of any Governmental
Entity or any other person required in connection with, and waivers of any
Violations that may be caused by, the consummation of the transactions
contemplated by the Offer and this Agreement.
SECTION 6.04 Public Announcements. The Company, on the one
hand, and Parent and the Purchaser, on the other hand, agree to consult promptly
with each other prior to issuing any press release or otherwise making any
public statement with respect to the Offer, the Merger and the other
transactions contemplated hereby, agree to provide to the other party for review
a copy of any such press release or statement, and shall not issue any such
press release or make any such public statement prior to such consultation and
review, unless required by applicable law or any listing agreement with a
securities exchange.
SECTION 6.05 Employee Benefit Arrangements.
(a) Parent agrees that the Company will honor and,
from and after the Effective Time, Parent will cause the Surviving Corporation
to honor, all obligations under Employee Benefit Arrangements to which the
Company or any of its subsidiaries is presently a party which are listed in
Section 6.05(a) of the Company Disclosure Schedule. Notwithstanding the
foregoing, from and after the Effective Time, subject to the remaining
provisions of this Section 6.05(a), the Surviving Corporation shall have the
right to amend, modify, alter or terminate any Employee Benefit Arrangements,
provided that any such action shall not adversely affect the rights of any
employees or other beneficiaries which shall have arisen thereunder prior to
such amendment, modification, alteration or termination, and shall not affect
any rights for which the agreement of the other party or a beneficiary is
required.
(b) Parent shall cause the Surviving Corporation to
establish a special bonus plan (the "Special Bonus Plan") for all employees of
the Company or any of its subsidiaries who held Options which were outstanding
as of immediately before the Effective Time which were not then vested and were
terminated as of the Effective Time. The Special Bonus Plan shall provide for a
cash payment on the second anniversary of the Effective Time to each employee
who continues to be an employee of the Surviving Corporation, Parent or any of
their respective subsidiaries on such second anniversary in an amount (subject
to any applicable withholding taxes) equal to the sum of (i) the product of (x)
the total
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number of Common Shares subject to such terminated Options and (y) the excess of
the Merger Price over the exercise price per Common Share of such terminated
Options, plus (ii) interest on the amount set forth in clause (i) at a rate of
6% per annum from the Effective Time, plus (iii) the product of (x) the total
number of Common Shares subject to such terminated Option and (y) the amount of
cash, if any, paid with respect to each Contingent Right pursuant to the
Contingent Rights Agreement. Any employee of the Company who is involuntarily
terminated without cause or whose employment ceases by reason of death or
disability, in each case prior to the second anniversary of the Effective Time,
shall be entitled, promptly following such termination or cessation of
employment (or, in the case of any payment pursuant to clause (y) of the
preceding sentence, promptly following the later of March 31, 1999 or the date
of such termination or cessation of employment), to receive from the Company a
cash payment equal to the amount which such employee would have received
pursuant to the formula in the immediately preceding sentence, had such employee
remained employed throughout the period ending on the second anniversary of the
Effective Time.
SECTION 6.06 Indemnification; Directors' and Officers'
Insurance.
(a) From and after the time the Purchaser purchases
Shares pursuant to the Offer through and including the Effective Time (without
regard to the termination of this Agreement), neither Parent nor the Purchaser
will take any action, nor permit any action to be taken, which would change or
amend the provisions of the Certificate of Incorporation or By-Laws of the
Company in effect on the date hereof (copies of which previously have been
supplied to Parent) relating to limitation of liability or indemnification
inconsistent with its obligations under Section 6.06(b) hereof or eliminate or
make any modification in the Company's existing director's and officer's
insurance inconsistent with its obligations under Section 6.06(c) hereof. Parent
agrees that from and after the Effective Time all rights to indemnification now
existing in favor of individuals who at or prior to the Effective Time were
directors or officers of the Company or any of its subsidiaries as set forth in
the Certificate of Incorporation or By-Laws of the Company shall survive the
Merger with respect to matters existing or occurring at or prior to the
Effective Time and shall continue in full force and effect for a period of six
years following the Effective Time.
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(b) The Company shall, and from and after the
Effective Time, the Surviving Corporation shall, indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date
hereof or who becomes prior to the Effective Time, an officer or director of the
Company or any of its subsidiaries (each individually an "Indemnified Party"
and, collectively, the "Indemnified Parties") against all losses, claims,
damages, costs, expenses (including attorneys' fees and expenses), liabilities
or judgments or amounts that are paid in settlement with the approval of the
Indemnifying Party as a result of or in connection with any threatened or actual
claim, action, suit, proceeding or investigation based on or arising out of the
fact that such person is or was a director or officer of the Company or any of
its subsidiaries or out of or in connection with activities in such capacity,
whether pertaining to any matter existing or occurring at or prior to the
Effective Time and whether asserted or claimed prior to, or at or after, the
Effective Time ("Indemnified Liabilities"), including all Indemnified
Liabilities based on, or arising out of, or pertaining to this Agreement or the
transactions contemplated hereby, in each case to the full extent a corporation
is permitted under the GCL to indemnify any such person and, without limiting
the generality or effect of the foregoing, to the fullest extent provided in the
respective Certificates of Incorporation or By-Laws of the Company and its
subsidiaries as in effect on the date hereof. Parent will cause the Surviving
Corporation to pay expenses in advance of the final disposition of any such
action or proceeding to each Indemnified Party to the fullest extent permitted
by law and, without limiting the generality or effect of the foregoing, to the
fullest extent provided in the respective Certificates of Incorporation or
By-Laws of the Company and its subsidiaries as in effect on the date hereof
subject to receipt by the Company of an undertaking by or on behalf of such
officer or director contemplated by Section 145(e) of the GCL. Without limiting
the generality or effect of the foregoing, in the event any such claim, action,
suit, proceeding or investigation is brought against any Indemnified Parties
(whether arising before or after the Effective Time) and, in the opinion of
counsel to an Indemnified Party, under applicable standards of professional
conduct, there is a conflict on any significant issue between the position of
the Company and an Indemnified Party or different defenses may reasonably be
expected to exist, the Indemnified Parties may retain counsel which counsel
shall be reasonably satisfactory to the Company (or the Surviving Corporation
after the Effective Time) and the Company shall (or after the Effective Time,
Parent will cause the Surviving Corporation to) pay all reasonable fees and
expenses of such counsel for the Indemnified Parties
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promptly as statements therefor are received, provided, however that (i) Parent
or the Surviving Corporation shall have the right, from and after the purchase
of Common Shares pursuant to the Offer, to assume the defense thereof (which
right shall not affect the right of the Indemnified Parties to be reimbursed for
separate counsel as specified in the preceding sentence), (ii) the Company and
the Indemnified Parties will cooperate in the defense of any such matter and
(iii) neither Parent, the Company nor the Surviving Corporation shall be liable
for any settlement effected without its prior written consent. Any Indemnified
Party wishing to claim indemnification under this Section 6.06, upon learning of
any such claim, action, suit, proceeding or investigation, shall promptly notify
both Parent and the Company (or, after the Effective Time, the Surviving
Corporation) (but the failure to so notify shall not relieve a party from any
liability which it may have under this Section 6.06 except and only to the
extent such failure materially prejudices such party), and shall deliver to both
Parent and the Company (or after the Effective Time, the Surviving Corporation)
the undertaking contemplated by Section 145(e) of the GCL. The Indemnified
Parties as a group may not retain more than one counsel to represent them with
respect to each such matter unless there is, in the opinion of counsel to an
Indemnified Party, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
Indemnified Parties or unless different defenses may reasonably be expected to
exist. The Company, Parent and Purchaser agree that all rights to
indemnification, including provisions relating to advances of expenses incurred
in defense of any action or suit, existing in favor of the Indemnified Parties
with respect to matters occurring through the Effective Time, shall survive the
Merger and shall continue in full force and effect for a period of not less than
six years from the Effective Time; provided, however, that all rights to
indemnification in respect of any Indemnified Liabilities asserted or made
within such period shall continue until the disposition of such Indemnified
Liabilities.
(c) Parent agrees that the Company, and from and
after the Effective Time, the Surviving Corporation shall cause to be maintained
in effect for not less than six years (except as provided in the last sentence
of this Section 6.06(c)) from the Effective Time the current policies of the
directors' and officers' liability insurance maintained by the Company; provided
that the Surviving Corporation may substitute therefor other policies of at
least the same coverage
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amounts and which contain terms and conditions not less advantageous (other than
to a de minimus extent) to the beneficiaries of the current policies and
provided that such substitution shall not result in any gaps or lapses in
coverage with respect to matters occurring prior to the Effective Time; and
provided, further, that the Surviving Corporation shall not be required to pay
an annual premium in excess of 125% of the last annual premium paid by the
Company prior to the date hereof (which the Company represents to be $196,000
for the 12-month period ending May 12, 1998) and if the Surviving Corporation is
unable to obtain the insurance required by this Section 6.06(c) it shall obtain
as much comparable insurance as possible for an annual premium equal to such
maximum amount. Notwithstanding the foregoing, at any time on or after the
second anniversary of the Effective Time, Parent may, at its election, undertake
to provide funds to the Surviving Corporation to the extent necessary so that
the Surviving Corporation may self-insure with respect to the level and scope of
insurance coverage required under this Section 6.06(c) in lieu of causing to
remain in effect any directors' and officers' liability insurance policy.
(d) Parent shall guarantee the obligations of the
Surviving Corporation under this Section 6.06.
(e) This Section 6.06 shall survive the consummation
of the Merger at the Effective Time, is intended to benefit the Company, the
Surviving Corporation and the Indemnified Parties, shall be binding on all
successors and assigns of Parent and the Surviving Corporation and shall be
enforceable by the Indemnified Parties.
SECTION 6.07 Notification of Certain Matters. Parent and the
Company shall promptly notify each other of (a) the occurrence or non-occurrence
of any fact or event which would be reasonably likely (i) to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Time or (ii) to cause any covenant, condition or agreement under this
Agreement not to be complied with or satisfied and (b) 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
hereunder; provided, however, that no such notification shall affect the
representations or warranties of any party or the conditions to the obligations
of any party hereunder. Each of the Company, Parent and the Purchaser shall give
prompt notice to the other parties hereof of any notice or other communication
from any third party alleging that the consent of such third party is or may be
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required in connection with the transactions contemplated by this Agreement.
SECTION 6.08 Rights Agreement. The Company covenants and
agrees that it will not (i) redeem the Rights, (ii) amend the Rights Agreement
or (iii) take any action which would allow any Person (as defined in the Rights
Agreement) other than Parent or the Purchaser to acquire beneficial ownership of
15% or more of the Common Shares without causing a Distribution Date or a
Triggering Event (as each such term is defined in the Rights Agreement) to
occur. Notwithstanding the foregoing, the Company may upon at least two business
days prior written notice to Parent take the actions described in clauses (i) or
(iii) of the preceding sentence, if (x) the Company Board determines in good
faith, after consultation with its outside legal counsel, that failing to take
such action would reasonably be expected to result in a breach of the fiduciary
duties of the Company Board, and (y) prior to such action the Company shall have
paid to Parent a fee of $13 million (which amount shall be paid in lieu of any
Termination Fee payable pursuant to Section 8.03(b)). Neither the Board of
Directors of the Company nor the Continuing Directors (as defined in the Rights
Agreement) of the Company shall make a determination that Parent, the Purchaser
or any of their respective Affiliates or Associates is an "Adverse Person" for
purposes of the Rights Agreement.
SECTION 6.09 State Takeover Laws. The Company shall, upon the
request of the Purchaser, take all reasonable steps to assist in any challenge
by the Purchaser to the validity or applicability to the transactions
contemplated by this Agreement, including the Offer and the Merger, of any state
takeover law.
SECTION 6.10 No Solicitation.
(a) The Company, its affiliates and their respective
officers, directors, employees, representatives and agents shall immediately
cease any existing discussions or negotiations, if any, with any parties
conducted heretofore with respect to any acquisition or exchange of all or any
material portion of the assets of, or any equity interest in, the Company or any
of its subsidiaries or any business combination with the Company or any of its
subsidiaries. The Company agrees that, prior to the Effective Time, it shall
not, and shall not authorize or permit any of its subsidiaries or any of its or
its subsidiaries' directors, officers, employees, agents or representatives,
directly or indirectly, to solicit, initiate or encourage, or furnish or
disclose non-public information in furtherance of, any inquiries or the
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<PAGE> 45
making of any proposal with respect to any merger, liquidation,
recapitalization, consolidation or other business combination involving the
Company or its subsidiaries or acquisition of any capital stock or any material
portion of the assets (except for acquisition of assets in the ordinary course
of business consistent with past practice) of the Company or its subsidiaries,
or any combination of the foregoing (other than the Offer and the Merger) (an
"Acquisition Transaction"), or negotiate, explore or otherwise engage in
substantive discussions with any person (other than the Purchaser, Parent or
their respective directors, officers, employees, agents and representatives)
with respect to any Acquisition Transaction or enter into any agreement,
arrangement or understanding requiring it to abandon, terminate or fail to
consummate the Merger or any other transactions contemplated by this Agreement;
provided that the Company may furnish information to, and negotiate or otherwise
engage in substantive discussions with, any person who delivers a written
proposal for an Acquisition Transaction if the Company Board determines in good
faith by a majority vote, after consultation with its outside legal counsel,
that failing to take such action would reasonably be expected to result in a
breach of the fiduciary duties of the Company Board, and prior to furnishing
non-public information to any such party, the Company shall have entered into a
confidentiality agreement containing terms at least as favorable to the Company
as those of the Confidentiality Agreement with respect to the maintenance of
confidentiality and the permitted use of information provided by or on behalf of
the Company.
(b) From and after the execution of this Agreement,
the Company shall immediately advise the Purchaser in writing of the receipt,
directly or indirectly, of any, discussions, negotiations or proposals relating
to an Acquisition Transaction, identify the offeror and furnish to the Purchaser
a copy of any such proposal, if it is in writing, or a written summary of any
such proposal relating to an Acquisition Transaction if it is not in writing.
The Company shall promptly advise Parent of any development relating to such
proposal, including the results of any discussions or negotiations with respect
thereto.
SECTION 6.11 Parent Agreements. (a) Parent agrees to cause the
Purchaser to comply with its obligations under this Agreement.
(b) Parent shall not take any action to cause the
Company, including after the Effective Time the Surviving Corporation, to breach
its covenants and other obligations in the Contingent Payment Rights Agreement.
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<PAGE> 46
SECTION 6.12 Contingent Payment Rights Agreement. As promptly
as practicable after the date hereof, the Company shall enter into a Contingent
Payment Rights Agreement in the form set forth in Exhibit B, except for such
immaterial changes as shall be approved by Parent, such approval not to be
unreasonably withheld.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.01 Conditions. The respective obligations of Parent,
the Purchaser and the Company to consummate the Merger are subject to the
satisfaction, at or before the Effective Time, of each of the following
conditions:
(a) Stockholder Approval. The stockholders of the
Company shall have duly approved the transactions contemplated by this
Agreement, if required by applicable law.
(b) Purchase of Common Shares. The Purchaser shall
have accepted for payment and paid for Common Shares in an amount sufficient to
meet the Minimum Condition and otherwise pursuant to the Offer in accordance
with the terms hereof; provided, however, that this condition shall be deemed to
be satisfied with respect to the obligation of Parent and the Purchaser to
effect the Merger if the Purchaser fails to accept for payment or pay for Common
Shares pursuant to the Offer in violation of the terms of the Offer or of this
Agreement.
(c) Injunctions; Illegality. The consummation of the
Merger shall not be restrained, enjoined or prohibited by any order, judgment,
decree, injunction or ruling of a court of competent jurisdiction or any
Governmental Entity and there shall not have been any statute, rule or
regulation enacted, promulgated or deemed applicable to the Merger by any
Governmental Entity which prevents the consummation of the Merger or has the
effect of making the purchase of Common Shares illegal.
(d) HSR Act. Any waiting period (and any extension
thereof) under the HSR Act applicable to the Merger shall have expired or
terminated.
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<PAGE> 47
ARTICLE VIII
TERMINATION; AMENDMENTS; WAIVER
SECTION 8.01 Termination. This Agreement may be terminated and
the Merger contemplated hereby may be abandoned at any time prior to the
Effective Time, notwithstanding approval thereof by the stockholders of the
Company (with any termination by Parent also being an effective termination by
the Purchaser):
(a) by the mutual written consent of Parent and the
Company, by action of their respective Boards of Directors;
(b) by the Company if (i) Parent or the Purchaser
fails to commence the Offer as provided in Section 1.01 hereof, or (ii) Parent
or the Purchaser shall not have accepted for payment and paid for Common Shares
pursuant to the Offer in accordance with the terms hereof and thereof on or
before October 31, 1997; provided, however, that the Company may not terminate
this Agreement pursuant to this Section 8.01(b) if the Company shall have
materially breached this Agreement;
(c) by Parent or the Company if (i) the Offer is
terminated or withdrawn pursuant to its terms without any Common Shares being
purchased thereunder or (ii) the Merger shall not have been consummated on or
before December 31, 1997; provided, however, that neither Parent nor the Company
may terminate this Agreement pursuant to this Section 8.01(c) if such party
shall have materially breached this Agreement;
(d) by Parent or the Company if any court of
competent jurisdiction or other Governmental Entity shall have issued an order,
decree or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the acceptance for payment of, or payment for, Common
Shares pursuant to the Offer or the Merger and such order, decree or ruling or
other action shall have become final and nonappealable, provided that the party
seeking to terminate this Agreement shall have used its reasonable efforts to
remove or lift such order, decree or ruling;
(e) by the Company if, prior to the acceptance for
payment of Common Shares pursuant to the Offer, the Company Board approves an
Acquisition Transaction, on terms which a majority of the members of the Company
Board have determined in good faith (i) after consultation with Salomon Brothers
or another nationally recognized investment banking
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<PAGE> 48
firm, to be more favorable to the Company and its stockholders than the
transactions contemplated by this Agreement, taking into account the
distribution of the Contingent Rights, and (ii) after consultation with outside
legal counsel, that failure to approve such proposal and terminate this
Agreement would reasonably be expected to result in a breach of fiduciary duties
of the Company Board under applicable law; provided that the termination
described in this Section 8.01(e) shall not be permissible unless and until the
Company shall have provided the Purchaser and Parent prior written notice at
least two business days prior to such termination that the Company Board has
authorized and intends to effect the termination of this Agreement pursuant to
this Section 8.01(e), including copies of all proposed written agreements,
arrangements, or understandings, including the forms of any agreements supplied
by third parties, with respect to such Acquisition Transaction (and a
description of all material oral agreements with respect thereto), the Company
shall otherwise be in compliance with its obligations under this Agreement and
on or prior to such termination shall have paid to Parent the Termination Fees
described in Section 8.03(b); provided further, that notwithstanding anything in
this Agreement to the contrary the termination of this Agreement by the Company
in compliance with this Section 8.01(e) shall not be deemed to violate other
obligations of the Company under this Agreement.
(f) by Parent if the Company breaches its covenant in
Section 6.08 or takes an action pursuant to the second sentence of Section 6.08,
provided, however, such breach occurs prior to the time that designees of Parent
constitute a majority of the Company Board pursuant to Section 1.03;
(g) by Parent prior to the purchase of Common Shares
pursuant to the Offer, if the Company Board shall have withdrawn or modified
(including by amendment of the Schedule 14D-9) in a manner adverse to the
Purchaser its approval or recommendation of the Offer, this Agreement or the
Merger, shall have approved or recommended an Acquisition Transaction, or shall
have resolved to effect any of the foregoing; or
(h) by Parent prior to the purchase of Common Shares
pursuant to the Offer if the Minimum Condition (as defined in Annex I) shall not
have been satisfied by the Expiration Date of the Offer and on or prior to such
Date an Acquisition Transaction shall have been publicly announced or disclosed.
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<PAGE> 49
SECTION 8.02 Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 8.01, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party or its directors, officers or stockholders, other than the provisions
of the last sentence of Section 6.02 and the provisions of this Section 8.02
and Section 8.03, which shall survive any such termination. Nothing contained
in this Section 8.02 shall relieve any party from liability for any breach of
this Agreement.
SECTION 8.03 Fees and Expenses.
(a) Whether or not the Merger is consummated, except
as otherwise specifically provided herein, all costs and expenses incurred in
connection with the Offer, this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such expenses.
(b) In the event that this Agreement is terminated
pursuant to SECTION 8.01(e), (f) or (g) hereof, or is terminated pursuant to
SECTION 8.01(c)(i) hereof as a result of the failure to satisfy any of the
conditions set forth in paragraphs (d) or (g) of Annex I, then the Company shall
promptly (and in any event within one business day after such termination or, in
the case of any such termination by the Company, prior to such termination) pay
Parent a termination fee of $13 million (the "Termination Fee"), provided that
in no event shall more than one Termination Fee be payable by the Company
(including for this purpose the fee payable under Section 6.08).
(c) In the event that this Agreement is terminated
pursuant to Section 8.01(h) hereof and within six months of the date of
termination of this Agreement a transaction constituting an Acquisition
Transaction is consummated or the Company or any of its subsidiaries enters into
an agreement with respect to, or approves or recommends such a transaction, the
Company shall promptly (and in any event within one business day thereafter) pay
Parent the Termination Fee; provided, however, that in no event shall the
Company be obligated to pay more than one such Termination Fee with respect to
all such occurrences (including for this purpose the fee payable under Section
6.08).
(d) The prevailing party in any legal action
undertaken to enforce this Agreement or any provision hereof shall be entitled
to recover from the other party the costs and expenses (including attorneys' and
expert witness fees) incurred in connection with such action.
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<PAGE> 50
SECTION 8.04 Amendment. Subject to Section 1.03(c), this
Agreement may be amended by the Company, Parent and the Purchaser at any time
before or after any approval of this Agreement by the stockholders of the
Company but, after any such approval, no amendment shall be made which decreases
the Merger Price or which adversely affects the rights of the Company's
stockholders hereunder without the approval of such stockholders. This Agreement
may not be amended except by an instrument in writing signed on behalf of all
the parties.
SECTION 8.05 Extension; Waiver. Subject to Section 1.03(c), at
any time prior to the Effective Time, Parent and the Purchaser, on the one hand,
and the Company, on the other hand, may (i) extend the time for the performance
of any of the obligations or other acts of the other, (ii) waive any
inaccuracies in the representations and warranties contained herein of the other
or in any document, certificate or writing delivered pursuant hereto by the
other or (iii) waive compliance by the other with any of the agreements or
conditions. Any agreement on the part of any party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE IX.
MISCELLANEOUS
SECTION 9.01 Non-Survival of Representations and Warranties.
The representations and warranties made in this Agreement shall not survive
beyond the Effective Time. Notwithstanding the foregoing, the agreements set
forth in Section 2.09, Section 3.02, the last sentence of the second paragraph
of Section 6.03(a), Section 6.05(b), 6.11(b) and Section 6.06 shall survive the
Effective Time indefinitely (except to the extent a shorter period of time is
explicitly specified therein).
SECTION 9.02 Entire Agreement; Assignment.
(a) This Agreement (including the documents and the
instruments referred to herein) constitute the entire agreement and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof and thereof.
(b) Neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior written consent of
the other
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<PAGE> 51
party (except that Parent may assign its rights and the Purchaser may assign its
rights, interest and obligations to any affiliate or direct or indirect
subsidiary of Parent without the consent of the Company provided that no such
assignment shall relieve Parent of any liability for any breach by such
assignee. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
SECTION 9.03 Validity. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, each of which shall remain in full
force and effect.
SECTION 9.04 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be deemed to
have been duly given when delivered in person, by overnight courier or facsimile
to the respective parties as follows:
If to Parent or the Purchaser:
Eaton Corporation
Eaton Center
1111 Superior Avenue
Cleveland, Ohio 44114-2584
Attention: General Counsel
Facsimile Number: (216) 479-7056
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Daniel A. Neff, Esq.
Facsimile Number: (212) 403-2000
If to the Company:
Fusion Systems Corporation
7600 Standish Place
Rockville, Maryland 20855
Attention: General Counsel
Facsimile Number: (301) 309-0783
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<PAGE> 52
with a copy to:
Testa, Hurwitz & Thibeault, LLP
125 High Street Tower
Boston, MA 02110
Attention: Gordon H. Hayes, Jr., Esq.
Facsimile Number: (617) 248-7100
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above;
provided that notice of any change of address shall be effective only upon
receipt thereof.
SECTION 9.05 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
SECTION 9.06 Descriptive Headings. The descriptive headings
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
SECTION 9.07 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
SECTION 9.08 Parties in Interest. Except with respect to
Sections 2.09, 6.05(b) and 6.06 (which are intended to be for the benefit of the
persons identified therein, and may be enforced by such persons) and Section
6.11(b) (which is intended to be for the benefit of the Trustee, and may be
enforced by such person or, to the extent holders are permitted under the
Contingent Payment Rights Agreement to enforce their rights thereunder, by such
holders), this Agreement shall be binding upon and inure solely to the benefit
of each party hereto, and nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
SECTION 9.09 Certain Definitions. As used in this Agreement:
(a) the term "affiliate", as applied to any person,
shall mean any other person directly or indirectly controlling, controlled by,
or under common control with,
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<PAGE> 53
that person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as applied to any person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that person, whether through the ownership of voting securities, by
contract or otherwise;
(b) the term "Person" or "person" shall include
individuals, corporations, partnerships, trusts, other entities and groups
(which term shall include a "group" as such term is defined in Section 13(d)(3)
of the Exchange Act); and
(c) the term "Subsidiary" or "subsidiaries" means,
with respect to Parent, the Company or any other person, any corporation,
partnership, joint venture or other legal entity of which Parent, the Company or
such other person, as the case may be (either alone or through or together with
any other subsidiary), owns, directly or indirectly, stock or other equity
interests the holders of which are generally entitled to more than 50% of the
vote for the election of the board of directors or other governing body of such
corporation or other legal entity.
SECTION 9.10 Specific Performance. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
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<PAGE> 54
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its respective officer thereunto duly
authorized, all as of the day and year first above written.
EATON CORPORATION
By: /s/ Brian R. Bachman
----------------------------------
Name: Brian R. Bachman
Title: Senior Vice President --
Semiconductor and
Specialty Systems
By: /s/ Gerald L. Gherlein
----------------------------------
Name: Gerald L. Gherlein
Title: Executive Vice President
ETN ACQUISITION CORP.
By: /s/ Brian R. Bachman
----------------------------------
Name: Brian R. Bachman
Title: President
FUSION SYSTEMS CORPORATION
By: /s/ Leslie S. Levine
----------------------------------
Name: Leslie S. Levine
Title: President and
Chief Executive Officer
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<PAGE> 55
ANNEX I
Conditions to the Offer. Notwithstanding any other provisions
of the Offer, the Purchaser shall not be required to accept for payment or,
subject to any applicable rules and regulations of the Commission, including
Rule 14e-1(c) promulgated under the Exchange Act, pay for any tendered Common
Shares and may terminate or, subject to the terms of the Merger Agreement, amend
the Offer, if (i) there shall not be validly tendered and not properly withdrawn
prior to the Expiration Date for the Offer that number of Common Shares which
represents at least a majority of the total number of outstanding Common Shares
on a fully diluted basis on the date of purchase (not taking into account the
Rights) (the "Minimum Condition"), (ii) any applicable waiting period under the
HSR Act or under any applicable foreign statutes or regulations shall not have
expired or been terminated prior to the Expiration Date, or (iii) at any time on
or after June 30, 1997 and prior to the time of acceptance for payment or
payment for any Common Shares, any of the following events (each, an "Event")
shall occur:
(a) there shall be any action taken, or any statute,
rule, regulation, legislation, interpretation, judgment, order or
injunction enacted, enforced, promulgated, amended, issued or deemed
applicable to the Offer, by any legislative body, court, government or
governmental, administrative or regulatory authority or agency,
domestic or foreign, other than the application of the waiting period
provisions of the HSR Act to the Offer or to the Merger, that, in the
reasonable judgment of Parent, would be expected to, directly or
indirectly: (i) make illegal or otherwise prohibit or materially delay
consummation of the Offer or the Merger or seek to obtain material
damages or make materially more costly the making of the Offer, (ii)
prohibit or materially limit the ownership or operation by Parent or
the Purchaser of all or any material portion of the business or assets
of the Company or any of its subsidiaries taken as a whole or compel
Parent or the Purchaser to dispose of or hold separately all or any
material portion of the business or assets of Parent or the Purchaser
or the Company or any of its subsidiaries taken as a whole, or seek to
impose any material limitation on the ability of Parent or the
Purchaser to conduct its business or own such assets, (iii) impose
material limitations on the ability of Parent or the Purchaser
effectively to acquire, hold or exercise full rights of ownership of
the Common Shares, including, without limitation, the right to vote any
Common Shares acquired or owned by the Purchaser or Parent on all
matters properly presented to the Company's stockholders, (iv) require
divestiture by
<PAGE> 56
Parent or the Purchaser of any Common Shares, or (v) may, in the
reasonable judgment of Parent, be expected to result in a Material
Adverse Effect on the Company; or
(b) there shall be instituted or pending any action
or proceeding by any Governmental Entity seeking, or that would
reasonably be expected to result in, any of the consequences referred
to in clauses (i) through (v) of paragraph (a) above or by any third
party for which there is a substantial likelihood of resulting in any
of the consequences referred to in clauses (i) through (v) of paragraph
(a) above; or
(c) any change shall have occurred (or any
development shall have occurred involving prospective changes) in the
business, assets, liabilities, condition (financial or otherwise),
prospects or results of operations of the Company or any of its
subsidiaries that has, or could reasonably be expected to have, a
Material Adverse Effect on the Company; or
(d) (i) the Company Board or any committee thereof
shall have withdrawn, or shall have modified or amended in a manner
adverse to Parent or the Purchaser, the approval, adoption or
recommendation, as the case may be, of the Offer or the Merger
Agreement, or approved or recommended any Acquisition Transaction, (ii)
a Person shall have entered into a definitive agreement or an agreement
in principle with the Company with respect to an Acquisition
Transaction, or (iii) the Company Board or any committee thereof shall
have resolved to do any of the foregoing; or
(e) the Company and the Purchaser and Parent shall
have reached an agreement that the Offer or the Merger Agreement be
terminated, or the Merger Agreement shall have been terminated in
accordance with its terms; or
(f) any of the representations and warranties of the
Company set forth in the Merger Agreement, when read without any
exception or qualification as to materiality or Material Adverse Effect
on the Company, shall not be true and correct, as if such
representations and warranties were made at the time of such
determination (except as to any such representation or warranty which
speaks as of a specific date, which must be untrue or incorrect as of
such specific date) except where the failure to be so true and correct
would not,
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<PAGE> 57
individually or in the aggregate, reasonably be expected to (i) have a
Material Adverse Effect on the Company, (ii) prevent or materially
delay the consummation of the Offer, (iii) materially increase the cost
of the Offer to the Purchaser or (iv) have a material adverse effect on
the benefits to Parent of the transactions contemplated by this
Agreement; or
(g) the Company shall have failed to perform in any
material respect or to comply in any material respect with any of its
material obligations, covenants or agreements under the Merger
Agreement; or
(h) there shall have occurred, and continued to
exist, (i) any general suspension of, or limitation on prices for,
trading in securities on the New York Stock Exchange or on the
over-the-counter stock market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System ("NASDAQ"),
(ii) any decline of at least 25% in either the Dow Jones Average of
Industrial Stocks or the Standard & Poor's 500 Index from the close of
business on the last trading day immediately preceding the date of the
Merger Agreement through the applicable Expiration Date, (iii) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, or (iv) a commencement of a war,
armed hostilities or other national or international crisis involving
the United States or a material limitation (whether or not mandatory)
by any Governmental Entity on the extension of credit by banks or other
lending institutions.
