<PAGE>
Smart Machines Inc.
651 River Oaks Parkway
San Jose, California 95134
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 26, 1999
To the Shareholders of Smart Machines Inc.:
Notice is hereby given that a special meeting of shareholders of Smart
Machines will be held at 2:00 p.m. local time, on August 26, 1999, at the
offices of Smart Machines at 651 River Oaks Parkway, San Jose, California 95134
to consider and vote upon an Agreement and Plan of Merger, dated as of July 7,
1999, by and among Brooks Automation, Inc., Smart Acquisition Corp., a wholly-
owned subsidiary of Brooks, and Smart Machines, and the merger of Smart
Acquisition with and into Smart Machines. As a result of the merger, Smart
Machines will become a wholly-owned subsidiary of Brooks and all shares of
Smart Machines common stock and preferred stock issued and outstanding
immediately prior to the merger will be converted into the right to receive
shares of Brooks common stock with a total market value of approximately $10.5
million.
The proposed merger and other related matters are more fully described in
the attached proxy statement/prospectus. A copy of the merger agreement is
included as Appendix A of the proxy statement/prospectus.
Only the holders of record of Smart Machines common stock and preferred
stock as of the close of business on the record date, August 6, 1999, are
entitled to vote at the meeting. The approval of the foregoing proposal
requires the approval of the holders of: (i) a majority of the outstanding
shares of Smart Machines common stock; (ii) a majority of the outstanding
shares of all series of Smart Machines preferred stock, voting as a single
class; and (iii) at least 66 2/3% of the outstanding shares of Smart Machines
Series D preferred stock, voting as a separate class.
Dissenters' rights will be available to those shareholders of Smart Machines
who comply with the requirements of Chapter 13 of the California General
Corporation Law ("CGCL"), a copy of which is included as Appendix B of the
proxy statement/prospectus. See the section entitled "The Merger-Dissenters'
Rights of Smart Machines Shareholders" in the proxy statement/prospectus for a
discussion of the requirements of and the procedures to be followed in
exercising dissenters' rights in connection with the proposed merger under
Chapter 13 of the CGCL.
All shareholders are cordially invited to attend the Smart Machines special
meeting in person. Whether or not you expect to attend, we urge you to sign and
date the enclosed proxy and return it promptly in the envelope provided.
Your board of directors unanimously recommends that you vote FOR the
adoption of the merger agreement and the approval of the merger.
By Order of the Board of Directors,
K. Charles Janac
President and Chief Executive
Officer
San Jose, California
August 13, 1999
To assure that your shares are represented at the meeting, you are urged to
complete, date and sign the enclosed proxy and mail it promptly in the enclosed
postage-paid envelope provided, whether or not you plan to attend the meeting
in person. Your proxy can be withdrawn by you at any time before it is voted.
<PAGE>
Filed pursuant to Rule 424(b)(1)
Registration No. 333-84727
SMART MACHINES INC. BROOKS AUTOMATION, INC.
PROXY STATEMENT PROSPECTUS
Common Stock, $.01 Par Value
We are providing this proxy statement/prospectus to you, the shareholders of
Smart Machines, in connection with Smart Machines' Board of Directors' request
for your proxy relating to the proposed merger described in detail in this
proxy statement/prospectus.
The Boards of Directors of Brooks and Smart Machines have unanimously
approved a merger agreement that would result in Smart Machines becoming a
wholly-owned subsidiary of Brooks. If you approve the merger and it is
completed by August 31, 1999, you would receive your pro rata portion of shares
of Brooks common stock with a value equal to $10,454,506 in exchange for your
shares of Smart Machines capital stock. The total purchase price will be
allocated to the holders of the Smart Machines capital stock as follows:
<TABLE>
<CAPTION>
Holders of Class of Smart Machines Capital Stock Allocation of Total Purchase Price
- ------------------------------------------------ ----------------------------------
<S> <C>
Series A preferred stock $1,342,621
Series B preferred stock 1,246,707
Series C preferred stock 2,291,342
Series D preferred stock 3,213,955
Common Stock 2,359,881
</TABLE>
For one year after the merger, an escrow agent will hold 5% of the shares of
Brooks common stock payable to you to satisfy claims of Brooks under the merger
agreement. If Brooks asserts claims under the merger agreement, you may never
collect these shares.
Subject to their prior agreement, holders of Smart Machines' 7% convertible
promissory notes issued pursuant to Smart Machines' Note Purchase Agreement
dated June 15, 1998 will receive shares of Brooks common stock in exchange for
the cancellation of their notes. The shares of Brooks common stock issuable to
the note holders are not subject to the escrow.
Smart Machines shareholders must approve the merger for it to occur. The
Smart Machines Board of Directors has scheduled a special meeting for Smart
Machines shareholders to vote on the merger at 2:00 p.m., local time, on August
26, 1999 at the offices of Smart Machines, 651 River Oaks Parkway, San Jose,
California 95134. Shareholders of Smart Machines holding in the aggregate
approximately 50.3% of the Smart Machines common stock, 26.2% of Smart Machines
preferred stock and 48.6% of Smart Machines Series D preferred stock have
granted proxies to Brooks to vote all of their shares in favor of the merger.
Shares of Brooks common stock are traded on the Nasdaq National Market under
the symbol "BRKS." On August 11, 1999, the closing sales price of the Brooks
common stock, as reported on the Nasdaq National Market, was $26.50 per share.
Investing in Brooks common stock involves a high degree of risk. See "Risk
Factors" beginning on page 16. The proposed merger is a complex transaction. We
strongly urge you to read this proxy statement/prospectus in its entirety.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be issued in the
merger or passed upon the accuracy or adequacy of this proxy
statement/prospectus. Any representation to the contrary is a criminal offense.
Proxy Statement/Prospectus dated August 13, 1999.
First mailed to Smart Machines Shareholders on August 13, 1999
----------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
SUMMARY................................................................... 5
RISK FACTORS.............................................................. 16
WARNING REGARDING FORWARD-LOOKING STATEMENTS.............................. 23
THE SMART MACHINES SPECIAL MEETING........................................ 24
Purpose of the Smart Machines Special Meeting........................... 24
Time, Date and Place of Meeting......................................... 24
Proxies................................................................. 24
Revocability of Proxies................................................. 24
Solicitation of Proxies................................................. 24
Voting Rights and Outstanding Shares.................................... 24
Vote Required to Approve the Merger..................................... 25
All Smart Machines' Directors and Executive Officers Have Agreed To Vote
For the Merger......................................................... 25
THE MERGER................................................................ 27
Background of the Merger................................................ 27
Smart Machines' Reasons for the Merger.................................. 28
Recommendation of Smart Machines Board of Directors..................... 29
Brooks' Reasons for the Merger.......................................... 29
Interests of Certain Persons in the Merger.............................. 30
Material Contracts Between Brooks and Smart Machines.................... 30
Certain Federal Income Tax Consequences of the Merger................... 30
Accounting Treatment of the Merger...................................... 32
Federal Securities Law Consequences of the Merger....................... 32
Regulatory Approvals Necessary for the Merger........................... 33
Dissenters' Rights of Smart Machines Shareholders....................... 33
THE MERGER AGREEMENT...................................................... 35
General................................................................. 35
Effective time.......................................................... 35
Conversion of Your Shares Into Brooks Common Stock...................... 35
The Mechanics of the Exchange of Your Shares for Shares of Brooks Common
Stock.................................................................. 37
You May Be Required to Forfeit Brooks Shares............................ 38
Representations and Warranties.......................................... 39
Covenants............................................................... 41
Conduct of Business of Smart Machines Pending the Merger................ 41
Smart Machines May Not Solicit Others to Purchase Its Business.......... 43
Conditions to the Completion of the Merger.............................. 43
Events Which Could Lead to Termination of the Merger.................... 45
Consequences of Termination of the Merger............................... 46
Cash Election........................................................... 46
Waiver and Amendment.................................................... 46
COMPARATIVE MARKET PRICE DATA............................................. 47
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA........................... 49
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA...................... 52
BROOKS RECENT DEVELOPMENTS................................................ 53
BROOKS MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 54
QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT BROOKS MARKET RISK........... 62
SMART MACHINES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................ 63
INFORMATION REGARDING BROOKS.............................................. 66
INFORMATION REGARDING SMART MACHINES...................................... 77
BROOKS MANAGEMENT......................................................... 79
CERTAIN TRANSACTIONS...................................................... 86
SMART MACHINES MANAGEMENT................................................. 87
PRINCIPAL SHAREHOLDERS OF BROOKS.......................................... 88
PRINCIPAL SHAREHOLDERS OF SMART MACHINES.................................. 89
DESCRIPTION OF BROOKS SECURITIES.......................................... 93
COMPARISON OF RIGHTS OF STOCKHOLDERS OF BROOKS AND SMART MACHINES......... 96
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
LEGAL MATTERS............................................................... 104
EXPERTS..................................................................... 104
WHERE YOU CAN FIND MORE INFORMATION......................................... 105
APPENDIX A AGREEMENT AND PLAN OF MERGER..................................... A-1
APPENDIX B CALIFORNIA GENERAL CORPORATION LAW CHAPTER 13.................... B-1
</TABLE>
----------------
Aculigner(TM), Acutran(TM), Acutrav(TM), BiSymmetrik(TM), Caliber(TM),
CELLguide(R), CELLman(R), CELLworks(R), ClusterLink(TM), ControlPower(TM),
ControlVision(TM), Cornerstone(TM), FMMS(TM), FACTORYworks(R), FASTech(R),
FASTech Integration(R), FASTech Integration, Inc.(R), FASTspc(TM),
Hercules(TM), InCooler(TM), InLigner(TM), LeapFrog(TM), MagnaTran(TM), MAKING
DATA MAKE SENSE(R), Marathon(R), Marathon Express(TM), MultiTran(TM),
Patterns(TM),RS/DISCOVER(R), RS/EXPLORE(R), RS/1(R), SPCsrv(TM),
STATIONworks(R), TOM(TM),VCE(TM), VacuTran(TM), We Deliver Productivity(R),
WinClient(TM), WORKMAP(R), Xsite(TM), and the FASTech logo and the Brooks logo
are trademarks of Brooks.
SVR300(TM), SAR300(TM), SmartAligner(TM), SmartLift(TM), SmartDwill(TM), and
the Smart Machines logo are trademarks of Smart Machines.
Service marks and trademarks of other companies are referred to in this
proxy statement/prospectus.
-ii-
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE? HOW WILL I, A SHAREHOLDER
OF SMART MACHINES, BENEFIT?
A: The Board of Directors of Smart Machines believes, among other things,
that:
. the combined company will provide the resources necessary to enable
Smart Machines to credibly continue sales discussions with large
semiconductor original equipment manufacturers. These greater resources
will enhance the opportunity to provide worldwide support and rapidly
expanding manufacturing capacity to Smart Machines' most attractive
potential customers;
. Brooks' liquidity and capital resources will enhance Smart Machines'
financial position and provide it with the capital resources necessary
to enable Smart Machines to pursue its business plan;
. the combination with Brooks will provide greater access to sales,
marketing, management and capital resources necessary to pursue product
development; and
. the current Smart Machines shareholders will benefit from increased
liquidity of their investments. Brooks is a publicly-traded company.
Unless you are an affiliate of Smart Machines or Brooks, the Brooks
common stock you receive in the merger will be freely tradeable on the
Nasdaq National Market; in contrast, Smart Machines is a private
company with no market for its capital stock.
A: The management of Brooks believe the merger will be of benefit to
shareholders in several areas. The combined company will benefit by
significantly broadening Brooks' portfolio of patents in the area of direct
drive robotic products. This, along with the combined company's complementary
scientific and technical and product development opportunities, is expected to
expand potential customer opportunities as compared to each company on a stand-
alone basis. The Board of Directors of Brooks believes that the merger is in
the best interests of Brooks and its shareholders and, therefore, has approved
unanimously the merger based upon consideration of the following:
. Smart Machines' leading edge robot arm products offer Brooks
incremental opportunities in the atmospheric and vacuum robotics
markets;
. the synergy of the two companies' robot technologies provides expanded
product choices which are supported by a global sales and service
organization;
. the combined company's design efforts are anticipated to offer
customers common robotic architectures and control strategies for a
wide range of applications;
. Smart Machines will provide Brooks with its first design, engineering,
and manufacturing presence in Silicon Valley, near Brooks' largest
customers; and
. Smart Machines' successful penetration of the Japanese semiconductor
and storage device markets complements Brooks existing presence in
Asia.
To review the background and reasons for the merger in greater detail, see
pages 27 through 29 of the proxy statement/prospectus. The merger also involves
risks which are discussed beginning on page 16.
Q: DOES THE BOARD OF DIRECTORS OF SMART MACHINES RECOMMEND VOTING IN FAVOR
OF THE MERGER?
A: Yes. The Board of Directors of Smart Machines unanimously recommends
voting in favor of the merger.
1
<PAGE>
Q: WHAT IS THE TOTAL PURCHASE PRICE FOR SMART MACHINES?
A: If the merger closes by August 31, 1999, the total purchase price for
Smart Machines will be paid in Brooks common stock in an amount equal to
$10,454,506. The purchase price is subject to increase in the event Smart
Machines reduces the principal and interest on its loan from Venture Lending
and Leasing II, Inc. Smart Machines pays Venture Lending $47,100 of principal
and interest on the first day of each month. If Smart Machines makes the
scheduled payment on the Venture Lending loan on September 1, 1999, the total
purchase price would increase to $10,501,606.
The price per share of the Brooks common stock used to calculate the number
of shares issuable pursuant to the merger agreement will be the average of the
closing price for Brooks common stock on the Nasdaq National Market for the 20
consecutive trading day period ending five trading days before the close of the
merger.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Overview. If the merger is completed by August 31, 1999 you will receive
a portion of the total purchase price based on the number and class of shares
of Smart Machines capital stock that you own at the time it is completed. As we
indicated in our previous answer, the total purchase price is payable in shares
of Brooks common stock. The total purchase price will be divided among the
different classes of Smart Machines capital stock as follows:
<TABLE>
<CAPTION>
Class of Smart Machines Capital Stock Allocation of Total Purchase Price
------------------------------------- ----------------------------------
<S> <C>
Series A preferred stock $1,342,621
Series B preferred stock 1,246,707
Series C preferred stock 2,291,342
Series D preferred stock 3,213,955
Common stock 2,359,881
</TABLE>
If the merger closes after August 31, 1999, the total purchase price will
increase as described in our previous answer. Any increases in the total
purchase price will be allocable solely to the Smart Machines common stock. The
allocations of the total purchase price to each Series of Smart Machines
preferred stock will not change.
Members of each class of Smart Machines capital stock will share the portion
of the total purchase price allocated to that class of stock proportionally,
based upon the number of shares of that class held by the member compared to
the total number of outstanding shares of that class. The allocation of the
purchase price among the various classes of stock is based on the assumption
that prior to completing the merger each holder of Smart Machines preferred
stock would convert the following amounts of preferred stock to Smart Machines
common stock: Series A, 31.673%; Series B, 21.942%; Series C, 21.512%; and
Series D, 21.285%. We cannot require you to convert your shares of Smart
Machines preferred stock. However, the merger may not proceed if the holders of
Smart Machines preferred stock do not agree to convert the necessary amounts of
preferred stock to Smart Machines common stock.
Five percent of your shares will be held in escrow. An escrow agent will
hold five percent of the shares of Brooks common stock issuable to you in
escrow for one year to satisfy claims by Brooks under the merger agreement. See
"Risk Factors--Risks Relating to the Merger--A Portion of Your Shares Will be
Held in Escrow and You May Never Collect Them" on page 16.
No fractional shares. Brooks will not issue fractions of its shares to you
in the merger. Instead, you will receive cash for any fractional shares of
Brooks common stock owed to you in connection with the merger, based on the
market value of the fractional shares. To calculate the amount of cash payable
to you, you must multiply the fraction of a share by the 20 trading day average
closing price.
2
<PAGE>
Calculating the number of shares issuable to you. To calculate the
approximate number of shares of Brooks common stock you will receive in the
merger for each class of Smart Machines capital stock you own, you must:
. multiply:
(1) the total allocation of the total purchase price that class of Smart
Machines capital stock is entitled to receive; by
(2) your percentage ownership of that class of Smart Machines capital stock
on the day the merger is completed; and
. divide this result by the 20 trading day average closing price of Brooks
common stock.
Example.
For example, assume:
. the merger is completed on August 31, 1999 and, therefore, the total
purchase price is $10,454,506;
. the 20 trading day average closing price for Brooks common stock is $25;
and
. you own 2% of Smart Machines' common stock on the day the merger is
completed.
To determine the number of shares you are eligible to receive as a result
of the merger:
. multiply:
(1) $2,359,881, the total allocation of the purchase price to Smart
Machines common shareholders; by
(2) 2%, the percentage of the outstanding Smart Machines common stock
you own; and
. divide this result by $25, the 20 trading day average closing price.
Under this example, the total allocation of the purchase price to the Smart
Machines common shareholders would equal $2,359,881. Therefore you would be
entitled to receive 1,887.9 shares of Brooks common stock. However, you would
actually receive 1,793 shares of Brooks common stock, $22.50 as cash payment
for fractional shares and the right to receive up to 94 shares of Brooks
common stock, representing five percent of your total shares of Brooks common
stock, upon the termination of the escrow in one year.
Q: WHAT WILL HAPPEN TO MY SHARES HELD IN ESCROW?
A: You may be required to forfeit up to five percent of the shares of
Brooks common stock you would otherwise receive. Whether or not you vote in
favor of the merger, if the merger is completed, you will be liable for
damages suffered by Brooks and its affiliates after the merger as a result of
any misrepresentation, breach of warranty, or failure to perform any covenant
or agreement contained in the merger agreement. You will also be liable for
reimbursement of fees and expenses of Smart Machines' legal counsel in excess
of $150,000.
However, the total liability of all Smart Machines shareholders is limited
to an aggregate of five percent of the shares of Brooks common stock issued
pursuant to the merger and only begins when Brooks and its affiliates have
suffered total damages in excess of $50,000. Your individual liability as a
shareholder is limited to five percent of the shares of Brooks common stock
that you are entitled to receive in the merger.
The escrow and your indemnification obligations will end one year after the
closing. At that time, the escrow agent will release to you any escrowed
shares against which no claim has been made.
3
<PAGE>
Q: WHEN AND WHERE IS THE SPECIAL MEETING RELATING TO THE MERGER?
A: The special meeting will be held at 2:00 p.m. on August 26, 1999 at the
offices of Smart Machines, 651 River Oaks Parkway, San Jose, California 95134.
Q: WHAT SPECIFIC PROPOSALS WILL I BE ASKED TO CONSIDER?
A: At the special meeting, you will be asked to approve the merger.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
document, indicate on your proxy card how you want to vote. Then sign and mail
the proxy card in the enclosed return envelope as soon as possible, so that
your shares will be voted in accordance with your instructions at the special
meeting. If you sign and send in your proxy card and do not indicate how you
want to vote, we will count your proxy card as a vote in favor of the merger.
If you do not vote or you abstain, it will count as a vote against the merger.
Q: SHOULD I SEND MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send you written instructions
for exchanging your stock certificates.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: In most cases, the exchange of shares should be tax-free to you for
federal income tax purposes, except that you will have a taxable gain or loss
for the small amount of cash you may receive for fractional shares. To review
the tax consequences to you and to Smart Machines in more detail, see pages 30
through 32. Because tax matters are very complicated and the tax consequences
to you of the exchange of shares will depend on the facts of your particular
situation, we encourage you to contact your own tax advisor.
Q: IF I DO NOT APPROVE THE MERGER, AM I ENTITLED TO DISSENTERS' RIGHTS?
A: If you object to the merger, California law permits you to seek relief as
a dissenting shareholder. As a dissenting shareholder, you have the right to
have the fair value of your shares of Smart Machines stock determined by a
court and paid to you in cash. Your failure to strictly comply with the
provisions of California law may result in waiver or forfeiture of your
dissenters' rights. Dissenters' rights are described in greater detail
beginning on page 33 of the proxy statement/prospectus. A copy of the relevant
provisions of the California law governing this process are attached as
Appendix B to this proxy statement/prospectus.
Q: WHO CAN ANSWER QUESTIONS?
A: If you have additional questions about the merger or about Smart
Machines' solicitation of your proxy, you should contact:
Smart Machines Inc.
651 River Oaks Parkway
San Jose, CA 95134
Phone Number: (408) 324-1234
Attn: Sharon Andres
Chief Financial Officer
4
<PAGE>
SUMMARY
This summary highlights selected information from this document and does not
contain all of the information that is important to you. To understand the
merger more fully and for a more complete description of the legal terms of the
merger, you should carefully read this entire document and the documents to
which it refers you. You should particularly focus on the information set forth
under the heading "Risk Factors" beginning on page 16. All references to
"Brooks common stock" include the "rights" issuable pursuant to a Rights
Agreement entered into in July 1997 providing for the delivery of a right along
with each share of Brooks common stock issued by Brooks.
About the Companies
Brooks Automation, Inc.
Brooks is a leading supplier of tool and factory automation solutions for
the global semiconductor, data storage, and flat panel display manufacturing
industries. Founded in 1978, Brooks has distinguished itself as a technology
and market leader, particularly in the demanding cluster-tool vacuum-processing
environment. In September 1998, Brooks acquired FASTech Integration, Inc.,
which designs, develops, markets, and supports an integrated suite of
manufacturing execution system workflow software products for the
semiconductor, electronics, and general discrete manufacturing industries. In
1999, Brooks acquired Hanyon Technology, Inc. and Domain Manufacturing
Corporation to enhance its position in factory automation software through
integrated process control and optimization solutions. The mailing address of
Brooks' principal executive offices is 15 Elizabeth Drive, Chelmsford,
Massachusetts 01824 and its telephone number is (978) 262-2400.
Smart Machines Inc.
Smart Machines produces process tool automation components for semiconductor
manufacturers. These components are designed to transport wafers or discs on
which semiconductors are manufactured into and inside of semiconductor process
tools. Many of Smart Machines' products have been designed to address the
anticipated transitions in the semiconductor manufacturing industry to
increased use of deep submicron processes and larger, 300mm diameter wafers.
The mailing address of Smart Machines' principal executive offices is 651 River
Oaks Parkway, San Jose, California 95134 and its telephone number is (408) 324-
1234.
Special Meeting of Smart Machines Shareholders
Purpose of the Smart Machines Special Meeting
The purpose of the Smart Machines special meeting is to consider and vote
upon approval of the merger. The merger will occur only if the proposal is
approved.
The Smart Machines' Board of Directors unanimously approved the merger
agreement and the merger and recommends a vote by the shareholders of Smart
Machines FOR approval of the merger.
Time, Date and Place of Meeting
The Smart Machines special meeting will be held at 2:00 p.m., local time, on
August 26, 1999 at the offices of Smart Machines, 651 River Oaks Parkway, San
Jose, California 95134.
5
<PAGE>
Proxies
The form of proxy accompanying this proxy statement/prospectus is being
solicited on behalf of the Smart Machines' Board of Directors for use at the
Smart Machines special meeting. Each of the persons named in the Smart Machines
proxy as a proxy holder is an officer of Smart Machines. All shares of Smart
Machines capital stock that are entitled to vote and are represented at the
Smart Machines special meeting by properly executed proxies received prior to
or at the meeting and not duly and timely revoked will be voted in accordance
with the instructions indicated on the proxies. If no instructions are
indicated, proxies will be voted FOR the merger.
Revocability of Proxies
Any person giving a proxy to vote at the Smart Machines special meeting has
the power to revoke it at any time before it is voted. It may be revoked by
filing a written notice of revocation or a duly executed proxy bearing a later
date with the corporate secretary of Smart Machines at its principal office, or
it may be revoked by attending the meeting and voting in person. Attendance at
the meeting will not, by itself, revoke a proxy.
Solicitation of Proxies
This proxy statement/prospectus was mailed to all Smart Machines
shareholders of record as of the record date and constitutes notice of the
Smart Machines special meeting in accordance with California law. The cost of
soliciting proxies from holders of Smart Machines capital stock will be borne
by Smart Machines. In addition to solicitation by mail, proxies may be
solicited in person by directors, officers and employees of Smart Machines
without additional compensation, and by telephone, email, facsimile or similar
method.
Voting Rights and Outstanding Shares
Only holders of record of Smart Machines capital stock at the close of
business on the record date, which has been set as August 6, 1999, will be
entitled to notice of, and to vote at, the Smart Machines special meeting. At
the close of business on the record date there were 4,626,218 shares of Smart
Machines common stock, 1,965,000 shares of Series A preferred stock, 532,382
shares of Series B preferred stock, 834,096 shares of Series C preferred stock
and 1,166,581 shares of Series D preferred stock outstanding and entitled to
vote.
Prior to consummating the merger, each holder of preferred stock of Smart
Machines will be asked to exercise its right to convert the following amounts
of its preferred stock into common stock:
<TABLE>
<CAPTION>
Series of
Smart
Machines
Preferred Percent to Convert
Stock to Common Stock
--------- ------------------
<S> <C>
Series A 31.673%
Series B 21.942%
Series C 21.512%
Series D 21.285%
</TABLE>
You will receive separate instructions directly from Smart Machines on how
to convert the appropriate portion of your Smart Machines preferred stock into
Smart Machines common stock. As a result of those conversions, the number of
shares of preferred stock is expected to be reduced prior to completing the
merger. The merger may not proceed if the Smart Machines preferred stock does
not convert into Smart Machines common stock in the above amounts.
Each holder of record of Smart Machines capital stock on the record date
will be entitled to the following number of votes for each share held on all
matters to be voted upon at the Smart Machines special meeting:
. Common stock--one vote for each share held;
. Series A preferred stock--one vote for each share held;
6
<PAGE>
. Series B preferred stock--1.052632 votes for each share held;
. Series C preferred stock--1.080247 votes for each share held; and
. Series D preferred stock--one vote for each share held.
Any fractional voting rights will be rounded to the nearest whole number
(with one-half being rounded upward).
Vote Required to Approve the Merger
The presence, in person or by properly executed proxy, of the holders of a
majority of all classes of the outstanding shares of Smart Machines capital
stock entitled to vote at the Smart Machines special meeting is necessary to
establish a quorum.
Approval of the proposal requires a quorum and the approval of:
. a majority of the outstanding shares of Smart Machines common stock; plus
. a majority of the outstanding shares of all series of Smart Machines
preferred stock, voting as a single class; plus
. at least 66 2/3% of the outstanding shares of Smart Machines Series D
preferred stock, voting as a separate class.
Abstentions will be counted towards the tabulation of votes cast on the
proposal presented to the shareholders, but will have the same effect as a vote
against approval of the merger. Your failure to vote also will have the same
effect as a vote against approval of the merger.
All Smart Machines' Directors and Executive Officers Have Agreed to Vote For
the Merger
The chart below lists all Smart Machines' directors and executive officers.
These individuals have granted Brooks irrevocable proxies to vote in favor of
the merger with respect to all of their shares of Smart Machines capital stock:
<TABLE>
<CAPTION>
Name Position with Smart Machines
---- ----------------------------
<S> <C>
James E. Solomon Chairman and Director
K. Charles Janac President, Chief Executive Officer and Director
Eugene Bernosky Director
Bruce Graham Director
Nancy Magoun Director
Sharon Andres Chief Financial Officer and Controller
August Moretti Secretary
</TABLE>
These proxies represent a total of 2,329,188 shares, or approximately 50.3%
of the votes entitled to be cast by all outstanding shares of Smart Machines
common stock, a total of 1,777,915 shares, or approximately 26.2% of the
outstanding shares of Smart Machines preferred stock, and a total of 566,947
shares, or approximately 48.6% of the outstanding shares of Smart Machines
Series D preferred stock.
7
<PAGE>
The Merger
The merger agreement is attached as Appendix A to this proxy
statement/prospectus. We encourage you to read the entire merger agreement as
it is the legal document that governs the merger. For a discussion of the
conversion of your shares of Smart Machines capital stock into Brooks common
stock and examples, see "What Will I Receive in the Merger?" on page 2.
Effects of the Merger (see page 35)
In the merger Smart Machines will become a subsidiary of Brooks. Persons who
owned stock in Smart Machines before the merger will own stock in Brooks after
the merger.
Interests of Certain Persons in the Merger (see page 29)
You should be aware that certain officers of Smart Machines and the Smart
Machines' Board of Directors have interests in the merger in addition to their
interests as shareholders of Smart Machines generally. Pursuant to the merger
agreement, Brooks is obligated to preserve and assume certain indemnification
rights and benefits of the existing officers and directors of Smart Machines.
Brooks anticipates that K. Charles Janac (President and a director of Smart
Machines) and Sharon Andres (the Chief Financial Officer and Controller), as
well as a number of the other employees, will continue to be employed by it
after the merger.
Conditions to Completion of the Merger (see page 43)
Several conditions must be satisfied before the parties are required to
complete the merger. These conditions include:
. the approval of the merger by the Smart Machines shareholders;
. the conversion of all of the 7% convertible promissory notes and unpaid,
accrued interest of Smart Machines into shares of Brooks common stock;
. the receipt by Brooks of an opinion from its independent accountants,
PricewaterhouseCoopers LLP, that the merger may be accounted for as a
"pooling of interests"; and
. that holders of not more than five percent of Smart Machines stock shall
have exercised statutory dissenters' rights.
If the law permits, the conditions to the merger may be waived. The merger
may not proceed if a portion of each series of Smart Machines preferred stock
is not converted into Smart Machines common stock.
Events Which Could Lead To Termination of the Merger (see page 45)
Prior to the completion of the merger, the merger may be terminated by one
or both of the parties as described below.
Either Brooks or Smart Machines may terminate the merger if the terminating
party is not at fault and if:
. the merger has not been completed by October 31, 1999;
. Brooks or Smart Machines has failed to comply in any material respect
with any of its covenants in the merger agreement, and the failure has
not been corrected within 15 days after notice of the failure; or
. a governmental authority has taken action having the effect of
permanently restraining the merger.
8
<PAGE>
Brooks may terminate the merger if:
. Smart Machines breaches any of its representations or warranties in the
merger agreement, the breach causes a material adverse effect to Smart
Machines' business and the breach has not been corrected within 15 days
after notice of the breach; or
. Smart Machines engages in any conduct or takes any action intended to
facilitate the acquisition of Smart Machines or any significant portion
of its stock or assets by a person other than Brooks.
Smart Machines may terminate the merger if:
. Brooks breaches any of its representations or warranties in the merger
agreement; and
. the breach causes a material adverse effect to Brooks' business; and
. the breach has not been disclosed to the public; and
. the breach has not been corrected within 15 days after notice of the
breach.
Consequences of Termination of the Merger (see page 46)
Brooks must pay to Smart Machines $1,000,000 and all of Smart Machines'
reasonable costs and expenses associated with the merger agreement if the
merger is terminated because:
. Brooks fails to comply with any of its covenants or agreements contained
in the merger agreement;
. Brooks breaches any of its representations or warranties contained in the
merger agreement; or
. the shares of Brooks common stock issuable to Smart Machines shareholders
would equal or exceed 20% of the then outstanding shares of Brooks common
stock and Brooks chooses not to exercise its option to purchase Smart
Machines for cash.
Smart Machines must pay to Brooks $1,000,000 and all of Brooks' reasonable
costs and expenses associated with the merger agreement if the merger is
terminated because:
. Smart Machines engages in conduct or takes action intended to facilitate
the acquisition of Smart Machines or any significant portion of its stock
or assets by a person other than Brooks; or
. Smart Machines fails to comply with any of its covenants or agreements or
breaches any of its representations or warranties, and within six months
of such termination Smart Machines agrees to be acquired by a person
other than Brooks.
Smart Machines May Not Solicit Others to Purchase Its Business (see page 43)
Smart Machines has agreed that it will not take any action until October 31,
1999 intended or designed to assist any person or entity, other than Brooks, to
acquire Smart Machines or any significant portion of its stock or assets.
Federal Securities Law Consequences of the Merger (see page 32)
In exchange for your shares of Smart Machines stock, Brooks will issue to
you freely transferable shares of Brooks common stock. However, if you are
deemed to be an "affiliate" of Smart Machines or Brooks under applicable
federal securities laws, the transfer of your shares will be subject to certain
limitations.
Accounting Treatment of the Merger (see page 32)
We intend that the merger will qualify as a "pooling of interests" for
accounting purposes under generally accepted accounting principles. This means
that we will treat our companies as if they had always been combined for
accounting and financial reporting purposes.
9
<PAGE>
Regulatory Approvals Necessary for the Merger
Neither Brooks nor Smart Machines is aware of any governmental or regulatory
approvals required for the consummation of the merger other than (i) compliance
with applicable securities laws and (ii) certain filings under Delaware and
California law.
Comparative Rights of Smart Machines and Brooks Shareholders (see page 96)
Smart Machines is a California company and your rights as a Smart Machines
shareholder are currently governed by California law. After the merger, you
will hold shares of Brooks common stock and your rights as a shareholder of
Brooks will be governed by Delaware law. See "Comparison of Rights of
Shareholders of Brooks and Smart Machines" for a summary of certain differences
between the rights of holders of Brooks common stock and the rights of holders
of Smart Machines capital stock.
Recent Market Price of Brooks Stock
Brooks common stock is traded on the Nasdaq National Market under the symbol
"BRKS." No established trading market exists for any Smart Machines capital
stock.
The following tables set forth the closing prices per share of the Brooks
common stock on the Nasdaq National Market on July 7, 1999, the last trading
day preceding the public announcement of the merger, and on August 12, 1999,
the latest practicable trading day before the printing of this proxy
statement/prospectus. The tables also set forth the equivalent per share prices
of Smart Machines capital stock. These determinations are based on the portion
of the total purchase price allocable to the applicable class of Smart Machines
capital stock described on page 2, divided by the total outstanding number of
shares of the applicable class of Smart Machines capital stock. The first table
is based upon the number of shares of each class of Smart Machines capital
stock outstanding on the date of this proxy statement/prospectus. The second
table assumes that each holder of Smart Machines preferred stock converts the
following amounts of its preferred stock into common stock: Series A, 31.7%;
Series B, 29.9%, Series C, 21.5%; and Series D, 21.3%.
<TABLE>
<CAPTION>
Smart Machines Equivalent (Current
Outstanding)
------------------------------------------
Preferred Stock
Brooks Common -----------------------------------
Common Stock Stock Series A Series B Series C Series D
------------ ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
July 7, 1999............ $27.00 $0.51 $0.68 $2.34 $2.75 $2.76
August 12, 1999......... $26.50 0.51 0.68 2.34 2.75 2.76
<CAPTION>
Smart Machines Equivalent (Assuming
Conversion)
------------------------------------------
Preferred Stock
Brooks Common -----------------------------------
Common Stock Stock Series A Series B Series C Series D
------------ ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
July 7, 1999............ $27.00 $0.41 $1.00 $3.00 $3.50 $3.50
August 12, 1999......... $26.50 0.41 1.00 3.00 3.50 3.50
</TABLE>
You should obtain current market quotations for Brooks common stock. The
market prices of Brooks common stock at or after the effective time of the
merger may be different than stated above.
10
<PAGE>
Number of Holders of Smart Machines and Brooks Stock
As of July 26, 1999, there were 197 holders of record of Brooks common stock
and 159 holders of record of Smart Machines capital stock.
Dividend Policy of Smart Machines and Brooks
Other than dividends paid by Brooks Canada prior to its acquisition by
Brooks, neither Brooks nor Smart Machines has ever paid or declared any cash
dividends on its capital stock and neither plans to pay any cash dividends in
the foreseeable future. Brooks' current policy is to retain all of its earnings
to finance future growth. Smart Machines' credit facilities prohibit Smart
Machines from making distributions on the Smart Machines capital stock.
11
<PAGE>
Brooks Summary Historical Consolidated Financial Data
(in thousands, except per share data)
The following summary historical consolidated financial data of Brooks have
been derived from its historical consolidated financial statements. You should
read this summary in conjunction with such consolidated financial statements
and the notes thereto, which are included in this proxy statement/prospectus.
This data has been retroactively restated to reflect Brooks' acquisition of
FASTech in September 1998 and Techware in February 1996. These acquisitions
were accounted for as poolings of interests.
<TABLE>
<CAPTION>
(unaudited)
Six months
ended March 31, Fiscal year ended September 30,
---------------- --------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated statement
of operations data:
Revenues (a)........... $43,085 $53,723 $ 99,862 $108,741 $112,730 $68,488 $38,096
Net income (loss)
available to common
stockholders.......... $ (441) $(9,537) $(18,882) $ (2,122) $ 8,073 $ 6,084 $ 1,632
Earnings (loss) per
share:
Basic................. $ (0.04) $ (0.93) $ (1.84) $ (0.27) $ 1.06 $ 1.00 $ 0.36
Diluted............... $ (0.04) $ (0.93) $ (1.84) $ (0.27) $ 0.94 $ 0.86 $ 0.37
Shares used in
computing earnings
(loss) per share:
Basic................. 11,028 10,235 10,269 7,818 7,628 6,093 4,564
Diluted............... 11,028 10,235 10,269 7,818 9,108 7,661 5,841
</TABLE>
<TABLE>
<CAPTION>
(unaudited) September 30,
March 31, -----------------------------------------
1999 1998 1997 1996 1995 1994
----------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Consolidated balance
sheet data:
Total assets........... $140,172 $140,952 $160,989 $78,174 $65,016 $21,080
Working capital........ 100,742 99,921 115,439 34,294 34,870 8,124
Long-term debt
(excluding current
portion).............. 11 130 2,520 931 938 3,845
Redeemable convertible
preferred stock....... -- -- 10,366 9,831 9,298 8,764
Nonredeemable preferred
stock, common stock,
and other
stockholders' equity
(deficit)............. $121,841 $121,763 $126,870 $45,916 $37,768 $ (8)
</TABLE>
- --------
(a) Includes revenues from related party of $15.9 million, $18.2 million,
$19.1 million, $10.5 million, $6.4 million, $4.1 million and $10.3 million in
the fiscal years ended September 30, 1998, 1997, 1996, 1995, 1994 and the six
months ended March 31, 1999 and 1998, respectively.
12
<PAGE>
Smart Machines Summary Historical Financial Data
(In thousands, except per share data)
We derived the following summary historical financial data of Smart Machines
from its historical financial statements. You should read this summary in
conjunction with such financial statements and the notes thereto, which are
included elsewhere in this proxy statement/prospectus.
<TABLE>
<CAPTION>
(unaudited)
Three months
ended March 31, Fiscal year ended December 31,
---------------- ----------------------------------
1999 1998 1998 1997 1996 1995*
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Statement of operations
data:
Net sales............... $ 230 $ 32 $ 382 $ 687 $ -- $ --
Net loss attributable to
common stockholders.... $(1,130) $(1,128) $(5,497) $(3,852) $(2,803) $(1,891)
Loss per share:
Basic.................. $ (0.25) $ (0.25) $ (1.22) $ (0.94) $ (0.80) $ (0.77)
Diluted................ $ (0.25) $ (0.25) $ (1.22) $ (0.94) $ (0.80) $ (0.77)
Shares used in computing
loss per share:
Basic.................. 4,566 4,491 4,524 4,104 3,503 2,446
Diluted................ 4,566 4,491 4,524 4,104 3,503 2,446
</TABLE>
<TABLE>
<CAPTION>
(unaudited) December 31,
March 31, -----------------------------
1999 1998 1997 1996 1995
----------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance sheet data:
Total assets......................... $ 2,004 $ 2,507 $3,824 $1,840 $1,363
Working capital...................... 848 1,428 2,632 853 851
Long-term debt (excluding current
portion)............................ 3,499 3,214 104 -- --
Redeemable convertible preferred
stock............................... 3,787 3,562 2,663 -- --
Nonredeemable preferred stock, common
stock, and other stockholders'
equity (deficit).................... $(6,120) $(4,991) $ 449 $1,309 $1,115
</TABLE>
- --------
* Includes results of operations from October 1, 1994, (date of inception)
through December 31, 1995.
13
<PAGE>
Summary Unaudited Pro Forma Consolidated Financial Data
(In thousands, except per share data)
We derived this summary unaudited pro forma consolidated financial data from
the Unaudited Pro Forma Condensed Consolidated Financial Statements. The
Unaudited Pro Forma Condensed Consolidated Financial Statements give effect to
the merger as a pooling of interests. You should read this summary in
conjunction with the unaudited Pro Forma Statements and the notes thereto, both
of which are included in this proxy statement/prospectus.
We present this pro forma information for illustrative purposes only. This
information is not necessarily indicative of the operating results or financial
position that would have occurred if the combination had been consummated, nor
is it necessarily indicative of the future operating results or financial
position of Brooks or Smart Machines.
<TABLE>
<CAPTION>
Six months ended Fiscal year ended
March 31, September 30,
----------------- ----------------------------
1999 1998 1998 1997 1996
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Pro forma consolidated
statement of operations data:
Revenues..................... $45,082 $ 53,882 $107,697 $109,428 $112,730
Net income (loss)
attributable to common
stockholders................ $(2,780) $(11,889) $(21,374) $ (5,973) $ 5,270
Earnings (loss) per share:
Basic........................ $ (0.24) $ (1.12) $ (1.99) $ (0.73) $ 0.67
Diluted ..................... $ (0.24) $ (1.12) $ (1.99) $ (0.73) $ 0.62
Shares used in computing
diluted earnings
(loss) per share
Basic........................ 11,502 10,609 10,739 8,175 7,846
Diluted...................... 11,502 10,609 10,739 8,175 9,326
</TABLE>
<TABLE>
<CAPTION>
March 31,
1999
---------
<S> <C>
Pro forma consolidated balance sheet data:
Total assets......................................................... $144,386
Working capital (1).................................................. 98,967
Long-term debt (excluding current portion)........................... 2,185
Total shareholders' equity (1)....................................... $121,399
</TABLE>
- --------
(1) Gives effect as of March 31, 1999, to a reserve for direct costs of the
merger which are estimated to be $750,000.
14
<PAGE>
Comparative Historical And Pro Forma Combined Per Share Data
The following table sets forth certain per share data for Brooks and Smart
Machines on both an historical and pro forma combined basis after giving effect
to the merger as a pooling of interests as though it occurred at October 1,
1995. The equivalent pro forma and combined pro forma per share data is based
upon the issuance of 478,000 shares of Brooks common stock at $27.49 per share
in exchange for all of the Smart Machines common stock, preferred stock, and
convertible notes. This comparative historical and combined per share data does
not necessarily indicate the results that actually would have occurred if the
merger had been completed on October 1, 1995, or which may be expected in the
future. You should read this consolidated financial information in conjunction
with the historical consolidated financial statements of Brooks and of Smart
Machines and in conjunction with the Unaudited Pro Forma Condensed Consolidated
Financial Statements included elsewhere herein. Estimated direct costs of the
merger are not included in pro forma consolidated net earnings (loss) per share
below. Neither Brooks nor Smart Machines has ever declared or paid cash
dividends to holders of its common stock with the exception of dividends paid
by Brooks Canada prior to its acquisition by Brooks.
<TABLE>
<CAPTION>
Comparative Per Share Data
---------------------------------------------------
Six months ended Fiscal year ended September 30,
March 31, ----------------------------------
1999 1998 1997 1996
---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Brooks Historical:
Earnings (loss) per
share:
Basic.................. $(0.04) $ (1.84) $ (0.27) $ 1.06
Diluted................ (0.04) (1.84) (0.27) 0.94
Book value(1)........... 11.02 11.06 -- --
Smart Machines Histori-
cal:
Loss per share:
Basic.................. $(0.60) $ (1.22) $ (0.94) $ (0.80)
Diluted................ (0.60) (1.22) (0.94) (0.80)
Book value(2)........... (2.75) (2.52) -- --
Pro Forma Combined-Brooks
and Smart Machines(3):
Earnings (loss) per
share:
Basic.................. $(0.24) $ (1.99) $ (0.73) $ 0.67
Diluted................ (0.24) (1.99) (0.73) 0.61
Book value.............. 10.52 10.67 -- --
Smart Machines Equivalent
Pro Forma:
Loss per share:
Basic.................. $(0.00) $ (0.03) $ (0.01) $ 0.01
Diluted................ (0.00) (0.03) (0.01) 0.01
Book Value(4)........... 0.16 0.16 -- --
</TABLE>
- -------
(1) Brooks historical book value per share as of September 30, 1998, and March
31, 1999, is computed by dividing total stockholders' equity by the number
of shares of Brooks common stock outstanding at the end of the period.
(2) Smart Machines historical book value per share as of December 31, 1998, and
March 31, 1999, is computed by dividing total shareholders' equity,
excluding Smart Machines preferred stock, by the number of shares of Smart
Machines common stock outstanding at the end of the period.
(3) Pro forma combined earnings (loss) per share is computed based upon the
weighted average number of common and dilutive potential common shares of
Brooks and Smart Machines for each period presented, giving effect to the
merger as if it occurred at the beginning of the earliest period presented.
See the Unaudited Pro Forma Condensed Combined Financial Statements and
notes thereto included elsewhere in this proxy statement/prospectus, for a
discussion of the historical periods combined. Pro forma combined book
value per share is computed by dividing pro forma combined shareholders'
equity by the number of shares of Brooks common stock outstanding at the
end of the period after giving effect to the assumed conversion of Smart
Machines common and preferred stock, and convertible notes into Brooks
common stock based upon $27.49.
(4) Equivalent pro forma combined earnings (loss) and book value per share are
computed by multiplying the pro forma combined earnings (loss) per share
and book value per share by the Common Stock Conversion Ratio.
15
<PAGE>
RISK FACTORS
In addition to the other information in this proxy statement/prospectus,
you should carefully consider the following risk factors when determining
whether to vote for the approval of the merger and the acquisition of Brooks
common stock. References to the business and operations of Brooks include its
subsidiaries and, for the period following the merger, Smart Machines, unless
the context otherwise requires.
Risks Related to Merger
The Integration of Smart Machines with Brooks Will Be Expensive and Time
Consuming And Poses a Number of Challenges Which Could Materially Adversely
Affect Brooks' Business. The merger will not achieve its anticipated benefits
unless Brooks successfully combines its operations with those of Smart
Machines and integrates the two companies' products in a timely manner.
Integrating Brooks and Smart Machines will be a complex, time consuming and
expensive process and may result in revenue disruption if not completed in a
timely and efficient manner. Prior to the merger, Brooks and Smart Machines
operated independently, each with its own business, business culture,
customers, employees and systems. Following the merger, the companies must
operate as a combined organization utilizing common:
. sales forces;
. information communication systems;
. operating procedures;
. financial controls; and
. human resource practices, including benefit, training and professional
development programs.
There may be substantial difficulties, costs and delays involved in
integrating Brooks and Smart Machines. These could include:
. distracting management from the business of the combined company;
. problems with compatibility of business cultures;
. customer perception of an adverse change in service standards, business
focus, billing practices or service offerings available;
. costs and inefficiencies in delivering services to the customers of the
combined company;
. problems in successfully coordinating the research and development and
sales and marketing efforts;
. costs and delays in implementing common systems and procedures, including
financial accounting systems; and
. inability to retain and integrate key management, technical sales and
customer support personnel.
Further, we cannot assure you that the combined company will realize any of
the anticipated benefits and synergies of the merger. Any one or all of the
factors identified above could cause increased operating costs, lower than
anticipated financial performance, or the loss of customers and employees. The
failure to integrate Brooks and Smart Machines will have a material adverse
effect on the business, financial condition and results of operations of the
combined company.
A Portion of Your Shares Will Be Held in Escrow and You May Never Collect
Them. You could be required to forfeit to Brooks up to five percent of the
Brooks common stock you would otherwise receive in the merger. Whether or not
you vote in favor of the merger, you will be liable for indemnification of
Brooks and its affiliates for damages suffered by them as a result of any
misrepresentation, breach of warranty or a failure to perform any agreement
contained in the merger agreement. You will also be liable for reimbursement
of fees and expenses of Smart Machines' legal counsel in excess of $150,000.
To secure the indemnification
16
<PAGE>
obligations of the Smart Machines shareholders, the number of shares of Brooks
common stock you receive at the time of the merger will be reduced by five
percent. This five percent will be deposited into an escrow fund held by an
escrow agent. The shares in the escrow fund may be used to pay any
indemnification and expense claims of Brooks under the merger agreement.
You May Be Required to Surrender Your Shares Held in Escrow At Less Than
Market Value. The value of the shares held in the escrow fund used to pay any
indemnification claim will be determined based upon the average closing price
of Brooks common stock on the Nasdaq National Market during the 20 trading day
period ending five trading days before the merger. Therefore, you may be
required to satisfy indemnification obligations with shares having a value
artificially lower than the market value of the shares of Brooks common stock
at the time the claim is paid.
You Have Limited Recourse If Your Shareholder Representative Commits an
Error. The merger agreement provides for the appointment of K. Charles Janac as
your shareholder representative. Mr. Janac is empowered to take all actions
necessary or appropriate in his judgment to accomplish the terms of the escrow
agreement. Mr. Janac will not be liable for any liability or loss you suffer
because of any act he performs or omits to perform under the escrow agreement
unless he is grossly negligent or his misconduct is willful. Mr. Janac could
make a variety of mistakes and errors in judgment which would not violate that
standard.
Brooks And Smart Machines May Lose Orders For Their Products And Services As
a Result of Uncertainties Created by the Proposed Merger. Customers of Brooks
and Smart Machines may change their current and historical buying patterns or
defer purchasing decisions as they evaluate the effects of the proposed merger
and combined company's product strategy as compared to product offerings of
competitors. In addition, as commonly occurs with mergers of technology
companies during the pre-merger and integration phases, aggressive competitors
may offer incentives to attract Brooks' or Smart Machines' customers. Customers
may ultimately decide to purchase competitors' products instead of the combined
company's products. Each of Smart Machines and Brooks has historically depended
upon a limited number of customers for a significant portion of its business.
Consequently, decisions by a relatively small number of customers to defer
their purchasing decisions or to purchase products elsewhere could have a
material adverse effect on the business, results of operations and financial
condition of the combined company.
Brooks And Smart Machines Will Incur Transaction Costs As a Result of the
Merger. Brooks and Smart Machines estimate they will incur direct transaction
costs of approximately $750,000 in the aggregate in connection with the merger.
These costs relate primarily to the fees of financial advisors, attorneys,
accountants and financial printers, and will be charged to operations upon
consummation of the merger. While the amount cannot be currently estimated,
Brooks and Smart Machines expect that the combined company also will incur a
significant charge to operations in the quarter in which the merger is
consummated to reflect costs associated with integrating the two companies. The
combined company also may be required to incur additional material charges in
subsequent quarters to reflect additional costs associated with the merger.
Smart Machines Will Require Additional Capital if the Merger Fails to Occur.
Smart Machines' accountants stated in their Report of Independent Accountants
dated June 1, 1999 that Smart Machines is in the development stage and has not
yet generated significant revenues and, as a result, has incurred losses and
negative cash flows from operations since inception that raise substantial
doubt about its ability to continue as a going concern. If the merger is not
consummated, it will be critical to Smart Machines' future operations that it
promptly obtain additional financing. If it does not, Smart Machines may not be
able to continue as a going concern as presently structured, and may be
required to significantly restructure, attempt a merger with another company,
or seek protection under the bankruptcy laws. At June 30, 1999, Smart Machines'
principal sources of liquidity were cash and cash equivalents of approximately
$120,000 and Smart Machines had a working capital deficit of approximately
$287,000.
Risks Relating to Brooks and Smart Machines
The risks factors in this subsection apply to each of Brooks and Smart
Machines individually, where appropriate, and also are expected to apply to
Brooks following the consummation of the merger.
17
<PAGE>
Brooks' Dependence on the Cyclical Semiconductor Industry Materially Affects
the Demand for Brooks' Products. Brooks' business is significantly dependent on
capital expenditures by manufacturers of semiconductors. The semiconductor
industry is highly cyclical and is presently experiencing a period of
oversupply, resulting in significantly reduced demand for capital equipment,
including the products manufactured and marketed by Brooks. Brooks' revenues in
the past have been materially adversely affected by semiconductor industry
downturns or slowdowns and may be materially adversely affected by future
downturns. Brooks believes (on the basis of its experience during the present
downturn) that downturns in the semiconductor manufacturing industry will occur
in the future, and will result in decreased demand for semiconductor
manufacturing equipment.
Brooks' Reliance on a Small Number of Customers For a Large Portion of Its
Revenues Could Have a Material Adverse Effect on Brooks' Results of Operations.
A significant portion of Brooks' revenues in each fiscal period has been
concentrated among a limited number of customers. If Brooks lost one or more of
these major customers, or if one or more major customers decreased its orders,
Brooks' business would be materially and adversely affected. Sales to Brooks'
ten largest customers accounted for 60% of total revenues in the first six
months of fiscal 1999 and 61% of total revenues in fiscal 1998. Approximately
10% of Brooks' total revenues in the first six months of 1999 and 16% in fiscal
1998 were derived from sales to Lam Research Corporation, Brooks' largest
customer and a related party. Brooks expects that sales to Lam will continue to
represent a significant portion of Brooks' revenues for the foreseeable future.
Brooks' future operating results depend on the success of these customers and
Brooks' success in selling products to them.
Delays in Shipment of a Few Systems Could Substantially Decrease Revenues
For a Period. Brooks has historically derived a substantial portion of its
quarterly and annual revenues from the sale of a relatively small number of
semiconductor and flat panel display handling systems. These systems have
relatively high selling prices compared to its other products. As a result, the
precise timing of the recognition of revenue from an order for one or a small
number of systems can have a significant impact on Brooks' total revenues and
operating results for a particular period. Brooks' operating results for a
particular period could be adversely affected if orders for a small number of
systems are canceled or rescheduled by customers or cannot be filled in time to
recognize revenue during that period due to unanticipated delays in
manufacturing, testing, shipping or product acceptance.
Brooks Has Significant Fixed Costs Which Are Not Easily Reduced If Revenues
Fall Below Expectations. Brooks' expense levels are based, in part, on its
expectations as to future revenues. Many of Brooks' expenses, particularly
those relating to capital equipment and manufacturing overhead, are relatively
fixed. Brooks' ability to reduce expenses is also constrained by the need for
continual investment in research and development and the need to maintain
extensive ongoing customer service and support capability for its existing
customer base. These investments create significant fixed costs that Brooks may
be unable to reduce rapidly, if at all, in the event of a semiconductor
industry downturn or other reduction in revenue. Accordingly, any downturn in
revenue could have a material adverse effect on Brooks' business, financial
condition and results of operations.
Brooks' Sales Volume is Affected by Its Original Equipment Manufacturing
Customers' Sales Volume. Brooks' products are principally sold to original
equipment manufacturers which incorporate Brooks' products into their
equipment. Due to the significant capital commitments usually incurred by
semiconductor and flat panel display manufacturers in their purchases of
equipment from these original equipment manufacturers, they demand highly
reliable products which may require several years for the original equipment
manufacturers to develop. Brooks' revenues are therefore primarily dependent
upon the timing and effectiveness of the efforts of its customers in developing
and marketing equipment which incorporates Brooks' products.
Brooks' Lengthy Sales Cycle Requires Brooks to Incur Significant Expenses
With No Assurance That Brooks Will Generate Revenue. Brooks' new products are
generally incorporated into an original equipment manufacturers' customer's
process tools at the design stage. However, customer decisions to use Brooks'
products can often require significant expenditures by Brooks without any
assurance of success. These customer decisions often precede the generation of
volume sales, if any, by a year or more. Brooks cannot
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guarantee that it will continue to achieve design wins or that the process
tools manufactured by Brooks' customers will be commercially successful.
Brooks' or its customers' failure to develop and introduce new products
successfully and in a timely manner could materially adversely affect Brooks'
business and results of operations.
Brooks' Operating Results Fluctuate Significantly. Brooks' operating results
have in the past fluctuated and may in the future continue to fluctuate
significantly depending upon a variety of factors. Some of these factors may
include:
.the level of demand for semiconductors in general;
.cyclicality in the market for semiconductor manufacturing equipment;
.the timing and size of orders from Brooks' customer base;
.the ability of Brooks to manufacture, test and deliver products in a timely
and cost effective manner;
.Brooks' success in winning competitions with competitors for orders;
.the timing of new product announcements and releases by Brooks and its
competitors;
.the mix of products sold by Brooks; and
.competitive pricing pressures.
Brooks Conducts Its Business Internationally, Which Exposes It to a Number
of Difficulties in Coordinating Its Activities Outside the United States and in
Dealing with Multiple Regulatory Environments. Approximately 46% of Brooks'
total revenues in the first six months of fiscal 1999 and 41% in fiscal 1998
were derived from customers located outside the United States. Brooks
anticipates that international sales will continue to account for a significant
portion of its revenues. Brooks' international business may be materially
adversely affected by:
.difficulties in staffing and managing operations in multiple locations in
many countries;
.greater difficulties in trade accounts receivable collection;
.possibly adverse tax consequences;
.governmental currency controls;
.changes in various regulatory requirements;
.political and economic changes and disruptions;
.currency exchange rate changes;
.export/import controls; and
.tariff regulations.
To support its international customers, Brooks maintains subsidiaries in
several countries, including Japan, South Korea, Germany, United Kingdom,
Taiwan and Singapore. Brooks cannot guarantee that it will be able to manage
these operations effectively or that Brooks' investment in these activities
will enable it to compete successfully in international markets or to meet the
service and support needs of its customers. For the foreseeable future Brooks
will continue to be affected by unstable Asian economies, particularly those in
Japan and South Korea. It is not possible to determine the future effect a
continuation of the Asian economic crisis may have on Brooks' financial
position and results of operations.
Although Brooks' international sales are primarily denominated in U.S.
dollars, changes in currency exchange rates can make it more difficult for
Brooks to compete with foreign manufacturers on price. If Brooks' international
sales increase relative to Brooks' total revenues, these factors could have a
more pronounced effect on Brooks' operating results.
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Brooks Must Continually Improve Its Technology to Remain Competitive.
Technology changes rapidly in the semiconductor and flat panel display
manufacturing industries. Brooks believes that this will continue to be true.
Brooks' success will depend upon its ability to enhance its existing products
and to develop and market new products to meet customer requirements.
Successful product development and introduction depends on a number of factors,
including accurate new product definition, timely completion and introduction
of new product designs, and market acceptance of Brooks' products and its
customers' products. In order to address emerging industry requirements for
larger diameter 300mm wafer and fourth generation flat panel substrates,
Brooks' current major development programs include expanding its product
offerings for data storage manufacturers and for semiconductor and flat panel
display substrate handling systems as well as wafer handling systems and
modules for atmospheric process tools. In addition, Brooks continues to develop
and enhance its factory automation software product offerings, including its
manufacturing execution systems and equipment automation solutions for
factorywide integration. Brooks cannot guarantee that it will adjust to
changing market conditions or be commercially successful in introducing
products or product enhancements.
Brooks Faces Significant Competition Which Could Result in Decreased Demand
for Brooks' Products or Services. The markets for Brooks' products are
intensely competitive and Brooks may not be able to compete successfully.
Brooks believes that its primary competition is from integrated original
equipment manufacturers that satisfy their semiconductor and flat panel display
handling needs in-house rather than by purchasing systems or modules from an
independent supplier such as Brooks. Many of these original equipment
manufacturers have substantially greater resources than Brooks. Applied
Materials, Inc., the leading process equipment original equipment manufacturer,
develops and manufactures its own central wafer and flat panel display
substrate handling systems and modules. Brooks may not be successful in selling
its products to original equipment manufacturers that currently satisfy their
substrate handling needs in-house, regardless of the performance or the price
of Brooks' products. Moreover, integrated original equipment manufacturers may
begin to commercialize their handling capabilities and become competitors of
Brooks.
Brooks' Business Could be Materially Adversely Affected If Brooks Fails to
Adequately Integrate Acquired Businesses. Brooks has completed a number of
acquisitions in a short period of time, subjecting it to significant risks,
including:
. difficulties in the assimilation of operations, products and corporate
cultures;
. difficulties in completing the development of acquired technologies;
. difficulties in managing geographically remote units;
. the risks of entering markets or types of businesses in which it has
limited or no direct experience; and
. the potential loss of key employees of the acquired companies.
Any delay or failure to integrate an acquired company, technology or product
line could result in the additional expenditure of money, charges to income and
increased demands on the time of Brooks' management. As a result of these and
other risks, Brooks may not realize anticipated benefits from recent
acquisitions. Brooks' failure to achieve these benefits could have a material
adverse effect on Brooks' business, results of operations or financial
condition.
Future Acquisitions May Involve Expending Significant Funds, Incurring
Additional Debt or the Issuance of Additional Securities, Which May Materially
Affect Brooks' Results of Operations and be Dilutive to Shareholders. The
negotiation of potential acquisitions and the integration of an acquired
business diverts the time and resources of Brooks' management from the day-to-
day operation of Brooks' business. Acquisitions may involve expending
significant funds, incurring additional debt or the issuance of additional
securities, which may materially adversely affect Brooks' results of operations
and be dilutive to Brooks shareholders. If
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Brooks expends significant funds or incurs additional debt, its ability to
obtain financing for working capital or other purposes could decline and Brooks
may be more vulnerable to economic downturns and competitive pressures.
Brooks May Have Difficulty Protecting Its Intellectual Property. Brooks'
ability to compete is heavily affected by its ability to protect its
intellectual property. Brooks relies primarily on trade secret laws,
confidentiality procedures, patents, copyrights, trademarks and licensing
arrangements to protect its intellectual property. The steps Brooks has taken
to protect its technology may be inadequate. Existing trade secret, trademark
and copyright laws offer only limited protection. Brooks patents could be
invalidated or circumvented. The laws of certain foreign countries in which
Brooks' products are or may be developed, manufactured or sold may not protect
Brooks' products or intellectual property rights to the same extent as do the
laws of the United States. This may make the possibility of piracy of Brooks'
technology and products more likely. Brooks cannot assure you that the steps
taken by Brooks to protect its intellectual property will be adequate to
prevent misappropriation of Brooks technology.
Brooks' Operations Could Infringe the Intellectual Property Rights of
Others. Particular aspects of Brooks' technology could be found to infringe on
the intellectual property rights or patents of others. Other companies may hold
or obtain patents on inventions or may otherwise claim proprietary rights to
technology necessary to Brooks' business. Brooks cannot predict the extent to
which it may be required to seek licenses. Brooks cannot guarantee that the
terms of any licenses Brooks may be required to seek will be reasonable.
Brooks' Business May Be Materially Adversely Affected By Infringement Claims
by General Signal. Brooks has received notice from General Signal Corporation
alleging infringements of its patent rights by certain of Brooks' products. The
notification advised Brooks that General Signal was attempting to enforce its
rights to those patents in litigation against Applied Materials, and that, at
the conclusion of that litigation, General Signal intended to enforce its
rights against Brooks and others. According to a press release issued by
Applied Materials in November 1997, Applied Materials settled its litigation
with General Signal by acquiring ownership of five General Signal patents.
Although not verified by Brooks, these five patents would appear to be the
patents referred to by General Signal in its prior notice to Brooks. Applied
Materials has not contacted Brooks regarding these patents.
Brooks Needs Employees Who Are Difficult To Hire And Retain. Brooks needs to
hire additional management level employees and substantial numbers of employees
with technical backgrounds for both Brooks' hardware and software engineering
and support staffs. The market for these employees is becoming increasingly
competitive, and Brooks has occasionally experienced delays in hiring these
personnel. Brooks' inability to recruit, retain and train adequate numbers of
qualified personnel on a timely basis would adversely effect Brooks' ability to
develop, manufacture, install and support systems.
Brooks is Not Protected By Long-Term Contracts With Its Customers. Brooks
generally does not enter into long-term contracts with its customers and cannot
be certain as to future order levels from them. Brooks' customers, including
Lam Research Corporation, could reduce, delay or cease orders for products and
services at any time, which could materially adversely affect Brooks' business
and results of operations.
Provisions of Brooks' Certificate of Incorporation, Bylaws and Contracts
Make a Takeover of Brooks More Difficult, Which Could Discourage Attractive
Takeover Offers and Limit the Price Investors May be Willing to Pay for Brooks'
Common Stock. Brooks' Certificate of Incorporation and Bylaws contain
provisions that may make an acquisition of Brooks more difficult and discourage
changes in Brooks' management. These provisions could limit the price that
certain investors might be willing to pay in the future for shares of Brooks'
common stock. In addition, Brooks has adopted a rights plan (popularly known as
a "poison pill"). In many potential takeover situations, rights issued under
the plan become exercisable to purchase Brooks' common stock at a price
substantially discounted from the then applicable market price of Brooks'
common stock. Because of its possible dilutive effect to a potential acquiror,
the rights plan could generally discourage third
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parties from proposing a merger with or tender offer for Brooks that is not
approved by Brooks' board of directors. Accordingly, the rights plan could have
an adverse impact on shareholders who might want to vote in favor of the merger
or participate in the tender offer. In addition, shares of Brooks' preferred
stock may be issued upon terms the board of directors deems appropriate without
shareholder approval. Brooks' ability to issue preferred stock in such a manner
could enable its board of directors to prevent changes in Brooks' management or
control.
The Volatility of Brooks' Stock Price Could Adversely Affect Your Investment
in Brooks' Stock. The market price of Brooks' common stock has fluctuated
widely. For example, between April 26, 1999 and April 28, 1999, the price of
Brooks' common stock dropped from approximately $27.88 to $19.63 per share.
Between January 25, 1999 and January 29, 1999, the price of Brooks' common
stock rose from approximately $17.06 to $24.06 per share. Consequently, the
current market price of Brooks' common stock may not be indicative of future
market prices, and Brooks may not be able to sustain or increase the value of
your investment in Brooks' common stock. Factors affecting Brooks' stock price
may include:
.variations in operating results from quarter to quarter;
.changes in earnings estimates by analysts or Brooks' failure to meet
analysts' expectations;
.market conditions in the industry;
.general economic conditions; and
.low volume of trading of Brooks' common stock.
In addition, the stock market has recently experienced extreme price and volume
fluctuations. These fluctuations have particularly affected the market prices
of the securities of many high technology companies like Brooks. These market
fluctuations could adversely affect the market price of Brooks' common stock.
Year 2000 Readiness; Year 2000 Problems Could Disrupt Brooks' Business. The
year 2000 problem is the potential for system and processing failure of date-
related data as the result of computer-controlled systems using two digits
rather than four digits to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failure or
miscalculations causing disruptions of operations, including, among other
things, temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Brooks has evaluated its internal software and products for year 2000
problems. Brooks believes that its products and business will not be
substantially affected by the year 2000 problem and that Brooks has no
significant exposure to liabilities related to the year 2000 problem for the
products Brooks has sold. Brooks has also communicated with others, including
vendors, suppliers and customers whose computer systems' functionality could
directly impact Brooks' operations.
Although Brooks believes its planning efforts are adequate to address its
year 2000 concerns, undetected year 2000 problems may cause Brooks to
experience negative consequences or significant costs. Brooks cannot be sure
that its vendors, suppliers, customers or businesses that it may acquire,
including Smart Machines, will not experience similar consequences or costs.
Such consequences or costs could have a material adverse effect on Brooks.
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WARNING REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this proxy statement/prospectus are
forward-looking and are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In essence, forward-looking
statements are predictions of future events. Although we would not make
forward-looking statements unless we believe we have a reasonable basis for
doing so, we cannot guarantee their accuracy and actual results may differ
materially from those we anticipate due to a number of uncertainties, many of
which we are not aware. We urge you to consider the risks and uncertainties
discussed under the heading "Risk Factors" when evaluating our forward-looking
statements.
We have no plans to update our forward-looking statements to reflect events
or circumstances after the date of this proxy statement/prospectus. We identify
forward-looking statements with the words "plans," "expects," "anticipates,"
"estimates," "will," "should" and similar expressions. Examples of our forward-
looking statements may include statements related to:
. our plans, objectives, expectations and intentions; and
. the expected benefits of the merger.
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THE SMART MACHINES SPECIAL MEETING
Purpose of the Smart Machines Special Meeting
The purpose of the Smart Machines special meeting is to consider and vote
upon approval of the merger. The merger will occur only if the proposal is
approved.
The Smart Machines' Board of Directors unanimously approved the merger
agreement and the merger and recommends a vote by the shareholders of Smart
Machines FOR approval of the merger.
No other matters may be presented for consideration at the Smart Machines
special meeting.
Time, Date and Place of Meeting
The Smart Machines special meeting will be held at 2:00 p.m., local time at
the offices of Smart Machines, 651 River Oaks Parkway, San Jose, California
95134 on August 26, 1999.
Proxies
The form of proxy accompanying this proxy statement/prospectus is being
solicited on behalf of the Smart Machines' Board of Directors for use at the
Smart Machines special meeting. Each of the persons named in the Smart Machines
proxy as a proxy holder is an officer of Smart Machines. All shares of Smart
Machines capital stock that are entitled to vote and are represented at the
Smart Machines special meeting either in person or by properly executed proxies
received prior to or at the Smart Machines special meeting and not duly and
timely revoked will be voted at the Smart Machines special meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated, proxies will be voted for the approval and adoption of the
merger agreement and approval of the merger.
Revocability of Proxies
Any person giving a proxy to vote at the Smart Machines special meeting has
the power to revoke it at any time before it is voted. It may be revoked by
filing with the corporate secretary of Smart Machines at the Smart Machines
principal offices, a written notice of revocation or a duly executed proxy
bearing a later date, or it may be revoked by attending the meeting and voting
in person. Attendance at the meeting will not, by itself, revoke a proxy.
Solicitation of Proxies
This proxy statement/prospectus was mailed to all Smart Machines
shareholders of record as of the record date and constitutes notice of the
Smart Machines special meeting in accordance with California law. The cost of
soliciting proxies from holders of Smart Machines capital stock will be borne
by Smart Machines. In addition to solicitation by mail, proxies may be
solicited in person by directors, officers and employees of Smart Machines
without additional compensation, and by telephone, email, facsimile or similar
method.
Voting Rights and Outstanding Shares
Only holders of record of Smart Machines capital stock at the close of
business on the record date, which has been set as August 6, 1999, will be
entitled to notice of, and to vote at, the Smart Machines special meeting. At
the close of business on the record date there were 4,626,218 shares of Smart
Machines common stock, 1,965,000 shares of series A preferred stock, 532,382
shares of series B preferred stock, 834,096 shares of series C preferred stock
and 1,166,581 shares of series D preferred stock outstanding and entitled to
vote.
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Each holder of record of Smart Machines capital stock on the record date
will be entitled to the following number of votes for each share held on all
matters to be voted upon at the Smart Machines special meeting:
. Common stock--one vote for each share held;
. Series A preferred stock--one vote for each share held;
. Series B preferred stock--1.052632 votes for each share held;
. Series C preferred stock--1.080247 votes for each share held; and
. Series D preferred stock--one vote for each share held.
Any fractional voting rights will be rounded to the nearest whole number
(with one-half being rounded upward).
Vote Required To Approve the Merger
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Smart Machines capital stock entitled to
vote at the Smart Machines special meeting is necessary to establish a quorum.
Approval of the proposal requires the establishment of a quorum and approval
of:
. a majority of the outstanding shares of Smart Machines common stock; plus
. a majority of the outstanding shares of all series of Smart Machines
preferred stock, voting on an as-if-converted basis as a single class;
plus
. at least 66 2/3% of the outstanding shares of Smart Machines Series D
preferred stock, voting as a separate class.
Presently there are no shares of Smart Machines Series E preferred stock
outstanding. If any shares of Series E preferred stock were outstanding,
holders would be entitled to one vote for each share held and would be entitled
to vote with the holders of Series D preferred stock, voting as a single class,
in the third required vote described above.
All votes will be tabulated by the Chief Financial Officer, who will
separately tabulate affirmative and negative votes and abstentions. Abstentions
will be counted towards the tabulation of votes cast on the proposal presented
to the shareholders, but will have the same effect as a vote against approval
of the merger. Your failure to vote also will have the same effect as a vote
against approval of the merger.
All Smart Machines' Directors and Executive Officers Have Agreed to Vote For
the Merger
The chart below lists all Smart Machines' directors and executive officers.
These individuals have granted Brooks irrevocable proxies with respect to all
of their shares of Smart Machines capital stock:
<TABLE>
<CAPTION>
Name Position with Smart Machines
---- ----------------------------
<C> <S>
James E. Solomon.................... Chairman and Director
President, Chief Executive Officer and
K. Charles Janac.................... Director
Eugene Bernosky..................... Director
Bruce Graham........................ Director
Nancy Magoun........................ Director
Sharon Andres....................... Chief Financial Officer and Controller
August Moretti...................... Secretary
</TABLE>
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These proxies represent a total of 2,329,188 shares, or approximately 50.3% of
the votes entitled to be cast by all outstanding shares of Smart Machines
common stock, a total of 1,777,915 shares, or approximately 26.2% of the
outstanding shares of Smart Machines preferred stock, and a total of 566,947
shares, or approximately 48.6% of the outstanding shares of Smart Machines
Series D preferred stock.
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THE MERGER
This section of the proxy statement/prospectus, as well as the next section
entitled "The Merger Agreement," describe the proposed merger. These sections
highlight key information about the merger and the merger agreement but they
may not include all the information that a shareholder would like to know. The
merger agreement is attached as Appendix A to this proxy statement/prospectus.
We urge shareholders to read the merger agreement in its entirety.
Under the terms of the merger agreement, Smart Machines will merge with a
subsidiary of Brooks recently formed for the sole purpose of this merger. As a
result of the merger, Smart Machines will become a subsidiary of Brooks.
Background of the Merger
In September, 1998 Smart Machines engaged Needham & Company, Inc. to explore
strategic alternatives for Smart Machines, including possible financing
options, strategic partners or business combinations.
At its January, 1999 meeting, the Board of Directors of Brooks reviewed its
corporate strategy, including possible growth through acquisitions.
Ms. Jan Robertson of Needham & Company spoke to Ms. Ellen Richstone, Chief
Financial Officer of Brooks, at an investor conference in mid-January and
indicated that she was aware of an unnamed robotics company which might be
receptive to discussion of a business combination. Ms. Richstone expressed
interest.
In early February, Ms. Robertson followed up with a phone call to Ms.
Richstone. This led to a meeting on February 16, 1999, between Mr. K. Charles
Janac, President of Smart Machines, Mr. David Beaulieu, Vice President of
Engineering of Brooks, and Ms. Robertson and Mr. Robin Graham of Needham &
Company at the offices of Needham & Company to discuss Smart Machines' products
and market strategies, as well to as exchange views on the merits of a
potential combination.
On February 24, 1999, Mr. Janac met at Brooks' Chelmsford office with
members of Brooks' senior management including Mr. Robert Therrien, President
of Brooks, Mr. Michael Pippins, Vice President of Global Operations and
Business Development of Brooks and Ms. Richstone. The parties discussed Smart
Machines current operating plan and prior years results. The parties also
further explored Smart Machines' products and market strategies.
On April 21, 1999, Messrs. Beaulieu, Pippins and Werner of Brooks met at
Smart Machines with Mr. Janac and Ms. Sharon Andres of Smart Machines and Mr.
Graham to review product, financial and marketing information and to tour the
Smart Machines manufacturing facility.
On May 10, 1999, Smart Machines received an initial proposal from Brooks for
an acquisition of Smart Machines by Brooks.
On May 25, 1999, Mr. Janac met Messrs. Therrien, Pippins and Werner and Ms.
Richstone of Brooks at Brooks offices to discuss the roles of Brooks and Smart
Machines within the proposed structure.
On June 1, 1999, the Smart Machines Board of Directors met to discuss three
proposals for combinations with Smart Machines. The Board agreed to pursue all
three alternatives simultaneously.
On June 3, 1999, Mr. Janac met with Roger Emerick, a member of Brooks Board
of Directors and Chairman of the Board of Lam Research Corporation, a
significant customer of both Brooks and Smart Machines, to discuss the
strategic benefit of the proposed combination with Brooks and the future of
Smart Machines within the Brooks organization.
On June 4, 1999, Mr. Therrien sent a letter to Ms. Robertson proposing
general terms for a business combination between Brooks and Smart Machines.
On June 8, 1999, Smart Machines received a proposed letter of intent from
Brooks.
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On June 11, 1999, following a conversation between Mr. Therrien and Ms.
Robertson, Brooks revised and resubmitted its proposed letter of intent.
On the morning of June 24, 1999, in anticipation of a meeting of the Board
of Directors of Smart Machines scheduled for that afternoon, Mr. Janac called
Ms. Richstone to negotiate certain provisions of the proposed letter of intent.
Following those discussions, Brooks delivered a final form of the letter of
intent. At the meeting of the Board of Directors that afternoon, the Board of
Directors of Smart Machines met to discuss the merits of various merger
proposals received by Smart Machines. After consideration of the various
alternatives, the Smart Machines Board of Directors voted unanimously to accept
the Brooks offer as being fair to Smart Machines and its shareholders. The
letter of intent was then executed.
During the week of June 28, 1999, Brooks began its financial, business, and
legal due diligence of Smart Machines. During that week and the following week,
Brooks, Smart Machines and their respective outside legal advisors drafted and
negotiated the agreements for the business combination.
On July 6, 1999, after review of the proposed merger agreement, the members
of the Brooks Board of Directors unanimously approved the merger and merger
agreement.
On July 7, 1999, the parties signed the definitive merger agreement.
Smart Machines' Reasons for the Merger
The Board of Directors of Smart Machines unanimously determined the merger
to be fair and in the best interests of Smart Machines and its shareholders.
The Smart Machines Board of Directors unanimously approved and adopted the
merger agreement and approved the merger based upon consideration of the
following factors:
. the combined company will provide resources necessary to enable Smart
Machines to credibly continue sales discussions with large semiconductor
equipment OEMs. These greater resources will enhance the opportunity to
provide worldwide support and rapidly expanding manufacturing capacity to
Smart Machines' potentially most attractive customers;
. Brooks' liquidity and capital resources will enhance Smart Machines'
financial position and provide it with the capital resources necessary to
enable Smart Machines to pursue its business plan;
. the combination with Brooks will provide greater access to sales,
marketing, management and capital resources necessary to pursue product
development;
. Brooks is a publicly-traded company and the Brooks common stock received
in the merger will be freely tradable by most Smart Machines shareholders
on the Nasdaq National Market, while Smart Machines is a private company
with no market for its stock; and
. in addition to the factors set forth above, the Smart Machines Board of
Directors considered all other financing opportunities available to Smart
Machines in determining that the merger was the most favorable
opportunity available to Smart Machines and its shareholders.
The Board of Directors of Smart Machines also identified and considered a
number of potentially negative factors in its deliberations, including, but not
limited to:
. loss of control over future operations of Smart Machines; and
. risk that key technical and management personnel might not remain
employed by the combined company.
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The above discussion of information and factors considered by the Smart
Machines Board of Directors is not intended to be exhaustive, but is believed
to include all material factors considered by the Smart Machines Board of
Directors. In view of the complexity and the variety of factors considered, the
Smart Machines Board of Directors did not find it practicable to quantify or
otherwise assign relative weight to the specific factors considered. However,
after taking into account all of the factors set forth above, the Smart
Machines Board of Directors unanimously agreed that the merger agreement and
the merger were fair to, and in the best interests of, Smart Machines and its
shareholders and that Smart Machines should proceed with the merger.
Recommendation of Smart Machines' Board of Directors
The Board of Directors of Smart Machines:
. has deemed the merger advisable;
. believes that the merger is fair to and in the best interests of Smart
Machines and its shareholders; and
. unanimously recommends a vote for approval of the merger and adoption of
the merger agreement.
Brooks' Reasons for the Merger
The management of Brooks believe the merger will benefit shareholders in
several areas. The combined company will benefit by significantly broadening
Brooks' portfolio of patents in the area of direct drive robotic products.
This, along with the combined company's complementary scientific, technical and
product development opportunities, is expected to expand potential customer
opportunities as compared to each company, on a standalone basis. The Board of
Directors of Brooks believes that the merger is in the best interests of Brooks
and its shareholders and, therefore, has unanimously approved the merger based
upon consideration of the following:
. Smart Machine's leading edge selectively compliant assembly robot arm
products offer Brooks an incremental opportunity in the atmospheric and
vacuum robotics markets;
. the merger provides Brooks access to opportunities in atmospheric markets,
in particular but not limited to, metrology, where the company has not been
well positioned;
. the synergy of the two companies' robot technologies provides expanded
product choices which are supported by a global sales and service
organization;
. the combined company's design efforts are anticipated to offer customers
common robotic architectures and control strategies for a wide range of
200mm and 300mm process tool applications;
. Smart Machines will provide Brooks with its first design, engineering, and
manufacturing presence in Silicon Valley, located near Brooks' largest
customers; and
. Smart Machines' successful penetration of the Japanese semiconductor and
storage device markets complements Brooks' existing presence in Asia.
The management of Brooks considered a number of potentially negative factors
including those discussed under "Risk Factors" on page 16. Brooks cannot
guaranty that the benefits it expects to achieve following the consummation of
the merger will be achieved or will outweigh the costs and other negative
factors associated with the merger. Brooks did not assign any relative or
specific weights to any of the factors it considered in connection with the
merger.
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Interests of Certain Persons in the Merger
You should be aware that certain members of Smart Machines' management (some
of whom are members of Smart Machines' Board of Directors) and the Smart
Machines Board of Directors have certain interests in the merger in addition to
their interests as shareholders of Smart Machines generally. The merger
agreement includes provisions obligating Brooks to preserve and assume certain
indemnification rights and benefits of the officers and directors of Smart
Machines. Brooks anticipates that K. Charles Janac (President, Chief Executive
Officer and a director of Smart Machines) and Sharon Andres (Chief Financial
Officer and Controller), as well as a number of other employees of Smart
Machines, will continue to be employed after the merger.
Material Contacts Between Brooks and Smart Machines
Brooks and Smart Machines do not know of any past, present or proposed
material contracts, arrangements, understandings, relationships, negotiations
or transactions between Smart Machines or its affiliates and Brooks or its
affiliates other than the following:
. the merger agreement discussed in "The Merger--Background of the Merger,"
on page 27 resulting from the discussions and negotiations during the
period from January 11, 1999 through July 7, 1999 between Brooks and
Smart Machines concerning the feasibility of a strategic business
combination between the companies; and
. the noncompetition and proprietary information agreements and escrow
agreement discussed under "The Merger Agreement--Conditions to the
Completion of the Merger" and the affiliate agreements between Brooks and
Messrs. Eugene Bernosky, Bruce Graham, K. Charles Janac, James E.
Solomon, and August J. Moretti and Ms. Nanci J. Magoun and Ms. Sharon
Andres and Smart Machines discussed under "The Smart Machines Special
Meeting--All Smart Machines' Directors and Executive Officers Have Agreed
to Vote For the Merger" on page 25.
Certain Federal Income Tax Consequences of the Merger
Set forth below is a discussion of certain federal income tax consequences
of the merger to shareholders of Smart Machines who hold shares as a capital
asset. The discussion does not address the tax consequences that may be
relevant to a particular shareholder subject to special treatment under certain
federal income tax laws. These shareholders include, for example, dealers in
securities, banks, insurance companies, tax-exempt organizations, non-United
States persons, shareholders who acquired their shares of Smart Machines
capital stock pursuant to the exercise of options or otherwise as compensation,
and persons holding (directly or indirectly) five percent or more of the
outstanding shares of Brooks common stock following the merger. In addition,
the following discussion does not address the tax consequences of the merger
arising under the laws of any state, local or foreign jurisdiction. The
following discussion does not address the tax consequences of transactions
effectuated prior or subsequent to or concurrently with the merger (whether or
not such transactions are in connection with the merger), including, without
limitation, transactions in which shares of Smart Machines capital stock are
acquired or shares of Brooks common stock are disposed of. Moreover, the tax
consequences to holders of options or warrants are not discussed. The
discussion is based upon the Internal Revenue Code, treasury regulations
thereunder and administrative rulings and court decisions as of the date
hereof. All of the foregoing are subject to change, possibly with retroactive
effect, and any such change could affect the continuing validity of this
discussion. The parties do not intend to request a ruling from the IRS with
respect to the merger and opinions of legal counsel are not binding on the IRS
or the courts. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS CONCERNING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO YOU.
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This summary is based upon the advice of Brown, Rudnick Freed & Gesmer,
counsel to Brooks, that, subject to certain limitations and qualifications, the
merger will constitute a reorganization within the meaning of Section 368(a) of
the Code and will generally result in the following federal income tax
consequences:
. neither Smart Machines nor Brooks will recognize gain or loss solely as a
result of the consummation of the merger; provided, that if legal fees of
Smart Machines exceed $150,000 and Brooks is indemnified by Smart
Machines shareholders for the amount of any excess by a claim against the
escrow shares, then Smart Machines may have taxable income in the amount
of the difference between the fair market value of the Brooks stock used
to pay those legal fees and the adjusted basis in that stock in the hands
of Smart Machines as if Smart Machines had paid the fee directly;
. Smart Machines shareholders will not recognize gain or loss due to the
exchange of shares of Brooks common stock for shares of Smart Machines
capital stock in exchange therefor (except with respect to any cash
received by holders of Smart Machines capital stock in respect of
fractional shares);
. Smart Machines shareholders will receive the same aggregate tax basis for
the shares of Brooks common stock as the aggregate tax basis of Smart
Machines capital stock surrendered in exchange therefor by such
shareholder, reduced by amounts allocable to fractional shares for which
cash is to be received;
. the holding period of the shares of Brooks common stock received in the
merger by the holders of Smart Machines capital stock will include the
period during which the shares of Smart Machines capital stock
surrendered in exchange therefor were held, provided that Smart Machines
capital stock is held as a capital asset in the hands of the holders of
Smart Machines capital stock on the date of the exchange; and
. A cash payment received by a holder of Smart Machines capital stock in
lieu of a fractional share will be treated as if such fractional share of
Brooks common stock had been issued in the merger and then redeemed by
Brooks. A holder of Smart Machines capital stock receiving such cash will
generally recognize gain or loss upon such payment, measured by the
difference (if any) between the amount of cash received and the basis in
such fractional share.
Any Smart Machines shareholder who effectively dissents from the merger and
receives cash for his or her shares of Smart Machines capital stock will
recognize income or loss as if such shares were redeemed by Brooks in full
payment and exchange therefor. The amount of income or loss will be treated as
ordinary income or loss, long-term capital gain or loss or short-term capital
gain or loss depending on the length of time the shares are held by such
dissenting shareholder, whether the shares are held as capital assets, and
whether the dissenting shareholder is deemed to own additional shares of Smart
Machines stock pursuant to the attribution rules of Section 318 of the Code. In
certain circumstances, a dissenting shareholder can be deemed for tax purposes
to own shares that are actually owned by a nondissenting shareholder that is
related to the dissenting shareholder, with the possible result that the cash
received on the exercise of the dissenting shareholders' rights could be
treated as a dividend received pursuant to a corporate distribution, rather
than an amount received pursuant to a sale or exchange of stock.
The foregoing advice assumes that Brooks purchase rights have no value and
that the likelihood of their being exercisable is both speculative and remote.
If such rights were determined to have value, the Smart Machines shareholders
might recognize taxable income, limited in the case of each shareholder to the
lesser of the gain realized upon the merger or the value of the rights.
Treatment as a reorganization under (S) 368(a) of the Code requires among
other things that following the merger Brooks shall cause Smart Machines to
continue its historic business or substantially use a significant portion of
the Smart Machines historic business assets in its business. Brooks has agreed
in the merger agreement that it will not take any action which reasonably would
be expected to jeopardize the tax-free nature of the reorganization thereunder.
In rendering its advice, Brown, Rudnick, Freed & Gesmer will rely upon the
information contained in this proxy statement/prospectus and certificates of
officers of Brooks and Smart Machines.
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A successful IRS challenge to the reorganization status of the merger would
result in a holder of Smart Machines capital stock recognizing gain or loss
with respect to each share of Smart Machines capital stock surrendered equal to
the difference between the shareholder's basis in such share and the fair
market value, as of the date of the merger, of the shares of Brooks common
stock received in exchange therefor. In such event, a shareholder's aggregate
basis in the shares of Brooks common stock so received would equal its fair
market value, and the shareholder's holding period for such stock would begin
the day after the merger.
If the shares of Brooks common stock issuable in exchange for Smart Machines
capital stock equal or exceed 20% of the outstanding Brooks common stock, the
merger agreement grants Brooks the right to purchase the stock of Smart
Machines for cash. If Brooks exercises this right, holders of Smart Machines
capital stock would recognize gain or loss with respect to each share of Smart
Machines capital stock surrendered equal to the difference between the
shareholder's basis in such share and the cash received.
Accounting Treatment of the Merger
The merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes under generally accepted accounting
principals. The merger agreement provides that it is a condition to the
consummation of the merger that Brooks shall have received a letter from
PricewaterhouseCoopers LLP (the independent accountants of Brooks) to the
effect that the merger qualifies for pooling of interests accounting treatment
if consummated in accordance with the merger agreement. Under this method of
accounting:
. the recorded assets and liabilities of Brooks and Smart Machines will be
combined at their historically recorded amounts;
. the consolidated revenues and expenses of Brooks will include the revenue
and expenses of Brooks and Smart Machines for the entire fiscal year in
which the combination occurs; and
. the reported revenues and expenses of the separate companies for prior
periods will be combined and restated as the consolidated revenue and
expenses of Brooks.
Federal Securities Law Consequences of the Merger
All shares of Brooks common stock issued in the merger will be freely
transferable, except that:
. any shares of Brooks common stock received by persons who are deemed to
be "affiliates" of Smart Machines prior to the merger may only sell their
shares in transactions permitted by the resale provisions of Rule 145
under the Securities Act; and
. persons who become affiliates of Brooks may only sell their shares in
transactions permitted by Rule 144 under the Securities Act, or as
otherwise permitted under the Securities Act.
The Securities Act defines "affiliates" as those individuals or entities
that control, are controlled by, or are under common control with, a company,
which generally is considered to include officers, directors and principal
shareholders of the company.
Affiliates of Smart Machines may not sell their shares of Brooks common
stock, except pursuant to an effective registration statement under the
Securities Act covering such shares or in compliance with Rule 145 (or Rule 144
under the Securities Act in the case of persons who become affiliates of
Brooks) or another applicable exemption from the registration requirements of
the Securities Act. In general, under Rule 145, for one year following the
effective time of the merger, an affiliate of Smart Machines prior to the
merger (together with certain related persons) will be entitled to sell shares
of Brooks common stock acquired in the merger only through unsolicited "broker
transactions" or in transactions directly with a "market maker," as such terms
are defined in Rule 144. Additionally, the number of shares to be sold by such
an affiliate (together with certain related persons and certain persons acting
in concert) within any three-month period for purposes of Rule 145
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may not exceed the greater of 1% of the outstanding shares of Brooks common
stock or the average weekly trading volume of the shares of Brooks common
stock during the four calendar weeks preceding such sale. Rule 145 will only
remain available, however, to persons who were affiliates of Smart Machines
prior to the merger, if Brooks remains current with its informational filings
with the Securities and Exchange Commission. One year after the effective time
of the merger, a person who was an affiliate of Smart Machines prior to the
merger will be able to sell shares of Brooks common stock without regard to
such manner of sale or volume limitations, provided that Brooks is current
with its informational filings and such person is not then an affiliate of
Brooks. Two years after the effective time of the merger, a person who was an
affiliate of Smart Machines prior to the merger will be able to sell such
shares of Brooks common stock without any restrictions so long as such person
had not been an affiliate of Brooks for at least three months prior to the
sale.
Regulatory Approvals Necessary for the Merger
Neither Brooks nor Smart Machines is aware of any governmental or
regulatory approvals required for the consummation of the merger other than:
. compliance with applicable securities laws; and
. certain filings under Delaware and California Law.
Dissenters' Rights of Smart Machines Shareholders
The rights of Smart Machines shareholders who dissent in connection with
the merger are governed by specific legal provisions contained in Chapter 13
of the CGCL ("Chapter 13"). Instead of the shares of Brooks common stock
offered by Brooks for their shares of Smart Machines capital stock,
shareholders of Smart Machines can decide to receive the "fair market value"
of such shares. This right is known as a "dissenter's right." If a Smart
Machines shareholder wishes to exercise his or her dissenter's right he or she
must not vote in favor of the merger and must meet certain other conditions,
which are set out in full in Appendix B. The following summary of the
provisions of Chapter 13 is not intended to be a complete statement of such
provisions on dissenters' rights. Rather it is only a guide for a shareholder
who wishes to exercise his or her dissenter's right, and is qualified in its
entirety by reference to the full text of Chapter 13, a copy of which is
attached to this proxy statement/prospectus as Appendix B and is incorporated
herein by reference.
If You Fail to Follow the Steps Set Out Below and in Appendix B for
Perfecting Dissenters' Rights You May Lose Such Rights.
Under Chapter 13, if the merger is completed, any shares of Smart Machines
capital stock as to which dissenters' rights are properly exercised
("Dissenting Shares") will not be converted by virtue of the merger into the
right to receive the shares of Brooks common stock pursuant to the merger
agreement, but instead will be converted into the right to receive in cash the
"fair market value" of such shares, determined as of the day before the first
announcement of the terms of the merger, and excluding any appreciation or
depreciation in consequence of the merger. For shares of Smart Machines
capital stock to qualify as Dissenting Shares, (i) the holders of such shares
must not have voted in favor of approval of the Smart Machines merger proposal
and (ii) the holder of such shares must submit stock certificates for
endorsement (as described below).
If the merger is approved at the special meeting of the holders of Smart
Machines capital stock, Smart Machines will, within ten days after such
approval, mail to any shareholder who may have a right to require Smart
Machines to purchase his, her or its shares for cash as a result of making a
demand (as described below), a notice that the required shareholder approval
of the merger agreement was obtained (the "Notice of Approval"), accompanied
by a copy of Chapter 13. The Notice of Approval will set forth the price
determined by Smart Machines to represent the "fair market value" of any
Dissenting Shares (which shall constitute an offer by Smart Machines to
purchase such Dissenting Shares at such stated price) and will set forth a
brief description of the procedures to be followed by such shareholders who
wish to exercise their dissenters' rights.
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Within 30 days after the date on which the Notice of Approval was mailed,
(i) Smart Machines must receive the written demand of the dissenting
shareholder, which is required by law to contain a statement concerning the
number and class of shares of Smart Machines capital stock held of record by
such dissenting shareholder and what the shareholder claims to be the fair
market value of the Dissenting Shares as of the close of business on the day
immediately prior to the announcement of the merger (the statement of fair
market value in such demand by the dissenting shareholder constitutes an offer
by the dissenting shareholder to sell the Dissenting Shares at such price); and
(ii) the dissenting shareholder must submit Smart Machines stock certificate(s)
representing the Dissenting Shares to Smart Machines at its principal office.
The Smart Machines stock certificate(s) will be stamped or endorsed with a
statement that the shares are Dissenting Shares or will be exchanged for Smart
Machines stock certificates of appropriate denomination so stamped or endorsed.
If the price contained in the Notice of Approval is acceptable to the
dissenting shareholder, the dissenting shareholder may demand the same price.
This would constitute an acceptance of the offer by Smart Machines to purchase
the dissenting shareholder's stock at the price stated in the Notice of
Approval.
If Smart Machines and a dissenting shareholder agree upon the price to be
paid for the Dissenting Shares, upon the dissenting shareholder's surrender of
the Smart Machines Stock Certificates representing the Dissenting Shares, such
price (together with interest thereon at the legal rate on judgments from the
date of the agreement between Smart Machines and the dissenting shareholder) is
required by law to be paid to the dissenting shareholder within 30 days after
such agreement or within 30 days after any statutory or contractual conditions
to the merger are satisfied, whichever is later.
If Smart Machines and a dissenting shareholder disagree as to the price for
such Dissenting Shares or disagree as to whether such Dissenting Shares are
entitled to be classified as Dissenting Shares, such holder may, within six
months after the Notice of Approval is mailed, file a complaint in the Superior
Court of the proper county requesting the court to make such determinations or,
alternatively, may intervene in any pending action brought by another
dissenting shareholder. Any party may appeal the court's judgment determining
the fair market value of the dissenting shares. Costs of such an action
(including compensation of appraisers) are required to be assessed as the court
considers equitable, but must be assessed against Smart Machines if the
appraised value determined by the court exceeds the price offered by Smart
Machines.
The court action to determine the fair market value of the shares will be
suspended if litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing the merger. Furthermore, no
shareholder who is entitled to assert dissenters' rights under Chapter 13 shall
have any right to attack the validity of the merger or to have the merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the merger has been legally voted in favor of
the merger.
Dissenting Shares may lose their status as such and the right to demand
payment will terminate if, among other reasons:
. the merger is abandoned;
. the shares are transferred before being submitted for endorsement or are
surrendered for conversion into shares of another class;
. the dissenting shareholder and Smart Machines do not agree upon the
status of the shares as Dissenting Shares or upon the price of such
shares and the dissenting shareholder fails to file suit against Smart
Machines or intervene in a pending action within six months following the
date on which the Notice of Approval was mailed to the shareholder; or
. the dissenting shareholder withdraws his or her demand for the purchase
of the Dissenting Shares with the consent of Smart Machines.
It is a condition precedent to Brooks' obligation to close the merger that
less than 5% of the outstanding shares of Smart Machines common stock shall
have exercised dissenters' rights. See "The Merger Agreement--Conditions to the
Completion of the Merger" on page 43.
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THE MERGER AGREEMENT
This description of the merger agreement is not complete and is qualified in
its entirety by reference to the merger agreement. A copy of the merger
agreement is attached to this proxy statement/prospectus as Appendix A. You are
urged to read the entire merger agreement for a complete description of the
terms and conditions of the merger.
General
Pursuant to the merger agreement:
. Smart Machines will become a wholly-owned subsidiary of Brooks by merging
a wholly-owned subsidiary of Brooks into Smart Machines;
. outstanding shares of Smart Machines capital stock will be converted into
the right to receive shares of Brooks common stock in the manner
described below;
. each outstanding option and warrant to purchase Smart Machines capital
stock will be deemed to constitute the right to acquire, on the same
terms and conditions, a number of shares of Brooks common stock at a
price based on the same conversion ratios for the underlying Smart
Machines securities; and
. upon completion of the merger, the rights of former Smart Machines
shareholders as Brooks shareholders will be governed by the Brooks'
Certificate of Incorporation and by Delaware law.
The current directors of Smart Machines are not expected to continue to
serve Smart Machines in their current capacities following the merger.
Following the merger, the Board of Directors of Smart Machines will consist of
individuals appointed by Brooks. The directors and officers of Brooks will
continue to serve in their current capacities following the merger.
Effective Time
The merger will become effective at such time as an agreement or certificate
of the merger, having been previously filed with the Secretary of State of the
State of Delaware, is duly filed with the Secretary of State of the State of
California, or at such later time as is specified on such agreement. The filing
of the agreement or certificate of merger will occur as soon as practicable
after the satisfaction of the conditions set forth in the merger agreement. The
merger agreement may be terminated by either party if the merger has not been
consummated on or before October 31, 1999 and under certain other conditions.
Conversion of Your Shares Into Brooks Common Stock
If the merger is completed by August 31, 1999, you will receive a portion of
the total purchase price for Smart Machines based on the number and class of
shares of Smart Machines capital stock that you own at the time it is
completed. The total purchase price will be paid in Brooks common stock in an
amount equal to $10,454,506. The purchase price is subject to increase in the
event Smart Machines reduces the principal and interest on the loan from
Venture Lending and Leasing, Inc. Smart Machines pays Venture Lending $47,100
of principal and interest on the first day of each month. If Smart Machines
makes the scheduled payment on the Venture Lending loan on September 1, 1999,
the total purchase price would increase to $10,501,606.
The purchase price will decrease to the extent the principal and interest
relating to any borrowings made by Smart Machines after July 7, 1999 exceed
$1,000,000. Since July 7, 1999, Smart Machines has borrowed $500,000. Smart
Machines does not anticipate borrowing amounts in excess of $1,000,000 in the
aggregate.
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The total purchase price will be divided among the different classes of Smart
Machines capital stock as follows:
<TABLE>
<CAPTION>
Allocation
of Total
Class of Smart Machines Capital Stock Purchase Price
------------------------------------- --------------
<S> <C>
Series A preferred stock.................................... $1,342,621
Series B preferred stock.................................... 1,246,707
Series C preferred stock.................................... 2,291,342
Series D preferred stock.................................... 3,213,955
Common stock................................................ 2,359,881
</TABLE>
If the merger closes after August 31, 1999, the total purchase price will
increase to the extent Smart Machines has made additional payments to Venture
Lending. Any increases in the total purchase price will be allocable solely to
the Smart Machines common stock. The allocations of the total purchase price to
each series of Smart Machines preferred stock will not change.
Members of each class of Smart Machines capital stock will share the portion
of the total purchase price allocated to that class of stock proportionally,
based upon the number of shares of that class held by the member compared to
the total number of outstanding shares of that class. The price per share of
the Brooks common stock used to calculate the number of shares issuable
pursuant to the merger agreement will be the average of the closing price for
Brooks common stock on the Nasdaq National Market for the 20 consecutive
trading day period ending five trading days before the close of the merger.
The purchase price has been allocated among the various classes of stock
based on an assumption that prior to completing the merger each holder of Smart
Machines preferred stock would convert the following amounts of preferred stock
to Smart Machines common stock: Series A, 31.673%; Series B, 21.942%; Series C,
21.512%; and Series D, 21.285%. We cannot require you to convert your shares of
Smart Machines preferred stock. However, the merger may not proceed if the
holders of Smart Machines preferred stock do not agree to convert the necessary
amounts of preferred stock to Smart Machines common stock. You will receive
separate instructions directly from Smart Machines on how to convert the
appropriate portion of your Smart Machines preferred stock into Smart Machines
common stock.
Five percent of your shares will be held in escrow. An escrow agent will
hold five percent of the shares of Brooks common stock issuable to you in
escrow for one year to satisfy claims by Brooks under the merger agreement. See
"Risk Factors--Risks Relating to the Merger--A Portion of Your Shares Will be
Held in Escrow and You May Never Collect Them" on page 16.
No fractional shares. Brooks will not issue fractions of its shares to you
in the merger. Instead, you will receive cash for any fractional shares of
Brooks common stock owed to you in connection with the merger, based on the
market value of the fractional shares. To calculate the amount of cash payable
to you, you must multiply the fraction of a share by the 20 trading day average
closing price.
Calculating the number of shares issuable to you. To calculate the
approximate number of shares of Brooks common stock you will receive in the
merger for each class of Smart Machines capital stock you own, you must:
. multiply:
(1) the total allocation of the purchase price that class of Smart
Machines capital stock is entitled to receive; by
(2) your percentage ownership of that class of Smart Machines capital
stock; and
. divide this result by the 20 trading day average closing price of Brooks
common stock.
Example.
For example, assume:
. the merger is completed on August 31, 1999 and, therefore, the total
purchase price is $10,454,506;
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. the 20 trading day average closing price for Brooks common stock is $25;
and
. you own 2% of Smart Machines' common stock on the day the merger is
completed.
To determine the number of shares you are eligible to receive as a result of
the merger:
. multiply:
(1) $2,359,881, the total allocation of the purchase price to Smart
Machines common shareholders; by
(2) 2%, the percentage of the outstanding Smart Machines common stock
you own; and
. divide this result by $25, the 20 trading day average closing price.
Under this example, the total allocation of the purchase price to the Smart
Machines common shareholders would equal $2,359,881. Therefore you would be
entitled to receive 1,887.9 common shares of Brooks common stock. However, you
would actually receive 1,793 shares of Brooks commons stock, $22.50 in cash for
fractional shares and the right to receive up to 94 shares of Brooks common
stock, representing five percent of your total shares of Brooks common stock,
upon the termination of the escrow in one year.
Smart Machines options and warrants. Brooks will assume each outstanding
option to purchase Smart Machines common stock and each outstanding warrant to
purchase Smart Machines preferred stock and common stock. Each Smart Machines
option or warrant will continue to be subject to substantially the same terms
and conditions as they were before the merger except that each Smart Machines
option and Smart Machines warrant will be exercisable for that number of whole
shares of Brooks common stock calculated using the above formula.
Smart Machines convertible notes. Subject to their prior agreement, holders
of Smart Machines 7% convertible promissory notes issued pursuant to Smart
Machines' Note Purchase Agreement dated June 15, 1998 will receive shares of
Brooks common stock, in exchange for their notes, as follows:
. shares of Brooks common stock in an amount equal to $2,029,594; plus
. shares of Brooks common stock in an amount equal to accrued and unpaid
interest due on the notes on the closing day of the merger.
The value of shares of Brooks common stock issuable to holders of these
notes will be based upon the 20 day average closing price. The shares of Brooks
common stock issuable to the note holders are not subject to the escrow.
The Mechanics of the Exchange of Your Shares for Shares of Brooks Common Stock
Within five days after the effective time of the merger, a transmittal
letter will be mailed by Boston Equiserve, as the exchange agent, to each
shareholder of Smart Machines informing each shareholder of the procedures to
follow to exchange his certificates representing Smart Machines capital stock
for Brooks common stock. Upon receipt of Smart Machines' certificates, the
exchange agent will deliver whole shares of Brooks common stock to that
shareholder together with any cash in lieu of fractional shares and any
dividends or other distributions to which that shareholder is entitled, without
interest.
If any issuance of shares of Brooks common stock in exchange for shares of
Smart Machines capital stock is to be made to a person other than the holder of
Smart Machines capital stock in whose name the certificate is registered at the
effective time of the merger, it will be a condition of such exchange that the
certificate so surrendered be properly endorsed or otherwise in proper form for
transfer and that the holder of Smart Machines capital stock requesting such
issuance either pay any transfer or other tax required or establish to the
satisfaction of Brooks that such tax has been paid or is not required to be
paid.
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After the effective time of the merger, there will be no further transfers
of Smart Machines capital stock on the stock transfer books of Smart Machines.
If a certificate representing Smart Machines capital stock is presented for
transfer, it will be canceled and a certificate representing the appropriate
number of whole shares of Brooks common stock and cash in lieu of fractional
shares and any dividends and distributions will be issued in exchange for it,
without interest.
After the effective time of the merger and until surrendered, shares of
Smart Machines capital stock will be deemed for all corporate purposes, other
than the payment of dividends and distributions, to evidence ownership of the
number of whole shares of Brooks common stock into which those shares of Smart
Machines capital stock were converted at the effective time of the merger. No
dividends or other distributions, if any, payable to holders of Brooks common
stock will be paid to the holders of any certificates for shares of Smart
Machines capital stock until such certificates are surrendered. Upon surrender
of Smart Machines certificates, any dividends and distributions declared after
the effective time of the merger will be paid to the person to whom shares of
Brooks common stock are issued, without interest.
DO NOT SEND YOUR STOCK CERTIFICATES TO THE EXCHANGE AGENT UNTIL YOU RECEIVE
A REQUEST LETTER. DO NOT RETURN YOUR STOCK CERTIFICATES WITH THE ENCLOSED
PROXY CARD.
You May Be Required to Forfeit Brooks Shares
Indemnification. As a Smart Machines shareholder, whether or not you vote
in favor of the merger, you will be liable to indemnify Brooks and its
affiliates for any and all damages of any kind incurred or suffered by the
indemnified persons resulting from any misrepresentation, breach of warranty
or failure to perform any covenant or agreement contained in the merger
agreement. The indemnification obligation includes the obligation of Smart
Machines shareholders to pay any legal fees and expenses of Smart Machines
incurred in connection with the transactions contemplated by the merger
agreement which aggregate in excess of $150,000.
However, the indemnification obligation of the Smart Machines shareholders
is limited in several ways:
. the aggregate liability of the Smart Machines shareholders for damages
pursuant to this provision will not exceed five percent of the aggregate
consideration paid by Brooks to Smart Machines shareholders, which five
percent will be placed into escrow as described below, pursuant to the
merger agreement;
. Smart Machines shareholders will not be liable for damages (except for
legal expenses of Smart Machines' counsel over $150,000 as described
above) until the aggregate damages exceed $50,000;
. the liability of the Smart Machines shareholders will extend only to
claims asserted within one year after the close of the merger; and
. the liability of any individual Smart Machines shareholder will not
exceed five percent of the shares of Brooks common stock received by
the shareholder.
Escrow. To satisfy the indemnification obligation of the Smart Machines
shareholders, Brooks will deposit in escrow with an escrow agent a single
stock certificate representing five percent of the shares of Brooks common
stock issuable to Smart Machines shareholders under the merger agreement,
registered in the name of the escrow agent as nominee for the beneficial
owners of those shares. The number of shares of Brooks common stock to be
received by each Smart Machines shareholder will be reduced by the
shareholder's pro rata portion of the escrow shares. The escrow fund will be
held and distributed by the escrow agent in accordance with the terms and
conditions of the merger agreement and the escrow agreement.
The escrow agreement will terminate on the earlier of:
. the date on which the parties have delivered a written notice to the
escrow agent directing the delivery of the escrow fund to the persons
entitled thereto;
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. the date on which a decision is rendered by an arbitrator selected
pursuant to the merger agreement as to the disposition of the escrow
fund; or
. the one year anniversary of the effective time of the merger.
Promptly following termination of the escrow fund, the escrow fund will be
distributed to the Smart Machines shareholders entitled to receive such shares,
after adjustment for escrow shares paid in satisfaction of indemnification
obligations and for escrow shares being held by the escrow agent pending
resolution of any indemnification claims unresolved at the time of termination
of the escrow fund.
All cash dividends of the escrow fund delivered to the escrow agent will be
distributed to Smart Machines shareholders entitled thereto, pro rata with
their portion of the escrow fund. All stock dividends on the escrow fund will
be deposited with the escrow agent and deemed part of the escrow fund.
Brooks will pay the fees of the escrow agent.
Shareholder representative. For purposes of the merger agreement and the
escrow agreement, the Smart Machines shareholders each shall be deemed to have
appointed Mr. K. Charles Janac as the shareholder representative to, among
other things, take all actions necessary or appropriate in his judgment for the
accomplishment of the terms of the escrow agreement, including without
limitation resolution of any claim that Brooks may have under the merger
agreement. Under the escrow agreement, Brooks may give written notice to the
shareholder representative and escrow agent specifying in reasonable detail the
nature and dollar amount of any claim. If the shareholder representative gives
written counter notice to Brooks and escrow agent disputing any claim within 20
days following receipt by the escrow agent and the shareholder representative
of the notice regarding any such claim, such claim shall be resolved as
provided in the escrow agreement. If no counter notice is received by the
escrow agent within the 20 day period, then the dollar amount of the claim set
forth by Brooks in its notice will be deemed established for purposes of the
escrow agreement and the merger agreement and, at the end of the 20 day period,
the escrow agent will pay Brooks the full amount of the claim by delivery of
escrow shares (taken proportionately from each Smart Machines shareholder). For
purposes of making payments to Brooks out of the escrow fund, the Brooks'
shares will be valued using the same price as was used for the merger (the
average closing price of Brooks common stock for the 20 consecutive trading
days ending five trading days before the closing date of the merger).
While the shares are held in the escrow fund, the escrow agent will vote the
escrow shares on behalf of the shareholders in accordance with the instructions
provided by the shareholder representative. In the absence of such
instructions, the escrow agent is not required to vote such shares.
The shareholder representative will not be liable for any liability for loss
for any act performed or omitted to be performed by him under the escrow
agreement in the absence of gross negligence or willful misconduct. The
shareholder representative may consult with counsel and other experts as may be
reasonably necessary to advise him with respect to his rights and obligations
under the escrow agreement and shall be fully protected by any act taken,
suffered, permitted, or omitted in good faith in accordance with the advice of
such counsel or experts. The holders of a majority in interest of the escrow
fund may replace the shareholder representative in the event of his death,
disability or resignation upon prompt written notice to Brooks and the escrow
agent.
Representations and Warranties
In the merger agreement, Brooks and Smart Machines made certain
representations and warranties to each other relating to, among other things:
. due corporate organization and good standing;
. authority to enter into the merger agreement;
. absence of conflicts resulting from the merger;
39
<PAGE>
. capitalization;
. absence of material adverse change;
. legal proceedings;
. absence of brokers and finders; and
. full disclosure.
Smart Machines made additional representations to Brooks regarding, among
other things:
. the accuracy and completeness of its financial statements;
. the absence of undisclosed liabilities;
. the payment of taxes;
. accounts receivable and accounts payable;
. title to properties;
. condition and sufficiency of assets;
. compliance with laws and governmental authorizations;
. the absence of certain changes and events;
. contracts and the absence of defaults under contracts;
. insurance coverage;
. environmental matters;
. employees;
. employee benefits;
. labor relations;
. intellectual property;
. the absence of corrupt payments;
. relationships with related persons;
. customer relationships;
. outstanding indebtedness;
. suppliers and raw material contractors;
. customers;
. year 2000 compliance;
. inventories;
. product warranties and product liability; and
. actions by the Company or affiliates affecting the ability to obtain
pooling of interest accounting treatment.
Brooks made an additional representation to Smart Machines regarding the
correctness and completeness of its required filings with the Securities and
Exchange Commission.
40
<PAGE>
Covenants
Brooks and Smart Machines have agreed to:
. jointly prepare and file with the Securities and Exchange Commission a
registration statement under the Securities Act (of which this proxy
statement/prospectus is a part) for the purpose of soliciting proxies
from Smart Machines shareholders in favor of the approval of the merger;
. obtain all waivers, permits, consents, approvals or other authorizations
from third parties and governmental entities necessary for the
consummation of the transactions contemplated by the merger agreement;
. promptly notify the other party in writing of the occurrence of any event
or development that would(a) render any statement, representation or
warranty of either party in the merger agreement inaccurate or incomplete
in any material respect or (b) constitute or result in a breach by either
party of, or a failure by either party to comply with, any agreement or
covenant in the merger agreement applicable to such party;
. use its best efforts to cause the merger to be treated as a "pooling of
interests";
. permit representatives of the other party to have reasonable access to
all their premises, properties, financial and accounting records,
contracts, other records and documents and keep confidential and not use
in any manner any information or documents obtained from the other party,
except as provided in the merger agreement;
. cooperate concerning the issuance of any press release or other written
information with respect to the merger; and
. use their reasonable best efforts to consummate the transactions
contemplated by the merger agreement;
Additionally, Brooks has agreed to:
. grant each Smart Machines employee who is hired by Brooks or the
surviving corporation credit for past service with Smart Machines for
various purposes under its employee benefit plans;
. provide Smart Machines employees hired by Brooks immediate coverage under
a health benefit plan;
. continue in full force for a period of six years all rights to
indemnification for acts or omissions occurring prior to the effective
time of the merger which currently exist in favor of the current
directors and officers of Smart Machines under its Articles of
Incorporation, bylaws or written agreements;
. indemnify and hold harmless each present director or officer of Smart
Machines against damages arising out of or pertaining to the merger for a
period of six years;
. authorize the Brooks common stock issuable in connection with the merger
for listing on the Nasdaq National Market;
. timely pay all fees and expenses of Needham & Company in connection with
its services to Smart Machines relating to the merger; and
. retire the principal and interest on Smart Machines' 7% convertible
promissory notes in exchange for Brooks common stock.
Conduct of Business of Smart Machines Pending the Merger
Smart Machines agreed in the merger agreement that until the merger is
completed, it will, among other things:
. maintain its corporate existence in good standing;
. maintain the general character of its business;
. maintain in effect all of its presently existing insurance coverage;
41
<PAGE>
. preserve intact in all material respects its business organization,
preserve its goodwill and confidentiality of its business know-how,
exercise commercially reasonable efforts to keep available to it or its
subsidiary the services of its current officers and employees and
preserve its present material business relationship with its
collaborators, licensors, customers, suppliers and other persons with
which Smart Machines has material business relations; and
. perform all contracts; and
. conduct its business only in the usual and ordinary manner, consistent
with past practice.
Smart Machines has also agreed that prior to completion of the merger it
will not, without the prior written consent of Brooks, take certain actions to:
. amend or otherwise modify its Articles of Incorporation or bylaws;
. issue, sell, dispose of or encumber or authorize the issuance, sale,
disposition or encumbrance of, or grant or issue any option, warrant or
other right to acquire or make any agreement with respect to any shares
of its capital stock or any other of its securities, or alter any term of
its outstanding securities or change its capitalization;
. encumber any material assets or properties of Smart Machines or its
subsidiary;
. declare, set aside, make or pay any dividend or other distribution to any
shareholder with respect to its capital stock;
. redeem, purchase or otherwise acquire any capital stock or other
securities of Smart Machines or its subsidiary;
. increase the compensation or remuneration or benefits payable to any
director, officer, employee or agents;
. adopt, amend or make any unscheduled contribution to any employee benefit
plan, or enter into any collective bargaining agreement;
. terminate or modify any contract requiring future payments to or from
Smart Machines in excess of specified dollar amounts;
. create or incur, assume or otherwise become liable for any indebtedness
in excess of specified dollar amounts;
. pay, discharge or satisfy any obligation or liability, absolute, accrued,
contingent or otherwise in excess of specified dollar amounts;
. sell, transfer, lease or otherwise dispose of any of its assets or
properties except in the ordinary course of business;
. cancel, compromise, release or waive any material debt, claim or right;
. make any loan or advance to any person other than routine advances in the
ordinary course of business;
. make any material capital investment or expenditure or capital
improvement, addition or betterment;
. change its method of accounting;
. institute or settle any proceedings before any government authority
relating to its assets or property;
. adopt a plan of dissolution or liquidation;
. enter into any contract except in the ordinary course of business;
. make any new election with respect to taxes or any change in current
elections with respect to taxes;
. take or omit to take any action that would constitute a material
violation or material default under, or waive any rights under, any
material contract; or
42
<PAGE>
. enter into any commitment to take any action which would make any of the
representations or warranties of Smart Machines contained in the merger
agreement untrue or incorrect in any material respect or cause any
covenant, condition or agreement of Smart Machines in the merger
agreement not to be complied with or satisfied in any material respect.
Smart Machines May Not Solicit Others to Purchase Its Business
The merger agreement provides that Smart Machines will not, and shall not
permit any of its officers, directors, employees, representatives and agents
to, directly or indirectly:
. solicit, engage in discussion or negotiate with any person or take any
other action intended or designed to facilitate the effort of any person,
other than Brooks, relating to the possible acquisition of Smart Machines
or any significant portion of its capital stock or assets;
. provide information with respect to Smart Machines to any person other
than Brooks relating to a possible acquisition of Smart Machines or any
significant portion of its capital stock or assets;
. enter into any agreement with any person other than Brooks providing for
a possible acquisition of Smart Machines or any significant portion of
its capital stock or assets; or
. make or authorize any statement, recommendation or solicitation in
support of any possible acquisition of Smart Machines or any significant
portion of its capital stock or assets by any person, other than Brooks.
The no solicitation provisions of the merger agreement remain in effect for
a period extending from the date of the merger agreement until the earlier of:
. October 31, 1999;
. the termination of the merger agreement by Brooks; or
. the completion of the merger.
If Smart Machines violates these provisions, Brooks may terminate the
merger agreement.
Conditions to the Completion of the Merger
Smart Machines' obligation to complete the merger is subject to the
satisfaction of each of the following conditions:
. the representations and warranties of Brooks contained in the merger
agreement continue to be complete and correct except if such inaccuracies
(i) individually and in the aggregate do not cause a material adverse
effect or (ii) were disclosed in a press release or any filing with the
Securities and Exchange Commission that was released or filed, as the
case may be, at least 15 trading days prior to the closing date of the
merger;
. Brooks shall have taken all necessary corporate action to consummate the
transaction contemplated by the merger agreement and have complied in all
material respects with each covenant, agreement and condition required to
be performed or complied with by them prior to the effective time;
. no order of any government authority is in effect that restrains or
prohibits any transaction contemplated by the merger agreement;
. Brooks shall have delivered to Smart Machines an opinion of Brown,
Rudnick, Freed & Gesmer, Brooks' counsel, with respect to due
authorization, execution, delivery and enforceability of the merger
agreement and certain other matters;
. the merger agreement and the merger shall have been approved by Smart
Machines shareholders; and
43
<PAGE>
. the registration statement shall have become effective in accordance with
the provisions of the Securities Act and no stop order suspending the
effectiveness of the registration statement shall have been issued and no
proceedings for that purpose, and no similar proceeding in respect of the
registration statement, shall have been initiated or threatened in
writing by the Securities and Exchange Commission.
Brooks' obligation to complete the merger is subject to certain conditions,
including the following:
. the representations and warranties of Smart Machines contained in the
merger agreement will continue to be true and correct in all material
respects as of the closing date of the merger;
. Smart Machines shall have taken all necessary corporate or other actions
to consummate the transactions contemplated by the merger agreement and
shall have performed and complied, in all material respects, with each
covenant, agreement and condition required to be performed or complied
with by it prior to the effective time of the merger;
. the holders of all the 7% convertible promissory notes issued by Smart
Machines pursuant to the Note Purchase Agreement dated June 15, 1998,
shall have agreed to accept Brooks common stock in exchange for those
notes;
. holders of not more than 5% of the outstanding Smart Machines common
stock shall have exercised dissenters' rights pursuant to Chapter 13 of
the California General Corporation Law;
. no order of any governmental authority shall be in effect that restrains
or prohibits any transactions contemplated by the merger agreement or
would limit or affect Brooks' ownership or operations of the business or
assets of Smart Machines;
. Smart Machines shall have obtained all material waivers, approvals,
authorizations or orders and made all filings required for the
authorization, execution and delivery of the agreement, the consummation
of the merger and the continuation in full force and effect of any and
all material rights, documents, instruments or contracts of Smart
Machines shall have been obtained and made, including without limitation
the right and consents of Venture Lending and Leasing II, Inc. and
Montague Oaks Associates Phase I and II;
. Smart Machines shall have delivered to Brooks an opinion of Heller Ehrman
White & McAuliffe, Smart Machines' counsel, with respect to the due
authorization, execution, delivery and enforceability of the merger
agreement and certain other matters;
. the merger shall have been duly approved by the shareholders of Smart
Machines;
. Brooks shall have received a letter from PricewaterhouseCoopers LLP, its
independent accountants, that in its opinion the transactions
contemplated by the merger agreement meet the requirements for pooling of
interest treatment under GAAP as set forth in Opinion 16, as amended, of
the Accounting Principles Board of the American Institute of Certified
Public Accountants;
. Smart Machines shall have executed and delivered to Brooks the escrow
agreement for the 5% of the Brooks shares issuable in the transaction
which will secure payment of indemnification;
. each of Messrs. K. Charles Janac, Todd Solomon, Gregory Martes, Matt
Fauss and Gerard Labonville and Ms. Sharon Andres shall have entered into
noncompetition and proprietary information agreements;
. all agreements among Smart Machines and any of its securityholders, or
among any of Smart Machines securityholders, providing for registration
rights, rights of first refusal, rights of cosale, relating to the voting
of the Smart Machines securities or requiring Smart Machines to obtain
the consent or approval of any securityholders prior to taking or failing
to take any action, shall have been terminated in their entirety;
. the Brooks shares issuable to Smart Machines shareholders pursuant to the
merger agreement shall not equal or exceed 20% of the total outstanding
shares of Brooks common stock;
44
<PAGE>
. the registration statement shall be effective and no stop order
suspending the effectiveness of the registration statement or any part
thereof shall have been issued and no proceedings for that purpose, and
no similar proceeding in respect of the registration statement, shall
have been initiated or threatened in writing by the SEC; and
. Brooks shall have received such other certificates and documents as it
shall have reasonably requested.
Events Which Could Lead to Termination of the Merger
The party or parties identified below may terminate the merger agreement
prior to the effective time of the merger (whether before or after shareholder
approval is obtained) with the prior authorization of its or their respective
Boards of Directors, as the case may be, as follows:
. Brooks and Smart Machines by mutual consent;
. either Brooks or Smart Machines if:
. the merger shall not have been consummated on or before October 31,
1999, unless such failure shall be due to a material breach of any
representation or warranty, or the nonfulfillment in a material
respect, and failure to cure such nonfulfillment, of any covenant or
agreement contained herein on the part of the party or parties seeking
to terminate; or
. if a governmental authority shall have issued a nonappealable final
order or taken any other action having the effect of permanently
restraining, enjoining or otherwise prohibiting the merger and the
other transactions contemplated by the merger agreement (provided that
the right to terminate shall not be available to any party who has not
complied with its obligations under the merger agreement if such
noncompliance materially contributed to the issuance of any such order
or the taking of such action);
. Brooks if:
. Smart Machines shall have failed to comply with any of the covenants or
agreements contained in the merger agreement such that the conditions
to closing set forth in the merger agreement would not be satisfied;
provided, however, that if such failure or failures are capable of
being corrected prior to the effective time of the merger, such failure
or failures shall not have been corrected within 15 days of delivery to
Smart Machines of written notice of such failure;
. Smart Machines breaches any representation or warranty of the merger
agreement such that the condition to closing it related to would not be
satisfied; provided, however, that if such breach or breaches are
capable of being corrected prior to the effective time of the merger,
such breach or breaches shall not have been corrected within 15 days of
delivery to Smart Machines of written notice of such breach or
breaches; or
. Smart Machines engages in any conduct or takes any action concerning,
intended or designed to facilitate the efforts of any person, other
than Brooks, to acquire Smart Machines or any significant portion of
its capital stock or assets.
. Smart Machines if:
. Brooks shall have failed to comply with any of its covenants or
agreements contained in the merger agreement such that the condition of
closing it related to would not be satisfied; provided, however, that
if such failure or failures are capable of being corrected prior to the
effective time of the Merger, such failure or failures shall not have
been corrected within 15 days of delivery to Brooks of written notice
of such failure or failures; or
. Brooks breaches any representation or warranty in the merger agreement
such that the condition of closing it related to would not be
satisfied; provided, however, that if such breach or breaches are
capable of being corrected prior to the effective time of the merger,
such breach or breaches shall not have been corrected within 15 days of
delivery to Brooks of written notice of such breach or breaches.
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<PAGE>
Consequences of Termination of the Merger
In the event of a termination of the merger agreement generally, no party
shall have any liability or further obligation to any other party. However, no
party is relieved from liability for its breach of the merger agreement and
each may be liable for a termination fee as described below.
Smart Machines shall pay Brooks a fee in the amount of $1,000,000 plus all
reasonable, actual and documented costs and expenses (including reasonable
attorneys' and accountants' fees and expenses) incurred by Brooks in connection
with the merger agreement in the event of a termination of the merger
agreement:
. because Smart Machines engages in any conduct or takes any action
concerning, intended or designed to facilitate the efforts of any person,
other than Brooks, to acquire Smart Machines or any significant portion
of its capital stock or assets; or
. if, prior to or within six months after the termination of the merger
agreement due to Smart Machines' failure to comply with any covenants or
agreements contained in the merger agreement or Smart Machines' breach of
any representation or warranty contained in the merger agreement, Smart
Machines or any of its affiliates enters into a definitive agreement with
a third party with respect to an acquisition of Smart Machines or any
significant portion of its capital stock or assets or an acquisition of
Smart Machines or any significant portion of its capital stock or assets
is effected.
Such amounts payable to Brooks shall be paid ten business days after Brooks'
written demand therefor.
Brooks shall pay Smart Machines a fee equal to $1,000,000 plus all
reasonable, actual and documented costs and expenses (including reasonable
attorneys' and accountants' fees and expenses) incurred by Smart Machines in
connection with the merger agreement in the event of a termination of the
merger agreement:
. due to a failure to comply with any covenants or agreements contained in
the merger agreement or the breach of any representation or warranty
contained in the merger agreement which had a material adverse effect; or
. in the event the shares of Brooks common stock issuable to Smart Machines
shareholders would equal or exceed 20% of the then outstanding shares of
Brooks common stock and Brooks fails to exercise its option to purchase
Smart Machines for cash.
Such amounts payable to Smart Machines shall be paid ten business days after
Smart Machines' written demand,
Certain provisions of the merger agreement that relate to confidentiality
and nondisclosure of confidential information and public disclosures relating
to the merger without the prior knowledge and consent of Brooks will survive
termination.
Cash Election
Pursuant to the merger agreement, if the number of shares of Brooks common
stock issuable in the merger exceeds 20% of the total outstanding shares of
Brooks common stock, Brooks can choose to pay the total purchase price in cash
in an amount equal to $10,454,506. The total purchase price is subject to
increase in the event Smart Machines reduces the principal and interest on its
loan from Venture Lending and Leasing II, Inc. Smart Machines pays Venture
Lending $47,100 of principal and interest on the first day of each month.
Therefore, if Smart Machines makes its scheduled payment on the Venture Lending
loan on September 1, 1999, the total purchase price would increase to
$10,501,606.
In the event of a cash election, the merger would be accounted for as a
purchase and this proxy statement/prospectus would have to be amended. All
incremental costs relating to a cash election will be borne by Brooks.
Waiver and Amendment
The merger agreement may only be amended by a written agreement signed by
Brooks, its subsidiary and Smart Machines.
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<PAGE>
COMPARATIVE MARKET PRICE DATA
Brooks
Brooks' common stock is traded on the Nasdaq National Market under the
symbol "BRKS." The following table sets forth, for the periods indicated, the
high and low sales prices per share of Brooks common stock, as reported by the
Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fiscal Year Ended September 30, 1997
First Quarter.................................................. $19.50 $ 9.50
Second Quarter................................................. 19.75 14.75
Third Quarter.................................................. 19.50 12.38
Fourth Quarter................................................. 39.75 19.00
Fiscal Year Ended September 30, 1998
First Quarter.................................................. 41.13 12.38
Second Quarter................................................. 19.25 13.00
Third Quarter.................................................. 17.50 11.38
Fourth Quarter................................................. 12.75 8.13
Fiscal Year Ending September 30, 1999
First Quarter.................................................. 17.38 8.38
Second Quarter................................................. 25.75 14.63
Third Quarter.................................................. 27.88 17.88
Fourth Quarter (through August 12, 1999)....................... 30.25 24.75
</TABLE>
Smart Machines
No established trading market exists for any Smart Machines capital stock.
Recent Market Price of Brooks Stock
The following tables set forth the closing prices per share of the common
stock of Brooks on the Nasdaq National Market on July 7, 1999, the last trading
day preceding the public announcement of the merger, and on August 12, 1999,
the latest practicable trading day before the printing of this proxy
statement/prospectus. The tables also set forth the equivalent per share prices
of Smart Machines capital stock. These determinations are based on the portion
of the total purchase price allocable to the applicable class of Smart Machines
capital stock described on page 2, divided by the total outstanding number of
shares of the applicable class of Smart Machines capital stock. The first table
is based upon the number of shares of each class of Smart Machines capital
stock outstanding as of the date of this proxy statement/prospectus. The second
table assumes that each holder of Smart Machines preferred stock converts the
following amounts of its preferred stock into Smart Machines common stock:
Series A, 31.7%; Series B, 21.9%; Series C, 21.5%; and Series D, 21.3%.
<TABLE>
<CAPTION>
Smart Machines Equivalent (Currently
Outstanding)
------------------------------------------
Brooks Preferred Stock
Common Common -----------------------------------
Stock Stock Series A Series B Series C Series D
------ ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
July 7, 1999.................. $27.00 $0.51 $0.68 $2.34 $2.75 $2.76
August 12, 1999............... $26.50 $0.51 $0.68 $2.34 $2.75 $2.76
</TABLE>
<TABLE>
<CAPTION>
Smart Machines Equivalent (Assuming
Conversion)
------------------------------------------
Brooks Preferred Stock
Common Common -----------------------------------
Stock Stock Series A Series B Series C Series D
------ ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
July 7, 1999.................. $27.00 $0.41 $1.00 $3.00 $3.50 $3.50
August 12, 1999............... $26.50 $0.41 $1.00 $3.00 $3.50 $3.50
</TABLE>
47
<PAGE>
Number of Holders of Smart Machines and Brooks Stock
As of July 26, 1999, there were 197 holders of record of Brooks common stock
and 159 holders of record of Smart Machines capital stock.
Dividend Policy
Other than dividends paid by Brooks Canada prior to its acquisition by
Brooks, neither Brooks nor Smart Machines has ever paid or declared any cash
dividends on its capital stock and does not plan to pay any cash dividends in
the foreseeable future. Brooks' current policy is to retain all of its earnings
to finance future growth. Smart Machines' credit facilities prohibit Smart
Machines from making distributions on the Smart Machines capital stock.
You should obtain current market quotations for Brooks common stock. We
cannot predict or assure the market price of Brooks common stock on or after
the effective time of the merger.
48
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data set forth below related
to Brooks as of September 30, 1998 and 1997, and for the three fiscal years
ended September 30, 1998, have been derived from the Brooks Consolidated
Financial Statements and Notes thereto, which have been audited by
PricewaterhouseCoopers LLP, independent accountants, and are included elsewhere
in this proxy statement/prospectus. The selected historical financial data set
forth below related to Smart Machines as of December 31, 1998 and 1997, and for
the three years ended December 31, 1998, have been derived from the Smart
Machines Financial Statements and Notes thereto, which have been audited by
PricewaterhouseCoopers LLP, independent accountants, and are included elsewhere
in this proxy statement/prospectus. The selected historical consolidated
financial data set forth below related to Brooks as of September 30, 1996, and
1995, and 1994, and for the two fiscal years ended September 30, 1995, have
been derived from the Brooks Consolidated Financial Statements, which have been
audited by PricewaterhouseCoopers LLP, independent accountants, and are not
included in this proxy statement/ prospectus. The selected historical financial
data set forth below related to Smart Machines as of December 31, 1996 and
1995, and for the year ended December 31, 1995, have been derived from the
Smart Machines Financial Statements, which have been audited by
PricewaterhouseCoopers LLP, independent accountants, and are not included in
this proxy statement/prospectus.
The selected historical consolidated financial data set forth below related
to Brooks as of March 31, 1999, and for the six months ended March 31, 1999 and
1998, have been derived from the Brooks Unaudited Condensed Consolidated
Financial Statements, which are included elsewhere in this proxy
statement/prospectus. The selected historical financial data set forth below
related to Smart Machines as of March 31, 1999, and for the three months ended
March 31, 1999 and 1998, have been derived from the Smart Machines Unaudited
Financial Statements, which are included elsewhere in this proxy
statement/prospectus. The unaudited financial statements have been prepared by
Brooks and Smart Machines on a basis consistent with Brooks' and Smart
Machines' audited financial statements and, in the opinion of each respective
company's management, include all adjustments, consisting of only normal
recurring adjustments, necessary for the fair presentation of their financial
positions and results of operations for such periods. The results of operations
for those interim periods are not necessarily indicative of the results to be
expected for the entire year.
49
<PAGE>
Brooks Automation, Inc.
Selected Historical Consolidated Financial Data(a)
(in thousands, except per share data)
The following summary historical consolidated financial data of Brooks have
been derived from its historical consolidated financial statements You should
read this summary in conjunction with such consolidated financial statements
and the notes thereto which are included in this proxy statement/prospectus.
<TABLE>
<CAPTION>
(unaudited)
Six months ended
March 31, Fiscal year ended September 30,
----------------- --------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated statement
of operations data:
Revenues(b)............. $43,085 $ 53,723 $ 99,862 $108,741 $112,730 $68,488 $38,096
Gross profit............ 19,108 15,374 27,505 44,980 54,769 34,404 20,003
Income (loss) from
operations............. (1,609) (12,071) (25,355) 436 13,257 8,248 3,627
Net income (loss)....... (441) (9,276) (18,361) (1,601) 8,594 6,605 2,153
Dividends on preferred
stock.................. -- 261 521 521 521 521 521
Net income (loss)
available to common
stockholders........... (441) (9,537) (18,882) (2,122) 8,073 6,084 1,632
Earnings (loss) per
share:
Basic.................. $(0.04) $(0.93) $(1.84) $(0.27) $1.06 $1.00 $0.36
Diluted................ $(0.04) $(0.93) $(1.84) $(0.27) $0.94 $0.86 $0.37
Shares used in computing
earnings (loss) per
share:
Basic.................. 11,028 10,235 10,269 7,818 7,628 6,093 4,564
Diluted................ 11,028 10,235 10,269 7,818 9,108 7,661 5,841
</TABLE>
<TABLE>
<CAPTION>
(unaudited) September 30,
March 31, -----------------------------------------
1999 1998 1997 1996 1995 1994
----------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Consolidated balance
sheet data:
Total assets............ $140,172 $140,952 $160,989 $78,174 $65,016 $21,080
Working capital......... 100,742 99,921 115,439 34,294 34,870 8,124
Long-term debt
(excluding current
portion)............... 11 130 2,520 931 938 3,845
Redeemable convertible
preferred stock........ -- -- 10,366 9,831 9,298 8,764
Nonredeemable preferred
stock, common stock,
and other shareholders'
equity (deficit)....... 121,841 121,763 126,870 45,916 37,768 (8)
</TABLE>
- --------
(a) All financial information presented above has been retroactively restated
to reflect the FASTech and Techware acquisitions that have been accounted
for as poolings of interest.
(b) Includes revenues from related party of $15.9 million, $18.2 million, $19.1
million, $10.5 million, $6.4 million, $4.1 million and $10.3 million in the
fiscal years ended September 30, 1998, 1997, 1996, 1995, 1994 and the six
months ended March 31, 1999 and 1998, respectively.
50
<PAGE>
SMART MACHINES INC.
SELECTED HISTORICAL FINANCIAL DATA
(In thousands, except per share data)
The following summary historical financial data of Smart Machines have been
derived from its historical financial statements. You should read this summary
in conjunction with such financials and notes thereto which are included in
this proxy statement/prospectus.
<TABLE>
<CAPTION>
(unaudited)
Three months
ended March 31, Fiscal year ended December 31,
---------------- ----------------------------------
1999 1998 1998 1997 1996 1995*
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Statement of operations
data:
Revenues................ $ 230 $ 32 $ 382 $ 687 $ -- $ --
Gross profit............ (167) (228) (789) (863) -- --
Loss from operations.... (834) (916) (4,534) (3,432) (2,831) (1,936)
Net loss................ (905) (903) (4,598) (3,368) (2,803) (1,891)
Dividends on preferred
stock.................. 225 225 899 484 -- --
Net loss available to
common stockholders.... $(1,130) $(1,128) $(5,497) $(3,852) $(2,803) $(1,891)
Loss per share:
Basic................. $ (0.25) $ (0.25) $ (1.22) $ (0.94) $ (0.80) $ (0.77)
Diluted............... $ (0.25) $ (0.25) $ (1.22) $ (0.94) $ (0.80) $ (0.77)
Shares used in computing
loss per share:
Basic................. 4,566 4,491 4,524 4,104 3,503 2,446
Diluted............... 4,566 4,491 4,524 4,104 3,503 2,446
</TABLE>
<TABLE>
<CAPTION>
(unaudited) December 31,
March 31, -----------------------------
1999 1998 1997 1996 1995
----------- ------- ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance sheet data:
Total assets......................... $ 2,004 $ 2,507 $3,824 $1,840 $1,363
Working capital...................... 848 1,428 2,632 853 851
Long-term debt (excluding current
portion)............................ 3,499 3,214 104 -- --
Redeemable convertible preferred
stock............................... 3,787 3,562 2,663 -- --
Nonredeemable preferred stock, common
stock, and other shareholders'
equity (deficit).................... $(6,120) $(4,991) $ 449 $1,309 $1,115
</TABLE>
- --------
* Includes results of operations from October 1, 1994 (date of inception),
through December 31, 1995.
51
<PAGE>
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
The unaudited selected pro forma consolidated financial data set forth below
have been derived from the Unaudited Pro Forma Condensed Consolidated Financial
Statements, included elsewhere herein. The unaudited selected pro forma
consolidated balance sheet data as of March 31, 1999, set forth below give
effect to the merger as if it had occurred on March 31, 1999. The unaudited
selected pro forma consolidated statement of operations data set forth below
give effect to the merger as if it had occurred at the beginning of the
earliest period presented. The pro forma consolidated financial data does not
purport to represent what the combined companies' financial position or results
of operations would have actually been had the merger occurred at the beginning
of the earliest period presented or to project the combined companies'
financial position or results of operations for any future date or period. In
addition, it does not incorporate any benefits from anticipated cost savings or
synergies of operations of the combined companies. Direct costs of the merger
are estimated to be $750,000. Other costs of consolidation have not been
determined. Neither direct costs or other costs are included in the pro forma
combined statement of operations data for the periods presented.
<TABLE>
<CAPTION>
Six months ended Fiscal years ended
March 31, September 30,
----------------- ----------------------------
1999 1998 1998 1997 1996
------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Pro Forma Consolidated
Statement of Operations Data:
Revenues...................... $45,082 $ 53,882 $107,697 $109,428 $112,730
Net income (loss) available to
common shareholders.......... (2,780) (11,889) (21,374) $ (5,973) 5,270
Earnings (loss) per share:
Basic....................... $ (0.24) $ (1.12) $ (1.99) $ (0.73) $ 0.67
Diluted..................... $ (0.24) $ (1.12) $ (1.99) $ (0.73) $ 0.62
Shares used in calculating
earnings (loss) per share:
Basic....................... 11,502 10,609 10,739 8,175 7,846
Diluted..................... 11,502 10,609 10,739 8,175 9,326
</TABLE>
<TABLE>
<CAPTION>
March
31, 1999
--------
<S> <C>
Pro Forma Consolidated Balance Sheet Data:
Working capital(1).................................................... $ 98,967
Total assets.......................................................... 144,386
Redeemable convertible preferred stock................................ 0
Long-term debt (excluding current portion)............................ 2,185
Total shareholders' equity(1)......................................... $121,399
</TABLE>
- --------
(1) Gives effect at March 31, 1999 to a reserve for direct costs of the merger,
which are estimated to be $750,000.
52
<PAGE>
BROOKS RECENT DEVELOPMENTS
Nine Months Ended June 30, 1999
Total revenues for the nine months ended June 30, 1999, were $69.4 million,
a decrease of 12.7% compared to the nine months ended June 30, 1998. Total
revenues for the three months ended June 30, 1999, were $26.4 million, compared
to $25.8 million in the comparable prior year period and a 13.3% increase over
the prior quarter's total revenues. For the nine months ended June 30, 1999,
international sales represented 41% of total revenues, compared to 38% for the
comparable nine months of the prior fiscal year.
The gross profit margin of 44.7% for the nine months ended June 30, 1999,
increased from the gross profit margin of 28.6% for the comparable period in
the prior year due to improved utilization of manufacturing capacity, lower
material costs and favorable product mix. In addition, Brooks included $4.2
million of inventory reserves and severance costs in the cost of goods sold for
the nine months ended June 30, 1998. The net loss for the nine months ended
June 30, 1999, was $187,000, a decrease from the net loss of $12.2 million for
the comparable period in the prior year.
Recent Transactions
In April 1999 Brooks acquired the assets of Hanyon Technology, Inc., for
$6.6 million in cash. Hanyon is based in Korea and provides manufacturing
execution systems and automation software and systems integration services to
the semiconductor and liquid crystal display industries in Korea and Taiwan.
The Hanyon acquisition was accounted for as a purchase of assets.
In June 1999 Brooks formed a joint venture in Korea with Samsung
Electronics. Brooks' initial investment in this joint venture was $3.5 million.
This joint venture is 70% owned by Brooks and 30% owned by Samsung and has been
organized to design, develop and manufacture atmospheric flat panel display
loaders and other products.
In June 1999 Brooks acquired the assets of Domain Manufacturing Corporation
for $3.8 million in cash. Domain provides process development, process control,
and data analysis solutions. The Domain acquisition was accounted for as a
purchase of assets.
In July 1999 Brooks entered into the merger agreement with Smart Machines
Inc. subject to Smart Machines shareholders' approval and other customary
closing conditions. Smart Machines is located in San Jose, California, and
manufactures direct drive Selectively Compliant Assembly Robot Arm, or SCARA,
atmospheric and vacuum robots. This merger is expected to be accounted for as a
pooling of interests.
In July 1999 Brooks signed a letter of intent to acquire substantially all
of the assets and assume certain liabilities of the Infab division of Jenoptik
AG in exchange for 1,086,630 shares of Brooks common stock. The Infab division
is a worldwide supplier of advanced factory automation systems headquartered in
Germany. As part of the proposed transaction, Jenoptic would be entitled to
representation on the Brooks Board of Directors and Jenoptik would agree to
various restrictions on its acquisition or disposition of Brooks common stock.
The proposed acquisition is subject to the completion by Brooks of substantial
due diligence on the Infab division, the negotiation and resolution of
significant business and legal issues, and the negotiation and completion of a
mutually satisfactory acquisition agreement among the parties. Brooks cannot
guarantee that this transaction will be completed on acceptable terms, or be
completed at all. The proposed acquisition, if completed, would be accounted
for as a purchase of assets.
Brooks is in active discussions with a number of other companies concerning
possible acquisitions of their businesses. Brooks presently is not subject to
any agreements regarding these other possible acquisitions.
53
<PAGE>
BROOKS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Brooks is a leading supplier of tool and factory automation solutions for
the global semiconductor, data storage and flat panel display manufacturing
industries. Founded in 1978, Brooks has distinguished itself as a technology
and market leader, particularly in the demanding cluster-tool vacuum-processing
environment. Brooks' products have evolved from individual robots used to
transfer semiconductor wafers in advanced production equipment to fully
integrated handling systems that increase the throughput and utilization of
equipment used to make semiconductors and flat panel displays.
In 1992 Brooks introduced the family of vacuum central wafer handling
systems and modules that forms the foundation of Brooks' current business. In
1994 Brooks introduced a similar family of systems and modules for flat panel
display substrates, including a next-generation magnetically driven vacuum
transfer robot. In 1996 Brooks acquired Techware Systems Corporation, a
designer and supplier of integrated equipment control software for the
semiconductor and related industries, expanding its software and control
capability. In 1997 Brooks introduced a line of products for the atmospheric
handling market, including in-line and controlled environment systems, robots,
aligners and traversers.
In 1998, Brooks expanded its integration software capabilities by acquiring
FASTech Integration, Inc. FASTech designs, develops, markets and supports an
integrated suite of manufacturing execution system workflow software products
for the semiconductor, electronics and general discrete manufacturing
industries, further expanding Brooks' integration software capabilities. In
1999 Brooks acquired Hanyon Technology, Inc., and Domain Manufacturing
Corporation to enhance its leadership in factory automation software through
integrated process control and optimization solutions. In 1999 Brooks entered
into a joint venture with Samsung to design, develop and manufacture automation
systems in Korea.
Brooks' product revenues include sales of hardware and software products.
Brooks' service revenues include revenue from maintenance contracts and fixed
fee application consulting contracts.
The majority of Brooks' revenues have been generated by sales to customers
in the United States, although Brooks believes that a significant portion of
these customers incorporate Brooks' products into equipment sold to their
foreign customers. Brooks' foreign sales have occurred principally in Japan,
South Korea and Europe.
Brooks' foreign revenues are generally denominated in United States dollars.
Accordingly, foreign currency fluctuations have not had a significant impact on
the comparison of the results of operations for the periods presented. The
costs and expenses of Brooks' international subsidiaries are generally
denominated in currencies other than the United States dollar. However, since
the functional currency of Brooks' international subsidiaries is the local
currency, foreign currency translation adjustments are reflected as a component
of shareholders' equity. To the extent that Brooks expands its international
operations or changes its pricing practices to denominate prices in foreign
currencies, Brooks will be exposed to increased risk of currency fluctuation.
Many of Brooks' customers purchase Brooks' vacuum transfer robots and other
modules before purchasing Brooks' vacuum central wafer handling systems. Brooks
believes that once a customer has selected Brooks' products for a process tool,
the customer is likely to rely on those products for the life of that process
tool model, which can be in excess of five years.
Brooks' business is highly dependent upon the capital expenditures of
semiconductor and flat panel display manufacturers which historically have been
cyclical, and upon Brooks' ability to develop, manufacture and sell new
products and product enhancements. Brooks' results will also be affected,
especially when measured on a quarterly basis, by the volume, composition and
timing of orders, conditions in industries served by Brooks, competition and
general economic conditions.
54
<PAGE>
Results of Operations
The following table sets forth certain financial data for Brooks for the
periods indicated as a percentage of revenues:
<TABLE>
<CAPTION>
(unaudited)
Six months ended Fiscal year ended
March 31, September 30,
------------------- ------------------------
1999 1998 1998 1997 1996
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues:
Product.................. 78.1% 81.5% 80.6% 81.3% 83.5%
Services................. 21.9% 18.5% 19.4% 18.7% 16.5%
-------- -------- ------ ------ ------
Total revenues......... 100.0% 100.0% 100.0% 100.0% 100.0%
-------- -------- ------ ------ ------
Gross profit:
Product.................. 46.4% 29.8% 24.4% 41.8% 47.3%
Services................. 37.0% 23.2% 40.5% 39.3% 54.9%
Total revenues......... 44.3% 28.6% 27.5% 41.3% 48.6%
Operating expenses:
Research and
development............. 20.4% 24.1% 22.7% 18.9% 16.3%
Selling, general and
maintenance............. 27.6% 27.0% 26.5% 22.0% 20.4%
Merger and
restructuring........... -- -- 3.7% -- 0.2%
-------- -------- ------ ------ ------
Income (loss) from
operations................ (3.7)% (22.5)% (25.4)% 0.4% 11.7%
Interest income............ 3.5% 3.6% 3.6% 0.1% 0.4%
Interest expense........... 0.1% 0.8% 0.9% 0.8% 0.4%
-------- -------- ------ ------ ------
Income (loss) before income
taxes..................... (0.3)% (19.7)% (22.7)% (0.3)% 11.7%
Income tax provision
(benefit)................. 0.7% (2.4)% (4.3)% 1.2% 4.1%
-------- -------- ------ ------ ------
Net income (loss).......... (1.0)% (17.3)% (18.4)% (1.5)% 7.6%
======== ======== ====== ====== ======
</TABLE>
Six and Three Months Ended March 31, 1999 Compared With Six and Three Months
Ended March 31, 1998.
Revenues
For the six months ended March 31, 1999, total revenues decreased 19.8% to
$43.1 million compared to $53.7 million for the six months ended March 31,
1998. Product revenues decreased by 23.2% to $33.6 million and service revenues
decreased 5.0% to $9.5 million. For the three months ended March 31, 1999,
total revenues decreased 3.3% to $23.3 million compared with revenues of $24.1
million in the comparable quarter of the prior fiscal year. Product revenues
decreased 1.4% to $18.5 million and service revenues decreased 10% to $4.8
million. The decrease in product revenues for the three and six months was
primarily the result of the prolonged economic downturn currently impacting the
semiconductor industry and related fabrication equipment sector.
For the six months ended March 31, 1999, international sales represented 46%
of total revenue compared to 33% for the comparable six months of the prior
fiscal year. For the three months ended March 31, 1999, international sales
represented 34% of total revenue compared to 30% for the comparable quarter
last year. Brooks expects that foreign revenues will continue to account for a
significant portion of total revenues. However, Brooks cannot guarantee that
foreign revenues, particularly from Asia, will remain a strong component of its
total revenues.
Gross Profit
Overall, the gross profit percentage increased to 44.3% for the six months
ended March 31, 1999, compared to 28.6% (36.4% excluding an inventory charge of
$4.2 million to provide additional reserves for
55
<PAGE>
slow-moving and obsolete inventories) in the comparable six months of the prior
fiscal year. The gross profit percentage for product revenue was 46.4%, an
increase compared to 29.8% (39.4% excluding the inventory charge) in the
comparable six months of the prior fiscal year. For the three months ended
March 31, 1999, the gross profit percentage increased to 44.5%, compared to
15.5% (33.0% excluding the inventory charge) in the comparable quarter of the
prior fiscal year. The gross profit percentage for product revenues was 48.8%,
an increase from 13.4% (35.8% excluding the inventory charge) in the comparable
quarter of the prior fiscal year. The increase is primarily a result of lower
material costs for hardware products and an increased percentage of higher
margin software revenues.
For the six months ended March 31, 1999, the gross profit percentage of
service revenues increased to 37.0% from 23.2% in the comparable six months of
the prior fiscal year. For the three months ended March 31, 1999, the gross
profit percentage of service revenues increased to 28.0% as compared with 23.0%
in the comparable quarter of the prior fiscal year. These improvements are
primarily a result of personnel and personnel-related cost reductions. Included
in the cost of services revenues are global support costs, which consist
primarily of personnel costs and travel expenses.
In future periods, gross profit may be adversely affected by changes in the
mix of products sold, continued pricing pressures or increases in cost of
revenues.
Research and Development
Research and development expenses decreased 32.0% to $8.8 million (20.4% of
revenues) for the six months ended March 31, 1999, from $12.9 million (24.1% of
revenues) in the comparable six months of the prior fiscal year. For the three
months ended March 31, 1999, research and development expenses decreased 24.1%
to $4.7 million (20.2% of revenues) from $6.2 million (25.8% of revenues) in
the comparable quarter of the prior fiscal year. The decrease in research and
development expenses is due primarily to lower personnel and personnel-related
costs following a reduction in headcount in the second and fourth quarters of
fiscal 1998. However, Brooks plans to continue to make investments in research
and development to enhance existing and develop new semiconductor and flat
panel display products and software products. Brooks believes that research and
development expenditures are essential to maintaining its competitive position
in the semiconductor and flat panel display fabrication equipment and software
markets and expects these expenditure levels to continue at or above current
levels in the foreseeable future.
Selling, General and Administrative
Selling, general and administrative expenses decreased 17.8% to $11.9
million (27.6% of revenues) for the six months ended March 31, 1999, from $14.5
million (27.0% of revenues) in the comparable six months of the prior fiscal
year. Selling, general and administrative expenses decreased 16.6% to $6.2
million (26.6% of revenues) for the three months ended March 31, 1999, from
$7.4 million (30.8% of revenues) in the comparable quarter of the prior fiscal
year. The decrease in selling, general and administrative expenses is due
primarily to lower personnel and personnel-related costs following a reduction
in headcount in the second and fourth quarters of fiscal 1998 and expense
control programs initiated during the third and fourth quarters of fiscal 1998.
Brooks expects that expenditure levels to support the growth of its worldwide
sales and administrative organizations will continue at or above current levels
in the foreseeable future, reflecting Brooks' commitment to further penetrate
key international markets.
Interest Income, Net
Interest income, net was relatively consistent for the six months ended
March 31, 1999 and 1998. Interest income, net for the three months ended March
31, 1999, decreased to $749,000 from $818,000 in the comparable quarter of the
prior fiscal year. The decrease in interest income, net is due primarily to
lower interest rates earned on invested funds in the current period. The
comparable 1998 period includes interest expense of $71,000 for deferred
financing costs resulting from the repayment of the related note, as well as
interest on subordinated notes and capital leases repaid during fiscal 1998.
56
<PAGE>
Income Tax Provision
Brooks recorded tax provisions of $305,000 and $83,000, respectively, for
the six and three month periods ended March 31, 1999, due primarily to revenues
and profit from foreign operations. Brooks recorded net tax benefits of
$1,287,000 and $2,651,000, respectively, during the six and three month periods
of the prior fiscal year primarily reflecting the tax benefit of domestic net
operating losses.
FISCAL YEAR ENDED SEPTEMBER 30, 1998, COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1997:
Revenues
Total revenues decreased 8.2% to $99.9 million in fiscal 1998 compared with
revenues in fiscal 1997. Product revenues decreased $7.9 million (9.0%)
primarily as a result of decreases in flat panel display revenues and software
revenues, which were partially offset by an increase in 200mm revenues and
300mm revenues. Services revenues decreased $1.0 million (4.8%). The decreases
in product and services revenues were primarily the result of the prolonged
economic downturn currently impacting the semiconductor industry and related
fabrication equipment sector.
Foreign revenues for fiscal 1998 were $41.2 million (41.3% of revenues),
including $31.7 million of direct sales to Asian customers, compared with
foreign revenues of $41.3 million (37.9% of revenues), including $33.3 million
of direct sales to Asian customers in the prior fiscal year.
Gross Profit
Overall, gross profit as a percentage of revenues decreased to 27.5% for
fiscal 1998 compared with 41.4% for fiscal 1997. Gross profit as a percentage
of product revenues decreased to 24.4% compared with 41.8% for fiscal 1997.
Included in the cost of product revenues for fiscal 1998 were $6.6 million of
charges related primarily to inventory, depreciation and severance costs.
During fiscal 1998, Brooks recorded an inventory-related charge of $6.2 million
to provide additional reserves for slow-moving and obsolete inventories. These
reserves reflected management's assessment of the required inventory reserve
level in view of the decline in customer demand for semiconductor equipment due
to a prolonged industry downturn. The gross profit percentage for product
revenues before these charges in fiscal 1998 was 32.6%, a 9.2% decrease
compared to the prior fiscal year. This decrease was primarily due to the
continued underutilization of manufacturing capacity, which was due in part to
customer requested shipment delays primarily in the first half of fiscal 1998,
and pricing pressure from volume production customers.
Gross profit on service revenues as a percentage of service revenues was
40.5% for fiscal 1998, as compared with 39.3% for the prior year. Included in
the cost of services revenues are global support costs, which decreased 7.7% to
$6.0 million (30.9% of services revenues) for fiscal 1998 from $6.5 million in
the prior fiscal year.
Research and Development
Research and development expenses increased 10.1% to $22.7 million (22.7% of
revenues) from $20.6 million (18.9% of revenues) in the prior fiscal year. The
increase primarily resulted from incremental spending associated with the
launch of new atmospheric products and the transition to next generation vacuum
wafer handling products.
Selling, General and Administrative
Selling, general and administrative expenses increased 10.5% to $26.5
million (26.5% of revenues) for fiscal 1998 from $24.0 million (22.0% of
revenues) in the prior fiscal year. Fiscal 1998 expenses include $1.0 million
for additional accounts receivable reserves and increased depreciation expense.
Before these
57
<PAGE>
charges, selling, general, and administrative expenses increased 6.3% to $25.5
million (25.5% of revenues), primarily due to the worldwide expansion of
Brooks' sales and administrative organizations during the first half of the
year.
Acquisition-Related and Restructuring Costs
In fiscal 1998 Brooks incurred acquisition-related costs of $2.4 million
that consisted principally of $1.4 million of costs to exit duplicate
facilities, and $1.0 million of legal, accounting, and other transaction-
related costs. In addition, Brooks incurred $1.3 million of costs in fiscal
1998 to terminate certain employees under a plan approved and implemented
during fiscal 1998.
Interest Income and Interest Expense
Interest income increased to $3.6 million for fiscal 1998 from $0.1 million
in the prior fiscal year. The increase in interest income is due to higher cash
and investment balances during fiscal 1998, resulting primarily from Brooks'
$80.8 million public stock offering in September 1997. Interest expense in
fiscal 1998 remained relatively unchanged from $0.9 million in the prior fiscal
year. Interest expense in fiscal 1998 included $0.3 million of acquisition-
related deferred financing costs due to retirement of debt in conjunction with
the acquisition of FASTech.
Income Tax Provision (Benefit)
Brooks recorded a net tax benefit of $4.3 million for fiscal 1998, primarily
due to the anticipated future tax benefit of domestic net operating losses and
research and development tax credit carryforwards generated during 1998, which
were partially offset by the $2.3 million increase in the deferred tax asset
valuation allowance.
FISCAL YEAR ENDED SEPTEMBER 30, 1997, COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1996:
Revenues
Total revenues decreased 3.5% to $108.7 million in fiscal 1997 compared with
revenues in fiscal 1996. Product revenues decreased $5.7 million (6.1%)
primarily as a result of a decrease in 200mm vacuum central wafer handling
systems and components and atmospheric products, which was partially offset by
an increase in 300mm, flat panel display, and software products. Brooks
attributes lower fiscal 1997 revenues to a broad decline in capital spending by
the semiconductor manufacturing equipment industry, which adversely affected
Brooks' revenue particularly in the first half of fiscal 1997. Services
revenues increased $1.7 million (9.2%).
Foreign revenues for fiscal 1997 increased 46.3% to $41.3 million (37.9% of
revenues), including $33.3 million of direct sales to Asian customers, compared
with foreign revenues of $28.2 million (25.0% of revenues), including $19.3
million of direct sales to Asian customers in the prior fiscal year. The
increase in foreign revenues was primarily attributable to shipments of 200mm
and 300mm central wafer handling systems and flat panel display systems to
customers primarily in Japan and South Korea.
Gross Profit
The overall gross profit as a percentage of revenues decreased to 41.4% for
fiscal 1997 from 48.6% for fiscal 1996. Gross profit as a percentage of product
revenues decreased to 41.8% compared with 47.3% for fiscal 1996. The decrease
in the gross profit percentage is primarily attributable to underutilization of
manufacturing capacity, higher concentration of shipments of lower gross margin
platforms, and to a lesser extent, pricing pressures and higher new product
introduction costs.
58
<PAGE>
The gross profit percentage for service revenues was 39.3% for fiscal 1997,
a decrease of 15.6% from the prior year primarily due to an increase in global
support costs. Global support costs increased 103.1% to $6.5 million (31.9% of
services revenues) in fiscal 1997 from $3.2 million (17.2% of service revenues)
in the prior fiscal year. The increase in global support costs resulted from
the expansion of Brooks' global support organization in support of the
international growth of its customer base.
Research and Development
Research and development expenses increased 12.3% to $20.6 million (18.9% of
revenues) in fiscal 1997 from $18.3 million (16.3% of revenues) in the prior
fiscal year. During fiscal 1997, Brooks continued to make investments in
research and development to enhance existing and develop new semiconductor and
flat panel display products and software products. As a percentage of revenues,
the increase in research and development expenses reflects the effect on
Brooks' cost structure of the lower revenue level in fiscal 1997.
Selling, General and Administrative
Selling, general and administrative expenses increased 4.4% to $24.0 million
(22.0% of revenues) for fiscal 1997 from $22.9 million (20.4% of revenues) in
the prior fiscal year.
Interest Income and Interest Expense
Interest income decreased to $0.1 million for fiscal 1997 from $0.4 million
in the prior fiscal year. The decrease in interest income is due to lower cash
and investment balances during fiscal 1997 compared with fiscal 1996. Interest
expense in fiscal 1997 increased to $0.9 million from $0.5 million in the prior
fiscal year. The increase in interest expense is due primarily to higher
borrowings.
Income Tax Provision (Benefit)
During fiscal 1997, Brooks recorded a net tax provision of $1.3 million due
primarily to an increase in the deferred tax asset valuation allowance and a
net foreign tax provision resulting largely from the net taxable income of
Brooks' foreign subsidiaries. These amounts were slightly offset by the tax
benefit of domestic operating loss and tax credit carrybacks.
Liquidity And Capital Resources
As of March 31, 1999, Brooks' principal source of liquidity consisted of
$69.3 million in cash and cash equivalents, compared to $68.2 million at
September 30, 1998. Brooks had working capital of $100.7 million as of March
31, 1999, compared to $99.9 million at September 30, 1998.
For the six months ended March 31, 1999, cash and cash equivalents increased
$1.1 million primarily as a result of $3.1 million of cash generated by
operating activities, partially offset by $2.3 million of cash used for
investing activities. The positive operating cash flow resulted primarily from
decreases in inventory and prepaid expenses and other current assets and
Brooks' net loss adjusted for noncash items partially offset by a decrease in
accrued liabilities and an increase in accounts receivable.
Brooks' investing activities consisted of capital spending aggregating $2.1
million during the six months ended March 31, 1999, primarily for business
information systems including computer hardware and software, and for
headquarters facility improvements. Brooks expects to continue to make capital
expenditures to support its business activities. Financing activities consisted
of repayments of long-term debt and capital lease obligations, which were more
than offset by the proceeds from the issuance of common stock.
In the third quarter of fiscal 1999, Brooks acquired Hanyon Technology, Inc.
for $6.6 million in cash and Domain Manufacturing Corporation for $3.8 million
in cash. In addition Brooks formed a joint venture with Samsung Electronics and
made an investment of $3.5 million. During the fourth quarter of fiscal 1999,
Brooks entered into an agreement and plan of merger with Smart Machines and
signed a letter of intent to acquire the
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assets of the Infab division of Jenoptik AG. Brooks is also considering other
acquisitions of companies, technologies, and products, which are complementary
to its business.