The foregoing conditions (including those set forth in clauses
(i) and (ii) of the initial paragraph) are for the benefit of Parent and the
Purchaser and may be asserted by Parent or the Purchaser regardless of the
circumstances giving rise to any such conditions and may be waived by Parent or
the Purchaser in whole or in part at any time and from time to time in their
reasonable discretion, in each case, subject to the terms of the Merger
Agreement. The failure by Parent or the Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
The capitalized terms used in this Annex I shall have the
meanings set forth in the Agreement to which it is annexed, except that the term
"Merger Agreement" shall be deemed to refer to the Agreement to which this Annex
I is appended.
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<PAGE> 58
EXHIBIT A
PRINCIPAL TERMS OF CONTINGENT PAYMENT RIGHTS
GENERAL: The Rights will be cash settlement
"earn-out" rights which will pay
specified amounts if, and only if,
(i) a "Change of Control" of the
Company occurs prior to December 31,
1997 and (ii) the Company achieves
certain levels of Company Sales (as
defined below) during the
Measurement Period (as defined
below). The Rights will be issued
by the Company as a dividend on the
Common Shares, consisting of one
Right per share outstanding on the
record date. One Right will also be
issued (i) upon exercise of an
option outstanding on the record
date with respect to each Common
Share issued upon exercise thereof
and (ii) upon the cash-out of any
vested option outstanding on the
record date in connection with a
"Change of Control" with respect to
each Common Share that would have
been issuable upon exercise of such
vested option. The Rights will be
issued pursuant to a Rights
Agreement between the Company and a
major financial institution, as
Rights Agent.
DIVIDEND RECORD DATE: July __, 1997 [15 business days
after declaration].
DIVIDEND PAYMENT DATE: September __, 1997 [60 days after
record date].
MEASUREMENT PERIOD: January 1, 1998 to December 31,
1998.
COMPANY SALES: All net sales of the Company and its
subsidiaries during the Measurement
Period, calculated in accordance
with generally accepted accounting
principles.
<PAGE> 59
CASH PAYMENT AMOUNT: The payment made per Right will be
an amount in cash equal to:
(a) $5.00, if Company Sales are
$149 million or greater;
(b) $3.50, if Company Sales are
$141 million;
(c) $2.25, if Company Sales are
$134 million; or
(d) $1.00, if Company Sales are
$127 million.
(e) $0.00 if less than $122
million.
If the Company Sales fall between
two of the levels specified above,
the amount of the payment made per
Right shall be determined by
interpolation. No payment shall be
made if Company Sales are less than
$122 million.
CASH PAYMENT DATE: March 31, 1999.
EXPIRATION DATE: The Rights shall expire without any
payment on December 31, 1997 if no
"Change of Control" of the Company
has occurred prior to such date. If
a "Change of Control" has occurred
prior to December 31, 1997, but
Company Sales are less than $122
million, the Rights shall expire
without any payment on April 1,
1999.
OPTIONAL REDEMPTION: The Rights may be redeemed at the
option of the Company at any time
after a "Change of Control" of the
Company, in whole or in part, at a
redemption price of $5.00 per Right.
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<PAGE> 1
EXHIBIT 2
FUSION SYSTEMS CORPORATION
TO
-----------------------------------------------
Trustee
------------------------
CONTINGENT PAYMENT RIGHTS
AGREEMENT
Dated as of ___________, 1997
------------------------
<PAGE> 2
<TABLE>
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TABLE OF CONTENTS*
<S> <C>
PARTIES & RECITALS.................................................................................... 1
ARTICLE ONE
Definitions and Other Provisions of
General Application
Section 1.01. Definitions ......................................................................... 1
Act.......................................................................................... 2
Affiliate.................................................................................... 2
Agreement.................................................................................... 2
Board of Directors........................................................................... 2
Board Resolution............................................................................. 2
Business Day................................................................................. 2
Change of Control............................................................................ 3
Commission................................................................................... 4
Common Shares................................................................................ 4
Company...................................................................................... 4
Company Request; Company Order............................................................... 4
Contingent Payment........................................................................... 4
Contingent Payment Date...................................................................... 4
Contingent Payment Period.................................................................... 4
Corporate Trust Office....................................................................... 4
Event of Default............................................................................. 5
Exchange Act................................................................................. 5
Holder....................................................................................... 5
Net Sales.................................................................................... 5
Officers' Certificate........................................................................ 5
Opinion of Counsel........................................................................... 5
Outstanding.................................................................................. 5
Outstanding Common Shares.................................................................... 6
Outstanding Options.......................................................................... 6
Outstanding Voting Securities................................................................ 6
Paying Agent ................................................................................ 6
Person....................................................................................... 6
Record Date.................................................................................. 6
Redemption Date.............................................................................. 6
Redemption Price............................................................................. 6
</TABLE>
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* Note: This table of contents shall not, for any purpose, be deemed
to be a part of this Agreement.
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<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C>
Responsible Officer.......................................................................... 6
Right Certificate............................................................................ 6
Rights....................................................................................... 6
Securities................................................................................... 6
Security Register; Security Registrar........................................................ 7
Stock Plans.................................................................................. 7
Subsidiary................................................................................... 7
Threshold Level.............................................................................. 7
Trust Indenture Act.......................................................................... 7
Trustee...................................................................................... 7
vice president............................................................................... 7
Voting Stock................................................................................. 7
Section 1.02. Compliance Certificates and Opinions....................................... 7
Section 1.03. Form of Documents Delivered to Trustee..................................... 8
Section 1.04. Acts of Holders............................................................ 9
Section 1.05. Notices, etc. to Trustee and Company....................................... 10
Section 1.06. Notice to Holders; Waiver.................................................. 11
Section 1.07. Conflict with Trust Indenture Act.......................................... 11
Section 1.08. Effect of Headings and Table of Contents................................... 11
Section 1.09. Successors and Assigns..................................................... 11
Section 1.10. Benefits of Agreement...................................................... 11
Section 1.11. Governing Law.............................................................. 12
Section 1.12. Legal Holidays............................................................. 12
Section 1.13. Separability Clause........................................................ 12
ARTICLE TWO
Security Forms
Section 2.01. Forms Generally ........................................................... 12
Section 2.02. Form of Face of Right Certificates ........................................ 13
Section 2.03. Form of Reverse of Security ............................................... 14
Section 2.04. Form of Trustee's Certificate of
Authentication ......................................................... 16
ARTICLE THREE
The Securities
Section 3.01. Title and Terms ........................................................... 17
Section 3.02. Registrable Form .......................................................... 18
Section 3.03. Execution, Authentication, Delivery and
Dating ................................................................. 18
Section 3.04. Temporary Securities ...................................................... 19
Section 3.05. Registration, Registration of Transfer
and Exchange ........................................................... 20
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
Section 3.06. Mutilated, Destroyed, Lost and
Stolen Securities ...................................................... 21
Section 3.07. Payments Under Right Certificate .......................................... 21
Section 3.08. Persons Deemed Owners ..................................................... 22
Section 3.09. Cancellation .............................................................. 22
Section 3.10. Redemption ................................................................ 22
Section 3.11. Extinguishment ............................................................ 24
ARTICLE FOUR
The Trustee
Section 4.01. Certain Duties and Responsibilities ....................................... 24
Section 4.02. Certain Rights of Trustee ................................................. 26
Section 4.03. Not Responsible for Recitals or Issuance
of Securities .......................................................... 27
Section 4.04. May Hold Securities ....................................................... 27
Section 4.05. Money Held in Trust ....................................................... 27
Section 4.06. Compensation and Reimbursement ............................................ 27
Section 4.07. Disqualification; Conflicting Interests ................................... 28
Section 4.08. Corporate Trustee Required; Eligibility ................................... 28
Section 4.09. Resignation and Removal; Appointment
of Successor ........................................................... 28
Section 4.10. Acceptance of Appointment by Successor .................................... 30
Section 4.11. Merger, Conversion, Consolidation or
Succession to Business ................................................. 30
Section 4.12. Preferential Collection of Claims
Against Company ........................................................ 31
ARTICLE FIVE
Holders' Lists and Reports by
Trustee and Company
Section 5.01. Company to Furnish Trustee Name and
Addresses of Holders .................................................... 31
Section 5.02. Preservation of Information; Communications
to Holders .............................................................. 31
Section 5.03. Reports by Trustee ......................................................... 32
Section 5.04. Reports by Company ......................................................... 32
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE SIX
Amendments Page
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<S> <C> <C>
Section 6.01. Amendments Without Consent of Holders ..................................... 33
Section 6.02. Amendments with Consent of Holders ........................................ 34
Section 6.03. Execution of Amendments ................................................... 35
Section 6.04. Effect of Amendments ...................................................... 35
Section 6.05. Conformity with Trust Indenture Act ....................................... 36
Section 6.06. Reference in Securities to Amendments ..................................... 36
ARTICLE SEVEN
Covenants
Section 7.01. Payment of Amounts, If Any, to Holders .................................... 36
Section 7.02. Maintenance of Office or Agency ........................................... 36
Section 7.03. Money for Security Payments to Be
Held in Trust .......................................................... 37
Section 7.04. Maintenance of Properties ................................................. 38
Section 7.05. Conduct of Business ....................................................... 38
Section 7.06. Affiliate Transactions ................................................... 38
Section 7.07. Certain Asset Sales ....................................................... 38
Section 7.08. Exchange Act Registration ................................................. 38
ARTICLE EIGHT
Remedies of the Trustee and Holders
on Event of Default
Section 8.01. Event of Default Defined; Waiver of
Default ................................................................ 38
Section 8.02. Collection of Indebtedness by Trustee;
Trustee May Prove Debt ................................................. 39
Section 8.03. Application of Proceeds .................................................. 42
Section 8.04. Suits for Enforcement .................................................... 42
Section 8.05. Restoration of Rights on Abandonment
of Proceedings ......................................................... 42
Section 8.06. Limitations on Suits by Holders .......................................... 43
Section 8.07. Unconditional Right of Holders to
Institute Certain Suits ................................................ 43
Section 8.08. Powers and Remedies Cumulative; Delay
or Omission Not Waiver of Default ...................................... 44
Section 8.09. Control by Holders ....................................................... 44
Section 8.10. Waiver of Past Defaults .................................................. 45
Section 8.11. Trustee to Give Notice of Default, But
May Withhold in Certain Circumstances .................................. 45
</TABLE>
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<TABLE>
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<S> <C> <C>
Section 8.12. Right of Court to Require Filing of
Undertaking to Pay Costs ............................................... 45
ARTICLE NINE
Consolidation, Merger, Sale or Conveyance
Section 9.01. Company May Consolidate, etc. on
Certain Terms .......................................................... 46
Section 9.02. Successor Corporation Substituted ......................................... 46
Section 9.03. Opinion of Counsel to Trustee ............................................. 47
</TABLE>
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<PAGE> 7
AGREEMENT, dated as of ___________, 1997, between FUSION SYSTEMS
CORPORATION, a Delaware corporation (hereinafter called the "Company"), and
_______________________________________________ as trustee (hereinafter called
the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Board of Directors of the Company has authorized
the creation of an issue of contingent payment rights (hereinafter called the
"Securities" or "Rights") and the distribution of one Right with respect to (i)
each share of common stock, $.01 par value (the "Common Shares"), of the Company
outstanding on July 25, 1997 (the "Record Date"), and (ii) each Common Share
issued between the Record Date and the earlier of December 31, 1997 or the
Redemption Date (as herein defined) upon exercise of options to purchase Common
Shares issued under the Stock Plans (as herein defined) and outstanding on the
Record Date ("Outstanding Options");
WHEREAS, all things necessary have been done to make the
Securities, when executed by the Company and authenticated and delivered
hereunder, the valid obligations of the Company and to make this Agreement a
valid agreement of the Company, in accordance with their and its terms.
NOW, THEREFORE, for and in consideration of the premises, it
is mutually covenanted and agreed, for the equal and proportionate benefit of
all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all accounting terms used herein and not expressly defined
herein shall have the meanings assigned to
<PAGE> 8
such terms in accordance with generally accepted accounting principles,
and the term "generally accepted accounting principles" means such
accounting principles as are generally accepted at the time of any
computation;
(c) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein; and
(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to
any particular Article, Section or other subdivision.
"Act" when used with respect to any Holder has the meaning
specified in Section 1.04.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct or cause the direction of the management and policies of such Person,
directly or indirectly, whether through the ownership of Voting Securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Agreement" means this instrument as originally executed and
as it may from time to time be supplemented or amended pursuant to the
applicable provisions hereof.
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day (other than a Saturday or a
Sunday) on which banking institutions in The City of New York, New York are not
authorized or obligated by law or executive order to close and, if the Rights
are listed on a national securities exchange, such exchange is open for trading.
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<PAGE> 9
"Change of Control" shall be deemed to have occurred
if:
(a) there shall be consummated any reorganization,
recapitalization, consolidation or merger, or sale, lease, exchange, or
other transfer (in one transaction or a series of related transactions)
of all or substantially all the assets, of the Company (a "Business
Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Common Shares and Outstanding Voting Securities immediately
prior to such Business Combination beneficially own (within the meaning
of Rule 13d-3 under the Exchange Act), directly or indirectly, more
than 50% of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately
prior to such Business Combination of the Outstanding Common Shares and
Outstanding Voting Securities, as the case may be, (ii) no Person
(excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 25% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from
such Business Combination or the combined voting power of the then
outstanding voting securities of such corporation and (iii) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Board of
Directors of the Company as of the date of this Agreement; or
(b) the stockholders of the Company shall approve any
plan or proposal for the liquidation or dissolution of the
Company; or
(c) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) other than the Company, or any employee
benefit plan sponsored by the Company, shall become the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company representing twenty-five percent (25%)
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<PAGE> 10
or more of either (i) the then outstanding Common Shares or (ii) the
Outstanding Company Voting Securities; provided, however, that an
acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of paragraph (a) above shall not be
deemed to be a Change of Control; or
(d) individuals which constituted the Board of Directors of
the Company as of the date hereof shall cease for any reason to
constitute at least a majority thereof.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Shares" means the common stock, $.01 par value, of the
Company.
"Company" means Fusion Systems Corporation, a Delaware
corporation, until a successor Person shall have become such pursuant to the
applicable provisions of this Agreement, and thereafter "Company" shall mean
such successor Person. To the extent necessary to comply with the requirements
of the provisions of the Trust Indenture Act Sections 310 through 317 as they
are applicable to the Company, the term "Company" shall include any other
obligor with respect to the Securities for the purposes of complying with such
provisions.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by the chairman of the Board of
Directors or the president or any vice president, the controller or assistant
controller and the treasurer or assistant treasurer or the secretary or any
assistant secretary, and delivered to the Trustee.
"Contingent Payment" shall have the meaning set forth in
Section 3.01.
"Contingent Payment Date" means March 31, 1999.
"Contingent Payment Period" means the calendar year beginning
January 1, 1998 and ending December 31, 1998.
"Corporate Trust Office" means the office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which office at the
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<PAGE> 11
date of execution of this Agreement is located at ___________________________.
"Event of Default" shall have the meaning set forth in Section
8.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" means a Person in whose name a Security is
registered in the Security Register.
"Net Sales" means the amount of net sales reflected on the
audited income statement of the Company and its consolidated subsidiaries for
the Contingent Payment Period prepared by the Company in accordance with
generally accepted accounting principles consistent with the Company's policies
in effect prior to the date hereof.
"Officers' Certificate" means a certificate signed by the
chairman of the Board of Directors or the president or any vice president, the
controller or assistant controller and the treasurer or assistant treasurer or
the secretary or any assistant secretary of the Company, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who
may be counsel for the Company, and who shall be reasonably acceptable to the
Trustee.
"Outstanding" when used with respect to the Securities means,
as of the date of determination, all Securities theretofore authenticated and
delivered under this Agreement, except:
(a) Securities theretofore cancelled by the Trustee
or delivered to the Trustee for cancellation; and
(b) Securities in exchange for or in lieu of which other
Securities have been authenticated and delivered pursuant to this
Agreement, other than any such Securities in respect of which there
shall have been presented to the Trustee proof satisfactory to it that
such Securities are held by a bona fide purchaser in whose hands the
Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
Outstanding Securities have given any request, demand, direction, consent or
waiver hereunder, Securities owned by the Company or any other obligor upon the
Securities or any Affiliate of the Company or such other obligor shall be
-5-
<PAGE> 12
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
direction, consent or waiver, only Securities which the Trustee knows to be so
owned shall be so disregarded.
"Outstanding Common Shares" means, as of the date of
determination, all outstanding Common Shares.
"Outstanding Options" shall have the meaning set forth in the
recitals.
"Outstanding Voting Securities" means, as of the date of
determination, all outstanding voting securities of the Company having the right
to vote generally in the election of directors.
"Paying Agent" means any Person authorized by the Company to
pay the amount determined pursuant to Section 3.01, if any, on any Securities on
behalf of the Company.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, limited liability company,
unincorporated organization or government or any agency or political subdivision
thereof.
"Record Date" means July 25, 1997.
"Redemption Date" means the date established by the Company
for the redemption of the Rights in whole or in part pursuant to Section 3.10.
"Redemption Price" means $5.00 per Right, without
interest.
"Responsible Officer" when used with respect to the Trustee
means any officer assigned to the Corporate Trust Office and also means, with
respect to any particular corporate trust matter, any other officer of the
Trustee to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Right Certificate" means a certificate representing any of
the Rights.
"Rights" shall have the meaning set forth in the recitals to
this Agreement.
"Securities" shall have the meaning set forth in the recitals
to this Agreement.
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<PAGE> 13
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 3.05.
"Stock Plans" means the following plans of the Company: 1984
Stock Option Plan; 1994 Stock Option Plan; 1994 Non-Employee Director Plan; and
1994 Employee Stock Purchase Plan.
"Subsidiary" means each Person more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly, by the
Company or one or more Subsidiaries, or by the Company and one or more other
Subsidiaries.
"Threshold Level" shall have the meaning set forth in Section
3.01.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended from time to time.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Agreement, until a successor Trustee shall have become such
pursuant to the applicable provisions of this Agreement, and thereafter
"Trustee" shall mean such successor Trustee.
"vice president" when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title of "vice president".
"Voting Stock" means stock having ordinary voting power to
elect a majority of the directors irrespective of whether or not stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency.
Section 1.02. Compliance Certificates and Opinions. Upon any
application or request by the Company to the Trustee to take any action under
any provision of this Agreement, the Company shall furnish to the Trustee an
Officers' Certificate stating that all conditions precedent, if any, provided
for in this Agreement (including any covenants compliance with which constitutes
a condition precedent) relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that, in the
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<PAGE> 14
case of any such application or request as to which the furnishing of such
documents is specifically required by any provision of this Agreement relating
to such particular application or request, no additional certificate or opinion
need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Agreement shall include:
(a) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether or not, in the opinion of each
such individual, such condition or covenant has been complied with.
Section 1.03. Form of Documents Delivered to Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that
-8-
<PAGE> 15
the information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Any certificate, statement or opinion of an officer of the
Company or of counsel may be based, insofar as it relates to accounting matters,
upon a certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Company, unless such officer or counsel, as the
case may be, knows that the certificate or opinion or representations with
respect to the accounting matters upon which his certificate, statement or
opinion may be based as aforesaid are erroneous, or in the exercise of
reasonable care should know that the same are erroneous. Any certificate or
opinion of any independent firm of public accountants filed with the Trustee
shall contain a statement that such firm is independent.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Agreement, they may, but need not, be consolidated
and form one instrument.
Section 1.04. Acts of Holders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Agreement to be given or taken by Holders may be embodied in and evidenced
by one or more instruments of substantially similar tenor signed by such Holders
in person or by an agent duly appointed in writing; and, except as herein
otherwise expressly provided, such action shall become effective when such
instrument or instruments are delivered to the Trustee and, where it is hereby
expressly required, to the Company. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Agreement and (subject to Section 4.01)
conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section. The Company may set a record date for purposes of
determining the identity of Holders entitled to vote or consent to any action by
vote or consent authorized or permitted under this Agreement. If not set by the
Company prior to the first solicitation of a Holder of Securities made by any
Person in respect of any such action, or, in the case of any such vote, prior to
such vote, the record date for such action shall be the later of 10 days prior
to the
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<PAGE> 16
first solicitation of such consent or the date of the most recent list of
Holders furnished to the Trustee pursuant to Section 5.01 of this Agreement
prior to such solicitation. If a record date is fixed, those Persons who were
Holders of securities at such record date (or their duly designated proxies),
and only those Persons, shall be entitled to take such action by vote or consent
or, except with respect to clause (d) below, to revoke any vote or consent
previously given, whether or not such Persons continue to be Holders after such
record date. No such vote or consent shall be valid or effective for more than
120 days after such record date.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved in any reasonable manner which the
Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the
Security Register.
(d) At any time prior to (but not after) the evidencing to the
Trustee, as provided in this Section 1.04, of the taking of any action by the
Holders of the Securities specified in this Agreement in connection with such
action, any Holder of a Security the serial number of which is shown by the
evidence to be included among the serial numbers of the Securities the Holders
of which have consented to such action may, by filing written notice at the
Corporate Trust Office and upon proof of holding as provided in this Section
1.04, revoke such action so far as concerns such Security. Any request, demand,
authorization, direction, notice, consent, waiver or other action by the Holder
of any Security shall bind every future Holder of the same Security or the
Holder of every Security issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof, in respect of anything done, suffered or
omitted to be done by the Trustee, any Paying Agent or the Company in reliance
thereon, whether or not notation of such action is made upon such Security.
Section 1.05. Notices, etc. to Trustee and Company. Any
request, demand, authorization, direction, notice, consent, waiver or Act of
Holders or other document provided or permitted by this Agreement to be made
upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed, in writing, to or with the Trustee at its Corporate Trust
Office, Attention: [ ]; or
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<PAGE> 17
(b) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder if in writing and mailed,
first-class postage prepaid, to the Company addressed to it at 7600
Standish Place, Rockville, Maryland 20855, Attention: Treasurer, or at
any other address previously furnished in writing to the Trustee by the
Company.
Section 1.06. Notice to Holders; Waiver. Where this Agreement
provides for notice to Holders of any event, such notice shall be sufficiently
given (unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at his
address as it appears in the Security Register, not later than the latest date,
and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Where this Agreement provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or
by reason of any other cause, it shall be impracticable to mail notice of any
event as required by any provision of this Agreement, then any method of giving
such notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Section 1.07. Conflict with Trust Indenture Act. If any
provision hereof limits, qualifies or conflicts with another provision hereof
which is required to be included in this Agreement by any of the provisions of
the Trust Indenture Act, such required provision shall control.
Section 1.08. Effect of Headings and Table of Contents. The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 1.09. Successors and Assigns. All covenants and
agreements in this Agreement by the Company shall bind its successors and
assigns, whether so expressed or not.
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<PAGE> 18
Section 1.10. Benefits of Agreement. Nothing in this Agreement
or in the Securities, express or implied, shall give to any Person (other than
the parties hereto and their successors hereunder, any Paying Agent and the
Holders) any benefit or any legal or equitable right, remedy or claim under this
Agreement or under any covenant or provision herein contained, all such
covenants and provisions being for the sole benefit of the parties hereto and
their successors and of the Holders.
Section 1.11. Governing Law. This Agreement and the Securities
shall be governed by and construed in accordance with the laws of the State of
New York.
Section 1.12. Legal Holidays. In the event that any date on
which any payment in respect of any Security is due shall not be a Business Day,
then (notwithstanding any provision of this Agreement or the Securities to the
contrary) payment on the Securities need not be made on such date, but may be
made on the next succeeding Business Day with the same force and effect as if
made on the date due.
Section 1.13. Separability Clause. In case any provision in
this Agreement or in the Rights shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
ARTICLE TWO
SECURITY FORMS
Section 2.01. Forms Generally. The Right Certificates and the
Trustee's certificate of authentication shall be in substantially the forms set
forth in this Article, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Agreement and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with the rules of any securities exchange or as may be required by law or any
rule or regulation pursuant thereto, all as may be determined by officers
executing such Right Certificates, as evidenced by their execution of the Right
Certificates. Any portion of the text of any Right Certificate may be set forth
on the reverse thereof, with an appropriate reference thereto on the face of the
Right Certificate.
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<PAGE> 19
The definitive Right Certificates shall be printed,
lithographed or engraved on steel engraved borders or produced by any
combination of these methods or may be produced in any other manner permitted by
the rules of any securities exchange on which the Securities may be listed, all
as determined by the officers executing the Right Certificates representing such
Securities, as evidenced by their execution of such Right Certificates.
Section 2.02. Form of Face of Right Certificates.
FUSION SYSTEMS CORPORATION
CONTINGENT PAYMENT RIGHTS
Certificate No. ___________ Rights
This certifies that ___________________, or registered assigns
(the "Holder"), is the registered holder of the number of Contingent Payment
Rights ("Rights") set forth above. Fusion Systems Corporation, a Delaware
corporation (the "Company"), shall, subject to the terms and provisions
contained herein and in the Agreement referred to on the reverse hereof, unless
the Rights have been extinguished or redeemed pursuant to the Agreement, pay to
the Holder hereof on March 31, 1999 (the "Contingent Payment Date") an amount,
if any, as determined by the Company in accordance with Section 3.01 of the
Agreement (the "Contingent Payment"). Such determination by the Company absent
manifest error shall be final and binding on the Company and the Holder.
Payment of said Contingent Payment shall be made, net of any
applicable withholding taxes, only upon presentation and surrender of this Right
Certificate by the Holder hereof at the offices or agencies of the Company
maintained for that purpose in The City of New York, New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for the payment of public and private debts. BankBoston N.A. has been
appointed as the initial paying agent at its office located at ______________,
New York, New York _____.
Reference is hereby made to the further provisions of the
Rights set forth on the reverse hereof which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by or on behalf of the Trustee referred to on the reverse hereof by
facsimile or manual signature, the
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<PAGE> 20
Rights represented by this Right Certificate shall not be entitled to any
benefit under the Agreement, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed under its corporate seal.
Dated: FUSION SYSTEMS CORPORATION
By_____________________________
Attest:
__________________________ [SEAL]
Authorized Signature
Section 2.03. Form of Reverse of Security. This Right
Certificate is issued under and in accordance with the Contingent Payment Rights
Agreement, dated as of ___________, 1997 (the "Agreement"), between the Company
and _______________________________________________, as trustee (the "Trustee",
which term includes any successor Trustee under the Agreement), and is subject
to the terms and provisions contained in the Agreement, to all of which terms
and provisions the Holder of this Right Certificate consents by acceptance
hereof. The Agreement is hereby incorporated herein by reference and made a part
hereof. Reference is hereby made to the Agreement for a full statement of the
respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Trustee and the holders of the Rights. Copies of
the Agreement can be obtained by contacting the Trustee.
The Company may, at its option, at any time after the
occurrence of a Change of Control, upon not less than 30 days nor more than 60
days notice, redeem the then outstanding Rights, in whole or in part, at a price
of $5.00 per Right, without interest.
The Rights shall be extinguished without any payment therefor
and have no further force and effect (i) on December 31, 1997, if no Change of
Control has occurred prior to such date or (ii) on March 31, 1999 if Net Sales
for the Contingent Payment Period shall not have exceeded $122,000,000.
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<PAGE> 21
The Agreement permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders under the Agreement at
any time by the Company and the Trustee with the consent of the holders of a
majority of the Rights at the time Outstanding.
No reference herein to the Agreement and no provision of the
Rights or of the Agreement shall alter or impair the obligation of the Company,
which is absolute and unconditional, to make the Contingent Payment on the
Rights at the time and in the amounts and in the coin or currency prescribed in
the Agreement; provided, however, that all such payments will be made net of any
applicable withholding taxes.
The Rights are issuable only in registered form, and Right
Certificates representing any integral number of Rights may be issued. As
provided in the Agreement and subject to certain limitations therein set forth,
the transfer of the Rights represented by this Right Certificate is registrable
on the Security Register of the Company, upon surrender of this Right
Certificate for registration of transfer at the office or agency of the Company
maintained for such purpose in The City of New York, New York, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Right
Certificates, for the same number of Rights, will be issued to the designated
transferee or transferees. The Company hereby initially designates the office of
_______________________________________________ as the office for registration
of transfer of this Right Certificate.
As provided in the Agreement and subject to certain
limitations therein set forth, this Right Certificate is exchangeable for one or
more Right Certificates representing the same number of Rights as represented by
this Right Certificate as requested by the Holder surrendering the same.