Brooks is currently in discussions with potential lenders for a $25 million
line of credit to help fund future acquisitions. Brooks believes that current
cash and cash equivalent balances and the anticipated line of credit together
will be adequate to fund planned working capital, capital expenditures, and
investing requirements for at least the next twelve months. Brooks cannot
guarantee that the anticipated line of credit will be obtained or will have
terms that will be satisfactory to Brooks.
Year 2000 Readiness Disclosure
The year 2000 issue is the potential for system and processing failure of
date-related data as the result of computer-controlled systems using two digits
rather than four digits to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Internal infrastructure compliance. Brooks may be affected by year 2000
issues related to noncompliant information technology systems and other systems
operated or sold by Brooks or by third parties. Brooks has substantially
completed assessment of its internal information technology systems and
applications and believes that all critical applications are year 2000
compliant. Brooks also has evaluated its information technology hardware and
its non-information technology systems, including facilities and other
operations, such as financial, security and utility systems. Though Brooks
believes these systems are substantially year 2000 compliant, Brooks has
scheduled remediation for non-compliant year 2000 items for completion by the
end of the calendar year.
Product compliance. Brooks has completed a Year 2000 readiness evaluation of
its current generation of released products and believes that products
distributed after December 31, 1998 are Year 2000 compliant. Brooks cannot
guarantee that product testing has identified all Year 2000 related issues that
could have an adverse affect on Brooks' financial condition and results of
operations.
Acquisitions. Brooks has acquired three businesses since September 1998,
FASTech, Hanyon Technology, Inc., and Domain Manufacturing Corporation. Brooks
is in various stages of negotiation with respect to the acquisition of several
additional businesses. Brooks has entered into the definitive merger agreement
with Smart Machines. As part of Brooks' due diligence examination of completed
acquisitions, Brooks conducts a limited evaluation of the acquired company's
year 2000 readiness. Brooks believes there are no significant year 2000 related
issues arising from the companies that Brooks has acquired. Brooks cannot
guarantee that it has identified and properly evaluated year 2000 issues
relating to the acquired companies. Brooks also can give no assurance that it
will properly identify year 2000 issues relating to any companies acquired in
the future.
Third-party Compliance. Although Brooks believes that its systems are year
2000 compliant, Brooks utilizes third-party equipment and software that may not
be year 2000 compliant. In addition, Brooks' products and software are often
sold integrated into or interfaced with third-party equipment or software.
Failure of third-party equipment or software to operate properly with regard to
the year 2000 and thereafter could require Brooks to incur unanticipated
expenses to remedy any problems, which could have a material adverse effect on
Brooks' business, results of operations and financial condition. Brooks may
also be vulnerable to any failures by its major suppliers, service providers
and customers to remedy their own internal information technology and non-
information technology system year 2000 issues which could, among other things,
have a material adverse effect on Brooks supplies and orders. At this time,
Brooks is unable to estimate the nature or extent of any potential adverse
impact resulting from the failure of third parties, such as its suppliers,
service providers and customers, to achieve year 2000 compliance. Moreover,
such third parties, even if year 2000 compliant, could experience difficulties
resulting from year 2000 issues that may affect their suppliers, service
providers
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and customers. As a result, although Brooks does not currently anticipate,
based upon surveys and discussions, that it will experience any material
shipment delays from its major product suppliers or any material sales delays
from its major customers due to year 2000 issues, there can be no assurance
that these third parties will not experience year 2000 problems or that any
problems would not have an adverse material effect on Brooks' business, results
of operations and financial condition. Because the cost and timing of year 2000
compliance by third parties such as suppliers, service providers and customers
is not within Brooks' control, Brooks cannot give any assurance with respect to
the cost or timing of such efforts or any potential adverse effects on Brooks
of any failure by these third parties to achieve year 2000 compliance.
Brooks relies on commercial or government suppliers for services related to
Brooks' infrastructure, including utilities, transportation, financial,
governmental, communications and other services. These suppliers pose an
undetermined risk to Brooks' facilities and operations worldwide. In some
cases, alternate suppliers of these services, such as electrical utilities, are
unavailable, and failure by a supplier could adversely impact Brooks.
Costs. Based on its investigation to date, Brooks does not expect the total
cost of its year 2000 assessment and planning to have a material adverse effect
on Brooks' business or financial results. On a cumulative basis, Brooks has
incurred approximately $500,000 in year 2000 compliance costs. Brooks expects
to incur an additional $300,000 in year 2000 compliance costs through the end
of the calendar year. Brooks is continuing its assessment and developing
alternatives that may require additional expenses.
Contingency Plan. Brooks is currently developing a contingency plan in the
event year 2000 problems relating to its operations arise. Brooks' failure to
develop a contingency plan could have a material adverse effect on Brooks'
business, results of operations and financial condition.
Worst Case Scenario. To the extent that Brooks does not identify any
material non-compliant information technology systems or non-information
technology systems operated by Brooks or by third parties, such as Brooks'
suppliers, service providers and customers, the most reasonably likely worst
case year 2000 scenario is a systemic failure beyond the control of Brooks,
such as a prolonged telecommunications or electrical failure, or a general
disruption in United States or global business activities that could result in
a significant economic downturn. Brooks believes that the primary business
risks, in the event of such failure or other disruption, would include but not
be limited to, loss of customers or orders, increased operating costs,
inability to obtain inventory on a timely basis, disruptions in product
shipments, or other business interruptions of a material nature, as well as
claims of mismanagement, misrepresentation, or breach of contract, any of which
could have a material adverse effect on Brooks' business, results of operations
and financial condition.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
which establishes standards for reporting information on operating segments in
interim and annual financial statements. The statement is effective for Brooks
for fiscal 1999, however, there are no interim disclosure requirements in the
year of adoption. Adoption of this statement will not have an impact on Brooks'
results of operations or financial position.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In July 1999, the FASB issued SFAS No.
137, which delayed the effective date of SFAS 133 to fiscal years beginning
after June 15, 2000 (fiscal 2001 for Brooks) and requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction.
Management anticipates that the adoption of SFAS No. 133 will not have a
material impact on Brooks' results of operations or financial position.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT BROOKS MARKET RISK
Interest Rate Exposure
Based on Brooks' overall interest exposure at March 31, 1999, including all
interest rate sensitive instruments, a near-term change in interest rates
within a 95% confidence level based on historical interest rate movements would
not materially affect the consolidated results of operations or financial
position.
Currency Rate Exposure
Brooks' foreign revenues are generally denominated in United States dollars.
Accordingly, foreign currency fluctuations have not had a significant impact on
the comparison of the results of operations for the periods presented. The
costs and expenses of Brooks' international subsidiaries are generally
denominated in currencies other than the United States dollar. However, since
the functional currency of Brooks' international subsidiaries is the local
currency, foreign currency translation adjustments do not impact operating
results, but instead are reflected as a component of shareholders' equity. To
the extent Brooks expands its international operations or changes its pricing
practices to denominate prices in foreign currencies, Brooks will be exposed to
increased risk of currency fluctuation.
Stock Price
The stock prices of semiconductor equipment companies are subject to
significant fluctuations. Brooks' stock price may be affected by a variety of
factors that could cause the price of Brooks' common stock to fluctuate,
perhaps substantially, including: announcements of developments related to
Brooks' business; quarterly fluctuations in Brooks' actual or anticipated
operating results and order levels; general conditions in the semiconductor and
flat panel display industries or the worldwide economy; announcements of
technological innovations; new products or product enhancements by Brooks or
its competitors; developments in patents or other intellectual property rights
and litigation; and developments in Brooks' relationships with its customers
and suppliers. In addition, in recent years the stock market in general and the
market for shares of small capitalization and semiconductor industry-related
companies in particular, have experienced extreme price fluctuations which have
often been unrelated to the operating performance of affected companies. Any
such fluctuations in the future could adversely affect the market price of
Brooks' common stock. There can be no assurance that the market price of the
common stock of Brooks will not decline.
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SMART MACHINES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations--Three Months Ended March 31, 1999 Compared to Three
Months Ended March 31, 1998
Net sales were $229,747 for the three months ended March 31, 1999, an
increase of over 600% from the same period the previous year. Revenue from
vacuum robots increased approximately 400% to $171,932. For the three months
ended March 31, 1999, revenues from new products were as follows: atmospheric
robot revenue was $25,855; elevator revenue was $6,300 and aligner revenue was
$23,800. The increase in overall revenue reflected a combination of the upturn
in semiconductor capital spending and the introduction of three new products in
the period.
The cost of sales increased 53% to $396,558 in the three months ended March
31, 1999, from $259,521 in the corresponding period of the prior year. The
decrease in cost of goods as percentage of sales from 813% to 172% reflected a
combination of lower direct material costs and slightly lower departmental
costs.
Research and development expenses for the three months ended March 31, 1999
were $474,227, a decrease of 7% from $509,216 in the corresponding period of
1998. This decrease was primarily the result of lower prototype material costs.
Selling, general and administrative expenses for the three months ended
March 31, 1999 were $193,104, a 7% dollar increase from $179,689 in the
corresponding period of 1998 but a 475% decline as a percentage of revenue. The
increase in selling, general and administrative expenses was primarily related
to an increase in facility lease expense.
Interest expense was $71,332 in the first three months of 1999, compared to
interest income of $13,268 in the same period of the prior year. This increase
in interest expense was the result of both issuance of Smart Machines'
Subordinated Note in June, 1998 and the implementation of borrowing on a line
of credit in December, 1998.
As Smart Machines was in a loss position, no provision for income taxes was
taken for either the first three months of 1999 or the same period of the prior
year.
Results of Operations--Fiscal Year Ended December 31, 1998 Compared to Fiscal
Year Ended December 31, 1997
Net revenue for fiscal 1998 was $382,374, a decrease of 44% from the
previous fiscal year. The revenue for both years was derived from just one
product, the vacuum robot. The revenue decrease resulted from fewer sales of
the vacuum robot as a result of a slowdown in semiconductor capital spending by
customers.
The cost of sales decreased by 24% to $1,171,460 in fiscal 1998, from
$1,549,441 in the previous fiscal year. This decrease in cost of goods was the
result of the reduction in revenue, a slight reduction in departmental employee
expenses and implementation of inventory controls.
Research and development expenses for fiscal 1998 were $2,715,223, an
increase of 68% compared to $1,615,835 in fiscal 1997. This increase was the
result of significantly higher employee expenses and prototype material costs
as Smart Machine expanded development in new products, which began in late
1997.
Selling, general and administrative expenses for fiscal 1998 were
$1,029,413, an 8% increase compared to $953,721 in fiscal 1997. This reflected
increased spending on consultants and advertising which was partially offset by
a decrease in employee expenses.
Interest expense for fiscal 1998 was $64,580, compared to interest income of
$64,520 in fiscal 1997. This was the result of both issuance of Smart Machines'
Subordinated Notes in June, 1998 and the implementation of borrowing on a line
of credit in December, 1998, as well as a reduction in interest received on the
proceeds from an equity sale in June, 1997, which proceeds were depleted by
June, 1998.
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As Smart Machines was in a loss position for both years, no provision for
income taxes was taken for either fiscal year.
Results of Operations--Fiscal Year Ended December 31, 1997 compared to Fiscal
Year Ended December 31, 1996
Net revenue for fiscal 1997 was $686,564 compared with no revenue in fiscal
1996. Smart Machines started shipping its first product in the first quarter of
1997.
The cost of sales was $1,549,441 for 1997. There was no cost of goods for
the twelve months ended December 31, 1996 as Smart Machines was still
developing its product.
Research and development expenses for fiscal 1997 were $1,615,835, a
decrease of 18% because in fiscal 1996 all costs, excluding general and
administrative, were charged to research and development. In fiscal 1997, with
the advent of product shipments, selling and production costs were separated
from research and development. As a result, the research and development
comparisons for fiscal 1997 and fiscal 1996 include different areas of cost.
There was an increase in employee related costs which was somewhat offset by
lower prototype costs for fiscal 1997.
Selling, general and administrative expenses for fiscal 1997 were $953,721,
a 12% increase compared to $851,706 for fiscal 1996 due primarily to the
incurrence of selling costs ($250,352) once product shipments began in 1997 and
secondarily to higher legal costs resulting from the June 1997 equity sale,
which were partially offset by a decrease in employee related costs.
Interest income for fiscal 1997 was $64,520, compared to $27,705 in fiscal
1996 as a result of the interest earned on the funds obtained from the June
1997 equity sale.
As Smart Machines was in a loss position for both years, no provision for
income taxes was taken for either fiscal 1997 or fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, Smart Machines' principal source of liquidity
consisted of $977,140 in cash and cash equivalents, compared to $1,318,073 at
December 31, 1998. Smart Machines had working capital of $849,245 as of March
31, 1999, compared to $1,427,949 at December 31, 1998.
For the three months ended March 31, 1999, cash and cash equivalents
decreased $340,933 as a result of operating losses incurred in the first
quarter of 1999. Net accounts receivable decreased from $154,943 at December
31, 1998 to $105,152 at March 31, 1999. Inventory also decreased from $581,377
at December 31, 1998 to $520,868 at March 31, 1999.
The consummation of the merger is subject to approval by Smart Machines'
shareholders. Smart Machines' accountants stated in their Report of Independent
Accountants dated June 1, 1999 that Smart Machines is in the development stage
and has not yet generated significant revenues and, as a result, has incurred
losses and negative cash flows from operations since inception that raise
substantial doubt about its ability to continue as a going concern. If the
merger is not consummated, Smart Machines will be forced either to seek a
merger with another company or to obtain additional capital to fund its
operations. There can be no assurances that the merger will be consummated or,
if not consummated, that Smart Machines will be successful in its attempts to
either merge with another company or raise the necessary additional capital to
continue in operation. Private equity financing, if available, would likely
result in dilution to Smart Machines' existing shareholders.
Year 2000 Readiness Disclosure
The year 2000 issue is the potential for system and processing failure due
to date-related data as the result of computer-controlled systems using two
digits rather than four digits to define the applicable year. This could
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result in system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
Internal infrastructure compliance. Smart Machines is in the process of
identifying substantially all of the major computers, software applications and
related equipment used in connection with its internal operations that must be
modified, upgraded or replaced to minimize the possibility of a material
disruption to its business. Smart Machines also is evaluating its
noninformation technology systems, including facilities and other operations,
such as banking, security and utility systems. Smart Machines expects to
complete these processes before the end of 1999.
Product compliance. Smart Machines has completed a Year 2000 readiness
evaluation of its current released products and believes that these products
are Year 2000 compliant. Smart Machines cannot guarantee that product testing
has identified all Year 2000 related issues that could have an adverse effect
on Smart Machines' financial condition and results of operations.
Suppliers. Smart Machines is initiating communications with key third party
suppliers of the major computers, software and other equipment used, operated
or maintained by Smart Machines. These communications are to identify and, to
the extent possible, to resolve issues involving the Year 2000 problem.
However, Smart Machines has limited or no control over the actions of these
third party suppliers. Thus, while Smart Machines expects that it will be able
to resolve any significant Year 2000 problems with these systems, there can be
no assurance that those suppliers will resolve any or all Year 2000 problems
with these systems before the occurrence of a material disruption to the
business of Smart Machines or any of its customers. Any failure of these third
parties to resolve Year 2000 problems with their systems in a timely manner
could have material adverse effect on Smart Machine's business, financial
condition and results of operations.
Costs. Based on its investigation to date, Smart Machines does not expect
the total cost of its Year 2000 assessment and planning to have a material
adverse effect on Smart Machines' business or financial results. The estimated
cost for Year 2000 compliance is expected to be $40,000, of which approximately
$15,000 has not been incurred. Smart Machines is continuing its assessment and
developing alternatives that may require additional expenses.
Contingency plan. Smart Machines is currently developing a contingency plan
in the event year 2000 problems relating to its operations arise. Smart
Machines' failure to develop a contingency plan could have a material adverse
effect on Smart Machines' business, results of operations and financial
condition.
Worst Case Scenario. To the extent that Smart Machines does not identify any
material noncompliant IT systems or non-IT systems operated by Smart Machines
or by third parties, such as Smart Machines' suppliers, service providers and
customers, the most reasonably likely worst case year 2000 scenario is a
systemic failure beyond the control of Smart Machines, such as a prolonged
telecommunications or electrical failure, or a general disruption in United
States or global business activities that could result in a significant
economic downturn. Smart Machines believes that the primary business risks, in
the event of such failure or other disruption, would include but not be limited
to, loss of customers or orders, increased operating costs, inability to obtain
inventory on a timely basis, disruptions in product shipments, or other
business interruptions of a material nature, as well as claims of
mismanagement, misrepresentation, or breach of contract, any of which could
have a material adverse effect on Smart Machines' business, results of
operations and financial condition.
Subsequent Events
In July 1999 Smart Machines entered into a merger agreement with Brooks, to
be completed no later than October 31, 1999. It is intended that the merger
will be accounted for as a pooling-of-interests for financial reporting and
accounting purposes. Brooks manufactures process tool automation, components,
systems and factory automation software to the semiconductor, flat panel and
disk drive industries.
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INFORMATION REGARDING BROOKS
Brooks is a leading supplier of tool and factory automation solutions for
the global semiconductor, data storage, and flat panel display manufacturing
industries. Founded in 1978, Brooks has distinguished itself as a technology
and market leader, particularly in the demanding cluster-tool vacuum-processing
environment. Brooks' products have evolved from individual robots used to
transfer semiconductor wafers in advanced production equipment to fully
integrated handling systems that increase the throughput and utilization of
equipment used to make semiconductors and flat panel displays.
Industry Background
Fabrication of semiconductors and flat panel displays requires a large
number of complex process steps in which electrically insulating or conductive
materials are deposited and etched into patterns on the surface of a substrate
or wafer. A flat panel display substrate may contain as few as two laptop
computer displays, while a wafer may contain more than 100 semiconductors. Flat
panel display substrates are typically rectangular in shape. Wafers are
circular, typically 200 mm in diameter. A simplified production sequence
consists of deposition, photolithography and etch processes. In deposition, one
or more layers of a film of material are deposited on a substrate or wafer.
Then, with photolithography the desired circuit pattern is imaged on the
deposited material. Finally, in the etch process, the material not covered with
the pattern is selectively removed. Each deposition, photolithography or etch
process requires the use of one or more process tools.
Semiconductor and flat panel display substrates must be handled in
ultraclean environments during this manufacturing process, either in a clean
room at atmospheric pressure levels, controlled environments such as nitrogen
purged atmospheric or a vacuum environment. Physical vapor deposition, chemical
vapor deposition, etch and ion implant are typically conducted in a vacuum
environment. The types of semiconductor equipment operating at atmospheric,
rather than vacuum pressure, are much more diverse and encompass a range of
tools relating to steps before, during and after photolithography and a wide
range of process tools as well as inspection and metrology tools. Flat panel
display process tools generally use vacuum environments for deposition and etch
processes, and atmospheric environments for photolithography and other
processes.
The automation requirements of the wafer and substrate handling equipment
markets have resulted in two common architectural solutions--cluster tools and
in-line handling systems. Cluster tool handling systems typically link together
multiple processes such as deposition, etch and heating and cooling of the
substrate using a transfer robot located in a central vacuum chamber. In-line
handling systems typically link together multiple processes such as photoresist
processing using a transfer robot located on an atmospheric horizontal
traverser. In these systems, the process tools are lined up rather than
clustered around an automation tool. The traversers in these systems move
substrates back and forth across the line of process tools. The in-line
architecture is now emerging in the stripping, cleaning and chemical mechanical
polishing process markets.
In a cluster tool, a standard cassette of up to 25 wafers enters the vacuum
environment through a vacuum cassette elevator load lock. The load lock is
sealed and pumped to vacuum and then opened to the central wafer handling
system. A central transfer robot then carries the wafers between the cassette
and the different process and conditioning modules through the central vacuum
chamber. After all the wafers have been processed within the cluster tool and
returned to the cassette in the load lock, the load lock is sealed from the
vacuum central chamber and vented to atmospheric pressure. The cassette of
wafers is then removed from the cluster tool through the load lock. Vacuum
cluster tools often employ two load locks, with the wafers from one load lock
being actively transferred, conditioned and processed while wafers in the other
load lock are being brought to or removed from vacuum conditions. Although
cluster tool load lock doors are located in the most stringent and most
expensive clean room environments to avoid contamination of wafers when being
transferred into and out of a cluster tool, the main cluster tool platform and
its modules are located behind the clean room wall in an equipment bay in a
less stringent and less expensive atmospheric pressure clean room environment.
Increasing production is made more difficult when operating in a vacuum
environment. Unlike atmospheric transfer robots, which often use vacuum suction
to hold a substrate in place when being carried,
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vacuum transfer robots use gravity and the friction between the substrate and
the robot's hand, known as an end effector. Carrying a substrate in a vacuum
requires sophisticated motion control to maximize the speed of substrate
transfer, while maintaining the substrate position and placement accuracy.
Production can also be improved through the use of sophisticated software
algorithms that carefully control the speed and scheduling of substrate
transfers within the cluster tool.
Vacuum environments create further challenges in constructing and operating
a highly reliable central handling system. Materials must be carefully selected
and surface finished to reduce and control particle and molecular
contamination. Many plastics and lubricants do not work in a vacuum as they
emit gases that contaminate the vacuum environment and may even evaporate.
Gears, pulleys and other mechanical interfaces and moving parts, which are
potential sources of particle contamination within the vacuum environment, must
be minimized. Pumping and venting of load locks must be carefully controlled to
reduce wafer contamination.
Products
Brooks offers a full complement of systems for semiconductor and flat panel
display substrate handling and products for data storage. Brooks has developed
comprehensive product lines that encompass automation modules, complete
handling systems and integrated software and controls for its targeted markets.
Brooks' systems, robots and modules are designed, developed and produced with
similar technologies and can use Brooks' ClusterLink software. Brooks uses the
synergies of its complementary products to respond to changing industry demands
such as processing larger diameter 300mm semiconductor wafers and the larger,
fourth generation flat panel display substrates.
Brooks also develops and markets manufacturing execution systems, process
optimization, and related manufacturing automation solutions. Manufacturing
execution system software is designed to control plant floor operations and
fill the gap between control applications and enterprise resource planning
systems. Manufacturing execution system applications coordinate and track the
activities of manufacturing resources, including equipment, material,
operators, engineers and software applications. In addition, Brooks offers
software solutions for engineering data analyses, advanced process control,
design of experiments and process development and optimization tools.
Brooks believes that its products offer significant advantages in a number
of areas, including those set forth below:
Throughput. Throughput refers to the production of substrates within
specifications. Brooks' patented LeapFrog robots have been able to achieve
significant improvements in throughput compared to other robots. Brooks also
has been able to increase throughput by developing patented algorithms to
calculate efficient trajectories and acceleration and deceleration profiles
known as time optimal trajectories for its robot arms while reducing vibrations
and maintaining position control of the substrate being transported. Brooks has
developed system software to improve cluster tool throughput. By combining
digital signal processing technology with time optimal trajectory software,
Brooks believes that it has achieved additional reductions in transfer time.
Reliability. Brooks has developed and implemented a rigorous design and test
program to enhance and evaluate product reliability. Brooks' reliability
initiative is guided by the computer-based reliability models developed by
SEMATECH and Sandia National Laboratories. The magnetic drive in Brooks' latest
generation robots transmits force magnetically, without piercing the vacuum
barrier, and eliminates the need for moveable vacuum seals. By designing robots
with fewer moving parts and eliminating moveable seals, Brooks believes that it
will be able to increase the reliability of its transfer robots significantly.
Brooks' goal is to continue to increase mean time between equipment failures.
Accuracy. As wafer and substrate sizes increase and placement accuracy
becomes more demanding, it is becoming increasingly important to minimize
tracking errors, substrate sliding and the bending or wobbling of
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the robot arm. Brooks' transfer robots contain a closed loop servo control,
which monitors and maintains placement accuracy in the rotational axis by
obtaining constant positioning feedback. Many other transfer robots use an open
loop stepper control system that commands a robot to move a specified number of
steps with limited or no feedback as to the final position of the robot. These
stepper systems can lead to misplacement of the robot arm if the number of
steps is miscounted. To further enhance tracking, Brooks has incorporated a
closed loop feedback system with a proprietary digital signal processing-based
controller in its latest generation robots.
Contamination Control. Brooks has designed its wafer and flat panel display
substrate handling systems and modules to reduce contamination by using several
design criteria:
. limited moving parts within the tool environment and above the wafer or
substrate plane;
. picking and placing with a vertical motion to prevent wafer or substrate
sliding on process module surfaces and cassette slots;
. gentle handling motions which reduce relative wafer or substrate
vibration and movement on the transfer robot end effectors;
. controlled load lock pumping and venting; incorporation of materials
that reduce contamination; and
. assembly, test and packaging in Brooks' clean rooms.
Brooks currently manufactures and develops products for the semiconductor
and flat panel display markets. The following table lists Brooks' primary
product offerings within each of the markets it serves:
<TABLE>
<CAPTION>
MARKET PRODUCT LINES
- ------ -------------
<S> <C>
Semiconductor Vacuum Products....... Central Wafer Handling Systems
Transfer Robots
Thermal Conditioning Modules (Cool and Degas)
Cassette Elevator Load Locks
Aligners
Semiconductor Atmospheric and Inert
Environment Products............... Central Wafer Handling Systems
In-line Wafer Handling Systems
Transfer Robots
Thermal Conditioning Modules (Cool)
Cassette Elevator Load Locks
Aligners
Flat Panel Display Products......... Central Substrate Handling Systems
Transfer Robots
Cassette Elevator Load Locks
Thermal Conditioning Modules (Degas)
Tool Control Software............... Clusterlink
ControlPower
ControlVision
Factory Automation Software......... Customizable Cell Control Solutions
Integrated Manufacturing Execution System Solutions
Computerized Maintenance Management Software
Equipment Automation Solutions
Process Optimization Solutions
Data Analysis Tools
Advanced Process Control Solutions
</TABLE>
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Semiconductor Vacuum Products
Vacuum Central Wafer Handling Systems
Brooks' family of Marathon Express vacuum central wafer handling systems
handle wafer sizes of 100mm to 300mm in diameter, are offered with four to
eight sides, referred to as ports, and have vacuum ranges of 10-3 to 10-8 torr.
Torr is a measure of vacuum pressure. Each port can accommodate process modules
meeting SEMI/MESC industry standards. Using a two-load lock configuration,
Brooks' Marathon Express 800 eight-sided central wafer handling system can
accommodate up to six process modules.
Brooks' Marathon Express systems typically incorporate either Brooks' single
or dual frog-arm MagnaTran 7 vacuum transfer robot, one or more of Brooks'
vacuum cassette elevator load locks, Brooks' TopLigner wafer aligner, and, if
required, Brooks' TopCooler wafer cooling module. Brooks has been able to
increase the availability of ports for use with process modules by developing a
wafer aligner and a cooling module which mount between a vacuum cassette
elevator load lock or process module and the central wafer handling chamber.
In 1999, Brooks developed a next-generation 200mm and 300 mm wafer handling
system, the Gemini Express 6000, which features the dual same-side LeapFrog
robot and offers improvement in flexibility permitting multiple wafer sizes to
be handled concurrently.
Vacuum Transfer Robots
Brooks' vacuum transfer robot, the MagnaTran 7, is a second generation
magnetic drive robot that incorporates Brooks' patented time optimal trajectory
software algorithms to control and monitor its operation. The MagnaTran 7 is
smaller and lighter than its predecessor. Building on its experience in
developing robot wafer transfer technology, Brooks has developed the dual,
same-side LeapFrog high-productivity arm configuration. The LeapFrog arm is
only available on the MagnaTran 7 robot and is a feature of Brooks' Marathon
Express and Gemini Express central handling systems. These robots are
constructed to SEMI/MESC industry standards and are sold separately for use
with other vacuum wafer handling applications. Brooks believes that the
technical advances implemented to meet the requirements of the flat panel
display industry enabled Brooks to adopt its MagnaTran robots, with minimal
technical modifications, to handle 300mm wafers.
Other Vacuum Wafer Handling And Conditioning Modules
Vacuum Cassette Elevator Load Locks. Brooks has developed a family of vacuum
cassette elevator load locks to hold, raise and lower cassettes of wafers for
cluster tools and other vacuum automated equipment. Brooks' VCE 6 200mm
cassette load lock features flexible and changeable interfaces, is field
upgradable and is available with either a manual or automatic door
configuration. The automatic door uses an innovative low particle, low profile
drive mechanism, which opens vertically below the cluster platform for
compatability with a number of methodologies for transporting batches of wafers
from destination to destination within the semiconductor fabrication facility.
These methodologies include standard mechanical interfaces, automated guided
vehicles and rail guided vehicles. Brooks has developed the VCE 5 for 300mm
wafers with a batch wafer transfer arm and a front opening unified pod
interface. Like cassettes, front opening unified pods are devices used to carry
wafers from process tool to process tool while maintaining a clean environment.
Brooks has developed the small volume facilities lock for 300mm wafers to
interface with Brooks' atmospheric, in-line handling system.
Vacuum Aligners. Wafer processing requires precise alignment and, often,
orientation of a wafer for processing. Brooks' TopLigner wafer aligner provides
fast one-step wafer alignment by optically sensing the location of the wafer on
the aligner and communicating that position to the vacuum transfer robot. Using
this information, the transfer robot adjusts the placement of its arm to pick
up the wafer in the proper position. The TopLigner is designed for intermodule
mounting between a module, such as the cassette load lock and the central wafer
handling chamber, in order to conserve a port of the cluster tool. Brooks'
TopLigner 3 is designed for 200mm and 300mm wafer alignment.
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Vacuum Cool Modules. Brooks' TopCooler cool station cools wafers after hot
processing to a temperature that allows placement into a plastic wafer
cassette. Brooks' TopCooler is designed for 200mm and 300mm wafer applications.
Semiconductor Atmospheric and Inert Environment Products
Building upon its vacuum wafer handling systems, Brooks is pursuing the
development of a broad line of products for atmospheric applications.
Atmospheric wafer handling systems may be segregated into two subcategories:
the traditional ambient atmospheric wafer handling systems and "inert,"
principally nitrogen environment wafer handling systems. The traditional
atmospheric wafer handling systems include fully integrated automated wafer
handling platforms for open, ambient air in-line wafer handling platforms. The
inert environment wafer handling systems include fully integrated, automated
wafer handling platforms for at or above atmospheric pressure cluster tools.
Brooks' line of inert environment products include the AX500, AX600 and AX6000,
which were launched in fiscal 1997.
Atmospheric Wafer Handling Systems
Brooks is developing its second generation atmospheric wafer handling
systems, the atmospheric front end, or AFE, to handle wafer sizes from 150mm to
300mm in diameter. The systems are expected to offer two to four unified pod
staging locations and may be operated in demanding clean room environments.
These configurations are being developed to meet broad market requirements. The
AFE is being designed for 200mm and 300mm wafer open cassettes, standard
mechanical interface facilities, and 200mm and 300mm wafer front opening
unified pod applications.
Brooks plans to incorporate its single SCARA arm AcuTran 7 atmospheric
transfer robot and AcuLigner wafer aligner into the AFE systems.
Atmospheric Transfer Robots
Building on its experience in developing transfer robots and employing its
magnetic direct drive technology, Brooks has developed the AcuTran 7, its next-
generation atmospheric transfer robot, to handle up to 300mm wafers in wet
environments. Some wafer fabrication processes such as cleaning, electroplating
and chemical mechanical planarization operate in environments with caustic
solutions. These environments are known as wet environments. Brooks plans for
these robots to be a standard feature of Brooks' AFE in-line wafer handling
systems, to be constructed to SEMI industry standards and to be sold separately
for use with other atmospheric wafer handling applications. Brooks has also
developed a wet environment robot, the AquaTran 7, which has the same features
as the AcuTran 7 with the addition of wet environment capability. Brooks'
robots incorporate digital signal processing technology and patented time
optimal trajectory software to control and monitor their operation.
Other Atmospheric Wafer Handling Modules
Brooks' AcuLigner wafer aligner has been developed for fast one-step 150mm
to 300mm wafer alignment by optically sensing the location of the wafer on the
aligner and communicating that position to the vacuum transfer robot. Using
this information, the transfer robot adjusts the placement of its arm to pick
up the wafer in the proper position.
Flat Panel Display Products
In 1994, Brooks introduced a family of vacuum central substrate handling
systems and modules for the flat panel display deposition and etch process
equipment markets, shipping its first Hercules central substrate handling
system for a flat panel display vacuum cluster tool in July 1994. The Hercules
systems can handle flat panel display substrates from 350mm x 460mm to 600mm x
720mm in size.
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The Hercules system includes Brooks' MagnaTran 70 magnetically driven frog-
arm vacuum transfer robot with two or three axes of motion and single or dual
arm options, a single substrate load lock, or a 20 to 30 substrate cassette
elevator load lock, and a seven substrate batch degas module.
Brooks has developed a next generation magnetic drive robot, the MagnaTran
70, for the flat panel display market. The MagnaTran 70 robot series is smaller
and lighter and features an optional extended vertical axis for deployment in
Brooks' next generation platforms. Brooks is currently developing the MagnaTran
77 Long 7 Axis flat panel display robot.
Controls Software
Brooks provides tool control ClusterLink 3 system software to control its
vacuum wafer handling systems, graphical user interface, and process modules.
The software interfaces with process tool controllers and provides environment
control, load lock pumping and venting, error recovery diagnostics, safety
control, and scheduling of wafer transfers. When providing a turn-key solution
that includes Brooks' system control and scheduling software, Brooks is able to
provide guarantees relating to throughput and particle contamination.
Factory Automation Software
Manufacturing execution systems manufacturing execution system software is
designed to control plant floor operations and fill the gap between control
applications and enterprise resource planning systems. Manufacturing execution
system applications coordinate and track the activities of manufacturing
resources, including equipment, material, operators, engineers and software
applications. Brooks provides integrated manufacturing execution system
products for controlling complex manufacturing processes, a flexible,
distributed manufacturing execution system framework for improved integration
and adaptability to increases in the size of the framework, and object-based
software tools for customization and equipment integration. Brooks' products
are generally categorized within four product families: CELLworks(R),
FACTORYworks(TM), STATIONworks and Xsite.
CELLworks is a set of software tools for developing manufacturing
applications that manage, monitor and coordinate equipment, material and
operators. These object-based tools are designed to provide an integrated
environment for building and deploying applications that are independent of
specific manufacturing devices, hardware platforms and databases.
FACTORYworks is a set of integrated, graphical manufacturing execution
system application modules that allow customers to configure their factory
resources and process plans, track inventory and orders, collect and analyze
production data, monitor equipment, dispatch work orders to manufacturing
operators and trace consumption of components into finished products.
These modules provide tools that are designed to allow customers to define
manufacturing workflow and extend and customize the standard applications to
meet site-specific needs.
STATIONworks is a packaged set of tools that integrates process and
production data from various equipment with manufacturing execution system,
including Brooks' FACTORYworks product. STATIONworks includes a library of
equipment interface drivers (currently 150 unique drivers) that are provided as
a part of the Tool-Object-Model portion of the product. The product also
provides a common service design that gives customers the capability to develop
customer services that are re-usable across various applications.
Xsite is an integrated software package providing a computerized means of
controlling many aspects of maintenance activity, from breakdown analysis and
work order control to condition monitoring and preventive maintenance
scheduling. The product provides the ability to display and utilize charts,
diagrams and drawings.
Brooks also offers its Starfire, Cornerstone, RS Series, Probe and Patterns
products for process development, statistical analysis and advance process
control solutions. Brooks' Dreams products augment its manufacturing execution
systems.
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Customers
Brooks' customers for wafer and flat panel display substrate handling
systems are primarily original equipment manufacturers and semiconductor
manufacturers who are retrofitting the vacuum automation of their process
equipment or developing advanced process equipment for internal use. Brooks'
customers for manufacturing execution system products are primarily
semiconductor manufacturers. Brooks' current customers are primarily located in
the United States, Japan, South Korea, Taiwan, Singapore, and Europe. Brooks
intends to market its developing family of atmospheric central wafer handling
equipment to its existing customers in the vacuum and flat panel display
markets and other potential customers.
Relatively few customers account for a substantial portion of Brooks'
revenues. The following chart presents sales to Brooks' ten largest customers
and sales to Lam Research Corporation, Brooks' largest customer as a percentage
of total revenue for the periods indicated:
<TABLE>
<CAPTION>
Fiscal year Six months
ended ended
September 30, March 31,
---------------- -------------
1998 1997 1996 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ten largest customers......................... 61% 60% 55% 60% 64%
Lam Research Corporation...................... 16% 17% 17% 10% 19%
</TABLE>
A reduction or delay in orders from Lam or other significant customers could
have a material adverse effect on Brooks' results of operations. See Note 12,
"Geographic, Significant Customers, and Related Party Information," in Brooks'
Consolidated Financial Statements for further discussion of Brooks' sales by
geographic region.
Marketing, Sales And Customer Support
Brooks markets and sells its wafer and substrate handling systems and
modules in the United States, Japan, South Korea, Taiwan and Europe through its
direct sales and marketing organization. The selling process for Brooks'
products is often multilevel, involving a team comprised of individuals from
sales, marketing, engineering, operations and senior management. Each
significant customer is assigned a team that engages the customer at different
organization levels to provide planning and product customization and to assure
open communication and support. In addition, Brooks markets its manufacturing
execution system software products through its direct sales force in North
America, Europe, and Singapore and through distributors in Japan and Korea.
Since Brooks' foreign distributors are not employees of Brooks and are not
required to offer Brooks' products exclusively, Brooks cannot assure that they
will continue to market Brooks' products.
Brooks' marketing activities also include participation in trade shows,
publication of articles in trade journals, participation in industry forums and
distribution of sales literature. To enhance this communication and support,
particularly with its international customers, Brooks maintains technology
centers in California, British Columbia, Germany, South Korea, Taiwan,
Singapore, and Japan. These facilities, together with Brooks' headquarters,
maintain demonstration equipment for customers to evaluate. Customers are also
encouraged to discuss the features and applications of Brooks' demonstration
equipment with Brooks' engineers located at these facilities. Brooks also
maintains regional sales and service personnel in Taiwan, the United Kingdom,
and Texas and maintains a software technology center in Canada.
Brooks has recently experienced significant growth in foreign revenues. The
following chart presents foreign revenue as a percentage of total revenue for
the periods indicated:
<TABLE>
<CAPTION>
Fiscal year Six months
ended ended
September 30, March 31,
---------------- -------------
1998 1997 1996 1999 1998
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Foreign revenue............................... 41% 38% 25% 46% 33%
</TABLE>
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<PAGE>
Brooks expects foreign revenues to continue to represent a significant
percentage of total revenues in the foreseeable future. Brooks cannot guarantee
that geographical growth rates, if any, in the foreseeable future, particularly
in Japan and South Korea, which are suffering regional economic downturns, will
be comparable to those achieved in recent years. See "Risk Factors--Risks
Relating to Brooks and Smart Machines--Brooks Conducts its Business
Internationally Which Exposes it to a Number of Difficulties in Coordinating
its Activities Outside the United States and Dealing with Multiple Regulatory
Environments" for a discussion of additional factors which could adversely
affect foreign revenues.
In 1998, Brooks developed a new sales and marketing tool, a process tool
throughput simulator, to enable the evaluation of various wafer handling system
configurations to identify the preferred tool configuration for a specific
application. This tool simulates the movement of wafers with execution times,
scheduling algorithms, and flow sequences similar to those of actual process
tools and outputs this information visually. This tool is capable of comparing
multiple tool configurations simultaneously for preferred fit comparison.
Brooks provides support to its customers with:
. telephone technical support access 24-hours a day, 365 days a year;
. direct training programs; and
. operating manuals and other technical support information for Brooks'
products.
Brooks maintains spare parts inventories in all of its locations to enable
its personnel to serve Brooks' customers and repair their products more
efficiently.
Competition
The semiconductor and flat panel display process equipment manufacturing
industries are highly competitive and characterized by continual change and
improvement in technology. Although other independent companies sell vacuum and
atmospheric wafer and flat panel display substrate handling automation systems
and vacuum transfer robots to original equipment manufacturers, Brooks believes
that its primary competition is from the larger, integrated semiconductor and
flat panel display original equipment manufacturers that satisfy their
substrate handling needs in-house rather than by purchasing handling systems or
modules from an independent source such as Brooks. Such original equipment
manufacturers comprise the majority of Brooks' current and potential customers.
Applied Materials, Inc., the leading process equipment original equipment
manufacturer, develops and manufactures its own central wafer handling systems
and modules. Brooks believes that most vacuum central wafer handling systems
and modules are manufactured in-house by original equipment manufacturers. Many
of the companies in these industries have significantly greater research and
development, clean room manufacturing, marketing and financial resources than
Brooks.
Many original equipment manufacturers have substantial resources and
expertise in substrate handling and automation in vacuum and atmospheric
environments and will only purchase Brooks' products if Brooks can demonstrate
improved product performance as measured by throughput, reliability,
contamination control and accuracy, at an acceptable price. Brooks believes
that it competes favorably with original equipment manufacturers and other
independent suppliers with respect to all of these factors. However, Brooks
cannot guarantee that it will be successful in selling its products to original
equipment manufacturers that currently satisfy their wafer and flat panel
handling needs in-house or from other independent suppliers, regardless of the
performance or the price of Brooks' products.
Brooks' sale of its products for the flat panel display process equipment
market is heavily dependent upon its penetration of the Japanese market. Brooks
is also seeking to expand its presence in the Japanese semiconductor process
equipment market. In addressing the Japanese markets, Brooks may be at a
competitive disadvantage to Japanese suppliers.
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Brooks believes that the primary competitive factors in the market for
manufacturing execution system and process control software are product
functionality, price/performance, ease of use, hardware and software platform
compatibility, vendor reputation and financial stability. Brooks believes its
products currently compete favorably with other systems on the primary factors
listed above. Brooks also believes that the relative importance of these
competitive factors may change over time. Brooks experiences direct competition
in the semiconductor industry from various competitors, including Applied
Materials-Consilium and PRI-Promis.
Research And Development
Brooks' research and development efforts are focused on developing new
products for the semiconductor and flat panel display process equipment
industries and further enhancing the functionality, reliability and performance
of existing products. Brooks' engineering, marketing, operations, and
management personnel have developed close collaborative relationships with many
of their customer counterparts and have used these relationships to identify
market demands and target Brooks' research and development to meet those
demands. Brooks' current research and development efforts include the continued
development and enhancement of Brooks' semiconductor and flat panel display
products, including 300mm Marathon Express vacuum central wafer handling
systems and modules, fourth generation flat panel display substrate handling
systems and modules, manufacturing execution system and station control
software, and atmospheric handling systems and modules.
Brooks cannot guarantee that it will be able to develop new products
effectively, to enhance its existing products, or to respond effectively to
technological changes or new industry standards or developments on a timely
basis, if at all. For fiscal 1998 and the six months ending March 31, 1999,
Brooks' research and product development expenses were $22.7 million and $8.8
million, representing 22.7% and 20.4% of Brooks' total revenues, respectively.
See "Risk Factors--Risks Relating to Brooks and Smart Machines--Brooks Must
Continually Improve Its Technology to Remain Competitive" for a discussion of
additional risks associated with product development.
Manufacturing
Brooks' manufacturing operations consist primarily of product assembly,
integration, and testing. Brooks has adopted stringent quality assurance
procedures that include standard design practices, component selection
procedures, vendor control procedures and comprehensive reliability testing and
analysis to assure the performance of its products. Brooks is ISO 9001
certified.
Brooks employs a just-in-time manufacturing strategy. Brooks believes that
this strategy, coupled with the outsourcing of noncritical subassemblies,
reduces fixed operating costs, improves working capital efficiency, reduces
manufacturing cycle times and improves flexibility to rapidly adjust its
production capacities. While Brooks often uses single source suppliers for
certain key components and common assemblies to achieve quality control and the
benefits of economies of scale, Brooks believes that these parts and materials
are readily available from other supply sources.
Patents And Proprietary Rights
Brooks relies upon trade secret laws, confidentiality procedures, patents,
copyrights, trademarks and licensing agreements to protect its technology. Due
to the rapid technological change that characterizes the semiconductor and flat
panel display process equipment industries, Brooks believes that the
improvement of existing technology, reliance upon trade secrets and unpatented
proprietary know-how and the development of new products may be more important
than patent protection in establishing and maintaining a competitive advantage.
To protect trade secrets and know-how, it is Brooks' policy to require all
technical and management personnel to enter into nondisclosure agreements.
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Brooks has obtained patents and will continue to make efforts to obtain
patents, when available, in connection with its product development program.
Brooks cannot guarantee that any patent obtained will provide protection or be
of commercial benefit to Brooks. Despite these efforts, others may
independently develop substantially equivalent proprietary information and
techniques. Brooks cannot guarantee that these efforts will meaningfully
protect its trade secrets. As of July 26, 1999, Brooks had obtained 34 United
States patents and had 32 United States patent applications pending on its
behalf. In addition, Brooks had obtained 12 foreign patents and had 87 foreign
patent applications pending on its behalf. Brooks' United States patents expire
at various times from 1999 to 2018. Brooks cannot guarantee that its pending
patent applications or any future applications will be approved or that any
patents will not be challenged by third parties. Others may have filed and in
the future may file patent applications that are similar or identical to those
of Brooks. These patent application may have priority over patent applications
filed by Brooks.
There has been substantial litigation regarding patent and other
intellectual property rights in the semiconductor related industries. Brooks
has in the past been, and may in the future be, notified that it may be
infringing intellectual property rights possessed by other third parties. Any
patent litigation would be costly and could divert the efforts and attention of
Brooks' management and technical personnel, which could have a material adverse
effect on Brooks' business, financial condition and results of operations.
Brooks cannot guarantee that infringement claims by third parties or other
claims for indemnification by customers or end users of Brooks' products
resulting from infringement claims will not be asserted in the future or that
such assertions, if proven to be true, will not materially and adversely affect
Brooks' business, financial condition and results of operations. If any such
claims are asserted against Brooks' intellectual property rights it may seek to
enter into a royalty or licensing arrangement. Brooks cannot guarantee,
however, that a license will be available on reasonable terms or at all. Brooks
could decide, in the alternative to resort to litigation to challenge such
claims or to design around the patented technology. Such actions could be
costly and would divert the efforts and attention of Brooks' management and
technical personnel, which would materially and adversely affect Brooks'
business, financial condition and results of operations.
Brooks had received notice from General Signal Corporation alleging
infringement of patents then owned by General Signal, relating to cluster tool
architecture, by certain of Brooks' products. The notification advised Brooks
that General Signal was attempting to enforce its rights to those patents in
litigation against Applied Materials. According to a press release issued by
Applied Materials in November 1997, Applied Materials settled its litigation
with General Signal by acquiring ownership of five General Signal patents.
Although not verified, these five patents would appear to be the patents
referred to by General Signal in its prior notice to Brooks. Applied Materials
has not contacted Brooks regarding these patents.
Backlog
Backlog for Brooks' products as of June 30, 1999, totaled $46.2 million.
Backlog consists of purchase orders for which a customer has scheduled delivery
within the next 12 months. Orders included in the backlog may be canceled or
rescheduled by customers without significant penalty. Backlog as of any
particular date should not be relied upon as indicative of Brooks' revenues for
any future period.
Employees
As of June 30, 1999, Brooks had approximately 581 employees. Brooks believes
its future success will depend in large part on its ability to attract and
retain highly skilled employees. None of the employees of Brooks are covered by
a collective bargaining agreement. Brooks considers its relationships with its
employees to be good.
Properties
Brooks has a seven-year lease, ending May 2002, for its headquarters and
manufacturing facility. The facility is a two story red brick structure with
approximately 130,000 square feet of space located in
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<PAGE>
Chelmsford, Massachusetts. Brooks maintains sales and service offices in
California, Japan, South Korea, Taiwan, United Kingdom, and Canada. Brooks also
maintains sales offices in Florida, Georgia, Oregon, Missouri, Massachusetts,
Texas, France, Germany and Singapore. Brooks maintains software development
facilities in Massachusetts. Brooks believes that these facilities are adequate
for its current needs and that it can obtain additional space at commercially
reasonable rates when and as required.
Legal Proceedings
Brooks is not a party to any material pending legal proceedings.
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<PAGE>
INFORMATION REGARDING SMART MACHINES
Overview
Smart Machines produces high performance process tool automation components
for transporting semiconductor wafers into and inside of semiconductor process
tools. Smart Machines' business is driven by the retooling of the
semiconductor manufacturing industry associated with the increase in use of
deep submicron processes and 300mm wafers. Management believes the performance
of Smart Machines' vacuum and atmospheric robots can have a substantial impact
on economic performance of semiconductor fabrication facilities, semiconductor
factories or FABs.
Products
Smart Machines' SVR200/300 robots are designed to be used with
semiconductor handling systems which are built around a cluster tool
architecture. Cluster tools are heavily used for semiconductor manufacturing
processes such as physical vapor deposition, chemical vapor deposition and
etch. They typically consist of a robot in the center of a vacuum chamber with
two or more vacuum process chambers clustered around the robot. Atmospheric
robots are used in buffer stations for vacuum and atmospheric process tools,
linear wafer sorters and inside atmospheric process tools.
Smart Machines currently manufactures the following products which serve
the indicated applications:
. SVR300(TM) series vacuum robots are used for 200 and 300 millimeter
wafer, mask and disk drive platter handling applications. This product
is based on Smart Machines' patented direct drive architecture and uses
the latest wafer trajectory optimization software. The SCARA or
articulated robot arms accommodate a variety of reaches and payloads;
. SAR300(TM) series atmospheric robots are used for 200 and 300 millimeter
wafer, MR head and disk drive platter handling applications. This
modular robot family has three axes of motion with both radial and
spline trajectory motion. Future enhancements will include four and five
axes of motion versions able to address the majority of atmospheric
process tool automation requirements. The SAR300 robot is based on the
proven direct drive architecture of the SVR300 vacuum robots;
. SmartAligner(TM) series atmospheric and vacuum aligners are used for
rotational alignment of 150, 200 and 300 millimeter wafers. This single
axis aligner communicates X-Y offset position to a SVR300 or SAR300
robot which then picks up the wafer in its center position. The
SmartAligner is available in both vacuum and atmospheric versions; and
. SmartLift(TM) series vacuum elevators are used for 150 and 200
millimeter wafers to hold, raise and lower cassettes of wafers for
cluster tools and other vacuum automated equipment.
Smart Machines products provide high reliability, throughput, cleanliness,
accuracy, spline trajectory capability and compatibility with existing robots.
Smart Machines believes these characteristics will enable it to meet demands
by large and small semiconductor equipment vendors who are increasing the
outsourcing of process tool automation equipment, automation of deep submicron
and 300mm FABs and equipment utilization.
Technology
Smart Machines' direct drive robotics utilizes motors connected directly to
resolver position sensors and drive shafts. This direct drive robot
architecture has two benefits, reliability and constant performance over
millions of wafer placement cycles. Smart Machines technology uses coordinated
motion to allow robots to rotate and extend when both main drive motors
rotate, the robot rotates, and when both motors rotate in opposite directions,
the robot extends. Smart Machines' SVR and SAR robots have less than one-third
of the parts of belt or gear driven robots have that are subject to wear. The
SVR robots utilize ferrofluid seals for vacuum isolation and use clean
brushless DC servo motors eliminating contamination due to motor dust.
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Smart Machines principally relies upon a combination of patent law, trade
secret and contract to establish and protect its proprietary rights. In order
to protect its trade secrets and proprietary know-how, Smart Machines enters
into confidentiality agreements with its employees, contractors and third
parties. There is a risk that these agreements may be breached, and the
remedies available to Smart Machines may not be adequate. In addition, Smart
Machines trade secrets and proprietary know-how may otherwise become known or
be independently discovered by others.
Market and Customers
The market for process tool automation components is driven by increased
outsourcing of critical process tool automation components by major equipment
OEMs and by increased levels of automation necessary to operate leading edge
FABs. Smart Machines expects that the process tool automation market will
exceed $2 billion by early next century. Smart Machines marketing strategy is
to sell matched sets of automation (including atmospheric robots, vacuum
robots, aligners and value added software) allowing OEMs to achieve benefits
from unified integration mechanisms, common software and control schemes and
reducing supplier management costs.
Users of process tool components include the world's largest FAB equipment
manufacturers, including Applied Materials, Tokyo Electron Limited, Lam
Research Corporation, Nikon Inc., Cannon and Novellus, who collectively
generate more than $10 billion in revenues and consume thousands of robots each
year. There are approximately 15 large semiconductor equipment OEMs and over
100 smaller potential customers. Smart Machines is focused on establishing
large volume relationships with major OEMs in the chemical vapor depostion,
etch and lithography arenas. Smart Machines shipped its first beta SAR300
atmospheric robots in February of 1999. To date, Smart Machines has shipped
SVR300 vacuum robots to twelve customers, including Lam Research Corporation,
Toshiba, Novellus, Sumitomo Precision Products Co., Ltd. and Watkins Johnson
Company.
Competition
The market for process tool automation is competitive and characterized by
strong price competition, short product development cycles, long design win
cycles and rapid technological change. Smart Machines competes against a number
of larger process tool automation suppliers that have greater resources than
Smart Machines. In addition, Smart Machines customers have the option of
designing some or all of their process tool equipment in house.
Manufacturing
Smart Machines' manufacturing facilities consist of product assembly, class
1000 clean room and shipping and receiving areas. Smart Machines tests its
products extensively using internally developed testing software. Smart
Machines uses single source suppliers with backup sources identified for major
parts or subassemblies. This approach improves quality, pricing, delivery and
product performance consistency.
Backlog
Backlog for Smart Machines' products is $397,000. Backlog consists of
purchase orders for which a customer has scheduled delivery within the next 12
months. Orders included in the backlog may be canceled or rescheduled by
customers without penalty.
Employees
As of June 30, 1999, Smart Machines had approximately 23 employees. Smart
Machines believes its future success will depend in large part on its ability
to attract and retain highly skilled employees. There is no assurance that
Smart Machines will be able to achieve its hiring objectives in the competitive
employment marketplace of the San Francisco Bay Area.
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BROOKS MANAGEMENT
Executive Officers and Directors
Set forth below is certain biographical information regarding the executive
officers and directors of Brooks, including information furnished by them as to
their principal occupation for the last five years, other directorships held by
them and their ages.
<TABLE>
<CAPTION>
Name Age Position with Brooks
---- --- --------------------
<C> <C> <S>
Robert J. Therrien...... 64 President, Chief Executive Officer and Director
Lynda M. Avallone....... 43 Vice President and Corporate Treasurer
David R. Beaulieu....... 41 Vice President of Engineering
Steven E. Hebert........ 46 Corporate Controller
James A. Pelusi......... 42 Senior Vice President of Automation Software
Michael W. Pippins...... 38 Vice President of Global Operations and
Business Development
Ellen B. Richstone...... 47 Senior Vice President of Finance and
Administration and Chief Financial Officer
Michael F. Werner....... 54 Senior Vice President of Operations
Roger D. Emerick(1)(2).. 59 Director
Amin J. Khoury(1)(2).... 60 Director
</TABLE>
- --------
(1) Member of Brooks' Compensation Committee.
(2) Member of Brooks' Audit Committee.
Mr. Robert J. Therrien has been the President, Chief Executive Officer and a
director of Brooks since its incorporation in 1989 when he initiated the
acquisition of the Brooks Automation Division of Aeronca Electronics, Inc. From
1983 to 1989, Mr. Therrien served as a consultant to Brooks and other firms in
the semiconductor industry. From 1972 until its sale to Schlumberger Industries
in 1983, Mr. Therrien co-founded and served as Chairman and President of
Accutest Corporation, a semiconductor automatic test equipment company. Mr.
Therrien is currently a director of MKS Instruments, Inc., a supplier of
measurement and control components for laboratory and industrial applications
throughout the microelectronics industry. Mr. Therrien also serves on the NYNEX
Customer Advisory Board and the Advisory Committee of the Massachusetts Office
of Business Development.
Ms. Lynda M. Avallone joined Brooks in December 1998 as its Vice President
and Corporate Treasurer. From May 1997 to December 1998, Ms. Avallone served as
Treasurer of Stream International, Inc., a provider of outsource technical
support services. From 1994 to 1997, Ms. Avallone served as Treasurer of Augat
Inc., a manufacturer of interconnection components for telecommunications,
electronics and automotive products. Ms. Avallone was Director of Tax for The
Timberland Company, a manufacturer of footwear and apparel, from 1992 through
1994. From 1983 to 1992, Ms. Avallone held various senior tax positions, most
recently Director of Tax, at Augat Inc. Prior to 1983, Ms. Avallone served in a
variety of tax and audit functions in public accounting.
Mr. David R. Beaulieu joined Brooks in May 1996 as its Vice President of
Engineering. From 1993 to 1996, Mr. Beaulieu served as Vice President of
Product Operations of the Time/Data Systems Division of Simplex Corporation, a
manufacturer of industrial equipment. From 1991 to 1993, Mr. Beaulieu served as
Vice President of Research and Development for Tropel Corporation, a
manufacturer of advanced optical systems for semiconductor equipment. From 1979
to 1991, Mr. Beaulieu served GCA, a unit of General Signal Corporation, in a
variety of positions including Director of Lithographic Engineering.
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Mr. Steven Hebert joined Brooks in December 1998 as its Corporate
Controller. From May 1998 to December 1998, Mr. Hebert was Vice President of
Finance and Corporate Controller of Whistler Corporation, a manufacturer and
marketer of national branded consumer electronic after-market products. Mr.
Hebert served as Divisional Controller--Systems Division for the Foxboro
Company from 1997 through 1998. From 1989 through 1997 Mr. Hebert held various
senior accounting positions, most recently Divisional Controller, at Augat Inc.
From 1979 through 1989, he served in various accounting positions with Data
General Corporation, including Controller of Worldwide Manufacturing Services.
Mr. James A. Pelusi joined Brooks as Senior Vice President of Automation
Software in September 1998 upon its acquisition of FASTech Integration, Inc.
From it founding in 1986 until its sale to Brooks, Mr. Pelusi served as
President and Chief Executive Officer of FASTech. From 1983 to 1986, Mr. Pelusi
served as Director of the Electronic Applications Business Segment of GMF
Robotics, a joint venture between General Motors Corporation and Fanuc Ltd.
From 1979 to 1983, Mr. Pelusi served the Packard Electric Division of General
Motors Corporation in various engineering and manufacturing systems positions.
Mr. Michael W. Pippins has served as Vice President of Global Operations and
Business Development since October 1998. Mr. Pippins joined Brooks in March
1992 as its Director of Sales and Marketing and in June 1993 was promoted to
Vice President of Sales and Marketing. From 1989 to 1992, Mr. Pippins served as
strategic marketing manager for Varian Associates, a manufacturer of
semiconductor production equipment.
Ms. Ellen B. Richstone joined Brooks in November 1998 as Senior Vice
President of Finance and Administration and Chief Financial Officer. From 1997
to November 1998, Ms. Richstone served as Executive Vice President and Chief
Financial Officer of The Frontier Group, a startup healthcare provider. From
1992 to 1996, Ms. Richstone served as Vice President and Chief Financial
Officer of Augat Inc. In 1992, Ms. Richstone also served Rohr Inc. as Senior
Vice President and Chief Financial Officer. From 1989 to 1992, Ms. Richstone
served as Executive Vice President of Honeywell Bull Information Systems. From
1981 to 1989 she served in various management positions at Data General
Corporation, finally as Vice President and Treasurer.
Mr. Michael F. Werner has served as Senior Vice President of Operations of
Brooks since December 1997. Mr. Werner joined Brooks in February 1993 as Vice
President of Operations. From 1984 to 1993, Mr. Werner served GCA, a unit of
General Signal Corporation, in a variety of positions, including Senior Vice
President of Operations.
Mr. Roger D. Emerick has been a director of Brooks since October 1993. Mr.
Emerick has been a director of Lam Research Corporation, a semiconductor
equipment supplier, since 1982 and Chairman of the Board of Directors of Lam
since 1984. Mr. Emerick served as President of Lam from 1982 to 1989 and as its
Chief Executive Officer from 1982 to August 1997. Mr. Emerick is currently a
director of Electroglas, Inc., a manufacturer of automatic wafer probing
equipment and semiconductor equipment, and Materials International.
Mr. Amin J. Khoury has been a director of Brooks since July 1994. Since
1987, Mr. Khoury has served as Chairman of the Board of B/E Aerospace, Inc., a
designer, manufacturer and marketer of airline interior furnishings. Mr. Khoury
is also Chairman of the Board of Applied Extrusion Technologies, Inc., a
manufacturer of oriented polypropylene films and extruded polymer nets.
Director Compensation
Compensation. Nonemployee directors of Brooks receive $1,000 cash
compensation for each Board meeting they attend, in addition to expenses
reasonably incurred. Nonemployee directors receive $4,000 per year for their
services on the Compensation Committee and $4,000 per year for their services
on the Audit Committee. Each nonemployee director is granted options to
purchase 10,000 shares of common stock on the date he is first elected a
director and options to purchase 5,000 shares on July 1 of each year thereafter
pursuant to the 1993 Nonemployee Director Stock Option Plan. Employee directors
may elect to participate in the 1995 Employee Stock Purchase Plan and may be
granted options under the 1992 Combination Stock Option Plan.
80
<PAGE>
Indemnification Agreements. Brooks has entered into indemnification
agreements with each of its directors and anticipates that it will enter into
similar agreements with any future directors. Generally, the indemnification
agreements attempt to provide the maximum protection permitted by Delaware law
with respect to indemnification of the director.
The indemnification agreements provide that Brooks will pay certain amounts
incurred by a director in connection with any civil or criminal action or
proceeding and specifically including actions by or in the name of Brooks
(derivative suits) where the individual's involvement is by reason of the fact
that he is or was a director or officer. Such amounts include, to the maximum
extent permitted by law, attorney's fees, judgments, civil or criminal fines,
settlement amounts, and other expenses customarily incurred in connection with
legal proceedings. Under the indemnification agreements, a director will not
receive indemnification if he is found not to have acted in good faith and in a
manner he reasonably believed to be in the best interests of Brooks.
Executive Compensation
The following Summary Compensation Table sets forth the compensation during
the last three fiscal years of each of the Chief Executive Officer and the
executive officers of Brooks whose salary and bonus during fiscal 1998 exceeded
$100,000.
81
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
-------------------------------- ------------
Securities
Other Annual Underlying All Other
Year Compensation Option Compensation
Name and Principal Position Ended Salary($) Bonus ($) ($)(1) (#)(2) ($)(3)
- --------------------------- ------- --------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Therrien,....... 9/30/98 279,985 -- 27,261 -- 49,612
Chief Executive
Officer................ 9/30/97 244,596 -- 27,329 -- 50,314
and President(4)........ 9/30/96 259,794 97,548 33,263 10,000 27,156
David R. Beaulieu,........ 9/30/98 140,385 -- 10,281 -- 9,621
Vice President,
Engineering(5)......... 9/30/97 122,865 -- 10,365 9,000 7,679
9/30/96 49,000 26,000 5,790 20,000 7,626
Michael W. Pippins,....... 9/30/98 140,385 -- 10,065 -- 6,996
Vice President, Sales... 9/30/97 122,865 -- 10,209 -- 6,784
and Marketing........... 9/30/96 131,068 36,000 9,653 10,000 5,546
Michael F. Werner,........ 9/30/98 149,846 -- 9,717 -- 15,458
Vice President,
Manufacturing.......... 9/30/97 128,536 -- 10,185 -- 15,738
and Operations.......... 9/30/96 137,232 37,663 9,756 10,000 12,933
</TABLE>
- --------
(1) Represents lease and insurance payments made for automobiles.
(2) Brooks did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive payments during fiscal
1996, 1997 or 1998.
(3) "All Other Compensation" above consists of the following:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Robert Therrien
401(k) matching contributions.................. $ 1,000 $ 1,463 $ 1,156
Life insurance premiums........................ 48,612 48,851 26,000
-------- -------- --------
$49,612 $ 50,314 $ 27,156
======== ======== ========
David R. Beaulieu
401(k) matching contributions.................. $ 2,106 $ 150 $ 0
Life insurance premiums........................ 7,515 7,529 7,626
-------- -------- --------
$ 9,621 $ 7,679 $ 7,626
======== ======== ========
Michael W. Pippins
401(k) matching contributions.................. $ 2,106 $ 1,883 $ 1,938
Life insurance premiums........................ 4,890 4,901 3,608
-------- -------- --------
$ 6,996 $ 6,784 $ 5,546
======== ======== ========
Michael F. Werner
401(k) matching contributions.................. $ 2,248 $ 2,475 $ 1,702
Life insurance premiums........................ 13,210 12,263 11,231
-------- -------- --------
$ 15,458 $ 14,758 $ 12,933
======== ======== ========
</TABLE>
Brooks is not beneficiary of any life insurance benefits resulting from the
payment of life insurance premiums.
(4) See "Employment Contracts" below.
(5) Mr. Beaulieu joined Brooks in May 1996.
82
<PAGE>
Employment Contracts
Mr. Robert J. Therrien. In October 1994, Brooks entered into an employment
agreement with Robert J. Therrien, its President and Chief Executive Officer,
which entitled Mr. Therrien to a minimum annual salary of $230,000, subject to
increases for inflation, and to consideration for discretionary bonuses. The
employment agreement, which has a seven-year term, provides that Mr. Therrien
will receive retirement compensation at the rate of his salary in effect as of
the date he terminates employment with Brooks for a period equal to one and
one-half times the number of years Mr. Therrien serves Brooks after October 1,
1994. In the event of Mr. Therrien's death or permanent disability, he or his
estate has the option of receiving his retirement compensation over a period of
not less than four years. Brooks will also provide Mr. Therrien with certain
life insurance benefits over the term of the agreement and for so long as
Brooks owes him retirement compensation, an automobile allowance and such other
employment benefits as may be generally available to other employees of Brooks.
Under the agreement, if Mr. Therrien terminates his employment with Brooks
upon a change in control of Brooks or for good reason (a material reduction in
his overall level of responsibility without his consent), Brooks shall pay Mr.
Therrien, in addition to the retirement compensation, a lump sum severance
payment equal to $1 less than three times Mr. Therrien's average annual
compensation during the five most recent years.
Mr. Therrien's employment agreement also contains noncompetition and
confidentiality provisions. The noncompetition provision prohibits Mr. Therrien
from directly or indirectly competing with Brooks so long as he is an employee
of Brooks and for a period of two years thereafter.
Ms. Ellen B. Richstone. In October 1998, Brooks entered into an employment
agreement with Ellen B. Richstone, its Senior Vice President Finance and
Administration and Chief Financial Officer, which entitles Ms. Richstone to a
base salary of $225,000 per year and to participation in the discretionary
executive bonus program, as well as a guaranteed annual bonus of $10,000.
Pursuant to the agreement, in November 1998, Brooks granted Ms. Richstone
options to purchase 60,000 shares of Common Stock of Brooks at an exercise
price of $13.25 per share, the fair market value of Brooks' common stock on the
date of grant. Under the agreement, all of those options will vest immediately
in the event of a merger or acquisition of Brooks which results in either a
loss of Ms. Richstone's position or a material change in her responsibilities.
In the event Ms. Richstone's employment with Brooks is terminated for reasons
other than cause, the agreement provides that Ms. Richstone will receive either
one year of her then current base salary or $250,000, whichever is greater.
The agreement also provides Ms. Richstone with certain other benefits,
including an automobile allowance of up to $15,000 per year and the opportunity
to participate in insurance plans and other employment benefits as may be
generally available to senior executives of Brooks. In connection with Ms.
Richstone' joining Brooks, Brooks paid her a signing bonus of $40,000. Brooks
anticipates that it will enter into an indemnification agreement with Ms.
Richstone on the same terms as Brooks' directors.
Bonus Plan
Brooks maintains an informal bonus program for certain employees, including
executive officers, under which those employees may be awarded discretionary
cash bonuses based upon an evaluation of individual performance and the
performance of Brooks during the year.
Gainsharing Program
In 1995, Brooks introduced an informal Gainsharing Program. Gainsharing is
an incentive program designed to compensate eligible employees, including
executive officers, for their efforts toward achieving Brooks' goals. Eligible
employees may earn up to 10% of their base pay each quarter if certain personal
objectives for quality of work and customer satisfaction and certain Brooks
objectives for revenues and operating profit are met. There were no payments
made under the Gainsharing Program during fiscal 1998.
83
<PAGE>
Stock Purchase Plan
In February 1996, Brooks adopted the 1995 Employee Stock Purchase Plan to
provide employees of Brooks with additional incentives by permitting them to
acquire an equity interest in Brooks through the purchase of shares in Brooks'
common stock.
Eligible employees of Brooks may elect to participate in the Stock Purchase
Plan by giving notice to Brooks and instructing Brooks to withhold a specified
dollar amount from the employee's salary during the following six-month period.
On the last business day of that period, the amount withheld is used to
purchase Brooks common stock at a price equal to 85% of the fair market value
of the common stock on either the first day of the six-month period or on the
last day of the six-month period, whichever is less. Participation ends
automatically on termination of employment with Brooks.
The maximum number of shares of Brooks common stock which may be purchased
by employees under the Stock Purchase Plan is 250,000 shares, subject to
adjustments for stock splits, stock dividends and similar transactions. An
aggregate of 109,721 shares has been purchased under the Stock Purchase Plan.
The Stock Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code of 1986, as amended.
Stock Option Plans
The following tables set forth certain information with respect to the stock
options granted to the named executive officers during fiscal 1998 and the
aggregate number of and value of options exercisable and unexercisable held by
the named executive officers during fiscal 1998. No named executive officer
exercised options during fiscal 1998.
Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation For
Individual Grant Option Terms(3)
-------------------------------------------------------------- ---------------------
Number of Securities % of Total
Underlying Options Options Granted
Granted to Employees in Exercise Price Expiration
Name (#)(1) Fiscal Year $/Share(2) Date 5%($) 10%($)
---- -------------------- --------------- -------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Therrien...... 100 0.1% 12.875 12/12/2007 810 2052
David R. Beaulieu....... 100 0.1% 12.875 12/12/2007 810 2052
Michael W. Pippins...... 100 0.1% 12.875 12/12/2007 810 2052
Michael F. Werner....... 100 0.1% 12.875 12/12/2007 810 2052
</TABLE>
- --------
(1) Options become exercisable in full as of November 23, 1998.
(2) The exercise price is equal to the fair market value of the stock on the
date of grant.
(3) The 5% and 10% assumed rates of annual compounded stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and do
not represent Brooks' estimate or projection of future common stock prices.
84
<PAGE>
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities Underlying In-the-Money Options at
Unexercised Options at 9/30/98(#) 9/30/98/($)(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- --------------------------------- -------------------------
<S> <C> <C>
Robert J. Therri-
en................ 332,500/52,600 2,510,640/337,860
David R. Beaulieu.. 5,000/24,100 0/0
Michael W.
Pippins........... 36,334/15,100 277,005/57,938
Michael F. Werner.. 28,750/15,100 218,306/57,938
</TABLE>
- --------
(1) Based on the closing price of Brooks' common stock on September 30, 1998 on
the Nasdaq National Market of $9.938 minus the respective option exercise
prices.
1992 Combination Stock Option Plan. Under Brooks' 1992 Combination Stock
Option Plan (the "1992 Plan"), which is administered by the Compensation
Committee, Brooks may grant both incentive stock options intended to qualify
under Section 422 of the Internal Revenue Code of 1986, as amended ("incentive
stock options"), and other options which are not qualified as incentive stock
options ("nonqualified stock options"). Incentive stock options may only be
granted to persons who are employees of Brooks at the time of grant, which may
include officers and directors who are also employees. Nonqualified stock
options may be granted to persons who are officers, directors or employees of
or consultants or advisors to Brooks or persons who are in a position to
contribute to the long-term success and growth of Brooks at the time of grant.
Options granted under the 1992 Plan generally vest over a period of five years.
A total of 1,550,000 shares of common stock has been reserved for issuance
under the 1992 Plan.
1993 Nonemployee Director Stock Option Plan. The purpose of the 1993
Nonemployee Director Stock Option Plan (the "Director Plan") is to attract and
retain the services of experienced and knowledgeable independent directors of
Brooks for the benefit of Brooks and its stockholders and to provide additional
incentives for independent directors to continue to work for the best interests
of Brooks and its stockholders through continuing ownership of its common
stock. Each director who is not an employee of Brooks or any of its
subsidiaries is eligible to receive options under the Director Plan. Under the
Director Plan, each eligible director receives an automatic grant of an option
to purchase 10,000 shares of common stock upon becoming a director of Brooks
and an option to purchase 5,000 shares on July 1 each year thereafter. A total
of 190,000 shares of common stock has been reserved for issuance under the
Director Plan.
1998 Employee Equity Incentive Plan. The purpose of the 1998 Employee Equity
Incentive Plan (the "1998 Plan"), adopted by the Board of Directors of Brooks
in April 1998, is to attract and retain employees and provide an incentive for
them to assist Brooks to achieve long-range performance goals, and to enable
them to participate in the long-term growth of Brooks. All employees of Brooks,
other than its officers and directors, are eligible to participate in the 1998
Plan. Under the 1998 Plan, the Compensation Committee may award only
nonqualified stock options. A total of 800,000 shares of common stock have been
reserved for issuance under the 1998 Plan.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors consists of Messrs.
Emerick and Khoury. Neither Mr. Emerick nor Mr. Khoury is or was formerly an
officer or employee of Brooks. Mr. Therrien, the President and Chief Executive
Officer of Brooks, has the authority to grant options for not more than 9,000
shares to employees who are not executive officers on terms that are consistent
with the 1992 Plan. Mr. Therrien granted options to purchase 89,100 shares in
fiscal 1998. Prior to November 1994, all decisions regarding compensation of
executive officers were made by the entire Board of Directors.
85
<PAGE>
CERTAIN TRANSACTIONS
During the first six months of fiscal 1999 and for fiscal 1998, Lam Research
Corporation's purchases from Brooks accounted for approximately 10% and 16% of
Brooks' total revenues during the respective periods. Lam's former President
and Chief Executive Officer, Roger Emerick, serves on Brooks' Board of
Directors and is a member of its Compensation Committee. There is no agreement
or arrangement requiring the election of Mr. Emerick or any other
representative of Lam to serve as a director of Brooks.
Sales to Lam have been made in the ordinary course of Brooks' business, and
Brooks believes that the terms of its transactions with Lam have not been less
favorable to Brooks than could have been obtained from a party unaffiliated
with Brooks purchasing products of similar types and at comparable volume.
86
<PAGE>
SMART MACHINES MANAGEMENT
Set forth below is certain biographical information regarding the executive
officers and directors of Smart Machines who are expected to serve as an
officer or director of Smart Machines after the completion of the merger,
including information furnished by them as to their principal occupation for
the last five years, certain other directorships held by them and their ages.
<TABLE>
<CAPTION>
Name Age Position with Smart Machines
---- --- ----------------------------
<C> <C> <S>
K. Charles Janac........ 41 President and Chief Executive Officer, Director
Sharon Andres........... 49 Chief Financial Officer and Controller
</TABLE>
Mr. K. Charles Janac is a founder of Smart Machines and has been chief
executive officer and a director of Smart Machines since its incorporation in
1994. Mr. Janac is also a director of Xulu Entertainment, a virtual reality
entertainment company.
Ms. Sharon Andres has been the controller and chief financial officer of
Smart Machines since early 1997. From 1993 to early 1997, Ms. Andres served as
a consultant to Smart Machines and other high technology startup companies.
87
<PAGE>
PRINCIPAL SHAREHOLDERS OF BROOKS
The following table sets forth certain information as of July 26, 1999, with
respect to the beneficial ownership of Brooks common stock by (1) each
director, (2) each named executive officer in the Summary Compensation Table on
page 82 above, (3) all executive officers and directors as a group, and
(4) each person known by Brooks to be the beneficial owner of 5% or more of
Brooks' common stock. This information is based upon information received from
or on behalf of the named individuals.
<TABLE>
<CAPTION>
Shares of common stock
Name** Beneficially Owned(1) Percent of Class
------ ---------------------- ----------------
<S> <C> <C>
Robert J. Therrien(2).............. 1,292,630 11%
c/o Brooks Automation, Inc.
15 Elizabeth Drive
Chelmsford, MA 01824
Lynda M. Avallone.................. 557 *
David R. Beaulieu(3)............... 14,294 *
Steven E. Hebert................... 497 *
James A. Pelusi(4)................. 34,421 *
Michael W. Pippins(5).............. 85,769 1%
Ellen B. Richstone................. 517 *
Michael F. Werner(6)............... 80,100 1%
Roger D. Emerick(7)................ 24,000 *
Amin J. Khoury(8).................. 10,000 *
All directors and executive
officers as a group (10 persons).. 1,542,785 13%
</TABLE>
- --------
* Less than 1% of the outstanding common stock.
** Address provided for beneficial owners of more than 5% of Brooks' common
stock.
(1) Unless otherwise noted, each person identified possesses sole voting and
investment power with respect to the shares listed except to the extent
shared by spouses under applicable law.
(2) Includes 380,100 shares issuable pursuant to immediately exercisable stock
options. Excludes shares held by certain children and grandchildren of Mr.
Therrien, as to which he disclaims beneficial ownership.
(3) Includes 12,350 shares issuable pursuant to immediately exercisable stock
options.
(4) Includes 4,237 shares issuable pursuant to immediately exercisable stock
options.
(5) Includes a total of 44,868 options; 37,368 exercisable immediately and
7,500 exercisable within 60 days.
(6) Includes a total of 38,850 options; 31,350 exercisable immediately and
7,500 exercisable within 60 days.
(7) Includes 15,000 shares issuable pursuant to immediately exercisable stock
options.
(8) Includes 10,000 shares issuable pursuant to immediately exercisable stock
options.
88
<PAGE>
PRINCIPAL SHAREHOLDERS OF SMART MACHINES
The following table sets forth certain information as of July 31, 1999 with
respect to the beneficial ownership of Smart Machines' common stock by each
director, each nominee for director, each named executive officer in the
Summary Compensation Table under " Compensation" above, all executive officers
and directors as a group, and each person known by Smart Machines to be the
beneficial owner of 5% or more of Smart Machines' common stock. This
information is based upon information received from or on behalf of the named
individuals.
Common Stock
<TABLE>
<CAPTION>
Number of Percent
Name and Address Shares(1) of Class
---------------- --------- --------
<S> <C> <C>
Sharon Andres........................................ 33,333 *
651 River Oaks Parkway
San Jose, CA 95134
Eugene Bernosky...................................... 45,416 *
651 River Oaks Parkway
San Jose, CA 95134
Bessemer Venture Partners............................ 422,938(2) 8.91%
1400 Old County Road, Suite 407
Westbury, NY 11590
Bruce Graham......................................... 422,938(3) 8.91%
651 River Oaks Parkway
San Jose, CA 95134
K. Charles Janac..................................... 1,115,000 23.50%
651 River Oaks Parkway
San Jose, CA 95134
Nancy Magoun......................................... 148,803 3.13%
651 River Oaks Parkway
San Jose, CA 95134
James E. Solomon..................................... 500,000 10.74%
651 River Oaks Parkway
San Jose, CA 95134
Information Technology Ventures, LP.................. 270,965 5.82%
3000 Sand Hill Road, Building 1, Suite 280
Menlo Park, CA 94025
Todd Solomon......................................... 1,000,000 21.48%
651 River Oaks Parkway
San Jose, CA 95134
All directors and executive officers as a group (6
persons)............................................ 2,265,490(2) 47.75%
</TABLE>
- --------
* Less than one percent
(1) Bessemer Venture Partners is the name used to refer to a group of
affiliated investment partnerships. Shares reflected include 175,510 shares
of Smart Machines common stock held by Bessec Ventures IV L.P., 46,364
shares of Smart Machines common stock held by Bessemer Venture Investors
L.P., 175,508 shares of Smart Machines common stock held by Bessemer
Venture Partners IV L.P. and 15,642 shares of Smart Machines common stock
held by BVP IV Special Situations L.P. The general partner of these
partnerships is Deer IV & Co. LLC. Also included in the Bessemer Venture
Partners
89
<PAGE>
shares is 8,987 shares of Smart Machines common stock held by various other
individuals or entities, that are either managers or former members of Deer
IV & Co. LLC or employees of Deer II & Co. LLC or individuals or entities
associated with Bessemer Securities Corporation. Under certain
circumstances, Bessemer Venture Partners IV L.P. can direct their voting on
corporate matters. In addition, Bessemer Venture Partners shares include
927 shares of Smart Machines common stock held by Bruce Graham. The
managers of Deer IV & Co. LLC are William T. Burgin, Robert H. Buescher,
David J. Cowan, Christopher Gabrielli, Bruce Graham, G. Felda Hardymon and
Rob L. Soni.
(2) Includes 422,938 shares attributed to Bessemer Venture Partners above. Of
these 422,938 shares, 927 shares are owned by Mr. Graham individually. Mr.
Graham, a manager of Deer IV & Co. LLC, which is the general partner of
each of these partnerships, shares voting and dispositive power with
respect to the shares held by the foregoing partnerships and disclaims
beneficial ownership of those shares except to the extent of his pecuniary
interest therein.
The above table includes, for each of the persons and the group listed
below, shares subject to stock options exercisable within 60 days of July 31,
1999 and shares subject to restrictions which lapse within 60 days of July 31,
1999, and assumes that no other person has exercised any outstanding warrants
or options since July 7, 1999. All outstanding options will be assumed by
Brooks upon the completion of the merger.
<TABLE>
<CAPTION>
Total Number of Total Number of
Shares Subject Shares Subject
to Options to Restriction
--------------- ---------------
<S> <C> <C>
Sharon Andres............................ 33,333 --
Eugene Bernosky.......................... -- 834
K. Charles Janac......................... 85,000 --
Nancy Magoun............................. -- 1,388
All directors and executive officers as a
group................................... 118,333 2,222
</TABLE>
90
<PAGE>
Preferred Stock
<TABLE>
<CAPTION>
Number of Number of Number of Number of
Series A Series B Series C Series D Percent
Name and Address Shares(1) Shares(2) Shares(3) Shares(4) of Class
---------------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Eugene Bernosky............ 50,000 1.11%
651 River Oaks Parkway
San Jose, CA 95134
Bessemer Venture Partners.. 566,947(5) 12.60%
1400 Old Country Road,
Suite 407
Westbury, NY 11590
Bruce Graham(1)............ 566,947(6) 12.60%
651 River Oaks Parkway
San Jose, CA 95134
Information Technology
Ventures, L.P. ........... 363,225 8.08%
3000 Sand Hill Road,
Building 1,
Suite 280
Menlo Park, CA 94025
Innotech Corporation....... 333,333 285,714 13.76%
2-5-10, Shin Yokohama
Kouhoku-ku, Yokohama-Shi
Kanagawa 222
Japan
K. Charles Janac........... 35,111 *
651 River Oaks Parkway
San Jose, CA 95134
James E. Solomon........... 500,000 8,000 11.29%
651 River Oaks Parkway
San Jose, CA 95134
Eiko Yoshida............... 300,000 6.67%
Innoquest
3945 Freedom Circle, Suite
320
Santa Clara, CA 95054
All directors and executive
officers as a group....... 550,000 43,111 566,947(3) 25.79%
</TABLE>
- --------
* Less than one percent.
(1) Prior to consummating the merger, each holder of Smart Machines Series A
preferred stock will be asked to exercise such holder's existing right to
convert 31.7% of Smart Machines Series A preferred stock to Smart Machines
common stock.
(2) Prior to consummating the merger, each holder of Smart Machines Series B
preferred stock will be asked to exercise such holder's existing right to
convert 21.9% of Smart Machines Series B preferred stock to Smart Machines
common stock.
(3) Prior to consummating the merger, each holder of Smart Machines Series C
preferred stock will be asked to exercise such holder's existing right to
convert 21.5% of Smart Machines Series C preferred stock to Smart Machines
common stock.
(4) Prior to consummating the merger, each holder of Smart Machines Series D
preferred stock will be asked to exercise such holder's existing right to
convert 21.3% of Smart Machines Series D preferred stock to Smart Machines
common stock.
(5) Bessemer Venture Partners is the name used to refer to a group of
affiliated investment partnerships. Shares reflected include 235,266 shares
of Smart Machines Series D preferred stock held by Bessec Ventures IV L.P.,
62,151 shares of Smart Machines Series D preferred stock held by Bessemer
Venture Investors L.P., 235,265 shares of Smart Machines Series D Preferred
stock held by Bessemer Venture
91
<PAGE>
Partners IV L.P. and 20,968 shares of Smart Machines Series D preferred
stock held by BVP IV Special Situations L.P. The general partner of these
partnerships is Deer IV & Co. LLC. Also included in the Bessemer Venture
Partners shares is 12,054 shares of Smart Machines Series D preferred stock
held by various other individuals or entities, that are either managers or
former members of Deer IV & Co. LLC or employees of Deer II & Co. LLC or
individuals or entities associated with Bessemer Securities Corporation.
Under certain circumstances, Bessemer Venture Partners IV L.P. can direct
their voting on corporate matters. In addition, Bessemer Venture Partners
shares include 1,243 shares of Smart Machines Series D preferred stock held
by Bruce Graham. The managers of Deer IV & Co. LLC are William T. Burgin,
Robert H. Buescher, David J. Cowan, Christopher Gabrielli, Bruce Graham, G.
Felda Hardymon and Rob L. Soni.
(6) Includes 566,947 shares attributed to Bessemer Venture Partners above. Of
these 566,947 shares, 1,243 shares are owned by Mr. Graham individually.
Mr. Graham, a manager of Deer IV & Co. LLC, which is the general partner
of each of these partnerships, shares voting and dispositive power with
respect to the shares held by the foregoing partnerships and disclaims
beneficial ownership of those shares except to the extent of his pecuniary
interest therein.
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DESCRIPTION OF BROOKS SECURITIES
Brooks' authorized capital stock consists of 21,500,000 shares of Brooks
common stock and 1,000,000 shares of preferred stock, $0.01 par value per
share.
Brooks Common Stock
As of July 26, 1999, there were 11,101,587 shares of Brooks common stock
outstanding. These shares were held of record by 197 shareholders. If the total
purchase price in the merger is $10,454,506, and the 20 trading day average
closing price of Brooks common stock is $25, then 418,180 shares of Brooks
common stock would be issued to Smart Machines shareholders in the merger, and
therefore after the merger there would be 11,519,767 shares of Brooks common
stock outstanding.
The holders of Brooks common stock are entitled to one vote per share on all
matters to be voted on by shareholders. They are entitled to receive dividends,
if any, when, as and if declared by the Board of Directors from funds legally
available. Upon liquidation or dissolution of Brooks, the holders of Brooks
common stock are entitled to receive all assets available for distribution to
the shareholders, subject to any preferential or other rights of the holders of
Brooks preferred stock. The Brooks common stock has no preemptive or other
subscription rights, and there are no conversion rights or redemption or
sinking fund provisions with respect to such shares. The holders of Brooks
common stock do not have cumulative voting rights in the election of directors.
All of the shares of Brooks common stock are, and the shares to be sold in this
offering will be, fully paid and nonassessable.
Brooks Preferred Stock
No Brooks preferred stock currently is outstanding. The Board of Directors
has the authority to issue Brooks preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote
or action by the shareholders. If Brooks issues preferred stock, the issuance
may have the effect of delaying, deferring or preventing a change in control of
Brooks without further action by the shareholders and may adversely affect the
voting and other rights of the holders of Brooks common stock. If Brooks issues
preferred stock with voting and conversion rights, the voting power of the
holders of Brooks common stock may be adversely affected. Holders of Brooks
common stock may lose voting control to the holders of Brooks preferred stock.
Currently the Board of Directors does not plan to issue any Brooks preferred
stock.
Antitakeover Effect of Provisions of the Certificate of Incorporation and
Bylaws and Rights Distribution Plan
Certificate of Incorporation and Bylaws
The Brooks certificate of incorporation includes several other provisions in
addition to Brooks preferred stock which may have the effect of preventing
changes in the management of Brooks. These provisions may make an unfriendly
tender offer, proxy contest, merger or other change in control of Brooks more
difficult. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Brooks Board of Directors
and in the policies formulated by the Board of Directors and to discourage
certain types of transactions that may involve an actual or threatened change
of control of Brooks. These provisions are also designed to reduce the
vulnerability of Brooks to unsolicited acquisition proposals and to discourage
certain tactics that may be used in proxy fights. However, these provisions
could have the effect of discouraging others from making tender offers for the
shares of Brooks common stock and, as a consequence, they also may inhibit
fluctuations in the market price of the shares of Brooks common stock which
could result from actual or rumored takeover attempts.
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The Brooks certificate of incorporation contains a so-called "anti-
greenmail" provision. The provision is intended to discourage speculators who
accumulate beneficial ownership of a significant block of stock of a company
and then, under the threat of making a tender offer or instigating a proxy
contest or some other corporate disruption, succeed in extracting from the
company a premium price to repurchase the shares acquired by the speculator.
This tactic has become known as greenmail. The anti-greenmail provision
prohibits Brooks from purchasing any shares of Brooks common stock from a
related person at a per share price in excess of the fair market value at the
time of the purchase unless the purchase is approved by the holders of two-
thirds of the outstanding shares of Brooks common stock, excluding any votes
cast by the related person. The term "related person" means any person who
acquires more than five percent of Brooks' voting stock. Shareholder approval
is not required for such purchases when the offer is made available on the same
terms to all holders of shares of Brooks common stock or when the purchases are
effected on the open market.
The Brooks certificate of incorporation also provides that all shareholder
action must be effected at a duly called meeting and not by written consent,
and that certain shareholder proposals may only be approved by the holders of
80% of the shares of stock entitled to vote on the proposal. In addition, the
bylaws of Brooks do not permit shareholders of Brooks to call a special meeting
of shareholders.
The authority of the Brooks Board of Directors to issue authorized but
unissued shares of Brooks common stock might be considered as having the effect
of discouraging an attempt by another person or entity to effect a takeover or
otherwise gain control of Brooks, since the issuance of additional shares of
Brooks common stock would dilute the voting power of Brooks common stock then
outstanding.
Rights Distribution
In July 1997, the Brooks Board of Directors declared a dividend of one
preferred share purchase right for each share of common stock outstanding on
August 12, 1997 to the shareholders of record on that date. Each right entitles
the registered holder to purchase from Brooks one one-thousandth of a share of
Series A Junior Participating preferred stock, par value $0.01 per share of
Brooks, at a purchase price of $135 per one one-thousandth of a share, subject
to adjustment.
Subject to certain limited exceptions, until the earlier to occur of (i) ten
days following a public announcement that a person or group of affiliated or
associated persons, an "acquiring person," has acquired beneficial ownership of
15% or more of the outstanding Brooks common stock, or (ii) ten business days
(or such later date as may be determined by action of the Brooks Board of
Directors prior to such time as any person becomes an acquiring person)
following the commencement of, or announcement of an intention to make, a
tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of the outstanding
Brooks common stock, the earlier of such dates being called the "distribution
date," the rights will be evidenced by the Brooks common stock certificates
with a copy of the summary of rights attached thereto. As soon as practicable
following the distribution date, the rights will becomes exercisable, separate
certificates evidencing the rights will be mailed to shareholders of record on
the distribution date, and the separate rights certificates alone will evidence
the rights. The rights will expire on the earlier of (i) July 31, 2007, or (ii)
the date on which the rights are redeemed.
In the event that any person becomes an acquiring person, proper provisions
shall be made so that each holder of a right, other than rights beneficially
owned by the acquiring person and its affiliates and associates (which shall
thereafter be void), will thereafter have the right to receive upon exercise
that number of shares of Brooks common stock having a market value of two times
the exercise price of the right. In the event that, at any time after a person
becomes an acquiring person, Brooks is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold, proper provisions will be made so that each holder of a right
will thereafter have the right to receive, upon the exercise thereof at the
then current exercise price of the right, that number of shares of common stock
of the surviving company which at the time of such transaction will have a
market value of two times the exercise price of the right.
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At any time after any person becomes an acquiring person and prior to the
acquisition by any person or group of a majority of the outstanding Brooks
common stock, the Brooks Board of Directors may exchange the rights (other than
rights owned by such person or group which have become void), in whole or in
part, at an exchange ratio of one share of Brooks common stock per right,
subject to adjustment. At any time prior to the time any person becomes an
acquiring person, the Brooks Board of Directors may redeem the rights in whole,
but not in part, at a price of $0.001 per right. The redemption of the rights
may be made effective at such time, on such basis and with such conditions as
the Brooks Board of Directors in its sole discretion may establish. Immediately
upon any redemption of the rights, the right to exercise the rights will
terminate and the only right of the holders of rights will be to receive the
redemption price.
The terms of the rights may be amended by the Brooks Board of Directors
without the consent of the holders of the rights, except that from and after
such time as any person becomes an acquiring person, no such amendment may
adversely affect the interests of the holders of the rights (other than the
acquiring person and its affiliates and associates).
Transfer Agent and Registrar
The transfer agent and registrar for Brooks common stock is Boston EquiServe
LP.
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF BROOKS AND SMART MACHINES
Upon consummation of the merger, holders of Smart Machines common stock and
preferred stock (other than any Smart Machines shareholders who perfect their
dissenters' rights ), will become shareholders of Brooks and their rights will
be governed by the Brooks Certificate of Incorporation (the "Brooks charter"),
the Brooks bylaws and the Delaware General Corporation Law (the "DGCL"). The
rights of the holders of Smart Machines common stock and Smart Machines
preferred stock are currently governed by the Smart Machines Amended and
Restated Certificate of Incorporation (the "Smart Machines charter"), the Smart
Machines bylaws and the California General Corporation Law (the "CGCL").
The following comparison of the Brooks charter and bylaws with the Smart
Machines charter and bylaws is not intended to be complete and is qualified in
its entirety by reference to the complete documents. Copies of the Brooks
charter and bylaws are available without charge upon request from Brooks.
Copies of the Smart Machines charter and bylaws are available without charge
upon request from Smart Machines.
Directors
Number and Classification. The Brooks bylaws provide that the number of
directors constituting the Brooks Board of Directors will be fixed by the
Brooks Board of Directors before each annual or special meeting of the
shareholders. The Brooks Board of Directors currently consists of three
directors. Under the DGCL, a corporation may have a classified Board of
Directors, divided into as many as three classes. The Brooks charter and bylaws
do not provide for a classified Board of Directors.
The Smart Machines bylaws provide that the Smart Machines Board of Directors
will consist of not less than three nor more than five directors, and that the
exact number of directors shall be fixed by resolution of the Smart Machines
Board of Directors or by an amendment to the Smart Machines charter or bylaws
duly adopted by a majority of the shareholders. An amendment reducing the
number of directors to less than five cannot be adopted if the votes cast
against such an amendment exceed 16 2/3% of the outstanding shares. The Smart
Machines board currently consists of five members. The CGCL generally requires
that directors be elected annually but does permit a classified board of
directors. The Smart Machines charter and bylaws do not provide for a
classified Board of Directors.
Election and Vacancies. The Brooks bylaws provide for the election of all
directors annually by the shareholders and provide that vacancies in the Brooks
Board of Directors may be filled only by a majority vote of the directors then
in office. The Smart Machines bylaws also provide for the election of all
directors at the annual meeting of the shareholders. The Smart Machines charter
provides that so long as at least 250,000 shares of the originally issued
shares of Series D preferred stock remain outstanding, the holders of the
Series E preferred stock and Series D preferred stock, voting as a single
class, are entitled to elect one member of the Board of Directors. Vacancies in
the Smart Machines board not caused by removal may be filled by a majority of
the directors then in office, regardless of whether they constitute a quorum,
or by a sole remaining director.
Removal. Under the Brooks bylaws a director may be removed from office only
for cause (i) by vote of the holders of 80% of the voting stock outstanding or
(ii) by vote of a majority of the directors then in office. Under the CGCL, the
holders of at least 10% of the outstanding shares of any class of stock may
initiate a court action to remove any director for cause. In addition, any or
all of the directors of a California corporation may be removed with or without
cause by the affirmative vote of a majority of the outstanding shares entitled
to vote. However, no director may be removed (unless the entire board is
removed) if (1) the votes cast against removal would be sufficient to elect the
director if voted cumulatively at an election at which the same total number of
votes were cast, and (2) the entire number of the directors authorized at the
time of the director's most recent election were then being elected.
Additionally, the Smart Machines bylaws provide that the Series D Director may
not be removed without the vote of the holders of a majority of the shares of
the Series D preferred stock and Series E preferred stock, voting as a single
class.
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Preferred Stock
Pursuant to the Brooks charter, the Brooks Board of Directors is authorized,
subject to the limitations prescribed by law and the Brooks charter, to issue
shares of Brooks preferred stock in one or more series. The Smart Machines
charter provides for common stock and five series of preferred stock. The
issuance of any new class or series of stock of Smart Machines requires the
approval of 66 2/3% of the outstanding Series D preferred stock and Series E
preferred stock, voting as a single class.
Brooks believes that the ability of the Brooks Board of Directors to issue
one or more series of preferred stock provides Brooks with flexibility in
structuring possible future financings and acquisitions and in meeting other
corporate needs that might arise. The authorized shares of Brooks preferred
stock are available for issuance without further action by Brooks shareholders,
unless such action is required by applicable law or the rules of any stock
exchange or automated quotation system on which Brooks securities may be listed
or traded.
Shareholders
Shareholder Voting. Under the DGCL, class voting is generally not required.
The Brooks charter, however, provides that any vote required by the
shareholders pursuant to the DGCL, other than the election of directors, shall
be effective if recommended by a majority of the directors and the vote of a
majority of each class of stock outstanding and entitled to vote thereon. If
any vote is not recommended by a majority of the directors, then the vote of
80% of each class of stock outstanding and entitled to vote thereon is required
for the vote to be effective.
With certain exceptions, the CGCL requires that a merger, sale of assets or
similar transaction be approved by a majority of each class of shares
outstanding. The Smart Machines charter provides that holders of Smart Machines
preferred stock shall vote on an equal basis with holders of Smart Machines
common stock, or may act by written consent in the same manner as holders of
Smart Machine's common stock, except as otherwise set forth in the charter. The
charter provides that for the purposes of such votes, the holders of Smart
Machines common stock shall have one vote for each share of common stock held
by them and the holders of Smart Machines preferred stock shall have one vote
for each share of Smart Machines common stock into which their shares could be
converted.
The Smart Machines charter provides that so long as any shares of preferred
stock are outstanding, Smart Machines will not, without the prior affirmative
vote or written consent of (i) the holders of at least a majority of the
outstanding shares of Series A, Series B, Series C, Series D and Series E
preferred stock, voting together as a single class, and (ii) the holders of at
least 66 2/3% of the Series D and Series E preferred stock, voting together as
a single class:
. amend the Smart Machines charter or bylaws;
. alter or change any of the rights, preferences or privileges of the Smart
Machines preferred stock;
. create or issue any new class or series of Smart Machines preferred stock
that has rights equal to or superior to the rights, preferences and priv-
ileges of the series of preferred stock already outstanding;
. increase the authorized number of shares of any series of Smart Machines
preferred stock;
. pay or declare any dividend on the Smart Machines common stock or Smart
Machines preferred stock;
. sell, convey, or otherwise dispose of all or substantially all of its
property or business or merge into or consolidate with any other corpora-
tion (other than a wholly owned subsidiary corporation) or effect any
other transaction or series of related transactions in which more than
50% of the voting power of Smart Machines is disposed of;
. authorize a change in the number of directors on Smart Machines' Board of
Directors; or
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. redeem, purchase or otherwise acquire any share or shares of Smart Ma-
chines preferred stock or Smart Machines common stock, provided that
this restriction does not apply to the repurchase of shares of Smart Ma-
chines common stock from any person who performs services for Smart Ma-
chines.
Special Meeting of Shareholders. The Brooks bylaws provide that special
meetings of Brooks shareholders may be called only by the President or by the
Board of Directors. The Smart Machines bylaws provide that special meetings of
the shareholders may be called by the Board of Directors, the Chairman of the
Board, the President or the holders of shares entitled to cast not less than
one-tenth of the votes at the meeting. The Smart Machines bylaws further
provide that upon written request to the Chairman of the Board, the President,
the Secretary or any Vice President of Smart Machines by any person (other
than the Board of Directors) entitled to call a special meeting of
shareholders, the person receiving such request shall cause notice to be given
to the shareholders entitled to vote that a meeting will be held.
Action by Written Consent. The Brooks bylaws provide that any action to be
taken by the shareholders of Brooks must be taken at a shareholders meeting
and not by written consent or consents without a meeting. Under the CGCL
unless otherwise provided in a corporation's articles of incorporation, any
action which may be taken at an annual or special meeting of shareholders may
also be taken by the written consent of the holders of outstanding shares
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. The Smart Machines bylaws contain a
similar provision, except that, in the case of election of directors, such
consent shall be effective only if signed by the holders of all outstanding
shares entitled to vote for the election of directors, provided, however, that
a director may be elected at any time to fill a vacancy not filled by the
directors by the written consent of the holders of a majority of the
outstanding stock entitled to vote for the election of directors.
Amendment of Charter Documents
The Brooks charter provides that Brooks reserves the right to amend or
repeal any provision contained in the charter in the manner prescribed by the
laws of the State of Delaware. Under the DGCL, in the absence of a specific
provision, amendments to a corporation's certificate of incorporation must
generally be approved by a vote of the holders of a majority of the stock to
vote thereon. Under the DGCL, bylaws may be amended by shareholders; however,
a corporation may confer the power to amend bylaws upon the directors. The
fact that such power has been so conferred upon the directors does not divest
the shareholders of their power to amend the bylaws. The Brooks charter and
the Brooks bylaws expressly provide that the Brooks bylaws may be amended by
an affirmative vote of a majority of the Board of Directors or a majority of
the stock entitled to vote at any meeting of the shareholders.
Under the CGCL, a corporation's articles of incorporation may be amended by
the approval of a majority of the outstanding shares of each class. The Smart
Machines charter provides that so long as any shares of preferred stock are
outstanding, Smart Machines will not amend its charter or bylaws without the
prior affirmative vote or written consent of (i) the holders of at least a
majority of the outstanding shares of Series A, Series B, Series C, Series D
and Series E preferred stock, voting together as a single class, and (ii) the
holders of at least 66 2/3% of the Series D and Series E preferred stock,
voting together as a single class.
Preference and Other Rights of Certain Holders of Preferred and Common Stock
Rights on Liquidation or Merger. The Brooks bylaws provide that upon the
liquidation, dissolution or winding up of Brooks, whether voluntary or
involuntary, the holders of each class of stock shall receive identical
treatment, share for share, without regard to class. The Brooks charter
provides that the Brooks preferred stock shall have such preferences, rights
and restrictions as determined by the Brooks board at the time of issuance.
However, to date, Brooks has not issued any shares of preferred stock.
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The Smart Machines charter provides that, in the event of a liquidation or
dissolution of Smart Machines, holders of Smart Machines preferred stock are
entitled to receive, before any distribution to holders of Smart Machines
common stock, an amount equal to (i) $4.25 per share of Series E preferred
stock held, (ii) $3.50 per share of Series D preferred stock held, (iii) $3.50
per share of Series C preferred stock held, (iv) $3.00 per share of Series B
preferred stock held and (v) $1.00 per share of Series A preferred stock held,
in each case appropriately adjusted for stock dividends, stock splits, reverse
stock splits and other subdivisions and combinations of preferred stock, plus
the amount, if any, of dividends declared but unpaid and accrued. Payments must
be made to the holders of Series D and Series E preferred stock before any
payment to the holders of Series A, Series B, Series C preferred stock or
common stock. Payments must be made to the holders of Series C preferred stock
before any payment is made to the holders of Series A preferred stock, Series B
preferred stock or common stock. Payment must be made to the holders of Series
B preferred stock before any payment is made to the holders of Series A
preferred stock or common stock. Payment must be made to the holders of Series
A preferred stock before any payment is made to the holders of common stock. If
at any point in this distribution scheme the assets of the corporation
available for distribution to a particular group are insufficient, the entire
assets and funds of the corporation legally available for distribution to that
specific group shall be distributed ratably among the holders of that group in
proportion to the preferential amount each holder is otherwise entitled to
receive. At the completion of the above distribution scheme, the holders of
Smart Machines common stock are entitled to receive an amount equal to
$3,000,000 distributed ratably on a per share basis among the holders of common
stock. Finally, after payment of all amounts listed above, the remaining assets
available for distribution to shareholders, if any, shall be distributed
ratably on a per share basis among the holders of common stock and preferred
stock (as if all preferred stock had converted into common stock).
Conversion. The Smart Machines charter provides that holders of Smart
Machines preferred stock are entitled to convert each share of preferred stock
into the number of shares of Smart Machines common stock determined by dividing
the Original Issue Price by the Conversion Price set for each series. The
original issue price and conversion price of the Smart Machines for each series
preferred stock are as follows:
<TABLE>
<CAPTION>
Original Conversion
Series Issue Price Price
------ ----------- ----------
<S> <C> <C>
A................................................ $1.00 $1.00
B................................................ $3.00 $2.85
C................................................ $3.50 $3.24
D................................................ $3.50 $3.50
E................................................ $4.25 $4.25
</TABLE>
Conversion is subject to adjustment in the event there is a subdivision or a
recombination of the outstanding shares of Smart Machines common stock or
dilutive issuance of Smart Machines common stock. Additionally, each share of
Smart Machines preferred stock is automatically converted into fully paid and
nonassessable shares of common stock utilizing the then effective Conversion
Price for each such share, immediately upon (i) the closing of the sale of
Smart Machines common stock pursuant to an effective registration statement
under the Securities Act of 1933, as amended, pursuant to a firm commitment
underwritten public offering in which Smart Machines receives aggregate cash
proceeds (after underwriting commissions but before expenses of the offering)
of not less than $10,000,000, and the public offering price of which is not
less than $10.00 per share or (ii) the vote of the holders of at least a
majority of the outstanding shares of Series A preferred stock, Series B
preferred stock and Series C preferred stock, voting together as a single
class, and the vote of the holders of at least 75% of the outstanding shares of
Series D preferred stock and Series E preferred stock, voting together as a
single class.
Dividends and Other Distributions
Under the DGCL, a corporation may pay dividends out of surplus or out of its
net profits for the fiscal year in which the dividend is declared or its net
profits for the preceding fiscal year, subject to certain
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limitations for the benefit of certain preference shares. The Brooks bylaws
provide that Brooks may declare dividends pursuant to Delaware law. The Brooks
charter provides that holders of each class of Brooks common stock shall share
equally, share for share, in all dividends and distributions, without regard to
class.
Generally, under the CGCL a corporation may pay dividends out of retained
earnings or if, after giving effect thereto, (i) the assets (excluding goodwill
and certain other assets) of the corporation are at least equal to 1.25 times
its liabilities (excluding certain deferred credits), and (ii) the current
assets of the corporation are at least equal to (x) its current liabilities or
(y) if the average of the earnings of the corporation before taxes and interest
expense for the two preceding fiscal years was less than the average of the
interest expense of such corporation for such fiscal years, 1.25 times its
current liabilities. In addition, the ability of a California corporation to
pay dividends is restricted by certain limitations for the benefit of certain
preference shares.
The Smart Machines charter provides that if dividends are declared they
shall be paid to the holders of outstanding preferred stock in an amount per
annum which, in respect of the aggregate of all shares outstanding on the last
day of such fiscal year, shall equal (i) $0.225 per annum per share of Series E
preferred stock, (ii) $0.175 per annum per share of Series D preferred stock,
(iii) $0.175 per annum per share of Series C preferred stock, (iv) $0.15 per
annum per share of Series B preferred stock, and (v) $0.05 per annum per share
of Series A preferred stock.
The Smart Machines charter further provides that (i) no distributions may be
made on the Series A preferred stock, Series B preferred stock, Series C
preferred stock or common stock unless the Board of Directors has declared a
distribution on the Series D and Series E preferred stock, (ii) no
distributions may be made on the Series A preferred stock, Series B preferred
stock, or common stock unless the Board of Directors has declared a
distribution on the Series C preferred stock, (iii) no distributions may be
made to Series A preferred stock or common stock unless the Board of Directors
has declared a distribution on the Series B preferred stock and (iv) no
distributions may be made on the common stock unless the Board of Directors has
declared a distribution on the Series A preferred stock. The rights to
dividends on all series of preferred stock shall not be cumulative and no right
shall accrue to holders of any series of preferred stock by means of the fact
that distributions on such shares are not declared in any prior year. After
payment on all dividends of the preferred stock, the holders of the preferred
stock shall be entitled to participate, on a converted basis, with the holders
of the outstanding common stock as to any dividends payable on such common
stock.
Limitation of Liability of Directors
Both the DGCL and the CGCL permit a corporation to include a provision in
its articles of incorporation eliminating or limiting the personal liability of
a director to the corporation or its shareholders for damages for a breach of
the director's fiduciary duty, subject to certain limitations. Section
102(b)(7) of the DGCL provides that a corporation may include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL, which concerns unlawful payments of dividends, stock purchases or
redemptions or (iv) for any transaction from which the director derived an
improper personal benefit. The Brooks charter includes such provisions,
eliminating liability to the maximum extent permitted by the DGCL.
The CGCL does not permit the elimination of monetary liability of a director
where such liability is based on: (i) intentional misconduct or knowing and
culpable violation of law; (ii) acts or omissions that a director believes to
be contrary to the best interests of the corporation or its shareholders, or
that involve the absence of good faith on the part of the director; (iii)
receipt of any improper personal benefit; (iv) acts or omissions that show
reckless disregard for the director's duty to the corporation or its
shareholders, where the director in the ordinary course of performing a
director's duties should have been aware of a risk of serious injury to the
corporation or its shareholders; (v) acts or omissions that constitute an
unexcused pattern of inattention that
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amounts to an abdication of the director's duty to the corporation and its
shareholders; (vi) interested transactions between the corporation and a
director, in which a director has a material financial interest; or
(vii) improper distributions, loans or guarantees. The Smart Machines charter
provides for the elimination of directors' liability for monetary damages to
the fullest extent permissible under California law.
Indemnification of Directors and Officers
The DGCL permits a corporation to indemnify officers, directors, employees
and agents for actions taken in good faith and in a manner they reasonably
believe to be in, or not opposed to, the best interest of the corporation, and,
with respect to any criminal action, which they had no reasonable cause to
believe was unlawful, as determined by a majority vote of the disinterested
directors, by a committee of such directors designated by majority vote of the
disinterested directors, by independent legal counsel in a written opinion (if
there are no independent directors or such independent directors so direct) or
by the shareholders. The DGCL further provides that a corporation may advance
expenses of defense (upon receipt of a written undertaking to reimburse the
corporation if indemnification is not appropriate) and must reimburse a
successful defendant for expenses, and permits a corporation to purchase and
maintain liability insurance for its directors and officers. The DGCL provides
that indemnification may not be made for any claim, issue or matter as to which
a person has been adjudged to be liable to the corporation, unless and only to
the extent a court determines that the person is entitled to indemnity for such
expenses as the court deems proper.
The CGCL permits indemnification for acts taken in good faith and reasonably
believed to be in the best interests of the corporation and its shareholders,
as determined by a majority vote of a disinterested quorum of the directors,
independent legal counsel (if a quorum of independent directors is not
obtainable), a majority vote of a quorum of the shareholders (excluding shares
owned by the indemnified party), or the court handling the action and, in the
case of a criminal proceeding, indemnification is permitted if the indemnified
party had no reasonable cause to believe his or her conduct was unlawful. The
CGCL requires indemnification when the individual being indemnified has
successfully defended the action on the merits, and provides that a corporation
may advance expenses of defense upon receipt of a written undertaking to
reimburse the corporation if indemnification is not appropriate. The CGCL
further permits indemnification of expenses in a derivative or third party
action, except that with respect to derivative actions (i) no indemnification
may be made when a person is adjudged liable to the corporation in the
performance of that person's duty to the corporation and its shareholders,
unless and only to the extent that a court determines that the person is fairly
and reasonably entitled to indemnity for expenses, and (ii) no indemnification
may be made in respect of amounts paid or expenses incurred in settling or
otherwise disposing of a threatened or pending action without court approval or
expenses incurred in an action settled or disposed of without court approval.
The Brooks charter and bylaws provide that Brooks may indemnify its
directors, officers, employees and agents (the "covered persons") to the
fullest extent permitted by the DGCL as then in effect, but, in the case of
alleged actions or omissions preceding any amendment or interpretation of the
DGCL, only to the extent that such amendment permits Brooks to provide broader
indemnification rights then permitted prior to such amendment. The Brooks
bylaws further provide that Brooks may advance all reasonable expenses by
reason of a covered person's corporate status, where incurred by or on behalf
of such covered person in connection with any proceeding; provided, however,
that such expenses shall be advanced only upon delivery to Brooks of an
undertaking by or on behalf of such covered person to repay such amount if it
shall ultimately be determined that the covered person is not entitled to be
indemnified by Brooks.
The indemnification and advancement rights conferred by the Brooks bylaws
are not exclusive of any other right to which persons seeking indemnification
may be entitled under any statute, provision of the Brooks charter or bylaws,
agreement, or vote of the shareholders or disinterested directors. In addition,
the Brooks bylaws state specifically that the indemnification right is a
contract right. Finally, the Brooks bylaws authorize Brooks, upon approval of
the Brooks Board of Directors, to purchase insurance on behalf of any person
required or permitted to be indemnified pursuant to such bylaws.
101
<PAGE>
The Smart Machines charter provides that Smart Machines will indemnify any
officer or director to the fullest extent permitted by the provisions of the
CGCL. The Smart Machines bylaws additionally provide that expenses incurred by
any officer or director in defending any proceeding may be advanced to the
maximum extent permitted by law. In addition, the Smart Machines bylaws state
specifically that the indemnification right is a contract right. The
indemnification and advancement rights conferred by the Smart Machines charter
and bylaws are not exclusive of any other right to which persons seeking
indemnification may be entitled under any bylaw, agreement, or vote of the
shareholders or disinterested directors.
Business Combinations
Section 203 of the DGCL provides that, subject to certain exceptions, a
corporation may not engage in any business combination with any "interested
shareholder" for a three year period following the date that such shareholder
becomes an interested shareholder, unless (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the shareholder becoming an interested
shareholder, (ii) upon consummation of the transaction which resulted in the
shareholder becoming an interested shareholder, the interested shareholder
owned at least eight-five percent of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding shares held by
directors who are also officers and employee stock purchase plans in which
employee participants do not have the right to determine confidentially whether
plan shares will be tendered in a tender or exchange offer) or (iii) on or
subsequent to such date, the business combination is approved by the board of
directors of the corporation and by the affirmative vote at an annual or
special meeting, and not by written consent, of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested shareholder.
Except as specified in Section 203 of the DGCL, an interested shareholder is
defined to include (a) any person that is the owner of fifteen percent or more
of the outstanding voting stock of the corporation or is an affiliate or
associate of the corporation and was the owner of fifteen percent or more of
the outstanding voting stock of the corporation, at any time within three years
immediately prior to the relevant date, and (b) the affiliates and associates
of any such person.
Under certain circumstances, Section 203 of the DGCL may make it more
difficult for a person who would be an "interested shareholder" to effect
various business combinations with a corporation for a three year period. It is
anticipated that the provisions of Section 203 of the DGCL may encourage
companies interested in acquiring Brooks to negotiate in advance with the
Brooks Board of Directors, since the shareholder approval requirement would be
avoided if a majority of the directors then in office approve either the
business combination or the transaction which results in the shareholder
becoming an interested shareholder.
There is no provision in the CGCL equivalent to Section 203 of the DGCL.
However, under the CGCL, if a party that makes a tender offer or proposes to
acquire a corporation by a reorganization or certain sales of assets is
controlled by such corporation or is controlled by an officer or director of
such corporation, or if a director or executive officer of such corporation has
a material financial interest in such party (each an "Interested Party
Proposal"), (i) an affirmative opinion in writing as to the fairness of the
consideration to the shareholders of such corporation must be delivered to
shareholders of such corporation, and (ii) such shareholders must be (x)
informed of certain later tender offers or written proposals for an
organization or sale of assets made by other persons, and (y) afforded a
reasonable opportunity to withdraw any vote, consent or proxy previously given
or shares previously tendered in connection with the Interested Party Proposal.
The CGCL also provides generally that if a corporation that is party to a
merger, or its parent, owns more than 50% but less than 90% of the voting power
of the other corporation that is party to such merger, the non redeemable
shares of common stock of the controlled corporation may be converted only into
non redeemable shares of the surviving corporation or a parent party unless all
of the shareholders of each class consents.
102
<PAGE>
Dissolution
Under the DGCL, if dissolution is initiated by the board of directors, it
may be approved by the holders of a majority of the corporation's stock. If the
board of directors does not approve the proposal to dissolve all shareholders
entitled to vote thereon must consent to it in writing. The Brooks charter
contains no contrary provisions. Under the CGCL, shareholders holding 50% or
more of the total voting power may authorize a corporation's dissolution and
this right may not be modified by the articles of incorporation. The Smart
Machines charter contains no contrary provisions.
Inspection of the Shareholder List
The CGCL provides for an absolute right of inspection of the shareholder
list for persons holding 5% or more of a corporation's voting shares or persons
holding 1% or more of such shares who have filed a Schedule 14A with the
Securities and Exchange Commission relating to the election of directors. Both
the CGCL and the DGCL allow any shareholder to inspect the shareholder list for
a purpose reasonably related to that person's interest as a shareholder.
Loans to Officers and Employees
Under the DGCL, a corporation may make loans to or guarantee the obligations
of its officers or other employees and those of its subsidiaries when such
action, in the judgment of the directors, may reasonably be expected to benefit
the corporation. Under the CGCL, such loans or guaranties, including those
pursuant to employee benefit plans, may be made only with majority shareholder
approval; provided, however, that if the corporation has 100 or more
shareholders and has provisions in its bylaws approved by the holders of a
majority of each class of outstanding shares permitting such loans or
guarantees to be approved by the board of directors, the board of directors
alone may approve such loans to or guarantees on behalf of an officer (whether
or not such officer is a director) or adopt an employee benefit plan
authorizing such loans or guaranties by a vote sufficient, without counting the
vote of any interested director or directors, if the board of directors
determines that any such loans, guarantees or plans may reasonably be expected
to benefit the corporation.
Interested Director Transactions
Under both the DGCL and the CGCL, contracts or transactions between a
corporation and one or more of its directors, or between a corporation and any
other entity in which one or more of its directors are directors or have a
financial interest, are not void or voidable because of such interest or
because such director is present at a meeting of the board which authorizes or
approves the contract or transaction, provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. With certain exceptions, the conditions are
similar under the CGCL and the DGCL. Under the CGCL and the DGCL, either (i)
the shareholders or the board of directors must approve any such contract or
transaction in good faith after full disclosure of the material facts (and, in
the case of board approval other than for a common directorship, the CGCL
requires that the contract or transaction must also be "just and reasonable" to
the corporation), or (ii) the contract or transaction must have been "fair" (in
Delaware) or, in the case of a common directorship (in California), "just and
reasonable" as to the corporation at the time it was approved. The CGCL
explicitly places the burden of proof of the just and reasonable nature of the
contract or transaction on the interested director.
Under the DGCL, if board approval is sought, the contract or transaction
must be approved by a majority of the disinterested directors (even though less
than a majority of a quorum). Under the CGCL, if shareholder approval is
sought, the interested director is not entitled to vote his or her shares at a
shareholder meeting with respect to any action regarding such contract or
transaction. If board approval is sought, the contract or transaction must be
approved by a majority vote of a quorum of the directors, without counting the
vote of any interested directors (except that interested directors may be
counted for purposes of establishing a quorum).
103
<PAGE>
Shareholder Derivative Suit
Under the DGCL, a person may only bring a derivative action on behalf of the
corporation if the person was a shareholder of the corporation at the time of
the transaction in question or his or her stock thereafter devolved upon him or
her by operation of law. The CGCL provides that a shareholder bringing a
derivative action on behalf of a corporation need not have been a shareholder
at the time of the transaction in question, provided that certain criteria are
met. The CGCL also provides that the corporation or the defendant in a
derivative suit may, under certain circumstances, make a motion to the court
for an order requiring the plaintiff shareholder to furnish a security bond.
The DGCL does not have a similar bonding requirement.
LEGAL MATTERS
The validity of the shares of Brooks common stock to be issued pursuant to
the merger will be passed upon for Brooks by Brown, Rudnick, Freed & Gesmer,
Boston, Massachusetts. A member of Brown, Rudnick, Freed & Gesmer is the
Secretary of Brooks and owns 1,000 shares of Brooks common stock and options to
purchase 5,000 shares of Brooks common stock. Heller Ehrman White & McAuliffe,
Menlo Park, California, is acting as counsel for Smart Machines in connection
with certain legal matters relating to the merger. A member of Heller Ehrman
White and McAuliffe is the Secretary of Smart Machines and owns 15,000 shares
of Smart Machines Series A preferred stock and 2,857 shares of Smart Machines
Series C preferred stock.
EXPERTS
The Consolidated Financial Statements of Brooks as of September 30, 1998 and
1997 and for each of the three years in the period ended September 30, 1998
included in this proxy statement/prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
The Financial Statements of Smart Machines as of December 31, 1998 and 1997
and for each of the three years in the period ended December 31, 1998 included
in this proxy statement/prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The Financial Statements of Hanyon Technology, Inc. as of December 31, 1998
included in this proxy statement/prospectus have been so included in reliance
on the report of Samil Accounting Corporation, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
104
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Brooks files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information Brooks files at the
Securities and Exchange Commission's public reference rooms in:
<TABLE>
<S> <C> <C>
Public Reference Room Chicago Regional Office New York Regional Office
450 Fifth Street, NW. Citicorp Center 7 World Trade Center
Room 1024 500 West Madison Street Suite 1300
Washington, D.C. 20549 Suite 1400 New York, New York 10048
Chicago, Illinois 60661-2511
</TABLE>
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. Brooks' Securities and
Exchange Commission filings are also available to the public from commercial
document retrieval services and at the web site maintained by the Securities
and Exchange Commission at http://www.sec.gov. In addition, Brooks' Securities
and Exchange Commission filings may be read and copied at the offices of the
Nasdaq Stock Market, 1735 K Street, NW., Washington, DC 20006.
Brooks has filed with the Securities and Exchange Commission a registration
statement on Form S-4 with respect to the common stock issuable pursuant to the
merger. This proxy statement/prospectus does not contain all of the information
set forth in the registration statement. For further information with respect
to Brooks, you should refer to the registration statement. Statements contained
in this proxy statement/prospectus as to the contents of any contract or other
document are not necessarily complete and, in each instance, you should refer
to the copy of such contract or document filed as an exhibit to the
registration statement. Each statement as to the contents of such contract or
document is qualified in all respects by such reference. You may obtain copies
of the registration statement from the Securities and Exchange Commission's
principal office in Washington, D.C. upon payment of the fees prescribed by the
Securities and Exchange Commission, or you may examine the registration
statement without charge at the offices of the Securities and Exchange
Commission described above.
You may request a copy of any of these filings, at no cost, by writing or
telephoning us at the following address:
Brooks Automation, Inc.
15 Elizabeth Drive
Chelmsford, MA 01824
Tel: (978) 262-2400
Attn: Investor Relations
If you would like to request documents from us, please do so by August 19,
1999 to receive them prior to the Smart Machines special meeting.
You should rely only on the information contained in this document (or any
supplement) or that we have referred you to. We have not authorized anyone else
to provide you with different information. You should not assume that the
information in this proxy statement/prospectus or any supplement is accurate as
of any date other than the date on the front of those documents.
Brooks provided all information contained in this proxy statement/prospectus
with respect to it. Smart Machines provided all information contained in this
proxy statement/prospectus with respect to it.
105
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
BROOKS AUTOMATION, INC.
Consolidated Balance Sheet at September 30, 1998 and 1997................. F-3
Consolidated Statement of Operations for the three years ended September
30, 1998................................................................. F-4
Consolidated Statement of Changes in Nonredeemable Preferred Stock, Common
Stock, and Other Stockholders' Equity for the three years ended September
30, 1998................................................................. F-5
Consolidated Statement of Cash Flows for the three years ended September
30, 1998................................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
Report of Independent Accountants......................................... F-20
Report of Independent Accountants on Financial Statement Schedule......... F-21
Schedule II. Valuation and Qualifying Accounts and Reserves............... F-22
Unaudited Condensed Consolidated Balance Sheet as of March 31, 1999, and
Condensed Consolidated Balance Sheet as of September 30, 1998............ F-23
Unaudited Condensed Consolidated Statement of Operations for the three and
six months ended March 31, 1999 and 1998................................. F-24
Unaudited Condensed Consolidated Statement of Cash Flows for the six
months ended March 31, 1999 and 1998..................................... F-25
Notes to Unaudited Condensed Consolidated Financial Statements............ F-26
SMART MACHINES INC.
Balance Sheet at December 31, 1998 and 1997............................... F-29
Statement of Operations for the three years ended December 31, 1998, and
for the period from October 1, 1994 (date of inception), to December 31,
1998..................................................................... F-30
Statement of Changes in Nonredeemable Preferred Stock and Shareholders'
Equity (Deficit) for the period from October 1, 1994 (date of inception),
to December 31, 1998..................................................... F-31
Statement of Cash Flows for the three years ended December 31, 1998, and
for the period from October 1, 1994 (date of inception), to December 31,
1998..................................................................... F-35
Notes to Financial Statements............................................. F-36
Report of Independent Accountants......................................... F-46
Unaudited Condensed Balance Sheet as of March 31, 1999, and Condensed
Balance Sheet as of December 31, 1998.................................... F-47
Unaudited Condensed Statement of Operations for the three months ended
March 31, 1999 and 1998, and for the period from October 1, 1994 (date of
inception), to March 31, 1999............................................ F-48
Unaudited Condensed Statement of Cash Flows for the three months ended
March 31, 1999 and 1998, and for the period from October 1, 1994 (date of
inception), to March 31, 1999............................................ F-49
Notes to Unaudited Condensed Financial Statements......................... F-50
HANYON TECHNOLOGY, INC.
Balance Sheet at December 31, 1998........................................ F-52
Income Statement for the Year Ended December 31, 1998..................... F-53
Statement of Appropriation of Retained Earnings for the Year Ended
December 31, 1998........................................................ F-54
Statement of Cash Flows for the Year Ended December 31, 1998.............. F-55
Notes to the Financial Statements......................................... F-56
Report of Independent Accountants......................................... F-62
Description............................................................... F-63
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31,
1999..................................................................... F-64
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
six months ended March 31, 1999.......................................... F-65
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
year ended September 30, 1998............................................ F-66
Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Statements............................................................... F-67
</TABLE>
F-1
<PAGE>
The historical financial statements of Hanyon included herein have been
prepared in accordance with Korean generally accepted accounting principles
(Korean GAAP). Financial Statements prepared in accordance with U.S. GAAP would
require adjustments primarily related to sales under long-term contracts and
income taxes.
<TABLE>
<S> <C>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF BROOKS
AUTOMATION, INC. AND HANYON TECHNOLOGY, INC.
Description............................................................... F-68
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31,
1999..................................................................... F-69
Unaudited Pro Forma Condensed Consolidated Statements of Operations for
the six months ended March 31, 1999 and 1998, and the three years ended
September 30, 1998....................................................... F-70
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.. F-71
</TABLE>
F-2
<PAGE>
BROOKS AUTOMATION, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
------------------
1998 1997
-------- --------
(In thousands,
except share-
related data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 68,161 $ 75,253
Accounts receivable, net of allowance for doubtful
accounts of $1,898 and $776, respectively, and including
related party receivables of $2,365 and $5,204,
respectively............................................ 20,701 33,360
Inventories.............................................. 19,589 23,253
Prepaid expenses and other current assets................ 3,535 2,191
Deferred income taxes.................................... 6,106 1,710
-------- --------
Total current assets................................... 118,092 135,767
Fixed assets, net........................................ 18,606 21,349
Other assets............................................. 4,254 3,873
-------- --------
Total assets........................................... $140,952 $160,989
======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND
NONREDEEMABLE PREFERRED STOCK, COMMON STOCK,
AND OTHER STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease
obligations............................................. $ 230 $ 633
Accounts payable......................................... 5,505 9,912
Deferred revenue......................................... 2,935 2,326
Accrued compensation and benefits........................ 3,430 3,477
Accrued acquisition-related and restructuring costs...... 2,254 --
Accrued expenses and other current liabilities........... 3,817 3,980
-------- --------
Total current liabilities.............................. 18,171 20,328
Long-term debt and capital lease obligations............... 130 2,520
Deferred income taxes...................................... 888 905
-------- --------
Total liabilities...................................... 19,189 23,753
-------- --------
Commitments and contingency (Note 13)...................... -- --
Redeemable convertible preferred stock, $0.01 par value;
2,946,988 shares authorized, issued and outstanding at
September 30, 1997........................................ -- 10,366
-------- --------
Nonredeemable preferred stock, common stock, and other
stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; none issued and outstanding................. -- --
Series E convertible preferred stock, $0.01 par value;
70,000 shares authorized, issued, and outstanding at
September 30, 1997...................................... -- 152
Common stock, $0.01 par value; 21,500,000 shares
authorized; 11,007,281 and 10,196,892 shares issued and
outstanding, respectively............................... 110 102
Additional paid-in capital............................... 128,839 117,700
Cumulative translation adjustment........................ (536) (106)
Deferred compensation.................................... (119) (416)
Retained earnings (accumulated deficit).................. (6,531) 9,438
-------- --------
Total nonredeemable preferred stock, common stock, and
other stockholders' equity............................ 121,763 126,870
-------- --------
Total liabilities, redeemable convertible preferred
stock, and nonredeemable preferred stock, common
stock, and other stockholders' equity................. $140,952 $160,989
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
1998 1997 1996
-------- ------- -------
Fiscal Fiscal Fiscal
1998 1997 1996
(In thousands,
except per share data)
<S> <C> <C> <C>
Revenues:
Product, including related party revenues of
$15,878, $18,176, and $19,109, respectively...... $ 80,466 $88,377 $94,085
Services.......................................... 19,396 20,364 18,645
-------- ------- -------
Total revenues.................................. 99,862 108,741 112,730
-------- ------- -------
Cost of revenues:
Product........................................... 60,819 51,404 49,551
Services.......................................... 11,538 12,357 8,410
-------- ------- -------
Total cost of revenues.......................... 72,357 63,761 57,961
-------- ------- -------
Gross profit...................................... 27,505 44,980 54,769
-------- ------- -------
Operating expenses:
Research and development.......................... 22,674 20,592 18,336
Selling, general and administrative............... 26,464 23,952 22,946
Acquisition-related and restructuring costs....... 3,722 -- 230
-------- ------- -------
Total operating expenses........................ 52,860 44,544 41,512
-------- ------- -------
Income (loss) from operations....................... (25,355) 436 13,257
Interest income..................................... 3,564 140 407
Interest expense.................................... 870 910 471
-------- ------- -------
Income (loss) before income taxes................... (22,661) (334) 13,193
Income tax provision (benefit)...................... (4,300) 1,267 4,599
-------- ------- -------
Net income (loss)................................... (18,361) (1,601) 8,594
Dividends on preferred stock........................ 521 521 521
-------- ------- -------
Net income (loss) attributable to common
stockholders....................................... $(18,882) $(2,122) $ 8,073
-------- ------- -------
Earnings (loss) per share:
Basic............................................. $ (1.84) $ (0.27) $ 1.06
Diluted........................................... $ (1.84) $ (0.27) $ 0.94
Shares used in computing earnings (loss) per share:
Basic............................................. 10,269 7,818 7,628
Diluted........................................... 10,269 7,818 9,108
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENT OF CHANGES IN NONREDEEMABLE PREFERRED STOCK,
COMMON STOCK, AND OTHER STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible Common Retained
Preferred Stock Additional Cumulative Earnings
Stock at Par Paid-In Translation Deferred (Accumulated
Series E Value Capital Adjustment Compensation Deficit) Total
----------- ------ ---------- ----------- ------------ ------------ --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30,
1995................... $ 152 $ 76 $ 34,181 $(136) $(139) $ 3,634 $ 37,768
Shares issued under
stock option and
purchase plans......... 1 419 420
Purchase and retire
treasury stock......... (184) (184)
Amortization of deferred
compensation........... 29 29
Dividends on preferred
stock.................. (521) (521)
Currency translation
adjustments............ (43) (43)
Elimination of Techware
net income for the
three months ended
December 31, 1995...... (147) (147)
Net income.............. 8,594 8,594
----- ---- -------- ----- ----- -------- --------
BALANCE AT SEPTEMBER 30,
1996................... 152 77 34,416 (179) (110) 11,560 45,916
----- ---- -------- ----- ----- -------- --------
Public offering......... 23 80,739 80,762
Shares issued under
stock option and
purchase plans......... 2 831 833
Deferred compensation... 368 (368) --
Amortization of deferred
compensation........... 62 62
Dividends on preferred
stock.................. (521) (521)
Income tax benefit from
stock Options.......... 926 926
Currency translation
adjustments............ 73 73
Issuance of warrants
attached to
subordinated debt...... 420 420
Net loss................ (1,601) (1,601)
----- ---- -------- ----- ----- -------- --------
BALANCE AT SEPTEMBER 30,
1997................... 152 102 117,700 (106) (416) 9,438 126,870
----- ---- -------- ----- ----- -------- --------
Shares issued under
stock option and
purchase plans......... 1 749 750
Acquisitions............ (152) 7 10,899 160 10,914
Deferred compensation... (208) 208 --
Amortization of deferred
compensation........... 89 89
Dividends on preferred
stock.................. (521) (521)
Income tax adjustment
from stock options..... (301) (301)
Currency translation
adjustments............ (430) (430)
Elimination of FASTech
net loss for the three
months ended December
31, 1997............... 2,753 2,753
Net loss................ (18,361) (18,361)
----- ---- -------- ----- ----- -------- --------
BALANCE AT SEPTEMBER 30,
1998................... $ -- $110 $128,839 $(536) $(119) $ (6,531) $121,763
===== ==== ======== ===== ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------
1998 1997 1996
----------- ----------- -----------
Fiscal 1998 Fiscal 1997 Fiscal 1996
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).......................... $(18,361) $(1,601) $ 8,594
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization............ 8,146 6,137 4,141
Compensation expense related to stock
options................................. 89 62 29
Deferred income taxes.................... (4,396) 1,085 (654)
Changes in operating assets and
liabilities:
Accounts receivable..................... 15,324 (3,652) (9,938)
Inventories............................. 3,822 (5,555) (5,005)
Prepaid expenses and other current
assets................................. (1,373) 94 624
Accounts payable........................ (4,161) 1,064 1,966
Deferred revenue........................ 398 297 (355)
Accrued compensation and benefits....... 517 (15) 1,019
Accrued acquisition-related and
restructuring costs.................... 2,254 -- --
Accrued expenses and other current
liabilities............................ (453) (603) 934
-------- ------- -------
Net cash provided by (used in)
operating activities.................. 1,806 (2,687) 1,355
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets.................. (4,401) (7,725) (11,530)
Increase in other assets................... (190) (2,063) (1,200)
-------- ------- -------
Net cash used in investing activities.. (4,591) (9,788) (12,730)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments of) borrowings under lines
of credit................................. -- (2,019) 1,032
Payments on long-term debt................. (2,986) (692) (723)
Issuance of long-term debt................. -- 2,500 --
Proceeds from sale and leaseback of
equipment................................. -- 258 451
Proceeds from issuance of common stock, net
of issuance costs......................... 750 81,595 420
Purchase and retire treasury stock......... -- -- (253)
-------- ------- -------
Net cash provided by (used in)
financing activities.................. (2,236) 81,642 927
-------- ------- -------
Elimination of net cash activities of
FASTech for the three months ended
December 31, 1997......................... (1,761) -- --
-------- ------- -------
Effects of exchange rate changes on cash
and cash equivalents...................... (310) (98) (22)
-------- ------- -------
Net increase (decrease) in cash and cash
equivalents............................... (7,092) 69,069 (10,470)
Cash and cash equivalents, beginning of
year...................................... 75,253 6,184 16,654
-------- ------- -------
Cash and cash equivalents, end of year..... $ 68,161 $75,253 $ 6,184
-------- ------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for interest..... $ 385 $ 866 $ 502
Cash paid during the year for income
taxes..................................... $ 240 $ 1,517 $ 4,300
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING AND INVESTING ACTIVITIES
Fixed assets acquired under capital lease.. $ -- $ 258 $ 1,081
Deferred compensation related to stock
options................................... $ (208) $ 368 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Brooks Automation, Inc. ("Brooks") is an independent supplier of material
handling robots, modules, real-time software and controls, fully integrated
cluster tool platforms and manufacturing execution systems ("MES") software to
semiconductor, flat panel display, and data storage manufacturers worldwide.
Founded in 1978, Brooks has distinguished itself as a technology and market
leader, particularly in the demanding cluster-tool vacuum-processing
environment. In fiscal 1996 Brooks acquired Techware Systems Corporation
("Techware"), which designs and supplies integrated equipment control software
for the semiconductor and related industries. In 1998 Brooks acquired FASTech
Integration, Inc. ("FASTech"), which designs, develops, markets, and supports
an integrated suite of MES workflow software products for the semiconductor,
electronics, and general discrete manufacturing industries.
Summary of the Company's Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Brooks and its
wholly owned subsidiaries. All intercompany balances and transactions have been
eliminated. The acquisitions of Techware and FASTech have been accounted for as
poolings of interests, and the accompanying consolidated financial statements
have been restated to include the financial position and results of operations
of Techware and FASTech for all periods prior to the acquisitions. (See Note
2.)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
Revenue Recognition
Revenue from product sales and software license sales is recorded upon
shipment to the customer provided that no significant obligations remain and
collection of the related receivable is probable. When insignificant
obligations remain after shipment of the product, Brooks accrues the estimated
costs of such obligations upon shipment. A provision for product warranty costs
is recorded at the time of sale. In the event significant post-shipment
obligations or uncertainties remain, revenue is deferred and recognized when
such obligations are fulfilled by Brooks or the uncertainties are resolved.
Revenue from services is recognized as the services are rendered. Revenue
from fixed fee application consulting contracts is recognized using the
percentage-of-completion method of contract accounting based on the ratio that
costs incurred to date bear to estimated total costs at completion. Revisions
in revenue and cost estimates are recorded in the periods in which the facts
that require such revisions become known. Losses, if any, are provided for in
the period in which such losses are first identified by management. For
maintenance contracts, service revenue is recognized ratably over the term of
the maintenance contract.
Cash and Cash Equivalents
Brooks invests its excess cash in repurchase agreements with major banks, U.
S. government securities, and mutual funds that invest in U.S. government
securities, which are subject to minimal credit and market
F-7
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
risk. Brooks considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. At September 30, 1998,
cash and cash equivalents include $44.3 million and $23.9 million of securities
which are classified as available-for-sale and held to maturity, respectively,
and for which cost approximates fair value. At September 30, 1997, cash and
cash equivalents include $44.1 million and $31.2 million of securities which
are classified as available-for-sale and held to maturity, respectively, and
for which cost approximates fair value.
Inventories
Inventories are stated at the lower of cost or market, cost being determined
using the first-in, first-out method. Brooks provides inventory reserves for
excess, obsolete, or damaged inventory based on changes in customer demand,
technology, and other economic factors. While Brooks often uses sole source
suppliers for certain key components and common assemblies to achieve quality
control and the benefits of economies of scale, Brooks believes that these
parts and materials are readily available from several supply sources.
Fixed Assets
Fixed assets are recorded at cost and depreciated over their estimated
useful lives which range from 3 to 5 years for computer equipment and software,
5 to 7 years for machinery and equipment, and 3 to 10 years for furniture and
fixtures using the straight-line method. Equipment held under capital leases is
recorded at the lower of the fair market value of the equipment or the present
value of the minimum lease payments at the inception of the leases. Leasehold
improvements and equipment held under capital leases are amortized over the
shorter of their estimated useful lives or the term of the respective leases.
Repair and maintenance costs are expensed as incurred.
Patents
Brooks capitalizes the direct costs associated with obtaining patents.
Capitalized patent costs are amortized using the straight-line method over the
shorter of seven years or the estimated economic life of the patents.
Research and Development and Software Development Costs
Costs incurred in the research and development of Brooks' products are
expensed as incurred, except for certain software development costs. Software
development costs are expensed prior to establishing technological feasibility
and capitalized thereafter until the related product is available for general
release to customers. Capitalized software development costs are amortized to
cost of sales on a product-by-product basis over the estimated lives of the
related products.
Stock-Based Compensation
Brooks' stock compensation plans are accounted for in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Under this method, compensation expense on stock option grants to
employees for a fixed number of shares is recognized only to the extent that
the exercise price on the date of grant is less than the current fair market
value of Brooks' common stock. Brooks has adopted the disclosure provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," for fixed stock-based awards to employees. All non-
employee stock-based awards are accounted for in accordance with SFAS No. 123.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments including cash
and cash equivalents, accounts receivable, accounts payable and long-term debt
approximate fair value.
F-8
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences, utilizing current tax rates, of temporary differences
between the carrying amounts and the tax bases of assets and liabilities.
Deferred tax assets are recognized, net of any valuation allowance, for the
estimated future tax effects of deductible temporary differences and tax
operating loss and credit carryforwards. Deferred income tax expense or benefit
represents the change in the net deferred tax asset and liability balances.
Foreign Currency
The functional currency of Brooks' international subsidiaries is the local
currency. Accordingly, foreign currency financial statements of Brooks'
international subsidiaries are translated into U.S. dollars using exchange
rates in effect at period-end for assets and liabilities and at average rates
during the period for results of operations. The resulting foreign currency
translation adjustments are reflected as a separate component of consolidated
other stockholders' equity.
Earnings Per Share
Earnings per share has been calculated in accordance with SFAS No. 128,
"Earnings per Share," which was adopted as required in fiscal 1998. All
previously reported earnings per share data presented herein have been
restated. Basic earnings per share is calculated based on the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is calculated based on the weighted average number of common shares and
dilutive common equivalent shares assumed outstanding during the period. Shares
used to compute diluted earnings per share in loss years exclude common share
equivalents, as their inclusion would have an anti-dilutive effect.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in the consolidated financial statements. SFAS No. 131 establishes standards
for reporting information on operating segments in interim and annual financial
statements. Both statements are effective for Brooks for fiscal 1999. Adoption
of these statements will not have any effects on Brooks' results of operations
or financial position.
In October 1997 the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition,"
which provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions and supersedes SOP 91-1, "Software
Revenue Recognition." The Company will adopt SOP 97-2 effective October 1,
1998. Adoption of this statement will not have a material impact on Brooks'
results of operations or financial position.
In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (fiscal 2000 for
Brooks) and requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. Management of Brooks anticipates
that the adoption of SFAS No. 133 will not have a significant effect on Brooks'
results of operations or financial position.
F-9
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. ACQUISITIONS
In September 1998 Brooks acquired FASTech and issued 852,428 shares of
common stock in exchange for all of the outstanding common and preferred shares
of FASTech. In connection with this acquisition, Brooks incurred $2.4 million
of costs, consisting primarily of transaction costs to effect the acquisition
and costs to exit duplicate facilities. See Note 14. As a result of conforming
dissimilar year-ends, FASTech's results of operations for the year ended
December 31, 1997, have been combined with Brooks' results of operations for
the year ended September 30, 1997. The results of operations for fiscal 1998
are for the twelve months ended September 30, 1998, for both Brooks and
FASTech. FASTech's unaudited results of operations for the three months ended
December 31, 1997, (including revenues, operating loss, and net loss of $5.0
million, $1.0 million, and $2.8 million, respectively) are included in the
consolidated statement of operations for both the fiscal years ended September
30, 1998 and 1997. Therefore, an amount equal to FASTech's net loss for the
three months ended December 31, 1997, was eliminated from consolidated retained
earnings for the year ended September 30, 1998.
Revenue and net income for the previously separate companies are as follows:
<TABLE>
<CAPTION>
For the For the Year
Nine Months Ended
Ended September 30,
June 30, ------------------
1998 1997 1996
----------- -------- --------
(unaudited)
(In thousands)
<S> <C> <C> <C>
Net revenue:
Brooks Automation, Inc.................... $ 67,166 $ 86,409 $ 90,432
FASTech................................... 12,384 22,332 22,298
-------- -------- --------
$ 79,550 $108,741 $112,730
-------- -------- --------
Net income (loss):
Brooks Automation, Inc.................... $ (4,782) $ 806 $ 8,497
FASTech................................... (7,447) (2,407) 97
-------- -------- --------
$(12,229) $ (1,601) $ 8,594
======== ======== ========
</TABLE>
In February 1996 Brooks acquired Techware Systems Corporation ("Techware")
and issued 462,189 shares of common stock in exchange for all the outstanding
shares of Techware. In connection with this acquisition, Brooks incurred
expenses of $230,000, consisting primarily of transaction costs to effect the
acquisition. As a result of conforming dissimilar year-ends, Techware's results
of operations for the year ended December 31, 1995, have been combined with
Brooks' results of operations for the year ended September 30, 1995. The
results of operations for fiscal 1996 are for the twelve months ended September
30, 1996, for both Brooks and Techware. Techware's unaudited results of
operations for the three months ended December 31, 1995, (including revenues
and net income of $1.8 million and $0.1 million, respectively) are included in
the consolidated statement of operations for both the fiscal years ended
September 30, 1996 and 1995. Therefore, an amount equal to Techware's net
income for the three months ended December 31, 1995, was eliminated from
consolidated retained earnings for the year ended September 30, 1996.
Both of the above acquisitions were accounted for as poolings of interests,
and Brooks' Consolidated Financial Statements have been restated to include the
financial position and results of operations of FASTech and Techware for all
periods prior to the acquisitions.
F-10
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
---------------
1998 1997
------- -------
<S> <C> <C>
Raw materials and purchased parts........................ $ 8,815 $14,750
Work-in-process.......................................... 7,878 7,745
Finished goods........................................... 2,896 758
------- -------
$19,589 $23,253
======= =======
</TABLE>
4. FIXED ASSETS
Fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
---------------
1998 1997
------- -------
<S> <C> <C>
Computer equipment and software.......................... $17,215 $14,887
Machinery and equipment.................................. 11,811 11,517
Furniture and fixtures................................... 5,173 4,195
Leasehold improvements................................... 5,486 4,941
------- -------
39,685 35,540
Less accumulated depreciation and amortization........... 21,079 14,191
------- -------
$18,606 $21,349
======= =======
</TABLE>
Included in the above amounts is computer equipment and software and
machinery and equipment acquired under capital leases of $2.6 million as of
September 30, 1998 and 1997. Accumulated amortization on fixed assets under
capital lease was $2.3 million and $1.8 million at September 30, 1998 and 1997,
respectively. Amortization expense for fixed assets under capital leases was
$0.5 million, $0.6 million, and $0.4 million for the years ended September 30,
1998, 1997, and 1996, respectively.
5. DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
September
30,
-----------
1998 1997
---- ------
<S> <C> <C>
FASTech subordinated note payable due June 30, 2004........... $ -- $2,108
Subordinated note payable, principal payments in monthly
installments of $5, interest payable monthly at prime plus
2.75% per annum (11.25% at September 30, 1997)............... -- 182
Capital lease obligations at rates of 5% to 21% per annum
secured by certain fixed assets, expiring at various dates
through November 2000........................................ 360 863
---- ------
360 3,153
Less current portion.......................................... 230 633
---- ------
$130 $2,520
==== ======
</TABLE>
During fiscal 1998, Brooks elected to terminate its primary domestic and
international credit facilities. There were no borrowings outstanding under
these credit facilities at September 30, 1998.
F-11
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In July 1997 Brooks issued $2.5 million of subordinated notes with attached
warrants to certain stockholders that were due June 30, 2004. Brooks was
required to make quarterly interest payments on the subordinated notes at the
rate of 9% per year. In connection with the issuance of the subordinated notes
and warrants, Brooks recorded a discount on the subordinated notes of $420,000
to reflect the value of the warrants, as determined by use of the Black-Scholes
option pricing model. The outstanding balance of the note was repaid and the
remaining discount of $0.3 million was expensed at the end of the fourth
quarter of fiscal 1998 in conjunction with the acquisition of FASTech. (See
Note 2.)
6. INCOME TAXES
The components of the income tax provision (benefit) are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended September
30,
-----------------------
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Current:
Federal........................................ $ (888) $ (987) $3,893
State.......................................... 5 12 625
Foreign........................................ (212) 1,157 735
------- ------ ------
(1,095) 182 5,253
------- ------ ------
Deferred:
Federal........................................ (2,704) 644 (197)
State.......................................... (499) 380 (448)
Foreign........................................ (2) 61 (9)
------- ------ ------
(3,205) 1,085 (654)
------- ------ ------
$(4,300) $1,267 $4,599
======= ====== ======
</TABLE>
The components of income (loss) before income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Domestic....................................... $(22,297) $(1,925) $11,720
Foreign........................................ (364) 1,591 1,473
-------- ------- -------
$(22,661) $ (334) $13,193
======== ======= =======
</TABLE>
F-12
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The significant components of the net deferred tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended September
30,
----------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Deferred tax assets:
Reserves not currently deductible..................... $4,670 $2,316 $1,424
Foreign and state tax credit carryforwards............ 4,022 3,150 2,344
Net operating loss carryforwards...................... 3,393 232 130
Other................................................. 444 -- 61
------ ------ ------
Gross deferred tax assets........................... 12,529 5,698 3,959
------ ------ ------
Deferred tax liabilities:
Depreciation and amortization......................... (881) (1,059) (676)
Other................................................. (34) (183) (60)
------ ------ ------
Gross deferred tax liabilities...................... (915) (1,242) (736)
Deferred tax asset valuation allowance.................. (5,929) (3,651) (1,334)
------ ------ ------
$5,685 $ 805 $1,889
====== ====== ======
</TABLE>
The differences between the income tax provision (benefit) and income taxes
computed using the applicable U.S. statutory federal tax rate are as follows
(in thousands):
<TABLE>
<CAPTION>
Year Ended September
30,
-----------------------
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Taxes computed at federal statutory rate............. $(7,931) $ (110) $4,615
State income taxes, net of federal benefit........... (494) (277) 249
Research and development tax credits................. (840) (870) (697)
Foreign sales corporation tax benefit................ -- (381) (325)
Foreign income taxed at different rates.............. 266 407 161
Nondeductible transaction expenses................... 195 -- 110
Change in deferred tax asset valuation allowance..... 2,278 2,317 313
Permanent differences................................ 90 50 31
Elimination of FASTech provision for the 3 months
ended December 31, 1997............................. 1,334 -- --
Other................................................ 802 131 142
------- ------ ------
$(4,300) $1,267 $4,599
======= ====== ======
</TABLE>
Brooks does not provide for U.S. income taxes applicable to undistributed
earnings of its foreign subsidiaries since these earnings are indefinitely
reinvested. A valuation allowance has been established for certain of the
future domestic income tax benefits primarily related to income tax loss
carryforwards and temporary differences based on management's assessment that
it is more likely than not that such benefits will not be realized. Brooks'
valuation allowance increased to $5.9 million at September 30, 1998.
As of September 30, 1998, Brooks had federal and state net operating losses
of approximately $17.2 million and federal and state research and development
tax credit carryforwards of approximately $4.4 million available to reduce
future tax liabilities, which expire at various dates through 2018. The
ultimate realization of the remaining loss carryforwards is dependent upon the
generation of sufficient taxable income in respective jurisdictions.
F-13
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
The redeemable convertible preferred stock was converted into Brooks' common
stock on September 30, 1998, in conjunction with the acquisition of FASTech by
Brooks (see Note 2). As of September 30, 1997 and 1996, redeemable convertible
preferred stock, $.01 par value, recorded at issuance price plus accumulated
accretion and net of issuance costs, consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Series D, 942,909 shares authorized, issued and outstanding... $ 4,733 $ 4,462
Series C, 600,000 shares authorized, issued and outstanding... 1,951 1,853
Series B, 480,572 shares authorized, issued and outstanding... 1,431 1,362
Series A, 923,507 shares authorized and issued, 731,156
outstanding.................................................. 2,251 2,404
------- -------
$10,366 $10,081
======= =======
</TABLE>
Redeemable convertible preferred stockholders were entitled to the number of
votes equal to the number of shares of common stock that each share of
redeemable preferred stock was convertible. The redeemable preferred stock was
convertible into common stock at the option of the stockholder based upon a
conversion rate as defined by the related agreement. In the event of a public
offering of Brooks' common stock resulting in gross proceeds of at least $10
million, the redeemable preferred stock would have converted into common stock
upon the effective date of the registration statement. Dividends were
cumulative and accrued at the rate of $0.28, $0.16, $0.14, and $0.128 per share
on the Series D, Series C, Series B, and Series A redeemable convertible
preferred stock, respectively. On the earlier of June 30, 2004, or the
repayment of the subordinated note described in Note 5, Brooks would have been
required to redeem the redeemable convertible preferred stock.
8. NONREDEEMABLE PREFERRED STOCK, COMMON STOCK, AND OTHER STOCKHOLDERS EQUITY
Preferred Stock
As of September 30, 1998 and 1997, there were 1 million shares of preferred
stock, $0.01 par value per share authorized; but none were issued or
outstanding. Preferred stock may be issued at the discretion of the Board of
Directors without stockholder approval with such designations, rights, and
preferences as the Board of Directors may determine.
Series E Convertible Preferred Stock
The Series E convertible preferred stock was converted into Brooks' common
stock on September 30, 1998, in conjunction with the FASTech acquisition by
Brooks (see Note 2). Series E convertible preferred stockholders were entitled
to the number of votes equal to the number of shares of common stock into which
each share of Series E preferred stock was convertible. The Series E preferred
stock was convertible into common stock at the option of the stockholder based
upon a conversion rate as defined by the related agreement. In the event of a
public offering of Brooks' common stock resulting in gross proceeds of at least
$10 million, the Series E preferred stock would have converted into common
stock upon the effective date of the registration statement. In the event of
liquidation of Brooks, holders of Series E convertible preferred stock were
entitled to receive, in preference to any distribution to the common
stockholders, $3.50 per share, subject to anti-dilution adjustments, plus any
accrued but unpaid dividends.
F-14
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. EARNINGS PER SHARE
The following table is a summary of net income (loss) used in calculation of
basic and diluted earnings per share (in thousands):
<TABLE>
<CAPTION>
For the Year Ended
September 30,
-------------------------
1998 1997 1996
-------- ------- ------
<S> <C> <C> <C>
Net income (loss) attributable to common stockholders
used in calculating basic earnings per share........ $(18,882) $(2,122) $8,073
Dividends on preferred stock......................... -- -- 521
-------- ------- ------
Net income (loss) used in calculation of diluted
earnings per share.................................. $(18,882) $(2,122) $8,594
======== ======= ======
</TABLE>
The following table is a summary of shares used in calculating basic and
diluted earnings per share (in thousands):
<TABLE>
<CAPTION>
For the Year Ended
September 30,
------------------
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Weighted average number of shares outstanding used in
computing basic earnings
per share.................................................. 10,269 7,818 7,628
Dilutive securities:
Common stock options...................................... -- -- 776
Redeemable convertible preferred stock.................... -- -- 686
Convertible preferred stock............................... -- -- 18
------ ----- -----
Shares used in computing diluted earnings per share....... 10,269 7,818 9,108
====== ===== =====
</TABLE>
10. STOCK PLANS
1995 Employee Stock Purchase Plan
On February 22, 1996, the stockholders approved the 1995 Employee Stock
Purchase Plan (the "1995 Plan") which enables eligible employees to purchase
shares of Brooks' common stock. Under the 1995 Plan, eligible employees may
purchase up to an aggregate of 150,000 shares during six-month offering periods
commencing on January 1 and July 1 of each year at a price per share of 85% of
the lower of the market price per share on the first or last day of each six-
month offering period. Participating employees may elect to have up to 10% of
base pay withheld and applied toward the purchase of such shares. The rights of
participating employees under the 1995 Plan terminate upon voluntary withdrawal
from the plan at any time or upon termination of employment. As of September
30, 1998, Brooks has reserved 40,279 shares of common stock for issuance under
the 1995 Plan.
1992 Combination Stock Option Plan
The 1992 Combination Stock Option Plan (the "1992 Plan") allows for the
grant of non-qualified and incentive stock options for the purchase of up to
1,550,000 shares of Brooks' common stock, net of cancellations, by employees,
directors or consultants who provide services to Brooks. The Board of Directors
of Brooks is responsible for administration of the 1992 Plan. Stock options
granted under the plan have generally been granted at exercise prices, as
determined by the Board of Directors, of not less than the fair value per
common share on the date of the grant. Both non-qualified and incentive stock
options are exercisable
F-15
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
at various dates as determined by the Board of Directors. Incentive stock
options are exercisable either within 10 years of the date of grant or within 5
years of the date of grant for employees holding greater than 10% of Brooks'
voting stock.
1993 Non-Employee Director Stock Option Plan
The 1993 Non-Employee Director Stock Option Plan (the "Director Plan")
allows for the issuance of stock options to directors who provide services to
Brooks. In fiscal 1997, Brooks' stockholders approved an increase in the number
of shares issuable under the Director Plan from 90,000 to 190,000 shares. The
price of the stock options is determined by the Board of Directors and are
priced at not less than the fair market value on the date of grant. Options
vest over a five year period.
On July 25, 1996, the Board of Directors determined that certain stock
options issued to employees of Brooks had an exercise price significantly
higher than the fair market value of Brooks' common stock. In light of the
Board's conclusions that such options were not providing the desired incentive,
the Board provided employees with the opportunity to exchange options
previously granted to them under the 1992 Plan for new options (the
"Replacement Options") to purchase the same number of shares of common stock at
an exercise price of $11.00 per share, the then fair market value of Brooks'
common stock. Employees were given the choice of retaining their existing
options, with the original vesting schedule, or accepting the Replacement
Options, with a vesting schedule commencing on July 25, 1996. Brooks canceled
and replaced options to purchase 344,600 shares of common stock with an average
exercise price of $14.36 per share.
Stock Options of Acquired Company
In connection with the FASTech acquisition, Brooks assumed 80,351 options in
September 1998. These assumed options were granted at prices equal to the fair
value at the date of grant, become exercisable in installments (generally
ratably over five years), and expire ten years from the date of grant. Brooks
does not intend to issue any additional options under the FASTech stock option
plans.
Aggregate stock option activity for all plans for the two years ended
September 30, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
September 30, 1998 September 30 ,1997 September 30, 1996
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 1,265,196 $ 8.09 1,318,834 $ 6.25 1,108,321 $ 3.37
Granted............... 159,121 17.04 151,113 19.73 766,510 15.42
Canceled.............. (302,271) 13.29 (49,449) 12.69 (430,609) 17.19
Exercised............. (69,511) 2.83 (155,302) 2.00 (125,388) 1.69
--------- ------ --------- ------ --------- ------
Outstanding at end of
year................... 1,052,535 $ 8.30 1,265,196 $ 8.09 1,318,834 $ 6.25
--------- ------ --------- ------ --------- ------
Options exercisable at
end of year............ 551,162 $ 4.67 337,893 $ 3.24 248,827 $ 2.37
Weighted-average fair
value of options
granted................ $ 9.74 $12.71 $ 9.26
Options available for
future grant........... 971,525
=========
</TABLE>
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions for
grants made during fiscal 1998, fiscal 1997, and fiscal 1996: No dividend
yield, risk free interest rates of 5.5% to 6.3%, expected option term of four
years, expected
F-16
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
forfeiture rate of 2.5%, and a volatility factor of 100%. The following table
summarizes information about stock options outstanding at September 30, 1998:
<TABLE>
<CAPTION>
Outstanding Weighted-Average Weighted- Weighted-
Average Range as of Remaining Average Average
of Exercise September 30, Contractual Life Exercise Number Exercise
Price 1998 (In Years) Price Exercisable Price
- ------------- ------------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.83-$ 1.67 38,584 4.3 $1.02 32,834 $0.94
$ 2.21-$ 2.43 475,500 3.5 2.31 392,250 2.31
$ 4.71-$10.50 59,256 5.6 7.14 25,113 4.80
$11.00 268,400 7.8 11.00 72,350 11.00
$11.50-$14.75 137,400 8.4 12.80 9,450 12.29
$15.62-$23.54 37,101 7.3 20.42 10,859 19.73
$47.07 36,294 5.6 47.07 8,306 47.07
--------- --- ----- ------- -----
1,052,535 5.6 $8.30 551,162 $4.67
========= === ===== ======= =====
</TABLE>
Had compensation expense for Brooks' option grants to employees been
determined based on the fair value at the date of grant and for shares of
common stock purchased pursuant to the Employee Stock Purchase Plan, consistent
with the methods prescribed by SFAS No. 123, the pro forma effect on Brooks'
net income would have been as follows:
<TABLE>
<CAPTION>
For the year ended
September 30,
-------------------------
1998 1997 1996
-------- ------- ------
(In thousands,
except per share data)
<S> <C> <C> <C>
Pro forma net income (loss) attributable to Common
Stockholders....................................... $(20,721) $(3,061) $7,474
Pro forma basic earnings per share.................. $ (2.02) $ (0.39) $ 0.98
Pro forma diluted earnings per share................ $ (2.02) $ (0.39) $ 0.82
</TABLE>
Because most options vest over several years and additional option grants
are expected to be made subsequent to September 30, 1998, the results of
applying the fair value method may have a materially different effect on
proforma net income in future years.
Rights Distribution
In July 1997, the Board of Directors declared a dividend of one preferred
share purchase right (a "right") for each share of common stock outstanding on
August 12, 1997. Each right entitles the registered holder to purchase from
Brooks, upon certain triggering events, one one-thousandth of a share of Series
A Junior Participating Preferred Stock, par value $0.01 per share (the "Series
A Preferred Shares"), of Brooks, at a purchase price of $135 per one one-
thousandth of a Series A Preferred Share, subject to adjustment. Redemption of
the rights could generally discourage a merger or tender offer involving the
securities of Brooks that is not approved by Brooks' Board of Directors by
increasing the cost of effecting any such transaction and, accordingly, could
have an adverse impact on stockholders who might want to vote in favor of such
merger or participate in such tender offer. The rights will expire on the
earlier of (i) July 31, 2007, or (ii) the date on which the rights are
redeemed. The terms of the rights may generally be amended by the Board of
Directors without the consent of the holders of the rights.
F-17
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. BENEFIT PLAN
Brooks sponsors defined contribution plans that meets the requirements of
Section 401(k) of the Internal Revenue Code. All domestic employees of Brooks
who meet minimum age and service requirements are eligible to participate in
the plan. The plan allows employees to invest on a pre-tax basis a percentage
of their annual salary subject to statutory limitations. Brooks' contribution
expense was $0.2 million, $0.2 million, and $0.1 million in fiscal 1998, fiscal
1997, and fiscal 1996, respectively.
12. GEOGRAPHIC, SIGNIFICANT CUSTOMERS, AND RELATED PARTY INFORMATION
Net revenues by geographic area are as follows (in thousands):
<TABLE>
<CAPTION>
For the year ended September 30,
---------------------------------------
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
North America.................... $58,613 59% $ 67,484 62% $ 84,536 75%
Asia............................. 31,679 32% 33,304 31% 19,315 17%
Europe........................... 9,570 9% 7,953 7% 8,879 8%
------- --- -------- --- -------- ---
$99,862 100% $108,741 100% $112,730 100%
======= === ======== === ======== ===
</TABLE>
One of Brooks' Directors is an executive with one of Brooks' customers. Net
revenue recognized from this customer was $15.9 million, $18.2 million, and
$19.1 million in fiscal 1998, 1997, and 1996, respectively. Amounts due from
this customer included in accounts receivable at September 30, 1998 and 1997,
were $2.4 million and $5.3 million, respectively. Related party amounts
included in accounts receivable are on standard terms and manner of settlement.