No service charge shall be made for any registration of
transfer or exchange of Rights, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Prior to the time of due presentment of this Right Certificate
for registration of transfer, the Company, the Trustee and any agent of the
Company or the Trustee may treat the Person in whose name this Right Certificate
is registered as the owner hereof for all purposes, and neither the Company,
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<PAGE> 22
the Trustee nor any agent shall be affected by notice to the contrary.
The obligation of the Company to the Holder of the Rights
represented hereby to make the payments required in respect of the Rights
represented hereby shall be governed by, and construed in accordance with, the
laws of the State of New York, without giving effect to the principles of
conflict of laws thereof.
All capitalized terms used in this Right Certificate without
definition shall have the meanings assigned to them in the Agreement.
Section 2.04. Form of Trustee's Certificate of Au-
thentication.
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Right Certificates referred to in the
within-mentioned Agreement.
[_______________________
______________________],
___________________________________
as Trustee
By
___________________________________
Authorized Officer
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<PAGE> 23
ARTICLE THREE
THE SECURITIES
Section 3.01. Title and Terms. (a) The aggregate number of
Right Certificates which may be authenticated and delivered under this Agreement
is limited to the number equal to the number of Rights issued by the Company (i)
to holders of record of Common Shares on the Record Date and (ii) to holders of
Outstanding Options upon exercise thereof between the Record Date and the
earlier of December 31, 1997 or the Redemption Date, except for Securities
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Securities pursuant to Section 3.04, 3.05, 3.06, 3.10
or 6.06.
(b) The Securities shall be known and designated as the
"Contingent Payment Rights" of the Company.
(c) Unless the Rights have been extinguished pursuant to
Section 3.11 or redeemed pursuant to Section 3.10, each Person who is the Holder
of a Right at the close of business on the Contingent Payment Date will be
entitled to receive in respect of each Right held, only upon presentation and
surrender of the Right Certificate at the offices or agencies of the Company
designated pursuant to Section 3.07, in such coin or currency of the United
States of America as at the time of payment is legal tender for the payment of
public and private debts, the amount determined by the following schedule:
<TABLE>
<CAPTION>
Net Sales of the Company for
the Contingent Payment Period Contingent Payment
- ----------------------------- ------------------
<S> <C>
$149,000,000 or greater $5.00
$141,000,000 $3.50
$134,000,000 $2.25
$127,000,000 $1.00
$122,000,000 or less $0.00
</TABLE>
If Net Sales falls between two of the levels (each, a "Threshold Level")
specified above, the amount of the Contingent Payment shall be equal to "C" in
the following equation:
S - L = C - PL
_____ ______
G - S PG - C
Where:
S = Net Sales
L= Highest Threshold Level of Net Sales which is less than S
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<PAGE> 24
G = Lowest Threshold Level of Net Sales which is greater than S
PL= Contingent Payment if Net Sales were L
PG= Contingent Payment if Net Sales were G
C = Contingent Payment
For example, if Net Sales are $147,000,000, the Contingent Payment determined by
such formula would be $4.63. Under no circumstances shall any payment be made in
respect of the Rights if Company Sales for the Contingent Payment Period do not
exceed $122,000,000. The determination of Net Sales shall be made by the Company
and set forth in an Officers' Certificate and accompanied by a certificate or
opinion of an independent public accountant prepared in accordance with Section
1.03, delivered to the Trustee not later than March 15, 1999. Such determination
absent manifest error shall be final and binding on the Company and the Holders.
(d) Contingent Payments on each Right shall be calculated to
the nearest cent, with one-half cent rounded for such purpose to the next
greater whole number.
(e) Notwithstanding any provision of this Agreement or the
Right Certificates to the contrary, other than as expressly provided under this
Agreement, no interest shall accrue on any amounts payable on the Rights to any
Holder.
Section 3.02. Registrable Form. The Securities shall be
issuable only in registered form.
Section 3.03. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its chairman of the
Board of Directors or any vice chairman of the Board of Directors or its
president or any vice president or its treasurer, under its corporate seal which
may, but need not, be attested. The signature of any of these officers on the
Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Agreement, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such
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<PAGE> 25
Company Order shall authenticate and deliver such Securities as provided in this
Agreement and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Agreement or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided for
herein duly executed by the Trustee by manual signature of an authorized
officer, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder and that the Holder is entitled to the benefits of this
Agreement.
Section 3.04. Temporary Securities. Pending the preparation of
definitive Securities, the Company may execute, and upon Company Order the
Trustee shall authenticate and deliver, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, substantially of
the tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine with the concurrence of the
Trustee. Temporary Securities may contain such reference to any provisions of
this Agreement as may be appropriate. Every temporary Security shall be executed
by the Company and be authenticated by the Trustee upon the same conditions and
in substantially the same manner, and with like effect, as the definitive
Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 7.02, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
amount of definitive Securities. Until so exchanged the temporary Securities
shall in all respects be entitled to the same benefits under this Agreement as
definitive Securities.
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<PAGE> 26
Section 3.05. Registration, Registration of Transfer and
Exchange. The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 7.02 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Trustee is hereby initially
appointed "Security Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at
the office or agency of the Company designated pursuant to Section 7.02, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Right
Certificates representing the same aggregate number of Rights represented by the
Right Certificate so surrendered that are to be transferred and the Company
shall execute and the Trustee shall authenticate and deliver, in the name of the
transferor, one or more new Right Certificates represented by such Right
Certificate that are not to be transferred.
At the option of the Holder, Right Certificates may be
exchanged for other Right Certificates that represent in the aggregate the same
number of Rights as the Right Certificates surrendered at such office or agency.
Whenever any Right Certificates are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Right
Certificates which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same right, and entitled to the same benefits under this Agreement, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Security
Registrar) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other
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<PAGE> 27
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Securities, other than exchanges pursuant to Section
3.04 or 6.06 not involving any transfer.
Section 3.06. Mutilated, Destroyed, Lost and Stolen
Securities. If (a) any mutilated Security is surrendered to the Trustee, or (b)
the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon its written request the Trustee shall
authenticate and deliver, in exchange for any such mutilated Security or in lieu
of any such destroyed, lost or stolen Security, a new Right Certificate of like
tenor and amount of Rights, bearing a number not contemporaneously outstanding.
Upon the issuance of any new Securities under this Section,
the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Agreement equally and proportionately with any
and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 3.07. Payments Under Right Certificate. Payment of the
Contingent Payment shall be made, net of any applicable withholding taxes, upon
presentation and surrender of the Right Certificate at the offices or agencies
of the Company maintained for that purpose in The City of New York, New York, in
such coin or currency of the United States of America as at the time is legal
tender for the payment of public and private debts. BankBoston N.A. has been
appointed as paying agent in The City of New York, New York.
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<PAGE> 28
Section 3.08 Persons Deemed Owners. Prior to the time of due
presentment for registration of transfer, the Company, the Trustee and any agent
of the Company or the Trustee may treat the Person in whose name any Security is
registered as the owner of such Security for the purpose of receiving payment on
such Security and for all other purposes whatsoever, whether or not any such
payment be overdue, and neither the Company, the Trustee nor any agent of the
Company or the Trustee shall be affected by notice to the contrary.
Section 3.09 Cancellation. All Securities surrendered for
payment, redemption, registration of transfer or exchange shall, if surrendered
to any Person other than the Trustee, be delivered to the Trustee and shall be
promptly cancelled by it. The Company may at any time deliver to the Trustee for
cancellation any Securities previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and all Securities
so delivered shall be promptly cancelled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities cancelled as provided
in this Section, except as expressly permitted by this Agreement. All cancelled
Securities held by the Trustee shall be disposed of as directed by a Company
Order.
Section 3.10. Redemption.
(a) The Company may, at its option, at any time after the
occurrence of a Change of Control, redeem the then Outstanding Securities, in
whole or in part, at the Redemption Price.
(b) The election of the Company to redeem any Securities shall
be evidenced by an Officers' Certificate which shall also evidence compliance
with the condition set forth in paragraph (a). In case of any redemption at the
election of the Company of less than all the Securities of any series, the
Company shall, at least 45 days prior to the Redemption Date fixed by the
Company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee of such Redemption Date and of the number of Securities to be
redeemed.
(c) If less than all the Securities are to be redeemed, the
particular Securities to be redeemed shall be selected from the outstanding
Securities of such series not previously called for redemption, by such method
as the Trustee shall deem fair and appropriate. The Trustee shall promptly
notify the Company in writing of the Securities selected for redemption. For all
purposes of this Agreement, unless the
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<PAGE> 29
context otherwise requires, all provisions relating to the redemption of
Securities shall relate, in the case of any Securities redeemed or to be
redeemed only in part, to the portion of such Securities which has been or is to
be redeemed.
(d) Notice of redemption shall be given by first-class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed, at his address
appearing in the Security Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) if less than all the outstanding Securities are to be
redeemed, the identification (and, in the case of partial redemption,
the certificate number) of the particular Securities to be redeemed;
(4) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security to be redeemed;
(5) the place or places where such Securities are to be
surrendered for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company.
Any notice which is mailed in the manner herein provided shall
be conclusively presumed to be duly given, whether or not the Holder receives
such notice; any failure to give such notice by mail or any defect in such
notice to the Holder of a particular Security designated for redemption as a
whole or in part shall not affect the validity of the proceedings for the
redemption of any other Security.
(e) On or prior to any Redemption Date, the Company shall
deposit with the Trustee or with a paying agent (or, if the Company is acting as
its own paying agent, segregate and hold in trust) an amount of money sufficient
to pay the Redemption Price of all the Securities which are to be redeemed on
that date.
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<PAGE> 30
(f) Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified, and from and after such date
(unless the Company shall default on the payment of the Redemption Price) such
Securities shall cease to be Outstanding. Upon surrender of any such Security
for redemption in accordance with said office, such Security shall be paid by
the Company at the Redemption Price.
(g) Any Security which is to be redeemed only in part shall be
surrendered at the office or agency of the Company to be maintained pursuant to
Section 3.07 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
to the Trustee duly executed by, the Holder thereof or his attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a Security or Securities representing the unredeemed portion of the Security so
surrendered and bearing a number not contemporaneously outstanding.
Section 3.11. Extinguishment. The Rights shall be extinguished
without payment therefor and have no further force and effect (i) on December
31, 1997, if no Change of Control has occurred prior to such date as evidenced
by an Officers' Certificate delivered to the Trustee or (ii) on March 31, 1999
if Net Sales for the Contingent Payment Period shall not have exceeded
$122,000,000 as evidenced by an Officers' Certificate and accompanied by a
certificate or opinion of an independent public accountant prepared in
accordance with Section 1.03 delivered to the Trustees.
ARTICLE FOUR
THE TRUSTEE
Section 4.01. Certain Duties and Responsibilities. (a) With
respect to the Holders of Securities issued hereunder, the Trustee, prior to the
occurrence of an Event of Default with respect to the Securities and after the
curing or waiving of all Events of Default which may have occurred, undertakes
to perform such duties and only such duties as are specifically set forth in
this Agreement. In case an Event of Default with respect to the Securities has
occurred (which has not been cured or waived), the Trustee shall exercise such
of the rights and powers vested in it by this Agreement, and use
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<PAGE> 31
the same degree of care and skill in their exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his own affairs.
(b) In the absence of bad faith on its part, prior to the
occurrence of an Event of Default and after the curing or waiving of all such
Events of Default which may have occurred, the Trustee may conclusively rely, as
to the truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee and conforming
to the requirements of this Agreement; but in the case of any such certificates
or opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine the same
to determine whether or not they conform to the requirements of this Agreement.
(c) No provision of this Agreement shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that
(1) this Subsection (c) shall not be construed to limit the
effect of Subsections (a) and (b) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(3) no provision of this Agreement shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to
it; and
(4) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders pursuant to Section 8.09 relating to the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Agreement.
(d) Whether or not therein expressly so provided, every
provision of this Agreement relating to the conduct or
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<PAGE> 32
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
Section 4.02. Certain Rights of Trustee. Subject to
the provisions of Section 4.01:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Agreement the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(d) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in accordance
with such advice or opinion of counsel;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Agreement at the request
or direction of any of the Holders pursuant to this Agreement, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) prior to the occurrence of an Event of Default hereunder
and after the curing or waiving of all Events of Default, the Trustee
shall not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, appraisal,
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<PAGE> 33
bond, debenture, note, coupon, security, or other paper or document
unless requested in writing to do so by the Holders of not less than a
majority of the Securities then Outstanding; provided that, if the
payment within a reasonable time to the Trustee of the costs, expenses
or liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured
to the Trustee by the security afforded to it by the terms of this
Agreement, the Trustee may require reasonable indemnity against such
expenses or liabilities as a condition to proceeding; the reasonable
expenses of every such investigation shall be paid by the Company or,
if paid by the Trustee or any predecessor Trustee, shall be repaid by
the Company upon demand; and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
Section 4.03. Not Responsible for Recitals or Issuance of
Securities. The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Agreement or of the Securities. The Trustee shall not be accountable for the use
or application by the Company of Securities or the proceeds thereof.
Section 4.04. May Hold Securities. The Trustee, any Paying
Agent, Security Registrar or any other agent of the Company, in its individual
or any other capacity, may become the owner or pledgee of Securities, and,
subject to Sections 4.07 and 4.12, may otherwise deal with the Company with the
same rights it would have if it were not Trustee, Paying Agent, Security
Registrar or such other agent.
Section 4.05. Money Held in Trust. Money held by the Trustee
in trust hereunder need not be segregated from other funds except to the extent
required by law. The Trustee shall be under no liability for interest on any
money received by it hereunder.
Section 4.06. Compensation and Reimbursement. The Company
agrees:
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<PAGE> 34
(a) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Agreement (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(c) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or
duties hereunder.
Section 4.07. Disqualification; Conflicting Interests. If the
Trustee has or shall acquire any conflicting interest within the meaning of the
Trust Indenture Act, it shall, within 90 days after ascertaining that it has
such conflicting interest, either eliminate such conflicting interest or resign
to the extent and in the manner provided by, and subject to the provisions of,
the Trust Indenture Act and this Agreement.
Section 4.08. Corporate Trustee Required; Eligibility. There
shall at all times be a Trustee hereunder which shall be a corporation that is
eligible pursuant to the Trust Indenture Act to act as such and has a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of a supervising or examining authority, then for the purposes of this Section,
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
Section 4.09. Resignation and Removal; Appointment of
Successor. (a) No resignation or removal of the Trustee
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and no appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee under
Section 4.10.
(b) The Trustee or any trustee or trustees hereafter
appointed, may resign at any time by giving written notice thereof to the
Company. If an instrument of acceptance by a successor Trustee shall not have
been delivered to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by an Act of the
Holders of a majority of the Outstanding Securities, delivered to the Trustee
and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 4.07 after
written request therefor by the Company or by any Holder who has been a
bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 4.08
and shall fail to resign after written request therefor by the Company
or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of
its property shall be appointed, or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any case, (i) the Company by a Board Resolution may remove the Trustee
or (ii) the Holder of any Security who has been a bona fide Holder of a Security
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith
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upon its acceptance of such appointment in accordance with Section 4.10, become
the successor Trustee and supersede the successor Trustee appointed by the
Company. If no successor Trustee shall have been so appointed by the Company or
the Holders of the Securities and so accepted appointment, the Holder of any
Security who has been a bona fide Holder for at least six months may on behalf
of himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Securities as their names and addresses appear in the Security
Register. Each notice shall include the name of the successor Trustee and the
address of its Corporate Trust Office. If the Company fails to send such notice
within ten days after acceptance of appointment by a successor Trustee, it shall
not be a default hereunder but the successor Trustee shall cause the notice to
be mailed at the expense of the Company.
Section 4.10. Acceptance of Appointment by Successor. Every
successor Trustee appointed hereunder shall execute, acknowledge and deliver to
the Company and to the retiring Trustee an instrument accepting such appointment
and thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee, and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
Section 4.11. Merger, Conversion, Consolidation or Succession
to Business. Any corporation into which the Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any
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corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities;
and such certificate shall have the full force which it is anywhere in the
Securities or in this Agreement provided that the certificate of the Trustee
shall have; provided that the right to adopt the certificate of authentication
of any predecessor Trustee shall apply only to its successor or successors by
merger, conversion or consolidation.
Section 4.12. Preferential Collection of Claims Against
Company. If and when the Trustee shall be or shall become a creditor, directly
or indirectly, secured or unsecured, of the Company (or any other obligor upon
the Securities), the Trustee shall be subject to the provisions of the Trust
Indenture Act regarding the collection of claims against the Company (or any
such other obligor).
ARTICLE FIVE
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 5.01. Company to Furnish Trustee Names and Addresses
of Holders. The Company will furnish or cause to be furnished to the Trustee (a)
semiannually, not later than May 1 and November 1, a list, in such form as the
Trustee may reasonably require, of the names and addresses of the Holders as of
April 15 and October 15, respectively, and (b) at such times as the Trustee may
request in writing, within 30 days after receipt by the Company of any such
request, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of a date not more than 15 days prior to
the time such list is furnished; provided, however, that if and so long as the
Trustee shall be the Security Registrar, no such list need be furnished.
Section 5.02. Preservation of Information; Communications to
Holders. (a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 5.01 and the names and
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addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 5.01 upon receipt of a new list so furnished.
(b) The rights of the Holders to communicate with other
Holders with respect to their rights under this Agreement and the corresponding
rights and privileges of the Trustee shall be as provided by the Trust Indenture
Act.
(c) Every Holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Holders made pursuant to the
Trust Indenture Act.
Section 4.3. Reports by Trustee. (a) Within 60 days after May
15 of each year commencing with the first May 15 after the first issuance of
Securities, the Trustee shall transmit to all Holders such reports concerning
the Trustee and its actions under this Agreement as may be required pursuant to
the Trust Indenture Act at the time and in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such
transmission to the Holders, be filed by the Trustee with each stock exchange
upon which the Securities are listed, with the Commission and also with the
Company. The Company will notify the Trustee when the Securities are listed on
any stock exchange.
Section 5.04. Reports by Company. The Company shall:
(a) file with the Trustee, within 15 days after the
Company is required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may
from time to time by rules and regulations prescribe) which the Company
may be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act; or if the Company is not required to
file information, documents or reports pursuant to either of said
Sections, then it shall nonetheless, during such period as the
Securities remain outstanding, file with the Trustee and the
Commission, in accordance with rules and regulations prescribed from
time to time by the Commission, such of the supplementary and periodic
information, documents and reports which may be required pursuant to
Section 13 of the Exchange Act in
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respect of a security listed and registered on a national securities
exchange as may be prescribed from time to time in such rules and
regulations;
(b) file with the Trustee and the Commission, in accordance
with rules and regulations prescribed from time to time by the
Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants
of this Agreement as may be required from time to time by such rules
and regulations;
(c) transmit by mail to all Holders, as their names and
addresses appear in the Security Register, within 30 days after the
filing thereof with the Trustee, such summaries of any information,
documents and reports required to be filed by the Company pursuant to
Subsections (a) and (b) of this Section as may be required by rules and
regulations prescribed from time to time by the Commission; and
(d) furnish to the Trustee, not less often than annually, a
brief certificate from the principal executive officer, principal
financial officer or principal accounting officer as to his or her
knowledge of the Company's compliance with all conditions and covenants
under this Agreement (for purpose of this paragraph, such compliance
shall be determined without regard to any period of grace or
requirement of notice provided under this Agreement).
ARTICLE SIX
AMENDMENTS
Section 6.01. Amendments Without Consent of Holders. Without
the consent of any Holders, the Company, when authorized by a Board Resolution,
and the Trustee, at any time and from time to time, may enter into one or more
amendments hereto, in form satisfactory to the Trustee, for any of the following
purposes:
(a) to convey, transfer, assign, mortgage or pledge to the
Trustee as security for the Securities any property or assets; or
(b) to provide for a guarantee by any Person of some or all of
the obligations of the Company under this Agreement for the benefit of
the Holders of Securities;
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(c) to evidence the succession of another Person to the
Company in accordance with Article Nine hereof, and the assumption by
any such successor of the covenants of the Company herein and in the
Securities; or
(d) to add to the covenants of the Company such further
covenants, restrictions, conditions or provisions as its Board of
Directors and the Trustee shall consider to be for the protection of
the Holders of Securities, and to make the occurrence, or the
occurrence and continuance, of a default in any such additional
covenants, restrictions, conditions or provisions an Event of Default
permitting the enforcement of all or any of the several remedies
provided in this Agreement as herein set forth, provided that in
respect of any such additional covenant, restriction, condition or
provision such amendment may provide for a particular period of grace
after default (which period may be shorter or longer than that allowed
in the case of other defaults) or may provide for an immediate
enforcement upon such an Event of Default or may limit the remedies
available to the Trustee upon such an Event of Default or may limit the
rights of the Holders of a majority of the Outstanding Securities to
waive such an Event of Default; or
(e) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein, or to make any other provisions with respect to
matters or questions arising under this Agreement that shall not
adversely affect the interests of the Holders in any material respect;
or
(f) to make any amendments or changes necessary to comply or
maintain compliance with the Trust Indenture Act.
Promptly following any amendment of this Agreement or the
Securities in accordance with this Section 6.01, the Trustee shall notify the
Holders of the Securities of such amendment; provided that any failure so to
notify the Holders shall not affect the validity of such amendment.
Section 6.02. Amendments with Consent of Holders. With the
consent of the Holders of a majority of the Outstanding Securities, by Act of
said Holders delivered to the Company and the Trustee, the Company, when
authorized by a Board Resolution, and the Trustee may enter into one or more
amendments hereto or to the Securities for the purpose of adding any provisions
to or changing in any manner or eliminating any of the
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provisions of this Agreement or to the Securities or of modifying in any manner
the rights of the Holders under this Agreement or to the Securities; provided,
however, that no such amendment shall, without the consent of the Holder of each
Outstanding Security affected thereby:
(a) modify the definition of Contingent Payment Period,
Contingent Payment, Contingent Payment Date, Net Sales, or otherwise
reduce the amounts payable in respect of the Securities;
(b) reduce the amount of the Outstanding Securities, the
consent of whose Holders is required for any such amendment; or
(c) modify any of the provisions of this Section or Section
8.10, except to increase any such percentage or to provide that certain
other provisions of this Agreement cannot be modified or waived without
the consent of the Holder of each Security affected thereby.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Company and the Trustee of
any amendment pursuant to the provisions of this Section, the Company shall mail
a notice thereof by first class mail to the Holders of Securities at their
addresses as they shall appear on the Security Register, setting forth in
general terms the substance of such amendment. Any failure of the Company to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such amendment.
Section 6.03. Execution of Amendments. In executing any
amendment permitted by this Article, the Trustee shall be entitled to receive,
and (subject to Section 4.01) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such amendment is authorized or
permitted by this Agreement. The Trustee may, but shall not be obligated to,
enter into any such amendment which affects the Trustee's own rights, duties or
immunities under this Agreement or otherwise.
Section 6.04. Effect of Amendments. Upon the execution of any
amendment under this Article, this Agreement and the Securities shall be
modified in accordance therewith, and
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such amendment shall form a part of this Agreement and the Securities for all
purposes; and every Holder of Securities theretofore or thereafter authenticated
and delivered hereunder shall be bound thereby.
Section 6.05. Conformity with Trust Indenture Act. Every
amendment executed pursuant to this Article shall conform to the requirements of
the Trust Indenture Act.
Section 6.06. Reference in Securities to Amendments. If an
amendment changes the terms of a Security, the Trustee may require the Holder of
the Security to deliver it to the Trustee. Securities authenticated and
delivered after the execution of any amendment pursuant to this Article may, and
shall if required by the Trustee, bear a notation in form approved by the
Trustee as to any matter provided for in such amendment. If the Company shall so
determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Board of Directors, to any such amendment may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities. Failure to make the appropriate notation or
to issue a new Security shall not affect the validity of such amendment.
ARTICLE SEVEN
COVENANTS
Section 7.01. Payment of Amounts, If Any, to Holders. The
Company will duly and punctually pay the amounts, if any, on the Securities in
accordance with the terms of the Securities and this Agreement.
Section 7.02. Maintenance of Office or Agency. As long as any
of the Securities remain Outstanding, the Company will maintain in The City of
New York, New York, an office or agency (i) where Securities may be surrendered
for registration of transfer or exchange and (ii) where notices and demands to
or upon the Company in respect of the Securities and this Agreement may be
served. The Company hereby designates the office of BankBoston N.A. as such
office or agency of the Company, unless the Company shall designate and maintain
some other office or agency for one or more of such purposes. The Company will
give prompt written notice to the Trustee of any change in the location of any
such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of
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the Trustee, and the Company hereby appoints the Trustee as its agent to receive
all such presentations, surrenders, notices and demands.
The Company may from time to time designate one or more other
offices or agencies (in or outside of The City of New York, New York) where the
Securities may be presented or surrendered for any or all such purposes, and may
from time to time rescind such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York, New York for
such purposes. The Company will give prompt written notice to the Trustee of any
such designation or rescission and any change in the location of any such office
or agency. The Company also designates the Corporate Trust Office as one of such
offices.
Section 7.03. Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will, on or
before each due date of any amount due on any of the Rights, segregate and hold
in trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the amounts, if any, so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided, and will promptly notify
the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for
the Securities, it will, on or before each due date of any amount due on any of
the Rights, deposit with a Paying Agent a sum in same day funds sufficient to
pay the amount, if any, so becoming due, such sum to be held in trust for the
benefit of the Persons entitled to such amount, and (unless such Paying Agent is
the Trustee) the Company will promptly notify the Trustee of such action or any
failure so to act.
The Company will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section,
that (A) such Paying Agent will hold all sums held by it for the payment of any
amount payable on Securities in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed of
as herein provided and (B) that it will give the Trustee notice of any failure
by the Company (or by any other obligor on the Securities) to make any payment
on the Securities when the same shall be due and payable.
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Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment on any Security and remaining
unclaimed for one year after such amount has become due and payable, shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money shall thereupon cease.
Section 7.04. Maintenance of Properties. The Company will
cause all properties used or useful in the conduct of its business or the
business of any Subsidiary of the Company to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company from discontinuing the
operation or maintenance of any of such properties if such discontinuance is, as
determined by the Board of Directors in good faith, desirable in the conduct of
its business or the business of any Subsidiary.
Section 7.05. Conduct of Business. The Company shall
use reasonable efforts during the Contingent Payment Period to operate its
business in the ordinary course and substantially as operated heretofore,
provided, however, that nothing in this Section shall prevent the Company from
operating the business of the Company in accordance with its business judgment
to enhance the growth and profitable development of the Company's business, so
long as the Company is not motivated by an intention to diminish the value of
the Securities.
Section 7.06. Affiliate Transactions. The Company shall not
engage in material transactions with Affiliates (other than Subsidiaries of the
Company), or material transactions with other persons which are primarily for
the benefit of such Affiliates, which would reduce Net Sales during the
Contingent Payment Period, except on terms that are comparable to those that
would be obtained from unaffiliated parties on an arms-length basis.
Section 7.07. Certain Asset Sales. Prior to January 1, 1999,
the Company will not sell or transfer a substantial portion of the assets of the
Company, other than in the ordinary course of business or pursuant to a
transaction which is
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subject to Section 9.01 of this Agreement, unless the Company shall have called
for the redemption of all of the then Outstanding Securities pursuant to Section
3.10 of this Agreement.
Section 7.08. Exchange Act Registration. If the Securities are
not registered under the Exchange Act prior to the issuance of the Securities,
the Securities shall not be transferable by the Holders thereof until such
registration is effective. The Company shall use all reasonable efforts to cause
such registration to become effective prior to the issuance of the Securities or
as promptly as practicable thereafter.
ARTICLE EIGHT
REMEDIES OF THE TRUSTEE AND HOLDERS
ON EVENT OF DEFAULT
Section 8.01. Event of Default Defined; Waiver of Default.
"Event of Default" with respect to Securities, means any of the following events
which shall have occurred and be continuing (whatever the reason for such Event
of Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) default in the payment of the Contingent Payment when the
same shall become due and payable, and continuance of such default for
a period of 30 days; or
(b) default in the performance, or breach, of any covenant of
the Company in this Agreement (other than a covenant or a default in
whose performance or whose breach is elsewhere in this Section
specifically dealt with), and continuance of such default or breach for
a period of 90 days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% of the Outstanding Securities, a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default"
hereunder; or
(c) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Company in an involuntary
case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver, liquidator,
assignee,
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custodian, trustee or sequestrator (or similar official) of the Company
or for any substantial part of its property, or ordering the winding up
or liquidation of its affairs, and such decree or order shall remain
unstayed and in effect for a period of 60 consecutive days; or
(d) the Company shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or consent to the entry of an order for relief in an
involuntary case under any such law, or consent to the appointment of
or taking possession by a receiver, liquidator, assignee, custodian,
trustee or sequestrator or similar official, of the Company or for any
substantial part of its property, or make any general assignment for
the benefit of creditors.
Section 8.02. Collection of Indebtedness by Trustee; Trustee
May Prove Debt. The Company covenants that in case default shall be made in the
payment of the Contingent Payment when and as the same shall have become due and
payable and such default continues for the period of 30 days, then upon demand
of the Trustee, the Company will pay to the Trustee for the benefit of the
Holders of the Securities the amount of such Contingent Payment; and in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including reasonable compensation to the Trustee and
each predecessor Trustee, their respective agents, attorneys and counsel, and
any expenses and liabilities incurred, and all advances made, by the Trustee and
each predecessor Trustee except as a result of its negligence or bad faith.
In case the Company shall fail forthwith to pay such amounts
upon such demand, the Trustee, in its own name and as trustee of an express
trust, shall be entitled and empowered to institute any action or proceedings at
law or in equity for the collection of the sums so due and unpaid, and may
prosecute any such action or proceedings to judgment or final decree, and may
enforce any such judgment or final decree against the Company or other obligor
upon such Securities and collect in the manner provided by law out of the
property of the Company or other obligor upon such Securities, wherever
situated, the moneys adjudged or decreed to be payable.