Brooks did not have any other single customer that accounted for more than
10% of Brooks' net revenues in fiscal 1998, fiscal 1997, and fiscal 1996. A
financial instrument which potentially exposes Brooks to concentration of
credit risk is accounts receivable, as Brooks' customers are concentrated in
the semiconductor industry and relatively few customers account for a
significant portion of Brooks' revenues. At September 30, 1998 and 1997, three
customers accounted for approximately 34% and 39%, respectively, of accounts
receivable. Brooks regularly monitors the creditworthiness of its customers and
believes that it has adequately provided for exposure to potential credit
losses.
F-18
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. COMMITMENTS AND CONTINGENCY
Lease Commitments
Brooks leases manufacturing and office facilities and certain equipment
under operating and capital leases (Notes 4 and 5) that expire through 2003.
Rent expense under operating leases for fiscal 1998, fiscal 1997, and fiscal
1996 was $4.6 million, $3.2 million, and $2.5 million, respectively. Future
minimum lease payments under operating and capital leases with initial or
remaining noncancelable terms of one or more years are as follows as of
September 30, 1998 (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Year Leases Leases
---- ------- ---------
<S> <C> <C>
1999.................................................... $263 $1,850
2000.................................................... 113 1,822
2001.................................................... 8 1,498
2002.................................................... -- 1,636
2003.................................................... -- 12
Thereafter.............................................. -- --
---- ------
Total minimum lease payments............................ $384 $6,818
---- ------
Less amount representing interest....................... 24
----
Net present value of minimum lease payments............. $360
----
</TABLE>
Contingency
There has been substantial litigation regarding patent and other
intellectual property rights in the semiconductor and related industries.
Brooks has received notice from a third-party alleging infringements of such
party's patent rights by certain of Brooks' products. Brooks' patent counsel is
investigating the claim and Brooks believes the patents claimed may be invalid.
In the event of litigation with respect to this claim, Brooks is prepared to
vigorously defend its position. However, because patent litigation can be
extremely expensive and time consuming, Brooks may seek to obtain a license to
one or more of the disputed patents. Based upon currently available
information, Brooks would only do so if such license fees would not be material
to Brooks' consolidated financial statements. Currently, Brooks does not
believe that it is probable that future events related to this threatened
matter will have an adverse effect on Brooks' business.
14. RESTRUCTURING COSTS
During fiscal year 1998, Brooks approved and implemented a restructuring
program designed to align Brooks' cost structure with lower revenue levels
indicative of the recent decline in demand for semiconductor equipment. These
actions involved approximately 120 employees, all of whom were terminated prior
to September 30, 1998. Accordingly, during fiscal 1998, Brooks recorded a
charge of $1.3 million related to the restructuring program, primarily for
employee severance costs. No significant amount remained accrued at September
30, 1998.
In addition, Brooks recorded charges of $1.4 million in connection with its
acquisition of FASTech (see Note 2), reflecting estimated costs to exit
duplicate facilities. This amount is primarily comprised of estimated lease
costs on FASTech's former headquarters facility and was included in accrued
expenses at September 30, 1998.
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Brooks Automation, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in nonredeemable preferred
stock, common stock and other stockholders' equity, and of cash flows present
fairly, in all material respects, the financial position of Brooks Automation,
Inc. and its subsidiaries at September 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Brooks'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- -------------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 19, 1998
F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors
of Brooks Automation, Inc.
Our audits of the consolidated financial statements referred to in our
report dated November 19, 1998 appearing in this Registration Statement on
Form S-4 also included an audit of the Financial Statement Schedule appearing
on Page F-22 of this Form S-4. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
- -------------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 19, 1998
F-21
<PAGE>
BROOKS AUTOMATION, INC.
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
Additions
-----------------
Charged
Balance to Charged
at costs to Deductions Balance
beginning and other and at end
Description Year ended of year expenses accounts write-offs of year
- ----------- ------------------ --------- -------- -------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
September 30, 1998 $ 776 $1,295 $-- $(173) $1,898
September 30, 1997 840 322 -- (386) 776
September 30, 1996 563 516 -- (239) 840
Deferred tax asset
valuation allowance:
September 30, 1998 3,651 2,278 -- -- 5,929
September 30, 1997 1,334 2,317 -- -- 3,651
September 30, 1996 1,021 313 -- -- 1,334
</TABLE>
F-22
<PAGE>
BROOKS AUTOMATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
---------- -------------
(unaudited)
(In thousands,
except share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 69,277 $ 68,161
Accounts receivable, net of allowances for doubtful
accounts of $1,981 and $1,898, respectively, and
including related party receivables of $2,940 and
$2,365, respectively.............................. 23,123 20,701
Inventories........................................ 16,839 19,589
Prepaid expenses and other current assets.......... 9,075 9,641
-------- --------
Total current assets............................. 118,314 118,092
Fixed assets, net.................................... 17,488 18,606
Other assets......................................... 4,370 4,254
-------- --------
Total assets..................................... $140,172 $140,952
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 5,473 $ 5,505
Accrued expenses and other current liabilities..... 12,099 12,666
-------- --------
Total current liabilities........................ 17,572 18,171
Other long-term liabilities.......................... 759 1,018
-------- --------
Total liabilities................................ 18,331 19,189
-------- --------
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; none issued and outstanding........... -- --
Common stock, $0.01 par value; 21,500,000 shares
authorized; 11,057,058 and 11,007,281 shares
issued and outstanding, respectively.............. 111 110
Additional paid-in capital......................... 129,237 128,839
Cumulative translation adjustment.................. (431) (536)
Deferred compensation.............................. (104) (119)
Accumulated deficit................................ (6,972) (6,531)
-------- --------
Total stockholders' equity....................... 121,841 121,763
-------- --------
Total liabilities and stockholders' equity....... $140,172 $140,952
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-23
<PAGE>
BROOKS AUTOMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Six months ended Three months
March 31, ended March 31,
----------------- ----------------
1999 1998 1999 1998
------- -------- ------- -------
(In thousands, except share
related data)
<S> <C> <C> <C> <C>
Revenues:
Product................................ $33,635 $ 43,779 $18,480 $18,746
Services............................... 9,450 9,944 4,796 5,329
------- -------- ------- -------
Total revenues....................... 43,085 53,723 23,276 24,075
------- -------- ------- -------
Cost of revenues:
Product................................ 18,024 30,714 9,456 16,235
Services............................... 5,953 7,635 3,453 4,105
------- -------- ------- -------
Total cost of revenues............... 23,977 38,349 12,909 20,340
------- -------- ------- -------
Gross profit............................. 19,108 15,374 10,367 3,735
------- -------- ------- -------
Operating expenses:
Research and development............... 8,797 12,944 4,705 6,200
Selling, general and administrative.... 11,920 14,501 6,193 7,426
------- -------- ------- -------
Total operating expenses............. 20,717 27,445 10,898 13,626
------- -------- ------- -------
Loss from operations..................... (1,609) (12,071) (531) (9,891)
Interest income, net..................... 1,473 1,508 749 818
------- -------- ------- -------
Income (loss) before income taxes........ (136) (10,563) 218 (9,073)
Income tax provision (benefit)........... 305 (1,287) 83 (2,651)
------- -------- ------- -------
Net income (loss)........................ (441) (9,276) 135 (6,422)
Dividends on preferred stock............. -- 261 -- 130
------- -------- ------- -------
Net income (loss) attributable to common
stockholders............................ $ (441) $ (9,537) $ 135 $(6,552)
======= ======== ======= =======
Earnings (loss) per share:
Basic.................................. $ (0.04) $ (0.93) $ 0.01 $ (0.64)
Diluted................................ $ (0.04) $ (0.93) $ 0.01 $ (0.64)
Shares used in computing earnings (loss)
per share:
Basic.................................. 11,028 10,235 11,045 10,275
Diluted................................ 11,028 10,235 11,793 10,275
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-24
<PAGE>
BROOKS AUTOMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended
March 31,
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Cash flows from operating activities
Net loss.................................................. $ (441) $ (9,276)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization........................... 3,369 3,802
Compensation expense related to common stock options.... 15 73
Deferred income taxes................................... (277) (1,370)
Changes in operating assets and liabilities:
Accounts receivable.................................... (2,402) 9,281
Inventories............................................ 2,765 (3,602)
Prepaid expenses and other current assets.............. 566 (619)
Accounts payable....................................... (38) 709
Accrued expenses and other current liabilities......... (477) (700)
-------- --------
Net cash provided by (used in) operating activities... 3,080 (1,702)
-------- --------
Cash flows from investing activities
Purchases of fixed assets, net............................ (2,085) (3,631)
Increase in other assets.................................. (194) (373)
-------- --------
Net cash used in investing activities................. (2,279) (4,004)
-------- --------
Cash flows from financing activities
Payments on capital leases................................ (200) (417)
Proceeds from sale and leaseback of equipment............. -- 151
Proceeds from issuance of common stock.................... 399 388
-------- --------
Net cash provided by financing activities................. 199 122
-------- --------
Elimination of net cash activities of FASTech for the
three months ended December 31, 1997..................... -- (1,761)
-------- --------
Effects of exchange rate changes on cash and cash
equivalents.............................................. 116 93
-------- --------
Net increase (decrease) in cash and cash equivalents...... 1,116 (7,252)
Cash and cash equivalents, beginning of period............ 68,161 75,253
-------- --------
Cash and cash equivalents, end of period.................. $ 69,277 $ 68,001
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-25
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Brooks Automation, Inc. and its subsidiaries have been prepared in accordance
with generally accepted accounting principles and the instructions to Article
10 of Securities and Exchange Commission Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation have been included. The financial
statements for the six and three months ended March 31, 1998, have been
restated to reflect the fiscal 1998 acquisition of FASTech Integration, Inc.,
which was accounted for under the pooling of interests method. Certain prior
year balances have been reclassified to conform to the current year
presentation. For further information, refer to the audited consolidated
financial statements of Brooks that are included in Brooks' Annual Report on
Form 10-K for the year ended September 30, 1998.
The results of operations for the six months and three months ended March
31, 1999, are not necessarily indicative of the results that may be expected
for other quarters or the entire fiscal year.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
--------- -------------
<S> <C> <C>
Raw materials and purchased parts................. $ 5,377 $ 8,815
Work-in-process................................... 8,666 7,878
Finished goods.................................... 2,796 2,896
------- -------
$16,839 $19,589
======= =======
</TABLE>
3. EARNINGS (LOSS) PER SHARE
The following is a summary of the shares used in computing basic and diluted
earnings (loss) per share (in thousands):
<TABLE>
<CAPTION>
Six months Three months
ended March ended March
31, 31,
------------- -------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average shares outstanding used in
computing basic earnings (loss) per share........ 11,028 10,235 11,045 10,275
Dilutive securities............................... -- -- 748 --
------ ------ ------ ------
Shares used in computing diluted earnings (loss)
per share........................................ 11,028 10,235 11,793 10,275
====== ====== ====== ======
</TABLE>
F-26
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
4. COMPREHENSIVE INCOME (LOSS)
Brooks adopted Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" in the first quarter of fiscal 1999. SFAS No.
130 establishes new rules for the reporting and display of comprehensive income
and its components. The adoption of SFAS No. 130 had no impact on Brooks' net
income (loss) or stockholders' equity. Total comprehensive income (loss), which
was comprised of net income (loss) and foreign currency translation
adjustments, was as follows (in thousands):
<TABLE>
<CAPTION>
Six months Three months
ended March ended March
31, 31,
-------------- ------------
1999 1998 1999 1998
----- ------- ---- -------
<S> <C> <C> <C> <C>
Net income (loss).......................... $(441) $(9,276) $135 $(6,422)
Foreign currency translation adjustments... 105 (211) 30 504
----- ------- ---- -------
Total comprehensive income (loss).......... $(336) $(9,487) $165 $(5,918)
===== ======= ==== =======
</TABLE>
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
which establishes standards for reporting information on operating segments in
interim and annual financial statements. The statement is effective for Brooks
for fiscal 1999, however, there are no interim disclosure requirements in the
year of adoption. Adoption of this statement will not have an impact on Brooks'
results of operations or financial position.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In July 1999, the FASB issued SFAS No.
137, which delayed the effective date of SFAS 133 to fiscal years beginning
after June 15, 2000 (fiscal 2001 for Brooks) and requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction.
Management anticipates that the adoption of SFAS No. 133 will not have a
material impact on Brooks' results of operations or financial position.
6. SIGNIFICANT CUSTOMERS AND RELATED PARTY INFORMATION
For the six months ended March 31, 1999 and 1998, Brooks had revenues from a
related party representing 10% and 19% of revenues, respectively. For the three
months ended March 31, 1999 and 1998, Brooks had revenues from a related party
representing 15% and 29% of revenues, respectively. At March 31, 1999 and
September 30, 1998, accounts receivable from a related party accounted for 13%
and 11% of total accounts receivable, respectively.
For the six months ended March 31, 1999 and 1998, Brooks had revenues from a
customer (not the same customer in each period and not a related party)
representing 13% and 10% of revenues, respectively. For the three months ended
March 31, 1999, Brooks had revenues from a customer (not a related party)
representing 10% of revenues. For the three months ended March 31, 1998, Brooks
had revenues from two customers (not related parties) which each represented
12% of revenues. At March 31, 1999, there were no non-related parties
representing more than 10% of accounts receivable. At September 30, 1998,
accounts receivable from one customer (not a related party) represented 14% of
total accounts receivable.
F-27
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
7. CONTINGENCY
There has been substantial litigation regarding patent and other
intellectual property rights in the semiconductor and related industries.
Brooks has received notice from a third party alleging infringements of such
party's patent rights by certain of Brooks' products. Brooks believes the
patents claimed may be invalid. In the event of litigation with respect to this
claim, Brooks is prepared to vigorously defend its position. However, because
patent litigation can be extremely expensive and time consuming, Brooks may
seek to obtain a license to one or more of the disputed patents. There can be
no assurance, however, that a license will be available on reasonable terms or
at all. Brooks could decide, in the alternative to resort to litigation to
challenge such claims or to design around the patented technology. Currently,
Brooks does not believe that it is probable that future events related to this
threatened matter will have a material adverse effect on Brooks' business.
8. SUBSEQUENT EVENTS
In April 1999 Brooks acquired the assets of Hanyon Technology, Inc. for $6.6
million in cash. Hanyon is based in Korea and provides manufacturing execution
systems and automation software and systems integration services to the
semiconductor and liquid crystal display industries in Korea and Taiwan. The
Hanyon acquisition was accounted for as a purchase of assets.
In June 1999 Brooks formed a joint venture in Korea with Samsung
Electronics. Brooks' initial cash investment in this joint venture was $3.5
million. This joint venture is 70% owned by Brooks and 30% owned by Samsung,
and has been organized to design, develop, and manufacture atmospheric flat
panel display loaders along with other products.
In June 1999 Brooks acquired the assets of Domain Manufacturing Corporation
for $3.8 million in cash. Domain provides process development, process control,
and data analysis solutions. The Domain acquisition was accounted for as a
purchase of assets.
In July 1999 Brooks signed a letter of intent to acquire substantially all
of the assets and assume certain liabilities of the Infab division of Jenoptik
AG in exchange for 1,086,630 shares of Brooks common stock. The Infab division
is a worldwide supplier of advanced factory automation systems headquartered in
Germany. As part of the proposed transaction, Jenoptic would be entitled to
representation on the Brooks Board of Directors and Jenoptik would agree to
various restrictions on its acquisition or disposition of Brooks common stock.
The proposed acquisition is subject to the completion by Brooks of substantial
due diligence on the Infab division, the negotiation and resolution of
significant unresolved business and legal issues, and the negotiation and
completion of a mutually satisfactory acquisition agreement among the parties.
Brooks cannot guarantee that this transaction will be completed on acceptable
terms, or be completed at all. The proposed acquisition, if completed, would be
accounted for as a purchase of assets.
In July 1999 Brooks entered into an agreement and plan of merger with Smart
Machines Inc. subject to Smart Machines shareholders' approval. Smart Machines
is located in San Jose, California, and manufacturers direct drive Selectively
Compliant Assembly Robot Arm, or SCARA, atmospheric and vacuum robots. This
merger is expected to be accounted for as a pooling of interests.
F-28
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 1,318,073 $ 2,079,742
Accounts receivable, net.......................... 154,943 23,842
Inventories....................................... 581,377 893,392
Prepaid expenses and other current assets......... 95,585 172,669
Receivable from related party..................... -- 70,368
------------ -----------
Total current assets............................ 2,149,978 3,240,013
Fixed assets, net................................... 342,619 567,806
Other assets........................................ 14,662 16,260
------------ -----------
Total assets.................................... $ 2,507,259 $ 3,824,079
============ ===========
LIABILITIES, AND REDEEMABLE CONVERTIBLE PREFERRED
STOCK, AND NONREDEEMABLE PREFERRED STOCK, COMMON STOCK,
AND OTHER SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable--current portion.................... $ 265,468 $ 61,298
Capital lease obligations--current portion........ 9,299 108,908
Accounts payable.................................. 174,163 278,399
Accrued interest payable.......................... 97,223 341
Accrued compensation and benefits................. 68,257 54,890
Allowance for warranty............................ 19,098 33,214
Accrued expenses and other current liabilities.... 88,588 71,453
------------ -----------
Total current liabilities....................... 722,096 608,503
Notes payable--less current portion................. 713,913 91,947
Convertible notes................................... 2,500,008 --
Capital lease obligations--less current portion..... -- 12,095
------------ -----------
Total liabilities............................... 3,936,017 712,545
------------ -----------
Commitments (Note 8)
Redeemable convertible preferred stock: no par
value; authorized 3,249,511 shares; issued and
outstanding 1,166,581 shares at December 31, 1998
and 1997........................................... 3,561,828 2,662,801
------------ -----------
Nonredeemable convertible preferred stock, common
stock, and other shareholders' equity (deficit):
Convertible preferred stock: no par value;
authorized: 12,750,489 shares; issued and
outstanding; 3,331,478 shares at December 31,
1998 and 1997 (Liquidation value; $6,481,482).... 6,467,306 6,467,306
Common stock; no par value: authorized; 33,000,000
shares; issued and outstanding; 4,554,712 shares
at December 31, 1998, and 4,486,151 shares at
December 31, 1997................................ 746,649 688,639
Preferred stock warrant value..................... 1,838,256 1,838,256
Deficit accumulated during the development stage.. (14,042,797) (8,545,468)
------------ -----------
Total nonredeemable convertible preferred stock,
common stock, and other shareholders' equity
(deficit)...................................... (4,990,586) 448,733
------------ -----------
Total liabilities, and redeemable convertible
preferred stock, and nonredeemable convertible
preferred stock, common stock, and other
shareholders' equity (deficit)................. $ 2,507,259 $ 3,824,079
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
Period from
October 1,
1994 (date
of
Years Ended December 31, inception)
------------------------------------- to December
1998 1997 1996 31, 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales................ $ 382,374 $ 686,564 $ -- $ 1,068,938
Cost of sales............ 1,171,460 1,549,441 -- 2,720,901
----------- ----------- ----------- ------------
Gross profit............ (789,086) (862,877) -- (1,651,963)
----------- ----------- ----------- ------------
Research and
development............. 2,715,223 1,615,835 1,979,343 7,669,475
Selling, general and
administrative.......... 1,029,413 953,721 851,706 3,411,330
----------- ----------- ----------- ------------
Loss from operations.... (4,533,722) (3,432,433) (2,831,049) (12,732,768)
Interest income.......... 65,764 94,677 49,397 257,228
Interest expense......... 130,344 30,157 19,292 181,852
Other expense............ -- -- 2,400 2,400
----------- ----------- ----------- ------------
Net loss................. (4,598,302) (3,367,913) (2,803,344) (12,659,792)
Dividends on preferred
stock................... 899,027 483,978 -- 1,383,005
----------- ----------- ----------- ------------
Net loss attributable to
common shareholders..... $(5,497,329) $(3,851,891) $(2,803,344) $(14,042,797)
=========== =========== =========== ============
Loss per share:
Basic................... $ (1.22) $ (0.94) $ (0.80)
Diluted................. $ (1.22) $ (0.94) $ (0.80)
Shares used in computing
loss per share:
Basic................... 4,524,067 4,103,896 3,502,676
Diluted................. 4,524,067 4,103,896 3,502,676
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
STATEMENTS OF CHANGES IN NONREDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
(DEFICIT)
For the Period from October 1, 1994 (date of inception) to December 31, 1998
<TABLE>
<CAPTION>
Deficit
Convertible Preferred Notes Accumulated
Preferred Stock Common Stock Stock Receivable During
-------------------- ----------------- Warrant for Common Development
Shares Amount Shares Amount Value Stock Stage Total
--------- ---------- --------- ------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of series A
preferred stock for
cash and transfer of
predecessor company net
assets and technology
at $1.00 per share in
May 1995............... 1,965,000 $1,965,000 -- $ -- $-- $ -- $ -- $ 1,965,000
Issuance of Series B
preferred stock for
cash at $3.00 per share
in May 1995............ 333,333 1,000,000 -- -- -- -- -- 1,000,000
Issuance of common stock
for cash at $.0001 per
share in June 1995..... -- -- 2,860,000 286 -- -- -- 286
Issuance of common stock
for cash and notes
receivable at $.001 per
share in June 1995..... -- -- 195,000 195 -- (175) -- 20
Issuance of common stock
for services rendered
at $.10 per share in
September 1995......... -- -- 45,311 4,531 -- -- -- 4,531
Issuance of common stock
for cash and notes
receivable at $.10 per
share in August and
October 1995........... -- -- 405,000 40,500 -- (5,500) -- 35,000
Net loss................ -- -- -- -- -- -- (1,890,233) (1,890,233)
--------- ---------- --------- ------- --- ------- ----------- -----------
Balances, December 31,
1995................... 2,298,333 $2,965,000 3,505,311 $45,512 $-- $(5,675) $(1,890,233) $ 1,114,604
========= ========== ========= ======= === ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
STATEMENTS OF CHANGES IN NONREDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
(DEFICIT) (Continued)
For the Period from October 1, 1994 (date of inception) to December 31, 1998
<TABLE>
<CAPTION>
Deficit
Convertible Preferred Notes Accumulated
Preferred Stock Common Stock Stock Receivable During
-------------------- ------------------ Warrant for Common Development
Shares Amount Shares Amount Value Stock Stage Total
--------- ---------- --------- ------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1995................... 2,298,333 $2,965,000 3,505,311 $45,512 $-- $(5,675) $(1,890,233) $ 1,114,604
--------- ---------- --------- ------- --- ------- ----------- -----------
Issuance of Series B
preferred stock for
cash at $3.00 per share
in February, March,
April and May 1996..... 199,049 597,147 -- -- -- -- -- 597,147
Issuance of series C
preferred stock for
cash at $3.50 per share
in June, July August
and October 1996, net
of issuance costs of
$14,177................ 679,088 2,362,631 -- -- -- -- -- 2,362,631
Issuance of Series C
preferred stock for
services rendered at
$3.50 per share in
November 1996.......... 8,294 29,029 -- -- -- -- -- 29,029
Issuance of common stock
for services rendered
at $0.30 per share in
June 1996.............. -- -- 1,000 300 -- -- -- 300
Issuance of common stock
for services rendered
at $0.35 per share in
November 1996.......... -- -- 8,921 3,122 -- -- -- 3,122
Repurchase of common
stock.................. -- -- (5,000) (500) -- -- -- (500)
Repayment of notes
receivable............. -- -- -- -- -- 5,675 -- 5,675
Net loss................ -- -- -- -- -- -- (2,803,344) (2,803,344)
--------- ---------- --------- ------- --- ------- ----------- -----------
Balances, December 31,
1996................... 3,184,764 $5,953,807 3,510,232 $48,434 $-- $ -- $(4,693,577) $ 1,308,664
========= ========== ========= ======= === ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
STATEMENTS OF CHANGES IN NONREDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
(DEFICIT) (Continued)
For the Period from October 1, 1994 (date of inception) to December 31, 1998
<TABLE>
<CAPTION>
Deficit
Convertible Preferred Notes Accumulated
Preferred Stock Common Stock Stock Receivable During
-------------------- ------------------ Warrant for Common Development
Shares Amount Shares Amount Value Stock Stage Total
--------- ---------- --------- -------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1996................... 3,184,764 $5,953,807 3,510,232 $ 48,434 $ -- $-- $ (4,693,577) $1,308,664
Issuance of common stock
for cash at $0.70 per
share and 2,333,162
Series E warrants at
$0.79 in June 1997..... -- -- 870,254 599,363 1,838,256 -- -- 2,437,619
Dividends on preferred
stock.................. -- -- -- -- -- -- (483,978) (483,978)
Issuance of Series C
preferred stock for
services rendered at
$3.50 per share in
March 1997............. 1,716 6,006 -- -- -- -- -- 6,006
Issuance of Series C
preferred stock for
cash at $3.50 per share
in January, February
and March 1997......... 144,998 507,493 -- -- -- -- -- 507,493
Exercise of common stock
options................ -- -- 34,999 11,875 -- -- -- 11,875
Issuance of common stock
for services rendered
at $.30 per share in
May 1997............... -- -- 25,000 7,500 -- -- -- 7,500
Issuance of common stock
for services rendered
at $.35 per share in
January and October
1997................... -- -- 30,000 10,500 -- -- -- 10,500
Issuance of common stock
for services rendered
at $.70 per share in
September and December
1997................... -- -- 15,666 10,967 -- -- -- 10,967
Net loss................ -- -- -- -- -- -- (3,367,913) (3,367,913)
--------- ---------- --------- -------- ---------- --- ------------ ----------
Balances, December 31,
1997................... 3,331,478 $6,467,306 4,486,151 $688,639 $1,838,256 $-- $ (8,545,468) $ 448,733
========= ========== ========= ======== ========== === ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
STATEMENTS OF CHANGES IN NONREDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
(DEFICIT) (Continued)
For the Period from October 1, 1994 (date of inception) to December 31, 1998
<TABLE>
<CAPTION>
Deficit
Convertible Preferred Notes Accumulated
Preferred Stock Common Stock Stock Receivable During
-------------------- ------------------- Warrant for Common Development
Shares Amount Shares Amount Value Stock Stage Total
--------- ---------- --------- -------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1997................... 3,331,478 $6,467,306 4,486,151 $688,639 $1,838,256 $ -- $ (8,545,468) $ 448,733
Dividends on preferred
stock.................. -- -- -- -- -- -- (899,027) (899,027)
Exercise of common stock
options................ -- -- 11,812 4,134 -- -- -- 4,134
Issuance of common stock
for services rendered
at $.70 per share in
May, June and August
1998................... -- -- 79,161 55,413 -- -- -- 55,413
Repurchase of common
stock.................. -- -- (22,412) (1,537) -- -- -- (1,537)
Net loss................ -- -- -- -- -- -- (4,598,302) (4,598,302)
--------- ---------- --------- -------- ---------- --------- ------------ -----------
Balances, December 31,
1998................... 3,331,478 $6,467,306 4,554,712 $746,649 $1,838,256 $ -- $(14,042,797) $(4,990,586)
========= ========== ========= ======== ========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative Period
from
October 1, 1994
Years Ended December 31, (date of inception)
------------------------------------- to December 31,
1998 1997 1996 1998
----------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(4,598,302) $(3,367,913) $(2,803,344) $(12,659,792)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization....... 398,839 359,507 179,012 982,377
Increase in
allowance for
excess and obsolete
inventory.......... -- 42,752 30,000 72,752
Technology acquired
for Series A
preferred stock.... -- -- -- 459,354
Issuance of common
and preferred stock
for services
rendered........... 55,413 34,973 32,451 127,368
Change in assets and
liabilities:
Accounts
receivable....... (131,101) (23,842) -- (154,943)
Inventories....... 312,015 (367,314) (598,830) (654,129)
Prepaid expenses
and other current
assets........... 77,084 38,885 (185,073) (84,977)
Receivable from
related party.... 70,368 (57,593) (10,162) --
Accounts payable.. (104,236) 84,652 121,813 108,052
Accrued
liabilities...... 113,268 102,240 31,027 234,449
----------- ----------- ----------- ------------
Net cash used in
operating
activities..... (3,806,652) (3,153,653) (3,203,106) (11,569,489)
----------- ----------- ----------- ------------
Cash flows from
investing activities:
Purchase of fixed
assets............... (173,652) (269,111) (140,875) (667,180)
Decrease (increase) in
other assets......... 1,598 55,879 (25,412) (14,662)
----------- ----------- ----------- ------------
Net cash used in
investing
activities....... (172,054) (213,232) (166,287) (681,842)
----------- ----------- ----------- ------------
Cash flows from
financing activities:
Proceeds from issuance
of notes payable..... 1,000,000 -- -- 1,000,000
Proceeds from issuance
of convertible
notes................ 2,500,008 -- -- 2,500,008
Proceeds from issuance
of preferred stock... -- 4,524,572 2,959,778 9,983,513
Proceeds from issuance
of common stock...... 4,134 611,238 -- 650,678
Repurchase of common
stock................ (1,537) -- (500) (2,037)
Repayment of notes
receivable for common
stock................ -- -- 5,675 5,675
Repayment of notes
payable.............. (173,864) -- -- (173,864)
Repayment of capital
lease obligations.... (111,704) (158,494) (108,970) (394,569)
----------- ----------- ----------- ------------
Net cash
provided by
financing
activities..... 3,217,037 4,977,316 2,855,983 13,569,404
----------- ----------- ----------- ------------
(Decrease) increase in
cash and cash
equivalents............ (761,669) 1,610,431 (513,410) 1,318,073
Cash and cash
equivalents at
beginning of period.... 2,079,742 469,311 982,721 --
----------- ----------- ----------- ------------
Cash and cash
equivalents at end of
period................. $ 1,318,073 $ 2,079,742 $ 469,311 $ 1,318,073
=========== =========== =========== ============
Supplemental
disclosures:
Series A preferred
stock issued upon
acquisition of net
assets and technology
from predecessor
company.............. $ 500,000
Capital lease
obligations incurred
upon acquisition of
fixed assets......... $ 238,276 $ 403,868
Loan obligation
incurred upon
acquisition of fixed
assets............... $ 153,245 $ 153,245
Interest paid......... $ 33,121 $ 30,157 $ 19,292 $ 84,629
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
1. Formation and Business of the Company
Smart Machines, Inc. (the "Company") was started as a partnership on October
1, 1994, and incorporated on May 16, 1995. Concurrent with the initial sale of
preferred stock, the Company issued 500,000 shares of Series A preferred stock
and 2,860,000 shares of common stock to the founders in exchange for their
interest in the partnership. Operations from October 1, 1994 to December 31,
1994 were insignificant. To date, the Company has been primarily involved in
developing its semiconductor manufacturing equipment technology, recruiting
personnel and raising capital.
2. Summary of Significant Accounting Policies
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to makes estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of presentation
The Company's financial statements have been prepared on a basis which
contemplates realization of assets and satisfaction of liabilities in the
normal course of business. The Company has incurred operating losses and
negative cash flows from operations since inception. As a development stage
company, Smart Machines Inc.'s ability to continue as a going concern is highly
dependent, among other factors, on its ability to complete the development and
commercialization of its products, obtain sufficient financing to produce the
products, and obtain adequate customers for its products. The Company is
currently pursuing additional funding to further the development of its
products and markets. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classifications of liabilities that might be necessary should
the Company be unable to continue in existence.
Financial instruments
Amounts reported for cash and cash equivalents, accounts receivable,
receivable from related parties, accounts payable and other accrued liabilities
are considered to approximate fair value primarily due to their short
maturities.
Cash and cash equivalents
The Company's policy is to invest cash in excess of operating requirements
in interest-bearing investments with maturities of one year or less.
Investments with original or remaining maturities of three months or less at
the date of purchase are included in cash and cash equivalents. Cash and cash
equivalents at December 31, 1998 include approximately $1,300,000 held in two
demand accounts with two financial institutions. Cash and cash equivalents at
December 31, 1997 included $1,485,558 in commercial paper of U.S. companies
maturing in January through March 1998, whose fair value approximated the
carrying value, and approximately $593,000 held in four demand accounts with
the two financial institutions. Deposits in these banks may exceed the amount
of insurance provided on such deposits. The Company has not experienced any
losses on its cash and cash equivalents.
F-36
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Inventories
Inventories are stated at the lower of cost (standard cost which
approximates first-in, first-out basis) or market.
Depreciation and amortization
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets (generally three years). Leasehold
improvements are amortized over their estimated useful lives or the remaining
lease term, whichever is less.
Revenue recognition
Revenue from product sales are recorded upon shipment to the customer
provided that no significant obligations remain and collection of the related
receivable is probable. When insignificant obligations remain after shipment of
the product, Smart Machines accrues the estimated costs of such obligations
upon shipment. A provision for product warranty costs is recorded at the time
of sale. In the event significant post-shipment obligations or uncertainties
remain, revenue is deferred and recognized when such obligations are fulfilled
by Smart Machines or the uncertainties are resolved.
Significant Customers
In 1998 the Company had revenues from five customers that represented 12%,
12%, 18%, 21%, and 20% of revenues and in 1997 the Company had revenues from
four customers that represented 11%, 15%, 16%, and 40% of revenues.
Earnings Per Share
Earnings per share has been calculated in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share," Basic earnings
per share is calculated based on the weighted average number of common shares
outstanding during the period. Diluted earnings per share is calculated based
on the weighted average number of common shares and dilutive common equivalent
shares assumed outstanding during the period. Shared used to compute diluted
earnings per share in loss years exclude common share equivalents, as their
inclusion would have an anti-dilutive effect.
Stock-based compensation
The Company accounts for its stock based compensation in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," with the pro forma disclosures required by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."
Research and Development and Software Development Costs
Costs incurred in the research and development of the Company's products are
expensed as incurred, except for certain software development costs. Software
development costs are expensed prior to establishing technological feasibility
and capitalized thereafter until the related product is available for general
release to customers. Capitalized software development costs are amortized to
cost of sales on a product-by-product basis over the estimated lives of the
related products.
Income taxes
The Company reports income taxes in accordance with the liability method
whereby deferred tax asset and liability account balances are calculated at the
balance sheet date using current tax laws and rates in effect.
F-37
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Reclassification
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 presentation. These reclassifications did not change
previously reported net assets or net loss.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
-------- --------
<S> <C> <C>
Raw materials........................................... $501,588 $847,953
Work in process......................................... 79,789 45,439
-------- --------
$581,377 $893,392
======== ========
</TABLE>
4. Fixed Assets
Fixed assets, including furniture, equipment and software, under capital
leases (cost $145,707 and $371,708 and accumulated amortization of $127,617 and
$252,441 at December 31, 1998 and 1997, respectively) consist of the following:
<TABLE>
<CAPTION>
Estimated December 31,
Useful ----------------------
Life 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Machinery and equipment.................... 3 years $ 609,245 $ 508,102
Furniture and fixtures..................... 3 years 141,725 136,800
Software................................... 3 years 252,479 214,684
Test and demonstration equipment........... 2 years 256,457 256,457
Leasehold improvements..................... lease term 40,301 35,301
---------- ----------
1,300,207 1,151,344
Less: Accumulated depreciation and
amortization.............................. (957,588) (583,538)
---------- ----------
$ 342,619 $ 567,806
========== ==========
</TABLE>
Amortization expense for fixed assets under capital lease was $56,567,
$130,480, $93,350 and $289,664 for the years ended December 31, 1998, 1997, and
1996, and the cumulative period from October 1, 1994 (date of inception to
December 31, 1998).
5. Notes Payable
In November 1998, the Company entered into an agreement, expiring December
31, 1999, which allows for working capital borrowings of up to $2,000,000, and
equipment loans of $500,000. Working capital advances over $1,500,000 are
permitted only to the extent of 80% of eligible accounts receivable plus 50% of
inventories. All borrowings are collateralized by the Company's assets, have a
stated interest rate of 8.92% per annum for working capital borrowings, and
8.63% for equipment loans, and are payable in monthly installments of principal
and interest. (See also Note 10--Warrants.) At December 31, 1998, working
capital
F-38
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
borrowings of $979,381 were outstanding, payable in monthly installments of
$31,400. Annual maturities are as follows:
<TABLE>
<S> <C>
1999................................................................. $ 265,468
2000................................................................. 301,925
2001................................................................. 411,988
---------
979,381
Less current portion................................................. (265,468)
---------
$ 713,913
=========
</TABLE>
In March 1999, the Company increased its working capital borrowings to
$1,500,000.
Notes payable at December 31, 1997, consisting of bank borrowings to
purchase equipment and software, were paid off in 1998.
6. Convertible Notes
On June 15, 1998, the Company issued convertible promissory notes in the
amount of $2,500,008. Each of $4.022 of outstanding principal will
automatically convert into one unit consisting of one share of Series D
preferred stock and 0.746 of a share of common stock, upon the earliest of (i)
consent of the holders of 60% of the principal amount of all the notes, (ii)
the closing of an investment by an institutional investor unanimously accepted
by the Company's Board of Directors with gross proceeds to the Company of at
least $1,500,000, (iii) June 15, 2000, or (iv) the conversion of all of the
Company's Series D preferred stock into common stock. Interest of 7.00% per
annum is payable in cash upon conversion of the notes. Accrued interest of
$97,223 is included in accrued liabilities at December 31, 1998. The note
holders may declare the entire unpaid principal and accrued interest
immediately due and payable in case of default, as defined in the promissory
notes. These notes are subordinated to the notes payable described in Note 5
above. The Company reserved 621,552 shares of Series D preferred stock and
463,778 shares of common stock in the event of conversion.
7. Capital Lease Obligations
The Company leases certain furniture, equipment and software under capital
leases expiring in January and February 1999. Future minimum lease payments are
$9,442, including interest of $143.
8. Commitments
The Company leases its facility under an operating lease expiring on
November 30, 2001. Under the terms of the lease, the Company is responsible for
its share of common area expenses. Future minimum lease payments are as
follows:
<TABLE>
<S> <C>
1999............................................................. $313,092
2000............................................................. 313,092
2001............................................................. 287,001
--------
$913,185
========
</TABLE>
Rent expense for the years ended December 31, 1998, 1997, and 1996, and the
cumulative period from October 1, 1994 (date of inception) to December 31,
1998, was approximately $186,000, $117,000, $98,000 and $446,000, respectively.
F-39
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. Preferred Stock
Convertible preferred stock
The convertible preferred stock at December 31, 1998 comprises:
<TABLE>
<CAPTION>
Number of
Number of Shares Dividend Liquidation Total
Shares Issued and Per Value Per Liquidation
Authorized Outstanding Share Share Value
---------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Series A................ 1,965,000 1,965,000 $0.05 $1.00 $ 1,965,000
Series B................ 532,382 532,382 $0.15 $3.00 1,597,146
Series C................ 879,096 834,096 $0.175 $3.50 2,919,336
Series D*............... 2,287,250 1,166,581 $0.18 $3.50 4,083,034
Series E*............... 962,261 -- $0.23 $4.25 --
Undesignated............ 9,374,011 -- --
---------- --------- -----------
16,000,000 4,498,059 $10,564,516
========== ========= ===========
</TABLE>
- --------
* Redeemable preferred stock. See redemption features below.
The rights, preferences and privileges of the preferred shareholders are as
follows:
Dividends
The holders of Series D and E preferred stock are entitled to noncumulative
dividends, in preference to the Series C, Series B and Series A preferred stock
and common stock, when and as declared by the Board of Directors, at the annual
rate stated above. After the dividends on Series D stock have been paid, the
holders of Series C preferred stock are entitled to noncumulative dividends, in
preference to the Series B and Series A preferred stock and common stock, when
and as declared by the Board of Directors, at the annual rate stated above.
After the dividends on Series D and Series C preferred stock have been paid,
the holders of Series B preferred stock are entitled to noncumulative
dividends, in preference to the Series A preferred stock and common stock, when
and as declared by the Board of Directors, at the annual rate stated above.
After the dividends on Series D, Series C and Series B preferred stock have
been paid, the holders of the Series A preferred stock are entitled to
noncumulative dividends, in preference to common stock, when and as declared by
the Board of Directors, at the annual rate stated above. After payment of all
dividends of the preferred stock, the holders of such stock are entitled to
participate, on an as converted basis, with the holders of common stock as to
any dividends payable on common stock. No dividends have been declared as of
December 31, 1998.
Liquidation
Holders of Series D and E preferred stock are entitled to a preference in
liquidation to Series C, Series B and Series A preferred shareholders and
common shareholders of $3.50 and $4.25 per share, respectively, plus declared
but unpaid dividends. Holders of Series C preferred stock are entitled to a
preference in liquidation to Series B and Series A preferred shareholders and
common shareholders of $3.50 per share plus declared but unpaid dividends.
Holders of Series B preferred stock are entitled to a preference in liquidation
to Series A preferred shareholders and common shareholders of $3.00 per share
plus declared but unpaid dividends. The holders of the Series A preferred stock
are entitled to a preference in liquidation to common shareholders of $1.00 per
share plus declared but unpaid dividends. After the above amounts have been
paid on the preferred
F-40
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
stock, the holders of common stock are entitled to a distribution of
$3,000,000. Any remaining assets are distributed to the holders of common and
preferred stock on an as converted basis.
Conversion and registration
The preferred stock is convertible, at the option of the holders, at any
time, into common stock on a one-for-one basis subject to certain adjustments.
Conversion is automatic upon the closing of a public offering of the Company's
common shares for aggregate proceeds of not less than $10,000,000, with an
offering price of not less than $10.00 per share, or the vote of a majority of
the holders of the outstanding shares of Series A, B and C preferred stock,
voting together as a single class and the vote of 75% of the holders of Series
D and E preferred stock, voting together as a single class. The preferred
shareholders have certain registration rights. The Company has reserved
4,641,565 shares of common stock in the event of conversion.
Voting
Each share of preferred stock is entitled to vote on an "as converted" basis
along with common shareholders. So long as any shares of preferred stock are
outstanding, the Company shall not, without the vote or written consent by a
majority of the preferred shareholders, voting as a single class, and at least
66 2/3% of the Series D and E holders, voting as a single class, (i) amend the
Company's articles of incorporation, (ii) alter or change any of the rights,
preferences or privileges of the preferred stock, (iii) create or issue any new
class or series of preferred stock that has rights equal to or superior to the
rights, preferences and privileges of the preferred stock, (iv) increase the
authorized number of shares of any series of preferred stock, (v) pay or
declare any dividends, (vi) authorize a change in the number of directors on
the Company's Board of Directors, (vii) merge or sell all or substantially all
of the assets, or liquidate, dissolve or wind up the corporation, or (viii)
redeem, purchase or otherwise acquire shares of preferred or common stock. As
long as at least 250,000 shares of originally issued shares of Series D
preferred stock are outstanding, the holders of Series D and E preferred stock,
voting as a single class, are entitled to elect one member of the Company's
Board of Directors.
Redemption
At any time after May 2, 2003, upon written request from the holders of at
least 66 2/3% of the Series D and E preferred stock, the Company is required to
redeem the shares specified in the request at a price of $3.50 and $4.25 per
share, respectively, plus $0.175 and $0.225 per share, compounded annually, per
share of Series D and E preferred stock, respectively. The difference between
the issuance price and the redemption value is accreted annually.
10. Shareholders' Equity
Warrants
In connection with the notes payable agreement discussed in Note 5, the
Company issued warrants to purchase 57,182 shares of Series D preferred stock
at $3.50 per share and 42,658 shares of common stock at $0.70 per share. These
warrants are exercisable at any time and expire on December 31, 2004.
In connection with the sale of equity units in June 1997, the Company issued
warrants to purchase 961,234 shares of Series E preferred stock at $4.25 per
share. These warrants are exercisable at any time. Warrants to purchase 480,617
shares each expire upon the earlier of (i) May 30, 1999 and May 30, 2001,
respectively, (ii) dissolution of the Company or sale of substantially all of
the Company' assets, or (iii) merger
F-41
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
or acquisition of the Company in which more than 50% of the voting power is
disposed of, unless the warrants are assumed by the surviving entity. The
Company also issued warrants to purchase 10,000 shares of Series C preferred
stock at $3.50 per share, exercisable at any time and expiring on September 30,
2006.
The Company reserved 961,234 shares of Series E, 57,182 shares of Series D
and 10,000 shares of Series C preferred stock in the event of issuance.
Common stock
Common stock held by the Company's founders and employees is subject to
stock purchase agreements whereby the Company has the option to repurchase
unvested shares upon termination of employment at the initial issuance price.
These shares generally vest as follows: 12.5% at the date of the agreement and
2.0833% per month thereafter in the case of founders, and 25% one year from the
date of the agreement and 2.0833% per month thereafter in the case of other
employees. At December 31, 1998, 321,142 shares of common stock remain subject
to repurchase by the Company. The Company has the right of first refusal should
any shareholder decide to sell shares. The Company, the Series D preferred
shareholders and the holders of promissory notes convertible into Series D
preferred stock also have the right of first refusal and the right to
participate in the sale, should any founder decide to sell shares.
Stock Option Plan
During 1996, the Company adopted the 1996 Stock Option Plan (the "Plan") and
reserved 619,689 shares for issuance under the Plan. In April 1997 and February
1998, the shareholders approved increases in shares reserved for issuance under
the Plan to 1,119,689 and 1,419,689 shares respectively. Management allocated
100,000 of these shares for issuance to employees under a special incentive
plan. 49,988 of the incentive plan shares were issued in 1998; the remaining
50,012 shares are included in shares available under the Plan at December 31,
1998. Under the Plan, incentive options to purchase the Company's common stock
may be granted to employees at prices not lower than fair market value at the
date of grant (110% of fair market value in certain instances), as determined
by the Board of Directors. Nonqualified stock options may be granted to
employees, directors and consultants at prices not less than 85% of fair market
value at the date of grant, as determined by the Board of Directors. The Board
of Directors also has the authority to set the term of the options (no longer
than ten years from the date of grant, five years in certain instances).
Options generally vest at a rate of 25% one year from the vesting date, and
2.0833% per month thereafter and expire in five to ten years. Unexercised
options expire 30 days after termination of employment or consultancy with the
Company.
F-42
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Activity under the Plan is set forth below:
<TABLE>
<CAPTION>
Weighted
Number Average
Shares of Price Per Exercise
Available Shares Share Total Price
--------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Shares reserved.......... 619,689 -- -- $ -- --
Options granted.......... (114,000) 114,000 $0.30-$0.35 36,400 $0.32
-------- -------- ---------
Balances, December 31,
1996.................... 505,689 114,000 $0.30-$0.35 36,400 $0.32
Shares reserved.......... 500,000 -- -- -- --
Options granted.......... (588,000) 588,000 $0.35-$0.70 279,300 $0.48
Options exercised........ -- (34,999) $0.30-$0.35 (11,875) $0.34
Options forfeited........ 36,001 (36,001) $0.30-$0.35 (11,975) $0.33
-------- -------- ---------
Balances, December 31,
1997.................... 453,690 631,000 $0.30-$0.70 291,850 $0.46
Shares reserved.......... 300,000 -- -- -- --
Shares issued under
incentive plan.......... (49,988) -- -- -- --
Options granted.......... (404,502) 404,502 $0.70 283,151 $0.70
Options exercised........ -- (11,812) $0.35 (4,134) $0.35
Options forfeited........ 363,188 (363,188) $0.35-$0.70 (166,250) $0.46
-------- -------- ---------
Balances, December 31,
1998.................... 662,388 660,502 $0.30-$0.70 $ 404,617 $0.61
-------- -------- ---------
</TABLE>
The following table summarizes information with respect to stock options
outstanding and currently exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Currently
Options Outstanding Exercisable
-------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.30 50,000 7.4 $0.30 31,250 $0.30
$0.35 103,000 8.1 $0.35 48,833 $0.35
$0.70 507,502 9.4 $0.70 156,161 $0.70
------- -------
660,502 236,244
------- -------
</TABLE>
The following table summarizes information with respect to stock options
outstanding and currently exercisable at December 31, 1997:
<TABLE>
<CAPTION>
Options Currently
Options Outstanding Exercisable
-------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.30 50,000 8.4 $0.30 18,749 $0.30
$0.35 371,000 9.2 $0.35 11,000 $0.35
$0.70 210,000 9.8 $0.70 45,000 $0.70
------- ------
631,000 $0.46 74,749 $0.54
------- ------
</TABLE>
F-43
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
No options were exercisable at December 31, 1996.
No compensation cost has been recognized for the Plan in the financial
statements. Had compensation cost for the Plan been determined based on the
fair value of the options at the grant date consistent with the provisions of
SFAS 123, it would not result in a significant difference from the reported net
loss for 1998, 1997, and 1996. However, such differences may not be
representative of future compensation cost because options vest over several
years and additional grants are made each year.
11. Earnings per share
The following table is a summary of shares used in calculating basic and
diluted earnings per share:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted average number of shares outstanding
used in computing basic earnings per share..... 4,524,067 4,103,896 3,502,676
Dilutive securities*............................ -- -- --
--------- --------- ---------
Shares used in computing diluted earnings per
share.......................................... 4,524,067 4,103,896 3,502,676
========= ========= =========
</TABLE>
- --------
* Dilutive securities excluded in loss years, as inclusion would be anti-
dilutive.
12. Income Taxes
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $7,453,000 and $5,549,000 available to reduce future federal and
state taxable income, respectively. The carryforwards expire by the year 2013
for federal and 2003 for state tax purposes unless utilized.
For federal and state tax purposes, the Company's net operating loss
carryforwards may be subject to an annual utilization limitation in case of a
change in stock ownership, as defined by federal and state tax law.
Temporary differences which gave rise to significant portions of deferred
tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Net operating losses.................................... $2,862,000 $1,004,000
Capitalized research and development.................... 1,953,000 1,875,000
Tax credit carryforwards................................ 375,000 229,000
Other................................................... 148,000 330,000
---------- ----------
5,338,000 3,438,000
Valuation Allowance..................................... (5,338,000) (3,438,000)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
A valuation allowance must be established for a deferred tax asset if a tax
benefit may not be realized from the asset. The Company has established a 100%
valuation allowance to the extent of its deferred tax assets as no immediate
benefit is expected to be received due to the Company's recurring losses. The
changes in the valuation allowance during 1998 and 1997 were increases of
$1,900,000 and $1,503,000, respectively.
F-44
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
13. Employee Benefit Plan
Effective January 1, 1995, the Company adopted a plan (the "Plan"), which is
intended to qualify under Section 401(k) of the Internal Revenue Code of 1986.
The Plan covers essentially all employees. Eligible employees may make
voluntary contributions to the Plan up to 20% of their annual eligible
compensation.
14. Related Party Transactions
A shareholder and member of the Company's Board of Directors is also a
shareholder of Xulu Entertainment, Inc. ("Xulu"). The Company subleased part of
its facility to Xulu and provided certain clerical support until May 1998, when
Xulu left the premises. The expense charged to Xulu for the years ended
December 31, 1998, 1997, and 1996, and the cumulative period from October 1,
1994 (date of inception) to December 31, 1998 was $109,149, $201,327 and
$110,744, and $429,587, respectively.
In January 1997, the Company entered into a revolving credit agreement with
its president and chief executive officer, who is also a shareholder, which
allows for borrowings up to $400,000 for working capital. Borrowings are
subordinated to the note payable to bank discussed in Note 5, bear interest at
the Silicon Valley Bank's prime rate plus 2% per annum, payable semi-annually,
mature after one year, and are collateralized by the Company's assets. During
1997, the Company borrowed $100,000 under this agreement. This amount, plus
accrued interest thereon, was repaid during the year.
In connection with this agreement, the Company issued a warrant to purchase
25,000 shares of Series C preferred stock at $3.50 per share, exercisable at
any time and expiring on January 9, 2002. The Company reserved 25,000 shares of
Series C preferred stock in the event of issuance.
F-45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Smart Machines Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in nonredeemable preferred stock and shareholders'
equity (deficit) and of cash flows present fairly, in all material respects,
the financial position of Smart Machines Inc. (a company in the development
stage) at December 31, 1998 and 1997 and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998, and for the cumulative period from October 1, 1994 (date of inception) to
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is in the development stage and has not yet
generated significant revenues and, as a result, has incurred losses and
negative cash flows from operations since inception that raise substantial
doubt about its ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ PricewaterhouseCoopers LLP
- ----------------------------------
PricewaterhouseCoopers LLP
San Jose, California
June 1, 1999
F-46
<PAGE>
SMART MACHINES INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(unaudited)
(In thousands,
except share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 977 $ 1,318
Accounts receivable, net............................ 105 155
Inventories......................................... 521 581
Prepaid expenses and other current assets........... 83 96
-------- --------
Total current assets.............................. 1,686 2,150
Fixed assets, net..................................... 303 343
Other assets.......................................... 15 14
-------- --------
Total assets...................................... $ 2,004 $ 2,507
-------- --------
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK, AND NONREDEEMABLE PREFERRED STOCK, COMMON STOCK,
AND OTHER STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long term debt................... $ 407 $ 265
Current portion of capital lease obligations........ -- 10
Accounts payable.................................... 152 174
Accrued interest payable............................ 141 97
Accrued expenses and other current liabilities...... 138 176
-------- --------
Total current liabilities......................... 838 722
Other long-term liabilities........................... 3,499 3,214
-------- --------
Total liabilities................................. 4,337 3,936
-------- --------
Redeemable convertible preferred stock................ 3,787 3,562
-------- --------
Nonredeemable convertible preferred stock, common
stock and other stockholders' equity:
Preferred stock, no par value; 12,750,489 shares
authorized; 3,331,478 issued and outstanding,
respectively ...................................... 6,467 6,467
Common stock, no par value; 33,000,000 shares
authorized; 4,577,422 and 4,554,712 shares issued
and outstanding, respectively...................... 747 747
Preferred stock warrant value....................... 1,838 1,838
Accumulated deficit during development stage........ (15,172) (14,043)
-------- --------
Total nonredeemable convertible preferred stock,
common stock, and other stockholders' deficit.... (6,120) (4,991)
-------- --------
Total liabilities, redeemable convertible
preferred stock, and nonredeemable convertible
preferred stock, common stock, and other
stockholders' deficit............................ $ 2,004 $ 2,507
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-47
<PAGE>
SMART MACHINES INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months
ended March 31,
----------------
1999 1998
------- -------
(In thousands,
except share
data)
<S> <C> <C>
Net sales.................................................... $ 230 $ 32
Cost of sales................................................ (397) (260)
------- -------
Gross profit ............................................ (167) (228)
------- -------
Operating expenses:
Research and development................................... 474 509
Selling, general and administrative........................ 193 179
------- -------
Loss from operations..................................... (834) (916)
Interest income.............................................. 9 20
Interest expense............................................. 80 7
------- -------
Net loss..................................................... (905) (903)
Dividends on preferred stock................................. 225 225
------- -------
Net loss attributable to common shareholders................. $(1,130) $(1,128)
======= =======
Loss per share:
Basic...................................................... $ (0.25) $ (0.25)
Diluted.................................................... $ (0.25) $ (0.25)
Shares used in computing loss per share:
Basic...................................................... 4,566 4,491
Diluted.................................................... 4,566 4,491
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-48
<PAGE>
SMART MACHINES INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities
Net loss............................................. $ (905) $ (903)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization...................... 70 107
Issuance of common stock for services rendered..... -- 55
Changes in operating assets and liabilities:
Accounts receivable............................... 50 (15)
Inventories....................................... 60 (51)
Prepaid expenses and other current assets......... 13 (4)
Accounts payable.................................. (22) (129)
Accrued expenses and other current liabilities.... (5) 58
------ ------
Net cash used in operating activities............ (739) (882)
------ ------
Cash flows from investing activities
Purchases of fixed assets, net....................... (30) (27)
Increase in other assets............................. -- --
------ ------
Net cash used in investing activities............ (30) (27)
------ ------
Cash flows from financing activities
Proceeds from issuance of long term debt............. 500 --
Proceeds from issuance of common stock............... 1 --
Proceeds from issuance of convertible notes.......... -- --
Repayment of long term debt.......................... (73) (132)
Repurchase of common stock........................... -- --
------ ------
Net cash provided by (used in) financing
activities...................................... 428 (132)
------ ------
Net decrease in cash and cash equivalents............ (341) (1,041)
Cash and cash equivalents, beginning of period....... 1,318 2,080
------ ------
Cash and cash equivalents, end of period............. $ 977 $1,039
====== ======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-49
<PAGE>
SMART MACHINES INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Smart Machines
Inc. have been prepared in accordance with generally accepted accounting
principles and the instructions to Article 10 of Securities and Exchange
Commission Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, considered necessary
for a fair presentation have been included.
The results of operations for the three months ended March 31, 1999, are not
necessarily indicative of the results that may be expected for other quarters
or the entire fiscal year.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Raw materials and purchased parts..................... $443 $501
Work-in-process....................................... 78 80
---- ----
$521 $581
==== ====
</TABLE>
3. EARNINGS (LOSS) PER SHARE
The following is a summary of the shares used in computing basic and diluted
loss per share (in thousands):
<TABLE>
<CAPTION>
Three
months
ended
March 31,
-----------
1999 1998
----- -----
<S> <C> <C>
Weighted average shares outstanding used in computing basic
loss per share............................................... 4,566 4,491
Dilutive securities(a)........................................ -- --
----- -----
Shares used in computing diluted loss per share............... 4,566 4,491
===== =====
</TABLE>
- --------
(a) Shares used to compute diluted earnings per share in loss years exclude
common share equivalents as their inclusion would be anti-dilutive.
F-50
<PAGE>
SMART MACHINES INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
(unaudited)
4. SIGNIFICANT CUSTOMERS
For the three months ended March 31, 1999, Smart Machines had revenues from
four customers representing 19%, 20%, 30% and 31% of revenues and for the three
months ended March 31, 1998, Smart Machines had revenues from one customer
representing 98% of revenues.
5. SUBSEQUENT EVENTS
In July 1999 Smart Machines entered into an Agreement and Plan of Merger
with Brooks Automation, Inc. This merger is expected to be accounted for as a
pooling-of-interests. Brooks Automation is based in Massachusetts and
manufacturers process tool automation, components, systems and factory
automation software for the semiconductor, flat panel and disk drive
industries.
F-51
<PAGE>
HANYON TECHNOLOGY, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
Korean Won
-----------------
December 31, 1998
-----------------
<S> <C>
Current assets;
Cash & cash equivalents (Note 3)............................ 64,356,360
Bank deposits (Notes 4, 10)................................. 5,324,316,479
Short-term loans to shareholders and employees.............. 45,129,640
Other current assets (Note 5)............................... 125,210,253
-------------
sub-total................................................. 5,559,012,732
Non-current assets;
Restricted deposits (Note 4)................................ 3,000,000
Investment securities (Note 6).............................. 91,922,000
Key money deposits.......................................... 417,895,000
Long-term loans to shareholders and employees (Note 7)...... 215,000,000
Group severance deposit (Note 2)............................ 200,049,315
Telephone right............................................. 790,000
Membership.................................................. 39,000,000
PP&E, net (Notes 2, 8)...................................... 481,365,210
-------------
Total assets.............................................. 7,008,034,257
=============
Current liabilities;
Accounts payable............................................ 70,317,925
Accrued expenses (Note 9)................................... 219,000,000
Withholdings................................................ 26,502,645
Advance receipts (Notes 2, 13).............................. 519,051,100
Current income tax liability................................ 937,218,816
Short term borrowings from shareholders and employees....... 45,000,000
-------------
sub-total................................................. 1,817,090,486
Non-current liabilities;
Accrued severance indemnities (Note 2)...................... 414,688,798
-------------
Total liabilities......................................... 2,231,779,284
-------------
Common stock (Note 1)......................................... 150,000,000
Capital surplus............................................... 115,557,000
Retained earnings (Note 12)................................... 4,510,697,973
-------------
Total shareholders' equity................................ 4,776,254,973
-------------
Total liability and shareholders' equity.................... 7,008,034,257
=============
</TABLE>
See the accompanying notes to the financial statements.
F-52
<PAGE>
HANYON TECHNOLOGY, INC.
INCOME STATEMENT
<TABLE>
<CAPTION>
Korean Won
------------------
For the year ended
December 31, 1998
------------------
<S> <C>
Net sales (Notes 2, 13)..................................... 8,211,607,541
Cost of goods sold.......................................... 574,825,500
-------------
Gross profit................................................ 7,636,782,041
Selling, general and administrative expenses (Note 14)...... 3,662,837,495
-------------
Operating income............................................ 3,973,944,546
-------------
Other income (expenses), net;
Interest income........................................... 499,575,424
Rent income............................................... 1,175,000
Foreign exchange gain (losses), net....................... (469,018,460)
Gain on exemption of debt................................. 34,027,650
Prior period adjustment (Note 2, 13)...................... (446,852,156)
Miscellaneous............................................. (139,076,348)
-------------
(520,168,890)
-------------
Income before income tax provision.......................... 3,453,775,656
Income tax provision........................................ 1,116,353,836
-------------
Net Income.................................................. 2,337,421,820
-------------
</TABLE>
See the accompanying notes to the financial statements.
F-53
<PAGE>
HANYON TECHNOLOGY, INC.
STATEMENT OF APPROPRIATION OF RETAINED EARNINGS
<TABLE>
<CAPTION>
Korean Won
------------------
For the year ended
December 31, 1998
------------------
<S> <C>
Unappropriated retained earnings before appropriation:
Retained earnings brought forward from prior year........ 1,786,803,523
Net income for the year.................................. 2,337,421,820
-------------
4,124,225,343
Appropriations:
Reserve for business rationalization..................... 74,039,946
Reserve for technical development........................ 355,924,193
-------------
429,964,139
-------------
Unappropriated retained earnings carried to subsequent year
(Note 12)................................................. 3,694,261,204
=============
</TABLE>
See the accompanying notes to the financial statements.
F-54
<PAGE>
HANYON TECHNOLOGY, INC
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Korean Won
------------------
For the year ended
December 31, 1998
------------------
<S> <C>
Cash flows from operating activities;
Net income................................................. 2,337,421,820
Adjustments to reconcile net income to cash provided by
operating activities
Depreciation............................................. 241,971,758
Provision for accrued severance indemnities.............. 168,564,690
Payments of severance indemnities........................ (107,504,300)
Decrease in accounts receivable.......................... 189,943,168
Decrease in advance payments............................. (74,000,412)
Increase in accounts payable............................. 38,539,504
Increase in accrued expenses............................. 219,000,000
Increase in income tax payable........................... 834,765,841
Others, net.............................................. 102,016,007
--------------
Net cash flows provided by operating activities............ 3,950,718,076
--------------
Cash flows from investing activities;
Increase in bank deposits................................ (3,981,567,723)
Increase in short-term loans............................. (2,797,448)
Decrease in key money deposit............................ 47,532,000
Disposition of fixed asset............................... 1,570,820
Increase in group severance deposit...................... (25,049,315)
Acquisition of fixed asset............................... (122,066,439)
Acquisition of investment securities..................... (91,872,000)
Increase in restricted deposits.......................... (3,000,000)
--------------
Net cash used by investing activities...................... (4,177,250,105)
--------------
Cash flows from financing activities;
Decrease in short-term borrowing......................... (34,656,850)
--------------
Net cash used by financing activities...................... (34,656,850)
--------------
Net decrease in cash and cash equivalents.................. (261,188,879)
Cash and cash equivalents at beginning of year............. 325,545,239
--------------
Cash and cash equivalents at end of year................... 64,356,360
==============
</TABLE>
See the accompanying notes to the financial statements.
F-55
<PAGE>
HANYON TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Organization and business of the Company
Hanyon Technology Inc. (the Company) was incorporated on July 21, 1989 under
the laws of the Republic of Korea to engage in the software development,
planning, research and consulting service of the automation system integration
for semiconductor and electronic industries.
As of December 31, 1998, the Company was authorized to issue 150,000 shares
of common stock with (Won)5,000 par value, and the number of shares of common
stock issued and outstanding was 30,000 shares. On January 15, 1999, the
Company issued 10,000 common shares for cash of (Won)50 million to increase its
capital.
As of April 20, 1999, the Company's issued and outstanding common shares are
40,000 shares and paid-in capital amounts to (Won)200 million. Under the "Stock
for Cash Purchase Agreement" between Brooks Automation Inc. and shareholders of
the Company dated March 31, 1999, Brooks Automation Inc. will purchase 90.5% of
shares of the Company from the shareholders.
2. Summary of significant accounting policies
Basis of preparation of the financial statements
The Company's books of accounts are maintained in Korean Won in accordance
with the pertinent laws and regulations of the Republic of Korea and the
accompanying Korean Won financial statements are prepared in conformity with
generally accepted accounting principles in Korea (Korean GAAP).
Accounting changes
The Company will change its accounting principles effective fiscal year
1999, in accordance with the revised Financial Accounting Standards (FAS)
generally accepted in Korea. Initial application of these accounting changes
are applied on a retroactive basis and the cumulative effect of such changes
will be presented as an adjustment to the opening balance of retained earnings.
In 1999, according to the revised FAS, the Company will adopt deferred income
tax accounting and record its cumulative effect as an adjustment of beginning
retained earnings at January 1, 1999.
Management's estimates and assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of making estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Financial instruments
The amounts reported for cash and cash equivalents, bank deposits, accounts
receivable, certain other assets, accounts payable and accrued expenses
approximate fair value due to their short maturities or market interest rates.
Allowance for doubtful accounts
The Company records an allowance for doubtful accounts considering the
collectibility of the outstanding accounts receivable balances at the balance
sheet date and historical bad debt experience.
F-56
<PAGE>
HANYON TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Investment securities
Investment securities consist of government bonds and equity securities and
are stated at cost.
Foreign exchange
The assets and liabilities of the Company include amounts denominated in
foreign currencies. As of December 31, 1998, these amounts have been translated
into Korean won at the exchange rates in effect as of the balance sheet date.
Gains and losses resulting from translation are included in current operating
results.
Property, plant and equipment
Property, plant and equipment are stated at acquisition cost. Depreciation
is computed using the declining balance method based on estimated useful lives
as prescribed by the Korean Corporate Income Tax Law.
Improvements that significantly add to the productive capacity or extend the
life of assets are capitalized. Expenditures for maintenance and repairs are
charged to operation as incurred.
Accrued severance indemnities.
Under provisions of the Korean Labor Standards Law, an employee with more
than one year of continuous service is entitled, upon termination of
employment, to one month's pay, equivalent to the average of the last three
months' compensation, for each year of service. The accruals for employees'
severance indemnities at December 31, 1998 amounting to (Won)414 million,
approximate these liabilities. The accrued severance indemnities are funded
approximately 48.2% at December 31, 1998 through a group insurance contract
with Daehan Life Insurance Co. The amounts funded under this insurance contract
are classified as group severance deposit. Subsequent accruals are to be funded
at the discretion of the Company. Group severance deposits may only be
withdrawn for the payment of severance benefits. Severance indemnities paid by
the Company in 1998 amounted to (Won)107 million.
Prior period adjustments
Prior period adjustments are corrections of errors and accounted for as
direct charges to current income in 1998.
Revenue recognition
A majority of the Company's contracts with customers consist of fixed price
contracts and service revenue is recognized when a billing invoice is issued
upon completion of each agreed-upon phase of the contracts. Downpayments
received from the customer under the fixed price contract are deferred as
advance receipts and amortized and recognized as service revenue at the time
each phase of the contract is completed, in proportion to the billing amount of
each phase.
Income taxes
The provision for income taxes in 1998 is based on corporation tax and
resident tax surcharges currently payable.
F-57
<PAGE>
HANYON TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Cash and cash equivalents
The Company considers all highly liquid investments with a maturity date of
three months or less when purchased to be cash and cash equivalents. Cash and
cash equivalents at December 31, 1998 consist of the following:
<TABLE>
<S> <C>
Cash on hand................................................. (Won) 55,029
Demand deposits.............................................. 64,301,331
---------------
(Won)64,356,360
===============
</TABLE>
4. Bank deposits
Bank deposits at December 31, 1998 consist of the following:
<TABLE>
<S> <C>
Saving deposits........................................... (Won)2,525,680,453
Deposit in foreign currencies............................. 2,798,636,026
------------------
(Won)5,324,316,479
==================
</TABLE>
Deposits of (Won)3 million included in non-current assets are restricted as
to withdrawal as key money deposits for a checking account.
5. Other current assets
Other current assets as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
Accounts receivable--other.................................. (Won) 21,495,848
Advance payment............................................. 101,467,000
Prepaid expenses............................................ 2,247,405
----------------
(Won)125,210,253
================
</TABLE>
6. Investment securities
Investment securities as of December 31, 1998 consist of the following:
<TABLE>
<S> <C> <C>
Rate Amount
---- ---------------
Government Bond........................................ N/A (Won) 50,000
Investment in common shares............................ 22% 45,936,000
Stock subscription right............................... 45,936,000
---------------
(Won)91,922,000
===============
</TABLE>
The Company invested US$66,000 to purchase 22% of Synergy Integration
Technology Inc., located in Taiwan, on June 3, 1998. As of December 31, 1998,
however, shares were issued for only 50% of the Company's investment with the
remainder awaiting issuance until the other shareholders inject their portion
of additional capital, which was completed on May 3, 1999.
7. Long-term loans to shareholders and employees
The Company provided housing loans to employees in the form of key money
deposits amounting to (Won)215 million as of December 31, 1998.
F-58
<PAGE>
HANYON TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Property, plant and equipment
Property, plant and equipment as of December 31, 1998 consist of the
following:
<TABLE>
<S> <C>
Land..................................................... (Won) 161,851,432
Building................................................. 118,416,880
Vehicle.................................................. 76,740,286
Furniture and fixture.................................... 964,027,834
Equipment................................................ 130,214,832
------------------
1,451,251,264
Less: accumulated depreciation........................... (969,886,054)
------------------
(Won) 481,365,210
==================
</TABLE>
9. Accrued expenses
Accrued expenses as of December 31,1998 are as follows:
<TABLE>
<S> <C>
Performance bonuses......................................... (Won)219,000,000
----------------
(Won)219,000,000
================
</TABLE>
According to the Company's profit sharing system for employees, the Company
provides performance bonuses to employees determined as ten percent of net
income generated under Korean GAAP. As of December 31, 1998, the Company
accrued performance bonuses amounting to (Won)219 million.
10. Assets and liabilities denominated in foreign currencies
Assets and liabilities denominated in foreign currencies at December 31,
1998, consist of the following:
<TABLE>
<S> <C>
(Won)2,798,636,026
------------------
Bank deposits............................................ (U$ 2,317,135)
------------------
</TABLE>
11. Income taxes
The statutory corporate income tax rate for 1998 was 30.80% including
resident tax surcharge.
12. Retained earnings
(1) Retained earnings at December 31, 1998 consist of the following:
<TABLE>
<S> <C>
Appropriated retained earnings:
Reserve for business rationalization.................. (Won) 245,307,255
Reserve for technical development..................... 571,129,514
------------------
816,436,769
Unappropriated retained earnings carried forward to sub-
sequent year........................................... 3,694,261,204
------------------
(Won)4,510,697,973
==================
</TABLE>
F-59
<PAGE>
HANYON TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(2) Reserve for business rationalization
The Tax Exemption Control Law requires that a company claiming tax credits
should appropriate current tax reduction amount to reserve for business
rationalization. This reserve is not available for other purpose except for
deficit offset or capital transfer.
(3) Reserve for technical development
The Company is allowed to claim the amount of retained earnings appropriated
for the reserve for technical development as deductions in its income tax
return under the Tax Exemption Control Law. Actual expenses incurred for
technical development should be offset against this reserve and any unused
balance should be returned to taxable income within four years.
13. Sales contracts
The Company recognized its service revenue when a billing invoice is issued
upon completion of each agreed-upon phase of the contract. Total contract
amounts outstanding and unbilled amounts as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Total Unbilled
contracts amounts
---------- ----------
<S> <C> <C>
Winbond Fab4........................................... $4,135,125 $1,544,343
USIC from SCU.......................................... 2,059,819 1,108,379
Promos add-on.......................................... 163,000 163,000
USIC add-on............................................ 517,000 517,000
Hyundai LCD............................................ 2,330,000 1,398,000
---------- ----------
$9,204,944 $4,730,722
========== ==========
</TABLE>
Advance receipts from the customer under fixed price contracts are deferred
and recognized as revenue at the time each phase of the contract is completed
in proportion to the billing amount of each phase. Advance receipts by contract
are as follows:
<TABLE>
<S> <C>
Winbond Fab4............................................. (Won)304,479,805(*)
Winbond add-on........................................... 36,720,000
----------------
Winbond total.......................................... 341,199,805
----------------
USIC from SCU(B)......................................... 177,851,295
----------------
Advance total.......................................... (Won)519,051,100
================
</TABLE>
- --------
(*) During 1997, downpayment amounting to (Won)442,879,716 (US $437,312)
received from the Winbond Fab4 project were recorded as service revenue
instead of advance receipts. The Company corrected this error in 1998 and
recorded the amount as prior period adjustments in 1998.
F-60
<PAGE>
HANYON TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
14. Selling, general and administrative expenses
Selling, general and administrative expenses for the year ended December 31,
1998 are as follows:
<TABLE>
<CAPTION>
December 31, 1998
------------------
<S> <C>
Salaries.................................................. 1,115,479,500
Bonus..................................................... 763,149,090
Provision for severance indemnities....................... 168,564,690
Fringe benefits........................................... 85,742,715
Travel.................................................... 698,043,660
Entertainment............................................. 82,873,140
Communications............................................ 45,502,111
Water and electricity..................................... 8,134,398
Taxes and dues............................................ 53,251,710
Depreciation.............................................. 241,971,758
Rent...................................................... 177,535,859
Repair.................................................... 3,076,125
Insurance................................................. 20,047,318
Vehicle maintenance....................................... 16,243,765
Delivery.................................................. 3,891,626
Training.................................................. 15,499,778
Printing expenses......................................... 43,770,659
Supplies.................................................. 32,389,205
Fees and commissions...................................... 47,192,340
Advertising............................................... 13,685,000
Samples................................................... 1,823,000
Subcontracts fee.......................................... 5,000,000
Miscellaneous............................................. 19,970,048
------------------
Total................................................... (Won)3,662,837,495
==================
</TABLE>
F-61
<PAGE>
Pricewaterhousecoopers Logo Appears Here Samil Accounting Corporation Logo
Appears Here
REPORT OF INDEPENDENT ACCOUNTANTS
June 2, 1999
To the Board of Directors and Shareholders of
Hanyon Technology, Inc.
We have audited the accompanying balance sheet of Hanyon Technology, Inc. as
of December 31, 1998 and the related statements of income, appropriations of
retained earnings and cash flows for the year ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion, as independent accountants, on these
financial statements, as to whether they have been prepared in conformity with
financial accounting standards generally accepted in the Republic of Korea. For
this purpose, we conducted our audit in accordance with auditing standards
generally accepted in the Republic of Korea.
In our opinion, the financial statements referred to above present fairly in
all material respects, the financial position of Hanyon Technology, Inc. as of
December 31, 1998 and the results of their operations, the changes in their
retained earnings and their cash flows for the year ended December 31, 1998, in
conformity with financial accounting standards generally accepted in the
Republic of Korea.
The accompanying financial statements are not intended to present the
financial position, results of operations and cash flows in accordance with
accounting principles and jurisdictions other than Korea. The standards,
procedures and practices utilized to audit such financial statements are those
generally accepted and applied in the Republic of Korea.
/s/ Samil Accounting Corporation
F-62
<PAGE>
BROOKS AUTOMATION, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated financial information gives
effect to the acquisition of Hanyon Technology, Inc. ("Hanyon") by Brooks
Automation, Inc. (the "Company") on April 21, 1999. The Company acquired a
90.5% interest in Hanyon for approximately $6.6 million in cash. The
acquisition has been accounted for under the purchase method of accounting. The
pro forma combined balance sheet gives effect to the acquisition of Hanyon as
if the acquisition had been completed as of March 31, 1999. The pro forma
combined statements of operations give effect to the acquisition of Hanyon as
if the acquisition had been completed at the beginning of the period.
The pro forma combined statement of income for the year ended September 30,
1998, includes the audited financial information of the Company for the year
ended September 30, 1998, and the unaudited financial information of Hanyon for
the year ended December 31, 1998. The pro forma combined statement of income
for the six months ended March 31, 1999, includes the unaudited financial
information for the six months ended March 31, 1999, of both the Company and
Hanyon. Hanyon's unaudited results of operations for the three months ended
December 31, 1998, (including revenues and net income of $829,000 and $183,000,
respectively) are included in the Unaudited Pro Forma Condensed Consolidated
Statements of Operations for both the year ended September 30, 1998, and the
six months ended March 31, 1999.
The unaudited pro forma condensed consolidated financial statements are
based on the historical consolidated financial statements of the Company and
the unaudited historical financial statements of Hanyon and reflects certain
pro forma adjustments based upon preliminary estimates, available information,
and certain assumptions that management deems appropriate.
These Unaudited Pro Forma Condensed Consolidated Financial Statements should
be read in conjunction with (1) the historical financial statements of Hanyon
for the year ended December 31, 1998, which is included elsewhere in this proxy
statement/prospectus and (2) the historical consolidated financial statements
of the Company that are included elsewhere in this proxy statement/prospectus
for the year ended September 30, 1998, and Interim Quarterly Report on Form
10-Q for the quarter ended March 31, 1999.
The Unaudited Pro Forma Condensed Consolidated Financial Statements are
presented for comparative purposes only and are not intended to be indicative
of actual consolidated results of operations or consolidated financial position
that would have been achieved had the acquisition of Hanyon been consummated as
of the dates indicated above nor do they purport to indicate results that may
be attained in the future.
F-63
<PAGE>
BROOKS AUTOMATION, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(In thousands)
<TABLE>
<CAPTION>
(Pro Forma)
Adjustments
(Historical) (Historical) and (Pro Forma)
Brooks Hanyon (a) Eliminations Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ 69,277 $4,357 $(7,320)(b) $ 66,314
Accounts receivable,
net.................... 23,123 2,398 (426)(e) 25,095
Inventories............. 16,839 -- 16,839
Prepaids expenses and
other current assets... 9,075 186 9,261
-------- ------ ------- --------
Total current assets.. 118,314 6,941 (7,746) 117,509
-------- ------ ------- --------
Fixed assets, net....... 17,488 372 17,860
Goodwill................ 1,914 (c) 1,914
Other assets............ 4,370 729 5,099
-------- ------ ------- --------
Total assets.......... $140,172 $8,042 $(5,832) $142,382
======== ====== ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........ $ 5,473 $ 46 (426)(e) $ 5,093
Accrued expenses and
other current
liabilities............ 12,099 1,589 13,688
-------- ------ ------- --------
Total current
liabilities 17,572 1,635 (426) 18,781
-------- ------ ------- --------
Other long-term
liabilities.............. 759 427 1,186
-------- ------ ------- --------
Total liabilities..... 18,331 2,062 (426) 19,967
-------- ------ ------- --------
Stockholders' equity:
Minority shareholders'
interest............... 574 (c) 574
Preferred stock......... -- -- --
Common stock............ 111 239 (239)(c) 111
Additional paid-in
capital................ 129,237 83 (83)(c) 129,237
Cumulative translation
adjustment............. (431) (382) 382 (431)
Deferred compensation... (104) -- (104)
Retained earnings
(accumulated deficit).. (6,972) 6,040 (6,040)(c) (6,972)
-------- ------ ------- --------
Total stockholders'
equity............... 121,841 5,980 (5,406) 122,415
-------- ------ ------- --------
Total liabilities and
stockholders'
equity............... $140,172 $8,042 $(5,832) $142,382
======== ====== ======= ========
</TABLE>
F-64
<PAGE>
BROOKS AUTOMATION, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1999
(In thousands, except share data)
<TABLE>
<CAPTION>
(Pro Forma)
Adjustments
(Historical) (Historical) and (Pro Forma)
Brooks Hanyon (A) Eliminations Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues................. $43,085 $2,075 (552)(e) $44,608
Cost of revenues......... 23,977 117 (552)(e) 23,542
------- ------ ----- -------
Gross profit............. 19,108 1,958 0 21,066
------- ------ ----- -------
Operating expenses:
Research and
development........... 8,797 0 8,797
Selling, general and
administrative........ 11,920 1,377 191 (d) 13,488
------- ------ ----- -------
Total operating
expenses............ 20,717 1,377 191 22,285
------- ------ ----- -------
Net income (loss) from
operations.............. (1,609) 581 (191) (1,219)
Interest income, net..... 1,473 (78) 1,395
------- ------ ----- -------
Net income (loss) before
income taxes............ (136) 503 (191) 176
Income tax provision
(benefit)............... 305 (40) 265
------- ------ ----- -------
(441) 543 (191) (89)
Minority shareholders'
interest................ (52)(f) (52)
------- ------ ----- -------
Net income (loss)........ $ (441) $ 543 $(139) $ (37)
======= ====== ===== =======
Loss per share:
Basic.................. $ (0.04) $ (0.00)
Diluted................ $ (0.04) $ (0.00)
Shares used in computing
loss per share:
Basic.................. 11,028 11,028
Diluted................ 11,028 11,028
</TABLE>
F-65
<PAGE>
BROOKS AUTOMATION, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(In thousands, except share data)
<TABLE>
<CAPTION>
(Pro Forma)
Adjustments
(Historical) (Historical) and (Pro Forma)
Brooks Hanyon (a) Eliminations Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues................. $ 99,862 $7,453 $107,315
Cost of revenues......... 72,357 396 72,753
-------- ------ ----- --------
Gross profit............. 27,505 7,057 34,562
-------- ------ ----- --------
Operating expenses:
Research and
development........... 22,674 0 22,674
Selling, general and
administrative........ 26,464 2,516 383 (d) 29,363
Acquisition-related and
restructuring......... 3,722 0 3,722
-------- ------ ----- --------
Total operating
expenses............ 52,860 2,516 383 55,759
-------- ------ ----- --------
Net income (loss) from
operations.............. (25,355) 4,541 (383) (21,196)
Interest income, net..... 2,694 18 2,712
-------- ------ ----- --------
Net income (loss) before
income taxes............ (22,661) 4,559 (383) (18,485)
Income tax provision
(benefit)............... (4,300) 1,465 (2,835)
-------- ------ ----- --------
Net income (loss)........ (18,361) 3,094 (383) (15,650)
Dividends on preferred
stock................... 521 0 521
-------- ------ ----- --------
(18,882) 3,094 (383) (16,171)
Minority shareholders'
interest................ (294)(f) (294)
-------- ------ ----- --------
Net income (loss)
attributable to common
stockholders............ $(18,882) $3,094 $ (89) $(15,877)
======== ====== ===== ========
Loss per share:
Basic.................. $ (1.84) $ (1.55)
Diluted................ $ (1.84) $ (1.55)
Shares used in computing
loss per share:
Basic.................. 10,269 10,269
Diluted................ 10,269 10,269
</TABLE>
F-66
<PAGE>
NOTES TO BROOKS PRO FORMA FINANCIAL STATEMENTS
(a) The balance sheet as of March 31, 1999, has been translated to US
Dollars at a rate of 1228.00 Korean Won to 1.0 US Dollar. The statement of
operations for the 6 months ended March 31, 1999, and the year ended September
30, 1998, have been translated to US Dollars at a rate of 1240.84 Korean Won
and 1450.04 Korean Won, respectively, to 1.0 US Dollar. The Hanyon historical
financial statements have been converted to US GAAP.