In case there shall be pending proceedings relative to the
Company or any other obligor upon the Securities under Title 11 of the United
States Code or any other applicable Federal or State bankruptcy, insolvency or
other similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Company or
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its property or such other obligor, or in case of any other judicial proceedings
relative to the Company or other obligor upon the Securities, or to the
creditors or property of the Company or such other obligor, the Trustee,
irrespective of whether the principal of any Securities shall then be due and
payable as herein expressed or otherwise and irrespective of whether the Trustee
shall have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, by intervention in such proceedings or otherwise:
(a) to file and prove a claim or claims for the whole amount
owing and unpaid in respect of the Securities, and to file such other
papers or documents as may be necessary or advisable in order to have
the claims of the Trustee (including any claim for reasonable
compensation to the Trustee and each predecessor Trustee, and their
respective agents, attorneys and counsel, and for reimbursement of all
expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee, except as a result of negligence
or bad faith) and of the Holders allowed in any judicial proceedings
relative to the Company or other obligor upon the Securities, or to the
creditors or property of the Company or such other obligor;
(b) unless prohibited by applicable law and regulations, to
vote on behalf of the Holders in any election of a trustee or a standby
trustee in arrangement, reorganization, liquidation or other bankruptcy
or insolvency proceedings or person performing similar functions in
comparable proceedings; and
(c) to collect and receive any moneys or other property
payable or deliverable on any such claims, and to distribute all
amounts received with respect to the claims of the Holders and of the
Trustee on their behalf; and any trustee, receiver, or liquidator,
custodian or other similar official is hereby authorized by each of the
Holders to make payments to the Trustee, and, in the event that the
Trustee shall consent to the making of payments directly to the
Holders, to pay to the Trustee such amounts as shall be sufficient to
cover reasonable compensation to the Trustee, each predecessor Trustee
and their respective agents, attorneys and counsel, and all other
expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee except as a result of negligence
or bad faith and all other amounts due to the Trustee or any
predecessor Trustee pursuant to Section 4.06.
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Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such proceeding
except, as aforesaid, to vote for the election of a trustee in bankruptcy or
similar person.
All rights of action and of asserting claims under this
Agreement, or under any of the Securities, may be enforced by the Trustee
without the possession of any of the Securities or the production thereof and
any trial or other proceedings relative thereto, and any such action or
proceedings instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment, subject to the
payment of the expenses, disbursements and compensation of the Trustee, each
predecessor Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders.
In any proceedings brought by the Trustee (and also any
proceedings involving the interpretation of any provision of this Agreement to
which the Trustee shall be a party) the Trustee shall be held to represent all
the Holders, and it shall not be necessary to make any Holders of such
Securities parties to any such proceedings.
Section 8.03. Application of Proceeds. Any moneys collected by
the Trustee pursuant to this Article in respect of any Securities shall be
applied in the following order at the date or dates fixed by the Trustee upon
presentation of the several Securities in respect of which monies have been
collected and stamping (or otherwise noting) thereon the payment in exchange for
the presented Securities if only partially paid or upon surrender thereof if
fully paid:
FIRST: To the payment of costs and expenses in respect of
which monies have been collected, including reasonable compensation to
the Trustee and each predecessor Trustee and their respective agents
and attorneys and of all expenses and liabilities incurred, and all
advances made, by the Trustee and each predecessor Trustee except as a
result of negligence or bad faith, and all other amounts due to the
Trustee or any predecessor Trustee pursuant to Section 406;
SECOND: To the payment of Contingent Payments on the
Securities, in the order of such Contingent Payments, and in case such
moneys shall be insufficient to pay in full the whole amount so due and
unpaid upon the Securities,
-42-
<PAGE> 49
then to the payment of such amounts without preference or priority of
any Security over any other Security, ratably to the aggregate of such
amounts due and payable; and
THIRD: To the payment of the remainder, if any, to the Company
or any other Person lawfully entitled thereto.
Section 8.04. Suits for Enforcement. In case an Event of
Default has occurred, has not been waived and is continuing, the Trustee may in
its discretion proceed to protect and enforce the rights vested in it by this
Agreement by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any of such rights, either at law or in
equity or in bankruptcy or otherwise, whether for the specific enforcement of
any covenant or agreement contained in this Agreement or in and of the exercise
of any power granted in this Agreement or to enforce any other legal or
equitable right vested in the Trustee by this Agreement or by law.
Section 8.05. Restoration of Rights on Abandonment of
Proceedings. In case the Trustee or Holder shall have proceeded to enforce any
right under this Agreement and such proceedings shall have been discontinued or
abandoned for any reason, or shall have been determined adversely to the Trustee
or to such Holder, then and in every such case the Company and the Trustee and
the Holder shall be restored respectively to their former positions and rights
hereunder, and all rights, remedies and powers of the Company, the Trustee and
the Holders shall continue as though no such proceedings had been taken.
Section 8.06. Limitations on Suits by Holders. No Holder of
any Security shall have any right by virtue or by availing of any provision of
this Agreement to institute any action or proceeding at law or in equity or in
bankruptcy or otherwise upon or under or with respect to this Agreement, or for
the appointment of a trustee, receiver, liquidator, custodian or other similar
official or for any other remedy hereunder, unless such Holder previously shall
have given to the Trustee written notice of default and of the continuance
thereof, as hereinbefore provided, and unless also the Holders of not less than
25% of the Securities then Outstanding shall have made written request upon the
Trustee to institute such action or proceedings in its own name as trustee
hereunder and shall have offered to the Trustee such reasonable indemnity as it
may require against the costs, expenses and liabilities to be incurred therein
or thereby and the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity shall have failed to institute any such action or
proceeding and no direction inconsistent with such written request shall have
been given to the Trustee pursuant to Section 8.09; it being
-43-
<PAGE> 50
understood and intended, and being expressly covenanted by the taker and Holder
of every Security with every other taker and Holder and the Trustee, that no one
or more Holders of Securities shall have any right in any manner whatever by
virtue or by availing of any provision of this Agreement to effect, disturb or
prejudice the rights of any other such Holder of Securities, or to obtain or
seek to obtain priority over or preference to any other such Holder or to
enforce any right under this Agreement, except in the manner herein provided and
for the equal, ratable and common benefit of all Holders of Securities. For the
protection and enforcement of the provisions of this Section, each and every
Holder and the Trustee shall be entitled to such relief as can be given either
at law or in equity.
Section 8.07. Unconditional Right of Holders to Institute
Certain Suits. Notwithstanding any other provision in this Agreement and any
provision of any Security, the right of any Holder of any Security to receive
payment of the Contingent Payments payable in respect of such Security on or
after the respective Contingent Payment Dates, or to institute suit for the
enforcement of any such payment on or after such respective Contingent Payment
Dates, shall not be impaired or affected without the consent of such Holder.
Section 8.08. Powers and Remedies Cumulative; Delay or
Omission Not Waiver of Default. Except as provided in Section 8.06, no right or
remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
No delay or omission of the Trustee or of any Holder to
exercise any right or power accruing upon any Event of Default occurring and
continuing as aforesaid shall impair any such right or power or shall be
construed to be a waiver of any such Event of Default or an acquiescence
therein; and, subject to Section 8.06, every power and remedy given by this
Agreement or by law to the Trustee or to the Holders may be exercised from time
to time, and as often as shall be deemed expedient, by the Trustee or by the
Holders.
Section 8.09. Control by Holders. The Holders of a majority of
the Securities at the time Outstanding shall have the right to direct the time,
method, and place of conducting
-44-
<PAGE> 51
any proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred on the Trustee with respect to the Securities by this
Agreement; provided that such direction shall not be otherwise than in
accordance with law and the provisions of this Agreement; and provided further
that (subject to the provisions of Section 4.01) the Trustee shall have the
right to decline to follow any such direction if the Trustee, being advised by
counsel, shall determine that the action or proceeding so directed may not
lawfully be taken or if the Trustee in good faith by its board of directors, the
executive committee, or a trust committee of directors or responsible officers
of the Trustee shall determine that the action or proceedings so directed would
involve the Trustee in personal liability or if the Trustee in good faith shall
so determine that the actions or forebearances specified in or pursuant to such
direction would be unduly prejudicial to the interests of Holders of the
Securities not joining in the giving of said direction, it being understood that
the Trustee shall have no duty to ascertain whether or not such actions or
forebearances are unduly prejudicial to such Holders.
Nothing in this Agreement shall impair the right of the
Trustee in its discretion to take any action deemed proper by the Trustee and
which is not inconsistent with such direction or directions by Holders.
Section 8.10. Waiver of Past Defaults. In the case of a
default or an Event of Default specified in clause (b), (c) or (d) of Section
8.01, the Holders of a majority of all the Securities then Outstanding may waive
any such default or Event of Default, and its consequences except a default in
respect of a covenant or provisions hereof which cannot be modified or amended
without the consent of the Holder of each Security affected. In the case of any
such waiver, the Company, the Trustee and the Holders of the Securities shall be
restored to their former positions and rights hereunder, respectively; but no
such waiver shall extend to any subsequent or other default or impair any right
consequent thereon.
Upon any such waiver, such default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured, and not to have occurred
for every purpose of this Agreement; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
Section 8.11. Trustee to Give Notice of Default, But May
Withhold in Certain Circumstances. The Trustee shall transmit to the Holders, as
the names and addresses of such Holders
-45-
<PAGE> 52
appear on the Security Register, notice by mail of all defaults which have
occurred, such notice to be transmitted within 90 days after the occurrence
thereof, unless such defaults shall have been cured before the giving of such
notice (the term "default" or "defaults" for the purposes of this Section being
hereby defined to mean any event or condition which is, or with notice or lapse
of time or both would become, an Event of Default); provided that, except in the
case of default in the payment of the amounts payable in respect of any of the
Securities, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee, or a trust committee of
directors or trustees and/or Responsible Officers of the Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders.
Section 8.12. Right of Court to Require Filing of Undertaking
to Pay Costs. All parties to this Agreement agree, and each Holder of any
Security by his acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Agreement or in any suit against the Trustee for any
action taken or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith or the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder or group of Holders holding in the
aggregate more than 10% of the Securities Outstanding or to any suit instituted
by any Holder for the enforcement of the payment of any Security on or after the
due date expressed in such Security.
ARTICLE NINE
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
Section 9.01. Company May Consolidate, etc. on Certain Terms.
The Company covenants that it will not merge or consolidate with or into any
other Person or sell or convey all or substantially all of its assets to any
Person, unless (i) either the Company shall be the continuing corporation, or
the successor corporation or the Person which acquires by sale or conveyance
substantially all the assets of the Company (if other than the Company) shall be
a Person organized under the laws of the United States of America or any State
thereof and
-46-
<PAGE> 53
shall expressly assume the due and punctual payment of the Securities, according
to their tenor, and the due and punctual performance and observance of all of
the covenants and conditions of this Agreement to be performed or observed by
the Company, by supplemental agreement satisfactory to the Trustee, executed and
delivered to the Trustee by such corporation, and (ii) the Company or such
successor corporation, as the case may be, shall not, immediately after such
merger or consolidation, or such sale or conveyance, be in default in the
performance of any such covenant or condition.
Section 9.02. Successor Corporation Substituted. In case of
any such consolidation, merger, sale or conveyance in which the Company shall
not be the continuing corporation, and following such an assumption by the
successor corporation, such successor corporation shall succeed to and be
substituted for the Company, with the same effect as if it had been named
herein. Such successor corporation may cause to be signed, and may issue either
in its own name or in the name of the Company prior to such succession any or
all of the Securities issuable hereunder which theretofore shall not have been
signed by the Company and delivered to the Trustee; and, upon the order of such
successor corporation instead of the Company and subject to all the terms,
conditions and limitations in this Agreement prescribed, the Trustee shall
authenticate and shall deliver any Securities which previously shall have been
signed and delivered by the officers of the Company to the Trustee for
authentication, and any Securities which such successor corporation thereafter
shall cause to be signed and delivered to the Trustee for that purpose. All of
the Securities so issued shall in all respects have the same legal rank and
benefit under this Agreement as the Securities theretofore or thereafter issued
in accordance with the terms of this Agreement as though all of such Securities
had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, lease or
conveyance, such changes in phraseology and form (but not in substance) may be
made in the Securities thereafter to be issued as may be appropriate.
In the event of any such sale or conveyance (other than a
conveyance by way of lease) the Company or any Person which shall theretofore
have become such in the manner described in this Article shall be discharged
from all obligations and covenants under this Agreement and the Securities and
may be liquidated and dissolved.
-47-
<PAGE> 54
Section 9.03. Opinion of Counsel to Trustee. The Trustee may
receive an opinion of Counsel, prepared in accordance with Section 1.03, as
conclusive evidence that any such consolidation, merger, sale, lease or
conveyance, and any such assumption, and any such liquidation or dissolution,
complies with the applicable provisions of this Agreement.
* * * * *
This Agreement may be signed in any number of counterparts
with the same effect as if the signatures to each counterpart were upon a single
instrument, and all such counterparts together shall be deemed an original of
this Agreement.
-48-
<PAGE> 55
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
FUSION SYSTEMS CORPORATION
By_________________________
Title:
Attest:____________________
Title:
[TRUSTEE]
By_________________________
Title:
Attest:____________________
Title:
-49-
<PAGE> 56
STATE OF )
: ss.:
COUNTY OF )
On the day of , 1997, before me personally
came , to me known, who, being by me duly sworn, did depose and say
that s/he resides at ; that s/he is of ,
one of the corporations described in and which executed the above instrument;
that s/he knows the corporate seal of such corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed pursuant to
authority of the Board of Directors of such corporation; and that s/he signed
her/his name thereto pursuant to like authority.
(NOTARIAL SEAL)
________________________
<PAGE> 57
STATE OF )
: ss.:
COUNTY OF )
On the day of , 1997, before me personally came
, to me known, who, being by me duly sworn, did depose and say that
s/he resides at ; that s/he is
of , one of the corporations described in and which executed
the above instrument; that s/he knows the corporate seal of such corporation;
that the seal affixed to said instrument is such corporate seal; that it was
so affixed pursuant to authority of the Board of Directors of such corporation;
and that s/he signed her/his name thereto pursuant to like authority.
(NOTARIAL SEAL)
________________________
<PAGE> 1
EXHIBIT 3
Eaton Corporation
Eaton Center
Cleveland, Ohio 44114-2584
216/523-5000
FAX: 216/523-4767
- --------------------------------------------------------------------------------
APRIL 7, 1997
Mr. Leslie S. Levine
President And Chief Executive Officer
Fusion Systems Corporation
7600 Standish Place
Rockville, MD 20855-2798
RE: CONFIDENTIALITY AGREEMENT
Dear Mr. Levine:
Eaton Corporation ("Eaton") and Fusion Systems Corporation (the "Company") have
initiated discussions regarding possible business arrangements between the
Company and Eaton, including the possibility of Eaton acquiring certain
ownership interests in or assets of the Company, and intend to continue with
those discussions (collectively, the "Discussions"). In order to protect the
relative interests of Eaton and the Company, the parties hereby agree as
follows:
All information heretofore or hereafter disclosed or transmitted by Eaton to the
Company or its Authorized Representatives (as defined below), including, but not
limited to, all written and oral financial information, marketing information,
customer and supplier information, technical information, and intellectual
property, and all corresponding information transmitted by the Company to Eaton
or its Authorized Representatives, together with all information and all
analyses, compilations, studies or other documents or records prepared by the
receiving party which contain or otherwise reflect or are generated from such
disclosed information (collectively, "Confidential Information"), (i) shall be
maintained in confidence by the receiving party; (ii) shall be protected from
disclosure to others using at least the same degree of care as it normally
exercises to protect its own proprietary information of a similar nature, but,
in any case, using no less than a high degree of care; (iii) shall not be used
in any way detrimental to the delivery party; (iv) shall not be utilized by the
receiving party for any purpose other than for conducting the Discussions; and
(v) shall in no event whatsoever be disclosed to any third
<PAGE> 2
Fusion Systems Corporation
April 7, 1997
Page 2
party or entity; provided, however, that the obligations imposed by this
Agreement shall not cover disclosed or transmitted information which the
receiving party can show:
(a) to have been in its possession prior to receipt from the delivering party
hereunder;
(b) to have been available to the public at the time of receipt from the
delivering party hereunder;
(c) became available to the receiving party or the public subsequent to receipt
from the delivering party hereunder without any fault whatsoever by the
receiving party or its Authorized Representatives; or
(d) was developed by the receiving party, or others, independently of and
without reference to the Confidential Information.
The receiving party shall be responsible for any improper use of the
Confidential Information by its Authorized Representatives. The term "Authorized
Representatives" includes only those employees, officers, directors, attorneys
and accountants of the receiving party who are participating in the Discussions,
but excludes all other outside advisors or agents of the receiving party, unless
previously authorized in writing by an officer of the delivering party.
The parties hereto agree that they will not disclose the fact that the
Discussions are being conducted, any terms, conditions, or other facts regarding
the Discussions or the status thereof, unless the parties agree to such
disclosure or unless otherwise required by law.
It is further agreed that, if in the opinion of counsel, either party is
required to disclose Confidential Information or the Discussions in or before
any court, governmental agency, or tribunal, they may disclose such information
to the extent so required. In the event the receiving party is required by law,
regulation, or court order to disclose any of the Confidential Information or
the Discussions, the receiving party will promptly notify the delivering party
prior to making any such disclosure in order to facilitate the delivering party
seeking a protective order or other appropriate remedy from the proper
authority. The receiving party agrees to cooperate with the delivering party in
seeking such order or other remedy. The receiving party further agrees that if
the delivering party is not successful in precluding the requesting legal body
from requiring the disclosure of the Confidential Information or the
Discussions, it will furnish only that portion of the Confidential Information
which is legally required and will exercise all reasonable efforts to obtain
reliable assurances that confidential treatment will be accorded that
Information. Notwithstanding the foregoing, disclosure of the Confidential
Information or the
<PAGE> 3
Fusion Systems Corporation
April 7, 1997
Page 3
Discussions may be made which, in the reasonable opinion of the disclosing
party's counsel, is required under the Securities Act of 1933, as amended (the
"1933 Act") or the Securities Exchange Act of 1934, as amended (the "1934 Act"),
or by applicable stock exchange rules and regulations, and then only after the
disclosing party shall first give the other party an opportunity to review and
comment, if done in a timely fashion, on the proposed disclosure and the basis
therefor, and the disclosing party shall consider in good faith the other
party's comments relating thereto and reflect any such reasonable comments in
such disclosure.
At the request of either party or if either of the parties should terminate the
Discussions, all Confidential Information and other information which a party
involved herein has obtained from the other shall be returned promptly, and all
memoranda, notes, and other material prepared by or for the parties based on or
reflecting any Confidential Information will be destroyed promptly, and such
destruction shall be certified in writing to the delivering party by the person
authorized to supervise such destruction. Any oral Confidential Information will
continue to be held subject to the terms of this Agreement. Notwithstanding the
above, one copy of the Confidential Information and all such memoranda, notes,
and other material based on Confidential Information may be retained in the law
department of the receiving party for archival purposes, which shall remain
subject to the terms of this Agreement.
Except as modified by a formal agreement between Eaton and the Company, the
foregoing obligations, which are imposed by this Agreement, shall remain in
effect for a period of three (3) years from the date hereof regardless of
whether or not any business arrangement is consummated.
The parties will not initiate any communications concerning the Discussions with
any employee or customer, supplier, or distributor of the other party (other
than the Chairman of the Board, the President, Chief Financial Officer, Senior
Vice President, or any other officer or manager designated by the other party)
without the other party's prior written consent.
For a period of three (3) years from the date hereof, the parties agree not to
solicit for hire as an employee or independent contractor any person who is at
that time employed by the other party who becomes known to a party as a result
of the Discussions; provided, however, that this provision shall not prevent
hiring any such person who responds to an advertisement or to a non-direct
search inquiry or who makes an unsolicited contract for employment.
<PAGE> 4
Fusion Systems Corporation
April 7, 1997
Page 4
Unless specifically approved in advance by the Company, for the period
commencing on the date hereof and ending on the date three (3) years from the
date hereof, Eaton, its affiliates, representatives, and agents will not: (a)
acquire, announce an intention to acquire, offer to acquire, solicit an offer to
sell, or agree to acquire, directly or indirectly, alone or in concert with
others, any interest in any securities or assets of the Company or rights,
warrants, or options to acquire any securities or assets of the Company (other
than ordinary course commercial dealings); (b) make or participate in, directly
or indirectly, alone or in concert with others, any solicitations of proxies
from the stockholders of the Company, become a participant in any election
contest with respect to the Board of Directors of the Company, solicit or
execute any written consent in lieu of a meeting of holders of voting securities
of the Company or seek to have called any meeting of the stockholders of the
Company; (c) propose or seek to effect, alone or in concert, with any other
person, any business combination transaction, restructuring, recapitalization,
or similar transaction with respect to the Company or any tender offer, takeover
bid, or exchange offer for any securities of the Company; or (d) announce an
intention to do any of the actions restricted under Clauses (a) through (c) of
this paragraph. The foregoing provisions of this paragraph do not apply to
purchases of Company, securities by any Eaton pension or other retirement fund,
provided that such purchase shall not have been specifically requested or
directed by Eaton. Nothing in this paragraph shall prohibit discussions between
Eaton, its representatives, and agents and the Company, its representatives, and
agents pertaining to a business arrangement as described in the first paragraph
of this Agreement.
This Agreement shall be binding on and inure to the benefit of the parties
hereto and their respective successors and assigns. It is understood that each
party may institute appropriate proceedings against the other party to enforce
its rights hereunder. Each party acknowledges that the other party may not have
an adequate remedy in the event that this Agreement is breached and that the
other party may suffer irreparable damage and injury in such event, and,
accordingly, the other party may be entitled to specific performance and
injunctive relief as remedies for any violation. These remedies shall not be
deemed to be the exclusive remedies or a violation of the terms of this
Agreement but shall be in addition to all other remedies available at law or
equity.
Neither party shall be deemed to have made any representation or warranty
concerning the accuracy or completeness of any Confidential Information
furnished by it to the other party, except to the extent that such a
representation or warranty may be expressly set forth later in a definitive
agreement between the parties. Unless and until a definitive agreement regarding
a business arrangement has been executed, neither party will be under any legal
obligation with respect to a business arrangement by virtue of this Agreement
except for the express undertakings set forth herein.
<PAGE> 5
Fusion Systems Corporation
April 7, 1997
Page 5
This Agreement shall be governed and construed in accordance with the laws of
the State of Delaware without giving effect to the conflicts of law provisions
thereof.
This Agreement constitutes the entire understanding between the parties hereto
as to the Confidential Information and other covenants herein and merges all
prior discussions between them relating thereto.
If the foregoing represents an acceptable description of the Confidentiality
Agreement between Eaton and the Company, please execute your acceptance on both
copies of this letter and return one to me at the above address.
EATON CORPORATION
By /s/ Brian R. Bachman
----------------------------------------
Brian R. Bachman
Senior Vice President -- Semiconductor and
Specialty Systems
FUSION SYSTEMS CORPORATION
By /s/ Leslie S. Levine, Pres. And CEO
----------------------------------------
Date April 9, 1997
---------------------------------------
<PAGE> 1
EXHIBIT 4
Eaton Corporation
Eaton Center
Cleveland, Ohio 44114
June 24, 1997
Fusion Systems Corporation
7600 Standish Place
Rockville, Maryland 20855
Gentlemen:
To induce Eaton Corporation ("Eaton") to continue its due diligence
investigation of Fusion Systems Corporation (the "Company") and to pursue its
interest in a possible business combination with the Company, Eaton and the
Company have agreed as follows:
(1) The Company agrees to negotiate exclusively with Eaton through July
7, 1997 or such later date as the parties may agree in writing (such period
being referred to herein as the "Exclusivity Period") with respect to a possible
business combination between the Company and Eaton.
(2) During the Exclusivity Period, the Company agrees that it shall
not, and it shall not permit its subsidiaries, or any officers, directors,
employees, financial advisors and other agents or representatives of the Company
or its subsidiaries, directly or indirectly, to solicit or initiate (including
by way of furnishing any non-public information concerning the Company or its
assets) inquiries or proposals, or participate in any discussions or
negotiations with any person, corporation, partnership or other entity (other
than Eaton), concerning a merger or other business combination or an acquisition
of all or any substantial portion of the Company or its assets (a
"Transaction").
(3) The Company and Eaton agree that they shall not, and shall cause
their officers, directors, agents and representatives not to, make any public
announcement or otherwise disclose to any person (other than the respective
officers, directors, employees, lawyers and financial advisors of Eaton and the
Company as required to negotiate a definitive agreement who are informed of the
confidential nature of this information) the fact that discussions or
negotiations are taking place concerning a possible transaction between the
Company and Eaton or any of the terms, conditions or other facts with respect to
any such possible transaction, including the status thereof unless the parties
agree to such disclosure or unless otherwise required by law.
<PAGE> 2
-2-
Please confirm your agreement with the foregoing by signing the
enclosed copy of this letter and returning it to us, whereupon it will become a
binding obligation of Eaton and the Company. The agreements set forth in this
letter may be modified or waived only by a separate writing by the Company and
Eaton expressly so modifying or waiving such agreements. Nothing herein
contained shall modify or supersede the obligations of the Company and Eaton
under the confidentiality Agreement dated April 7, 1997, which agreement remains
in full force and effect for the term provided therein.
Very truly yours,
EATON CORPORATION
By: /s/ Alexander M. Cutler
-------------------------
ACCEPTED AND AGREED:
FUSION SYSTEMS CORPORATION
By: /s/ Leslie S. Levine
------------------------
Date: June 24, 1997
<PAGE> 1
EXHIBIT 5
Excerpt (pages 4-13, 15 & 16) of the Proxy Statement
of Fusion Systems Corporation Dated as
of May 15, 1997
<PAGE> 2
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of the Record Date certain
information regarding beneficial ownership of the Corporation's Common Stock
by: (i) each person or entity who, to the knowledge of the Corporation, owned
beneficially more than 5% of the shares of Common Stock of the Corporation
outstanding at such date; (ii) each director or nominee for director of the
Corporation; (iii) each executive officer identified in the Summary
Compensation Table set forth below under "Compensation and Other Information
Concerning Directors and Officers"; and (iv) all directors, nominees for
election to the Board of Directors and executive officers of the Corporation as
a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENTAGE OF COMMON
OF BENEFICIAL OWNER OF OWNERSHIP (1) STOCK OUTSTANDING
- ------------------- ---------------- -----------------
<S> <C> <C>
J. & W. Seligman & Co. Incorporated
100 Park Avenue
New York, NY 10017 (2).......................... 1,024,358 13.7
Magten Asset Management Corp.
35 East 21st Street
New York, NY 10010 (3).......................... 417,600 5.6
Mellon Bank Corporation
c/o Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, PA 15258 (4)......................... 440,000 5.9
Leslie S. Levine (5)................................. 212,283 2.8
John C. Matthews (6)................................. 132,026 1.8
Joseph F. Greeves (7)................................ 14,036 *
Steven F. Hodlin (8)................................. 2,667 *
A. David Harbourne (9)............................... 10,000 *
Daniel Tessler (10).................................. 104,999 1.4
Charles J. Coulter (11).............................. 29,435 *
Jon D. Tompkins (12)................................. 10,999 *
Andrea Geisser (13).................................. 2,500 *
Directors, Nominees and Executive Officers as
a group (9 persons) (14)........................... 518,945 6.9
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Except as otherwise noted, each person or entity named in the table
has sole voting and investment power with respect to the shares.
(2) According to a Schedule 13G/A filed with the Securities and Exchange
Commission on February 13, 1997, J. & W. Seligman has sole voting
power for 1,003,828 shares and sole dispositive power for 1,024,358
shares.
(3) According to a Schedule 13G filed with the Securities and Exchange
Commission on February 13, 1997, Magten has shared voting power on
350,900 shares and shared dispositive power on 417,600 shares.
(4) According to a Schedule 13G filed with the Securities and Exchange
Commission on January 31, 1997, Mellon has sole voting power of
372,000 shares, sole dispositive power of 398,000 and shared
dispositive power of 41,000 shares.
(5) Includes 160,261 shares issuable upon the exercise of outstanding
stock options exercisable on the Record Date or within 60 days
thereafter. Also includes 6,390 shares of Common Stock held by his
wife, Marsha Levine and 11,700 shares of Common Stock held by his
daughter, Rachel Levine. Mr. Levine disclaims beneficial ownership of
such shares.
<PAGE> 3
(6) Includes 90,045 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
Also includes 1,891 shares held in joint tenancy with his wife,
Patricia Matthews.
(7) Includes 13,334 shares issuable upon the exercise of outstanding
stock options exercisable on the Record Date or within 60 days
thereafter.
(8) Includes 2,667 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(9) Mr. Harbourne left the Corporation in September 1996 in connection
with the sale of the Corporation's UV curing business.
(10) Includes 87,499 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(11) Includes 19,717 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(12) Includes 9,999 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(13) Includes 2,500 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(14) Includes 386,022 shares issuable upon the exercise of outstanding
stock options exercisable on the Record Date or within 60 days
thereafter.
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES
The Corporation's Board of Directors is currently fixed at five (5)
members, all of whom are outside, non-employee directors except for Mr. Levine.
The Corporation's Amended and Restated By-Laws divide the Corporation's Board
of Directors into three classes. The members of each class of directors serve
for staggered three-year terms. Messrs. Levine and Tessler are Class I
directors whose terms expire at the meeting. The Board is also composed of two
Class II directors (Messrs. Coulter and Tompkins) and one Class III director
(Mr. Geisser) whose terms expire upon the election and qualification of
directors at the Annual Meeting of Stockholders to be held in 1999 and 1998,
respectively.
The Board of Directors has nominated and recommended that Messrs.
Levine and Tessler, who are both currently members of the Board of Directors,
be elected Class I directors to hold office until the 2000 Annual Meeting of
Stockholders, or until their successors have been duly elected and qualified or
until such director's earlier resignation or removal. The Board of Directors
knows of no reason why the nominees should be unable or unwilling to serve, but
if the nominees should for any reason be unable or unwilling to serve, the
proxies will be voted for the election of such other persons for the office of
directors as the Board of Directors may recommend in the place of such
nominees. Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the nominees named below.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THE FOLLOWING LIST OF NOMINEES.
The following table sets forth the nominees to be elected at the
meeting and each director whose term of office will extend beyond the meeting,
the year such nominee or continuing director was first elected a director, the
positions currently held by the nominee and each continuing director with the
Corporation, the year that each nominee's or continuing director's term will
expire and the class of director of each nominee and continuing director.
<PAGE> 4
<TABLE>
<CAPTION>
NOMINEE'S OR DIRECTOR'S
NAME AND YEAR NOMINEE
OR DIRECTOR FIRST POSITION(S) WITH YEAR TERM CLASS OF
BECAME A DIRECTOR THE CORPORATION WILL EXPIRE DIRECTOR
- ----------------------- --------------- ----------- --------
<S> <C> <C> <C>
NOMINEES:
Leslie S. Levine (1991)........ President, Chief Executive Officer 2000 I
and Director
Daniel Tessler (1973).......... Chairman of the Board of Directors 2000 I
CONTINUING DIRECTORS:
Charles J. Coulter (1983)...... Director 1999 II
Jon D. Tompkins (1994)......... Director 1999 II
Andrea Geisser (1996)......... Director 1998 III
</TABLE>
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the Class I nominees to be elected at
the meeting, the current directors who will continue to serve as directors
beyond the meeting, and the executive officers of the Corporation, their ages,
and the positions currently held by each such person with the Corporation.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Leslie S. Levine..................... 56 President, Chief Executive Officer and Director
John C. Matthews..................... 57 Senior Vice President and President, Fusion
Semiconductor Systems Corporation
Joseph F. Greeves.................... 40 Vice President, Chief Financial Officer,
Treasurer and Secretary
Steven F. Hodlin..................... 42 Vice President, Corporate Quality
Daniel Tessler....................... 53 Chairman of the Board of Directors
Charles J. Coulter (1)(2)............ 71 Director
Jon D. Tompkins (1)(2)............... 56 Director
Andrea Geisser (1)(2)................ 54 Director
</TABLE>
- ---------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
<PAGE> 5
DIRECTORS TO BE ELECTED AT THE MEETING
LESLIE S. LEVINE, a founder of the Corporation, has served as President
and Chief Executive Officer of the Corporation since July 1992. Mr. Levine has
served as a Director of the Corporation since December 1991. From 1983 to 1992,
Mr. Levine was Executive Vice President for Finance and Administration of the
Corporation. He holds a Ph.D. in physics from Columbia University.
DANIEL TESSLER has been a Director of the Corporation since 1973 and
Chairman of the Board of Directors since February 1994. Mr. Tessler has served
as Chairman and Chief Executive Officer of Fusion Lighting, Inc. since 1994,
and as chairman of Tessler and Cloherty, Inc. and Venture Advisors, Inc.,
private investment firms, since 1980 and 1991, respectively.
DIRECTORS WHOSE TERMS EXTEND BEYOND THE MEETING
CHARLES J. COULTER has been a Director of the Corporation since 1983. Mr.
Coulter served as President of American Research & Development, a venture
capital firm, from 1972 to June 1992. Mr. Coulter serves as a director of Antex
Biologics Inc.
ANDREA GEISSER has served as a Director of the Corporation since June
1996. Mr. Geisser has served as a Managing Director of Fenway Partners, Inc.,
a principal investing firm specializing in middle-market acquisitions, since
July 1994, and a partner of the general partner of its affiliated investment
partnership since the organization of such partnership in January 1995. Prior
to joining Fenway Partners, Mr. Geisser served Butler Capital Corporation
("BCC") as a managing director from February 1989 until June 1994, acting as a
director of many of BCC's portfolio companies. Mr. Geisser is a director of
Van de Kamp's Inc. Mr. Geisser is also a director of several Fenway portfolio
companies and a trustee of Corporate Property Investors, a real estate
investment trust.
JON D. TOMPKINS has served as a Director of the Corporation since December
1994. Mr. Tompkins has served as President and Chief Executive Officer of
Tencor Instruments since April 1991 and as chairman of the board of directors
of Tencor Instruments since November 1993. Mr. Tompkins serves as a director
of Varian Associates, a manufacturer of semiconductor equipment, and as a
director of SEMI/SEMATECH, an association of U.S. semiconductor equipment and
materials companies.
EXECUTIVE OFFICERS
JOHN C. MATTHEWS has been with the Corporation since 1979 and currently
serves as Senior Vice President. In March 1996, he was appointed President,
Fusion Semiconductor Systems Corporation ("Fusion Semiconductor"), a
wholly-owned subsidiary of the Corporation. Mr. Matthews served as Senior Vice
President of Fusion Semiconductor from 1993 until 1996, and as Vice President
(Semiconductor) from 1983 to 1993. Prior to that time, he served as Marketing
Manager of Fusion UV Curing.
JOSEPH F. GREEVES joined the Corporation as Vice President, Chief
Financial Officer, Treasurer and Secretary in May 1995. Prior to joining the
Corporation, Mr. Greeves served as Executive Vice President and Chief Financial
Officer of Ogden Environmental and Energy Services, Co., Inc., a division of
Ogden Corporation which provided consulting services, lab services, remediation
services and independent power production on a worldwide basis.
STEVEN F. HODLIN joined the Corporation as Director, Corporate Quality in
February 1995. He was appointed Vice President, Corporate Quality in December
1995. Prior to joining the Corporation, Mr. Hodlin served as Vice President,
Quality and Reliability Systems for Penril Datability Networks. He has been a
Malcolm Baldrige Quality Award Examiner since 1994 and a U.S. Senate
Productivity Award examiner since 1992.
Executive officers of the Corporation are elected by the Board of
Directors on an annual basis and serve until their successors have been duly
elected and qualified.
<PAGE> 6
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met eight times during the fiscal year ended
December 31, 1996. The Audit Committee of the Board of Directors, of which
Messrs. Coulter, Geisser and Tompkins are currently members, reviews, with the
independent accountants and management, the annual financial statements and
independent accountants' opinion, reviews the results of the examination of the
Corporation's financial statements by the independent accountants, recommends
the retention of the independent accountants to the Board of Directors and
periodically reviews the Corporation's accounting policies and internal
accounting and financial controls. During the fiscal year ended December 31,
1996, the Audit Committee met five times. The Board of Directors also has
appointed a Compensation Committee, whose members currently are Messrs.
Coulter, Geisser and Tompkins. The Compensation Committee, which held seven
meetings during the fiscal year ended December 31, 1996, is responsible for
administering the Corporation's stock ownership plans and for reviewing and
approving compensation matters concerning the executive officers of the
Corporation. The Board of Directors does not currently have a standing
nominating committee. Each of the directors attended at least 75% of the
aggregate of all meetings of the Board of Directors and of all Committees on
which he serves.
<PAGE> 7
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION SUMMARY
The following table sets forth certain information with respect to the
annual and long-term compensation of the Corporation's Chief Executive Officer
and each of the Corporation's four other most highly compensated executive
officers (collectively, the "Named Executive Officers") for the fiscal years
ended December 31, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------------- ------------
Name and Principal Position
- ---------------------------
Option All Other
Year Salary ($) Bonus ($) Awards (#)(1) Compensation($)(2)
---- ---------- --------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Leslie S. Levine 1996 $244,125 $ 85,000 27,000 $11,085
President and Chief 1995 217,632 165,000 30,000 11,610
Executive Officer 1994 196,711 142,800 70,261 11,987
John C. Matthews 1996 162,409 75,000 22,000 10,635
Senior Vice President and 1995 150,274 91,000 30,000 11,610
President, Fusion 1994 139,612 82,000 40,045 11,987
Semiconductor
Joseph F. Greeves (3) 1996 152,116 58,700 19,000 5,584
Vice President and Chief 1995 87,234 44,000 20,000 152
Financial Officer 1994 -- -- -- --
Steven F. Hodlin (4) 1996 121,730 30,000 10,750 5,178
Vice President - 1995 84,865 21,000 8,000 192
Corporate Quality 1994 -- -- -- --
A. David Harbourne (5) 1996 114,812 30,000 0 9,486
Senior Vice President and 1995 150,274 61,000 30,000 10,800
President, UV Curing 1994 139,612 82,000 31,954 11,177
</TABLE>
- ---------------
(1) Includes options granted in 1997 for services performed in 1996.
(2) Includes premiums paid on life insurance policies and contributions by the
Corporation to 401(k) plan for the benefit of the Named Executive Officers.
(3) Mr. Greeves joined the Corporation in May 1995.
(4) Mr. Hodlin joined the Corporation in February 1995.
(5) Mr. Harbourne left the Corporation in September 1996 in connection with
the sale of the Corporation's UV curing business.
<PAGE> 8
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made to the
Named Executive Officers pursuant to the Corporation's stock plans during the
year ended December 31, 1996:
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------
Percent of Potential Realizable
Total Value at Assumed
Number of Options Annual Rates of
Securities Granted to Stock Price Appreciation
Underlying Employees Exercise for Option Term (1)
Options in Fiscal Price Expiration ---------------------------
Name Granted(#) Year ($/Share) Date 5%($) 10%($)
- ---- ---------- --------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Leslie S. Levine............ 12,000 5.72% $19.50 9/19/06 $147,160 $ 372,935
John C. Matthews............ 12,000 5.72 19.50 9/19/06 147,160 372,935
Joseph F. Greeves........... 15,000 7.14 19.50 9/19/06 183,950 466,168
Steven F. Hodlin............ 7,000 3.33 19.50 9/19/06 85,843 217,545
A. David Harbourne.......... 0 -- -- -- -- --
</TABLE>
- ----------------
(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%)
on the market value of the Corporation's Common Stock on the date of
option grant over the term of the options. These numbers are calculated
based on rules promulgated by the Securities and Exchange Commission and
do not reflect the Corporation's estimate of future stock price growth.
Actual gains, if any, on stock option exercises and Common Stock holdings
are dependent on the timing of such exercises and the future performance
of the Corporation's Common Stock. There can be no assurance that the
rates of appreciation assumed in this table can be achieved or that the
amounts reflected will be received by the individuals.
<PAGE> 9
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END VALUES
The following table sets forth information with respect to options to
purchase the Corporation's Common Stock granted to the Named Executive Officers
under the Corporation's stock plans, including (i) the number of shares of
Common Stock purchased upon exercise of options during the fiscal year ended
December 31, 1996; (ii) the net value which would have been realized upon such
exercise had such shares been sold; (iii) the number of unexercised options
outstanding at December 31, 1996; and (iv) the value of such unexercised
options at December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
Numbers of Unexercised Value(2) of Unexercised
Shares Options at In-the-Money Options at
Acquired on Value December 31, 1996 (#) December 31, 1996 ($) (2)
Name Exercise (#) Realized($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Leslie S. Levine........ -- $ -- 136,840/55,421 $1,432,381/$139,275
John C. Matthews........ -- -- 76,696/45,349 732,734/88,411
Joseph F. Greeves....... -- -- 6,667/28,333 0/26,250
Steven F. Hodlin........ -- -- 2,667/12,333 0/12,250
A. David Harbourne...... 51,954 323,920 0/0 0/0
</TABLE>
- -------------
(1) Amounts disclosed in this column were calculated based on the difference
between the fair market value of the Corporation's Common Stock on the date
of exercise and the exercise price of the options in accordance with
regulations promulgated under the Securities Exchange Act of 1934, as
amended, and do not reflect amounts received by the Named Executive
Officers.
(2) Value is based on the difference between the option exercise price and the
fair market value at December 31, 1996, the last day during fiscal year
1996 for which market prices are available ($21.25 per share as quoted on
the Nasdaq National Market), multiplied by the number of shares underlying
the option.
STOCK PLANS
The Corporation currently has three stock ownership plans: the 1994 Stock
Option Plan, the 1994 Non-Employee Director Stock Option Plan, and the 1994
Employee Stock Purchase Plan. In addition, as of the Record Date, options to
purchase an aggregate of 196,732 shares of Common Stock were outstanding under
the Corporation's 1984 Stock Option Plan, which expired on December 31, 1993.
SEVERANCE AGREEMENTS
The Corporation has in place severance agreements, which would be
activated if and when a change in control (as defined in the agreements) of the
Corporation occurs, with a significant number of employees including all of its
executive officers. The agreements with its executive officers provide for the
payment of the following compensation and benefits upon the termination in
certain circumstances of an executive officer's employment with the Corporation
following a change in control of the Corporation: (i) the continuation of their
base pay for a period equal to one month for each $5,000 of base pay up to a
maximum of 24 months; (ii) incentive compensation for the pro-rata portion of
the year the executive officer was employed with the Corporation; (iii) payment
in cash of the amount of any health, life and disability insurance premiums the
Corporation would have paid on the officer's behalf had the officer been
employed during the payment period established in (i) above or a payment of
such premiums directly to the plan if the executive officer is continuing
health insurance under the Corporation's plan; and (iv) a payment for full
executive outplacement to a maximum of 15% of the officer's base pay and
incentive
<PAGE> 10
compensation paid during the twelve-month period prior to the termination of
employment, or payment to the executive officer of said amount. Mr. Levine's
severance agreement includes one additional event constituting a change of
control under his agreement; this added definition provides that a change of
control shall be deemed to have occurred when, during any consecutive two-year
period, the individuals who at the beginning of such period constituted the
Board of Directors of the Corporation (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Corporation was approved by a vote of 66-2/3% of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Corporation then in office.
Pursuant to these agreements, whether or not there is a change in control,
each executive officer has agreed to maintain the confidentiality of
Corporation information and assign to the Corporation all inventions and
product improvements related to the Corporation's business operations developed
by such person during the term of the agreement and during the one-year period
thereafter. Moreover, each executive officer has agreed that during the term of
his respective employment with the Corporation and thereafter for two years,
such person will not compete with the Corporation by engaging in any capacity
in any business which is competitive with the business of the Corporation,
unless the Corporation determines that the fulfillment of such person's duties
in the proposed employment would not likely cause the disclosure or use of any
confidential information of the Corporation.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Corporation's executive compensation program is administered by
the compensation committee of the Board of Directors (the "Compensation
Committee"), which is comprised entirely of non-employee directors. Pursuant to
authority delegated by the Board of Directors, the Compensation Committee is
responsible for reviewing and administering the Corporation's stock ownership
plans and reviewing and approving compensation matters concerning the executive
officers of the Corporation.
The Corporation's executive compensation program is designed to
provide levels of compensation that assist the Corporation in attracting,
motivating and retaining qualified executive officers and aligning the
financial interests of the Corporation's executive officers with those of its
stockholders by providing a competitive compensation package based on
corporate, separate business unit and individual performance. Compensation
under the executive compensation program is comprised of cash compensation in
the form of salary and annual incentive bonuses, and long-term incentive awards
in the form of stock option grants. In addition, the compensation program is
comprised of various benefits, including medical and insurance plans, and the
Corporation's 1994 Employee Stock Purchase Plan and 401(k) profit-sharing plan.
These plans are generally available to all U.S. employees of the Corporation.
BASE SALARY
Compensation levels for each of the Corporation's executive officers,
including the Chief Executive Officer, are generally set within the range of
salaries that the Compensation Committee believes are paid to executive
officers with comparable qualifications, experience and responsibilities at
similar companies. In setting compensation levels, the Compensation Committee
seeks to align total executive compensation levels with corporate performance.
Accordingly, base salary levels are set at what the Compensation Committee
believes are at the low-end of base salaries paid to executive officers with
comparable qualifications, experience and responsibilities at similar
companies, while providing relatively higher cash bonus and incentive award
opportunities. In addition, the Compensation Committee generally takes into
account such factors as (i) the Corporation's past financial performance and
future expectations; (ii) business unit performance and future expectations;
(iii) individual performance and experience; and (iv) past salary levels. The
Compensation Committee does not assign relative weights or rankings to these
factors, but instead makes a determination based upon the consideration of all
of these factors as well as the progress made with respect to the Corporation's
long-term goals and strategies. Generally, salary decisions for the
Corporation's executive officers are made by the Compensation Committee near
the beginning of each calendar year.
<PAGE> 11
Fiscal 1996 base salaries were determined by the Compensation
Committee after reviewing the base compensation paid to executive officers at
other semiconductor and high-tech equipment manufacturing companies. Base
salary levels for each of the Corporation's executive officers, other than the
Chief Executive Officer, were also based upon evaluations and recommendations
made by the Chief Executive Officer.
INCENTIVE COMPENSATION
Each executive officer is eligible to receive a cash bonus at the end
of the fiscal year based upon the Corporation's performance, as well as
individual and business unit performance. Additional bonuses may be awarded
during the fiscal year to reward an executive officer for superior performance.
Generally, bonus awards for each of the Corporation's executive officers, other
than the Corporation's Chief Executive Officer, are based upon the
recommendations of the Corporation's Chief Executive Officer. Bonuses are
intended to be a significant portion of an executive officer's total
compensation and are distributed shortly after the end of the fiscal year.
Fiscal 1996 annual bonus amounts for each of the Corporation's
executive officers were determined by the Compensation Committee after
reviewing information assembled by The Radford Group on comparative salary and
bonus arrangements at comparable companies. Bonus amounts for each of the
executive officers, other than the Chief Executive Officer, were also based
upon evaluations and recommendations made by the Chief Executive Officer. In
respect of the fiscal year ended December 31, 1996, annual bonuses totaling
$278,700 were awarded to the Corporation's executive officers based upon a
combination of corporate and individual performance. Of the annual bonuses
awarded to executive officers in respect of fiscal 1996, Mr. Levine received
$85,000 and Messrs. Greeves, Harbourne, Hodlin and Matthews, collectively,
received $193,700.
STOCK OPTIONS
Stock options are the principal vehicle used by the Corporation for
the payment of long-term compensation, to provide a stock-based incentive to
improve the Corporation's financial performance and to assist in the
recruitment, motivation and retention of key professional and managerial
personnel. The Corporation's stock option plans are administered by the
Compensation Committee. To date, the Compensation Committee has not granted
stock options at less than fair market value.
Generally, stock options are granted to eligible employees from time
to time based primarily upon the individual's actual and/or potential
contributions to the Corporation and the Corporation's financial performance.
Stock options are designed to align the interests of the Corporation's
executive officers with those of its stockholders by encouraging executive
officers to enhance the value of the Corporation, the price of the Common Stock
and, hence, the stockholders' return. In addition, the exercisability of stock
options over a period of time is designed to defer the receipt of compensation
by the option holder, thus creating an incentive for the individual to remain
with the Corporation. The Corporation periodically grants new options to
provide continuing incentives for future performance.
During the fiscal year ended December 31, 1996, options to purchase an
aggregate of 46,000 shares of Common Stock were awarded to the Corporation's
executive officers. Of such options, 12,000 were granted to Mr. Levine and an
aggregate of 34,000 were granted to the Corporation's other executive officers.
OTHER BENEFITS
The Corporation also has various broad-based employee benefit plans.
Executive officers participate in these plans on the same terms as eligible,
non-executive employees, subject to any legal limits on the amounts that may be
contributed or paid to executive officers under these plans. The Corporation
offers a stock purchase plan, under which employees may purchase Common Stock
at a discount, and a 401(k) profit-sharing plan, which permits employees to
invest in a wide variety of funds on a pre-tax basis. The Corporation also
maintains insurance and other benefit plans for its employees.
<PAGE> 12
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally limits the tax deduction to $1 million for compensation paid
to any of the executive officers unless certain requirements are met. The
Compensation Committee has considered these requirements and the related
regulations. It is the Compensation Committee's present intention that, so
long as it is consistent with its overall compensation objectives,
substantially all executive compensation shall be deductible for federal income
tax purposes.
MR. LEVINE'S COMPENSATION
Consistent with the executive compensation policies described above of
providing relatively low base salaries combined with higher incentive bonuses,
the Compensation Committee determined the base salary, incentive bonus and
stock options received by Mr. Levine, the Corporation's President and Chief
Executive Officer, for services rendered in fiscal 1996. For the fiscal year
ended December 31, 1996, Mr. Levine received $244,125 in base salary and was
awarded a bonus of $85,000 based upon a combination of individual and corporate
performance. Mr. Levine's bonus compensation for fiscal 1996 was approximately
35% of his base salary. In addition, in fiscal 1996 Mr. Levine was granted
options to purchase 12,000 shares of Common Stock and in fiscal 1997 Mr. Levine
was granted options to purchase 15,000 shares of Common Stock for services
performed in 1996.
RESPECTFULLY SUBMITTED BY
THE COMPENSATION COMMITTEE
Charles J. Coulter
Andrea Geisser
Jon D. Tompkins
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Corporation's Board of Directors has established a Compensation
Committee consisting of Messrs. Coulter, Geisser and Tompkins. No person who
served as a member of the Compensation Committee was, during the past fiscal
year, an officer or employee of the Corporation or any of its subsidiaries, was
formerly an officer of the Corporation or any of its subsidiaries, or had any
relationship requiring disclosure herein. No executive officer of the
Corporation served as a member of the compensation committee of another entity
(or other committee of the Board of Directors performing equivalent functions
or, in the absence of any such committee, the entire Board of Directors), one
of whose executive officers served as a director of the Corporation.
COMPENSATION OF DIRECTORS
The Corporation's non-employee directors receive a fee of $15,000 per year
for service as a member of the Board of Directors, other than the Chairman of
the Board of Directors who receives $75,000. All directors are reimbursed for
expenses incurred in connection with attending Board of Directors and committee
meetings. Non-employee directors are also automatically granted options to
purchase shares of the Corporation's Common Stock pursuant to the 1994
Non-Employee Director Stock Option Plan.
<PAGE> 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1992, the Corporation transferred selected assets of its imaging
business unit to a wholly-owned subsidiary, Fusion Lighting, Inc. ("Fusion
Lighting") and distributed the stock of Fusion Lighting to the shareholders of
the Corporation in proportion to their holdings of Fusion Systems Corporation
stock.
The Corporation continues to sublease a facility to Fusion Lighting
and provides limited administrative services such as data management services.
The Corporation has also provided additional services including materials
procurement, shipping and receiving, and accounting to Fusion Lighting.
Additionally, the Corporation's former Japanese subsidiary (sold in connection
with the sale of the UV curing business) purchased and resold certain imaging
products from Fusion Lighting to fulfill preexisting contractual commitments.
See Note 9 of Notes to the Corporation's Consolidated Financial Statements
contained in the Corporation's Report on Form 10-K and also in the
Corporation's Annual Report to Shareholders.
Daniel Tessler, Chairman of the Board of Directors of the Corporation,
also serves as Chairman of the Board of Directors and Chief Executive Officer
of Fusion Lighting. Leslie S. Levine, a director and President and Chief
Executive Officer of the Corporation, also serves as a director and President
of Fusion Lighting. As of April 10, 1997, Mr. Tessler and Mr. Levine
beneficially owned approximately 6% and 4%, respectively, on a Common Stock
equivalent basis of Fusion Lighting, and 8% and 4%, respectively, of a series
of non-convertible preferred stock of Fusion Lighting. An affiliate of Mr.
Tessler also owned warrants, not presently exercisable, to acquire an
additional 7% of Fusion Lighting at such date. A summary of the
above-described transactions between the Corporation and Fusion Lighting in the
fiscal year ended December 31, 1996 is as follows (in thousands):
Purchase of equipment from Fusion Lighting......................... $ 78
Procurement of materials and fixed assets for Fusion Lighting...... 51
Corporate services and sales support provided to Fusion Lighting... 1,047
Building sublease rent............................................. 190
The amount receivable from Fusion Lighting as of December 31, 1996 was
$241,000.
At the time of the Corporation's sale of the UV curing business to
Fairey Group, plc ("Fairey") in September of 1996, in a separate transaction,
Fusion Lighting received $5 million from Fairey, in consideration for a mutual
non-compete agreement, a cross license of technology, a change of corporate
name of Fusion Lighting and a right of first opportunity to serve as Fusion
Lighting's exclusive distributor for certain of its products which have
application to UV curing.
In 1996, the Corporation paid Venture Advisors, Inc. ("VAI")
$1,046,500 for services rendered in connection with the sale of the UV curing
business. Mr. Tessler, Chairman of the Board of Directors of the Corporation,
is the President and controlling stockholder of VAI. The Corporation also
received additional consulting services from VAI totaling $67,500.
The Corporation has adopted a policy whereby all transactions between
the Corporation and its officers, directors and affiliates shall be on terms no
less favorable to the Corporation than could be obtained from unrelated third
parties and shall be approved by a majority of the disinterested members of the
Corporation's Board of Directors.
<PAGE> 14
PROPOSAL 2
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected the firm of Arthur Andersen LLP
("Arthur Andersen"), independent certified public accountants, to serve as
auditors for the fiscal year ending December 31, 1997. Arthur Andersen has
served as the Corporation's accountants since 1990. It is expected that a
member of Arthur Andersen will be present at the meeting with the opportunity
to make a statement if so desired and will be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THE RATIFICATION OF THIS SELECTION.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Corporation's
directors, executive officers and holders of more than 10% of the Corporation's
Common Stock (collectively, "Reporting Persons") to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock of the Corporation. Such persons are
required by regulations of the SEC to furnish the Corporation with copies of
all such filings. Based on its review of the copies of such filings received
by it with respect to the fiscal year ended December 31, 1996 and written
representations from certain Reporting Persons, the Corporation believes that
all Reporting Persons complied with all Section 16(a) filing requirements in
the fiscal year ended December 31, 1996, except for the following: Mr. Geisser
filed a late Form 3.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the proxy
statement to be furnished to all stockholders entitled to vote at the next
Annual Meeting of Stockholders of the Corporation must be received at the
Corporation's principal executive offices not later than December 1, 1997. In
order to curtail controversy as to the date on which a proposal was received by
the Corporation, it is suggested that proponents submit their proposals by
certified mail, return receipt requested to 7600 Standish Place, Rockville,
Maryland 20855, Attention: Ellen S. Ranard, General Counsel.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation,
and in addition to soliciting stockholders by mail through its regular
employees, the Corporation may request banks, brokers and other custodians,
nominees and fiduciaries to solicit their customers who have stock of the
Corporation registered in the names of a nominee and, if so, will reimburse
such banks, brokers and other custodians, nominees and fiduciaries for their
reasonable out-of-pocket costs. Solicitation by officers and employees of the
Corporation may also be made of some stockholders in person or by mail,
telephone or telegraph following the original solicitation.
By Order of the Board of Directors
Joseph F. Greeves
Secretary
Rockville, Maryland
May 15, 1997
<PAGE> 1
EXHIBIT 6
CONSULTING AND NONCOMPETITION AGREEMENT
---------------------------------------
AGREEMENT by and among Eaton Corporation, an Ohio corporation, having
its principal place of business at Eaton Center, Cleveland, Ohio 44114-2584
("Parent"), Leslie S. Levine ("Consultant") and Fusion Systems Corporation, a
Delaware corporation having its principal place of business at 7600 Standish
Place, Rockville, Maryland 20855 (the "Company").
WHEREAS, pursuant to an Agreement and Plan of Merger ("Merger
Agreement") of even date herewith by and among Parent, a subsidiary of Parent
("Subsidiary"), and the Company, the Company and Parent have agreed to commence
a tender offer to purchase all of the outstanding shares of the Company's common
stock, par value $.01 per share, and the associated preferred share purchase
rights, and the parties thereto have agreed, subject to the terms and provisions
thereof, that Subsidiary shall be merged with and into the Company (the
"Merger");
WHEREAS, Parent and the Company desire by this Agreement to provide for
certain items and conditions relating to the rendering of consulting services by
the Consultant to the Company and Parent after consummation of the Merger and
for the protection of the goodwill and proprietary rights of Parent and the
Company; and
WHEREAS, the Consultant desires to render consulting services to the
Company upon the terms and conditions stated herein; and
NOW, THEREFORE IN CONSIDERATION OF THE MUTUAL COVENANTS CONTAINED
HEREIN, INTENDING TO BE LEGALLY BOUND, PARENT, THE COMPANY AND THE CONSULTANT
HEREBY AGREE AS FOLLOWS:
1. CONSULTING PERIOD. The Consultant shall make himself available to
render consulting services, on the terms and conditions set forth in this
Agreement, for the period beginning on the date of the Merger and ending on the
earlier of (i) the fifth anniversary of the date of the Merger or (ii) the date
on which the Consultant becomes disabled or dies (the "Consulting Period").
2. CONSULTING SERVICES. During the Consulting Period, the Consultant
shall render services regarding business opportunities in the semiconductor
equipment industry and such other services relating to the business of the
Company and Parent as may be requested from time to time by the Board of
Directors or the Chief Executive Officer of the Company or the Board of
Directors or the Chief Executive Officer of Parent. The Consultant's services
shall be performed at such times and locations as shall be mutually convenient
to the Consultant and the Company or Parent, as the case may be.
<PAGE> 2
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3. FEE. In consideration of the foregoing and of the covenants set
forth below, the Company shall pay the Consultant a fee (the "Fee") consisting
of (a) $750,000 in a lump sum payment promptly following the first day of the
Consulting Period, and (b) $12,500 per month thereafter during the Consulting
Period.
4. CONFIDENTIAL INFORMATION. During the Consulting Period and at all
times thereafter, the Consultant shall hold in a fiduciary capacity for the
benefit of the Company and Parent all secret or confidential information,
knowledge or data relating to the Company, Parent or any of their respective
affiliated companies, and their respective businesses, which shall have been
obtained by the Consultant during the Consultant's employment by or consulting
service to the Company, Parent or any of their respective affiliated companies
(whether before, on or after the date of this Agreement) and which shall not be
or become public knowledge (other than by acts by the Consultant or
representatives of the Consultant in violation of this Agreement). After
termination of the Consultant's services to the Company and Parent the
Consultant shall not, without prior written consent of the Company, Parent or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company, Parent and
those designated by them.
5. NONCOMPETITION. (a) NON-COMPETITION. In consideration of the fee and
other good and valuable consideration, the Consultant hereby agrees that during
the Consulting Period, the Consultant shall not, as a shareholder, employee,
officer, director, partner, lender, investor, advisor, consultant or otherwise
(whether or not being compensated in any way in any such capacity), engage
directly or indirectly in any business or enterprise which is in Competition
with Parent/Company (as defined below), without the prior written consent of
Parent.