(b) To reflect the cash paid to acquire Hanyon.
(c) To eliminate Hanyon historical equity, to reflect transaction costs, and
to reflect goodwill. This purchase accounting is based upon preliminary
estimates. Goodwill will be amortized on a straight-line basis over 5 years.
(d) To reflect six months and twelve months of amortization of goodwill for
the six months ended March 31, 1999, and the year ended September 30, 1998,
respectively.
(e) To eliminate intercompany transactions as a result of intercompany
software product sales.
(f) To reflect the 9.5% minority shareholders' interest in Hanyon's
earnings.
F-67
<PAGE>
BROOKS AUTOMATION, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements give effect to the Merger of Brooks Automation, Inc. ("Brooks") and
Smart Machines Inc. ("Smart Machines") to be accounted for as a pooling of
interests. The unaudited pro forma condensed consolidated balance sheet
presents the combined financial position of Brooks and Smart Machines as of
March 31, 1999, assuming that the proposed merger had occurred as of March 31,
1999. Such pro forma information is based upon the historical balance sheets of
Brooks and Smart Machines as of that date. The unaudited pro forma condensed
consolidated statements of operations give effect to the proposed merger of
Brooks and Smart Machines by combining the results of operations of Brooks for
the three years ended September 30, 1998, and the six months ended March 31,
1999 and 1998, with the results of operations of Smart Machines for the three
years ended December 31, 1998, and the six months ended March 31, 1999 and
1998, respectively, on a pooling-of-interests basis.
The operations of Smart Machines, Inc. for the three months ended December
31, 1998, resulting in net revenues of $244,000 and a net loss of $1,613,000,
have been included in the pro forma statements of income for the year ended
September 30, 1998, and for the six-month period ended March 31, 1999. The
operations of Smart Machines for the three months ended December 31, 1997,
resulting in net revenues of $127,000 and a net loss of $1,224,000, have been
included in the pro forma statements of income for the year ended September 30,
1997, and for the six-month period ended March 31, 1998.
On July 6, 1999, Brooks filed Form 8-K/A to give the effect of the
acquisition of Hanyon Technologies, Inc., ("Hanyon") by Brooks, which was
accounted for under the purchase method. The pro forma information filed in
that Form 8-K/A, has been used in lieu of the historical information for Brooks
in the unaudited pro forma condensed consolidated balance sheet as of March 31,
1999, and the unaudited pro forma condensed consolidated statements of
operations for the fiscal year ended September 30, 1998, and the six months
ended March 31, 1999.
These unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the historical financial statements and notes
thereto of Brooks, Smart Machines, and Hanyon included elsewhere in the proxy
statement/prospectus.
Brooks and Smart Machines estimate that they will incur direct transaction
costs of approximately $750,000 associated with the Merger, which will be
charged to operations as incurred. There can be no assurance that the combined
company will not incur additional charges to reflect costs associated with the
Merger or that management will be successful in its efforts to integrate the
operations of the two companies. See "Risk Factors--Integration of the Two
Companies."
The unaudited pro forma condensed combined financial information set forth
below is presented for illustrative purposes only, and is not necessarily
indicative of the financial position or results of operations that would have
actually been reported had the Merger occurred at the beginning of the periods
presented, nor is it necessarily indicative of the future financial position or
results of operations of the combined companies.
Risks related to merger--the integration of Smart Machines with Brooks will
be expensive and time-consuming and poses a number of challenges that may
materially adversely affect Brooks' buisiness.
F-68
<PAGE>
BROOKS AUTOMATION, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
Pro
Historical Pro Forma Forma
Brooks(1) SMART Adjustments Combined
--------- ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $ 66,314 $ 977 $ -- $ 67,291
Accounts receivable, net..... 25,095 105 -- 25,200
Inventories.................. 16,839 521 -- 17,360
Prepaids expenses and other
current assets.............. 9,261 83 -- 9,344
-------- -------- ------- --------
Total current assets....... 117,509 1,686 -- 119,195
Fixed assets, net............ 17,860 303 -- 18,163
Goodwill..................... 1,914 -- -- 1,914
Other assets................. 5,099 15 -- 5,114
-------- -------- ------- --------
Total assets............... $142,382 $ 2,004 $ -- $144,386
======== ======== ======= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable............. $ 5,093 $ 152 $ -- $ 5,245
Accrued expenses and other
current liabilities......... 13,688 686 609 (1)(4) 14,983
-------- -------- ------- --------
Total current liabilities.. 18,781 838 609 20,228
Other long-term liabilities.... 1,760 3,499 (2,500)(1) 2,759
-------- -------- ------- --------
Total liabilities.......... 20,541 4,337 (1,891) 22,987
-------- -------- ------- --------
Redeemable convertible
preferred stock............... -- 3,787 (3,787) --
-------- -------- ------- --------
Stockholders' equity:
Preferred stock.............. -- 6,467 (6,467)(1) --
Common stock................. 111 747 (742)(1) 116
Additional paid-in capital... 129,237 1,838 13,637 (1) 144,712
Cumulative translation
adjustment.................. (431) -- -- (431)
Deferred compensation........ (104) -- -- (104)
Accumulated deficit.......... (6,972) (15,172) (750)(4) (22,894)
-------- -------- ------- --------
Total stockholders'
equity.................... 121,841 (6,120) 5,678 121,399
-------- -------- ------- --------
Total liabilities and
stockholders' equity...... $142,382 $ 2,004 $ -- $144,386
======== ======== ======= ========
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Statements.
F-69
<PAGE>
BROOKS AUTOMATION, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended
March 31, Year ended September 30,
----------------- ----------------------------
1999 1998 1998 1997 1996
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues (a)................. $45,082 $ 53,882 $107,697 $109,428 $112,730
Cost of revenues............. 24,358 39,015 73,924 65,311 57,961
------- -------- -------- -------- --------
Gross profit................. 20,724 14,867 33,773 44,117 54,769
------- -------- -------- -------- --------
Operating expenses:
Research and development... 10,122 13,919 25,389 22,207 20,315
Selling, general and
administrative............ 13,997 14,957 30,392 24,906 23,798
Acquisition-related and
restructuring............. -- -- 3,722 -- 230
------- -------- -------- -------- --------
Total operating
expenses................ 24,119 28,876 59,503 47,113 44,343
------- -------- -------- -------- --------
Net income (loss) from
operations.................. (3,395) (14,009) (25,730) (2,996) 10,426
Interest income (expense),
net......................... 1,330 1,544 2,941 (705) (36)
------- -------- -------- -------- --------
Net income (loss) before
income taxes................ (2,065) (12,465) (22,789) (3,701) 10,390
Income tax provision
(benefit)................... 265 (1,287) (2,835) 1,267 4,599
------- -------- -------- -------- --------
Net income (loss)............ (2,330) (11,178) (19,954) (4,968) 5,791
Dividends on preferred
stock....................... 450 711 1,420 1,005 521
------- -------- -------- -------- --------
Net income (loss)
attributable to common
stockholders................ $(2,780) $(11,889) $(21,374) $ (5,973) $ 5,270
======= ======== ======== ======== ========
Earnings (loss) per share:
Basic...................... $ (0.24) $ (1.12) $ (1.99) $ (0.73) $ 0.67
Diluted.................... $ (0.24) $ (1.12) $ (1.99) $ (0.73) $ 0.62
Shares used in computing
earnings (loss) per share:
Basic...................... 11,502 10,609 10,739 8,175 7,846
Diluted.................... 11,502 10,609 10,739 8,175 9,326
</TABLE>
- --------
(a) Includes revenues from a related party of $4.5 million and $10.2 million
for the six months ended March 31, 1999 and 1998, and $16.3 million, $18.9
million, and $19.1 million for the years ended September 30, 1998, 1997,
and 1996.
See Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Statements.
F-70
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. PRO FORMA BASIS OF PRESENTATION
These unaudited pro forma condensed consolidated financial statements give
effect to the Merger as if it had occurred at the beginning of the earliest
period presented. The shares issued were based upon a purchase price of $14.2
million minus the outstanding obligations of Smart Machines under its existing
third party credit facility. There were 478,000 shares of Brooks common stock,
at $27.49 per share, issued in exchange for all of the Smart Machines
outstanding common stock, preferred stock, and convertible notes and related
interest. For the purposes of these pro forma condensed consolidated financial
statements, the price per share of the Books common stock was based upon the
average of the closing price for Brooks common stock on the Nasdaq National
Market for the 20 consecutive trading-day period ending July 29, 1999. In
addition, all outstanding options and warrants to purchase Smart Machines
capital stock will be exchanged for options and warrants to purchase Brooks
common stock, based on the Capital Stock Conversion Ratios of $0.015, $0.0370,
$0.1111, $0.1296, 0.1296 for Common Stock, Preferred Stock Series A, Preferred
Stock Series B, Preferred Stock Series C and Preferred Stock Series D,
respectively. As of March 31, 1999, options to purchase a total of 480,617
shares and warrants to purchase a total of 592,064 shares of Smart Machines
common stock were outstanding.
On July 6, 1999, Brooks filed Form 8-K/A to give the effect of the
acquisition of Hanyon Technologies, Inc., by Brooks, which was accounted for
under the purchase method. The pro forma information filed in that Form 8-K/A,
has been used in lieu of the historical information for Brooks in the unaudited
pro forma condensed consolidated balance sheet as of March 31, 1999, and in the
unaudited pro forma condensed consolidated statements of operations for the
fiscal year ended September 30, 1998, and the six months ended March 31, 1999.
The unaudited pro forma condensed consolidated financial statements give
effect to the Merger on a retroactive basis. The unaudited pro forma condensed
consolidated balance sheet as of March 31, 1999, gives effect to the Merger as
if it had occurred on March 31, 1999, and combines the pro forma balance sheet
of Brooks and the unaudited historical balance sheet of Smart Machines as of
March 31, 1999. The unaudited pro forma condensed consolidated statements of
operations give effect to the Merger as if it had occurred at the beginning of
the earliest period presented. The unaudited pro forma condensed consolidated
statements of operations for the fiscal years ended September 30, 1998, 1997,
and 1996, and the six months ended March 31, 1999 and 1998, combine the
historical results of operations of Brooks for the fiscal years ended September
30, 1998, 1997, and 1996, and the six months ended March 31, 1999 and 1998,
with the historical results of operations of Smart Machines for the three years
ended December 31, 1998, and the six months ended March 31, 1999 and 1998,
respectively, on a pooling-of-interests basis.
The operations of Smart Machines for the three months ended December 31,
1998, resulting in net revenues of $244,000 and a net loss of $1,613,000, have
been included in the pro forma statements of income for the year ended
September 30, 1998, and for the six-month period ended March 31, 1999. The
operations of Smart Machines for the three months ended December 31, 1997,
resulting in net sales of $127,000 and a net loss of $1,224,000, have been
included in the pro forma statements of income for the year ended September 30,
1997, and for the six-month period ended March 31, 1998.
2. PRO FORMA EARNINGS PER SHARE
The unaudited pro forma combined earnings per share information is based
upon the weighted average number of common and dilutive potential common shares
outstanding of Brooks and Smart Machines for each period presented, giving
effect to the Merger as if it occurred at the beginning of the earliest period
presented, using the per share price for Brooks common stock of $27.49 and a
purchase price of $14.2 million minus the outstanding obligations of Smart
Machines under its existing third party credit facility.
F-71
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3. CONFORMING ADJUSTMENTS AND INTERCOMPANY TRANSACTIONS
There were no material adjustments required to conform the accounting
policies of Brooks and Smart Machines. There are no material intercompany
transactions included in the unaudited pro forma condensed consolidated
financial statements.
4. TRANSACTION COSTS
It is estimated that the combined company will incur charges to operations
of approximately $750,000 representing direct transaction costs of the Merger,
primarily for accounting and legal fees. The estimated charge is reflected in
the unaudited condensed consolidated balance sheet as March 31, 1999, but is
not reflected in the unaudited pro forma condensed consolidated statements of
operations. These nonrecurring transaction costs will be charged to operations
as incurred. These costs reflect a preliminary estimate only, and therefore,
are subject to change.
It is expected that following the Merger, the combined company will incur
additional significant costs associated with integrating the two companies,
which amounts will be charged to operations as incurred. The amount of such
costs is not currently reasonably estimable and, accordingly, the amount has
not been reflected in the unaudited pro forma condensed consolidated balance
sheet as of March 31, 1999. There can be no assurance that the combined company
will not incur additional material charges to reflect costs associated with the
Merger or that management will be successful in its efforts to integrate the
operations of the two companies.
F-72
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
BROOKS AUTOMATION, INC.
SMART ACQUISITION CORP.
And
SMART MACHINES INC.
DATED: JULY 7, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
1. Definitions.......................................................... A-1
2. The Merger; Closing.................................................. A-7
2.1 The Merger...................................................... A-7
2.2 Effective Time.................................................. A-7
2.3 Effects of the Merger........................................... A-7
2.4 Articles of Incorporation of Surviving Corporation.............. A-8
2.5 Bylaws of Surviving Corporation................................. A-8
2.6 Officers and Directors of Surviving Corporation................. A-8
2.7 Conversion or Cancellation of Capital Stock of the Company...... A-8
2.8 Surrender of Certificates....................................... A-10
2.9 No Fractional Shares; Multiple Certificates..................... A-11
2.10 Escrow Shares................................................... A-12
2.11 Shareholder Representative...................................... A-12
2.12 Stock Transfer Books............................................ A-13
2.13 Tax and Accounting Consequences................................. A-13
2.14 Regulation D.................................................... A-13
3. Representations and Warranties Concerning the Company................ A-13
3.1 Organization and Good Standing.................................. A-13
3.2 Authority; No Conflict.......................................... A-13
3.3 Capitalization.................................................. A-14
3.4 Books, Records and Accounts..................................... A-15
3.5 Financial Statements............................................ A-15
3.6 No Undisclosed Liabilities...................................... A-16
3.7 No Material Adverse Change...................................... A-16
3.8 Taxes........................................................... A-16
3.9 Accounts Receivable............................................. A-17
3.10 Title to Properties; Encumbrances............................... A-18
3.11 Condition and Sufficiency of Assets............................. A-19
3.12 Compliance with Laws; Governmental Authorizations............... A-19
3.13 Legal Proceedings............................................... A-19
3.14 Absence of Certain Changes and Events........................... A-19
3.15 Contracts; No Defaults.......................................... A-21
3.16 Insurance....................................................... A-23
3.17 Environmental Matters........................................... A-24
3.18 Employees....................................................... A-24
3.19 Employee Benefits............................................... A-25
3.20 Labor Relations................................................. A-27
3.21 Intellectual Property........................................... A-28
3.22 Certain Payments................................................ A-30
3.23 Relationships with Related Persons.............................. A-30
3.24 Brokers or Finders.............................................. A-31
3.25 Customer Relationships.......................................... A-31
3.26 Outstanding Indebtedness........................................ A-31
3.27 Suppliers; Raw Materials Contractors............................ A-31
3.28 Customers....................................................... A-31
3.29 Year 2000 Compliance............................................ A-32
3.30 Payables........................................................ A-32
</TABLE>
A-i
<PAGE>
<TABLE>
<C> <S> <C>
3.31 Inventories...................................................... A-32
3.32 Product Warranties; Product Liability............................ A-33
3.33 Financial Service Relations and Powers of Attorney............... A-33
3.34 Pooling.......................................................... A-33
3.35 Regulatory Correspondence........................................ A-33
3.36 HSR Act.......................................................... A-33
3.37 Company Action................................................... A-33
3.38 Disclosure....................................................... A-34
4. Representations and Warranties of Parent and Merger Sub............... A-34
4.1 Organization and Good Standing................................... A-34
4.2 Authority; No Conflict........................................... A-34
4.3 Capitalization; Parent Shares.................................... A-35
4.4 Filings with the Commission...................................... A-35
4.5 No Material Adverse Change....................................... A-36
4.6 Legal Proceedings................................................ A-36
4.7 Brokers or Finders............................................... A-36
4.8 Disclosure....................................................... A-36
5. Covenants............................................................. A-36
5.1 Normal Course.................................................... A-36
5.2 Conduct of Business.............................................. A-36
5.3 Regulation D..................................................... A-38
5.4 Private Placement Memorandum..................................... A-38
5.5 Company Shareholder Documents.................................... A-39
5.6 S-4 Registration Statement....................................... A-39
5.7 Special Meeting.................................................. A-40
5.8 Agreements with Respect to Affiliates............................ A-40
5.9 Certain Filings.................................................. A-41
5.10 Notification of Certain Matters.................................. A-41
5.11 Pooling Accounting Treatment..................................... A-41
5.12 No Solicitation.................................................. A-41
5.13 Access to Information; Confidentiality........................... A-42
5.14 Reasonable Best Efforts; Further Action.......................... A-42
6. Additional Covenants of Parent and Merger Sub......................... A-42
6.1 Certain Filings.................................................. A-42
6.2 Notification of Certain Matters.................................. A-43
6.3 Employment Matters............................................... A-43
6.4 Indemnification and Insurance.................................... A-43
6.5 Registration..................................................... A-44
6.6 NMS Listing...................................................... A-46
6.7 Payment of Fees and Interest..................................... A-46
7. Conditions to Obligations of Parent and Merger Sub.................... A-47
7.1 Representations and Warranties................................... A-47
7.2 Performance of Covenants......................................... A-47
7.3 Convertible Notes................................................ A-47
7.4 Dissenting Shareholders.......................................... A-47
7.5 Update Certificate............................................... A-47
</TABLE>
A-ii
<PAGE>
<TABLE>
<C> <S> <C>
7.6 No Governmental or Other Proceeding; Illegality................. A-47
7.7 Approvals and Consents.......................................... A-48
7.8 Opinion of Counsel.............................................. A-48
7.9 Shareholder Approval............................................ A-48
7.10 Opinions of Accountants; Pooling................................ A-48
7.11 Escrow Agreement................................................ A-48
7.12 Noncompetition and Proprietary Information Agreements........... A-48
7.13 Termination of Rights and Voting Agreements..................... A-48
7.14 Nasdaq National Market.......................................... A-49
7.15 Registration.................................................... A-49
7.16 Other Documents................................................. A-49
8. Conditions to Obligations of the Company.............................. A-49
8.1 Representations and Warranties.................................. A-49
8.2 Performance of Covenants........................................ A-49
8.3 Update Certificate.............................................. A-49
8.4 No Governmental or Other Proceeding; Illegality................. A-49
8.5 Opinion of Counsel.............................................. A-50
8.6 Shareholder Approval............................................ A-50
8.7 Registration.................................................... A-50
9. Survival; Indemnification............................................. A-50
9.1 Survival........................................................ A-50
9.2 Indemnification................................................. A-50
9.3 Third Person Claims............................................. A-51
9.4 Method of Payment............................................... A-51
9.5 Limitations..................................................... A-51
9.6 Maximum Liability and Remedies.................................. A-51
10. Termination of Agreement.............................................. A-52
10.1 Termination..................................................... A-52
10.2 Termination by the Parent....................................... A-52
10.3 Termination by the Company...................................... A-52
10.4 Procedure for Termination....................................... A-53
10.5 Effect of Termination........................................... A-53
10.6 Right to Proceed................................................ A-54
11. General Provisions.................................................... A-54
11.1 Termination of Representations And Warranties................... A-54
11.2 Expenses........................................................ A-54
11.3 Public Announcements............................................ A-54
11.4 Notices......................................................... A-55
11.5 Jurisdiction; Service of Process................................ A-55
11.6 Reset Election.................................................. A-55
11.7 Failure or Indulgence Not Waiver; Remedies Cumulative........... A-56
11.8 Assignments, Successors, and No Third-Party Rights.............. A-56
11.9 Severability.................................................... A-56
11.10 Governing Law................................................... A-57
11.11 Counterparts.................................................... A-57
11.12 Entire Agreement and Modification............................... A-57
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered into
as of July 7, 1999, among (i) Brooks Automation, Inc. ("Parent"), a Delaware
corporation and a party to this Agreement but not a constituent corporation in
the Merger (as hereinafter defined), (ii) SMART Acquisition Corp. ("Merger
Sub"), a Delaware corporation all of whose capital stock is owned directly by
Parent, and (iii) Smart Machines Inc. (the "Company"), a California
corporation.
RECITALS:
A. The Boards of Directors of Parent, Merger Sub and the Company, deeming it
advisable and for the respective benefit of Parent, Merger Sub and the Company,
and their shareholders, have approved the Merger of Merger Sub with and into
the Company upon the terms and subject to the conditions set forth in this
Agreement, and have approved this Agreement and authorized the transactions
contemplated hereby.
B. The Board of Directors of the Company has determined to recommend to all
of the Company's shareholders that the Merger and this Agreement be approved.
C. Parent, Merger Sub, and the Company intend to adopt this Agreement as a
plan of reorganization within the meaning of Section 368 of the Code (as
hereinafter defined) and the regulations promulgated thereunder.
D. Parent, Merger Sub, and the Company intend that the Merger be accounted
for as a pooling-of-interests for financial reporting and accounting purposes.
E. Pursuant to the Merger, each outstanding share of the Company's capital
stock (the "Company Capital Stock"), shall be automatically converted into the
right to receive the consideration specified in Section 2.7 upon the terms and
subject to the conditions hereinafter set forth.
F. Upon consummation of the Merger, the Company will be a wholly-owned
subsidiary of Parent.
THE PARTIES AGREE AS FOLLOWS:
1. Definitions
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Accounts Receivable"--as defined in Section 3.9.
"Actual Damages"--as defined in Section 9.2.
"Affiliate Agreement"--as defined in Section 3.37.
"Affiliate Letters"--as defined in Section 5.8.
"Agreement"--this Agreement, including the Schedules and Exhibits hereto.
"Agreement of Merger"--as defined in Section 2.2.
"Alternative Acquisition"--as defined in Section 5.12.
"Certificates"--as defined in Section 2.8(c).
A-1
<PAGE>
"CGCL"--as defined in Section 2.1(a).
"Closing"--as defined in Section 2.1(b).
"Closing Date"--the date and time as of which the Closing actually takes
place.
"Closing Exchange Price"--the average closing price of a share of Parent
Common Stock for the 20 consecutive Trading Days ending on the Trading Day
that is five Trading Days immediately prior to the Closing Date, as reported
on the Nasdaq National Market (subject to appropriate adjustment for any stock
split, reverse split, stock dividend, reorganization, recapitalization or
other like change with respect to the Parent Common Stock occurring after the
date hereof and prior to the Effective Time).
"Code"--the Internal Revenue Code of 1986, as amended, or any successor
law.
"Commission"--the United States Securities and Exchange Commission.
"Company"--as defined in the first paragraph of this Agreement.
"Company Capital Stock"--the Company Common Stock and Company Preferred
Stock.
"Company Common Stock"--the Common Stock, no par value, of the Company.
"Company Preferred Stock"--the Series A, Series B, Series C and Series D
Preferred Stock of the Company.
"Company Shareholders"--the holders of the Company Common Stock and Company
Preferred Stock.
"Company Shareholder Documents"--as defined in Section 5.5(b).
"Company Shareholder Questionnaire"--as defined in Section 5.5(a).
"Company Subsidiary"--Smart Machines of California Inc., a California
corporation.
"Company Termination Fee"--as defined in Section 10.5(d).
"Confidentiality Agreements"--the Confidentiality Agreement, dated July 7,
1999 between the Company and Parent and the Confidentiality Agreement, dated
February 9, 1999 between Parent and Needham.
"Continuing Employee"--as defined in Section 6.3(a).
"Contract"--any agreement, contract, obligation, promise, commitment or
undertaking (whether written or oral and whether express or implied), other
than those that have been terminated.
"Convertible Notes"--the 7% Convertible Promissory Notes issued pursuant to
the Note Purchase Agreement, dated June 15, 1998.
"Copyrights"--as defined in Section 3.21(a).
"Credit Line"--all credit extensions and facilities provided by Venture
Lending and Leasing II, Inc. or any of its affiliates.
"Customers"--as defined in Section 3.28.
"Damages"--as defined in Section 9.2.
"DGCL"--as defined in Section 2.1(a).
"Disclosure Document"--as defined in Section 5.7.
A-2
<PAGE>
"Disclosure Schedule"--the disclosure schedule delivered by the Company to
Parent and Merger Sub concurrently with the execution and delivery of this
Agreement.
"Dissenting Shareholders"--as defined in Section 2.7(b).
"Effective Time"--as defined in Section 2.2.
"Employee Benefit Plan"--as defined in Section 3.19(a).
"Encumbrance"--any mortgage, charge, claim, community property interest,
equitable interest, lien, option, pledge, security interest, right of first
refusal or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income or exercise of any other attribute of ownership;
and the verb "Encumber" shall be construed accordingly.
"Environmental Claim"--any accusation, allegation, notice of violation,
action, claim, Encumbrance, Lien, demand, abatement or other Order or direction
(conditional or otherwise) by any Governmental Authority or any Person for
personal injury (including sickness, disease or death), tangible or intangible
property damage, damage to the environment, nuisance, pollution, contamination
or other adverse effects on the environment, or for fines, penalties or
restrictions resulting from or based upon (i) the existence, or the
continuation of the existence, of a Release (including, without limitation,
sudden or non-sudden accidental or non-accidental Releases) of, or exposure to,
any Hazardous Material or other substance, clinical, material, pollutant,
contaminant, odor, audible noise, or other Release in, into or onto the
environment (including, without limitation, the air soil, soil, surface water
or groundwater) at, in, by, from or related to the Facilities or any activities
conducted thereon; (ii) the environmental aspects of the transportation,
storage, treatment or disposal of Hazardous Materials in connection with the
operation of the Facilities; or (iii) the violation, or alleged violation, of
any Environmental Laws, Orders or Governmental Permits of or from any
Governmental Authority relating to environmental matters connected with the
Facilities.
"Environmental, Health, and Safety Liabilities"--any cost, damage, expense,
liability, obligation or other responsibility arising from or under any
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to: (a) any environmental, health or safety matter or condition
(including on-site or off-site contamination, generation, handling and disposal
of Hazardous Materials, occupational safety and health, and regulation of
chemical and Hazardous Materials); (b) fines, penalties, judgments, awards,
settlements, legal or administrative proceedings, damages, losses, litigation,
including civil and criminal claims, demands and responses, investigative,
remedial, response or inspection costs and expenses arising under Environmental
Law or Occupational Safety and Health Law; (c) financial responsibility under
Environmental Law or Occupational Safety and Health Law for cleanup costs or
corrective action, including any investigation, cleanup, removal, containment
or other remediation or response actions required by applicable Environmental
Law or Occupational Safety and Health Law and for any natural resource damages;
or (d) any other compliance, corrective, investigative or remedial measures
required under Environmental Law or Occupational Safety and Health Law. The
terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq., as amended
("CERCLA").
"Environmental Law"--any Law concerning the environment, or activities that
might threaten or result in damage to the environment or human health, or any
Law that is concerned in whole or in part with the environment and with
protecting or improving the quality of the environment and human and employee
health and safety and includes, but is not limited to, CERCLA, the Hazardous
Materials Transportation Act (49 U.S.C. (S) 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.), the Clean Water Act
(33 U.S.C. (S) 1251 et seq.), the Clean Air Act (33 U.S.C. (S) 7401 et seq.),
the Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. (S) 136 et seq.) and the
Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.) ("OSHA"), as
such laws have been amended or supplemented, and the regulations promulgated
pursuant thereto, and any and all analogous state or local statutes, and the
regulations promulgated pursuant thereto.
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"ERISA"--the Employee Retirement Income Security Act of 1974, as amended,
or any successor law.
"ERISA Affiliate"--as defined in Section 3.19(b).
"Escrow Agent"--as defined in Section 2.10.
"Escrow Agreement"--as defined in Section 2.10.
"Escrow Shares"--as defined in Section 2.10.
"Exchange Act"--the Securities Exchange Act of 1934, as amended, or any
successor law.
"Exchange Agent"--as defined in Section 2.8(a).
"Exchange Ratio"--as defined in Section 2.7(a).
"Facilities"--any real property, leaseholds or other interests currently or
formerly owned or operated by the Company and any buildings, plants,
structures or equipment (including motor vehicles) currently or formerly owned
or operated by the Company.
"Financial Statements"--as defined in Section 3.5(a).
"GAAP"--United States generally accepted accounting principles.
"Governmental Authority"--any court, tribunal, authority, agency,
commission, bureau, department, official or other instrumentality of the
United States, any foreign country or any domestic, foreign, state, local,
county, city or other political subdivision.
"Governmental Permit"--any license, franchise, permit or other
authorization of any Governmental Authority.
"Hazardous Materials"--any substance, material or waste which is regulated
by Environmental Law, including, without limitation, any material or substance
which is defined as a "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste" or "restricted hazardous waste,"
"subject waste," "contaminant," "toxic waste" or "toxic substance" under any
provision of Environmental Law, including but not limited to, petroleum
products, asbestos and polychlorinated biphenyls.
"HSR Act"--the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, or any successor law.
"Indemnitee"--as defined in Section 9.2.
"Intellectual Property Assets"--as defined in Section 3.21(a).
"Interim Financial Statements"--as defined in Section 3.5(a).
"ISO"--as defined in Section 3.19(i).
"Key Employees"--Messrs. K. Charles Janac, Todd Sokonyoy, Gregory Martes,
Ms. Sharon Andres and Matt Fauss.
"Law"--any federal, state, local or foreign law (including common law),
statute, code, ordinance, rule, regulation or other requirement or guideline.
"Lien"--any lien, pledge, hypothecation, levy, mortgage, deed of trust,
security interest, claim, lease, charge, option, right of first refusal,
easement, or other real estate declaration, covenant, condition,
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restriction or servitude, transfer restriction under any shareholder or similar
agreement, encumbrance or any other restriction or limitation whatsoever.
"Marks"--as defined in Section 3.21(a).
"Material Adverse Effect"--as defined in Section 3.7.
"Material Personal Property"--as defined in Section 3.10.
"Merger"--as defined in Section 2.1(a).
"Merger Sub"--as defined in the first paragraph of this Agreement.
"Occupational Safety and Health Law"--any legal or governmental requirement
or obligation relating to safe and healthful working conditions or to reduce
occupational safety and health hazards, and any program, whether governmental
or private (including those promulgated or sponsored by industry associations
and insurance companies), designed to provide safe and healthful working
conditions.
"Options"--as defined in Section 2.7(d).
"Order"--any order, consent, consent order, injunction, judgment, decree,
consent decree, ruling, writ, assessment or arbitration award.
"Organizational Documents"--(a) the articles or certificate of incorporation
and the bylaws or code of regulations of a corporation; (b) the partnership
agreement and any statement of partnership of a general partnership; (c) the
limited partnership agreement and the certificate of limited partnership of a
limited partnership; (d) the articles or certificate of formation and operating
agreement of a limited liability company; (e) any charter, trust certificate or
document or similar document adopted or filed in connection with the creation,
formation or organization of a Person; and (f) any and all currently effective
amendments to any of the foregoing.
"Parent"--as defined in the first paragraph of this Agreement.
"Parent Common Stock"--the Common Stock, $0.01 par value per share, of
Parent.
"Parent Purchase Right"--as defined in Section 2.7(g).
"Parent SEC Report"--as defined in Section 4.4.
"Parent Shares"--the shares of Parent Common Stock to be issued to the
Company Shareholders in connection with the Merger.
"Patents"--as defined in Section 3.21(a).
"Pension Plan"--as defined in Section 3.19(f).
"Person"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union or other entity
or governmental body or Governmental Authority.
"Placement Memorandum/Proxy Statement"--as defined in Section 5.4(a).
"Pooling Rules"--as defined in Section 5.8.
"Proceeding"--any pending claim, action, investigation, arbitration,
litigation or other judicial, regulatory or administrative proceeding.
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"Prospectus/Proxy Statement"--as defined in Section 5.6(b).
"Purchase Price"--$11,970,406 less all principal, interest, fees and
premiums, if any, relating to the Credit Line plus the principal amount of any
draw down from the Credit Line from the date of this Agreement to the Closing
Date aggregating up to but not exceeding $1,000,000 to satisfy the Company's
working capital requirements together with interest, fees and premiums, if any,
relating to such draw down.
"Purchaser Representative Agreement"--as defined in Section 5.5(b).
"Registration Statement"--the registration statement on Form S-3 to be filed
by Parent with the SEC pursuant to Section 6.5.
"Regulation D"--Regulation D promulgated pursuant to the Securities Act.
"Related Person"--as defined in Section 3.23.
"Release"--any release, spill, effluent, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching, or migration into
the indoor or outdoor environment of any Hazardous Material through or in the
air, soil, surface water or groundwater.
"Remedial Action"--all actions, including, without limitation, any
expenditures, required or voluntarily undertaken to (i) clean up, remove,
treat, or in any other way address any Hazardous Material or other substance in
the indoor or outdoor environment; (ii) prevent the Release or threat of
Release, or minimize the further Release of any Hazardous Material or other
substance so it does not migrate or endanger or threaten to endanger public
health or welfare of the indoor or outdoor environment; (iii) perform pre-
remedial studies and investigations or post-remedial monitoring and care; or
(iv) bring any Facility into compliance with all Environmental Laws and
Environmental Permits.
"Returns"--as defined in Section 3.8(b).
"Rule 145"--as defined in Section 5.8.
"S-4 Registration Statement"--as defined in Section 5.6(a).
"Securities Act"--the Securities Act of 1933, as amended, or any successor
law.
"Shareholder Representative"--as defined in Section 2.11.
"Sophistication Certificate"--as defined in Section 5.5(b).
"Special Consent"--as defined in Section 5.4(a).
"Special Meeting"--as defined in Section 5.4(a).
"Subsidiary"--with respect to any Person, any corporation, joint venture,
limited liability company, partnership, association or other business entity of
which more than 50% of the total voting power of stock or other equity entitled
to vote generally in the election of directors or managers or equivalent
persons thereof is owned or controlled, directly or indirectly, by such Person.
"Surviving Corporation"--as defined in Section 2.1(a).
"Systems"--as defined in Section 3.29(a).
"Tax Authority"--as defined in Section 3.8(a).
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"Taxes"--as defined in Section 3.8(a).
"Third Person"-- as defined in Section 9.3.
"Trade Secrets"--as defined in Section 3.21(a).
"Trading Day"-- any day on which the Nasdaq National Market is open for
business.
"Transaction Documents"--the Agreement of Merger and the other agreements,
documents or instruments executed and delivered by a party hereto as
contemplated under this Agreement.
"WARN"--as defined in Section 3.18(d).
"Warrants"-- as defined in Section 2.7(d).
"Year 2000"--as defined in Section 3.29(a).
2. The Merger; Closing
2.1 The Merger
(a) Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the California General Corporation Law (the
"CGCL") and the Delaware General Corporation Law (the "DGCL"), Merger Sub shall
be merged with and into the Company at the Effective Time (the "Merger").
Following the Merger, the separate corporate existence of Merger Sub shall
cease, and the Company shall continue as the surviving corporation (the
"Surviving Corporation") under the name "Smart Machines Inc."
(b) Unless this Agreement shall have been terminated and the transactions
herein contemplated shall have been abandoned pursuant to Section 10 and
subject to the satisfaction or waiver of the conditions set forth in Sections 7
and 8, the consummation of the Merger will take place on or as promptly as
practicable (and in any event within two business days) after satisfaction or
waiver of the conditions set forth in Sections 7 and 8 at the offices of Brown,
Rudnick, Freed & Gesmer, One Financial Center, Boston, Massachusetts 02111 (the
"Closing"), unless another date, time or place is agreed to in writing by the
Company and Parent.
2.2 Effective Time
As soon as practicable following the Closing, the parties hereto shall cause
the Merger to be consummated by (i) filing an agreement or certificate of
merger (the "Agreement of Merger") in such form as is required by and executed
in accordance with the relevant provisions of the CGCL and the DGCL, and (ii)
making all other filings or recordings required under the CGCL and the DGCL.
The Merger shall become effective at such time as the Agreement of Merger,
having previously been duly filed with the Secretary of State of the State of
Delaware, is duly filed with the Secretary of State of the State of California
or at such subsequent time as the Company, Merger Sub and Parent shall agree
and shall be specified in the Agreement of Merger (the date and time the Merger
becomes effective being the "Effective Time").
2.3 Effects Of The Merger
At and after the Effective Time, the Merger will have the effects set forth
in this Agreement, the Agreement of Merger and the applicable provisions of the
CGCL and the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time all the assets, property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
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2.4 Articles of Incorporation of Surviving Corporation
Unless otherwise determined by Parent prior to the Effective Time, at the
Effective Time, the articles of incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the articles of incorporation
of the Surviving Corporation, unless and until thereafter changed or amended in
accordance with the CGCL.
2.5 Bylaws Of Surviving Corporation
Unless otherwise determined by Parent prior to the Effective Time, at the
Effective Time, the bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation, unless and
until thereafter changed or amended in accordance with the CGCL.
2.6 Officers And Directors Of Surviving Corporation
The officers of Merger Sub immediately prior to the Effective Time (which
are identified in Section 2.6 of the Disclosure Schedule) shall be the initial
officers of the Surviving Corporation, in each case until the earliest of their
resignation or removal from office or their otherwise ceasing to be officers or
until their respective successors are duly elected and qualified. The directors
of Merger Sub immediately prior to the Effective Time (which are identified in
Section 2.6 of the Disclosure Schedule) shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the articles of
incorporation and bylaws of the Surviving Corporation.
2.7 Conversion Or Cancellation Of Capital Stock Of The Company
At the Effective Time, by virtue of the Merger and without any action on the
part of any party hereto or any holder thereof:
(a) Company Capital Stock. Subject to the provisions of Sections 2.7(b) and
(e), 2.8 and 2.9, each share of Company Common Stock and Company Preferred
Stock issued and outstanding immediately prior to the Effective Time (except
for shares held in the Company's treasury) shall be canceled and extinguished
and automatically converted into the right to receive, before reduction on a
pro rata basis with all the Company Capital Stock for the Escrow Shares, the
number of shares of Parent Common Stock based on the Closing Exchange Price
(the "Exchange Ratio") as follows:
Series of Stock Exchange Ratio
Common (Purchase Price - 8,094,625) / Closing Exchange Price
----------------------------------------------------------
Total Number of Shares of Issued and Outstanding Company
Common Stock on Closing Date
Series A Preferred 1,342,621 / Closing Exchange Price
----------------------------------------------------------
Total Number of Shares of Issued and Outstanding Series A
Preferred Stock on Closing Date
Series B Preferred 1,246,707 / Closing Exchange Price
----------------------------------------------------------
Total Number of Shares of Issued and Outstanding Series B
Preferred Stock on Closing Date
Series C Preferred 2,291,342 / Closing Exchange Price
----------------------------------------------------------
Total Number of Shares of Issued and Outstanding Series C
Preferred Stock on Closing Date
Series D Preferred 3,213,955 / Closing Exchange Price
----------------------------------------------------------
Total Number of Shares of Issued and Outstanding Series D
Preferred Stock on Closing Date
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In no event shall the aggregate number of shares of Parent Common Stock
determined pursuant to this Section 2.7(a) exceed the number determined by
dividing (i) the Purchase Price by (ii) the Closing Exchange Price.
(b) Dissenters. Shares of Company Capital Stock owned by a holder who (i)
shall not have voted in favor of the Merger, and (ii) shall have delivered to
the Company a written notice of his intent to demand payment for his shares if
the Merger is effectuated in the manner provided in Section 1300 et seq. of the
CGCL and is otherwise a "dissenting shareholder" as such term is used in such
sections of the CGCL (collectively, the "Dissenting Shareholders") shall not be
canceled, extinguished and converted as provided in Section 2.7(a), but shall
be entitled to receive such consideration as shall be provided in such sections
of the CGCL, except that shares of any Dissenting Shareholder who shall
thereafter cease to be a "dissenting shareholder" as provided in such sections
of the CGCL shall thereupon be deemed to have been canceled, extinguished and
converted, as of the Effective Time, into Parent Common Stock, as provided in
Section 2.7(a). The Company shall notify Parent in writing of the details of
the Dissenting Shareholders and the number of shares of Company Capital Stock
that they own. The Company shall not enter into any agreement or settlement
with any Dissenting Shareholder without the prior written consent of Parent.
(c) Treasury Shares and Unissued Shares. Each share of Company Capital Stock
held in the Company's treasury and each authorized but unissued share of
Company Capital Stock shall cease to exist without payment of any consideration
therefor.
(d) Warrants and Options. As of the Effective Time, all (i) outstanding
options to purchase Company Common Stock granted by the Company pursuant to its
stock option plans or otherwise ("Options") and (ii) warrants to purchase
Company Preferred Stock or Company Common Stock ("Warrants"), whether vested or
unvested, whether or not exercisable, shall be assumed by the Parent.
Immediately after the Effective Time, each Option and Warrant outstanding
immediately prior to the Effective Time shall be deemed to constitute an option
or warrant to acquire, on the same terms and conditions as were applicable
under such Option or Warrant at the Effective Time (without giving effect to
the Merger), such number of shares of Parent Common Stock equal to the number
of shares of Company Common Stock or Company Preferred Stock subject to the
unexercised portion of such Option or Warrant, as applicable, multiplied by the
appropriate Exchange Ratio, with any fraction resulting from such
multiplication to be paid in cash upon the exercise of such Option or Warrant
based upon the closing price of Parent Common Stock on the Nasdaq National
Market on the date of exercise. The exercise price per share of each such
assumed Option and Warrant shall be equal to the exercise price of such Option
and Warrant immediately prior to the Effective Time, divided by the Exchange
Ratio (rounded to the nearest whole cent). The terms, exercisability, vesting
schedule, status as an "incentive stock option" under Section 422 of the Code,
if applicable, and all of the other terms of the Options and Warrants shall
otherwise remain unchanged. As soon as practicable after the Effective Time,
the Parent or the Surviving Corporation shall deliver to the holders of Options
and Warrants appropriate notices setting forth such holders' rights pursuant to
such Options and Warrants, as amended by this Section 2.7, and the agreements
evidencing such Options and Warrants shall continue in effect on the same terms
and conditions (subject to the amendments provided for in this Section 2.7.)
The Board of Directors of the Company (or if appropriate, a committee thereof)
shall adopt such resolutions and take such actions as may be required to cause
each Option and Warrant outstanding at the Effective Time to be assumed by the
Parent in accordance with Section 2.7(d). The Parent shall take all corporate
action necessary to reserve for issuance a sufficient number of shares of
Parent Common Stock for delivery upon exercise of the Options and Warrants
assumed in accordance with this Section 2.7.
(e) Merger Sub's Common Stock. Each share of Merger Sub's Common Stock,
$0.01 par value per share, issued and outstanding immediately prior to the
Effective Time shall be canceled and extinguished and automatically converted
into one (1) validly issued, fully paid and nonassessable share of Common
Stock, no par value per share, of the Surviving Corporation.
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(f) Adjustments to Exchange Ratio Computation. The Exchange Ratio
computation pursuant to Section 2.7(a) shall be appropriately adjusted for any
stock split, reverse split, stock dividend, reorganization, recapitalization or
other like change with respect to the Parent Common Stock occurring after the
date hereof and prior to the Effective Time.
(g) Parent Purchase Rights. Holders of shares of Company Capital Stock shall
also receive together with each share of Parent Common Stock issued in the
Merger pursuant to this Section 2.7 an associated preferred stock purchase
right ("Parent Purchase Right") pursuant to the Rights Agreement, as amended,
between the Parent and the Rights Agent named therein. References herein to
Parent Common Stock shall be deemed to include the associated Parent Purchase
Rights.
2.8 Surrender of Certificates
(a) Exchange Agent. The transfer agent for the Parent Common Stock, or a
bank or trust company designated by Parent prior to the Effective Time, shall
act as exchange agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock and Cash. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent, for exchange in
accordance with this Section 2, the aggregate number of shares of Parent Common
Stock issuable pursuant to Section 2.7 in exchange for the issued and
outstanding shares of Company Capital Stock and the cash to be paid in lieu of
fractional shares pursuant to Section 2.9. At any time following six months
after the Effective Time, Parent shall be entitled to require the Exchange
Agent to deliver to Parent any Parent Common Stock or cash which had been made
available to the Exchange Agent by or on behalf of Parent and which has not
been disbursed to holders of Certificates, and thereafter such holders shall be
entitled to look to Parent with respect to such Parent Common Stock or cash
payable upon due surrender of their Certificates.
(c) Exchange Procedures. Within five business days after the Effective Time,
the Exchange Agent shall cause to be delivered to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time evidenced outstanding shares of Company Capital Stock whose
shares were converted into the right to receive shares of Parent Common Stock
pursuant to Section 2.7 and, if applicable, cash in lieu of fractional shares
pursuant to Section 2.9 (i) a 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 Exchange Agent
and shall be in such form and have such other provisions as Parent may
reasonably specify) and (ii) instructions to effect the surrender of the
Certificates in exchange for certificates evidencing shares of Parent Common
Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal, duly completed and validly executed
in accordance with the instructions thereto, and such other documents as may be
required by such instructions, the holder of such Certificates shall be
entitled to receive in exchange therefor a certificate evidencing the number of
whole shares of Parent Common Stock, plus cash in lieu of fractional shares in
accordance with Section 2.9, and the Certificate so surrendered shall forthwith
be canceled. Until so surrendered, each outstanding Certificate that, prior to
the Effective Time, evidenced shares of Company Capital Stock will be deemed
from and after the Effective Time, for all corporate purposes, other than the
payment of dividends or other distributions, to evidence the ownership of the
number of whole shares of Parent Common Stock into which such shares of Company
Capital Stock shall have been so converted and the right to receive an amount
in cash in lieu of the issuance of any fractional shares in accordance with
Section 2.9.
(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to shares
of Parent Common Stock with a record date after the Effective Time will be paid
to the holder of any unsurrendered Certificate with respect to the shares of
Parent Common Stock evidenced thereby until the holder of record of such
Certificate shall surrender such Certificate pursuant to Section 2.8(c).
Subject to applicable Law, following surrender of any such Certificate, there
shall be paid to the record holder of the certificates evidencing whole shares
of Parent Common Stock issued in
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exchange therefor, without interest, at the time of such surrender, the amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent Common
Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer, accompanied by all documents
required to evidence and effect such transfer pursuant to this Section 2.8(e),
and that the Person requesting such transfer will have paid to Parent or any
agent designated by it any transfer or other Taxes required by reason of the
issuance of a certificate for shares of Parent Common Stock in any name other
than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such Taxes have been paid or are not payable.
(f) No Liability. Notwithstanding anything to the contrary in this Section
2.8, none of the Exchange Agent, the Surviving Corporation or any party hereto
shall be liable to any holder of shares of Company Capital Stock for any amount
properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar Law.
(g) No Further Ownership Rights in Company Capital Stock. From and after the
Effective Time, no shares of Company Capital Stock shall be deemed to be
outstanding, and holders of Certificates shall cease to have any rights with
respect thereto, other than the right to receive Parent Common Stock and cash
in accordance with Sections 2.7, 2.8 and 2.9 hereof. All shares of Parent
Common Stock issued upon the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof (including any cash paid in
respect thereof in accordance with Section 2.9) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of Company
Capital Stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of Company Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Section 2.8.
(h) Lost, Stolen or Destroyed Certificates. In the event any Certificates
evidencing shares of Company Capital Stock shall have been lost, stolen or
destroyed, the Exchange Agent may require, before issuing certificates in
respect of the shares of Parent Common Stock evidenced thereby, such affidavits
and indemnities and bonds in support thereof, as it may reasonably require with
respect to such loss, theft or destruction.
(i) Withholding Rights. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of Company Capital Stock such amounts as Parent or the
Exchange Agent is required to deduct and withhold with respect to the making of
such payment under the Code, or any provision of state, local or foreign Tax
Law. To the extent that amounts are so deducted and withheld by Parent or the
Exchange Agent, such deducted and withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the Company
Capital Stock in respect of which such deduction and withholding was made by
Parent or the Exchange Agent.
2.9 No Fractional Shares; Multiple Certificates
Notwithstanding any provision of this Agreement to the contrary, neither
certificates nor scrip for fractional shares of Parent Capital Stock shall be
issued in connection with the Merger, but in lieu thereof each holder of shares
of Company Capital Stock otherwise entitled to a fraction of a share of Parent
Common Stock pursuant to the provisions of Section 2.7 shall be paid in cash in
accordance with Section 2.8 an amount equal to such fraction multiplied by the
Closing Exchange Price. No such holder shall be entitled to dividends or
interest on or, except for the cash payment referred to in the preceding
sentence, other rights in respect of any such fractional interest. If more than
one Certificate shall be surrendered for the account of the same Company
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Shareholder, the number of whole shares of Parent Common Stock for which such
Certificates shall be exchanged pursuant to Section 2.8 shall be computed on
the basis of the aggregate number of shares of Company Capital Stock evidenced
by such Certificates.
2.10 Escrow Shares
At the Effective Time, the Parent shall deliver to State Street Bank and
Trust Company or any successor escrow agent ("Escrow Agent") appointed pursuant
to the escrow agreement (the "Escrow Agreement"), Parent Shares based upon the
Closing Exchange Price in an amount equal to 5% of the Purchase Price, such
shares (the "Escrow Shares") to be held for a period of one (1) year from the
Closing and applied in accordance with the terms of the Escrow Agreement
substantially in the form attached hereto as Exhibit 2.10.
2.11 Shareholder Representative
(a) Each Company Shareholder will be deemed to have irrevocably constituted
and appointed, effective as of the Effective Time, K. Charles Janac (together
with his permitted successors, the "Shareholder Representative"), as his true
and lawful agent and attorney-in-fact to enter into any agreement in connection
with the transactions contemplated by this Agreement and any transactions
contemplated by the Escrow Agreement, to exercise all or any of the powers,
authority and discretion conferred on him under any such agreement, to waive
any terms and conditions of any such agreement (other than the Parent Common
Stock and cash issuable in accordance with Sections 2.7, 2.8 and 2.9), to give
and receive notices on his behalf and to be his exclusive representative with
respect to any matter, suit, claim, action or Proceeding arising with respect
to any transaction contemplated by any such agreement, including, without
limitation, the defense, settlement or compromise of any claim, action or
proceeding for which Parent or the Surviving Corporation may be entitled to
indemnification and the Shareholder Representative agrees to act as, and to
undertake the duties and responsibilities of, such agent and attorney-in-fact.
This power of attorney is coupled with an interest and is irrevocable.
(b) The Shareholder Representative shall not be liable to anyone for any
action taken or not taken by him in good faith or for any mistake of fact or
law for anything that he may do or refrain from doing in connection with his
obligations under this Agreement (i) with the consent of stockholders who, as
of the date of this Agreement, owned a majority in number of the outstanding
shares of Company Common Stock (treating the Company Preferred Stock on an as-
converted basis) or (ii) in the absence of his own gross negligence or willful
misconduct. Any action taken or not taken pursuant to the advice of counsel
shall be conclusive evidence of such good faith. The Company Shareholders and
Parent shall, jointly and severally, indemnify and hold the Shareholder
Representative, and each successor thereof, harmless from any and all liability
and expenses (including, without limitation, counsel fees) which may arise out
of any action taken or omitted by him as Shareholder Representative in
accordance with this Agreement, as the same may be amended, modified or
supplemented, except such liability and expense as may result from the gross
negligence or willful misconduct of the Shareholder Representative.
(c) The Shareholder Representative may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties.
The Shareholder Representative shall not be liable for other parties'
forgeries, fraud or false presentations.
(d) The Shareholder Representative shall have reasonable access to
information about the Company and the reasonable assistance of the Company's
officers and employees for purposes of performing his duties and exercising his
rights hereunder, provided that the Shareholder Representative shall treat
confidentially and not disclose any nonpublic information from or about the
Company to anyone (except on a need to know basis to individuals who agree to
treat such information confidentially).
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(e) If the Shareholder Representative shall be unable or unwilling to serve
in such capacity, his successor shall be named by those persons holding a
majority of the shares of Company Common Stock outstanding (treating the
Company Preferred Stock on an as-converted basis) at the Effective Time, and
such successors shall serve and exercise the powers of the Shareholder
Representative hereunder.
2.12 Stock Transfer Books
At the close of business on the day prior to the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of Company
Capital Stock shall there-after be made on such stock transfer books.
2.13 Tax And Accounting Consequences
It is intended by the parties hereto that the Merger shall (i) constitute a
tax-free plan of reorganization within the meaning of Section 368 of the Code,
and (ii) subject to applicable accounting standards, qualify for accounting
treatment as a pooling-of-interests. The parties hereto adopt this Agreement as
a "plan of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-
3(a) of the United States Treasury Regulations.
2.14 Regulation D
Unless the S-4 Registration Statement is effective, all Parent Shares issued
pursuant to this Agreement will be subject to certain resale restrictions
pursuant to Regulation D and all certificates representing such Parent Shares
shall bear a restrictive legend.
3. Representations And Warranties Concerning The Company
Except as set forth on the disclosure schedule attached hereto (the
"Disclosure Schedule"), the Company represents and warrants to Parent and
Merger Sub that the statements contained in this Section 3 are true and
correct. The Disclosure Schedule shall be initialed by the parties and shall be
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Section 3.
3.1 Organization And Good Standing
(a) Section 3.1 of the Disclosure Schedule contains a complete and accurate
list of the jurisdictions in which the Company and the Company Subsidiary is
each authorized to do business. The Company and the Company Subsidiary are each
a corporation duly organized, validly existing and in good standing under the
laws of California, with full corporate power and authority to conduct its
business as it is now being conducted and where it is now being conducted and
to own or use the assets and properties that it purports to own or use. Neither
the Company nor the Company Subsidiary is qualified to do business as a foreign
corporation under the Laws of any jurisdiction and is not required to be
licensed or qualified in any other state or jurisdiction by either its
ownership or use of assets or properties, or the nature of the activities
conducted by it, except where the failure to be so qualified could not
reasonably be expected to have a Material Adverse Effect on the Company and the
Company Subsidiary, taken as a whole. The Company does not have, and has never
had, any Subsidiaries, except for the Company Subsidiary.
(b) The Company has attached as Schedule 3.1(b) of the Disclosure Schedule
correct and complete copies of the Organizational Documents of the Company and
the Company Subsidiary.
3.2 Authority; No Conflict
(a) The Company has the right, power, authority and capacity to execute and
deliver this Agreement and the Transaction Documents to which it is a party, to
consummate the Merger and the other transactions contemplated hereby and
thereby and to perform its obligations under this Agreement and the Transaction
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Documents to which it is a party. This Agreement has been duly authorized and
approved, executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms. Upon the authorization and approval, execution and
delivery by the Company of the Transaction Documents to which it is a party,
such Transaction Documents will constitute legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with their
respective terms except (i) as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, and (ii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought.
(b) Neither the execution and delivery of this Agreement or any Transaction
Document by the Company nor the consummation or performance by the Company of
the Merger or any of the other transactions contemplated hereby or thereby
will, directly or indirectly (with or without notice or lapse of time or both):
(i) contravene, conflict with or result in a violation or breach of (A)
any provision of the Organizational Documents of the Company or the Company
Subsidiary, (B) any resolution adopted by the board of directors or the
shareholders of the Company or the Company Subsidiary, (C) any legal
requirement or any Order, award, decision, settlement or process to which
the Company or the Company Subsidiary or any of the assets or properties
owned or used by the Company or the Company Subsidiary may be subject, or
(D) any Governmental Permit, which is held or used by the Company or the
Company Subsidiary excluding from clauses (C) and (D) any contravention,
conflict, violation or breach which would not, either individually or in
the aggregate, materially, adversely affect the Company or materially
impair or preclude the Company's ability to consummate the Merger or the
transactions contemplated hereby;
(ii) result in a breach of or constitute a default, give rise to a right
of termination, cancellation or acceleration, create any entitlement to any
payment or benefit, or require the consent, authorization or approval of or
any notice to or filing with any third Person under any material Contract
or any debt instrument to which the Company or the Company Subsidiary is a
party or to which its or their assets or properties are bound, or require
the consent, authorization or approval of or any notice to or filing with
any Governmental Authority to which the Company or the Company Subsidiary
or its or their assets or properties is subject except for any breaches,
defaults, rights of termination, cancellation or acceleration,
entitlements, consents, approvals, notices or filings which would not,
either individually or in the aggregate, materially, adversely affect the
Company or materially impair or preclude the Company's ability to
consummate the Merger or the transactions contemplated hereby; or
(iii) result in the imposition or creation of any Encumbrance or Lien
upon or with respect to any of the assets or properties owned or used by
the Company or the Company Subsidiary.
3.3 Capitalization
(a) The authorized equity securities of the Company consists of (i)
16,000,000 shares of Preferred Stock, 1,965,000 of which shares have been
designated Series A Preferred Stock, 532,382 of which shares have been
designated Series B Preferred Stock, 879,096 of which shares have been
designated Series C Preferred Stock, 2,287,250 of which shares have been
designated Series D Preferred Stock, and 962,261 of which have been designated
Series E Preferred Stock, and (ii) 33,000,000 shares of Common Stock.
Immediately prior to the Closing, 4,626,218 shares of Common Stock, 1,965,000
shares of Series A Preferred Stock, 532,382 shares of Series B Preferred Stock,
834,096 shares of Series C Preferred Stock, and 1,166,581 shares of Series D
Preferred Stock and no shares of Series E Preferred Stock are issued and
outstanding. Options to purchase 592,064 shares of Common Stock and warrants to
purchase 35,000 shares of Series C Preferred Stock, 57,182 shares of Series D
Preferred Stock, 480,617 shares of Series E Preferred Stock and 42,658 shares
of Common Stock are issued and outstanding immediately prior to Closing. No
equity securities of the Company are held in the treasury of the Company. All
of the outstanding equity securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. Section 3.3 of the
Disclosure Schedule sets forth a complete and correct list of all of the
Company Shareholders and the number of shares of Company
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Capital Stock owned, of record and beneficially, by each such Company
Shareholder. Section 3.3 of the Disclosure Schedule sets forth a complete and
correct list of all warrants, options or similar rights, including as to each
holder thereof, the name of such holder, the number of shares of Company
Capital Stock subject thereto and the exercisability, exercise price or
conversion rate and termination date thereof. Section 3.3 of the Disclosure
Schedule sets forth all outstanding securities of the Company and the Company
Subsidiary, including but not limited to all debt securities, Company Common
Stock, options, warrants, rights and all other securities or outstanding or
authorized subscriptions convertible or exercisable into, or exchangeable for,
capital stock. No "phantom" stock, stock appreciation rights or agreements or
similar rights or agreements exist which are intended to confer on any person
rights similar to any rights accruing to Company Shareholders. There are no
voting trusts or other Contracts or understandings to which the Company, the
Company Subsidiary or any Company Shareholder is a party with respect to the
transfer, voting or registration of the capital stock of the Company or the
Company Subsidiary. There are no Contracts relating to the issuance, sale or
transfer of any equity securities or other securities of the Company or the
Company Subsidiary. Neither the Company nor the Company Subsidiary owns or has
any Contract to acquire any equity securities or other securities of any Person
or any, direct or indirect, equity or ownership interest in any other business,
except for the Company Subsidiary (with respect to the Company). No Person has
any preemptive rights with respect to any security of the Company or the
Company Subsidiary.
(b) The Company directly owns, of record and beneficially, and has good,
valid and indefeasible title to and the right to transfer all of the issued and
outstanding capital stock of the Company Subsidiary, free and clear of any and
all Encumbrances and Liens of any kind or nature whatsoever. There are no
voting trusts, shareholder agreements or any other Contracts or understandings
to which the Company or the Company Subsidiary is a party with respect to the
capital stock of the Company Subsidiary. All of the outstanding capital stock
of the Company Subsidiary has been duly authorized and validly issued and is
fully paid and nonassessable.
3.4 Books, Records and Accounts
(a) The books of account and other records of the Company and the Company
Subsidiary, all of which have been made available to Parent, are true, complete
and correct in all material respects. The minute books of the Company and the
Company Subsidiary contain true, accurate and complete records of all meetings
held of, and corporate action taken by, the shareholders, the board of
directors, and committees of the board of directors of the Company and the
Company Subsidiary, respectively. The stock books of the Company and the
Company Subsidiary are true, complete and correct.
(b) The Company's books, records and accounts fairly and accurately reflect
transactions and dispositions of assets by the Company, and the system of
internal accounting controls of the Company is sufficient to assure that: (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(c) At the Closing, all of such books, records and accounts will be in the
possession of the Company.
3.5 Financial Statements
(a) For purposes of this Agreement: "Financial Statements" shall mean (i)
the audited consolidated balance sheets of the Company as of December 31, 1997
and December 31, 1998, and the related consolidated income statements and
statements of cash flows for the three years ended December 31, 1998, and (ii)
the unaudited balance sheet of the Company as of May 31, 1999 and the related
income statement for the five (5) months ended on such date (the "Interim
Financial Statements"). True and complete copies of such Financial Statements
and Interim Financial Statements are attached as Section 3.5(a) to the
Disclosure Schedule.
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(b) The Financial Statements and the Interim Financial Statements (i) have
been prepared from the books and records of the Company in accordance with GAAP
consistently applied during the periods covered thereby, (ii) fully reflect all
liabilities and contingent liabilities of the Company (on a consolidated basis)
required to be reflected therein on such basis as at the date thereof, and
(iii) fairly present the financial position of the Company (on a consolidated
basis) as of the date of the balance sheet included in the Interim Financial
Statements and the results of its operations (on a consolidated basis) for the
period indicated; provided, however, the Interim Financial Statements (x) are
subject to normal year-end adjustments and (y) do not include footnotes. The
Auditors have not delivered management's letters to management of the Company
for fiscal years 1998, 1997 or 1996.
3.6 No Undisclosed Liabilities
The Company and the Company Subsidiary do not have any material liabilities
or obligations of any nature (whether known or unknown, absolute, accrued,
contingent or otherwise, and whether due or to become due), except for (i)
liabilities or obligations reflected or reserved against in the Financial
Statements and (ii) current liabilities incurred in the ordinary course of
business since the date of the Financial Statements, consistent with past
practices, (none of which is a claim for breach of contract, breach of duty,
breach of warranty, tort or infringement of an intellectual property right).
3.7 No Material Adverse Change
Since May 31, 1999, there has not been any material adverse change in the
business, operations, properties, assets, liabilities, results of operations or
condition (financial or otherwise) (a "Material Adverse Effect") of the Company
or the Company Subsidiary, and no event has occurred or circumstance exists
that could reasonably be expected to result in a Material Adverse Effect on the
Company and the Company Subsidiary, taken as a whole, provided that the effect
of any of the following shall not be considered a Material Adverse Effect: (A)
general economic or financial conditions, (B) other developments that are not
unique to the Company and/or the Company Subsidiary but also affect other
Persons who participate or are engaged in the lines of business in which the
Company and/or the Company Subsidiary participate or are engaged or
(C) continued losses in amounts substantially consistent with the three month
period ended May 31, 1999. To the knowledge of the Company, there is no fact
that would be reasonably likely to result in a Material Adverse Effect on the
Company or the Company Subsidiary which has not been specifically disclosed
herein or in a schedule hereto.
3.8 Taxes
(a) "Taxes" shall mean all taxes, charges, fees, Encumbrances, Liens,
customs, duties or other assessments, however denominated, including any
interest, penalties, additions to tax or additional taxes that may become
payable in respect thereof, imposed by the United States government, any state,
local or foreign government, or any agency or political subdivision of any such
government (a "Tax Authority"), which taxes shall include, without limiting the
generality of the foregoing, all income taxes, payroll and employee withholding
taxes, unemployment insurance, social security, sales and use taxes, excise
taxes, capital taxes, franchise taxes, gross receipt taxes, occupation taxes,
real and personal property taxes, value added taxes, stamp taxes, transfer
taxes, workers' compensation taxes, taxes relating to benefit plans and other
obligations of the same or similar nature.
(b) (i) Each of the Company and the Company Subsidiary has filed or caused
to be filed with the appropriate Taxing Authorities in a timely manner all Tax
returns, reports and forms ("Returns") required to be filed by them; (ii) the
information on such Returns is complete and accurate in all material respects;
(iii) each of the Company and the Company Subsidiary has paid in full on a
timely basis all Taxes or made adequate provision in the Financial Statements
for all Taxes (whether or not shown on any Return) required to be paid by them;
(iv) there are no Encumbrances or Liens for Taxes upon the assets or properties
of the Company or the Company Subsidiary other than for Taxes not yet due and
payable; and (v) no deficiencies for
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Taxes have been claimed, proposed, or assessed by any Tax Authority or other
Governmental Authority with respect to the Company or the Company Subsidiary,
and there are no pending or, to the Company's knowledge, threatened audits,
investigations or claims for or relating to any liability in respect of Taxes
of the Company or the Company Subsidiary.
(c) There are no outstanding Contracts or waivers with respect to the
Company extending the statutory period of limitation applicable to any Taxes,
and neither the Company nor the Company Subsidiary has requested any extension
of time within which to file any Return, which has not yet been filed.
(d) (i) Each of the Company and the Company Subsidiary has made provision
for all Taxes payable by it and such provision is reflected on the Financial
Statements with respect to any period covered thereby as to Taxes which are not
payable prior to the date of such Financial Statements; (ii) the provisions for
Taxes with respect to the Company (on a consolidated basis) for any period
prior to the Closing (excluding any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) are adequate to cover
all Taxes with respect to such period; (iii) each of the Company and the
Company Subsidiary has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third Person; (iv) all
material elections with respect to Taxes made by the Company or the Company
Subsidiary as of the date hereof are set forth in Section 3.8 of the Disclosure
Schedule; (v) there are no private letter rulings in respect of any Tax pending
between the Company or the Company Subsidiary and any Tax Authority, if such
ruling would affect the Company or the Company Subsidiary; (vi) neither the
Company nor the Company Subsidiary has ever been a member of an affiliated
group within the meaning of Section 1504 of the Code, or filed or been included
in a combined, consolidated or unitary return of any Person (other than with
respect to the Company and the Company Subsidiary); (vii) neither the Company
nor the Company Subsidiary is liable for Taxes of any other Person except with
respect to sales taxes, and neither the Company nor the Company Subsidiary is
currently under any contractual obligation to indemnify any Person with respect
to Taxes, or a party to any tax sharing agreement or any other agreement
providing for payments by the Company or the Company Subsidiary with respect to
Taxes; (viii) neither the Company nor the Company Subsidiary is, or has been, a
United States real property holding corporation (as defined in Section
897(c)(2) of the Code), during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code; (ix) neither the Company nor the Company
Subsidiary is a "collapsible corporation" under Section 341 of the Code; (x)
neither the Company nor the Company Subsidiary is a personal holding company
within the meaning of Section 542 of the Code; (xi) neither the Company nor any
Company Subsidiary is a party to any joint venture, partnership or other
arrangement or Contract which could be treated as a partnership for Tax
purposes; (xii) neither the Company nor any Company Subsidiary has agreed to or
is required, as a result of a change in method of accounting or otherwise, to
include any adjustment under Section 481 of the Code (or any corresponding
provision of state, local or foreign Law) in taxable income; (xiii) neither the
Company nor the Company Subsidiary is a party to any Contract, arrangement or
plan that could result (taking into account the transactions contemplated by
this Agreement), separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code; and (xiv)
Section 4.8 of the Disclosure Schedule contains a list of all jurisdictions to
which any Tax is properly payable or in which any Return is required to be
filed by the Company or the Company Subsidiary, and no written claim has ever
been made by any Tax Authority in any other jurisdiction that the Company or
the Company Subsidiary is subject to taxation in such jurisdiction.
3.9 Accounts Receivable
All accounts receivable, notes receivable, contracts receivable, unbilled
invoices and other receivables of the Company that are reflected on the
Financial Statements or on the accounts receivable ledger of the Company or the
Company Subsidiary as of the Closing Date (collectively, the "Accounts
Receivable") represent or will represent valid and enforceable obligations (i)
arising from sales actually made or services actually performed in the ordinary
course of business, (ii) arising out of transactions with unaffiliated parties
and (iii) subject to no setoff, defense or counterclaim. All of the Accounts
Receivable are or will be collectible at the full recorded amount thereof
within ninety (90) days of invoice date through normal means of collection,
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less any applicable reserves established in accordance with GAAP. An accurate
summary of the aging of the Accounts Receivable on May 31, 1999 is attached as
Section 3.9 to the Disclosure Schedule. Since January 1, 1998, there has not
been a material change in the Company's receivables aging practice.
3.10 Title to Properties; Encumbrances
(a) Neither the Company nor the Company Subsidiary owns, or has ever owned,
any real property. Section 3.10 of the Disclosure Schedule contains a complete
and accurate list of all leaseholds or other interests in real property held by
the Company or the Company Subsidiary. Section 3.10 of the Disclosure Schedule
sets forth for each such property, the owner thereof, a brief description
thereof (including approximate square footage), the use made of such property
and the approximate annual costs, fees and taxes associated with such property.
The Company has delivered or made available to Parent true, correct and
complete copies of the real property leases to which the Company or the Company
Subsidiary is party or pursuant to which they use or occupy any real property.
(b) Also set forth on Section 3.10 of the Disclosure Schedule is a listing
of the machinery, equipment and other tangible personal property with an
original cost in excess of $25,000 used or owned by the Company and the Company
Subsidiary and a listing of all leases under which the Company or the Company
Subsidiary leases any personal property as of the Closing Date requiring annual
rental payments in excess of $10,000, together with a description of such
property (collectively, the "Material Personal Property"). All Material
Personal Property is located at 651 River Oaks Parkway, San Jose, California.
Except as set forth on Section 3.10 of the Disclosure Schedule, all of the
assets and properties of the Company are reflected on the Financial Statements
(except to the extent not required to be so reflected by GAAP). The only
intangible assets and properties owned by the Company or used in the conduct of
its business are the Intellectual Property Assets.
(c) All of the foregoing agreements set forth on Section 3.10 of the
Disclosure Schedule are valid, subsisting and enforceable in accordance with
their terms against the parties thereto. The Company and the Company Subsidiary
are in compliance with all terms and conditions of such agreements and no event
has occurred nor does any circumstance exist that (with or without notice or
the passage of time or both) would constitute a material violation or default
under any such agreements and neither the Company nor the Company Subsidiary
has given or received written notice of any alleged violation or of any default
under any such agreement.
(d) Each of the Company and the Company Subsidiary has good and marketable
title to all of the assets and properties, real and personal, tangible and
intangible, it owns or purports to own, or uses in its business, including
those reflected on its books and records and in the Financial Statements
(except for accounts receivable collected and inventories, materials and
supplies disposed of in the ordinary course of business consistent with past
practice after the date of the most recent Financial Statements). Each of the
Company and the Company Subsidiary has a valid leasehold, license or other
interest in all of the other tangible assets or properties, real or personal,
which are used in the operation of its business. Except as set forth on Section
3.10 of the Disclosure Schedule, all assets and properties owned, leased or
used by the Company or the Company Subsidiary are free and clear of all
Encumbrances and Liens and other adverse claims or charges or interests of any
kind, except for (a) liens for current Taxes not yet due, (b) workmen's, common
carrier and other similar liens arising in the ordinary course of business,
none of which materially detracts from the value or impairs the use of the
asset or property subject thereto, or impairs the operations of the Company or
the Company Subsidiary, and (c) Encumbrances or Liens disclosed in the
Financial Statements.
(e) To the best of the Company's knowledge, there are no condemnation,
environmental, zoning or other land use regulation proceedings, either
instituted or planned to be instituted, that would detrimentally affect the use
and operation of the Company's leased real property for its intended purpose.
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3.11 Condition and Sufficiency of Assets
The Facilities and other assets and property owned or used by the Company or
the Company Subsidiary are structurally sound, are in good operating condition
and repair (normal wear and tear excepted), and are adequate for the uses to
which they are being put, and none of such Facilities or other property and
assets owned or used by the Company or the Company Subsidiary is in need of
maintenance or repairs except for ordinary, routine maintenance and repairs
that are not material in nature or cost. The Facilities and other assets and
property owned or used by the Company and the Company Subsidiary are sufficient
for the continued conduct of its business after the Closing in substantially
the same manner as conducted prior to the Closing.
3.12 Compliance with Laws; Governmental Authorizations
(a) Each of the Company and the Company Subsidiary is in compliance in all
material respects with all Laws, licenses and Orders affecting the assets or
properties owned or used by the Company or the Company Subsidiary or the
business or operations of the Company or the Company Subsidiary including
federal, state, local and foreign Laws, licenses and Orders. Neither the
Company nor the Company Subsidiary has been charged with violating, or to the
knowledge of the Company, threatened with a charge of violating, nor is the
Company or the Company Subsidiary under investigation with respect to a
possible violation of, any provision of any federal, state, local or foreign
Law, Order or administrative ruling or license relating to any of its or their
assets or properties or any aspect of its or their business.
(b) Section 3.12 of the Disclosure Schedule contains a complete and accurate
list of each Governmental Permit that is held by the Company or the Company
Subsidiary or that otherwise relates to the business of, or to any of the
assets or properties owned or used by, the Company or the Company Subsidiary.
Each Governmental Permit listed or required to be listed in Section 3.12 of the
Disclosure Schedule is valid and in full force and effect and is not subject to
any Proceedings for suspension, modification or revocation.
3.13 Legal Proceedings
(a) The Company has not received notice of, nor to the knowledge of the
Company does there exist, any Proceeding that has been commenced by or against
the Company, the Company Subsidiary or any of the officers, directors, former
officers or directors, employees, shareholders or agents of the Company or the
Company Subsidiary (in their capacities as such) or that otherwise relates to
the business of, or any of the assets or properties owned or used by, the
Company or the Company Subsidiary; or
(b) There is no Proceeding that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
transactions contemplated hereby.
(c) To the knowledge of the Company, no Proceeding has been threatened.
3.14 Absence of Certain Changes and Events
Except as set forth in Section 3.14 of the Disclosure Schedule, since May
31, 1999, each of the Company and the Company Subsidiary has conducted its
business only in the ordinary course, consistent with past practice, and there
has not been any:
(a) contingent liability incurred by the Company or the Company
Subsidiary as guarantor or otherwise with respect to the obligations of
others;
(b) declaration, setting aside, making or payment of any dividend or
other distribution or repurchase or payment in respect of shares of capital
stock;
(c) issuance, sale, disposition or Encumbrance of, or authorization for
issuance, sale, disposition or Encumbrance of, or grant or issue of any
options, warrants or rights to acquire with respect to, any shares of its
capital stock or any other of its securities or any security convertible or
exercisable into or
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exchangeable for any such shares or securities, or any change in its
outstanding securities or shares of capital stock or its capitalization,
whether by reason of a reclassification, recapitalization, stock split,
combination, exchange or readjustment of shares, stock dividend or
otherwise;
(d) obligation or liability incurred by the Company or the Company
Subsidiary other than obligations and liabilities incurred in the ordinary
course of business consistent with past practice (none of which is a claim
for breach of contract, breach of duty, breach of warranty, tort or
infringement of an intellectual property right);
(e) encumbrance of its assets or properties;
(f) payment of any bonuses, salaries or other compensation to any
shareholder, director, officer, consultant, agent or sales representative
or (except in the ordinary course of business consistent with past
practice) employee, increase of any bonuses, salaries or other compensation
to any shareholder, director, officer, consultant, agent, sales
representative or employee, or entry into or variation of any employment,
severance or similar Contract with any director, officer or employee;
(g) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement or other employee benefit plan for or with any employees;
(h) damage to or destruction of any asset or property, whether or not
covered by insurance, or loss of any Customer, which could reasonably be
expected to have a Material Adverse Effect on the Company and the Company
Subsidiary, taken as a whole;
(i) entry into, termination of, or receipt of notice of termination of
any Contract or transaction involving a total remaining commitment by or to
the Company or the Company Subsidiary of at least $25,000 including the
entry into (i) any document evidencing any indebtedness; (ii) any capital
or other lease; or (iii) any guaranty;
(j) sale, lease or other disposition (other than in the ordinary course
of business consistent with past practice) of any asset or property;
(k) cancellation, compromise, release or waiver of any debt, claim or
right with a value to the Company or the Company Subsidiary in excess of
$10,000;
(l) creation, incurrence or assumption of any indebtedness for borrowed
money or guarantee of any obligation in an aggregate amount in excess of
$10,000, except for endorsements of negotiable instruments for collection
in the ordinary course of business;
(m) discharge or satisfaction of any Encumbrance or Lien other than
those which are required to be discharged or satisfied during such period
in accordance with their original terms;
(n) payment, discharge or satisfaction of any material obligation or
liability, absolute, accrued, contingent or otherwise, whether due or to
become due, except for any current liabilities, and the current portion of
any long term liabilities, shown on the Financial Statements (or not
required as of the date thereof to be shown thereon in accordance with
GAAP) or incurred since the date of the most recent balance sheet in the
ordinary course of business consistent with past practice;
(o) loan or advance to any Person other than travel and other similar
routine advances in the ordinary course of business consistent with past
practice, or acquisition of any capital stock or other securities of or any
ownership interest in, or a significant portion of the assets of, any other
business enterprise;
(p) capital investment or capital expenditure or capital improvement,
addition or betterment in amounts which exceed $10,000 in the aggregate or
lease or agreement to lease assets with an annual rental which exceeds
$10,000 in the aggregate;
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(q) institution or settlement of any Proceeding before any Governmental
Authority relating to it or its assets or properties;
(r) except in the ordinary course of business consistent with past
practice, commitment to provide services or goods for an indefinite period
or a period of more than six (6) months;
(s) change in the method of accounting or the accounting principles or
practices used by the Company in the preparation of the Financial
Statements except as required by GAAP;
(t) entry into other Contracts, except Contracts made in the ordinary
course of business consistent with past practice;
(u) amendment or other modification of any of the Organizational
Documents of the Company or the Company Subsidiary;
(v) transfer or grant of any rights or licenses under, or entry into any
settlement regarding the infringement of, any Intellectual Property Assets,
or entry into any licensing or similar agreements or arrangements;
(w) agreement, whether oral or written, by the Company or the Company
Subsidiary to do any of the foregoing;
(x) change in the management or supervisory personnel of the Company or
the Company Subsidiary; or
(y) labor trouble or claim of unfair labor practices involving the
Company or the Company Subsidiary.
3.15 Contracts; No Defaults
(a) Section 3.15(a) of the Disclosure Schedule contains a complete and
accurate list, and the Company has delivered to Parent true, correct and
complete copies, of:
(i) each Contract involving payments of at least $10,000 that involves
performance of services or delivery of goods or materials by the Company or
the Company Subsidiary;
(ii) each Contract involving payments of at least $10,000 that involves
performance of services or delivery of goods or materials to the Company or
the Company Subsidiary;
(iii) each Contract providing for the purchase of all or substantially
all of its requirements of a particular product from a supplier;
(iv) each Contract or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(v) each Contract for joint marketing, teaming or development;
(vi) each Contract with any dealer, franchiser, original equipment
manufacturer, value-added reseller, or manufacturer's representative;
(vii) each Contract pertaining to the Company's or the Company
Subsidiary's maintenance or support of its products, services or supplies;
(viii) each Contract for the sale of its products not made in the
ordinary course of business;
(ix) each Contract with any sales agent or distributor of products of
the Company or the Company Subsidiary;
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(x) each Contract for a license (other than off-the-shelf, fully paid
up, shrink wrap software licenses) or franchise (as licensor or licensee or
franchisor or franchisee);
(xi) each Contract involving any arrangement or obligation with respect
to the return of products other than on account of a defect in condition,
or failure to conform to the applicable Contract;
(xii) each Contract with the United States government;
(xiii) each Contract which is material to the assets or business of the
Company and the Company Subsidiary considered as one enterprise;
(xiv) each lease, license and other Contract affecting any leasehold or
other interest in any real or personal property to which the Company or the
Company Subsidiary is a party;
(xv) each licensing agreement or other Contract to which the Company or
the Company Subsidiary is a party with respect to patents, trademarks,
copyrights, trade secrets or other intellectual property, including
agreements with current or former employees, consultants or contractors
regarding the use or disclosure of any intellectual property;
(xvi) each collective bargaining agreement and other Contract to or with
any labor union or other employee representative of a group of employees
involving or affecting the Company or the Company Subsidiary;
(xvii) each joint venture, partnership and other Contract involving a
sharing of profits, losses, costs or liabilities by the Company or the
Company Subsidiary with any other Person or requiring the Company or the
Company Subsidiary to make a capital contribution;
(xviii) each Contract to which the Company or the Company Subsidiary is
a party containing covenants that in any way purport to restrict the
business activity of the Company or the Company Subsidiary or any of the
employees of the Company or the Company Subsidiary or limit the freedom of
the Company or the Company Subsidiary or any of the employees to engage in
any line of business or to compete with any Person or hire any Person;
(xix) each employment or consulting agreement between the Company or any
Company Subsidiary and its employees and consultants (other than agreements
that are terminable on 30 days notice or less without penalty);
(xx) each agreement between the Company or the Company Subsidiary and an
officer or director of the Company or the Company Subsidiary or any
affiliate of any of the foregoing;
(xxi) each power of attorney granted by the Company or the Company
Subsidiary that is currently effective and outstanding;
(xxii) each Contract for capital expenditures by the Company or the
Company Subsidiary in excess of $10,000;
(xxiii) each agreement of the Company or the Company Subsidiary under
which any money has been or may be borrowed or loaned or any note, bond,
factoring agreement, indenture or other evidence of indebtedness has been
issued or assumed (other than those under which there remain no ongoing
obligations of the Company or the Company Subsidiary), and each guaranty by
the Company or the Company Subsidiary of any evidence of indebtedness or
other obligation, or of the net worth, of any Person (other than
endorsements for the purpose of collection in the ordinary course of
business);
(xxiv) each agreement of the Company or the Company Subsidiary
containing restrictions with respect to the payment of dividends or other
distributions in respect of its capital stock;
(xxv) each stock purchase, merger or other agreement pursuant to which
the Company or the Company Subsidiary acquired any material amount of
assets (other than capital expenditures), and all relevant documents and
agreements delivered in connection therewith;
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(xxvi) each material agreement to which the Company or the Company
Subsidiary is a party containing a change of control provision applicable
to the Merger;
(xxvii) each other agreement to which the Company or the Company
Subsidiary is a party having an indefinite term or a fixed term of more
than one (1) year (other than those that are terminable at will or upon not
more than thirty (30) days' notice by the Company or the Company Subsidiary
without penalty) or requiring payments by the Company or the Company
Subsidiary of more than $25,000 per year; and
(xxviii) each standard form of agreement pursuant to which the Company
provides services or goods to customers.