(b) "Competition with Parent/Company" shall mean any of the
following:
(i) Competition with the semiconductor equipment business of
the Parent, of any entity controlled by Parent or of the respective successors
and assigns of Parent or any such entity:
(ii) Competition with the Company or an entity controlled by
it or the respective successors and assigns of the Company or any such entity;
(iii) Any business activity which is the same as or comparable
to any business activity of the Company or any other entity described in clause
(ii) above or of the semiconductor equipment business of Parent or of any other
entity described in clause (i) above, in any case from time to time during the
Consulting Period in any geographic area throughout the world in which Parent or
the Company or any such entity is engaged in such business activity.
<PAGE> 3
-3-
Notwithstanding the foregoing, nothing in this Section 5 shall prevent the
Consultant from purchasing and holding for investment (i) less than five percent
of the equity of any entity, if such equity is listed on a national securities
exchange or regularly traded in an over-the-counter market or such entity
consists of a pooled investment vehicle in which the consultant is a purely
passive investor, or (ii) less than one percent of the equity of any
corporation, partnership or similar entity.
(c) ENFORCEMENT. If any of the covenants set forth in Section
4 or this Section 5 (the "Covenants") is finally determined by a court of
competent jurisdiction to be unenforceable in whole or in part, the Consultant
and the Company hereby agree that such court shall have jurisdiction to reform
this Agreement or any provision hereof so that such Covenant is enforceable to
the maximum extent permitted by law, and the parties agree to abide by such
court's determination. If any of the Covenants is determined to be wholly or
partially unenforceable in any jurisdiction, such determination shall not be a
bar to or in any way diminish the right of the Company, Parent and their
respective affiliates and successors to enforce any such Covenant in any other
jurisdiction. The consultant acknowledges and agrees that: (i) the purpose of
the Covenants is to protect the goodwill, trade secrets and other confidential
information of the Company being acquired by Parent, that because of the nature
of the businesses in which the Company, Parent and their respective affiliates
and successors are engaged and because of the nature of the Confidential
Information to which the Consultant has access, it would be impractical and
excessively difficult to determine the actual damages of the Company, Parent and
their respective affiliates and successors in the event the Consultant breached
any of the Covenants' and that remedies at law (such as monetary damages) for
any breach of the Consultant's obligations under the Covenants would be
inadequate. The consultant therefore agrees and consents that if he commits any
breach of any Covenant or threatens to commit any such breach, the Company,
Parent and their respective affiliates and successors shall have the right (in
addition to, and not in lieu of, any other right or remedy that may be available
to them) to temporary and permanent injunctive relief from a court of competent
jurisdiction, without posting any bond or other security and without the
necessity of proof of actual damage.
6. FUSION LIGHTING, INC. The parties hereto acknowledge that the
Consultant is the President and a significant shareholder of Fusion Lighting,
Inc., a manufacturer of lighting systems and light sources employing technology
common to the Company's technology, and that nothing contained in this Agreement
shall limit the consultant's freedom to engage in or further such business of
that corporation in those capacities.
7. SUCCESSORS. (a) This Agreement is personal to the consultant and,
without the prior written consent of the Company, shall not be assignable by the
Consultant otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Consultant's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company, Parent and their respective successors and assigns.
<PAGE> 4
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8. MISCELLANEOUS. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified except by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(c) The Consultant acknowledges that his services hereunder
are to be rendered as an independent contractor and that he is solely
responsible for the payment of all Federal, state, local and foreign taxes that
are required by applicable laws or regulations to be paid with respect to the
Fee.
(d) The Consultant, the Company and Parent acknowledge that
this Agreement supersedes any other agreement between them concerning the
provision of consulting services by the Consultant to the Company and Parent.
IN WITNESS WHEREOF, the Consultant has hereunto set his hand and,
pursuant to the authorization of their respective Board of Directors, the
Company and Parent have caused this Agreement to be executed in their names on
their behalf, all as of the date and year first above written.
/s/ Leslie S. Levine
----------------------------
Leslie S. Levine
EATON CORPORATION
By /s/ Gerald L. Gherlein
----------------------------
FUSION SYSTEMS CORPORATION
By /s/ Joseph F. Greeves
----------------------------
<PAGE> 1
EXHIBIT 7
EXECUTIVE NONCOMPETITION
AGREEMENT
This Executive Noncompetition Agreement ("Agreement") is entered into
this 30th day of June, 1997, by and among Eaton Corporation, an Ohio
corporation, having its principal place of business at Eaton Center, Cleveland,
Ohio 44114-2584 ("Parent"), John C. Matthews ("Executive") and Fusion Systems
Corporation, a Delaware corporation having its principal place of business at
7600 Standish Place, Rockville, Maryland 20855 (the "Company").
WHEREAS, pursuant to an Agreement and Plan of Merger ("Merger
Agreement") of even date herewith by and among Parent, a subsidiary of Parent
("Subsidiary"), and the Company, the Company and Parent have agreed to commence
a tender offer to purchase all of the outstanding shares of the Company's common
stock, par value $.01 per share, and the associated preferred share purchase
rights, and the parties thereto have agreed, subject to the terms and provisions
thereof, that Subsidiary shall be merged with and into the Company (the
"Merger");
WHEREAS, Parent and the Company desire by this Agreement to provide for
certain items and conditions relating to the continued employment of the
Executive by the Company after consummation of the Merger and for the protection
of the goodwill and proprietary rights of Parent and the Company;
WHEREAS, the Executive desires to continue to be employed by the
Company upon the terms and conditions stated herein; and
WHEREAS, the Executive and the Company have entered into an employment
agreement dated March 6, 1993 (the "Existing Agreement"), providing for payments
to the Executive following a change of control of the Company.
NOW, THEREFORE IN CONSIDERATION OF THE MUTUAL COVENANTS CONTAINED
HEREIN, INTENDING TO BE LEGALLY BOUND, PARENT, THE COMPANY AND THE EXECUTIVE
HEREBY AGREE AS FOLLOWS:
Section 1. Definitions.
-----------------------------
Unless otherwise specifically defined herein, terms used herein which
are initially capitalized herein shall have the same meaning as in the Existing
Agreement.
Section 2. Stock Option.
------------------------------
(A) GRANT OF OPTION. The Parent shall grant to the Executive, effective
upon the consummation of the Merger, an option to purchase 12,000 shares of the
common stock of Parent
<PAGE> 2
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("Parent Option"). The per-share option price of the Parent Option shall be the
fair market value of a share of the common stock of Parent on the date of grant.
The Parent Option shall have a ten-year term. Subject to the terms and
conditions set forth in this Agreement, the Parent Option shall become
exercisable only after five years have elapsed since the date of grant, and only
if the Executive remains continuously employed by the Company or Parent during
that five-year period. The other terms of the Parent Option shall be in
accordance which the terms of the option plan of Parent under which it is
granted.
(B) OTHER BENEFIT UPON TERMINATION. If the Executive's employment
terminates under the conditions set forth in Paragraph 10 or 11 of the Existing
Agreement (except that the reference in each such Paragraph to "three years
following the Change in Control Date" shall, for purposes of this Section 2(B)
only, be deemed to refer to the period of five years beginning on the date on
which the Merger is consummated), the Parent Option shall remain in effect,
shall become fully exercisable on the fifth anniversary of the date of grant,
and shall be exercisable throughout the remainder of its ten-year term in
accordance with its terms. If the Executive's employment terminates other than
as described in the preceding sentence (including without limitation as a result
of the Executive's death or disability) or if the Executive breaches any of the
covenants set forth in Section 17 or 18 of the Existing Agreement or of Section
3 of this Agreement (all such covenants being referred to collectively as the
"Covenants"), the Parent Option shall terminate.
Section 3. Covenants.
---------------------------
(A) NON-COMPETITION. The Executive hereby consents to the amendment of
Addendum E of the Existing Agreement by the Company to add products of Parent's
semiconductor equipment operations. Furthermore, in addition to the Covenants
set forth in the Existing Agreement, in consideration of the grant of the Parent
Option and other good and valuable consideration the Executive hereby agrees
that during the Restricted Period (as defined below), the Executive shall not,
as a shareholder, employee, officer, director, partner, lender, investor,
advisor, consultant or otherwise (whether or not being compensated in any way in
any such capacity), engage directly or indirectly in any business or enterprise
which is in Competition with Parent/Company (as defined below);
(B) "Competition with Parent/Company" shall mean any of the following:
(i) Competition with the semiconductor equipment business of
the Parent, of any entity controlled by Parent or of the respective
successors and assigns of Parent or any such entity;
(ii) Competition with the Company or an entity controlled by
it or the respective successors and assigns of the Company or any such
entity;
(iii) Any business activity which is the same as or comparable
to any business activity of the Company or any other entity described
in clause (ii) above or of the semiconductor equipment business of
Parent or of any other entity described in clause (i) above, in any
case from time to time during the Restricted Period in any geographic
area
<PAGE> 3
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throughout the world in which Parent or the Company or any such entity
is engaged in such business activity.
Notwithstanding the foregoing, nothing in this Section 3 shall prevent
the Executive from purchasing and holding for investment less than one percent
of the shares of any corporation.
(C) "Restricted Period" shall mean the two-year period beginning on the
date upon which the Executive's employment with the Company, with Parent or with
any entity controlled by Parent terminates for any reason.
(D) ENFORCEMENT. With respect to any Covenant finally determined by a
court of competent jurisdiction to be unenforceable in whole or in part, the
Executive, Parent and the Company hereby agree that such court shall have
jurisdiction to reform the Existing Agreement and/or this Agreement or any
provision thereof or hereof so that such Covenant is enforceable to the maximum
extent permitted by law, and the parties agree to abide by such court's
determination. If any of the Covenants is determined to be wholly or partially
unenforceable in any jurisdiction, such determination shall not be a bar to or
in any way diminish the right of the Company, Parent and their respective
affiliates and successors to enforce any such Covenant in any other
jurisdiction. The Executive acknowledges and agrees that: (i) the purpose of the
Covenants is to protect the goodwill, trade secrets and other confidential
information of the Company being acquired by Parent, that because of the nature
of the businesses in which the Company, Parent and their respective affiliates
and successors are engaged and because of the nature of the Confidential
Information to which the Executive has access, it would be impractical and
excessively difficult to determine the actual damages of the Company. Parent and
their respective affiliates and successor in the event the Executive breached
any of the Covenants, and that remedies at law (such as monetary damages) for
any breach of the Executive's obligations under the Covenants would be
inadequate. The Executive therefore agrees and consents that if he commits any
breach of any Covenant or threatens to commit any such breach, the Company,
Parent and their respective affiliates and successors shall have the right (in
addition to, and not in lieu of, any other right or remedy that may be available
to it) to temporary and permanent injunctive relief from a court of competent
jurisdiction, without posting any bond or other security and without the
necessity of proof of actual damage.
Section 4. Effect on Existing Agreement.
----------------------------------------------
The date on which the Merger is consummated will be the Change in
Control Date for purposes of the Existing Agreement, and no other transaction
contemplated by the Merger Agreement will constitute a Change in Control nor
will it be considered to give rise to any other Change in Control Date. Except
as specifically amended by this Agreement, the Existing Agreement shall remain
in full force and effect after the date hereof without amendment. This Agreement
shall be null and void ab initio if the Merger is not consummated.
Section 5. Governing Law.
-------------------------------
This Agreement shall be governed and construed in accordance with the
laws of the State of Maryland.
<PAGE> 4
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from their Boards of Directors, the Company
and the Parent have caused this Executive Noncompetition Agreement to be
executed in their names on their behalf, all as of the day and year first above
written.
/s/ John C. Matthews
----------------------------
John C. Matthews
EATON CORPORATION
By: /s/ Gerald L. Gherlein
-----------------------
FUSION SYSTEMS CORPORATION
By: /s/ Leslie S. Levine
-----------------------
<PAGE> 1
EXHIBIT 8
FUSION SYSTEMS CORPORATION
EMPLOYMENT AGREEMENT
--------------------
TABLE OF CONTENTS
-----------------
Basic Employment Statement
--------------------------
Paragraph
1. Employment.....................................................1
Transactions that Activate Severance Protection
-----------------------------------------------
2. Change in Control..............................................1
3. SBU Change in Control..........................................2
Terms and Benefits of Employment
--------------------------------
4. Term of Employment.............................................2
5. Compensation...................................................2
6. Employee Benefits..............................................2
7. Reimbursement of Expenses......................................2
Severance Benefits
------------------
8. Termination Compensation and Benefits..........................3
9 Other Employment
Events and Conditions that Can Trigger Severance Benefits
---------------------------------------------------------
10. Termination by Company Without Cause Following a
Change in Control ............................................4
11 Termination by You.............................................4
12. Termination by Company for Cause Following a Change in Control.5
13. Termination of Employees Affected By a Change in Control.......6
14. Notice of Termination..........................................6
Obligations of Employee
-----------------------
15. Duty to Perform Services.......................................7
16. Patents and Inventions.........................................7
17. Non-Disclosure and Return of Confidential Information..........8
18. Non-Competition................................................9
<PAGE> 2
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Remedies
--------
19. Injunctive Relief and Damages..................................9
20. Arbitration of Disputes........................................10
21. Legal Fees.....................................................10
Other Items
-----------
22. Successor; Binding Agreement; Asset Sale Escrow................11
23. Disability and Death...........................................11
24. Notice of Termination..........................................12
25. Notices........................................................12
26. Withholding....................................................12
27. Assignment.....................................................12
28. Enforceability.................................................13
29. Waiver.........................................................13
30 Amendment......................................................13
31 Governing Law..................................................13
32. Entire Agreement...............................................13
Exhibits and Addenda
--------------------
Incentive Plan....................................................Exhibit 1
Description of Duties.............................................Addendum A
Definitions.......................................................Addendum B
Employee Benefits.................................................Addendum C
Prior inventions of Employees.....................................Addendum D
List of Products Subject to Non-Competition Agreement.............Addendum B
Confidential Information..........................................Addendum F
<PAGE> 3
EMPLOYMENT AGREEMENT
--------------------
WHEREAS, You, LESLIE S. LEVINE, and Fusion Systems Corporation ("Fusion"
or "the Company") desire to enter into a new employment agreement ("Agreement")
under the terms set forth below; and
WHEREAS, in order to promote your continued undivided attention to your
duties, Fusion wants to assure you of financial protection (severance) if there
should occur a Change in Control ("Change in Control"), as defined below and
your employment is terminated under certain circumstances;
NOW, THEREFORE you and Fusion agree this 8th day of March, 1993
("Agreement Effective Date"), as follows:
1. EMPLOYMENT. You are employed by Fusion, full-time, in the position of
President, described in Addendum A. You will carry out such duties and
responsibilities consistent with that position as may be assigned by
Company executives.
2. CHANGE IN CONTROL. A Change in Control for the purpose of this Agreement
is defined as:
a. a transaction or series of transactions in which any one person
(other than an existing stockholder) , or more than one person
acting as a group (excluding for this purpose existing
stockholders, to the extent they participate in such a group),
acquires during any 12-month period more than fifty percent of
the total voting power of Fusion's stock;
b. a change in ownership of all or substantially all of the assets
of Fusion;
c. a merger, consolidation or other reorganization where Fusion is
not the surviving entity.
d. a change of membership of a majority of the Board of Directors
(currently Atwater, Coulter, Hughes, Levine, Morgan, Mottu,
Tessler).
For the purpose of this Agreement, the effective date of a Change in
Control ("Change in Control Date") is thirty days prior to the effective
date of the transaction on which the Change in Control is based.
3. SBU CHANGE IN CONTROL. An "SBU Change in Control" is defined as any
Change in control as it would apply to the sale or transfer of an
individual Fusion "strategic business unit" ("SBU"), as defined in
Addendum B. For the purpose of this Agreement, the effective date of an
SBU Change in Control ("SBU Change in Control Date") is thirty
<PAGE> 4
-2-
days prior to the effective date of the transaction on which the SBU
Change in Control is based.
4. TERM OF EMPLOYMENT. As an at-will employee, you may terminate your
employment at any time for any reason, upon two weeks' prior notice to
Fusion. Fusion may terminate your employment at any time for any reason,
subject to any obligation it has to pay you termination compensation and
benefits expressly set forth in Paragraph 8 ("Termination and
Compensation Benefits"). Nothing contained herein shall be deemed to
create an agreement for a term of employment or to alter your status as
an at will employee. Fusion's obligation to pay you or continue your
compensation benefits following your separation from employment, for any
reason, is strictly limited to the specific terms of this Agreement.
5. COMPENSATION. As of the Agreement Effective Date, Fusion will pay you
bi-weekly a salary computed at the rate of $144,000 per year or at such
other rate as may in the future be determined by the Company ("Base
Pay"). Any future changes in your Base Pay will become a term of this
Agreement. You are also entitled to incentive, bonus and/or commission
compensation ("Incentive Compensation") under the Incentive Plan
attached hereto as Exhibit 1.
6. EMPLOYEE BENEFITS. You are entitled to employee benefits, described in
Addendum C, which are subject to change at the sole discretion of
Fusion.
7. REIMBURSEMENT OF EXPENSES. You will. be reimbursed by Fusion for
authorized business expenses upon presentation and approval by Fusion of
receipts and other supporting documents.
8. TERMINATION COMPENSATION AND BENEFITS. The following Termination
Compensation and Benefits, or a portion thereof, will be provided to you
commencing on the date of the termination of your employment following a
Change in control, if you are terminated under the conditions set forth
in Paragraphs 9, 10 or 12:
a. Continuation of Base Pay for a period equal to one month for
each $5,000 of Base Pay to a maximum of twenty-four months,
which sum shall be paid bi-weekly;
b. Incentive Compensation in accordance with Exhibit 1 for the
pro-rata portion of the year employed, to be paid in a lump sum
within thirty days of termination;
c. Payment to you monthly in cash the amount of health, life, and
disability insurance premium Fusion would have paid on your
behalf had you been employed during the payment period in
Paragraph 8(a). If you are continuing health insurance under the
Fusion plan, Fusion may pay the premium directly to the plan;
<PAGE> 5
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d. Payment for full executive outplacement to a maximum of fifteen
percent of Base Pay and Incentive Compensation paid during the
twelve months prior to your termination, or payment to you of
said amount.
9. Other Employment.
----------------
a. You shall not be required to attempt to reduce the amount of any
payment provided for in Paragraph 8 by seeking other employment;
b. If you obtain, during the payment period under Paragraph 8, new
employment comparable in duties to your position with Fusion, or
from which you earn or reasonably expect to earn in a
twelve-month period eighty percent of your base Pay plus
Incentive Compensation paid during the twelve months prior to
your termination, the amounts remaining payable by Fusion under
Paragraph 8 will be reduced to:
i. your unreimbursed relocation expenses, if any, in
connection with the new employment, not to exceed the
amount remaining, to be paid under Paragraph 8; and
ii. one-half of the amount remaining to be paid under
Paragraph 8 after payment of any unreimbursed relocation
expenses under Paragraph 9.b.i.
10. TERMINATION BY COMPANY WITHOUT CAUSE FOLLOWING A CHANGE IN CONTROL. For
three years following the Change in Control Date, your employment may be
terminated by Fusion without cause, on written notice to you. In such a
case, you will receive Termination Compensation and Benefits from
Fusion.
11. Termination by You.
------------------
a. For three years following the Change in Control Date, you may
terminate your employment with Fusion by written notice to the
President of Fusion if there is a Significant Change, as
specifically defined below, in the nature or scope of your
responsibilities, powers, duties or the terms and conditions of
your employment; provided that you first give written notice to
the President of the Significant Change and Fusion fails to take
reasonable steps within fifteen working days to effect a prompt
remedy. In such case, you will receive Termination Compensation
and Benefits from Fusion. A Significant Change is:
i. during a twelve-month period a twenty-five percent
increase in your overnight travel over the year period
prior to the Change in Control, except that any employee
may be required to travel a minimum of two overnights
per month;
<PAGE> 6
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ii. an assignment of duties inconsistent with your status
and/or position prior to the Change in Control;
iii. assigning you to work at a facility beyond a 30-mile
radius of the present location of Fusion, regardless of
the reason therefor;
iv. reduction in your Base Pay or any change in sales
territory or Incentive Compensation structure that
results in a reduction in your total income by twenty
percent or more; except that a reduction in Incentive
Compensation caused by adverse business conditions shall
not be considered a Significant Change;
v. the failure by Fusion to obtain a satisfactory agreement
from any successor to assume and agree to perform this
Agreement, as contemplated in Paragraph 22;
vi. in the event of an asset sale, the failure of Fusion to
escrow an amount of funds sufficient to cover potential
Termination Compensation and Benefits due under
Paragraph 8, unless the successor to the assets agrees
to assume and perform this Agreement, as contemplated in
Paragraph 22; and
vii. failure to reelect you to a position as a corporate
officer in which your authority and duties are
substantially the same as in the position that you held
prior to the Change of Control.
b. You must provide written notice of your claim of Significant
Change within 45 days of the date you know or reasonably should
have known of the Significant Change in order to reserve your
rights to Termination Compensation and Benefits pursuant to
Paragraph 8.
c. Your waiver of your rights with respect to any one Significant
Change shall not constitute a waiver as to any subsequent
Significant Change.
12. Termination by Company for Cause Following a Change In Control.
--------------------------------------------------------------
a. For three years following the Change in Control Date, your
employment may be terminated by Fusion for Cause, as defined
below, and you will not be entitled to Termination Compensation
or Benefits or any other severance allowance:
b. "Cause" is limited to:
i. deliberate dishonesty with respect to Fusion;
ii. conviction of a felony or crime of moral turpitude;
iii. gross and willful failure to perform a substantial
portion of your duties or responsibilities after written
notice thereof and failure to remedy within thirty days;
<PAGE> 7
-5-
iv. possession, use, or being under the influence of illegal
drugs or alcohol on Company property;
v. possession of weapons on Company property, unless
authorized in writing by the Company;
vi. sexual harassment or other employment discrimination
prohibited by law;
vii. breach of Paragraphs 17 or 18 of this Agreement.
13. TERMINATION OF EMPLOYEES AFFECTED BY AN SBU CHANGE IN CONTROL. In the
event of an SBU Change in Control, your rights to Termination
Compensation and Benefits are as follows:
a. If during the eighteen months after the SBU Change in Control
Date:
i. your employment with the remaining Fusion entity is
terminated due primarily to lack of work resulting
primarily from the SBU Change in Control; or
ii. there is a Significant Change in your employment under
Paragraph 11, you will be entitled to Termination
Compensation and Benefits.
b. If you are offered employment by the entity that purchases or
controls the assets of the SBU and such entity agrees to adopt
and perform this Agreement in place of Fusion, Fusion will have
no further obligations to you under this Agreement
14. Notice of Termination.
---------------------
a. Prior to a Change in Control Date or SBU Change in Control Date,
Fusion may terminate your employment at any time for any reason;
b. At all times, you must give two weeks written notice of your
resignation in order to be paid your accrued leave.
15. DUTY TO PERFORM SERVICES. You will devote your full business and
productive time, ability, and attention to rendering services to Fusion,
and exert your best efforts in doing so. This provision does not
prohibit you from:
a. making passive investments;
b. engaging in religious, charitable or other community or
non-profit activities which do not impair your ability to
fulfill your duties and responsibilities under this Agreement;
and
c. serving with Fusion's approval, on the board of directors of any
company, subject to the prohibitions set forth in Paragraphs 17
- 18 and provided that you shall not
<PAGE> 8
-6-
render any material services with respect to the operations or
affairs of any such company.
You will comply with all policies and procedures established by Fusion
from time to time, except to the extent that they materially diminish
your rights hereunder.
16. Patents and Inventions. You agree:
-----------------------
a. to promptly and fully disclose to Fusion in writing, every idea,
invention, product, process, apparatus, design, development,
discovery, improvement or trademark related to Fusion's business
operations, whether patentable or not, which you conceive, make
or develop, individually or jointly, during business hours or
otherwise, during the term of this Agreement or during the
one-year period thereafter;
b. on request, to assign to Fusion or its nominee title to such
ideas, inventions and discoveries and all United States and
foreign patents, trademarks or similar rights concerning those
ideas, inventions and discoveries;
c. without expense to yourself, to cooperate fully with Fusion in
applying for and securing in the name of Fusion, or its nominee
patent, trademark or similar rights in such ideas, inventions
and discoveries in each country in the world in which Fusion may
desire to secure such rights, including renewals, amendments and
reissues;
d. to execute promptly all appropriate documents presented to you
for signature by Fusion to enable Fusion, or its nominee, to
secure or transfer legal title to such ideas, inventions or
discoveries or any patents, trademarks or similar rights;
e. without expense to yourself, to give true information and
testimony (under oath if requested) as may be required to
protect the interest of Fusion relative to the ideas, inventions
and discoveries conceived, made or development by you or by any
other person concerning which you had knowledge by reason of
your employment with Fusion;
f. that the list attached as Addendum D identifies every invention,
product, process, apparatus, design or improvement, and all
patents, trademarks or other similar rights if any, in which you
personally held an interest prior to your employment by Fusion
and which are not subject to this Agreement; and
g. that the obligations of this Paragraph 16, shall be binding upon
you, your heirs, legal representatives, and assigns.
<PAGE> 9
-7-
17. Non-disclosure and Return of Confidential Information.
-----------------------------------------------------
a. Without Fusion's written consent, you will not disclose or use
at any time during or after your employment Confidential
Information, as defined in Addendum B, of which you become
informed during employment by Fusion whether or not developed by
you; Provided, however, that this paragraph shall not restrict
such disclosures or use as is required in the performance of
your duties to Fusion.
b. Upon termination of this Agreement, you will promptly deliver to
Fusion all drawings, blueprints, software, process
documentation, manuals, customer lists, employee lists, agent
lists, letters, notes, notebooks, reports, models and
prototypes, and any other materials containing Confidential
Information and which are in your possession or control.
18. Noncompetition.
--------------
a. During the term of your employment and for two years following
your separation from employment with Fusion, regardless of the
reason therefor, you will not without Fusion's prior written
consent, participate in or be connected with, as an officer,
employee, partner, agent, sole proprietor, owner, consultant,
licensor, or otherwise, any business in which you and/or the
business are actively involved in research, development,
manufacturing or sale of any product or category of product as
listed in Addendum E, or any service which involves maintenance,
repair, redesign, or other activity associated with any product
or category of product listed in Addendum E. Fusion reserves the
right upon written notice to you to supplement the definition of
Products with additional items as the nature of its businesses
shall reasonably dictate.
b. You will be permitted to engage in such competitive employment
or activity described in Paragraph 18 (a) if you furnish to
Fusion evidence, including assurances from you and your new
employer, that the fulfillment of your duties in such proposed
employment or activity would not likely cause you to disclose or
use any Confidential Information of Fusion and such evidence is
found satisfactory by Fusion in its sole judgment and
discretion.
19. INJUNCTIVE RELIEF AND DAMAGES. You recognize that if you breach
Paragraphs 17 or 18 of this Agreement, it will not be possible to
calculate resulting damages and Fusion will suffer immediate,
substantial and irreparable harm. Therefore, in such a case, Fusion will
be entitled to obtain an injunction in any competent court restraining
your further breach of Paragraph 17 or 18, and will be entitled to
collect from you its reasonable attorney's fees and costs if it is
successful in obtaining the injunction. In addition, if you breach
Paragraphs 17 or 18, you will lose any rights you have or may have had
to Termination Compensation and Benefits. If the court determines that
you have breached Paragraph 17, you will pay damages to Fusion caused by
or related to your actions. If the court determines that you have
breached Paragraph 18, you will pay Fusion $500 per calendar
<PAGE> 10
-8-
day as liquidated damages from the first day of the breach to the date
of the injunction. You further agree to jurisdiction and venue in the
Federal District Court of Maryland or the Circuit Court of Montgomery
County, Maryland.
20. Arbitration of Disputes.
-----------------------
a. Except as provided in Paragraphs 19 and 21, all disputes under
this Agreement are subject to exclusive and binding arbitration
under The Model Employment Arbitration Procedures of the
American Arbitration Association;
b. During the arbitration process, Fusion will advance fifty
percent of the expenses, costs, and fees of arbitration. Said
expenses, costs, and fees will be shared equally by you and
Fusion; except that the losing party will pay to the prevailing
party a maximum of ten percent of the amount of Termination
Compensation and Benefits claimed to be due, to cover such fees,
expenses, costs and reasonable attorney's fees incurred by the
prevailing party;
c. Limited Arbitration Remedies -- the arbitrator's authority as to
remedies is specifically and exclusively limited to awarding or
not awarding Termination Compensation and Benefits as provided
for in Paragraph 8, plus the percentage of fees, costs, and
expenses provided in Paragraph 20(b). The arbitrator may also
set forth a specific schedule for payment and award interest at
the legal rate from the date any Termination Compensation and
Benefits should have been paid under this Agreement;
d. You may not seek any other damages or remedy to enforce your
rights under the Agreement, except as provided in Paragraph 21.
e. All arbitration decisions will be confidential and will not
serve as precedent in future arbitrations concerning the terms
of this Agreement.
21. LEGAL FEES. If either party fails to comply with the terms of an
arbitration award, the other may bring legal action to enforce the
award. In such case, the losing party will pay reasonable legal fees and
expenses incurred by the prevailing party.
22. Successor; Binding Agreement; Asset Sale Escrow.
-----------------------------------------------
a. Fusion will attempt to require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to
the stock and/or assets of Fusion under circumstances resulting
in a Change in Control to expressly assume and agree to perform
all of Fusion's obligations under this Agreement in place of
Fusion. Failure of Fusion to obtain such agreement within thirty
days after a Change in Control Date shall be a breach of this
Agreement and shall entitle you to Termination Compensation and
Benefits from Fusion in the same amount and on the same terms as
if your employment were terminated pursuant to Paragraph
<PAGE> 11
-9-
10(a). For purposes of implementing the foregoing, thirty days
after the Change in Control Date shall be deemed the date of
termination.
b. In the event of an asset sale of Fusion or an SBU, if the
successor fails to assume and agree to perform this Agreement in
place of Fusion, Fusion will escrow an amount of funds from the
sale sufficient to pay Termination Compensation and Benefits
which may become payable in the future. Said escrow funds may
thereafter be released by Fusion to the extent that funds
sufficient to cover Termination Compensation and Benefits which
may become payable in the future remain in escrow. Fusion shall
take reasonable and prudent steps to assure the financial
security and trusteeship for such escrow funds and shall make
available to you at least annually, and at any other time as
conditions reasonably warrant, a report by the trustee as to the
adequacy of such escrow to cover potential Termination
Compensation and Benefits and the financial security of the
funds.
c. If a successor assumes and agrees to perform this Agreement in
place of Fusion, all your obligations, duties, and liabilities
to Fusion shall become obligations, duties, and liabilities to
the successor and all your rights in relation to Fusion shall
become rights in relation to the successor.