(b) Each Contract identified or required to be identified in Section 3.15(a)
of the Disclosure Schedule is in full force and effect and is valid and
enforceable against the Company or such Company Subsidiary and, to the
knowledge of the Company, against the other parties thereto in accordance with
its terms.
(c) Each of the Company and the Company Subsidiary is in full compliance in
all material respects with all applicable terms and requirements of each
Contract under which the Company or the Company Subsidiary has any obligation
or liability or by which the Company or the Company Subsidiary or any of the
assets or properties owned or used by the Company or such Company Subsidiary is
or was bound;
(i) to the knowledge of the Company, each other Person that has or had
any obligation or liability under any Contract under which the Company or
the Company Subsidiary has any rights is in full compliance with all
applicable terms and requirements of such Contract; and
(ii) to the knowledge of the Company, no event has occurred and no
circumstance exists that (with or without notice or lapse of time or both)
is likely to result in a violation or breach of any Contract.
3.16 Insurance
(a) Section 3.16 of the Disclosure Schedule sets forth the premium payments
and describes all the insurance policies of the Company and the Company
Subsidiary (except policies relating to Employee Benefit Plans listed on
Section 3.19 of the Disclosure Schedule), which policies are now in full force
and effect in accordance with their terms and expire on the dates shown on
Section 3.16 of the Disclosure Schedule. There has been no default in the
payment of premiums on any of such policies, and there is no ground for
cancellation or avoidance of any such policies, or any increase in the premiums
thereof, or for reduction of the coverage provided thereby. Such policies shall
continue in full force and effect up to the expiration dates shown in Section
3.16 of the Disclosure Schedule. True, correct and complete copies of all
insurance policies listed in Section 3.16 of the Disclosure Schedule have been
previously furnished to Parent.
(b) The policies listed on Section 3.16 of the Disclosure Schedule (i) are
sufficient to enable the Company and the Company Subsidiary to comply with all
requirements of Laws and all agreements to which it is subject, (ii) will
remain in full force and effect through the respective expiration dates of such
policies without payment of additional premiums, and (iii) will not be
adversely affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. Section 3.16 of the Disclosure Schedule also
sets forth all other insurance policies in effect at any time during the 3 year
period ended May 31, 1999 under which the Company currently may be entitled to
give notice or otherwise assert a claim.
(c) Except for amounts deductible under the policies of insurance described
on Section 3.16 of the Disclosure Schedule or with respect to risks assumed as
a self-insurer and described on such Section, neither the Company nor the
Company Subsidiary is, nor has the Company or the Company Subsidiary at any
time been subject to any liability as a self-insurer of the business or assets
of the Company or the Company Subsidiary.
(d) Except as set forth on Section 3.16 of the Disclosure Schedule, there
are no claims, by or with respect to the Company, pending under any of said
policies, or disputes with insurers. No notice of cancellation or
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termination has been received with respect to any such policy. The Company has
not been refused any insurance with respect to assets or operations, nor has
its coverage been limited by any insurance carrier with which it has applied
for any such insurance or with which it has carried insurance. The Company has
no knowledge of any insurance carrier's insolvency or inability to perform its
obligations or pay any claims pursuant to any of the insurance policies
maintained by the Company.
(e) Except as set forth on Section 3.16 of the Disclosure Schedule, neither
the Company nor the Company Subsidiary has any current or prior insurance
policy which remains subject to a retrospective adjustment of the premiums
payable thereunder.
3.17 Environmental Matters
(a) Each of the Company and the Company Subsidiary is in compliance with all
applicable Environmental Laws which compliance includes, but is not limited to,
the possession by the Company and the Company Subsidiary of all Governmental
Permits required under applicable Environmental Laws, and compliance with the
terms and conditions thereof. Neither the Company nor the Company Subsidiary
has received notice of, and neither the Company nor the Company Subsidiary, nor
any predecessor of any of them is the subject of, any Environmental Claim,
Remedial Action. The Company and the Company Subsidiary have no Environmental,
Health and Safety Liabilities. There are no circumstances or conditions related
to the Company or the Company Subsidiary, the Company's or the Company
Subsidiary's operations or any of the Company's or the Company Subsidiary's
Facilities that are reasonably likely to prevent or interfere with such
compliance or give rise to an Environmental Claim or Remedial Action in the
future.
(b) There are no Environmental Claims that are pending or, to the knowledge
of the Company, threatened against the Company or the Company Subsidiary, the
Company's or the Company Subsidiary's Facilities or against any Person whose
liability for any Environmental Claim the Company or the Company Subsidiary has
retained or assumed either contractually or by operation of Law.
(c) Neither the Company, nor the Company Subsidiary, nor any other Person
acting on behalf of the Company or the Company Subsidiary (solely with respect
to any such other Person, with the Company's, the Company Subsidiary's
knowledge) has (A) disposed of, transported, stored, or arranged for the
disposal of any Hazardous Materials to, at or upon: (i) any location other than
a site lawfully permitted to receive such Hazardous Materials, (ii) any
Facilities or (iii) any site which, pursuant to CERCLA or any similar state
Law, has been placed on the National Priorities List, CERCLIS or their state
equivalents, and (B) there has not occurred during the period the Company or
the Company Subsidiary operated or possessed any Facility or is presently
occurring a Release, or threatened Release, of any Hazardous Materials on, into
or beneath the surface of, or adjacent to, any Facilities.
3.18 Employees
(a) Section 3.18 of the Disclosure Schedule contains a complete and accurate
list of the following information for each employee of the Company: name; job
title; base salary; bonus; vacation accrued; service credited for purposes of
vesting and eligibility to participate under any employee benefit plan of any
nature. The Company Subsidiary has no employees.
(b) To the knowledge of the Company, no officer or employee of the Company
or the Company Subsidiary is a party to, or is otherwise bound by, any
agreement or arrangement, including any confidentiality, noncompetition, or
proprietary rights agreement, between such officer or employee and any other
Person that could adversely affect (i) the performance of his duties as an
officer or employee of the Company or the Company Subsidiary, or (ii) the
ability of the Company or the Company Subsidiary to conduct its business.
(c) No employee of the Company is bound by any agreement with any other
Person that is violated or breached by such employee performing the services he
is performing for the Company.
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(d) Neither the Company nor the Company Subsidiary has had a "Plant Closing"
or a "Mass Layoff" within the meaning of the federal Workers Adjustment and
Retraining Notification Act of 1988 ("WARN").
(e) The Company has delivered to Parent or its counsel prior to the date
hereof true and complete copies of any employment agreements and any procedures
and policies relating to the employment of employees of the Company and the use
of temporary employees and independent contractors by the Company (including
summaries of any procedures and policies that are unwritten).
3.19 Employee Benefits
(a) Except for the Employee Benefit Plans listed on Section 3.19 of the
Disclosure Schedule, the Company and the Company Subsidiary (either
individually or collectively) do not maintain, have an obligation to contribute
to or have any actual or contingent liability with respect to any Employee
Benefit Plan. "Employee Benefit Plan" means any "employee benefit plan" as
defined in Section 3(3) of ERISA and any other plan, policy, program, practice,
agreement, understanding or arrangement (whether written or oral) providing
compensation or other benefits (other than ordinary cash compensation) to any
current or former director, officer, employee or consultant (or to any
dependent or beneficiary thereof), of the Company or any Company Subsidiary,
which are now, or were within the past five years, maintained by the Company or
the Company Subsidiary, or under which the Company or the Company Subsidiary
has or could have any obligation or liability, whether actual or contingent,
including, without limitation, all incentive, bonus, deferred compensation,
vacation, holiday, cafeteria, medical, disability, stock purchase, stock
option, stock appreciation, phantom stock, restricted stock or other stock-
based compensation plans, policies, programs, practices or arrangements. The
Company has delivered to Parent or its counsel prior to the date hereof true
and complete copies of (i) plan instruments and amendments thereto for all
Employee Benefit Plans (or written summaries of any Employee Benefit Plans that
are unwritten) and related trust agreements, insurance and other contracts,
summary plan descriptions, and summaries of material modifications, and
material communications distributed to the participants of each Plan, (ii) to
the extent annual reports on Form 5500 are required with respect to any
Employee Benefit Plan, the three most recent annual reports and attached
schedules for each Employee Benefit Plan as to which such report is required to
be filed and (iii) where applicable, the most recent (A) opinion, notification
and determination letters, (B) audited financial statements, (C) actuarial
valuation reports and (D) nondiscrimination tests performed under the Code
(including 401(k) and 401(m) tests) for each Employee Benefit Plan.
(b) The Company and the Company Subsidiary do not have and have never had an
ERISA Affiliate. "ERISA Affiliate" means any entity (whether or not
incorporated) other than the Company or a Company Subsidiary that, together
with the Company and the Company Subsidiary, is a member of (i) a controlled
group of corporations within the meaning of Section 414(b) of the Code; (ii) a
group of trades or businesses under common control within the meaning of
Section 414(c) of the Code; or (iii) an affiliated service group within the
meaning of Section 414(m) of the Code.
(c) Neither the Company nor the Company Subsidiary maintains or has ever
maintained or contributes to or has ever contributed to an Employee Benefit
Plan subject to Title IV of ERISA (including a multiemployer plan) and no facts
exist under which the Company or the Company Subsidiary could incur any
liability under Title IV of ERISA.
(d) With respect to each Employee Benefit Plan, (i) no party in interest or
disqualified person (as defined in Section 3(14) of ERISA and Section 4975 of
the Code, respectively) has at any time engaged in a transaction which could
subject Parent, Merger Sub or the Company or the Company Subsidiary, directly
or indirectly, to a tax, penalty or liability for prohibited transactions
imposed by ERISA or the Code and (ii) no fiduciary (as defined in Section 3(21)
of ERISA) with respect to any Employee Benefit Plan, for whose conduct the
Company or the Company Subsidiary could have any liability (by reason of
indemnities or otherwise), has breached any of the responsibilities or
obligations imposed upon the fiduciary under Title I of ERISA.
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(e) Each Employee Benefit Plan which is a "welfare plan" within the meaning
of Section 3(1) of ERISA and which provides health, disability or death
benefits is fully insured; neither the Company nor the Company Subsidiary is
obligated to directly pay any such benefits or to reimburse any third Person
payor for the payment of such benefits.
(f) Each Employee Benefit Plan which is an "employee pension benefit plan"
within the meaning of Section 3(2) of ERISA (a "Pension Plan") and which is
subject to Sections 201, 301 or 401 of ERISA has received a favorable
determination letter from the Internal Revenue Service covering all amendments
required by the Tax Reform Act of 1986 and prior legislation and there are no
circumstances that are likely to result in revocation of any such favorable
determination letter. Except as noted on Section 3.19 of the Disclosure
Schedule, no Pension Plan has assets other than securities listed on a public
exchange, mutual fund shares registered under federal law, publicly traded debt
or government debt instruments, or participant loans extended in accordance
with Plan Terms. Each Employee Benefit Plan is and has been operated in
material compliance with its terms and all applicable Laws, Orders or
governmental rules and regulations currently in effect with respect thereto,
and by its terms can be amended and/or terminated at any time. As of and
including the Closing Date, the Company, the Company Subsidiary (i) shall have
performed all material obligations required to be performed by it under, and
shall not be in material default under or in material violation of any Employee
Benefit Plan and (ii) shall have made all contributions or payments required to
be made by it up to and including the Closing Date with respect to each
Employee Benefit Plan, or adequate accruals (including accruals for 401(k)
match, if any) therefor will have been provided for and will be reflected on
the Financial Statements provided to Parent by the Company. All notices,
filings and disclosures required by ERISA or the Code (including notices under
Section 4980B of the Code and certifications under the Health Insurance
Portability and Accountability Act) have been timely made.
(g) Neither the Company nor the Company Subsidiary has received or is aware
of any Proceeding (other than routine claims for benefits) pending or, to the
knowledge of the Company, threatened with respect to any Employee Benefit Plan
or against any fiduciary of any Employee Benefit Plan, and there are no facts
that could give rise to any such Proceeding. There has not occurred any
circumstances by reason of which the Company or the Company Subsidiary may be
liable for an act, or a failure to act, by a fiduciary with respect to any
Employee Benefit Plan.
(h) There are no complaints, charges or claims against the Company or the
Company Subsidiary pending or, to the Company's knowledge, threatened to be
brought by or filed with any Governmental Authority and no facts exist as a
result of which the Company or the Company Subsidiary could have any liability
based on, arising out of, in connection with or otherwise relating to the
classification of any individual by the Company or the Company Subsidiary as an
independent contractor or "leased employee" (within the meaning of Section
414(n) of the Code) rather than as an employee.
(i) Section 3.19(i) of the Disclosure Schedule sets forth a true and
complete list of each current or former employee, officer or director of the
Company or any Company Subsidiary who holds (i) any option to purchase Company
Common Stock, together with the number of shares of Company Common Stock
subject to such option, the option price of such option (to the extent
determinable), whether such option is intended to qualify as an incentive stock
option within the meaning of Section 422(b) of the Code (an "ISO"), and the
expiration date of such option; (ii) any shares of Company Common Stock that
are restricted as a result of an agreement with the Company or the stock plan
of the Company; and (iii) any other right, directly or indirectly, to receive
Company Common Stock or any other compensation based in whole or in part on the
value of Company Common Stock, together with the number of shares of Company
Common Stock subject to such right.
(j) Section 3.19(j) of the Disclosure Schedule sets forth a true and
complete list of (i) all agreements with consultants who are individuals
obligating the Company or the Company Subsidiary to make annual cash payments
in an amount exceeding $25,000; and (ii) all agreements with respect to the
services of independent contractors or leased employees who are individuals or
individuals doing business in a corporate form whether or not they participate
in any of the Employee Benefit Plans.
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(k) (i) No Employee Benefit Plan is an employee stock ownership plan (within
the meaning of Section 4975(e)(7) of the Code) or otherwise invests in Company
Common Stock; and (ii) the consummation of the transactions contemplated by
this Agreement will not, alone or together with any other event, (A) entitle
any employee or former employee of the Company or the Company Subsidiary to any
payment, (B) result in an increase in the amount of compensation or benefits or
accelerate the vesting or timing of payment of any benefits or compensation
payable in respect of any employee or former employee or (C) result in any
parachute payment under Section 280G of the Code, whether or not such payment
is considered reasonable compensa-tion for services rendered. The Company will
take all actions within its control to ensure that all actions required to be
taken by a fiduciary of any Employee Benefit Plan in order to effectuate the
transaction contemplated by this Agreement shall comply with the terms of such
Plan, ERISA and other applicable Laws.
(l) No Employee Benefit Plan provides benefits, including, without
limitation, death or medical benefits (through insurance or otherwise) with
respect to any employee or former employee of the Company or the Company
Subsidiary beyond their retirement or other termination of service other than
(i) coverage mandated by applicable Law, (ii) retirement or death benefits
under any Pension Plan, (iii) disability benefits under any welfare plan that
have been fully provided for by insurance or otherwise, (iv) deferred
compensation benefits accrued as liabilities on the consolidated books of the
Company or (v) benefits in the nature of severance pay.
(m) No Employee Benefit Plan is a "multiple employer plan" as described in
Section 3(40) of ERISA or Section 413(c) of the Code.
(n) No Employee Benefit Plan, other than a Pension Plan, is funded through a
trust intended to be exempt from tax pursuant to Section 501 of the Code.
(o) Neither the Company nor the Company Subsidiary has proposed, agreed to
or announced any changes to any Employee Benefit Plan that would cause an
increase in benefits under any such Employee Benefit Plan (or the creation of
new benefits or plans) or to change any employee coverage which would cause an
increase in the expense of maintaining any such plan.
3.20 Labor Relations
(a) No condition or state of facts or circumstances exists which could
materially adversely affect the Company's or the Company Subsidiary's relations
with its employees, including the consummation of the transactions contemplated
by this Agreement.
(b) Each of the Company and the Company Subsidiary is in compliance in all
material respects with all applicable Laws respecting employment and employment
practices, terms and conditions of employment and wages and hours and none of
them is engaged in any unfair labor practice.
(c) No collective bargaining agreement with respect to the business of the
Company or the Company Subsidiary is currently in effect or being negotiated.
Neither the Company nor the Company Subsidiary has encountered any labor union
or collective bargaining organizing activity with respect to its employees.
Neither the Company nor the Company Subsidiary has any obligation to negotiate
any such collective bargaining agreement, and, to the knowledge of the Company,
there is no indication that the employees of the Company desire to be covered
by a collective bargaining agreement.
(d) There are no strikes, slowdowns, work stoppages or other labor trouble
pending or, to the knowledge of the Company, threatened with respect to the
employees of the Company, nor has any of the above occurred or, to the
knowledge of the Company, been threatened.
(e) There is no representation claim or petition pending before the National
Labor Relations Board or any state or local labor agency and, to the knowledge
of the Company, no question concerning representation has been raised or
threatened respecting the employees of the Company.
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(f) There are no complaints or charges against the Company or the Company
Subsidiary pending before the National Labor Relations Board or any state or
local labor agency and, to the knowledge of the Company, no complaints or
charges have been filed or threatened to be filed against the Company or the
Company Subsidiary with any such board or agency.
(g) To the knowledge of the Company, no charges with respect to or relating
to the business of the Company or the Company Subsidiary are pending before the
Equal Employment Opportunity Commission or any state or local agency
responsible for the prevention of unlawful employment practices.
(h) Section 3.20 of the Disclosure Schedule accurately sets forth all unpaid
severance which, as of the date hereof, is due or claimed, in writing, to be
due from the Company or the Company Subsidiary to any Person whose employment
with the Company or the Company Subsidiary was terminated.
(i) Neither the Company nor the Company Subsidiary has received notice of
the intent of any government body or Governmental Authority responsible for the
enforcement of labor or employment Laws to conduct an investigation of the
Company or the Company Subsidiary and no such investigation is in progress.
(j) Neither the Company nor the Company Subsidiary is and, to the knowledge
of the Company, no employee of the Company is, in violation in any material
respect of any employment agreement, non-disclosure agreement, non-compete
agreement or any other agreement regarding an employee's employment with the
Company or the Company Subsidiary.
(k) Each of the Company and the Company Subsidiary has paid all wages which
are due and payable to each of its employees and each of its independent
contractors.
(l) The Company and the Company Subsidiary do not have and will not have at
the date of Closing, any contingent liabilities for sick leave, vacation,
holiday pay, severance pay or similar items not set forth in the Financial
Statements except for such obligations incurred in the ordinary course of
business and consistent with past practices.
(m) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not trigger any
severance pay obligation of the Company or the Company Subsidiary under any
Contract.
3.21 Intellectual Property
(a) Intellectual Property Assets--As used herein, the term "Intellectual
Property Assets" shall mean all worldwide intellectual property rights
including without limitation: (i) all trademarks, service marks, trade names,
common law trademarks, business names, Internet domain names, trade dress,
slogans, and the goodwill associated therewith, and all registrations or
applications therefor (collectively, "Marks"); (ii) all patents, patent
applications and inventions and discoveries that may be patentable
(collectively, "Patents"); (iii) all copyrights in both published works and
unpublished works, including training manuals, marketing and promotional
materials, internal reports, business plans and any other expressions, mask
works and software and videos, whether registered or unregistered, and all
registrations or applications in connection therewith (collectively,
"Copyrights"); and (iv) all trade secrets, know-how, confidential information,
customer lists, technical information, proprietary information, technologies,
processes and formulae, source code, algorithms, architecture, structure,
display screens and development tools, data, plans, drawings and blue prints,
whether tangible or intangible and whether stored, compiled, or memorialized
physically, electronically, photographically, or otherwise (collectively,
"Trade Secrets"); owned, used or licensed by the Company or the Company
Subsidiary as licensee or licensor and that are used in or material to the
conduct of the business of the Company or the Company Subsidiary as it is
currently conducted or as proposed to be conducted.
(b) Rights--The Company or the Company Subsidiary, as applicable, (i) owns
all right, title and interest in and to each of the Intellectual Property
Assets, free and clear of all Encumbrances and Liens, or (ii)
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licenses or otherwise possesses legally valid and enforceable rights to use
each of the Intellectual Property Assets, and, in each case of clause (i) or
(ii), the Company and/the Company Subsidiary may transfer such rights as
contemplated by this Agreement. Each of the Company and the Company Subsidiary
has made all necessary filings and recordations to protect and maintain its
interest in the Intellectual Property Assets except where the failure to so
protect or maintain does not relate to a material Intellectual Property Asset.
(c) Agreements--Section 3.21(c) of the Disclosure Schedule contains a true,
correct and complete list and summary description, including any royalties paid
or received by the Company or the Company Subsidiary, of all Contracts relating
to the Intellectual Property Assets to which the Company or the Company
Subsidiary is a party or by which the Company or any Company Subsidiary is
bound. Other than as set forth on Section 3.21(c) of the Disclosure Schedule,
neither the Company nor the Company Subsidiary is, nor will it be as a result
of the execution and delivery of this Agreement or the performance of its
obligations hereunder, in breach or violation of any agreement described on
Section 3.21(c) of the Disclosure Schedule. Each license of Intellectual
Property Assets listed in Section 3.21(c) is valid, subsisting, and
enforceable, and shall continue in effect on its current terms upon
consummation of the transactions contemplated by this Agreement.
(d) Patents--(i) Section 3.21(d) of the Disclosure Schedule contains a true,
correct and complete list of all Patents; (ii) all Patents are valid and
subsisting and all maintenance fees, annuities and the like have been paid;
(iii) to the knowledge of the Company, none of the Patents is infringed; and
(iv) none of the patents has been challenged or threatened in any way by any
Person, and none of the products or technology used, sold, offered for sale or
licensed or proposed for use, sale, offer for sale or license by the Company or
the Company Subsidiary infringes or is alleged to infringe any rights of any
Person.
(e) Trademarks--(i) Section 3.21(e) of the Disclosure Schedule contains a
true, correct and complete list of all Marks; (ii) all Marks are valid and
subsisting; (iii) to the knowledge of the Company, none of the Marks is
infringed, (iv) none of the Marks has been challenged or threatened in any way
by any Person, and no claims exist against the use by the Company or the
Company Subsidiary of any trademarks, service marks, trade names, or trade
dress used in the business of the Company or the Company Subsidiary as
currently conducted or as proposed to be conducted; (v) all materials
encompassed by the Marks have been marked with appropriate trademark and
registration notices; and (vi) all uses of registered Marks are in conformance
with applicable statutory and common law so as not to compromise the strength
and integrity of the Marks.
(f) Copyrights--(i) Section 4.21(f) of the Disclosure Schedule contains a
true, correct and complete list of all Copyrights; (ii) all the Copyrights
owned by the Company or the Company Subsidiary, whether or not registered, are
valid and enforceable; (iii) to the knowledge of the Company, none of the
Copyrights is infringed or has been challenged or threatened in any way; (iv)
no claims exist against the use by the Company or the Company Subsidiary of any
writings or other expressions used in the business of the Company or the
Company Subsidiary as currently conducted or as proposed to be conducted; and
(v) all works encompassed by the Copyrights have been marked with appropriate
copyright notices.
(g) Trade Secrets--Each of the Company and the Company Subsidiary has taken
reasonable precautions to protect the secrecy, confidentiality and value of its
Trade Secrets. To the knowledge of the Company, the Trade Secrets have not been
used, divulged or appropriated either for the benefit of any Person (other than
the Company or the Company Subsidiary) or to the detriment of the Company or
the Company Subsidiary. None of the Trade Secrets is subject to any material
adverse claim or, to the knowledge of the Company, has been challenged or
threatened in any way. Appropriate policies are in place to ensure the
continued secrecy, confidentiality and value of its Trade Secrets, including
but not limited to appropriate marking of Trade Secrets as "proprietary" and/or
"confidential;" appropriate limiting of access to Trade Secrets by employees on
a "need-to-know" basis; and appropriate confidentiality provisions in
agreements executed by employees, contractors, joint venturers and any and all
Persons potentially or actually having access to Trade Secrets.
(h) No Restrictions--To the knowledge of the Company, no Intellectual
Property Asset is subject to any outstanding Order, Proceeding (other than
pending applications for patent, trademark registration or copyright
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registration) or stipulation restricting in any manner the licensing thereof by
the Company or Company Subsidiary. Except for the Company's distribution
agreement listed in Section 3.15(a)(v) of the Disclosure Schedule, neither the
Company nor the Company Subsidiary has entered into any agreement to indemnify
any other person against any charge of infringement of any Intellectual
Property Asset.
(i) Nondisclosure--All employees, contractors, agents and consultants of the
Company and the Company Subsidiary have executed a nondisclosure and assignment
of inventions agreement in the form attached as Section 3.21(i) of the
Disclosure Schedule to protect the confidentiality and to vest in the Company
and Company Subsidiary exclusive ownership of such Intellectual Property
Assets. To the knowledge of the Company and the Company Subsidiary, no
employee, contractor, agent or consultant of the Company or Company Subsidiary
has used any Trade Secrets or other confidential information of any other
person in the course of their work for the Company or Company Subsidiary.
Neither the Company nor the Company Subsidiary has written or oral agreements
with employees, contractors agents or consultants with respect to the ownership
of inventions, trade secrets or other works created by them as a result of
which any such employee, contractor, agent or consultant may have nonexclusive
rights to the portions of the Intellectual Property Assets so created by such
individual.
(j) Agency Conflicts--To the knowledge of the Company, no officer, employee,
contractor, agent or consultant of the Company or the Company Subsidiary is, or
is now expected to be, in violation of any term of any employment contract,
patent disclosure agreement, proprietary information agreement, noncompetition
agreement, nonsolicitatin agreement, confidentiality agreement, or any other
similar contract or agreement or any restrictive covenant relating to the right
of any such officer, employee, contractor, agent or consultant to be employed
or engaged by the Company or the Company Subsidiary because of the nature of
the business conducted or to be conducted by the Company or the Company
Subsidiary or relating to the use of Trade Secrets or proprietary information
of others, and to the Company's knowledge and belief, the continued employment
or retention of its officers, employees, contractors, agents or consultants
does not subject the Company or the Company Subsidiary to any liability with
respect to any of the foregoing matters.
(k) Source Code Escrow--Neither the Company nor the Company Subsidiary has
deposited, or is obligated to deposit, any source code regarding its products
into any source code escrows or similar arrangements and neither the Company
nor the Company Subsidiary is under any contractual or other obligation to
disclose the source code or any other material proprietary information included
in or relating to its products.
3.22 Certain Payments
Neither the Company nor the Company Subsidiary nor any shareholder,
director, officer, agent or employee of the Company or the Company Subsidiary,
or to the knowledge of the Company, any other Person associated with or acting
for or on behalf of the Company or the Company Subsidiary, has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback or other payment to any Person, private or public, regardless
of form, whether in money, property or services in violation of the Foreign
Corrupt Practices Act or any similar Law (i) to obtain favorable treatment in
securing business, (ii) to pay for favorable treatment for business secured, or
(iii) to obtain special concessions, or for special concessions already
obtained, for or in respect of the Company or the Company Subsidiary or any
affiliate of the Company or the Company Subsidiary, (b) established or
maintained any fund or asset of the Company or the Company Subsidiary that has
not been recorded in the consolidated books and records of the Company.
3.23 Relationships With Related Persons
No shareholder, affiliate, officer, director or employee of the Company or
the Company Subsidiary, nor any spouse or child of any of them or any Person
associated with any of them ("Related Person"), has any interest in any assets
or properties used in or pertaining to the business of the Company or the
Company Subsidiary. None of the shareholders, affiliates, officers, directors
or employees of the Company or the
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Company Subsidiary nor any Related Person has owned, directly or indirectly,
and whether on an individual, joint or other basis, any equity interest or any
other financial or profit interest in a Person (other than less than two
percent (2%) of the outstanding capital stock of a Person subject to the
reporting requirements of the Exchange Act) that has (i) had business dealings
with the Company or the Company Subsidiary, or (ii) engaged in competition with
the Company or the Company Subsidiary. No shareholder, affiliate, officer,
director or employee of the Company or any Company Subsidiary nor the Related
Person is a party to any Contract with, or has any claim or right against, or
owes any amounts to, the Company or the Company Subsidiary.
3.24 Brokers or Finders
Neither the Company nor the Company Subsidiary or any of their agents has
incurred any obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or financial advisory services or other
similar payment in connection with this Agreement or the Transaction Documents
or the transactions contemplated hereby or thereby except for fees owed to
Needham & Company pursuant to a financial advisor agreement between the Company
and Needham & Company, dated September 23, 1998, a copy of which is attached as
Section 3.24 of the Disclosure Schedule.
3.25 Customer Relationships
To the knowledge of the Company, there are no facts or circumstances,
including the consummation of the transactions contemplated by this Agreement,
that are reasonably likely to result in the loss of any material Customer of
the Company or the Company Subsidiary or a material change in the relationship
of the Company or the Company Subsidiary with such a Customer.
3.26 Outstanding Indebtedness
Section 3.26 of the Disclosure Schedule sets forth as of May 31, 1999 (a)
the amount of all indebtedness for borrowed money of the Company or the Company
Subsidiary then outstanding (including (i) the interest rate applicable
thereto, (ii) any Encumbrances or Liens which relate to such indebtedness and
(iii) the name of the lender or the other payee of each such indebtedness), (b)
the amount of all lending and commitments to lend and (c) the amount of all
guarantees or sureties of the Company with respect to the obligations of any
Person. Complete and accurate copies of all such agreements have been delivered
to Parent.
3.27 Suppliers; Raw Materials Contractors
Section 3.27 of the Disclosure Schedule sets forth for the year ended
December 31, 1998 and the five months ended May 31, 1999, (i) the names and
addresses of the five largest suppliers, contractors and subcontractors of the
Company and the Company Subsidiary based on the aggregate value of raw
materials, supplies, merchandise and other goods and services ordered by the
Company and the Company Subsidiary from such suppliers, contractors and
subcontractors during such period and (ii) the amount for which each such
supplier, contractor or subcontractor invoiced the Company or the Company
Subsidiary during such period. The Company and the Company Subsidiary have not
received any notice or have no reason to believe that there has been any
material adverse change in the price of such raw materials, supplies,
merchandise or other goods or services, or that any such supplier, contractor
or subcontractor will not sell raw materials, supplies, merchandise and other
goods and services to the Company or the Company Subsidiary at any time after
the Closing Date on terms and conditions substantially the same as those used
in its current sales to the Company or the Company Subsidiary subject to
general and customary price increases.
3.28 Customers
Section 3.28 of the Disclosure Schedule sets forth (a) a true, complete and
correct listing of the five largest customers (the "Customers") of the Company
and the Company Subsidiary (based upon the amounts for which each such Customer
was invoiced during the year ended December 31, 1998 and the five months ended
May 31, 1999).
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3.29 Year 2000 Compliance
All hardware, software and embedded systems used by the Company and the
Company Subsidiary, including any hardware, software and embedded systems used
in connection with product and service development, operations and production,
financial operations, office and administration operations, human resources
functions, and legal and audit functions (the "Systems") are, to the knowledge
of the Company, designed to be used prior to, during, and after the calendar
year 2000 ("Year 2000"). The Systems operate and will operate during each such
time periods without material error relating to date data. Specifically, in all
material respects:
(i) the Systems will not provide invalid or incorrect results as a
result of date data, specifically including date data which represents or
references different centuries or more than one century;
(ii) the Systems have been designed to ensure Year 2000 compatibility,
including date data century recognition, calculations which accommodate
same century and multicentury formulas and date values, and date data
interface values that reflect the century;
(iii) the Systems are designed to be used prior to, during and after the
Year 2000, and the Systems will operate during each such time period
without error relating to date data specifically including any error
relating to, or the product of, date data which represents or references
different centuries;
(iv) the date rollovers will not cause erroneous processing;
(v) manipulation of date data will be free of error over the range of
dates that the Systems are expected to handle;
(vi) explicit century values will be correctly stored and passed across
all applicable interfaces (including user interfaces);
(vii) all leap year values will be correctly calculated and processed
across all applicable interfaces (including user interfaces); and
(viii) the Systems will handle the date September 9, 1999, as well as
store and pass such date across all interfaces (including user interfaces).
3.30 Payables
There has been no material adverse change since the date of the Financial
Statements in the amount or delinquency of accounts payable of the Company or
the Company Subsidiary (either individually or in the aggregate).
3.31 Inventories
(a) All inventories of raw materials, supplies, work in progress and
finished goods of each of the Company and the Company Subsidiary are of good,
usable and merchantable quality in all material respects and do not include
obsolete or discontinued items. All such inventories are of such quality as to
meet the quality control standards of the Company and the Company Subsidiary
and any applicable governmental quality control standards, (b) all such
finished goods are saleable as current inventories at the current prices of the
Company and the Company Subsidiary in the ordinary course of business, (c) all
such inventories are recorded on the books at the lower of cost or market value
determined in accordance with GAAP and (d) no write-down in inventory has been
made or should have been made except pursuant to GAAP during the past two
years.
(b) Purchase commitments for raw materials and parts are not in excess of
normal requirements and none are at prices in excess of current market prices.
Since May 31, 1999, no inventory items have been sold or disposed of except
through sales in the ordinary of business at prices no less than prevailing
market prices.
(c) The value of the finished goods inventory on May 31, 1999, and on the
Closing, when added to the cost of the variable expenses of freight,
commissions and discounts, shall not exceed the market price.
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3.32 Product Warranties; Product Liability
Attached to Section 3.32 of the Disclosure Schedule are complete and correct
copies of the standard terms and conditions of sale or lease for each of the
products or services of the Company and the Company Subsidiary (containing
applicable guaranty, warranty and indemnity provisions). Except as required by
Law or as set forth in such standard terms and conditions, no product
manufactured, sold, leased or delivered by, or service rendered by or on behalf
of, the Company or the Company Subsidiary is subject to any guaranty, warranty
or other indemnity, express or implied, beyond such standard terms and
conditions. Section 3.32 of the Disclosure Schedule sets forth the aggregate
expenses incurred by the Company's customer support and service center in
fulfilling its obligations under its guaranty, warranty and right of return
provisions during the periods covered by the Financial Statements and the
Interim Financial Statements and the Company knows of no reason why such
expenses should significantly increase as a percentage of sales in the future.
Except as set forth in Section 3.32 of the Disclosure Schedule, there are no
existing or, to the knowledge of the Company threatened claims, against the
Company or the Company Subsidiary for services or merchandise which are
defective or fail to meet any service or product warranties other than in the
ordinary course of business consistent with past experience. Except as set
forth in Section 3.32 of the Disclosure Schedule, no claim has been asserted
against the Company or the Company Subsidiary since January 1, 1997 for
renegotiation or price redetermination of any completed business transaction.
The Company's and the Company Subsidiary's products are free from known
significant defects and, to the knowledge of the Company, conform in all
material respects to the specifications, documentation and sample demonstration
furnished to the Company's and the Company Subsidiary's customers and made
available to Parent.
3.33 Financial Service Relations and Powers of Attorney
All of the arrangements that the Company or the Company Subsidiary has with
any bank depository institution or other financial services entity, whether or
not in the Company's or the Company Subsidiary's name, are completely and
accurately described on Section 3.33 of the Disclosure Schedule, indicating
with respect to each of such arrangements the type of arrangement maintained
(such as checking account, borrowing arrangements, safe deposit box, etc.) and
the current balance as of the date reported, banking institution and person or
persons authorized in respect thereof. Neither the Company nor the Company
Subsidiary has any outstanding power of attorney.
3.34 Pooling
To the knowledge of the Company, neither the Company or the Company
Subsidiary nor any of the Company's "affiliates" (as defined in Opinion No. 16,
as amended, of the Accounting Principles Board of the American Institute of
Certified Public Accountants and the interpretive rulings issued thereunder)
has taken or agreed to take any action that would affect the ability of Parent
to account for the business combination to be effected by the Merger as a
pooling of interests under GAAP and applicable Securities and Exchange
Commission ("SEC") interpretations.
3.35 Regulatory Correspondence
The Company has made available to the Parent true and correct copies of any
and all material correspondence from and to any federal, governmental or
regulatory agencies or bodies since January 1, 1997.
3.36 HSR Act
The Company and the Company Subsidiary considered as one enterprise do not
have assets valued at $15,000,000 or more, or annual net sales of $25,000,000
or more within the meaning of the HSR Act.
3.37 Company Action
(a) The Board of Directors of the Company, at a meeting duly called and
held, or through an action by written consent, unanimously has (i) determined
that the Merger is fair and in the best interests of the Company
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and its stockholders, (ii) approved the Merger in accordance with the
provisions of the CGCL, (iii) approved this Agreement, the Agreement of Merger
and the Transaction Documents, (iv) authorized the execution and delivery of
this Agreement, the Agreement of Merger and the Transaction Documents and (v)
directed that this Agreement and the Merger be submitted to the Company
Shareholders for their approval and resolved to recommend that Company
Shareholders vote in favor of the approval of this Agreement and the Merger.
(b) The Company has obtained and delivered to the Parent the written
agreement of each of the Company's affiliates substantially in the form
attached hereto as Exhibit 3.37 (an "Affiliate Agreement") pursuant to which
among other things each such person has agreed to vote all shares of Company
Capital Stock owned by him or over which he has voting control, in favor of
the Merger and this Agreement and irrevocably granted a proxy, coupled with an
interest, to the Parent or its designee to vote such Company Capital Stock in
favor of this Agreement and the Merger.
3.38 Disclosure
No representation or warranty of the Company in this Agreement as modified
by statements in the Disclosure Schedule is inaccurate in any material respect
or omits to state a material fact necessary to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading.
4. Representations And Warranties Of Parent And Merger Sub
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company as follows:
4.1 Organization and Good Standing
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware. Each of Parent and Merger Sub has full corporate power and
authority to conduct its business as it is now being conducted and to own or
use the assets and properties that it purports to own or use. Each of Parent
and Merger Sub is duly qualified to do business as a foreign corporation and
is in good standing under the Laws of each state or other jurisdiction in
which either the ownership or use of the assets or properties owned or used by
it, or the nature of the activities conducted by it, requires such
qualification, except where the failure to be so qualified could not
reasonably be expected to have a Material Adverse Effect on Parent and its
Subsidiaries, taken as a whole.
4.2 Authority; No Conflict
(a) Parent and Merger Sub each has the right, power, authority and capacity
to execute and deliver this Agreement and the Transaction Documents to which
Parent or Merger Sub is a party, to consummate the Merger and the other
transactions contemplated hereby and thereby and to perform their respective
obligations under this Agreement and the Transaction Documents to which Parent
or Merger Sub is a party. This Agreement has been duly authorized and
approved, executed and delivered by Parent and Merger Sub and constitutes the
legal, valid and binding obligation of Parent and Merger Sub, enforceable
against them in accordance with its terms. Upon the execution and delivery by
Parent and Merger Sub of the Transaction Documents to which Parent or Merger
Sub is a party, such Transaction Documents will constitute the legal, valid
and binding obligations of Parent and Merger Sub, enforceable against them in
accordance with their respective terms, except (i) as such enforceability may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, and (ii) that the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to the
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(b) Neither the execution and delivery of this Agreement or any Transaction
Document by Parent or Merger Sub nor the consummation or performance by Parent
or Merger Sub of the Merger or any of the other transactions contemplated
hereby or thereby, including issuance of the Parent Shares pursuant to this
Agreement, will, directly or indirectly (with or without notice or lapse of
time or both):
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(i) contravene, conflict with, or result in a violation or breach of (A) any
provision of the Organizational Documents of Parent or Merger Sub, (B) any
resolution adopted by the board of directors or the shareholders of Parent or
Merger Sub, (C) any legal requirement or any Order, award, decision, settlement
or process to which Parent or Merger Sub or any of the assets or properties
owned or used by them may be subject, or (D) any Governmental Permit held by
Parent or Merger Sub, excluding from clauses (C) and (D) any contravention,
conflict, violation or breach which would not, either individually or in the
aggregate, have a Material Adverse Effect or materially impair or preclude the
Parent's or the Merger Sub's ability to consummate the Merger or the
transactions contemplated hereby;
(ii) result in a breach of or constitute a default, give rise to a right of
termination, cancellation or acceleration, create any entitlement to any
payment or benefit, or require the consent or approval of or any notice to or
filing with any third Person, under any material Contract to which Parent or
Merger Sub is a party or by which their respective assets or properties are
bound, or require the consent or approval of or any notice to or filing with
any Governmental Authority to which either Parent, Merger Sub or their
respective assets or properties are subject except for any breaches, defaults,
rights of termination, cancellation or acceleration, entitlements, consents,
approvals, notices or filings which would not, either individually or in the
aggregate, have a Material Adverse Effect or materially impair or preclude the
Parent's or the Merger Sub's ability to consummate the Merger or the
transactions contemplated hereby; or
(iii) result in the imposition or creation of any Encumbrance or Lien upon
or with respect to any of the assets or properties owned or used by Parent or
Merger Sub except for any imposition or creation which would not, either
individually or in the aggregate, have a Material Adverse Effect or materially
impair or preclude the Parent's or the Merger Sub's ability to consummate the
Merger or the transactions contemplated hereby.
4.3 Capitalization; Parent Shares
(a) The authorized capital stock of Parent consists of 1,000,000 shares of
preferred stock, $.01 par value per share, of which as of the date of this
Agreement no shares are issued or outstanding, and 21,500,000 shares of Parent
Common Stock, of which as of July 6, 1999, 11,071,113 shares were issued and
outstanding. All of the authorized and issued capital stock of Merger Sub is
owned of record and beneficially by Parent.
(b) The Parent Shares issuable as a result of the Merger have been duly
authorized and upon the Effective Time will be validly issued, fully paid and
nonassessable and approved for listing on the Nasdaq National Market. Each
share of Parent Common Stock to be issued at the Effective Time will be
accompanied by one Parent Purchase Right.
4.4 Filings with the Commission
(a) Parent has delivered or made available to the Company a true, correct
and complete copy of its Annual Report on Form 10-K for the year ended
September 30, 1998 and Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1998 and March 31, 1999 (collectively, the "Parent SEC Report").
The Parent SEC Report has been timely filed pursuant to the Exchange Act.
(b) The Parent SEC Report complied as to form in all material respects with
the requirements of the Exchange Act in effect on the date thereof. The Parent
SEC Report, when filed pursuant to the Exchange Act, did not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(c) Each of the Parent financial statements (including the related notes)
included in the Parent SEC Report presents fairly, in all material respects,
the consolidated financial position and consolidated results of operations and
cash flows of Parent as of the respective dates or for the respective periods
set forth therein, all in conformity with GAAP consistently applied during the
periods involved except as otherwise noted therein, and subject, in the case of
any unaudited interim financial statements included therein, to normal year-end
adjustments and to absence of complete footnotes.
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4.5 No Material Adverse Change
Since March 31, 1999, there has not been any material adverse change in the
business, operations, properties, liabilities, results of operations, assets or
condition (financial or otherwise) of Parent and its Subsidiaries, taken as a
whole, and no event has occurred or circumstance exists that could reasonably
be expected to result in a Material Adverse Effect on Parent and its
Subsidiaries, taken as a whole, provided that the effect of any of the
following shall not be considered a Material Adverse Effect: (A) general
economic or financial conditions or (B) other developments that are not unique
to Parent and/or its Subsidiaries but also affect other Persons who participate
or are engaged in the lines of business in which Parent and/or its Subsidiaries
participate or are engaged.
4.6 Legal Proceedings
There is no pending Proceeding against Parent or Merger Sub that challenges,
or that may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the transactions contemplated hereby, or
that otherwise could reasonably be expected to result in a Material Adverse
Effect on Parent and its Subsidiaries, taken as whole. To the knowledge of
Parent, no such Proceeding has been threatened.
4.7 Brokers or Finders
Neither Parent nor Merger Sub nor any of their agents has incurred any
obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or financial advisory services or other similar
payment in connection with this Agreement or the Transaction Documents or the
transactions contemplated hereby or thereby.
4.8 Disclosure
Except as set forth in Section 4.8 of the Disclosure Schedule, no
representation or warranty of Parent or Merger Sub in this Agreement is
inaccurate in any material respect or omits to state a material fact necessary
to make the statements herein in light of the circumstances under which they
were made, not misleading.
5. Covenants
The parties, as applicable, hereby covenant and agree as follows:
5.1 Normal Course
From the date hereof until the Effective Time, the Company shall, and shall
cause the Company Subsidiary to: (a) maintain its corporate existence in good
standing; (b) maintain the general character of its business; (c) maintain in
effect all of its presently existing insurance coverage (or substantially
equivalent insurance coverage); (d) preserve intact in all material respects
its business organization, preserve its goodwill and the confidentiality of its
business know-how, exercise commercially reasonable efforts to keep available
to the Company or the Company Subsidiary the services of its current officers
and employees and preserve its present material business relationships with its
collaborators, licensor, customers, suppliers and other Persons with which the
Company has material business relations; and (e) in all respects conduct its
business only in the usual and ordinary manner consistent with past practice
and perform all Contracts.
5.2 Conduct of Business
From the date hereof until the Effective Time, the Company shall not, and
the Company shall not permit the Company Subsidiary to, except as contemplated
by this Agreement, permit the Company to, directly or indirectly, do, or
propose to do, any of the following without the prior written consent of
Parent, which consent shall not be unreasonably withheld:
(a) amend or otherwise modify its Organizational Documents;
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(b) issue, sell, dispose of or Encumber or authorize the issuance, sale,
disposition or Encumbrance of, or grant or issue any option, warrant or
other right to acquire or make any agreement of the type referred to in
Section 3.3 with respect to, any shares of its capital stock or any other
of its securities or any security convertible or exercisable into or
exchangeable for any such shares or securities, or alter any term of any of
its outstanding securities or make any change in its outstanding shares of
capital stock or its capitalization, whether by reason of a
reclassification, recapitalization, stock split, combination, exchange or
readjustment of shares, stock dividend or otherwise;
(c) Encumber any material assets or properties of the Company or the
Company Subsidiary;
(d) declare, set aside, make or pay any dividend or other distribution
to any shareholder with respect to its capital stock;
(e) redeem, purchase or otherwise acquire any capital stock or other
securities of the Company or the Company Subsidiary;
(f) increase the compensation or other remuneration or benefits payable
or to become payable to any director or officer of the Company or the
Company Subsidiary, or increase the compensation or other remuneration or
benefits payable or to become payable to any of its other employees or
agents, except, with respect to such other employees or agents only, for
increases in salary and payment of performance bonuses in the manner
described in Section 5.2(f) of the Disclosure Schedule in either case in
the ordinary course of business consistent with past practice;
(g) adopt or (except as otherwise required by law) amend or make any
unscheduled contribution to any Employee Benefit Plan for or with
employees, or enter into any collective bargaining agreement;
(h) terminate or modify any Contract requiring future payments to or
from the Company or any Company Subsidiary, individually or in the
aggregate, in excess of $10,000, except for termination of Contracts upon
their expiration during such period in accordance with their terms;
(i) create, incur, assume or otherwise become liable for any
indebtedness in an aggregate amount (among the Company and the Company
Subsidiaries) in excess of $50,000, except for draw downs made under the
Credit Line to satisfy working capital requirements aggregating up to but
not exceeding $1,000,000 and for blanket inventory purchases where the
Company and the Company Subsidiary shall not make any payment or commitment
in an aggregate amount (between the Company and the Company Subsidiary) in
excess of $50,000 (for purposes of this part of Section 5.2(i), obligations
or liabilities that are paid, discharged or satisfied under Section 5.2(j)
shall be included in determining whether the foregoing basket amounts have
been reached), or guarantee or endorse any obligation or the net worth of
any Person, except for endorsements of negotiable instruments for
collection in the ordinary course of business;
(j) pay, discharge or satisfy any obligation or liability, absolute,
accrued, contingent or otherwise, whether due or to become due, in an
aggregate amount (between the Company and the Company Subsidiary) in excess
of $50,000, except for liabilities incurred in the ordinary course of
business prior to the date hereof and blanket inventory purchases where the
Company and the Company Subsidiary shall not make any payment or commitment
in an aggregate amount (between the Company and the Company Subsidiary) in
excess of $50,000 (for purposes of this Section 5.2(j), indebtedness that
is created, incurred, assumed or for which the Company or any Company
Subsidiary is otherwise liable under Section 5.2(i) shall be included in
determining whether the foregoing basket amounts have been reached);
(k) sell, transfer, lease or otherwise dispose of any of its assets or
properties, except in the ordinary course of business consistent with past
practice and for a cash consideration equal to the fair value thereof at
the time of such sale, transfer, lease or other disposition;
(l) cancel, compromise, release or waive any material debt, claim or
right;
(m) make any loan or advance to any Person other than travel and other
similar routine advances in the ordinary course of business consistent with
past practice, or acquire any capital stock or other securities or any
ownership interest in, or substantially all of the assets of, any other
business enterprise;
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(n) make any material capital investment or expenditure or capital
improvement, addition or betterment;
(o) change its method of accounting or the accounting principles or
practices utilized in the preparation of the Financial Statements, other
than as required by GAAP;
(p) institute or settle any Proceeding before any Governmental Authority
relating to it or its assets or properties;
(q) adopt a plan of dissolution or liquidation with respect to the
Company or the Company Subsidiary;
(r) enter into any Contract, except Contracts made in the ordinary
course of business consistent with past practice;
(s) make any new election with respect to Taxes or any change in current
elections with respect to Taxes, or settle or compromise any federal,
state, local or foreign Tax liability or agree to an extension of a statute
of limitations;
(t) take or omit to take any action that would constitute a material
violation of or material default under, or waive any rights under, any
material Contract; or
(u) enter into any commitment to do any of the foregoing, or any action
which would make any of the representations or warranties of the Company
contained in this Agreement untrue or incorrect in any material respect
(subject to the knowledge and materiality limitations set forth therein) or
cause any covenant, condition or agreement of the Company in this Agreement
not to be complied with or satisfied in any material respect.
5.3 Regulation D
Each party shall use all reasonable efforts to cause the Parent Shares to be
issued in accordance with the applicable provisions of Regulation D, shall
cooperate in all filings required pursuant to Regulation D and shall not
knowingly take any action which action or failure to act would jeopardize the
issuance of the Parent Shares in accordance with Regulation D.
5.4 Private Placement Memorandum
(a) The Parent and the Company shall jointly use commercially reasonable
best efforts to promptly prepare proxy materials (in accordance with the
disclosure requirements of Regulation D) for the purpose of offering the Parent
Shares to the Company Shareholders and soliciting (i) proxies from holders of
Company Capital Stock to vote in favor of the adoption of this Agreement and
the approval of the Merger at the special meeting (the "Special Meeting") of
the Company Shareholders to be called and held for such purpose or (ii) written
consents from Company Shareholders in favor of the adoption of this Agreement
and the approval of the Merger (the "Special Consent"). Such solicitation
materials shall be in the form of a private placement memorandum/proxy
statement (such private placement memorandum/proxy statement, together with any
accompanying letter to stockholders, notice of meeting, form of proxy and form
of written consent, shall be referred to herein as the "Placement
Memorandum/Proxy Statement"). Each Party shall furnish all information
reasonably requested in connection with the preparation of the Placement
Memorandum/Proxy Statement.
(b) The Parent and the Company shall use commercially reasonable efforts to
comply with all applicable provisions of, and rules under the federal
securities law, the DGCL and the CGCL in the preparation and distribution of
the Placement Memorandum/Proxy Statement, the solicitation of proxies or
written consents thereunder, and the calling and holding of the Special
Meeting. Without limiting the foregoing, the Parent and the Company shall use
reasonable commercial efforts to make sure that the Placement Memorandum/Proxy
Statement does not, as of the date on which it is distributed to Company
Shareholders, and as of the date of the Special Meeting, or the effective date
of the Special Consent, as applicable, contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made, in light of the
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circumstances under which they were made, not misleading (provided that the
Company shall not be responsible for the accuracy or completeness of any
information relating to the Parent and the Merger Sub or any other information
furnished by the Parent in writing for inclusion in the Placement
Memorandum/Proxy Statement and provided further that neither the Parent nor the
Merger Sub shall be responsible for the accuracy or completeness of any
information relating to the Company or any other information furnished by the
Company in writing for inclusion in the Placement Memorandum/Proxy Statement).
(c) The Company, acting through its Board of Directors, shall include in the
Placement Memorandum/Proxy Statement the recommendation of its Board of
Directors that the Company Shareholders vote in favor of the adoption of this
Agreement and the approval of the Merger, and shall otherwise use commercially
reasonable efforts to obtain prompt approval of the Company Shareholders of the
Agreement, the Merger and the transactions contemplated hereby.
(d) If at any time prior to the Effective Time, any event relating to the
Company or any of its affiliates, officers or directors should be discovered by
the Company which should be set forth in an amendment to the Placement
Memorandum/Proxy Statement, the Company shall promptly inform Parent.
5.5 Company Shareholder Documents
The Company shall use its best efforts to obtain and deliver the following
to the Parent promptly following the date of this Agreement and in any event
prior to the date of any distribution of the Placement Memorandum/Proxy
Statement (each in form and substance satisfactory to the Parent in its
reasonable discretion):
(a) a questionnaire executed by each Company Shareholder as to personal
wealth and financial sophistication (each a "Company Shareholder
Questionnaire"); and
(b) with respect to each Company Shareholder reasonably deemed by the Parent
not to be an "Accredited Investor" as defined in Rule 501 of Regulation D,
either (i) a written certification that such Company Shareholder has such
knowledge and experience in financial and business matters that such Company
Shareholder is capable of evaluating the merits and risks of a prospective
investment in Parent Common Stock (within the meaning of Rule 506 of Regulation
D (each a "Sophistication Certification") or (ii) a written agreement (each a
"Purchaser Representative Agreement") between such Company Shareholder and a
purchaser representative (who shall make written certifications reasonably
satisfactory to Parent that he or it is a purchaser representative within the
meaning of Regulation D) regarding the representation of such Company
Shareholder in connection with this Agreement and the transactions contemplated
hereby, together with such other representations and agreements pursuant to the
provisions of Regulation D as Parent shall reasonably request.
The Company Shareholder Questionnaires, Sophistication Certifications and
Purchaser Representative Agreements are referred to herein together as the
"Company Shareholder Documents."
5.6 S-4 Registration Statement
(a) If Parent determines in its reasonable discretion that Regulation D may
not be satisfied, then (i) the no solicitation period set forth in Section 5.12
hereof shall be extended until the earlier of (A) October 31, 1999, (B)
termination by Parent or (C) the Effective Time and (ii) in lieu of a Placement
Memorandum/Prospectus, Parent shall prepare and file with the SEC under the
Securities Act and all other applicable regulatory bodies as soon as reasonably
practicable a Registration Statement on Form S-4 with respect to the Parent
Shares (the "S-4 Registration Statement"). The S-4 Registration Statement shall
include the prospectus/proxy statement to be used for the purpose of offering
the Parent Shares to the Company Stockholders and soliciting (i) proxies from
holders of Company Stock to vote in favor of the adoption of this Agreement and
the approval of the Merger at the Special Meeting of the Company's Shareholders
to be called and held for such purpose or (ii) written consent from Company
Shareholders in favor of the adoption of this Agreement and the approval of the
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Merger (such prospectus/proxy statement, together with any accompanying letter
to stockholders, notice of meeting, form of proxy and form of written consent,
shall be referred to herein as the "Prospectus/Proxy Statement"). The Parent
shall comply with all applicable provisions of and rules under the Securities
Act and state securities laws in the preparation, filing and distribution of
the S-4 Registration Statement and the offering and issuance of the Parent
Shares.
(b) The Company shall promptly furnish to the Parent all information
concerning the Company as the Parent may reasonably request in connection with
the preparation of the S-4 Registration Statement. The information provided by
the Company for inclusion in the S-4 Registration Statement shall not, at the
time the S-4 Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. The Parent
and the Company shall use commercially reasonable efforts to make sure that the
Prospectus/Proxy Statement does not, as of the date on which it is distributed
to Company Shareholders, and as of the date of the Special Meeting, or the
effective date of the Special Consent, as applicable, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not false or misleading. The
Prospectus/Proxy Statement will comply as to form in all material respects with
the provisions of the Securities Act and the rules and regulations thereunder.
If at any time prior to the Effective Time, any event relating to the Company
or any of its affiliates, officers or directors should be discovered by the
Company which should be set forth in an amendment to the S-4 Registration
Statement or a supplement to the Prospectus/Proxy Statement, the Company shall
promptly inform Parent. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Parent
or Merger Sub which is contained in any of the foregoing documents.
(c) The Company, acting through its Board of Directors, shall include in the
Prospectus/Proxy Statement the recommendation of its Board of Directors that
the Company Shareholders vote in favor of the adoption of this Agreement and
the approval of the Merger, and shall otherwise use reasonable efforts to
obtain prompt approval of the Company Shareholders of the Agreement, the Merger
and the transactions contemplated hereby.
(d) If at any time prior to the Effective Time, any event relating to the
Company or any of its affiliates, officers or directors should be discovered by
the Company which should be set forth in an amendment to the Prospectus/Proxy
Statement, the Company shall promptly inform Parent.
5.7 Special Meeting
For the purposes of this Section 5.7, the Placement Memorandum/Proxy
Statement or Prospectus/Proxy Statement, as appropriate is referred to as the
"Disclosure Document."
Promptly following completion of the Disclosure Document and subject to the
prior approval of the Parent, the Company shall distribute the Disclosure
Document to its shareholders and, pursuant thereto and subject to the other
provisions of this Agreement, solicit (i) proxies from Company Shareholders to
vote in favor of the adoption of this Agreement and the approval of the Merger
at the Special Meeting, or (ii) written consents from holders of Company
Capital Stock in favor of the adoption of this Agreement and the approval of
the Merger. The Company may elect to call and issue notice of the Special
Meeting in accordance with the CGCL prior to completion and distribution of the
Disclosure Document.
5.8 Agreements With Respect To Affiliates
The Company shall deliver to Parent, prior to the Effective Time, letters
(the "Affiliate Letters") identifying all Persons who are, at the time of the
action by the Company Shareholders or immediately prior to the Effective Time,
anticipated to be "Affiliates" of the Company for purposes of Rule 145 under
the Securities Act ("Rule 145"), or the rules and regulations of the Commission
relating to pooling-of-interests
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accounting treatment for merger transactions (the "Pooling Rules"). The Company
shall use commercially reasonable efforts to cause each Person who is
identified as an "affiliate" in the Affiliate Letter to deliver to Parent as
promptly as practicable an Affiliate Agreement in connection with restrictions
on affiliates under Rule 145 and the Pooling Rules. Parent shall be entitled to
place appropriate legends on the certificates evidencing any Parent Common
Stock to be received by Company affiliates, and to issue appropriate stop
transfer instructions to the transfer agent for Parent Common Stock, consistent
with the terms of such Affiliate Agreements.
5.9 Certain Filings
The Company shall cooperate with Parent with respect to all filings with
Governmental Authorities that are required to be made by the Company to carry
out the transactions contemplated by this Agreement. The Company shall assist
Parent and Merger Sub in making all such filings, applications and notices as
may be necessary or desirable in order to obtain the authorization, approval or
consent of any Governmental Authority which may be reasonably required or which
Parent may reasonably request in connection with the consummation of the
transactions contemplated hereby. Without limiting the generality of the
foregoing, if the Merger and the transactions contemplated hereby are subject
to the HSR Act, the parties hereto shall promptly and in good faith file or
cause to be filed the appropriate notifications with respect to the Merger and
such transactions, respond to any requests for additional information and
documents and provide the necessary information and make the necessary filings
under such Act.
5.10 Notification of Certain Matters
The Company shall promptly notify Parent of (i) the occurrence or non-
occurrence of any fact or event of which the Company has knowledge which would
be reasonably likely (A) to cause any representation or warranty of the Company
contained in this Agreement to be untrue or incorrect in any material respect
at any time from the date hereof to the Effective Time or (B) to cause any
covenant, condition or agreement of the Company in this Agreement not to be
complied with or satisfied in any material respect and (ii) any failure of the
Company to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder in any material respect; provided,
however, that no such notification shall affect the representations or
warranties of the Company, or the right of Parent and Merger Sub to rely
thereon, or the conditions to the obligations of Parent and Merger Sub, or the
remedies available hereunder to Parent or Merger Sub. The Company shall give
prompt notice to Parent of any notice or other communication from any third
Person alleging that the consent of such third Person is or may be required in
connection with the transactions contemplated by this Agreement.
5.11 Pooling Accounting Treatment
Each party hereto shall use its best efforts to cause the business
combination to be effected by the Merger to be accounted for as a pooling-of-
interests. Each party hereto shall use its reasonable best efforts to cause its
respective employees, officers, directors, shareholders, Subsidiaries and
affiliates not to take any action that would adversely affect the ability of
Parent to account for the business combination to be effected by the Merger as
a pooling-of-interests. Neither Parent nor the Company nor the Company
Subsidiary shall take any action, including the acceleration of vesting of any
options, restricted stock or other rights to acquire shares of the capital
stock of the Company, which reasonably would be expected to (i) interfere with
Parent's ability to account for the Merger as a pooling-of-interests or (ii)
jeopardize the tax-free nature of the reorganization hereunder.
5.12 No Solicitation
From the date hereof until the earlier of (i) September 30, 1999 (unless
extended to October 31, 1999 pursuant to Section 5.6), (ii) termination of this
Agreement by Parent or (iii) the Effective Time, the Company shall not, and or
shall not permit any, officer, director, shareholder, employee, investment
banker or other agent
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of the Company, or the Company Subsidiary to, directly or indirectly, (A)
solicit, engage in discussions or negotiate with any Person (whether or not
such discussions or negotiations are initiated by the Company), or take any
other action intended or designed to facilitate the efforts of any Person,
other than Parent, relating to the possible acquisition of the Company (whether
by way of merger, purchase of capital stock, purchase of assets or otherwise)
or any significant portion of its capital stock or assets (with any such
efforts by any such Person to make such an acquisition referred to as an
"Alternative Acquisition"), (B) provide information with respect to the Company
to any Person, other than Parent, relating to a possible Alternative
Acquisition by any Person, other than Parent, (C) enter into an agreement with
any Person, other than Parent, providing for a possible Alternative Acquisition
or (D) make or authorize any statement, recommendation or solicitation in
support of any possible Alternative Acquisition by any Person, other than by
Parent.
5.13 Access to Information; Confidentiality
Upon reasonable written notice, each party shall permit representatives of
the other to have access (at all reasonable times and in a manner so as not to
interfere with the normal business operations of the other party) to all
premises, properties, financial and accounting records, Contracts, other
records and documents, and personnel of or pertaining to such party, all in
accordance with the terms of the Confidentiality Agreements; provided that the
representative of the Company may have the access to Parent permitted hereunder
only in order to conduct customary due diligence regarding the completeness of
the Parent SEC Report, Registration Statement and other information set forth
herein as the Company may reasonably request. No investigation or examination
by either party shall diminish, obviate or constitute a waiver of the
enforcement of any of the representations, warranties, covenants or agreements
of the other party under this Agreement.
5.14 Reasonable Best Efforts; Further Action
(a) Upon the terms and subject to the conditions hereof, each of the parties
hereto shall use its reasonable best efforts (exercised diligently and in good
faith) to take, or cause to be taken, all actions and to do, or cause to be
done, all other things reasonably necessary, proper or advisable to consummate
and make effective as promptly as practicable the transactions contemplated by
this Agreement, to obtain in a timely manner all necessary waivers, consents,
authorizations and approvals and to effect all necessary registrations and
filings, and otherwise to satisfy or cause to be satisfied all conditions
precedent to its obligations under this Agreement.
(b) Notwithstanding any provision of this Agreement to the contrary, Parent
shall not be obligated to divest, abandon, license, dispose of, hold separate
or take similar action with respect to any portion of the business, assets or
properties (tangible or intangible) of Parent, any of its Subsidiaries or the
Company in connection with seeking to obtain or obtaining any waiver, consent,
authorization or approval of any Person associated with the consummation of the
transactions contemplated hereby or otherwise.
(c) If, at any time after the Effective Time, any such further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company and Merger
Sub, the officers and directors of the Company and Merger Sub immediately prior
to the Effective Time are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
or desirable action.
6. Additional Covenants of Parent and Merger Sub
Each of Parent and Merger Sub, jointly and severally, hereby covenants and
agrees as follows:
6.1 Certain Filings
Parent and Merger Sub agree to make or cause to be made all filings with
Governmental Authorities that are required to be made by Parent or Merger Sub
to carry out the transactions contemplated by this Agreement.
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6.2 Notification of Certain Matters
Parent and Merger Sub shall promptly notify the Company of (i) the
occurrence or non-occurrence of any fact or event of which Parent or Merger Sub
has knowledge which would be reasonably likely (A) to cause any representation
or warranty of Merger Sub or Parent contained in this Agreement to be untrue or
incorrect in any material respect at any time from the date hereof to the
Effective Time or (B) to cause any covenant, condition or agreement of Merger
Sub or Parent in this Agreement not to be complied with or satisfied in any
material respect and (ii) any failure of Merger Sub or Parent to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder in any material respect; provided, however, that no such
notification shall affect the representations or warranties of Merger Sub or
Parent, or the right of the Company to rely thereon, or the conditions to the
obligations of the Company, or the remedies available hereunder to the Company.
Parent and Merger Sub shall give prompt notice to the Company of any notice or
other communication from any third Person alleging that the consent of such
third Person is or may be required in connection with the transactions
contemplated by this Agreement.
6.3 Employment Matters
(a) For purposes of eligibility, vesting and, except with respect to any
pension benefit plan, calculation of benefits (except to the extent crediting
such service would result in the duplication of benefits) under each of
Parent's employee benefit plans, programs and arrangements in which an employee
of the Company who is employed as of the Closing Date and who becomes an
employee of Parent or the Surviving Corporation immediately following the
Closing (each, a "Continuing Employee") participates, Parent shall grant, or
shall cause the Surviving Corporation to grant, each Continuing Employee with
credit for all service with the Company.
(b) Parent shall provide, or shall cause the Surviving Corporation to
provide, to each Continuing Employee (and each Continuing Employee's
beneficiaries and dependents) immediate coverage under a health benefit plan
maintained by the Surviving Corporation or Parent. Parent shall waive, or cause
the Surviving Corporation to waive, any applicable pre-existing condition
exclusion (to the extent such exclusion did not apply to a pre-existing
condition under the Company's plan) under any such health benefit plan, and,
for purposes of any applicable deductibles, co-payments or out-of-pocket
maximums under any such health benefit plan, each Continuing Employee shall
receive credit under such health benefit plan for all amounts paid by them
under the Company's health benefit plan.
(c) Each Continuing Employee shall enter into Parent's standard agreements
for employees relating to confidentiality, proprietary information, inventions
and non-competition.
(d) It is expressly agreed that the provisions of this Section 6.3 are not
intended to be for the benefit of or otherwise enforceable by any third Person,
including, without limitation, any employee of the Company, or any collective
bargaining unit or employee organization.
(e) Nothing herein shall prevent Parent, Merger Sub, the Company or the
Surviving Corporation from amending or modifying any employee benefit plan,
program or arrangement as permitted thereby in any respect or terminating or
modifying the terms and conditions of employment or other service of any
particular employee or any other Person. Nothing contained in this Agreement
shall create or imply any obligation on the part of Parent, Merger Sub, the
Company or the Surviving Corporation to provide any continuing employment right
to any individual.
6.4 Indemnification and Insurance
(a) The Parent and the Merger Sub agree that all rights to indemnification
for acts or omissions occurring prior to the Effective Time of the Merger now
existing in favor of the current directors and officers of the Company as
provided in the Articles of Incorporation, Bylaws of the Company, or written
agreements with the Company attached as Section 6.4 to the Disclosure Schedule
shall survive the Merger and shall continue in full force and effect in
accordance with their terms and be guaranteed by Parent for a period of six
years from the Effective Time.
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(b) After the Effective Time, Parent and the Surviving Corporation will, to
the fullest extent permitted under applicable law or under Parent's or the
Surviving Corporation's Articles of Incorporation or Bylaws, indemnify and hold
harmless, each present director or officer of Company,and his or her heirs,
estate, successors and assigns (collectively, the "Indemnified Parties")
against any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, to the extent arising out of
or pertaining to any action or omission in his or her capacity as a director or
officer of the Company arising out of or pertaining to the transactions
contemplated by this Agreement for a period of six years after the date hereof.
In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) any counsel retained
by the Indemnified Parties for any period after the Effective Time must be
reasonably satisfactory to the Surviving Corporation and Parent, (ii) after the
Effective Time, Parent will, or will cause the Surviving Corporation to, pay
the reasonable fees and expenses of such counsel, promptly after statements
therefor are received and (iii) Parent will, or will cause the Surviving
Corporation to, cooperate in the defense of any such matter; provided, however,
that neither Parent nor the Surviving Corporation will be liable for any
settlement effected without its written consent (which consent will not be
unreasonably withheld); and provided, further, that, in the event that any
claim or claims for indemnification are asserted or made within such six-year
period, all rights to indemnification in respect of any such claim or claims
will continue until the disposition of any and all such claims; provided,
further, that any determination required to be made with respect to whether an
Indemnified Party's conduct complies with the applicable standards of conduct,
shall be made by independent legal counsel selected by the Indemnified Party
and reasonably acceptable to Parent; and provided, further, that nothing in
this Section 6.4 shall impair any other rights or obligations of any present or
former employees, agents, directors or officers of the Company. The Indemnified
Parties as a group may retain only one law firm (in addition to local counsel)
to represent them with respect to any single action unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties. In the
event Parent or the Surviving Corporation or any of their respective successors
or assigns (i) consolidates with or merges into any other person or (ii) sells
all or substantially all of the assets of Parent and the Surviving Corporation,
then, and in each such case, to the extent necessary to effectuate the purposes
of this Section 6.4, proper provision shall be made so that the successors and
assigns of Parent and the Surviving Corporation assume the obligations set
forth in this Section 6.4 and none of the actions described in clause (i) or
(ii) shall be taken until such provision is made.
(c) The performance by Parent of its obligations under this Section 6.4
shall not limit or prejudice its rights to assert a claim or claims under
Article 9 hereof, regardless whether such claim or claims arise out of the same
factual circumstances constituting the claim or claims under this Section 6.4,
and no Company Shareholder shall be excused from his obligations under Article
9 or the Escrow Agreement by virtue of the fact that the item constituting
Parent's claim thereunder might also constitute the basis for a proper claim by
such Company Shareholder under this Section 6.4 in such Company Shareholder's
capacity as a former officer or director of the Company.
(d) This Section 6.4 will survive any termination of this Agreement and the
consummation of the Merger at the Effective Time, is intended to benefit the
Company, the Surviving Corporation and the Indemnified Parties, and will be
binding on all successors and assigns of Parent and the Surviving Corporation.
6.5 Registration
(a) Unless Parent chooses to use an S-4 Registration Statement pursuant to
Section 5.6 hereof, as soon as reasonably possible after the Closing Date, but
not in any event more than ten calendar days after the Closing Date, Parent
shall file with the SEC, the Registration Statement (or any successor short
form registration involving a similar amount of disclosure; or if then
ineligible to use any such form, then any other available form of registration
statement) for a public offering of all the Parent Shares then outstanding to
be made on a continuous basis pursuant to Rule 415 of the Securities Act and
will use its commercially reasonable efforts to cause such registration
statement to become effective (subject to review of such Registration Statement
by the
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SEC) and remain continuously effective until the earlier of (i) two years from
the Closing Date or (ii) such time as all of the Parent Shares may be sold
pursuant to Rule 144 promulgated under the Securities Act on a single day. The
Parent may, upon written notice to the selling shareholders listed therein,
suspend use of the Registration Statement for a reasonable period if the Parent
in its reasonable judgment believes it may possess material nonpublic
information the disclosure of which at that point in time in its reasonable
judgment would have a Material Adverse Effect on the Parent and its
Subsidiaries taken as a whole.
(b) The Company covenants and agrees that it shall provide to Parent on a
timely basis such consents, representations and information and executed such
documents as may reasonably be required by Parent in connection with such
Registration Statement.
(c) Parent shall pay all expenses of registration of the Parent Shares
pursuant to Section 6.5(a), except brokerage commissions, legal expenses and
such other expenses as may be required by law to be paid by the Company
Shareholders, shall be paid by the party by which such expenses are incurred.
(d) If the Parent chooses to use an S-4 Registration Statement pursuant to
Section 5.6 hereof, Parent will have no obligation to register under the
Securities Act the Parent Shares on a Registration Statement pursuant to this
Section 6.5.
(e) To the extent permitted by law, the Parent will indemnify and hold
harmless each of the Company Shareholders, their respective officers and
directors and each person, if any, who controls the Company Shareholders within
the meaning of the Securities Act, against any costs or expenses (including
attorney's fees), judgments, fines, losses, claims, damages, liabilities or
amounts paid in settlement, joint or several, to which any of them may become
subject under the Securities Act or otherwise, insofar as such costs or
expenses (including attorney's fees), judgments, fines, losses, claims, damages
liabilities or amounts paid in settlement (or actions in respect thereof) arise
out of or are based upon any untrue or alleged untrue statement of any material
fact contained or expressly incorporated by reference in any such Registration
Statement, including any preliminary prospectus or final prospectus contained
therein or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each of the Company Shareholders and their
respective officers and directors and each such controlling person for any
legal or other expenses reasonably incurred by any of them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section
6.5(e) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Parent (which consent shall not be unreasonably withheld) nor shall the
Parent be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
connection with such Registration Statement, preliminary prospectus, final
prospectus or amendment or supplement thereto in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by the Company Shareholders or any person controlling
the Company Shareholders.
(f) To the extent permitted by law, the Company Shareholders will, severally
and not jointly, indemnify and hold harmless the Parent, its directors, its
officers who have signed such Registration Statement and each person, if any,
who controls the Parent within the meaning of the Securities Act against any
losses, claims, damages or liabilities to which the Parent or any such
director, officer or controlling person may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained or expressly
incorporated by reference in such Registration Statement, including any
preliminary prospectus or final prospectus contained therein or any amendment
or supplement thereto, or arise out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such
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Registration Statement, preliminary prospectus, final prospectus or amendments
or supplements thereto, in reliance upon and in conformity with written
information furnished by the Company Shareholders expressly for use in
connection with such registration; and the Company Shareholders will reimburse
any legal or other expenses reasonably incurred by the Parent or any such
director, officer and controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action. It is agreed that
the indemnity agreement contained in this Section 6.5(f) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the indemnifying party
(which consent shall not be unreasonably withheld).
(g) If the indemnification provided for in Sections 6.5(e) and (f) hereof is
unavailable to a person entitled to indemnification hereunder, then each person
that would have been an indemnifying party hereunder will, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable
by such indemnified person for which indemnification is provided herein in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and such indemnified party, respectively, in connection with the
statements or omissions which resulted in the costs or expenses (including
attorney's fees), judgments, fines, losses, claims, damages, liabilities or
amounts paid in settlement underlying such indemnification obligations.
Relative fault will be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the indemnifying party or such indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Parent and the Company Shareholders agree that
it would not be just and equitable if contribution pursuant to this Section
6.5(g) were determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable considerations referred
to above in this Section 6.5(g). No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(h) Promptly after receipt by a party indemnified under this Section 6.5 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under
this Section 6.5, notify the indemnifying party in writing of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however that if the
defendants in any such action include both the indemnified party and the
indemnifying party and, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of the indemnified
party and the indemnifying party exists, the indemnified party or parties shall
have the right to select one separate law firm, at the indemnifying party's or
parties' expense, to assume such legal defenses and to otherwise participate in
the defense of such action on behalf of such indemnified party or parties. The
failure to notify any indemnifying party promptly of the commencement of any
such action, shall not relieve such indemnifying party of any liability to the
indemnified party under this Section 6.5, except to the extent that such
indemnifying party is actually prejudiced thereby.
6.6 NMS Listing
Parent agrees to authorize for listing on the Nasdaq National Market the of
Parent Shares issuable, and those required to be reserved for issuance, in
connection with the Merger, upon official notice of issuance.
6.7 Payment Of Fees And Interest
Promptly following the Effective Time, Parent shall timely pay all fees and
expenses of Needham & Company, Inc. as provided in the engagement letter
between the Company and Needham & Company, Inc., dated September 23, 1998.
Subject to the agreement of the holders of the Convertible Notes, Parent shall
pay to these holders, in exchange for their Convertible Notes:
(a) shares of Parent Common Stock in an amount equal to $2,029,594; plus
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(b) shares of Parent Common Stock in an amount equal to the accrued and
unpaid interest due on the Convertible Notes on the Closing Date.
For purposes hereof, the value of the shares of Parent Common Stock shall be
determined based upon the Closing Exchange Price.
7. Conditions to Obligations of Parent and Merger Sub
The obligations of Parent and Merger Sub under this Agreement to consummate
the Merger and the other transactions contemplated hereby shall be subject to
the satisfaction, at or prior to the Effective Time, of each of the following
conditions:
7.1 Representations and Warranties
The representations and warranties of the Company contained in this
Agreement or in the Disclosure Schedule or any certificate delivered pursuant
hereto shall be complete and correct as of the date when made, shall be deemed
repeated at and as of the Closing Date as if made on the Closing Date and,
without giving effect to any qualification as to materiality (or any variation
of such term) contained in any representation or warranty, shall then be
complete and correct, except, in either case, if such inaccuracies,
individually or in the aggregate, do not cause a Material Adverse Effect.
7.2 Performance of Covenants
The Company shall have taken all necessary corporate or other actions to
consummate the transactions contemplated hereby and shall have performed and
complied in all material respects with each covenant, agreement and condition
required by this Agreement to be performed or complied with by them at or prior
to the Effective Time.
7.3 Convertible Notes
The holders of all the Convertible Notes shall have agreed to surrender
their Convertible Notes in exchange for:
(a) shares of Parent Common Stock in an amount equal to $2,029,594; plus
(b) shares of Parent Common Stock in an amount equal to the accrued and
unpaid interest due on the Convertible Notes on the Closing Date.
For purposes hereof, the value of the shares of Parent Common Stock shall be
determined based upon the Closing Exchange Price.
7.4 Dissenting Shareholders
Holders of not more than 5% of the outstanding Company Common Stock shall
have exercised dissenters rights pursuant to Section 1300 et. seq. of the CGCL.
7.5 Update Certificate
Parent and Merger Sub shall have received a certificate or certificates,
dated the Closing Date, signed by the Company as to the matters set forth in
Sections 7.1 through 7.4.
7.6 No Governmental or Other Proceeding; Illegality
No Order of any Governmental Authority shall be in effect that restrains or
prohibits any transaction contemplated hereby or that would limit or affect
Parent's or Merger Sub's ownership or operation of the
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business or assets of the Company or the Company Subsidiary; no suit, action,
investigation, inquiry or Proceeding by any Governmental Authority shall be
pending or threatened against Parent, Merger Sub or the Company or the Company
Subsidiary or any director or officer of any thereof, as such, that challenges
the validity or legality, or that restrains or seeks to restrain the
consummation, of the transactions contemplated hereby, or that limits or
otherwise affects or seeks to limit or otherwise affect Parent's or Merger
Sub's right to own or operate the business or assets of the Company or the
Company Subsidiary, or that compels or seeks to compel Parent or any of its
Subsidiaries to divest, abandon, license, dispose of, hold separate or take
similar action with respect to any portion of the business, assets or
properties (tangible or intangible) of Parent or any of its Subsidiaries
(including the Surviving Corporation) or the Company or the Company Subsidiary;
and no written advice shall have been received by Parent, Merger Sub, the
Company or the Company Subsidiary or by any of their respective counsel from
any Governmental Authority, and remain in effect, stating that an action or
Proceeding will, if the Merger is consummated or sought to be consummated, be
filed seeking to invalidate or restrain the Merger or limit or otherwise affect
Parent's or Merger Sub's ownership or operation of the business or assets of
the Company or the Company Subsidiary. No Law or Order shall be enacted,
entered, enforced or deemed applicable to the Merger or the other transactions
contemplated hereby which makes the consummation of the Merger or the other
transactions contemplated hereby illegal.