23. Disability and Death.
--------------------
a. If during your employment you become disabled and entitled to
disability benefits under the long-term disability insurance
policy maintained for you by the Company, Fusion may terminate
your employment as of the date such disability benefits first
become payable by giving you written notice. Said termination
will not entitle you to any Termination compensation or
Benefits.
b. This Agreement shall inure to the benefit of and be enforceable
by your representatives, executors, administrator, successors,
heirs, distributes, devisees and legatees. If you should die
while any compensation or health insurance benefits would still
be payable to you hereunder if you had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to your devise,
legatee or other designee or, if there is no such designee, to
your estate. Unless you specify otherwise in writing, your
designee shall be the beneficiary of your Fusion life insurance
policy.
24. NOTICE OF TERMINATION. Any termination by Fusion or by you shall be
communicated to the other party by a written "Notice of Termination." A
Notice of Termination shall state the specific provision in this
Agreement relied upon and set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your
employment.
25. NOTICES. Any notices and other communications provided for herein shall
be sufficient if in writing and delivered in person or sent by certified
mail to you at
<PAGE> 12
-10-
the last address you have filed in writing with Fusion or, in the case
of Fusion, at its main office, attention of the President, with a copy
to Jeffrey L. Berger, Esq., 1850 M Street, N.W., Suite 280, Washington,
D.C. 20036 or such other legal counsel as the Company may designate in
writing.
26. WITHHOLDING. All payments made by Fusion under this Agreement shall be
net of any tax or other amounts required to be withheld under applicable
law.
27. ASSIGNMENT. Neither Fusion nor you may make any assignment of this
Agreement or any interest herein, by operation of law or otherwise,
without the prior written consent of the other party, except that this
Paragraph shall not affect Fusion's right to assign this agreement to
any successor contemplated in Paragraph 22.a. and b. of this Agreement.
This Agreement shall inure to the benefit of and be binding upon Fusion,
you, your and Fusion's respective successors, executors, administrators,
heirs, and assigns.
28. ENFORCEABILITY. If any portion or provision of this Agreement is
declared illegal, invalid or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application
of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected
thereby, and each portion and provision of this Agreement shall be valid
and enforceable to the fullest extent permitted by law. Paragraphs 17 -
19 remain in effect regardless of any claimed breach of this Agreement.
29. WAIVER. No waiver of any provision hereof shall be effective unless made
in writing and signed by the waiving party. The failure of either party
to require the performance of any term or obligation of this Agreement,
or the waiver, by either party of any breach of this Agreement, shall
not prevent any subsequent enforcement of such term or obligation or be
deemed a waiver of any subsequent breach.
30. AMENDMENT. This Agreement may be amended or modified only by a written
instrument signed by you and by a duly authorized representative of
Fusion, except that if within three years from the Agreement Effect Date
there has not occurred a Change in Control, or an SBU Change in Control
that potentially affects you, the Company may unilaterally amend or
eliminate your rights to Termination Compensation and Benefits at any
time thereafter by providing written notice to you.
31. GOVERNING LAW. This Agreement shall be construed under and be governed
in all respects by the laws of Maryland, including but not limited to
the Arbitration and Award provisions of the Maryland Code, Courts and
Judicial Proceedings.
<PAGE> 13
-11-
32. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements and
understandings between you and Fusion, constitutes the entire agreement
between the parties, and may not be modified or terminated orally;
provided that you are subject to Fusion's written polities and
procedures which are in effect and may be modified at the discretion of
Fusion to the extent they do not materially diminish your rights
hereunder.
SO AGREED:
Employee Fusion Systems Corporation:
/s/ Leslie S. Levine By: /s/ Kent Kipling
- ------------------------------------ ---------------------------------
Signature Signature
Leslie S. Levine Kent Kipling
- ------------------------------------ -----------------------------------
Type Name Type Name
V.P. Quality
-----------------------------------
Title
<PAGE> 14
-12-
Exhibit 1 to Employee Agreement 100
-----------------------------------
Senior Executive Incentive Compensation
---------------------------------------
1. SENIOR EXECUTIVES for the purpose of this Plan, include the officers of
the Company and other managers specifically added by the President.
2. INCENTIVE POOL is an amount of compensation reserved, to be paid before
March 15 after the completion of a fiscal year, to Senior Executives.
The amount is determined annually by the Board of Directors at the
recommendation of the Finance Committee of the Board and the President.
Historically, it has been about 7.3 to 7.4% of pretax profit (before
deduction of incentive pool accrual) during the past fiscal year.
3. INCENTIVE COMPENSATION is the amount drawn from the Incentive Pool, paid
to each of the Senior Executives. It is determined, in general terms, by
the Board through its Finance Committee, and in detail by the President
(for all the other Senior Executives). It is based on the performance of
the individual Executive, by the financial performance of the business
unit for which he is responsible, and by the general performance of the
company. The President recommends amounts to the Finance Committee which
may approve them; the Committee recommends Incentive Compensation for
the President.
<PAGE> 15
3/8/93
ADDENDA
-------
A. Description of President position:
- Overall responsibility for the direction management and
performance of Fusion Systems Corporation;
- Responsibility for recruitment and supervision of other officers
of the Corporation;
- Responsibility for representing the Company and its management
to the Board of Directors and Shareholders.
<PAGE> 1
EXHIBIT 9
FUSION SYSTEMS CORPORATION
EMPLOYMENT AGREEMENT
--------------------------
TABLE OF CONTENTS
-----------------
Basic Employment Statement
--------------------------
Paragraph
1. Employment .......................................................... 1
Transactions that Activate Severance Protection
-----------------------------------------------
2. Change in Control ................................................... 1
3. SBU Change in Control ............................................... 2
Terms and Benefits of Employment
--------------------------------
4. Term of Employment .................................................. 2
5. Compensation ........................................................ 2
6. Employee Benefits ................................................... 2
7. Reimbursement of Expenses ........................................... 2
Severance Benefits
------------------
8. Termination Compensation and Benefits ............................... 3
9. Other Employment .................................................... 3
Events and Conditions that Can Trigger Severance Benefits
---------------------------------------------------------
10. Termination by Company Without Cause Following a Change in Control.. 4
11. Termination by You ................................................. 4
12. Termination by Company for Cause Following a Change in Control ..... 6
13. Termination of Employees Affected By a Change in Control ........... 6
14. Notice of Termination .............................................. 7
Obligations of Employee
-----------------------
15. Duty to Perform Services ........................................... 7
16. Patents and Inventions ............................................. 7
17. Non-Disclosure and Return of Confidential Information .............. 8
18. Non-Competition .................................................... 9
(i)
<PAGE> 2
Remedies
--------
19. Injunctive Relief and Damages ...................................... 10
20. Arbitration of Disputes ............................................ 10
21. Legal Fees ......................................................... 11
Other Items
-----------
22. Successor; Binding Agreement; Asset Sale Escrow .................... 11
23. Death Benefits ..................................................... 12
24. Notice of Termination .............................................. 12
25. Notices ............................................................ 12
26. Withholding ........................................................ 13
27. Assignment ......................................................... 13
28. Enforceability ..................................................... 13
29. Waiver ............................................................. 13
30. Amendment .......................................................... 13
31. Governing Law ...................................................... 13
32. Entire Agreement ................................................... 14
Exhibits and Addenda
--------------------
Incentive Plan.......................................................Exhibit 1
Description of Duties................................................Addendum A
Definitions..........................................................Addendum B
Employee Benefits....................................................Addendum C
Prior Inventions of Employees........................................Addendum D
List of Products Subject to Non-Competition Agreement................Addendum E
Confidential Information.............................................Addendum F
(ii)
<PAGE> 3
EMPLOYMENT AGREEMENT
--------------------
WHEREAS, You, Joseph F. Greeves, and Fusion Systems Corporation ("Fusion"
-----------------
(Employee Name)
or "the Company") desire to enter into a new employment agreement ("Agreement")
under the terms set forth below; and
WHEREAS, in order to promote your continued undivided attention to your
duties, Fusion wants to assure you of financial protection (severance) it there
should occur a Change in Control ("Change in Control"), as defined below and
your employment is terminated under certain circumstances;
NOW, THEREFORE you and Fusion agree this 1st day of May, 1995 ("Agreement
Effective Date"), as follows:
1. EMPLOYMENT. You are employed by Fusion, full-time, in the position of
VICE PRESIDENT, ADMINISTRATION AND FINANCE AND CHIEF FINANCIAL OFFICER, FUSION
SYSTEMS CORPORATION, described in Addendum A. You will carry out such duties and
responsibilities consistent with that position as may be assigned by Company
executives.
2. CHANGE IN CONTROL. A Change in Control for the purpose of this Agreement
is defined as:
a. a transaction or series of transactions in which any one person
(other than an existing stockholder), or more than one person acting as a group
(excluding for this purpose existing stockholders, to the extent they
participate in such a group), acquires during any 12-month period more than
fifty percent of the total voting power of Fusion's stock;
b. a change in ownership of all or substantially all of the assets of
Fusion;
c. a merger, consolidation or other reorganization where Fusion is not
the surviving entity.
For the purpose of this Agreement, the effective date of a Change in
Control ("Change in Control Date") is thirty days prior to the effective date of
the transaction on which the Change in Control is based.
3. SBU CHANGE IN CONTROL. An "SBU Change in Control" is defined as any
Change in Control as it would apply to the sale or transfer of an individual
Fusion Astrategic business unit" ("SBU") , as defined in Addendum B. For the
purpose of this Agreement, the effective date of an SBU Change in Control ("SBU
Change in Control Date") is thirty days prior to the effective date of the
transaction on which the SBU Change in Control is based.
<PAGE> 4
4. TERM OF EMPLOYMENT. As an at-will employee, you may terminate your
employment at any time for any reason, upon two weeks' prior notice to Fusion.
Fusion may terminate your employment at any time for any reason, subject to any
obligation it has to pay you termination compensation and benefits expressly set
forth in Paragraph 8 ("Termination and Compensation Benefits"). Nothing
contained herein shall be deemed to create an agreement for a term of employment
or to alter your status as an at-will employee. Fusion's obligation to pay you
or continue your compensation benefits following your separation from
employment, for any reason, is strictly limited to the specific terms of this
Agreement.
5. COMPENSATION. As of the Agreement Effective Date, Fusion will pay you
bi-weekly a salary computed at the rate of $140,004.80 per year or at such other
rate as may in the future be determined by the Company ("Base Pay"). Any future
changes in your Base Pay will become a term of this Agreement. You are also
entitled to incentive, bonus and/or commission compensation ("Incentive
Compensation") under the Incentive Plan attached hereto as Exhibit 1.
6. EMPLOYEE BENEFITS. You are entitled to employee benefits, described in
Addendum C, which are subject to change at the sole discretion of Fusion.
7. REIMBURSEMENT OF EXPENSES. You will be reimbursed by Fusion for
authorized business expenses upon presentation and approval by Fusion of
receipts and other supporting documents.
8. TERMINATION COMPENSATION AND BENEFITS. The following Termination
Compensation and Benefits, or a portion thereof, will be provided to you by
Fusion or its successor commencing on the date of the termination of your
employment following a Change in Control, if you are terminated under the
conditions set forth in Paragraphs 10, 11 or 13:
a. Continuation of Base Pay for a period equal to one month for each
$5,000 of Base Pay to a maximum of twenty-four months, which sum shall be
payable bi-weekly;
b. Incentive Compensation in accordance with Exhibit 1 for the
pro-rata portion of the year employed, to be paid in a lump sum within thirty
days of termination;
c. Payment to you monthly in cash the amount of health, life, and
disability insurance premium Fusion would have paid on your behalf had you been
employed during the payment period in Paragraph 8 (a) less any premium payment
for which you were responsible. If you are continuing health insurance under the
Fusion plan, Fusion may pay the premium directly to the plan;
d. Payment for full executive outplacement to a maximum of fifteen
percent of Base Pay and Incentive Compensation paid during the twelve months
prior to your termination, or payment to you of said amount.
-2-
<PAGE> 5
e. Payment, on the next regular pay day following termination of your
employment, of an amount equal to your accrued vacation leave, calculated on the
basis of your Base Pay.
9. Other Employment.
----------------
a. You shall not be required to attempt to reduce the amount of any
payment provided for in Paragraph 8 by seeking other employment;
b. If you obtain, during the payment period under Paragraph 8 (a),
new employment comparable in duties to your position with Fusion, or from which
you earn or reasonably expect to earn in a twelve-month period eighty percent of
your Base Pay plus Incentive Compensation paid during the twelve months prior to
your termination, the amounts remaining payable by Fusion under Paragraph 8 will
be reduced to:
i. your unreimbursed relocation expenses, if any, in
connection with the new employment, not to exceed the amount
remaining to be paid under Paragraph 8; and
ii. one-half of the amount remaining to be paid under
Paragraph 8 after payment of any unreimbursed relocation expenses
under Paragraph 9.b.i.
10. Termination by Company without Cause Following a Change in Control.
------------------------------------------------------------------
a. For three years following the Change in Control Date, your
employment may be terminated by Fusion without cause, on written notice to you.
In such a case, you will receive Termination Compensation and Benefits from
Fusion;
b. Exception: If Fusion can establish that your termination is caused
by lack of work, or cessation of operations, caused by Adverse Business
Conditions, as defined in Addendum B, your Termination Compensation and Benefits
under Paragraph 8(a) and 8(c) will be based on one month for each $15,000 of
Base Pay.
11. Termination by You.
------------------
a. For three years following the Change in Control Date, you may
terminate your employment with Fusion by written notice to the President of
Fusion if there is a Significant Change, as specifically defined below, in the
nature or scope of your responsibilities, powers, duties or the terms and
conditions of your employment; provided that you first give written notice to
the President of the Significant Change and Fusion fails to take reasonable
steps within fifteen working days to effect a prompt remedy. In such case, you
will receive Termination Compensation and Benefits from Fusion. A Significant
Change is:
i. during a twelve-month period a twenty-five percent
increase in your overnight travel over the year period prior to
the Change in Control, except
-3-
<PAGE> 6
that any employee may be required to travel a minimum of two
overnights per month;
ii. an assignment of duties inconsistent with your status
and/or position prior to the Change in Control;
iii. assigning you to work at a Fusion facility beyond a
30-mile radius of the present location of Fusion facility to which
you are assigned on the Change in Control Date or SBU Change in
Control Date, regardless of the reason therefor,
iv. reduction in Base Pay by tan percent or more or any change
in sales territory or Incentive Compensation structure which results
in a reduction in your total income by twenty percent or more, where
such reduction is caused primarily by said change.
v. the failure by Fusion to obtain an agreement from any
successor to assume and agree to perform this Agreement, as
contemplated in Paragraph 22;
vi. in the event of an asset sale, the failure of Fusion to
escrow an amount of funds sufficient to cover potential Termination
Compensation and Benefits due under Paragraph 8, unless the
successor to the assets agrees to assume and perform this Agreement,
as contemplated in Paragraph 22; and
vii. failure to reelect you to a position as a corporate
officer in which your authority and duties are substantially the
same as in the position that you held prior to the Change of
Control.
b. You must provide written notice of your claim of Significant Change
within 45 days of the date you know or reasonably should have known of the
Significant Change in order to reserve your rights to Termination Compensation
and Benefits pursuant to Paragraph 8.
c. Your waiver of your rights with respect to any one Significant
Change shall not constitute a waiver as to any subsequent Significant Change.
12. Termination by Company for Cause Following a Chance In Control.
--------------------------------------------------------------
a. For three years following the Change in Control Date, your
employment may be terminated by Fusion for Cause, as defined below, and you will
not be entitled to Termination Compensation or Benefits or any other severance
allowance;
b. Cause includes, but is not limited to:
i. deliberate dishonesty with respect to Fusion;
-4-
<PAGE> 7
ii. conviction of a felony or crime of moral turpitude;
iii. gross and willful failure to perform a substantial
portion of your duties or responsibilities after written notice
thereof and failure to remedy within thirty days;
iv. possession, use, or being under the influence of illegal
drugs or alcohol on Company property;
v. possession of weapons on Company property, unless
authorized in writing by the Company;
vi. sexual harassment or other employment discrimination
prohibited by law;
vii. breach of Paragraphs 17 or 18 of this Agreement.
viii. following written notice of the deficiency and an
opportunity to correct it:
a. repeated gross insubordination;
b. chronic absenteeism or lateness;
c. repeated failure to perform assigned duties or
responsibilities;
d. repeated behavior abusive or threatening to
other employees; and
e. other repeated conduct reasonably deemed
damaging to Fusion and its employees.
13. TERMINATION OF EMPLOYEES AFFECTED BY AN SBU CHANGE IN CONTROL. In the
event of an SBU Change in Control, your rights to Termination Compensation and
Benefits are as follows:
a. If during the eighteen months after the SBU Change in Control Date;
i. your employment with the remaining Fusion entity is
terminated due primarily to lack of work resulting primarily from
the SBU Change in Control; or
ii. there is a Significant Change in your employment
under Paragraph 11, you will be entitled to Termination
Compensation and Benefits.
b. If, following an SBU Change in Control, you are offered employment
by the entity that purchased or controls the assets of the SBU and such entity
agrees to adopt and
-5-
<PAGE> 8
perform this Agreement in place of Fusion as if there had
been a Change in Control, the remaining Fusion entity will have no further
obligations to you under this Agreement.
14. NOTICE OF TERMINATION. At all times, you must give two weeks written
notice of your termination or resignation in order to be paid your accrued
vacation leave.
15. DUTY TO PERFORM SERVICES. You will devote your full business and
productive time, ability, and attention to rendering services to Fusion, and
exert your best efforts in doing so. This provision does not prohibit you from:
a. making passive investments;
b. engaging in religious, charitable or other community or non-profit
activities which do not impair your ability to fulfill your duties and
responsibilities under this Agreement; and
c. serving with Fusion's approval, on the board of directors of any
company, subject to the prohibitions set forth in Paragraphs 17-18 and provided
that you shall not render any material services with respect to the operations
or affairs of any such company.
You will comply with all policies and procedures established by
Fusion from time to time, except to the extent that they materially diminish
your rights hereunder.
16. Patents and Inventions. You agree:
----------------------
a. to promptly and fully disclose to Fusion in writing, every idea,
invention, product, process, apparatus, design, development, discovery,
improvement or trademark related to Fusion's business operations, whether
patentable or not, which you conceive, make or develop, individually or jointly,
during business hours or otherwise, during the term of this Agreement or during
the one-year period thereafter;
b. on request, to assign to Fusion or its nominee title to such ideas,
inventions and discoveries and all United States and foreign patents, trademarks
or similar rights concerning those ideas, inventions and discoveries;
c. without expense to yourself, to cooperate fully with Fusion in
applying for and securing in the name of Fusion, or its nominee, patent,
trademark or similar rights in such ideas, inventions and discoveries in each
country in the world in which Fusion may desire to secure such rights, including
renewals, amendments and reissues;
d. to execute promptly all appropriate documents presented to you for
signature by Fusion to enable Fusion, or its nominee, to secure or transfer
legal title to such ideas, inventions or discoveries or any patents, trademarks
or similar rights;
-6-
<PAGE> 9
e. without expense to yourself, to give true information and testimony
(under oath if requested) as may be required to protect the interest of Fusion
relative to the ideas, inventions and discoveries conceived, made or development
by you or by any other person concerning which you had knowledge by reason of
your employment with Fusion;
f. that the list attached as Addendum D identifies every invention,
product, process, apparatus, design or improvement, and all patents, trademarks
or other similar rights if any, in which you personally held an interest prior
to your employment by Fusion and which are not subject to this Agreement; and
g. that the obligations of this Paragraph 16, shall be binding upon
you, your heirs, legal representatives, and assigns.
17. Non-Disclosure and Return of Confidential Information.
-----------------------------------------------------
a. Without Fusion's written consent, you will not disclose or use at
any time during or after your employment Confidential Information, as defined in
Addendum F, of which you become informed during employment by Fusion whether or
not developed by you; Provided, however, that this paragraph shall not restrict
such disclosures or use as is required in the performance of your duties to
Fusion.
b. Upon termination of your employment, you will promptly deliver to
Fusion all drawings, blueprints, software, process documentation, manuals,
customer lists, employee lists, agent lists, letters, notes, notebooks, reports,
models and prototypes, and any other materials containing Confidential
Information and which are in your possession or control.
18. Non-competition.
---------------
a. During the term of your employment and for two years following your
separation from employment with Fusion, regardless of the reason therefor, you
will not without Fusion's prior written consent, participate in or be connected
with, as an officer, employee, partner, agent, sole proprietor, owner,
consultant, licensor, or otherwise, any business in which you and/or the
business are actively involved in (i) research, development, design, redesign,
manufacturing, sales, marketing, or repair of any Product or category of Product
as listed in Addendum E with which you were involved directly in research,
development, design, redesign, manufacturing, sales, marketing, or repair while
employed by Fusion, or (ii) any service which directly involves research,
development, design, redesign, manufacturing, maintenance, sales, marketing, or
repair associated with any Product or category of Product listed in Addendum E
with which you were involved directly in research, development, design,
redesign, manufacturing, sales, marketing, or repair, while employed by Fusion.
Fusion reserves the right upon written notice to you to supplement the
definition of Products with additional items as the nature of its businesses
shall reasonably dictate.
b. You will be permitted to engage in such competitive employment or
activity described in Paragraph 18 (a) if you furnish to Fusion evidence,
including assurances
-7-
<PAGE> 10
from you and your new employer, that the fulfillment of your duties in such
proposed employment or activity would not likely cause you to disclose or use
any Confidential Information of Fusion and such evidence is found satisfactory
by Fusion in its sole judgment and discretion.
19. INJUNCTIVE RELIEF AND DAMAGES. You recognize that if you breach
Paragraphs 17 or 18 of this Agreement, it will not be possible to calculate
resulting damages and Fusion will suffer immediate, substantial and irreparable
harm. Therefore, in such a case, Fusion will be entitled to obtain an injunction
in any competent court restraining your further breach of Paragraphs 17 or 18,
and will be entitled to collect from you its reasonable attorney's fees and
costs if it is successful in obtaining the injunction. In addition, if you
breach Paragraphs 17 or 18, you will lose any rights you have or may have had to
Termination Compensation and Benefits. If the court determines that you have
breached Paragraph 17, you will pay damages to Fusion caused by or related to
your actions. If the court determines that you have breached Paragraph 18, you
will pay Fusion $500 per calendar day as liquidated damages from the first day
of the breach to the date of the injunction. You further agree to jurisdiction
and venue in the Federal District Court of Maryland or the Circuit Court of
Montgomery County, Maryland.
20. Arbitration of Disputes.
-----------------------
a. Except as provided in Paragraphs 19 and 21, all claims and disputes
under this Agreement are subject to exclusive and binding arbitration under The
Employment Dispute Resolution Rules of the American Arbitration Association;
b. During the arbitration process, Fusion will advance fifty percent
of the expenses, costs, and fees of arbitration. Said expenses, costs, and fees
will be shared equally by you and, Fusion; except that the losing party will pay
to the prevailing party a maximum of ten percent of the amount of Termination
Compensation and Benefits claimed to be due, to cover such fees, expenses, costs
and reasonable attorney's fees incurred by the prevailing party;
c. Limited Arbitration Remedies - - the arbitrator's authority as to
remedies is specifically and exclusively limited to awarding or not awarding
Termination Compensation and Benefits as provided for in Paragraph 8, plus the
percentage of fees, costs, and expenses provided in Paragraph 20(b). The
arbitrator may also set forth a specific schedule for payment and award interest
at the legal rate from the date any Termination Compensation and Benefits should
have been paid under this Agreement;
d. You may not seek any other damages or remedy to enforce your rights
under the Agreement, except as provided in Paragraph 21.
e. All arbitration decisions will be confidential and will not serve
as precedent in future arbitrations concerning the terms of this Agreement.
-8-
<PAGE> 11
21. LEGAL FEES. If either party fails to comply with the terms of an
arbitration award, the other may bring legal action to enforce the award. In
such case, the losing party will pay reasonable legal fees and expenses incurred
by the prevailing party.
22. Successor; Binding Agreement; Asset Sale Escrow.
-----------------------------------------------
a. Fusion will attempt to require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to the stock and/or
assets of Fusion under circumstances resulting in a Change in Control to
expressly assume and agree to perform all of Fusion's obligations under this
Agreement in place of Fusion. Failure of Fusion to obtain such agreement within
thirty days after a Change in Control Date shall be a breach of this Agreement
and shall entitle you to Termination Compensation and Benefits from Fusion in
the same amount and on the same terms as if your employment were terminated
pursuant to Paragraph 10(a). For purposes of implementing the foregoing, thirty
days after the Change in Control Date shall be deemed the date of termination.
b. In the event of an asset sale of Fusion or a sale of an SBU, if the
successor fails to assume and agree to perform this Agreement in place of
Fusion, Fusion will escrow an amount of funds from the sale sufficient to pay
Termination Compensation and Benefits which may become payable in the future.
Said escrow funds may thereafter be released by Fusion to the extent that funds
sufficient to cover Termination Compensation and Benefits which may become
payable in the future remain in escrow. Fusion shall take reasonable and prudent
steps to assure the financial security and trusteeship for such escrow funds and
shall make available to you at least annually, and at any other time as
conditions reasonably warrant, a report by the trustee as to the adequacy of
such escrow to cover potential Termination Compensation and Benefits and the
financial security of the funds.
c. If a successor assumes and agrees to perform this Agreement in
place of Fusion, all your obligations, duties, and liabilities to Fusion shall
become obligations, duties, and liabilities to the successor and all your rights
in relation to Fusion shall become rights in relation to the successor.
23. DEATH BENEFITS. This Agreement shall inure to the benefit of and be
enforceable by your representatives, executors, administrators, successors,
heirs, distributes, devisees and legatees. If you should die while any
compensation or health insurance benefits would still be payable to you
hereunder if you had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement
to your devise, legatee or other designee or, if there is no such designee, to
your estate. Unless you specify otherwise in writing, your designee shall be the
beneficiary of your Fusion life insurance policy.
24. NOTICE OF TERMINATION. Any termination by Fusion or by you shall be
communicated to the other party by a written "Notice of Termination." A Notice
of Termination shall state the specific provision in this Agreement relied upon
and set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment.
-9-
<PAGE> 12
25. NOTICES. Any notices and other communications provided for herein shall
be sufficient if in writing and delivered in person or sent by certified mail to
you at the last address you have filed in writing with Fusion or, in the case of
Fusion, at its main office, attention of the President, with a copy to Jeffrey
L. Berger, Esq., 1300 I Street, N.W., Suite 500E, Washington, D.C. 20005 or such
other legal counsel as the Company may designate in writing.
26. WITHHOLDING. All payments made by Fusion under this Agreement shall be
net of any tax or other amounts required to be withheld under applicable law.
27. ASSIGNMENT. Neither Fusion nor you may make any assignment of this
Agreement or any interest herein, by operation of law or otherwise, without the
prior written consent of the other party, except that this Paragraph shall not
affect Fusion's right to assign this agreement to any successor contemplated in
Paragraph 22.a. and b. of this Agreement. This Agreement shall inure to the
benefit of and be binding upon Fusion, you, your and Fusion's respective
successors, executors, administrators, heirs, and assigns.
28. ENFORCEABILITY. If any portion or provision of this Agreement is
declared illegal, invalid or unenforceable by a court of competent jurisdiction,
then the remainder of this Agreement, or the application of such portion or
provision in circumstances other than those as to which it is so declared
illegal or unenforceable, shall not be affected thereby, and each portion and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law. In addition, if any portion or provision is found to be
unreasonable or overbroad by a court, it shall be reformed to the least extent
possible in order to correct the defect. Paragraphs 17 - 19 remain in effect
regardless of any claimed breach of this Agreement.
29. WAIVER. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of either party to
require the performance of any term or obligation of this Agreement, or the
waiver by either party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
30. AMENDMENT. This Agreement may be amended or modified only by a written
instrument signed by you and by a duly authorized representative of Fusion,
except that if within three years from the Agreement Effect Date there has not
occurred a Change in Control, or an SBU Change in Control that potentially
affects you, the Company may unilaterally amend or eliminate your rights to
Termination Compensation and Benefits at any time thereafter by providing
written notice to you.
31. GOVERNING LAW. This Agreement shall be construed under and be governed
in all respects by the laws of Maryland, including but not limited to the
Arbitration and Award provisions of the Maryland Code, Courts and Judicial
Proceedings.
-10-
<PAGE> 13
32. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements and
understandings between you and Fusion, constitutes the entire agreement between
the parties, and may not be modified or terminated orally provided that you are
subject to Fusion's written policies and procedures which are in effect and may
be modified at the discretion of Fusion to the extent they do not materially
diminish your rights hereunder.
I HAVE FULLY READ, UNDERSTAND, AND ACCEPT THIS AGREEMENT.
EMPLOYEE: FUSION SYSTEMS CORPORATION:
/s/ Joseph F. Greeves /s/ Leslie S. Levine
- --------------------------------- By: -----------------------------
Signature Leslie S. Levine
President and CEO
Joseph F. Greeves 4/21/95
- --------------------------------- ---------------------------------
Type/Print Employee Name Date
4/19/95
- ---------------------------------
Date
-11-
<PAGE> 14
EXHIBIT 1 TO EMPLOYEE AGREEMENT
-------------------------------
Management Incentive Pool
Joseph F. Greeves
As a member of the Senior Management Team, you are eligible for
participation in the management incentive pool. Your first eligibility is for a
prorata portion of the 1995 operating year, for which the bonus will be issued
in March, 1996. The size of the management incentive pool and individual award
is determined by the Board of Directors.
<PAGE> 15
ADDENDUM A
----------
Position Description
(attached)
<PAGE> 16
- -------------------------------------------------------------------------------
Fusion Systems Corporation POSITION PROFILE Document #503E
- --------------------------------------------------------------------------------
POSITION TITLE: Vice President, Administration/Chief Effective Rev. Date:
Financial Officer Date:
- -------------------------------------------------------------------------------
JOB SUMMARY: Leads the Company's activities in the financial and treasury areas.
Interacts with the Board of directors and the investment community in
representing the Company from a financial perspective. Works with the CEO and
the Chairman of the Board in broad activities such as acquisitions and
financing, directed toward the Company's long-term growth. Directs the groups
within the Company which are responsible of financial planning, accounting and
treasury, human resources, and information systems activities.
ESSENTIAL DUTIES:
- - Supervises the Controller in establishing and implementing policies and
systems to maintain proper financial records and to provide adequate
accounting controls and services. Is responsible for providing adequate and
timely auditable financial statements.
- - Oversees treasury, financial planning, tax planning, real estate, and
insurance activities for the Company.
- - Serves as the Treasurer of the Company and is responsible for the proper
custody and recording of assets of the Company.
- - Supervises public and stockholder relations, including the issuance of
periodic written and verbal reports, as well as the Annual Report and
SEC-required reports.
- - Supervises the Director of Human Resources in establishing and implementing
policies and systems to recruit, retain, train, and provide appropriate
compensation and benefits to the employees of the Company.
- - Supervises the Director of Information Systems in planning for and
maintaining appropriate hardware, software, and communication systems to
support the Company's performance and growth.
- - Participates in short- and long-range planning for the company, with
particular responsibility for the financial planning and budgeting for the
Company's growth.
- - Plays a key role, as part of a team with a CEO and Chairman of the Board,
in any financing activities required for the Company's growth, including
the evaluation, structuring, and implementation of merger and acquisition
activities.
- - Provides assistance to, directly and through staff reporting to the CFO,
the operating business in the financial and administrative activities they
must perform to attain their own objectives.
- - Directs the preparation and maintenance of such records and reports as are
needed by the CEO and the other officers to keep the Board of Directors,
the shareholders, and any regulatory bodies, informed of the Company's
progress and plans. Directs the maintenance of the shareholder records of
the Company.
- - Serves, as one of the Corporate Officers, as a member of the Senior
Management Team, and is available for consultation on decisions regarding
the ongoing businesses of the Company.
- - Reports periodically to the Board of Directors, the employees, and the
shareholders on the financial performance of the Company.
- - Represents the Company before various groups, including potential
investors, to report on the Company, its performance, and prospects.
MINIMUM QUALIFICATIONS:
- - Bachelor's degree and 10 years of increasing responsibility in the
financial management of a high technology company.
- - Extensive experience with accounting issues and practices.
- - Previous service as a CFO or equivalent of a publicly-held company.
Experienced with investor relations.
- - Significant experience with internal activities and foreign exchange risk.
- - Experience in merger and acquisition activities and with equity financings.
APPROVALS:
- ----------
- -------------------------------------------------------------------------------
Staffing: Date:
- -------------------------------------------------------------------------------
Manager, Compensation & Benefits: Date:
- -------------------------------------------------------------------------------
<PAGE> 17
ADDENDUM B
----------
DEFINITIONS
-----------
As used in this Agreement, the following terms are defined below:
1. STRATEGIC BUSINESS UNIT ("SBU") -- includes individually or
collectively the following:
a. The assets and employees generally responsible for or involved in
the conduct of the business, including development, design, manufacturing,
administration, sales and service, of UV Products or Semiconductor Products.
b. The assets and employees generally responsible for or involved in
the conduct of any new or emerging business of Fusion, including development,
design, manufacturing, administration, sales and service of such new or emerging
products or services.
2. ADVERSE BUSINESS CONDITIONS -- If, in the last three months, both the
bookings and sales of Fusion, or an SBU (or a successor thereto which assumes
and agrees to perform this Agreement in place of Fusion as contemplated in
Paragraph 22) are each ten percent or more below the average bookings and sales,
for the twelve months immediately prior to said 3-month period then we define
Fusion or the SBU to have undergone an Adverse Business Condition. Adverse
Business Conditions do not include instances where this condition as to bookings
and sales results from a decision by Fusion, an SBU, a successor thereto, or an
affiliated entity, to transfer bookings and sales to an affiliated entity to
entity other than Fusion, an SBU, or a successor thereto.
<PAGE> 18
ADDENDUM C
----------
BENEFITS FOR EXEMPT EMPLOYEES
-----------------------------
HEALTH INSURANCE: (Optional Benefit) Fusion Systems offers two group health
plans. Medical coverage is provided by a PPO (Preferred Provider Organization).
At the point of service employees may elect services in-network or
out-of-network. In-network services are paid at a higher benefit level. Dental
benefits are provided through an indemnity plan.
- - Calendar year medical deductible: $150 individual, $300 family.
- - Calendar year dental deductible: $25 individual, $75 family (preventative
not subject to deductible and paid at 100%).
- - Prescription Drug Card: $5 generic, $8 name-brand.
Fusion also offers medical insurance through a Health Maintenance Organization
(closed enrollment).
LIFE INSURANCE: Life insurance is provided in an amount equal to 2 times the
employee's annual basic earnings including commissions and bonuses not to exceed
$300,000.00. Accidental Death & Dismemberment Insurance is provided in an amount
equal to 2 times the employee's annual basic earnings including commissions and
bonuses not to exceed $300,000.00.
PROFIT SHARING PLAN: To be eligible to participate in the profit sharing plan,
employees must be 21 years of age and have 1 year of service with the company.
In addition, Fusion offers a 401(k) plan for employees. Eligibility is on the
1st of the month following 30 days of employment.
EMPLOYEE STOCK PURCHASE PLAN: All employees regularly employed more than 5
months of a year and more than 20 hours per week may participate in the Fusion
Systems Employee Stock Purchase Plan. Participants must be actively employed on
the first day of the Payment Period (January 1 and July 1 of each year). The
stock purchase price will be the lower of 85% of the market price at the
beginning of the period or 85% of the market price at the end of the period.
VACATION: You will accrue 20 days of vacation per year.
- --------
HOLIDAYS: There are eight paid holidays per year. A holiday schedule is
published and posted at the beginning of every year.
PERSONAL LEAVE: Employees receive 2 days of Person Leave per year. These days
are allotted each year and cannot be carried over.
<PAGE> 19
BEREAVEMENT LEAVE: Employees may use up to 3 days of leave in the event of the
death of an immediate family member.
JURY DUTY: Employees receive full pay for regularly scheduled hours while on
jury duty.
SICK LEAVE: All exempt employees are eligible to receive sick leave as needed
for legitimate medical reasons.
SHORT TERM DISABILITY: STD begins on the 6th consecutive day of a non-work
related injury or illness. STD benefits are paid at the rate of 100% of base pay
up to 90 days.
LONG TERM DISABILITY: (Optional Benefit) Long Term Disability will start on the
91st day of disability. Long Term Disability is paid at 60% of base pay, up to
$5,000 per month up to age 70.
EDUCATIONAL BENEFITS: All regular full-time employees on active payroll
continuously for at least one year are eligible for educational benefits. Fusion
will reimburse 75% of tuition fees for approved courses.
EMPLOYEE REFERRAL: Fusion will award a referral bonus of $300 to any current
employee who refers an individual for a position if such individual is hired.
PAY DAYS: All employees are paid bi-weekly.
- --------
Note: This summary is for reference purposes only. Details, conditions, and
restrictions on each benefit are described in written policies, available to all
employees from the Human Resources Department.
-2-
<PAGE> 20
ADDENDUM D
----------
Inventions by Joseph F. Greeves which pre-date Fusion Employment:
(information to be provided by employee)
[ ]AS NOTED [ ]NONE
/s/ Joseph F. Greeves /s/ Leslie S. Levine
- -------------------------------------- -----------------------------------
Employee Signature Leslie S. Levine, President and CEO
4/19/95 4/21/95
- -------------------------------------- -----------------------------------
Date Date
Joseph F. Greeves
- --------------------------------
Print/type Employee Name
<PAGE> 21
October 29, 1993
ADDENDUM E
----------
ITEMS SUBJECT TO NON-COMPETITION
--------------------------------
"Products" include the following:
Any and all products sold by Fusion Systems Corporation ("Fusion") in the
normal course of business or which are the subject of Fusion market and/or
product development and intended for commercial introduction, including:
Fusion UV Curing Products - All current and future UV curing products and
components thereof whether based on microwave or RF (electrodeless) or an arc
lamp (electrode) designs, including but not limited to:
a. lamp systems and components thereof such as power supplies,
irradiators, lamp bulbs, controls, reflectors, screen assemblies;
b. microwave detectors and other sensors and interlocks;
c. conveyors, materials handling systems, light shields, exhaust systems;
d. software and its storage media, electronic circuit boards, interfaces,
cables, connectors;
e. installation, operation and maintenance manuals; and
f. any and all items supplied by Fusion as spare or consumable or
maintenance parts.
FUSION SEMICONDUCTOR PRODUCTS - All current and future semiconductor products
and components thereof whether based on microwave or RF (electrodeless) or an
arc lamp (electrode) design, including but not limited to:
a. Photostabilizer (UV Bake(TM) system), Asher (resist stripping or
removing) systems and components thereof, such as power supplies,
illuminators, lamp bulbs, controls, reflectors, screen assemblies,
wafer transporters and robotics, cassette elevators, ozone and nitrous
oxide generators and destroyers, end-point detectors;
b. illuminators for multi-level resist and other exposures, including
power supplies, lamp bulbs, reflective and refractive optical systems,
controls, light shields, wafer transporter and robotics, cassette
elevators;
c. microwave and ozone detectors and other sensors and interlocks;
d. software and its storage media, electronic circuit boards, interfaces,
cables, connectors;
<PAGE> 22
e. installation, operation and maintenance manuals; and
f. any and all items supplied by Fusion as spare or consumable or
maintenance parts.
OTHER FUSION PRODUCTS - All current and future microwave curing or applicator
products, laser products and components thereof, and any other new products or
service concepts under consideration or development by Fusion, including but not
limited to:
a. systems and components thereof, such as power supplies, microwave
applicators, laser media, controls;
b. microwave sensors and other sensors and interlocks;
c. enclosures, light shields, other ancillary systems;
d. software and its storage media, electronic circuit boards, interfaces,
cables, connectors;
e. installation, operation and maintenance manuals; and
f. any and all items supplied by Fusion as spare or consumable or
maintenance parts.
In addition, any and all products sold by Fusion Lighting, Inc. ("Lighting") in
the normal course of business or the subject of Lighting market and/or product
development and intended for commercial introduction, including: All current and
future UV and visible light imaging products and components thereof whether
based on microwave or RF (electrodeless) designs, including but not limited to:
a. lamp systems and components thereof such as power supplies,
irradiators, lamp bulbs, controls, reflectors, screen assemblies;
b. microwave detectors, light integrators, other sensors or interlocks;
c. filter holders and assemblies, enclosures and light shields, exhaust
system, mechanical bracketry and mounts, electric and electronic
interfaces;
d. software and its storage media, electronic circuit boards, interfaces,
cables, connector;
e. installation, operation and maintenance manuals; and
f. any and all items supplied by Fusion as spare or consumable or
maintenance parts.
-2-
<PAGE> 23
October 29, 1993
ADDENDUM F
----------
INFORMATION CONSIDERED CONFIDENTIAL
-----------------------------------
"Confidential Information" includes any or all of the following, except to the
extent this information is in the public domain:
a. Information, data or know-how about the technology and designs upon
which the Company's products are based;
b. Research and development information or data which might suggest new
or improved product concepts;
c. Information or data which the Company develops or receives in
considering potential new business development, acquisitions,
investments or the like;
d. Plans for the introduction of new products, including information
about the specifications, manufacturing costs, pricing plans, market
research or data, potential marketing strategy and prospective users
and distribution channels for these products;
e. Data, modifications, improvements, know-how or ideas about user
applications, processes, system combinations, special equipment
designs or marketing information relating to the Company's products,
including data developed in any of the Company's applications
laboratories or at customer sites or other locations;
f. Documentation of the Company's products in whole or in part, such as
bills of materials, engineering drawings, information concerning
specialized suppliers and specifications for parts and/or processes
and/or software, test protocols and specifications therefor;
g. Specific manufacturing processes, procedures and know-how, including
but not limited to lamp bulb processing, screen assembly manufacture,
microwave assembly, fabrication and alignment, reflector fabrication
and assembly, optical coatings and optical system alignment and
assembly;
h. Market research and sales strategy, including but not limited to
pricing plans and specific goals and targets identified in Fusion's
operating and/or strategic plans;
i. The Company's financial statements and data, including but not limited
to material, labor and operating costs and overheads, and the
Company's tax returns;
<PAGE> 24
j. Information about the identity and characteristics of present and
prospective customers and end-users of the Company's products,
domestic and foreign, including without limitation all reports and
data on current and historical purchases;
k. Information about the identity, business data, personnel, and product
lines relating to the Company's distribution system, including sales
and service representatives, distributors and agents;
l. Company employee lists, stockholder lists, organization charts,
titles, compensation data, personnel file data, office and home
telephone/address directories except as released by the Company
specifically for internal and/or external Company use; and
m. Any and all other information and data which is not generally
available outside the Company and which can reasonably be expected to
be of competitive value or which involves corporate development or
liquidity issues or strategies or the personal privacy of individual
employees.
For the purposes of this Addendum, "Company" shall be construed as meaning
either Fusion Systems Corporation or Fusion Lighting, Inc.
<PAGE> 1
EXHIBIT 10
VENTURE ADVISORS, INC.
4521 PGA Boulevard #330
Palm Beach Gardens, Florida 33418
June 29, 1997
Leslie S. Levine
President
Fusion Systems Corporation
7600 Standish Place
Rockville, MD 20855
Dear Leslie:
This letter confirms our understanding that Fusion Systems Corporation
(the "Company") has engaged Venture Advisors, Inc., an affiliate of Daniel
Tessler ("VAI"), as a non-exclusive financial advisor with respect to the
possible sale or other form of business combination (a "Transaction") of or with
the Company.
1. VAI, in its capacity as financial advisor to the Company, has and
will participate as a principal in all aspects of the design, management and
execution of the selling plan and process, and advise the Board of Directors
with respect thereto.
2. VAI's compensation for its services under this engagement will be
determined as follows:
(A) The Company will pay VAI a transaction fee on the
consideration received by the Company or its shareholders, as
the case may be, equal to 93 basis points multiplied by an
amount equal to (i) the number of fully diluted shares of
capital stock of the Company multiplied by the price per share
(without giving effect to amounts received or receivable under
any contingent payment obligation issued by the Company) in a
sale transaction less (ii) the amount of cash of the Company
on hand as of the closing of such a sale transaction.
(B) In addition to any fees payable by the Company to VAI
hereunder, the Company shall, whether or not a transaction
shall be consummated, reimburse VAI for its travel and other
reasonable and customary, documented out-of-pocket expenses
incurred in connection with, or arising out of VAI's
activities under or contemplated by, this engagement. Such
reimbursement shall be made promptly upon submission by VAI of
statements therefor. VAI agrees that, without the
<PAGE> 2
-2-
Company's prior written consent, it will not engage any third
party consultants or professional service providers. Any fees
or expenses of counsel consulted by VAI shall be the
responsibility of VAI.
3. VAI acknowledges that the Company has also retained the financial
advisory services of Salomon Brothers Inc ("Salomon") to render a fairness
opinion on the proposed transaction. Any fees due from and payable by the
Company to Salomon shall be separate and distinct with respect to the Company's
payment obligations to VAI hereunder.
4. The Company recognizes and confirms that, in advising the Company
and in completing its engagement hereunder, VAI will be using and relying on
publicly available information and on data, material and other information
furnished to VAI by the Company and other parties. It is understood that in
performing under this engagement VAI may rely upon such publicly available
information and the other information so furnished without independent
verification.
Except as contemplated by the terms hereof or as required by applicable
law or pursuant to an order entered or subpoena issued by a court of competent
jurisdiction, VAI shall keep confidential all material non-public information
provided to it by the Company, and shall not disclose such information to any
third party without the prior written consent of the Company, other than such of
its employees and advisors as VAI determines have a need to know.
5. The Company and VAI hereby mutually acknowledge that the rights and
obligations of Daniel Tessler as a member of the Board of Directors and as a
stockholder of the Company are not modified by this Agreement. In the event of
conflict, such rights and responsibilities will take precedence over any
obligations he may have as a principal of VAI which are contemplated by this
Agreement.
6. Since VAI will be acting on behalf of the Company in connection with
its engagement hereunder, the Company and VAI have entered into a separate
letter agreement, dated the date hereof and attached hereto, providing for
indemnification by the Company of VAI and certain related persons. Such
indemnification agreement is an integral part of this letter and the terms
thereof are incorporated by reference herein.
7. The engaged of VAI hereunder may be terminated at any time at will
either by the Board of Directors of the Company or by VAI upon written notice
thereof to the other party; provided, however, that (a) any termination of VAI's
engagement hereunder shall not affect the Company's obligation to indemnify VAI
and certain related persons as provided in the indemnification agreement
referred to above and (b) any termination by the Company of VAI's engagement
hereunder shall not affect the Company's obligation to pay for fees for
Transactions initiated or worked on during the term of VAI's engagement with the
Company and expenses provided for in Paragraph 2 hereof.
8. This agreement shall be deemed made in New York. This agreement and
all controversies arising from or relating to performance under this agreement
shall be governed by and construed in accordance with the laws of the State of
New York, without giving effect to
<PAGE> 3
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such state's rules concerning conflicts of laws. The parties hereby irrevocably
consent to personal jurisdiction and venue in any court of the State of New York
or any Federal court sitting in the City of New York for the purposes of any
suit, action or other proceeding arising out of this agreement, which is brought
by the Company, or which is brought against the Company by VAI, and each hereby
agrees that all claims in respect of any such suit, action or proceeding may be
heard and determined in any such court. The Company and VAI each hereby
irrevocably consents to the service of process of any of the aforementioned
courts in any such suit, action or proceeding by the mailing of copies thereof
by registered or certified mail, postage prepaid, to the Company at its address
set forth above, or if to VAI, at its address set forth above, any such service
to become effective ten (10) days after such mailing.
9. This agreement may be executed in counterparts, each of which
together shall be considered a single document.
We are pleased to accept this engagement. Please confirm that the
foregoing is in accordance with your understanding by signing and returning to
us the enclosed duplicate of this letter, which shall thereupon constitute a
binding agreement.
Very truly yours,
VENTURE ADVISORS, INC.
By: /s/ Daniel Tessler
--------------------
Daniel Tessler
ACCEPTED AND AGREED TO:
FUSION SYSTEMS CORPORATION
By: /s/ Leslie S. Levine
------------------------
Leslie S. Levine
President
<PAGE> 4
FUSION SYSTEMS CORPORATION
7600 Standish Place
Rockville, Maryland 20855
June 29, 1997
Venture Advisors, Inc.
4521 PGA Boulevard #330
Palm Beach Gardens, FL 33418
Gentlemen:
In connection with your engagement as our financial advisor pursuant to
a separate agreement dated as of the date hereof between you and us, we hereby
agree to indemnify and hold harmless Venture Advisors, Inc. ("VAI") and its
affiliates, their respective directors, officers, agents, employees and
controlling persons, and each of their respective successors and assigns
(collectively, the "indemnified persons"), to the full extent lawful, from and
against all losses, claims, damages, liabilities and expenses incurred by them
which (A) are related to or arise out of (i) actions or alleged actions taken or
omitted to be taken (including any untrue statements made or any statements
omitted to be made) by us or (ii) actions or alleged actions taken or omitted to
be taken by an indemnified person with our consent or in conformity with our
actions or omissions or (B) are otherwise related to or arise out of VAI's
activities on our behalf under VAI's engagement. We will not be responsible,
however, for any losses, claims, damages, liabilities or expenses which are
finally judicially determined to have resulted from the bad faith, gross
negligence or willful misconduct of the indemnified person. We also agree that
no indemnified person shall have any liability to us for or in connection with
such engagement except for losses, claims, damages, liabilities or expenses
incurred by us which are finally judicially determined to have resulted from the
bad faith, gross negligence or willful misconduct of such indemnified person.
Promptly after receipt by an indemnified person of notice of any
complaint or the commencement of any action or proceeding with respect to which
indemnification is being sought hereunder, such person will notify us in writing
of such complaint or of the commencement of such action or proceeding, but
failure to so notify us will relieve us from any liability which we may have
hereunder only if, and to the extent that, such failure is substantially
prejudicial to us, and will not in any event relieve us from any other
obligation or liability that we may have to any indemnified person otherwise
than under this letter agreement. If we so elect or are requested by such
indemnified person, we will assume the defense of such action or proceeding and
will employ counsel (which counsel, if VAI is an indemnified person in such
<PAGE> 5
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action, or if such indemnified person concurs with VAI, shall be reasonably
satisfactory to VAI) in connection with such defense, including payment of such
counsel's fees and disbursements. In the event, however, (i) such counsel
advises such indemnified person that having common counsel would present such
counsel with a conflict of interest; or (ii) if we fail to assume the defense of
the action or proceeding, or, if VAI is an indemnified person in such action and
we do not employ counsel reasonably satisfactory to VAI, in either case in a
timely manner, then such indemnified person may employ separate counsel to
represent or defend it in any action or proceeding and we will pay the
reasonable and customary fees and disbursements of such counsel; provided,
however, that we will not be required to pay the fees and disbursements of more
than one separate counsel for all indemnified persons in any jurisdiction in any
single action or proceeding or in any series of actions or proceedings arising
out of or relating to the same alleged actions or omissions of such indemnified
persons. No indemnified person shall, without our prior written consent (which
consent shall not be unreasonably withheld), settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which we are a party or for which indemnification or
contribution may be sought hereunder, unless such settlement, compromise or
consent includes an unconditional release of us and each indemnified person
hereunder from all liability arising out of such claim, action, suit or
proceeding or unless the person seeking indemnification or contribution
hereunder releases the Company from its obligations to such indemnified person
and any other indemnified persons hereunder with respect to such settlement,
compromise or consent. In any action or proceeding the defense of which we
assume, the indemnified person will have the right to participate in such
litigation and to retain its own counsel at such indemnified person's own
expense. We further agree that we will not, without the prior written consent of
VAI, which consent shall not be unreasonably withheld, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of which indemnification or contribution may be
sought hereunder (whether or not VAI or any other indemnified person is an
actual or potential party to such claim, action, suit or proceeding) unless such
settlement, compromise or consent includes an unconditional release of VAI and
each other indemnified person hereunder from all liability arising out of such
claim, action, suit or proceeding.
We agree that if any indemnification sought by an indemnified person
pursuant to this letter agreement is held by a court to be unavailable for any
reason other than as specified in the second sentence of the first paragraph of
this letter agreement, then (whether or not VAI is the indemnified person) we
and VAI will contribute to the losses, claims, damages, liabilities and expenses
for which such indemnification is held unavailable (i) in such proportion as is
appropriate to reflect the relative benefits to us, on the one hand, and VAI, on
the other hand, in connection with VAI's engagement referred to above, or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i), but also the relative fault of us, on the
one hand, and VAI, on the other hand, as well as any other relevant equitable
considerations; provided, however, that in any event VAI's aggregate
contribution to all losses, claims, damages, liabilities and expenses with
respect to which contribution is available hereunder will not exceed the amount
of fees actually received by VAI from us pursuant to VAI's engagement referred
to
<PAGE> 6
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above. It is hereby agreed that for the purposes of this paragraph, the
relative benefits to us, on the one hand, and VAI, on the other hand, with
respect to VAI's engagement shall be deemed to be in the same proportion as (i)
the total value paid or proposed to be paid or received by us or our
stockholders, as the case may be, pursuant to the transaction, whether or not
consummated, for which VAI is engaged to render financial advisory services,
bears to (ii) the fee paid or proposed to be paid to VAI in connection with such
engagement. It is agreed that it would not be just and equitable if contribution
pursuant to this paragraph were determined by pro rata allocation or by any
other method which does not take into account the considerations referred to in
this paragraph.
We further agree that we will promptly reimburse VAI and any other
indemnified person hereunder for all reasonable and customary expenses
(including reasonable and customary fees and disbursements of counsel) as they
are incurred by VAI or such other indemnified person in connection with
investigating, preparing or defending any pending or threatened action, claim,
suit or proceeding in respect of which indemnification or contribution may be
sought hereunder, whether or not in connection with pending or threatened
litigation in which VAI or any other indemnified person is a party.
Our indemnity, contribution and other obligations under this letter
agreement shall be in addition to any rights that VAI or any other indemnified
person may have at common law or otherwise, and shall be binding on our
successors and assigns.
This letter agreement shall be deemed made in New York. This letter
agreement and all controversies arising from or relating to performance under
this letter agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to such state's rules
concerning conflict of laws. This letter shall be binding on our successors and
assigns.
It is understood that, in connection with VAI's above-mentioned
engagement, VAI may also be engaged to act in one or more additional capacities,
and that the terms of the original engagement or any such additional engagement
may be embodied in one or more separate written agreements. The provisions of
this letter agreement shall apply to the original engagement, related activities
prior to the date of the original engagement, any such additional
<PAGE> 7
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engagement or such additional engagement and shall remain in full force and
effect following the completion and termination of VAI's engagement(s).
Very truly yours,
FUSION SYSTEMS CORPORATION
By: /s/ Leslie S. Levine
-----------------------------
Dated: June 29, 1997
Accepted:
VENTURE ADVISORS, INC.
/s/ Daniel Tessler
- ------------------------------
Daniel Tessler
<PAGE> 1
EXHIBIT 13
SECOND AMENDMENT TO RIGHTS AGREEMENT
This Second Amendment (the "Amendment"), dated as of this 30th day of
June, 1997, amends the Rights Agreement (the "Rights Agreement"), dated as of
September 8, 1994, as amended as of April 19, 1995, between Fusion Systems
Corporation, a Delaware corporation (the "Company"), and BankBoston, N.A.
(formerly The First National Bank of Boston), as Rights Agent (the "Rights
Agent"). All terms not otherwise defined herein shall have the meaning given
such terms in the Rights Agreement.
WHEREAS, the Board of Directors of the Company has approved and adopted
an Agreement and Plan of Merger (the "Merger Agreement"), dated as of June 30,
1997, by and among Eaton Corporation, an Ohio corporation ("Eaton"), ETN
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Eaton, and the Company;
WHEREAS, the Merger Agreement contemplates certain amendments to the
Rights Agreement; and
WHEREAS, pursuant to Section 27 of the Rights Agreement, the Company
may, subject to certain limitations, amend the Rights Agreement without the
approval of any holders of Right Certificates.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein, the Company and the Rights Agent hereby agree as
follows:
1. Amendment.
---------
(a) Section 1(a) of the Rights Agreement is hereby amended by
adding the following at the end of the first sentence thereof:
", or Eaton Corporation, an Ohio corporation ("Eaton"), or any
Affiliate of Eaton, PROVIDED, HOWEVER, that for purposes of
this Agreement, Associates of Eaton or its Affiliates shall
not be deemed to beneficially own any shares of Common Stock
which are beneficially owned by Eaton or its Affiliates"
(b) Section 1(uu) of the Rights Agreement is hereby amended by
adding the following at the end thereof:
"provided that no Triggering Event shall be deemed to occur by
reason of the approval, execution or delivery of the Agreement
and Plan of Merger, dated as of June 30, 1997, including any
amendment or supplement thereto (the "Merger Agreement"), by
and among Eaton, ETN Acquisition Corp., a Delaware
corporation, and the Company, the announcement of consummation
of the Offer
<PAGE> 2
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or the Merger (as such terms are defined in the Merger
Agreement) or the consummation of the other transactions
contemplated by the Merger Agreement."
(c) Clause (ii) of Section 3(a) of the Rights Agreement is
hereby amended by adding the following to the end of the second parenthetical
clause therein:
", or Eaton or any Affiliate of Eaton"
(d) Section 11(a)(ii)(B) of the Rights Agreement is hereby
amended by adding the following to the end of the first parenthetical clause
therein:
", or Eaton or any Affiliate of Eaton"
2. Miscellaneous.
-------------
(a) CHOICE OF LAW. This Amendment shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes shall
be governed and construed in accordance with the laws of such State applicable
to contracts to be made and performed entirely within such State.
(b) COUNTERPARTS. This Amendment may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
(c) SEVERABILITY. If any term or provision of this Amendment
is held by a court of competent jurisdiction or other authority to be invalid,
void or unenforceable, the remainder of the terms and provisions of this
Amendment shall in no way be affected, impaired or invalidated.
(d) EXISTING TERMS. The existing terms and conditions of the
Rights Agreement shall remain in full force and effect except as such terms and
conditions are specifically amended or conflict with the terms of this
Amendment.
(e) EFFECTIVE DATE. This Second Amendment to Rights Agreement
shall be effective on the date hereof, provided, however, that if the Merger
Agreement is terminated in accordance with its terms prior to the purchase by
Eaton or an Affiliate of Eaton of a number of shares of Common Stock sufficient
to satisfy the Minimum Condition (as such term is defined in the Merger
Agreement), then this Second Amendment to Rights Agreement shall immediately and
without any further action by the Company, the Rights Agent or any other Person,
be rescinded in full and the Rights Agreement shall immediately, and without any
further action by the Company, the Rights Agent or any other Person, be
reinstated to its terms and conditions as in effect prior to the execution
hereof by the Company and the Rights Agent.
<PAGE> 3
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be executed and delivered by its duly authorized officer on the day
and year first above written.
The Company: Rights Agent:
FUSION SYSTEMS CORPORATION BANKBOSTON, N.A.
By: /s/ Leslie S. Levine By: /s/ Michael J. Lapolla
-------------------- ----------------------
Name: Leslie S. Levine Name: Michael J. Lapolla
Title: Pres. and CEO Title: Administration Manager