7.7 Approvals And Consents
All material waivers, approvals, authorizations or Orders required to be
obtained, and all filings required to be made, by the Company, for the
authorization, execution and delivery of this Agreement, the consummation by it
of the transactions contemplated hereby and the continuation in full force and
effect of any and all material rights, documents, instruments or Contracts of
the Company and the Company Subsidiary shall have been obtained and made,
including, without limitation, the written consents of Venture Lending and
Leasing II, Inc. and Montague Oaks Associates Phase I and II and all consents
or approvals of any Person which may be required under any lease for real
property to which the Company or the Company Subsidiary is a party. The Company
shall use reasonable commercial efforts to obtain landlord consents and
estoppel certificates reasonably satisfactory in form and substance to Parent
from the lessors/owners of the real property leased by the Company in San Jose,
California.
7.8 Opinion Of Counsel
The Company shall have delivered to Parent and Merger Sub an opinion of
Heller Ehrman White & McAuliffe, dated the Closing Date and addressed to Parent
and Merger Sub, as to the matters set forth on Exhibit 7.8 hereto.
7.9 Shareholder Approval
This Agreement, the Merger and the other transactions contemplated hereby
shall have been duly approved by Company Shareholders in accordance with the
CGCL.
7.10 Opinions Of Accountants; Pooling
Parent and Merger Sub shall have received a letter from
PricewaterhouseCoopers LLP, independent certified public accountants of Parent,
regarding the appropriateness of pooling-of-interests accounting for the Merger
under APB 16 if closed and consummated in accordance with this Agreement. Such
letter shall be in form and substance reasonably satisfactory to Parent.
7.11 Escrow Agreement
There shall have been executed and delivered to Parent an Escrow Agreement
in substantially the form attached hereto as Exhibit 2.10 with such
modifications thereto as may be required by the Escrow Agent and agreed to by
the parties hereto.
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7.12 Noncompetition And Proprietary Information Agreements
Parent shall have received executed noncompetition and proprietary
information agreement substantially in the form of Exhibit 7.12 from each of
the Key Employees.
7.13 Termination Of Rights And Voting Agreements
All agreements among the Company and any of its securityholders, or among
any of the Company securityholders, providing for registration rights, rights
of first refusal, rights of co-sale, relating to the voting of the Company
securities or requiring the Company to obtain the consent or approval of any
such securityholders prior to taking or failing to take any action, shall have
been, as of or prior to the Closing Date, terminated in their entirely.
7.14 Nasdaq National Market
The Parent Shares shall not equal or exceed 20% of the total outstanding
shares of Parent Common Stock.
7.15 Registration
If Parent elects to file an S-4 Registration Statement registering the
Parent Shares pursuant to Section 5.6 hereof, the S-4 Registration Statement
shall be effective and no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of the
Registration Statement, shall have been initiated or threatened in writing by
the SEC.
7.16 Other Documents
At the Closing, Parent shall receive such other certificates and documents
as the Parent shall have reasonably requested.
8. Conditions to Obligations of the Company
The obligations of the Company under this Agreement to consummate the
Merger and the other transactions contemplated hereby shall be subject to the
satisfaction, at or prior to the Effective Time, of each of the following
conditions:
8.1 Representations And Warranties
The representations and warranties of Parent and Merger Sub contained in
this Agreement or in the Disclosure Schedule or any certificate delivered
pursuant hereto shall be complete and correct as of the date when made, shall
be deemed repeated at and as of the Closing Date as if made on the Closing
Date and, without giving effect to any qualification as to materiality (or any
variation of such term) contained in any representation or warranty, shall
then be complete and correct except, in either case, if such inaccuracies (i)
individually or in the aggregate do not cause a Material Adverse Effect or
(ii) were disclosed in a press release or in a filing with the SEC which was
released or filed, as the case may be, at least ten trading days prior to the
Closing Date.
8.2 Performance Of Covenants
Parent and Merger Sub shall have taken all necessary corporate actions to
consummate the transactions contemplated hereby and shall have performed and
complied in all material respects with each covenant, agreement and condition
required by this Agreement to be performed or complied with by them at or
prior to the Effective Time.
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8.3 Update Certificate
The Company and the Controlling Shareholders shall have received a
certificate or certificates, dated the Closing Date, signed by Parent and
Merger Sub as to the matters set forth in Sections 8.1 and 8.2.
8.4 No Governmental Or Other Proceeding; Illegality
No Order of any Governmental Authority shall be in effect that restrains or
prohibits any transaction contemplated hereby; and no written advice shall have
been received by Parent, Merger Sub, the Company or the Company Subsidiary or
by any of their respective counsel from any Governmental Authority, and remain
in effect, stating that an action or Proceeding will, if the Merger is
consummated or sought to be consummated, be filed seeking to invalidate or
restrain the Merger. No Law or Order shall be enacted, entered, enforced or
deemed applicable to the Merger or the other transactions contemplated hereby
which makes the consummation of the Merger or the other transactions
contemplated hereby illegal.
8.5 Opinion Of Counsel
Parent and Merger Sub shall have delivered to the Company an opinion of
Brown, Rudnick, Freed & Gesmer, dated the Closing Date and addressed to the
Company, as to the matters set forth on Exhibit 8.5 hereto.
8.6 Shareholder Approval
This Agreement, the Merger and the other transactions contemplated hereby
shall have been duly approved by the Company Shareholders in accordance with
the CGCL.
8.7 Registration
If Parent elects to file an S-4 Registration Statement registering the
Parent Shares pursuant to Section 5.6 hereof, the S-4 Registration Statement
shall be effective and no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of the
Registration Statement, shall have been initiated or threatened in writing by
the SEC.
9. Survival; Indemnification
9.1 Survival
The covenants, agreements, representations and warranties of the Company
contained in this Agreement shall survive the Closing until the one (1) year
anniversary of the Effective Time, after which time claims for indemnity
pursuant to this Section 9 may no longer be made. Notwithstanding the preceding
sentence, any claim for indemnification regarding any covenant, agreement,
representation or warranty sought under Section 9.2 shall survive the time at
which such covenant, agreement, representation or warranty shall terminate
pursuant to the preceding sentence, if notice of such claim for indemnification
shall have been given to the party against whom such indemnity is sought prior
to such time. The covenants, agreements, representations and warranties of the
Company and the rights and remedies that may be exercised by any Indemnitee
shall not be limited, diminished or otherwise affected by or as a result of any
information that may have been provided, any investigation or examination that
may have or be made by, or any knowledge of, any Indemnitee or any other party
on behalf of any Indemnitee, except as otherwise contemplated herein.
9.2 Indemnification
The Company Shareholders severally and not jointly agree that the Escrow
Shares shall be available to the extent provided in this Section 9 and in the
Escrow Agreement to compensate each of Parent and, effective at and as of the
Effective Time, without duplication, the Surviving Corporation and each of
their respective
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Subsidiaries and affiliates (each in its capacity as an indemnified party, an
"Indemnitee") for any and all losses, liabilities, damages, judgments, rulings,
assessments and any and all amounts paid in settlement of or related to any
claim or litigation or amounts mutually agreed to by Parent and the Shareholder
Representative (collectively, "Actual Damages"), and any and all costs and
expenses, interest, penalties, reasonable attorneys' fees and any and all other
expenses incurred in investigating, preparing, and defending against any
litigation, commenced or threatened, and any claim whatsoever (collectively
"Litigation Damages," together with "Actual Damages," "Damages") (Damages in
each case shall be net of the amount of any insurance proceeds, indemnity or
contribution actually recovered by such Indemnitee and such Indemnitee shall
use commercially reasonable efforts to recover such amounts), incurred by such
Indemnitee as a result of, arising out of or incident to any of the following
with respect to which a claim for indemnification is brought by an Indemnitee
within the applicable survival period described in Section 9.1: (i) any breach
of any representation or warranty of the Company set forth herein, or in any
certificate or other document delivered in connection herewith or therewith, or
(ii) any breach by the Company of any covenant, agreement, or obligation
contained herein, or in any certificate or other document delivered in
connection herewith in each case, except to the extent waived in writing by
Parent. For the purposes of this Article 9, any qualification of the Company's
representations and warranties by reference to the materiality of matters
stated therein, and, except with respect to Section 3.34 hereof, any
limitations of such representations and warranties as being "to the knowledge
of" or "known to" or words of similar effect, shall be disregarded in
determining any inaccuracy, untruth, incompleteness or breach thereof.
9.3 Third Person Claims
Promptly after an Indemnitee has received notice of or has knowledge of any
claim by a person not a party to this Agreement ("Third Person") or the
commencement of any action or proceeding by a Third Person, the Indemnitee
shall, as a condition precedent to the claim with respect thereto being made
against the Escrow Shares, give the Shareholder Representative written notice
of such claim or the commencement of such action or proceeding; provided,
however that the failure to give such notice will not affect the Indemnitees'
right to indemnification hereunder with respect to such claim, action or
proceeding, except to the extent that the Shareholder Representative or the
Company Shareholders have been actually prejudiced as a result of such failure.
If the Shareholder Representative notifies the Indemnitee within 30 days from
the receipt of the foregoing notice that he wishes to defend against the claim
by the Third Person and if the estimated amount of the claim, together with all
other claims made against the Escrow Shares that have not been settled, is less
than the remaining balance of the Escrow Shares, then the Shareholder
Representative shall have the right to assume and control the defense of the
claim by appropriate proceedings with counsel reasonably acceptable to
Indemnitee, and the Shareholder Representative shall be entitled to
reimbursement out of the Escrow Shares for such defense. The Indemnitee may
participate in the defense, at its sole expense, of any such claim for which
the Shareholder Representative shall have assumed the defense pursuant to the
preceding sentence, provided that counsel for the Shareholder Representative
shall act as lead counsel in all matters pertaining to the defense or
settlement of such claims, suit or proceedings; provided, however, that
Indemnitee shall control the defense of any claim or proceeding that in
Indemnitee's reasonable judgment could have a material and adverse effect on
Indemnitee's business apart from the payment of money damages. The Indemnitee
shall be entitled to indemnification under Section 9.2 (subject to the
limitations set forth in Section 9.4) for the reasonable fees and expenses of
its counsel for any periods during which the Shareholder Representative has not
assumed the defense of any claim. Whether or not the Shareholder Representative
shall have assumed the defense of any claim, neither the Indemnitee nor the
Shareholder Representative shall make any settlement with respect to any such
claim, suit or proceeding without the prior consent of the other, which consent
shall not be unreasonably withheld or delayed. It is understood and agreed that
in situations where failure to settle a claim expeditiously could have an
adverse effect on the party wishing to settle, the failure of the party
controlling the defense to act upon a request for consent to such settlement
within five (5) business days of receipt of notice thereof shall be deemed to
constitute consent to such settlement for purposes of this Section 9.
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9.4 Method Of Payment
Parent or the Surviving Corporation shall only be entitled to satisfy claims
for indemnification pursuant to this Section 9 from the Escrow Shares. To the
extent that Parent or the Surviving Corporation is entitled to indemnification
hereunder, the Escrow Shares shall be valued as provided in the Escrow
Agreement.
9.5 Limitations
Notwithstanding any other provision in this Section 9, Indemnitees shall be
entitled to indemnification only to the extent that the aggregate Damages
exceed $50,000. The first such $50,000 of aggregate Damage shall be considered
a deductible and shall not be payable by the Company Shareholders to the
Indemnitees hereunder.
9.6 Maximum Liability And Remedies
The rights of Parent to make claims upon the Escrow Shares in accordance
with this Section 9 shall be the sole and exclusive remedy of the Indemnitees
after the Effective Time for any damage, claim, cause of action or right of any
nature arising out of or relating to this Agreement, the certificates or other
documents executed or delivered herewith (except as expressly provided in
Section 6.5 hereof or in the Escrow Agreement) and no Company Shareholder, and
no person who is or was an optionholder, warrantholder, director, officer,
employee or agent of the Company prior to the Effective Time shall have any
personal liability to Parent or the Surviving Corporation after the Closing
Date in connection with the Merger.
10. Termination of Agreement
10.1 Termination
This Agreement shall not be terminated, nor the Merger abandoned, except in
accordance with the provisions of this Article 10, strictly construed against
the party seeking such termination. This Agreement may be terminated and the
Merger may be abandoned any time prior to the Effective Time, whether before or
after approval by the Company Shareholders:
(a) by mutual written consent of the parties;
(b) by either the Parent or the Company, if, without fault of such
terminating party, the Merger shall not have been consummated on or before
September 30, 1999, unless Parent elects to file an S-4 Registration
Statement pursuant to Section 5.6 hereof, in which event the date shall be
October 31, 1999, unless such failure shall be due to a material breach of
any representation or warranty, or the nonfulfillment in a material
respect, and failure to cure such nonfulfillment, of any covenant or
agreement contained herein on the part of the party or parties seeking to
terminate; and
(c) by Parent or the Company if a Governmental Authority shall have
issued a nonappealable final Order or taken any other action having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger and the other transactions contemplated hereby (provided that the
right to terminate this Agreement under this Section 10.1 shall not be
available to any party who has not complied with its obligations under this
Agreement if such noncompliance materially contributed to the issuance of
any such Order or the taking of such action).
10.2 Termination by the Parent
This Agreement may be terminated and the Merger may be abandoned by action
of the Board of Directors of the Parent, at any time prior to the Effective
Time, before or after the approval by the Company Shareholders, if:
(a) the Company shall have failed to comply with any of the covenants or
agreements contained in this Agreement such that the closing condition set
forth in Section 7.2 would not be satisfied; provided, however, that if
such breach or breaches are capable of being cured prior to the Effective
Time, such
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breach or breaches shall not have been cured within 15 days of delivery to
the Company of written notice of such breach;
(b) there exists a breach of any representation or warranty of the
Company contained in this Agreement such that the closing condition set
forth in Section 7.1 would not be satisfied; provided, however, that if
such failure or failures are capable of being cured prior to the Effective
Time, such failure or failures shall not have been cured within 15 days of
delivery to the Company of written notice of such failure; or
(c) the Company engages in any conduct or takes any action concerning an
Alternative Acquisition as provided in Section 5.12 hereof.
10.3 Termination by the Company
This Agreement may terminated and the Merger may be abandoned at any time
prior to the Effective Time, before or after the approval by the Company
Shareholders, by action of the Board of Directors of the Company, if:
(a) the Parent or the Merger Sub shall have failed to comply with any of
the covenants or agreements contained in this Agreement such that the
closing condition set forth in Section 8.2 would not be satisfied; provided
however, that if such failure or failures are capable of being cured prior
to the Effective Time, such failure or failures shall not have been cured
within 15 days of delivery to the Parent of written notice of such failure;
or
(b) there exists a breach or breaches of any representation or warranty
of the Parent or the Merger Sub contained in this Agreement such that the
closing condition set forth in Section 8.1 would not be satisfied; provided
however, that if such breach or breaches are capable of being cured prior
to the Effective Time, such breach or breaches shall not have been cured
within 15 days of delivery to the Parent of written notice of such breach.
10.4 Procedure for Termination
In the event of termination and abandonment of the Merger by the Parent or
the Company pursuant to this Article 10, written notice thereof shall forthwith
be given to the other party.
10.5 Effect of Termination
(a) In the event of termination of this Agreement in accordance with the
provisions of this Article 10, this Agreement shall forthwith become void and
no party to this Agreement shall have any liability or further obligation to
any other party, except as provided in the Confidentiality Agreement and in
this Section 10.5 and in Sections 11.2 and 11.3 of this Agreement, which
provisions shall survive such termination, and except that nothing herein shall
relieve any party from liability for any breach of this Agreement.
(b) In the event of a termination of this Agreement pursuant to Section
10.2(c), the Company shall pay Parent a fee in the amount of $1,000,000 and all
reasonable, actual and documented costs and expenses (including reasonable
attorneys' and accountants' fees and expenses) incurred by Parent and Merger
Sub in connection with this Agreement and the transactions contemplated hereby
(collectively the "Termination Fee"). Such amounts payable to Parent shall be
paid ten business days after Parent's written demand therefor.
(c) If prior to or within six (6) months after the termination of this
Agreement pursuant to Section 10.2(a) or 10.2(b), the Company or any of its
Affiliates enters into a definitive agreement with a third party with respect
to an Alternative Acquisition or an Alternative Acquisition is effected, then
the Company, prior to entering into any such definitive agreement or any such
Alternative Acquisition being effected, shall, within ten business days
thereafter, pay the Parent by wire transfer of immediately available funds to
an account specified by the Parent the Termination Fee.
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(d) In the event of a termination of this Agreement by the Company pursuant
to Section 10.3(a) or (b) then the Parent shall pay the Company a fee equal to
$1,000,000 and all reasonable, actual and documented costs and expenses
(including reasonable attorneys' and accountants' fees and expenses) incurred
by the Company in connection with this Agreement and the transaction
contemplated hereby (the "Company Termination Fee"). Such amount payable to the
Company shall be paid ten business days after the Company's written demand
therefor. The Parent and the Company hereby acknowledge that Venture Lending
and Leasing II, Inc. has a first priority Lien on any such amount as security
for the Credit Line.
(e) In the event of a termination of this Agreement by Parent in the event
Section 7.14 is not satisfied, then the Parent shall pay the Company the
Company Termination Fee. Such amount payable to the Company shall be paid ten
business days after the Company's written demand therefor. The Parent and the
Company hereby acknowledge that Venture Lending and Leasing II, Inc. has a
first priority Lien on any such amount as security for the Credit Line.
10.6 Right to Proceed
Anything in this Agreement to the contrary notwithstanding, if any of the
conditions specified in Article 7 hereof have not been satisfied, Parent shall
have the right to waive the satisfaction of any such condition as provided in
Article 7 and to proceed with the transactions contemplated hereby, however, it
shall be deemed to have waived any claim for indemnification arising out of any
condition which has been so waived. If any of the conditions specified in
Article 8 hereof has not been satisfied, the Shareholder Representative shall
have the right to waive the satisfaction of any such condition as provided in
Article 8 and to proceed with the transactions contemplated hereby.
11. General Provisions
11.1 Termination of Representations and Warranties
The parties' representations warranties and covenants in this Agreement or
in any document or instrument delivered pursuant to this Agreement shall
survive until the one year anniversary of the Closing Date.
11.2 Expenses
Except as otherwise expressly provided in this Agreement, each party to this
Agreement will bear its respective fees, costs and expenses incurred in
connection with the preparation, execution, delivery and performance of this
Agreement, including all fees, costs and expenses of agents, representatives,
counsel and accountants provided, however, that any legal fees of the Company
in excess of $150,000, incurred in connection with the transactions
contemplated hereby shall be paid by the Company Shareholders out of Escrow
Shares.
11.3 Public Announcements
Unless required by law, any public announcement or similar publicity with
respect to this Agreement, the Closing, the Merger or the other transactions
contemplated hereby will be issued, if at all, at such time and in such manner
as Parent determines with the concurrence of the Company, which concurrence
shall not be unreasonably withheld or delayed by the Company. Unless disclosure
is consented to by Parent in advance or required by law or disclosure has
otherwise already been made, the Company shall keep this Agreement and the
transactions contemplated hereby strictly confidential and may not make any
disclosure of this Agreement or such transactions to any Person other than its
or their directors, officers, employees or agents who need to know such
information to enable the Company to comply with this Agreement, provided that
each such director, officer, employee or agent shall agree, for the benefit of
Parent, to maintain the confidentiality of such information as provided in this
Section 11.3. The Company and Parent will consult with each other concerning
the means by which the Company's employees, customers and suppliers and other
Persons having dealings
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with the Company or the Company Subsidiary will be informed of this Agreement,
the Closing, the Merger and the other transactions contemplated hereby, and
representatives of Parent may at its option be present for any such
communication.
11.4 Notices
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when
(a) delivered by hand (with written confirmation of receipt), (b) sent by fax
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses or fax numbers
set forth below (or to such other address, person's attention or fax number as
a party may designate by notice to the other parties given in accordance with
this Section 11.4):
(a) If to Parent or Merger Sub:
Brooks Automation, Inc.
15 Elizabeth Drive
Chelmsford, MA 01824
Telecopier No.: (617) 262-2500
Telephone No.: (617) 262-2600
Attention: Ellen B. Richstone
With a copy to:
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, MA 02111
Telecopier No.: (617) 856-8201
Telephone No.: (617) 856-8200
Attention: Lawrence M. Levy, Esquire
(b) If to the Company:
Smart Machines Inc.
651 River Oaks Parkway
San Jose, CA 95134
Telecopier No.: (408) 324-1966
Telephone No.: (408) 324-1234
Attention: K. Charles Janac
With a copy to:
Heller Ehrman White & McAuliffe
2500 Sand Hill Road, Suite 100
Menlo Park, CA 94025
Telecopier No.: (650) 234-4299
Telephone No.: (650) 234-4200
Attention: August J. Moretti
11.5 Jurisdiction; Service of Process
Any Proceeding seeking to enforce any provision of, or based on any right
arising out of, this Agreement may be brought against any of the parties in the
courts of the State of Delaware or any United States District Court of the
State of Delaware, and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such Proceeding and
waives any objection to venue laid therein. Service of
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process or any other papers in any such Proceeding may be made by registered or
certified mail, return receipt requested, pursuant to the provisions of Section
11.4.
11.6 Reset Election
(a) Notwithstanding anything in this Agreement to the contrary, but subject
to the provisions of this Section 11.6, if the Parent Shares shall equal or
exceed 20% of the total outstanding shares of Parent Common Stock and this
Agreement is not otherwise terminated pursuant to the terms hereof, the Parent
may elect (a "Reset Election"), to pay in lieu of Parent Shares, cash in the
aggregate amount of the Purchase Price.
(b) If at any time after the date hereof the closing price per share of the
Parent's Common Stock on the Nasdaq National Market is less than $6, the Parent
may notify the Company that it desires to amend the Prospectus/Proxy Statement
to obtain Company Shareholder approval of its right to make a Reset Election.
Following such notification, the Company and the Parent, unless the Parent
withdraws such notification, shall amend the Disclosure Document and take such
other actions as the Company or the Parent shall reasonably deem necessary or
desirable to permit the Parent to exercise the Reset Option. In addition, to
the extent that any terms of this Agreement are inconsistent with a Reset
Election, such terms shall be deemed to be modified to the limited extent
necessary to accommodate the Reset Election. All incremental costs arising in
connection with such amendment to the Disclosure Document and the
resolicitation of the Company Shareholders shall be borne by the Parent.
11.7 Failure or Indulgence Not Waiver; Remedies Cumulative
No failure or delay on the part of any party hereto in the exercise of any
right hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty, covenant or
agreement herein, nor shall any single or partial exercise of any such right
preclude other or further exercise thereof or of any other right. All rights
and remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
11.8 Assignments, Successors, and No Third-party Rights
No party may assign any of its rights under this Agreement without the prior
written consent of the other parties except that Parent may assign any of its
rights, but not its obligations, under this Agreement to any direct wholly-
owned Subsidiary of Parent. Subject to the preceding sentence, this Agreement
will apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the
parties to this Agreement any legal or equitable right, remedy or claim under
or with respect to this Agreement or any provision of this Agreement.
11.9 Severability
(a) If any provision of this Agreement or the application of any such
provision to any party or circumstances shall be determined by any court of
competent jurisdiction to be invalid or unenforceable to any extent, the
remainder of this Agreement, or the application of such provision to such party
or circumstances other than those to which it is so determined to be invalid or
unenforceable, shall not be affected thereby, and each provision hereof shall
be enforced to the fullest extent permitted by law. If the final judgment of a
court of competent jurisdiction declares that any item or provision hereof is
invalid or unenforceable, the parties hereto agree that the court making the
determination of invalidity or unenforceability shall have the power, to reduce
the scope, duration or area of the term or provision, to delete specific words
or phrases and to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified.
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(b) The parties agree that the fees and other amounts provided in Section
10.5 are fair and reasonable in the circumstances. If a court of competent
jurisdiction shall nonetheless, by a final, non-appealable judgment, determine
that such amounts exceed the maximum amount permitted by law, then such amounts
shall be reduced to the maximum amount permitted by law in the circumstances,
as determined by such court of competent jurisdiction.
11.10 Governing Law
This Agreement will be governed by the internal laws of the State of
Delaware without regard to principles of conflict of laws.
11.11 Counterparts
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement.
11.12 Entire Agreement and Modification
This Agreement supersedes all prior agreements (other than the
Confidentiality Agreement), whether written or oral, between or among the
parties with respect to its subject matter and constitutes (along with the
documents referred to in this Agreement) the entire agreement among the parties
with respect to its subject matter. This Agreement may not be amended except by
a written agreement executed by each party hereto.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
Brooks Automation, Inc.
By: _________________________________
Name: _______________________________
Title: ______________________________
Smart Acquisition Inc.
By: _________________________________
Name: _______________________________
Title: ______________________________
Smart Machines Inc.
By: _________________________________
Name: _______________________________
Title: ______________________________
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Exhibits:
Exhibit 2.10 Form of Escrow Agreement
Exhibit 3.37 Form of Affiliate Agreement
Exhibit 5.13 Confidentiality Agreements
Exhibit 7.8 Matters to be Addressed in Opinion of Company's Counsel
Exhibit 7.12 Noncompetition and Proprietary Information Agreement
Exhibit 8.5 Matters to be Addressed in Opinion of Parent's Counsel
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Exhibit 2.10
ESCROW AGREEMENT
This Escrow Agreement dated as of [ ], 1999 (the "Closing Date"), by and
among Brooks Automation, Inc., a Delaware corporation ("Parent"), [ ] (the
"Shareholder Representative"), as the representative of the Shareholders (the
"Company Shareholders") of Smart Machines, Inc., a California corporation (the
"Company") and State Street Bank and Trust Company, as escrow agent ("Escrow
Agent").
RECITALS:
A. On [ , 1999], Parent and the Company entered into an Agreement and
Plan of Merger (the "Merger Agreement"), pursuant to which Smart Acquisition
Corp., a wholly-owned subsidiary of Parent, shall be merged with and into the
Company (the "Merger").
B. The consideration to be paid by Parent to the Company Shareholders in
connection with the Merger shall be in the form of shares of Parent common
stock, par value $.01 per share ("Parent Common Stock").
C. Section 2.10 of the Merger Agreement provides that shares of Parent
Common Stock be deposited with the Escrow Agent subject to the terms and
conditions of this Escrow Agreement, as security for the indemnification and
certain expense obligations of the Company Shareholders under the Merger
Agreement.
D. Pursuant to Section 2.11 of the Merger Agreement, the Company
Shareholders have irrevocably appointed the Shareholder Representative as their
agent and attorney-in-fact to enter into this Agreement and other transactions
in connection with the Merger on behalf of the Company Shareholders.
E. The execution and delivery of this Escrow Agreement is a condition
precedent to the obligation of Parent to effect the Merger and the other
transactions contemplated by the Merger Agreement.
NOW THEREFORE, in consideration of the recitals and other good and valuable
consideration, including the inducement of Parent to effect the Merger, the
receipt and sufficiency of which are acknowledged by the parties hereto, the
parties agree as follows:
1. Establishment of Escrow
(a) On the date hereof, Parent has delivered to the Escrow Agent a single
certificate for the shares set forth on the attached Schedule A (the "Initial
Reserve Shares") registered in the name of Escrow Agent or, in its discretion,
in the name of its nominee, and Escrow Agent acknowledges receipt of such
shares and agrees to hold and administer said shares subject to the terms of
this Agreement. The Escrow Agent shall have no responsibility for the
genuineness, validity, market value, title or sufficiency for any intended
purpose of the Initial Reserve Shares. The Escrow Agent shall be under no
obligation to preserve, protect or exercise rights in the Initial Reserve
Shares, and shall be responsible only for reasonable measures to maintain the
physical safekeeping thereof, and otherwise to perform and observe such duties
on its part as are expressly set forth in this Agreement.
(b) In the event of any stock dividend, stock split, recapitalization or
other changes affecting the outstanding Parent Common Stock as a class effected
without consideration, then any new, substituted or additional securities or
other property (excluding money paid as a cash dividend that shall be
distributed directly to the Company Shareholders) that is by reason of any such
transaction distributed with respect to the Initial Reserve Shares, shall
immediately be deposited with Escrow Agent. Appropriate adjustments to reflect
the distribution of such securities or property shall be made to the number of
Initial Reserve Shares to reflect
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the effect of any such transaction upon Parent's capital structure, and Parent
and the Shareholder Representative shall forward a revised Schedule A to the
Escrow Agent. The Initial Reserve Shares and any adjustments pursuant to this
Section 1(b) shall be collectively referred to as the "Reserve Shares."
(c) The Reserve Shares have been deposited with the Escrow Agent to assure
that funds will be available to meet certain indemnification and expense
obligations of the Company Shareholders under the Merger Agreement.
(d) Escrow Agent hereby agrees to act as escrow agent and to hold, safeguard
and disburse the Reserve Shares pursuant to the terms and conditions hereof.
The Escrow Agent shall not be responsible for computing or ascertaining any
amount of Reserve Shares required to be deposited pursuant to paragraph (b) of
this Section 1. The Escrow Agent shall have no duty to invest any funds
hereunder.
2. Dispute Resolution
It is understood and agreed that should any dispute arise with respect to
the delivery, ownership, right of possession, and/or disposition of the Reserve
Shares, or should any claim be made upon such Reserve Shares by a third party,
the Escrow Agent upon receipt of a written notice of such dispute or claim by
the parties hereto or a third party, is authorized and directed to retain in
its possession without liability to anyone, all or any of said Reserve Shares
until such dispute shall have been settled either by the mutual agreement of
the parties involved or by a final order, decree or judgment of a court in the
United States of America, the time for perfection of an appeal of such order,
decree or judgment having expired. The Escrow Agent may, but shall be under no
duty whatsoever to, institute or defend any legal proceeding which relates to
the Reserve Shares.
3. Claims
(a) From time to time on or before one year from the date of acceptance by
the California Secretary of State of the Agreement of Merger effecting the
Merger (the "Expiration Time", which date shall be certified to the Escrow
Agent in writing by Parent and the Shareholder Representative), Parent may give
written notice ("Notice") to the Shareholder Representative and Escrow Agent
specifying in reasonable detail the nature and dollar amount of any claim
("Claim") it may have under Article 9 of the Merger Agreement. Parent may make
more than one Claim with respect to any underlying state of facts. If the
Shareholder Representative gives written notice to Parent and Escrow Agent
disputing any Claim (a "Counter Notice") within twenty (20) days following
receipt by Escrow Agent and the Shareholder Representative of the Notice
regarding such Claim, such Claim shall be resolved as provided in Section 3(b)
hereof. If no Counter Notice is received by Escrow Agent within such twenty day
period, then the dollar amount of the Claim as set forth by Parent in its
Notice shall be deemed established for purposes of this Escrow Agreement and
the Merger Agreement and, at the end of such twenty-day period, Escrow Agent
shall deliver the certificate representing the Reserve Shares to Boston
Equiserve (the "Transfer Agent") and direct the Transfer Agent to pay Parent
the full amount of such Claim by delivery of Reserve Shares (taken
proportionately from each Company Shareholder holding Reserve Shares hereunder)
having a fair market value (determined as hereafter provided in Section 3(c)
hereof) equal to the amount of such Claim. Following any such payment, the
Escrow Agent shall receive a new stock certificate representing the remaining
Reserve Shares and a revised Schedule A from the Parent and the Shareholder
Representative to reflect the remaining holdings of Reserve Shares by each
Company Shareholder.
(b) If a Counter Notice is given with respect to a Claim, Escrow Agent shall
deliver the Reserve Shares to the Transfer Agent and direct the Transfer Agent
to make payment with respect to such Claim only in accordance with (i) joint
written instructions of Parent and the Shareholder Representative or (ii) a
final nonappealable order of a court of competent jurisdiction which contains
specific instructions to the Escrow Agent, regarding payment of any Claim. Any
court order shall be accompanied by a legal opinion by counsel for the
presenting party satisfactory to Escrow Agent to the effect that the order is
final and nonappealable. Escrow Agent shall act on such court order and legal
opinion without further question.
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(c) For purposes of this Agreement, the per share fair market value of the
Reserve Shares equals $[ ].
4. Termination Of Escrow
At the Expiration Time, Escrow Agent shall deliver to the Transfer Agent
for distribution to the Company Shareholders 100% of the then amount of
Reserve Shares (less the amount of any Claims satisfied by the Reserve Shares)
to Company Shareholders in accordance with Schedule A unless any Claims are
then pending, in which case an amount equal to the aggregate dollar amount of
such Claims (as shown in the Notices of such Claims) shall be retained by
Escrow Agent in the Reserve Shares (and the balance, if any, paid to Company
Shareholders proportionately in accordance with Schedule A). The Escrow Agent
shall only retain the Reserve Shares in accordance with this Section 4 until
it receives joint written instructions of Parent and the Shareholder
Representative or a final nonappealable order of a court of competent
jurisdiction and legal opinion as contemplated by Section 3(b) of this Escrow
Agreement and, at such time, the Escrow Agent shall deliver to the Transfer
Agent for distribution to the Company Shareholders such retained Reserve
Shares.
5. Duties Of Escrow Agent
(a) Parent and the Company Shareholders acknowledge and agree that the
Escrow Agent (i) shall not be responsible for any of the agreements referred
to herein including, without limitation the Merger Agreement, but shall be
obligated only for the performance of such duties as are specifically set
forth in this Escrow Agreement each of which is ministerial in nature and
shall not be construed as fiduciary; (ii) shall not be obligated to take any
legal or other action hereunder which might in its judgment involve expense or
liability unless it shall have been furnished with indemnity acceptable to it;
(iii) may rely on and shall be protected in acting or refraining from acting
upon any written notice, instruction, instrument, statement, request or
document furnished to it hereunder and believed by it to be genuine and to
have been signed or presented by the proper person, and shall have no
responsibility for determining the accuracy thereof; and (iv) may consult
counsel satisfactory to it, including in-house counsel, and the advice or
opinion of such 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 the advice or opinion of such counsel.
(b) Neither the Escrow Agent nor any of its directors, officers or
employees shall be liable to anyone for any action taken or omitted to be
taken by it or any of its directors, officers or employees hereunder except in
the case of gross negligence, bad faith or willful misconduct. Parent
covenants and agrees to indemnify the Escrow Agent and hold it harmless
without limitation from and against any loss, liability or exposure of any
nature incurred by the Escrow Agent arising out of or in connection with this
Escrow Agreement or with the administration of its duties hereunder,
including, but not limited to, legal fees and expenses and other costs and
expenses of defending or preparing to defend against any claim of liability in
the premises, unless such loss, liability or expense shall be caused by the
Escrow Agent's gross negligence, bad faith or willful misconduct. In no event
shall the Escrow Agent be liable for indirect, punitive, special or
consequential damages.
(c) Each Company Shareholder, severally and not jointly, shall assume any
and all obligations imposed now or hereafter by any applicable tax law with
respect to the payment of Reserve Shares under this Escrow Agreement, and
agrees to indemnify, and hold the Escrow Agent harmless from and against any
taxes, additions for late payment, interest, penalties and other expenses,
that may be assessed against the Escrow Agent on any such payment for any
obligations imposed now or hereafter by applicable tax law with respect to the
payment of Reserve Shares under this Escrow Agreement. Parent and the
Shareholder Representative jointly undertake to instruct the Escrow Agent in
writing with respect to the Escrow Agent's responsibility for withholding and
other taxes, assessments or other governmental charges, certifications and
governmental reporting in connection with its acting as Escrow Agent under
this Escrow Agreement. Each Company Shareholder, severally and not jointly,
agrees to indemnify and hold the Escrow Agent harmless from any liability on
account of taxes, assessments or other governmental charges including without
limitation the withholding or deduction or the failure to withhold or deduct
same, and any liability for failure to obtain proper
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certifications or to properly report to governmental authorities, to which the
Escrow Agent may be or become subject in connection with or which arises out of
this Escrow Agreement, including costs and expenses (including reasonable legal
fees and expenses), interest and penalties. The Escrow Agent shall have the
right to satisfy a Company Shareholder's indemnification obligation to the
Escrow Agent under this Section 5 from the sale of Reserve Shares from such
Company Shareholder's ownership interest as set forth on Schedule A.
(d) The Escrow Agent shall have no more or less responsibility or liability
on account of any action or omission of any book-entry depository or escrow
agent employed by the Escrow Agent than any such book-entry depository or
subescrow agent has to the Escrow Agent, except to the extent that such action
or omission of any book-entry depository or subescrow agent was caused by the
Escrow Agent's own gross negligence, bad faith or willful misconduct.
(e) Parent agrees to pay or reimburse the Escrow Agent for any legal fees
and expenses incurred in connection with the preparation of this Escrow
Agreement and to pay the Escrow Agent's reasonable compensation for its normal
services hereunder in accordance with the fee schedule attached as Schedule B
hereto. Any extraordinary fees and expenses including attorneys' fees,
including without limitation any fees or expenses incurred by the Escrow Agent
in connection with a dispute over the distribution of the Reserve Shares or the
validity of a Claim or Claims by the Parent will be paid by the nonprevailing
party in such dispute, provided, however, if neither party has clearly
prevailed, the judge shall apportion such fees and expenses between the Parent
and the Company Shareholders, subject to the provisions of this Section 5(e)
and Section 20. The Company Shareholders' liability for the extraordinary fees
and expenses of the Escrow Agent pursuant to this Section 5(e) may be paid by
the Parent and recovered as a Claim hereunder out of the Reserve Shares
pursuant to Section 3 hereof.
In the event the Reserve Shares remaining are not sufficient to pay the
extraordinary fees and expenses of the Escrow Agent, as described in the prior
paragraph, the Parent agrees to reimburse the Escrow Agent for its
extraordinary fees and expenses in excess of the fair market value of the
remaining Reserve Shares. Parent shall be solely responsible for such fees and
expenses and Parent shall not have any right to pursue the Company Shareholders
for payment of such fees and expenses. Notwithstanding the foregoing, no
reimbursements need be paid in the event of the Escrow Agent's gross
negligence, bad faith or willful misconduct.
(f) The Escrow Agent may at any time resign as Escrow Agent hereunder by
giving thirty (30) days prior written notice of resignation to the other
parties hereto. Prior to the effective date of the resignation as specified in
such notice, Parent will issue to the Escrow Agent a written instruction
authorizing redelivery of the Reserve Shares to a successor escrow agent that
it selects subject to the reasonable consent of the Shareholders
Representative. If, however, Parent shall fail to name a successor escrow agent
within twenty (20) days after the notice of resignation from the Escrow Agent,
the Shareholders Representative shall be entitled to name such successor escrow
agent. If no successor escrow is named by Parent or the Shareholder
Representative, the Escrow Agent may apply to a court of competent jurisdiction
for the appointment of a successor escrow agent. Any successor escrow agent
shall be a bank or trust company, organized and existing under the laws of the
United States or any state thereof, subject to examination by state or federal
authorities, and have capital surplus in excess of $100,000,000. The provision
of Sections 5(b) and 5(c) of this Escrow Agreement shall survive the
resignation or removal of the Escrow Agent or the termination of this Escrow
Agreement.
6. Incorporation by Reference
With respect to the Parent and the Company Shareholders only, the parties
agree that the terms of Article 9 of the Merger Agreement shall be deemed to be
incorporated by reference in this Escrow Agreement as if such provisions had
been set forth in their entirety herein provided that only the provisions of
this Escrow Agreement shall control the responsibilities and obligations of the
Escrow Agent and the Escrow Agent shall
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not have any responsibility for any matters addressed in the Merger Agreement
including, without limitation Article 9 thereof.
7. Voting Rights, Etc.
Upon its timely receipt of a notice of meeting or solicitation of
shareholder consent, the Escrow Agent shall provide appropriate notice to the
Shareholder Representative and shall exercise any and all voting rights
pertaining to the Reserve Shares which at any time may be held by the Escrow
Agent pursuant to this Agreement, as directed in writing by the Shareholder
Representative not less than three business days prior to such vote. In the
absence of any direction, the Escrow Agent shall not vote the Reserve Shares
and shall not exercise or otherwise be responsible for any other rights.
8. Ownership For Tax Purposes
(a) The parties hereto agree that, for tax reporting purposes, all interests
or other income earned from the investment of the Reserve Shares, and any
interest or other income thereon, shall be allocable to Company Shareholders
according to their proportionate ownership of Reserve Shares.
(b) The Shareholder Representative shall provide the Escrow Agent with a
certified tax identification number by signing (or causing to be signed) and
returning a Form W-9 (or Form W-8, in the case of non-U.S. persons) to the
Escrow Agent for each Company Shareholder within thirty (30) days from the date
hereof. The Shareholder Representative understands that, in the event the tax
identification numbers of a Company Shareholder is not certified to the Escrow
Agent, the Internal Revenue Code may require with respect to such Shareholder
withholding or backup withholding of a portion of any interest or other income
earned on the investment of the Reserve Shares, in accordance with the Internal
Revenue Code, as amended from time to time.
9. Notices
Any notice permitted or required hereunder shall be deemed to have been duly
given: (i) if delivered personally or, (ii) if mailed, certified or registered
mail, postage prepaid, to the parties at their addresses set forth below or to
such other address as they may hereafter designate, and in the case of the
Escrow Agent, upon its receipt of such mailed item.
Company Shareholders:
c/o Shareholder Representative:
[ ]
in each case
with a copy to:
Heller Ehrman White & McAuliffe
2500 Sand Hill Road, Suite 100
Menlo Park, CA 94025
Attention: August J. Moretti
Telecopy No.: (650) 234-4299
Parent:
Brooks Automation, Inc.
15 Elizabeth Drive
Chelmsford, MA 01824
Attn: Robert J. Thierren, President
Telecopy No.: 978 262 2500
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with a copy to:
Brown Rudnick Freed & Gesmer
One Financial Center
Boston, MA 02111
Attn: Lawrence M. Levy, Esquire
Telecopy No.: (617) 856-8201
Escrow Agent:
State Street Bank and
Trust Company
Two International Place
Boston, MA 02110
Attn: Brooks Automation/Smart Machines Escrow Agreement
10. Jurisdiction; Service Of Process
Parent, the Shareholder Representative and the Company Shareholders hereby
absolutely and irrevocably consent and submit to the jurisdiction of the courts
of the Commonwealth of Massachusetts and of any federal court located in said
Commonwealth in connection with any actions or proceedings brought against
Parent, Shareholder Representative or the Company Shareholders by the Escrow
Agent arising out of or relating to this Escrow Agreement. In any such action
or proceeding Parent, the Shareholder Representative and the Company
Shareholders hereby absolutely and irrevocably waive personal service of any
summons, complaint, declaration or other process and hereby absolutely and
irrevocably agree that service thereof may be made by certified or registered
first class mail directed to Parent and the Shareholder Representative as the
case may be, at their respective addresses in accordance with Section 9 hereof.
11. Counterparts
The Escrow Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original and all of which, when taken together,
will be deemed to constitute one and the same.
12. Section Headings
The headings of sections in this Escrow Agreement are provided for
convenience only and will not affect its construction or interpretation.
13. Waiver
No waiver by any party to this Escrow Agreement of any condition or of any
breach of any provision of this Escrow Agreement will be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, will be deemed to be a further or continuing waiver of any such
condition or a waiver of any other condition or breach of any other provision
contained in this Escrow Agreement.
14. Exclusive Agreement and Modification
(a) Except as set forth in the Merger Agreement, this Escrow Agreement, the
documents referenced in this Agreement and the exhibits to such documents,
constitute the entire understanding and agreement of the parties to this Escrow
Agreement with respect to the subject matter of this Escrow Agreement and of
such documents and exhibits and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect to this Escrow Agreement,
provided that with respect to the Escrow Agent, this Escrow Agreement (without
reference to any other agreements) sets forth entire understanding of the
parties. Notwithstanding anything to the contrary in the previous sentence,
Parent and the Company Shareholders agree that, in the event that any term(s)
or
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provision(s) of this Escrow Agreement conflict(s) with a term or provision of
the Merger Agreement, the term(s) and condition(s) of the Merger Agreement will
control (except with respect to the responsibilities of the Escrow Agent). The
express terms of this Escrow Agreement control and supersede any course of
performance or usage of the trade inconsistent with any of the terms of this
Escrow Agreement.
(b) This Escrow Agreement may not be altered or modified without the written
consent of the parties hereto.
15. Force Majeure
No party to this Escrow Agreement shall be responsible for delays or
failures in performance resulting from acts beyond its control. Such acts shall
include but not be limited to acts of God, strikes, lockouts, riots, acts of
war, epidemics, fire, communication line failures, power failures, earthquakes
or other disasters.
16. Governing Law
This Escrow Agreement shall be governed by and construed under the laws of
the State of Delaware.
17. Binding Effect
This Escrow Agreement shall be binding upon the respective parties hereto
and their heirs, executors, successors and assigns.
18. No Encumbrance
Neither the Reserve Shares, nor any beneficial interest therein, may be
pledged, sold, assigned or transferred, including by operation of law, by the
Company Shareholders or be taken or reached by any legal or equitable process
in satisfaction of any debt or other liability of the Company Shareholders
(other than pursuant to this Escrow Agreement).
19. Reproduction of Documents
This Escrow Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications which may hereafter be
executed, and (b) certificates and other information previously or hereafter
furnished, may be reproduced by any photographic, photostatic, microfilm,
optical disk, micro-card, miniature photographic or other similar process. The
parties hereto agree that any such reproduction shall be admissible in evidence
as the original itself in any judicial or administrative proceeding, whether or
not the original is in existence and whether or not such reproduction was made
by a party in the regular course of business, and that any enlargement,
facsimile or further reproduction shall likewise be admissible in evidence.
20. Limitation of Liabilities
Section 9.6 of the Merger Agreement provides that notwithstanding any other
provision therein to the contrary, the provisions of Article 9 shall be the
sole and exclusive remedy of the Indemnitees (as defined in the Merger
Agreement), and no Company Shareholder, and no person who is or was an
optionholder, warrantholder, director, officer, employee or agent of the
Company prior to the effective time of the merger shall have any personal
liability to any Indemnitee after such effective time with respect to the
Merger. Except as set forth in Section 5(c) hereof, nothing in this Agreement
shall be construed to expand the liability of the Company Shareholders beyond
that set forth in the Merger Agreement. Notwithstanding any other provision
herein to the contrary, the sole liability of the Shareholders Representative
shall be as set forth in Section 21 hereof and except as set forth in Section
5(c) hereof, the sole liability of any Company Shareholder to the parties
hereto shall be such Company Shareholder's several portion of the Reserve
Shares.
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21. Shareholder Representative
(a) The Shareholder Representative shall not suffer any liability or loss
for any act performed or omitted to be performed by him under this Escrow
Agreement in the absence of adjudicated gross negligence or willful misconduct.
The Shareholder Representative may consult with counsel and other experts as
may be reasonably necessary to advise him with respect to his rights and
obligations hereunder and shall be fully protected by any act taken, suffered,
permitted, or omitted in good faith in accordance with the advice of such
counsel or experts. The Shareholder Representative shall not be responsible for
the sufficiency or accuracy of the form, execution, validity, or genuineness or
documents or securities now or hereafter deposited hereunder, or of any
endorsement thereof or for any lack of endorsement thereon, or for any
description therein, nor shall he be responsible or liable in any respect on
account of the identity, authority or rights of the persons executing or
delivering or purporting to execute or deliver any such document, security or
endorsement, and the Shareholder Representative shall be fully protected in
relying upon any written notice, demand, certificate or document which he in
good faith believes to be genuine. The Escrow Agent may rely on the Shareholder
Representative as the exclusive representative of the Company Shareholders in
the discharge of its duties hereunder and shall be indemnified and held
harmless, by the Company Shareholders in reliance thereon.
(b) In the event of the death or permanent disability of the Shareholder
Representative, or his resignation as the Shareholder's Representative, a
successor Shareholder Representative shall be elected by a majority vote of the
Company Shareholders, with each Company Shareholder to be given a vote equal to
his proportionate share of the Reserve Shares. The Shareholders shall cause to
be delivered to Parent and the Escrow Agent prompt written notice of such
election of a successor Shareholder Representative. Each successor Shareholder
Representative shall have all of the power, authority, rights and privileges
conferred by this Agreement upon the original Shareholder Representative, and
the term, "Shareholder Representative" as used herein shall be deemed to
include any successor Shareholder Representative.
IN WITNESS WHEREOF, the parties have executed and delivered this Escrow
Agreement as of the date first written above.
BROOKS AUTOMATION, INC.
By: _________________________________
Robert J. Therrien
President and CEO
ESCROW AGENT
State Street Bank and Trust Company
By: _________________________________
Name: _______________________________
SHAREHOLDER REPRESENTATIVE:
Name: _______________________________
A-66
<PAGE>
Schedule A
Reserve Shares
<TABLE>
<CAPTION>
Number of
Reserve Shares (as adjusted for
Number of any paid Claims) Proportionate
Shareholder Initial Reserve Shares Ownership Percentage %
- ----------- ---------------------- -------------------------------
<S> <C> <C>
[ ]
Total................. [ ]
</TABLE>
A-67
<PAGE>
Schedule B
Fee Schedule
For
Escrow Services
Merger Between
Brooks Automation, Inc.
And
Smart Machines, Inc.
<TABLE>
<S> <C>
Acceptance Fee: [ ]
Administrative Fee: $[ ] per year or part thereof
Out-of-Pocket Expenses: At Cost
Legal Fees ([ ]): At Cost
</TABLE>
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<PAGE>
Exhibit 3.37
AFFILIATE'S AGREEMENT
[ ], 1999
Brooks Automation, Inc.
Attn: President
15 Elizabeth Drive
Chelmsford, MA 01824
Dear Sirs:
Reference is made to an Agreement and Plan of Merger dated as of the date
hereof (the "Merger Agreement") entered into by and among Brooks Automation,
Inc. (the "Parent"), Smart Acquisition Corp. (the "Acquisition Subsidiary") and
Smart Machines, Inc. (the "Company"). The Merger Agreement provides for the
merger of the Acquisition Subsidiary with and into the Company (the "Merger").
Terms not defined herein shall have the respective meanings set forth in the
Merger Agreement.
In consideration of the mutual agreements, provisions and covenants set
forth in the Merger Agreement and hereinafter in this agreement, the
undersigned represents and agrees as follows:
1. Voting Agreement. Until the termination of the Merger Agreement, the
undersigned agrees to vote or give written consents with respect to all of the
Company Common Stock and Company Preferred Stock held by the undersigned and
any of the Company Common Stock and Company Preferred Stock over which the
undersigned has voting control, in favor of the Merger and the Merger
Agreement.
2. Irrevocable Proxy. Until the termination of the Merger Agreement, the
undersigned hereby irrevocably appoints Parent or any designee of Parent as the
undersigned's lawful agent, attorney and proxy to vote or give consents with
respect to the shares of Company Common Stock and Company Preferred Stock held
by the undersigned and any shares of Company Common Stock and Company Preferred
Stock over which the undersigned has voting control, in favor of the approval
of the Merger and the Merger Agreement. The undersigned intends this proxy to
be irrevocable and coupled with an interest. Parent agrees that it or its
designee shall vote the shares of Company Common Stock and Company Preferred
Stock held by the undersigned and any shares of Company Common Stock and
Company Preferred Stock over which the undersigned has voting control, in favor
of the approval of the Merger and the Merger Agreement, and any amendments to
the Company's Organizational Documents which are necessary to permit the
Merger. The agents, attorneys and proxies named herein may not exercise this
proxy on any other matter except as provided herein. The undersigned may vote
all shares of Company Common Stock and Company Preferred Stock held by the
undersigned and any shares of Company Common Stock and Company Preferred Stock
over which the undersigned has voting control on all other matters.
3. Pooling Requirements.
(a) The undersigned will not sell, transfer or otherwise dispose of, or
reduce his or its interest in or risk relating to, any shares of the
Parent's common stock, $.01 par value per share ("Parent Common Stock"),
presently owned by the undersigned, or any Parent Common Stock issued to
the undersigned pursuant to the Merger or upon exercise of any stock
options or warrants, until after the earlier of such time as the Parent has
published (within the meaning of Accounting Series Release No. 130, as
amended, of the Securities and Exchange Commission) financial results
covering at least 30 days of combined operations of the Company and the
Parent or the termination of the Merger Agreement.
(b) Until the earlier of the Effective Time of the Merger or the
termination of the Merger Agreement, the undersigned will not sell,
transfer or otherwise dispose of, or reduce his or its interest in or risk
relating to any shares of Company Capital Stock presently owned by the
undersigned.
A-69
<PAGE>
4. No Solicitation. The undersigned shall not directly or indirectly (i)
solicit, engage in discussions or negotiate with any Person (whether or not
such discussions or negotiations are initiated by the undersigned), or take any
other action intended or designed to facilitate the efforts of any Person,
other than Parent, relating to an Alternative Acquisition, (ii) provide
information with respect to the Company to any Person, other than Parent,
relating to a possible Alternative Acquisition by any Person, other than Parent
or (iii) make or authorize any statement, recommendation or solicitation in
support of any possible Alternative Acquisition by any Person, other than by
Parent.
5. Rule 145. The undersigned will not offer, sell, pledge, transfer or
otherwise dispose of any of the shares of Parent Common Stock issued to the
undersigned in the Merger unless at such time either: (i) such transaction
shall be permitted pursuant to the provisions of Rule 145 under the Securities
Act of 1933, as amended, (the "Securities Act"), (ii) the undersigned shall
have furnished to the Parent an opinion of counsel, satisfactory to the Parent,
to the effect that no registration under the Securities Act would be required
in connection with the proposed offer, sale, pledge, transfer or other
disposition; or (iii) a registration statement under the Securities Act
covering the proposed offer, sale, pledge, transfer or other disposition shall
be effective under the Securities Act.
6. Legend. The undersigned understands that all certificates representing
the Parent Common Stock deliverable to the undersigned pursuant to the Merger
shall, until the occurrence of one of the events referred to in Section 5
above, bear a legend substantially as follows:
"The shares represented by this certificate may not be offered, sold,
pledged, transferred or otherwise disposed of except in accordance with the
requirements of Rule 145 of the Securities Act of 1933, as amended, and the
other conditions specified in the Affiliates Agreement dated as of [ ],
1999 between the holder of this certificate and Brooks Automation, Inc., a
copy of which Agreement may be inspected by the holder of the certificate
at the offices of Brooks Automation, Inc."
The Parent, in its discretion and in a manner consistent with the legend set
forth above, may cause stop transfer orders to be placed with its transfer
agent with respect to the certificates for the shares of Parent Common Stock
which are required to bear the foregoing legend.
7. Miscellaneous.
(a) This agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts.
(b) This agreement shall be binding on the undersigned's successors and
assigns, including his heirs, executors and administrators.
The undersigned has carefully read this agreement and discussed its
requirements, to the extent the undersigned believed necessary, with its
counsel.
Very truly yours,
_____________________________________
Signature
_____________________________________
Print Name
A-70
<PAGE>
Accepted:
BROOKS AUTOMATION, INC.
By: ________________________
Name: Robert J. Therrien
Title: President
Dated: _____________________
A-71
<PAGE>
Exhibit 5.13
July 7, 1999
Ladies and Gentlemen:
In connection with, and for the purpose of evaluating, the possible
acquisition (the "Transaction") of 100% of the issued and outstanding capital
stock of Smart Machines Inc. ("Seller") by Brooks Automation, Inc. ("Buyer"),
Seller may receive or have access to confidential or proprietary information
and materials and/or trade secrets of Buyer, whether furnished before or after
the date of this letter (together with all notes, analyses, compilations,
studies or other documents, whether prepared by either party or others, which
contain or otherwise reflect such information, the "Evaluation Material"). As a
condition to Buyer furnishing the Evaluation Material, Seller agrees, as set
forth herein, to treat confidentially the Evaluation Material received by
Seller from Buyer or its Representatives (as defined below).
For purposes of this letter agreement, the terms Buyer and Seller, including
terms referring thereto, such as "party to the Transaction", include Buyer's
and Seller's respective directors, officers, employees, agents, advisors, or
representatives of its agents, affiliates, advisors, or prospective lenders
(collectively referred to as "Representatives"). The term "Evaluation Material"
does not include information that (i) becomes generally available to the public
other than as a result of a disclosure by Seller, (ii) was available to Seller
on a non-confidential basis prior to its disclosure to Seller by Buyer, or
(iii) becomes available to Seller on a nonconfidential basis from a source
other than Buyer, provided that such source is not bound by a confidentiality
agreement with Seller or otherwise prohibited from transmitting the information
to Seller by a contractual, legal or fiduciary obligation.
It is understood that Seller may disclose the Evaluation Material only to
those of its Representatives who require such material for the purpose of
evaluating a possible Transaction (provided that such Representatives shall be
informed by Seller of the confidential nature of the Evaluation Material).
Seller agrees to keep the Evaluation Material confidential and, except with the
specific prior written consent of the Buyer, or as expressly otherwise
permitted by the terms hereof, will not disclose the Evaluation Material.
Seller further agrees not to use any of the Evaluation Material for any reason
or purpose other than to evaluate a possible Transaction.
Without the prior written consent of Buyer, Seller will not disclose to any
person (1) the fact that the Evaluation Material has been made available to
Seller or that Seller has inspected any portion of the Evaluation Material, (2)
the fact that any discussions or negotiations are taking place concerning a
possible Transaction, or (3) any of the terms, conditions, or other facts with
respect to a possible Transaction, including the status thereof, unless and
only to the extent that such disclosure (after making reasonable efforts to
avoid such disclosure and after advising and consulting with the other party to
the Transaction about any intention to make, and the proposed contents of, such
disclosure) is, in the opinion of counsel of the Seller, required by applicable
law. The term "person" as used in this letter shall be broadly interpreted to
include without limitation any corporation, company, partnership and
individual.
In the event that Seller is requested or required (by oral questions,
interrogatories, requests for information or documents, subpoena, Civil
Investigative Demand or similar process) to disclose any of the Evaluation
Material, it is agreed that Seller will provide Buyer with prompt notice of
such request(s) so that it may seek an appropriate protective order or other
appropriate remedy and/or waive the Seller's compliance with the provisions of
this Agreement. In the event that a protective order or other remedy is not
obtained, or that the other party to the Transaction grants a waiver hereunder,
the Seller may furnish that portion (and only that portion) of the Evaluation
Material which, in the written opinion of its counsel, it is legally compelled
to disclose and will exercise reasonable efforts to obtain reliable assurance
that confidential treatment will be accorded to any Evaluation Material so
furnished.
A-72
<PAGE>
Upon the written request of Buyer, Seller will promptly deliver to Buyer all
documents or other matter furnished by Buyer to the Seller constituting
Evaluation Material, together with all copies thereof in the possession of
Seller. In the event of such request, all other documents or other matter
constituting Evaluation Material in the possession of Seller will be destroyed,
with any such destruction confirmed by Seller in writing to the other party.
In addition, Seller hereby acknowledges that Seller is aware (and that
Seller's representatives who are apprised of this matter have been or will be
advised) that the securities laws of the United States restrict persons with
material nonpublic information about a company obtained directly or indirectly
form that company from purchasing or selling securities of such company, or
from communicating such information to any other person under circumstances in
which it is reasonably foreseeable that such person is likely to purchase or
sell such securities.
Although Seller understands that Buyer will endeavor to include in the
Evaluation Material information known to it which it believes to be relevant
for the purpose of the other party's investigation, Seller understands that
Buyer makes no representation or warranty as to the accuracy or completeness of
the Evaluation Material. Seller and its respective Representatives shall have
no liability resulting from the use of the Evaluation Material. Only those
representations and warranties that may be made in a definitive written
agreement for a Transaction, when, as, and if executed and subject to such
limitations and restrictions as may be specified therein, shall have any legal
effect, and Buyer and Seller agree that if the parties determine to engage in a
Transaction, such determination will be based solely on the terms of such
written agreement and on each party's own investigation, analysis, and
assessment of the Transaction. The agreements set forth in this letter
agreement may be modified or waived only by a separate writing signed by the
parties, which shall expressly modify or waive such agreements.
Seller acknowledges that money damages would be incalculable and an
insufficient remedy for any breach of this Agreement and that any such breach
would cause Buyer irreparable harm. Accordingly, Seller agrees that in the
event of any breach or threatened breach of this Agreement, Buyer, in addition
to any other remedies at law or in equity it may have, shall be entitled,
without the requirement of posting a bond or other security, to seek equitable
relief, including injunctive relief and specific performance.
It is understood and agreed that no failure or delay by either party in
exercising any right, power, or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power, or privilege
hereunder.
The invalidity or unenforceability of any provision of this letter agreement
shall not affect the validity or enforceability of any other provisions of this
letter agreement, which shall remain in full force and effect.
This letter agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
* * *
If you are in agreement with the foregoing, please sign and return one copy
of this letter, which thereupon will constitute our Agreement with respect to
the subject matter hereof.
Very truly yours,
Brooks Automation, Inc.
By: _________________________________
,
A-73
<PAGE>
Confirmed and agreed to as of the date first above written:
Smart Machines, Inc.
By: ___________________________
Name: _________________________
Title: ________________________
A-74
<PAGE>
Exhibit 7.8
Opinion of Company Counsel
The following opinions will be subject to customary assumptions and
qualifications.
1. Under the laws of the State of California each of the Company and the
Company Subsidiary has legal existence and is a corporation duly incorporated
and in good standing. Each of the Company and the Company Subsidiary has the
corporate power and authority to own or lease its properties and to conduct its
business as presently conducted. All of the issued and outstanding capital
stock of the Company Subsidiary has been duly authorized and validly issued and
is fully paid and nonassessable and is owned by the Company. To the best of our
knowledge, no options, warrants or other rights to acquire, agreements or
obligations to issue or other rights to convert any obligation into shares of
capital stock or ownership interests in the Company Subsidiary are outstanding.
2. The Company has the corporate power and authority to enter into the
Transaction Documents and to perform its obligations thereunder. The execution
and delivery by the Company of the Transaction Documents has been duly
authorized by all necessary corporate action on the part of the Company, and
each Transaction Document has been duly executed and delivered by the Company,
and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject, however,
to enforcement of bankruptcy, insolvency, reorganization, arrangement,
moratorium and other laws of general applicability relating to or affecting
creditors' rights and to general principles of equity, whether such enforcement
is considered in a proceeding in equity or at law.
3. The authorized capital stock of the Company consists of (i) 16,000,000
shares of Preferred Stock, 1,965,000 of which shares have been designated
Series A Preferred Stock, 532,382 of which shares have been designated Series B
Preferred Stock, 879,096 of which shares have been designated Series C
Preferred Stock 2,287,250 of which shares have been designated Series D
Preferred Stock, and 962,261 of which have been designated Series E Preferred
Stock, and (ii) 33,000,000 shares of Common Stock. Immediately prior to the
Closing, 4,626,218 shares of Common Stock, 1,965,000 shares of Series A
Preferred Stock, 532,328 shares of Series B Preferred Stock, 834,096 shares of
Series C Preferred Stock, 1,166,581 shares of Series D Preferred Stock and no
shares of Series E Preferred Stock are issued and outstanding. According to the
stock records of the Company, all such outstanding shares have been duly
authorized and validly issued, and are fully paid and nonassessable, and to our
knowledge, are subject to no liens or restrictions imposed by or through the
Company except as set forth on the Disclosure Schedule. Except as set forth on
the Disclosure Schedule, to our knowledge the Company is not obligated to
register under the Securities Act any of its outstanding securities or any of
its securities which may hereafter be issued. Immediately prior to the Closing,
to our knowledge, the stockholders of record and holders of subscriptions,
warrants, options, convertible securities, and other rights (contingent or
other) to purchase or otherwise acquire equity securities of the Company, and
the number of shares of Preferred Stock and Common Stock and the number of such
subscriptions, warrants, options, convertible securities, and other such rights
held by them, are as set forth in the Disclosure Schedule. Except as set forth
in the Disclosure Schedule, to our knowledge immediately prior to the Closing
no subscription, warrant, option, convertible security, or other right
(contingent or other) to purchase or otherwise acquire equity securities of the
Company is authorized or outstanding and there is no commitment by the Company
to issue shares, subscriptions, warrants, options, convertible securities, or
other such rights or to distribute to holders of any of its equity securities
any evidence of indebtedness or asset. To our knowledge, except as set forth in
the Disclosure Schedule or as provided for in the Organizational Documents of
the Company, there are no (i) special voting rights with respect to the capital
stock of the Company, (ii) stock appreciation, phantom stock or similar rights
granted by the Company or (iii) preemptive rights with respect to the issuance
or sale of shares of the Company's capital stock.
4. The execution and delivery of the Transaction Documents and the
consummation of the Merger and the other transactions contemplated thereby will
not result in (i) a breach or violation of any of terms or provisions
A-75
<PAGE>
of or constitute a default under the Organizational Documents of the Company or
the Company Subsidiary, (ii) a breach or violation of any provision of any
contract or agreement listed in Sections 3.15(a)(v) and 3.15(a)(xiii) of the
Disclosure Schedule or otherwise known to us to which the Company or the
Company Subsidiary is a party or by which the Company or the Company Subsidiary
is bound, or (iii) give rise to a right of termination of any such contract or
the creation of any lien on any property of the Company, the Company Subsidiary
or the Surviving Corporation (except due to acts of Parent). To our knowledge,
neither the Company nor the Company Subsidiary is a party to, or expressly
bound by, any judgment, injunction or decree of any court or governmental
authority which would restrict or interfere with the performance by the Company
of its obligations under the Transaction Documents.
5. No consent, approval, authorization, order, registration or qualification
of or with any United States federal or California governmental agency or body
or, to our knowledge, any United States federal or California court is required
to permit the execution and delivery by the Company of, and the performance by
the Company of its obligations under, the Transaction Documents and the
consummation of the Merger and the other transactions contemplated thereby,
except for the filing and acceptance of the Agreement of Merger with the
California Secretary of State and except for such consents, approvals,
authorizations, orders, registrations or qualifications (i) as may be required
under United States federal or state securities or Blue Sky laws in connection
with the issuance of the Parent Shares or (ii) which if not obtained would not
have a Material Adverse Effect.
6. Neither the execution, delivery or performance of the Transaction
Documents by the Company nor the consummation of the Merger or the other
transactions contemplated thereby will violate any United States federal or
California statute (other than applicable provisions of United States federal
securities laws and related state securities laws, as to which we express no
opinion), which violation or violations, individually or in the aggregate,
would have a Material Adverse Effect.
7. Other than as set forth in the Disclosure Schedule, to the best of our
knowledge there is no litigation or governmental proceeding or investigation
pending or threatened against the Company or the Company Subsidiary.
8. Upon the filing of the Agreement of Merger with the Secretary of State of
the State of California, the Merger will be effective in accordance with the
terms and provisions of the Merger Agreement, the Agreement of Merger and the
California General Corporation Law.
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<PAGE>
Exhibit 7.12
NONCOMPETITION AND PROPRIETARY INFORMATION AGREEMENT
( )
AGREEMENT entered into as of this day of [ ], 1999, by and among Smart
Machines, Inc., a California corporation (the "Company"), Brooks Automation,
Inc., a Delaware corporation (the "Parent") and [ ], an individual residing
in California ("Shareholder").
W I T N E S S E T H:
WHEREAS, Parent and the Company entered into an Agreement and Plan of Merger
dated of even date herewith (the "Merger Agreement"), pursuant to which SMI
Acquisition Corp., a wholly-owned subsidiary of Parent, shall be merged with
and into the Company (the "Merger"); and
WHEREAS, it is condition to the Merger that this Noncompetition and
Proprietary Information Agreement be entered into; and
WHEREAS, prior to the date hereof, [ ] was a shareholder, [director]
[executive officer] and employee of the Company; and
WHEREAS, during the course of such affiliation, Shareholder has become
knowledgeable and experienced in one or more aspects of the business of the
Company, and the growth and success of the business of the Company has been due
in part to the services and unique talents of Shareholder; and
WHEREAS, in his capacity as an [officer] [employee] of the Company,
Shareholder had access to the Company's business activities, business plans,
personnel, financial status and other confidential and proprietary information
including, but not limited to, existing and potential customers, customer
information, target market areas, potential and future products, methods,
techniques, trade secrets and other information of and about the Company and
its affiliates and their customers and suppliers, all of which are of
significant value to Parent and the Company and which are not generally known
but are confidential; and
WHEREAS, the Company and its affiliates currently, and will in the future,
produce and license and sell products and technologies to their customers on a
worldwide basis; and
WHEREAS, as a result of Shareholder's involvement with and knowledge of the
business of the Company and his access to customers of the Company and related
customer information, Shareholder acknowledges the need for and agrees to
impose certain restrictions on the ability of Shareholder to compete with the
Company and/or any of its affiliates, including Parent, in order to keep intact
the Company's business organization, to keep available its present officers,
employees and agents and to preserve the good will of all suppliers, customers
and other persons having business relations with the Company and/or any
affiliates thereof, including Parent, and to preserve the good will of the
Company and/or any affiliate thereof, including Parent, as a going concern,
upon the terms and conditions contained in this Agreement;
NOW THEREFORE, in consideration of the Merger Agreement and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound, it is hereby agreed by and
between the parties as follows:
1. Covenant Not To Compete.
(a) For a period of two years after the date hereof (the "Noncompetition
Period"), for any reason or no reason, directly or indirectly, whether with
or without cause, Shareholder shall not, whether as owner, partner,
shareholder, director, consultant, agent, employee, guarantor, surety or
otherwise, or
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<PAGE>
through any person, consult with or in any way aid or assist any current
competitor of Parent, the Company or any of their respective affiliates now
or hereafter existing (each an "Affiliate" and collectively the
"Affiliates") or any successor to all or substantially all of the business
of Parent or the Company (each a "Successor"), or engage or attempt to
engage in any employment, consultancy or other activity, which activity
competes directly or indirectly, with the Business of Parent, the Company,
any Affiliate or any Successor, anywhere in the world where the Company or
Parent currently conducts the Business. Notwithstanding the foregoing,
Shareholder may be an employee of or consultant to a firm, corporation,
business or other commercial enterprise that engages in two or more lines
of business, including the Business of the Parent, so long as Shareholder
(i) does not provide any services to, or exercise any financial,
managerial, operational or other control over the subsidiary or division
that engages in the Business of the Parent and (ii) provides services or
exercises any financial, managerial, operational or other control over a
completely separate subsidiary or division of such person which is not
involved in the Business. For purposes of this Agreement, the term
"Business" shall mean activities in robotics, wafer handling and materials
handling systems and components for the semiconductor, flat panel display
and magnetic media industries. Shareholder acknowledges that his
participation in the conduct of any such Business alone or with any person
other than the Company will materially impair the business and prospects of
Parent and the Company.
(b) In addition to and without limiting the foregoing, for a period of
two years after the date hereof (the "Nonsolicitation Period"), Shareholder
shall not, nor shall he attempt to or assist any other person in attempting
to do any of the following: (i) solicit for employment or other engagement
any director, officer, employee, or agent of the Company or any Affiliate
or any Successor, or encourage any such person to terminate such
relationship with the Company or any Affiliate or Successor, (ii) encourage
any customer, client, supplier or other business relationship of the
Company or any Affiliate or Successor to terminate or alter such
relationship, whether contractual or otherwise, written or oral, with the
Company or any Affiliate or Successor, (iii) encourage any prospective
customer or supplier not to enter into a business relationship with the
Company or any Affiliate or Successor; or (iv) impair or attempt to impair
any relationship, contractual or otherwise, written or oral, between the
Company or any Affiliate or Successor, and any customer, supplier or other
business relationship of the Company or any Affiliate or Successor.
(c) In addition to and without limiting the foregoing, during the term
of the Noncompetition Period, Shareholder will not, either directly or
indirectly, solicit, pursue, call upon or take away, either for himself or
for the benefit of any other person or entity, any of the customers of the
Company or any Affiliate or Successor, upon whom Shareholder called or with
whom Shareholder became acquainted during his employment or affiliation
with the Company.
(d) Nothing in this Agreement shall preclude Shareholder from making
passive investments of not more than 1% of a class of securities of any
business enterprise registered under the Securities Exchange Act of 1934,
as amended, or precludes Mr. Janac from maintaining his investment in
Seprogen, Cadence Design Systems, Xulu Entertainment and Redwood Ventures
III.
2. Protection of Proprietary Information. Shareholder recognizes that the
Company and its Affiliates are engaged in a continuous program of research and
development relating to their respective business opportunities, market
forecasting, data processing, operating procedures, products, methods, systems,
techniques, machinery, tooling, hardware, computer software programs and
applications, designs, formulae, schematics, maskworks, specifications,
processes, plans, "know how," trade secrets, and other tangible and intangible
proprietary information and that the Company and its Affiliates have developed
information regarding costs, profits, markets, operating procedures, products,
methods, systems, techniques, customer lists, machinery, tooling, hardware,
computer software programs and applications, designs, formulae, schematics,
maskworks, specifications, processes, "know-how" designs, plans for present and
future development and expansion into new markets and other tangible and
intangible proprietary information, which is secret and confidential in nature
and is not available to the public, which gives the Company and its Affiliates
a special competence in their respective and various fields of endeavor which
are otherwise deemed to be proprietary to the Company and/or its Affiliates,
all of which have been acquired or developed at considerable expense to the
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<PAGE>
Company and its Affiliates. Shareholder acknowledges that a relationship of
confidence and trust has been developed between Shareholder and the Company
with respect to information of a confidential or secret nature made known to
Shareholder during his employment by the Company. The information referred to
in the preceding two sentences is hereafter collectively referred to as the
"Company Information." Shareholder further recognizes that the Company and its
Affiliates have obtained and have access to certain information concerning
their respective customers and suppliers which the Company and such Affiliates
treat and desire to continue to treat on a confidential basis ("Customer
Information") and that Shareholder, during the course of his employment with
the Company had access to such Customer Information. Shareholder acknowledges
that the Company Information and the Customer Information that Shareholder may
have acquired was acquired in confidence and as a fiduciary of the Company.
Accordingly, Shareholder agrees that:
(a) Shareholder shall not disclose, either directly or indirectly, under
any circumstances, at any time, any of the Company Information or Customer
Information to any person, firm, corporation, association or other entity
for any reason or purpose whatsoever except, if employed by the Company, in
connection with the performance of his duties while employed by the
Company; provided that Shareholder shall not be deemed to be in breach of
such covenant if (i) Shareholder makes such disclosure pursuant to an order
of a court of competent jurisdiction from which no appeal may be taken, and
(ii) Shareholder shall have promptly given written notice to the Company of
the request or demand for such disclosure, and (iii) the Company has been
afforded the right to participate at its own expense in objecting to or
limiting the nature and scope of such disclosure, and to seek judicial
protection available for like material, such as protective orders and
sealed records of proceedings. Shareholder further agrees not to use any of
the Company Information or Customer Information for his own benefit or for
the benefit of any other person, firm, corporation, association or other
entity for any reason or purpose whatsoever.
(b) Shareholder further agrees that at any time upon the request of the
Company, Shareholder will deliver to the Company all documents and data of
any nature pertaining to any Company Information and Customer Information
which is in the direct or indirect possession, or under the direct or
indirect control, of Shareholder.
(c) Shareholder represents that Shareholder's performance of all the
terms of this Agreement does not and will not breach any agreement by which
Shareholder is bound to keep in confidence proprietary information or trade
secrets of any other person acquired by Shareholder in confidence or in
trust and Shareholder agrees not to enter into any agreement either written
or oral in conflict herewith.
(d) The obligations of confidentiality and nondisclosure shall not
include information which Shareholder can show is (i) in the public domain
unless there by reason of Shareholder's improper disclosure, (ii) was
disclosed to Shareholder in good faith by a third party having the right to
disclose such information, (iii) already in Shareholder's possession as of
the date hereof or (iv) is independently developed by or on Shareholder's
behalf independently of any disclosure hereunder.
3. Remedies. Shareholder expressly acknowledges that, in the event that the
provisions of Section 1 or 2 hereof are breached, the Company will suffer
damages incapable of ascertainment and will be irreparably damaged if any
provision of such Sections is not enforced. Therefore, should any dispute arise
with respect to the breach or threatened breach of any provision of said
Sections 1 or 2, Shareholder agrees and consents that, in addition to any and
all other remedies available to the Company, an injunction or restraining order
or other equitable relief may be issued or ordered by a court of competent
jurisdiction restraining any breach of threatened breach of any of such
provisions. Shareholder consents that, for purposes of any action initiated
against Shareholder hereunder, service of process may be effected by certified
mail or overnight receipted courier as set forth in Section 7 hereof and shall
be acceptable and adequate to satisfy the requirement that service of process
be served on Shareholder in connection therewith. All such proceedings may be
pursued and such remedies sought and obtained concurrently or consecutively at
the election of the Company.
4. Integral Part of Transaction; Protection of Interests. The undertakings
and covenants of Shareholder contained in this Agreement are an integral part
of the transactions set forth in the Merger Agreement. Shareholder
acknowledges, warrants and agrees that the restrictive covenants contained in
Sections 1 and 2 of
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this Agreement are necessary for the protection of the business investment by
the Parent in the capital stock of the Company and the legitimate business
interests of the Company and its Affiliates, respectively, and are reasonable
in scope and content. Shareholder further acknowledges and agrees that the
territorial, time and other limitations imposed hereunder upon the current and
future business activities of Shareholder are reasonable and properly required
for the adequate protection of the business investment by the Parent in the
capital stock and the business affairs of the Company and its Affiliates,
respectively, and in the event any such territorial, time or other limitations
are found to be unreasonable by a court of competent jurisdiction, Shareholder
agrees and submits to the reduction of such territorial, time or other
limitations to such an area, period or otherwise as the court may determine to
be reasonable. In the event that any limitation contained in Sections 1 or 2 of
this Agreement is found to be unreasonable or otherwise invalid in whole or in
part in any jurisdiction, Shareholder agrees that such limitations shall be and
remain valid in all other jurisdictions.
5. Severability. The parties agree that each provision contained in this
Agreement shall be treated as a separate and independent clause, and the
unenforceability of any one clause shall in no way impair the enforceability of
any of the other clauses herein. Moreover, if one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively
broad as to scope, activity or subject, such provisions shall be construed by
the appropriate judicial body by limiting and reducing it or them, so as to be
enforceable to the extent compatible with the applicable law.
6. Assignment. The Company and Parent shall each have the right to assign
this Agreement to its respective successors of all or substantially all of
their respective businesses, and all covenants and agreements hereunder shall
inure to the benefit of and be enforceable by said successors or assigns.
7. Notices. All notices to be sent pursuant to this Agreement shall be in
writing and shall have been deemed to have been adequately given if delivered
in person or mailed by registered or certified mail, postage prepaid or
overnight receipted courier.
If to the Parent to:
Brooks Automation, Inc.
15 Elizabeth Drive
Chelmsford, MA 01824
Attention: Chief Financial Officer
Tel: (978) 262-2610
Fax: (978)262-2502
with a copy to:
Lawrence M. Levy, Esquire
Brown, Rudnick, Freed & Gesmer, P.C.
One Financial Center
Boston, MA 02111
Tel: (617) 856-8200
Fax: (617) 856-8201
If to the Company to:
Smart Machines Inc.
651 River Oaks Parkway
San Jose, CA 95134
Tel: (408) 324-1234
Fax: (408) 324-1966
[ ]
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with a copy to:
Lawrence M. Levy, Esquire
Brown, Rudnick, Freed & Gesmer, P.C.
One Financial Center
Boston, MA 02111
Tel: (617) 856-8200
Fax: (617) 856-8201
If to Shareholder to:
______________________
______________________
______________________
with a copy to:
Heller Ehrman White & McAuliffe
2500 Sand Hill Road, Suite 100
Menlo Park, CA 94025
Telecopier No.: (650) 234-4299
Telephone No.: (650) 234-4200
Attention: August J. Moretti
8. Waivers. No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed to be a
continuing waiver unless specifically stated therein.
9. Modifications. No modifications of any provisions of this Agreement shall
be made unless made in writing and signed by the parties hereto.
10. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California.
11. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
12. Headings. The headings of sections and paragraphs herein are included
solely for convenience of reference and shall not affect the meaning or
construction of any of the provisions hereof.
[SIGNATURES ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto, or their duly authorized
representatives, have signed, sealed and delivered this Agreement effective as
of the day and year first above written.
SMART MACHINES, INC.
By:__________________________________
Name:
Title
BROOKS AUTOMATION, INC.
By:__________________________________
Name: Robert J. Therrien
Title: President and Chief
Executive Officer
SHAREHOLDER
_____________________________________
[ ]
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Exhibit 8.5
Opinion of Parent's Counsel
The following opinions will be subject to customary assumptions and
qualifications.
1. Under the laws of the State of Delaware, each of the Parent and the
Merger Sub has legal existence and is a corporation duly incorporated and
in good standing. The Parent has the corporate power and authority to own
or lease its properties and to conduct its business as presently conducted.
2. Each of the Parent and the Merger Sub has the corporate power and
authority to enter into the Transaction Documents and to perform its
obligations thereunder. The execution and delivery by the Parent of each of
the Transaction Documents to which it is a party has been duly authorized
by all necessary corporate action on the part of the Parent, and each such
Transaction Document has been duly executed and delivered by the Parent,
and constitutes a valid and binding obligation of the Parent, enforceable
against the Parent in accordance with its terms. The execution and delivery
by the Merger Sub of each of the Transaction Documents to which it is a
party has been duly authorized by all necessary corporate action on the
part of the Merger Sub, and each such Transaction Document has been duly
executed and delivered by the Merger Sub, and constitutes a valid and
binding obligation of the Merger Sub, enforceable against the Merger Sub in
accordance with its terms.
3. All of the Merger Shares will be, when issued in accordance with the
Agreement, duly authorized, validly issued, fully paid and nonassessable.
To our knowledge, the issuance of the Merger Shares by the Parent is not
subject to the preemptive or other similar rights of any stockholder of the
Parent.
4. The execution and delivery of the Transaction Documents and the
consummation of the Merger and the other transactions contemplated by the
Agreement will not contravene or conflict with the Organizational Documents
of the Parent or the Merger Sub. To our knowledge, neither the Parent nor
the Merger Sub is a party to, or expressly bound by, any judgment,
injunction or decree of any court or governmental authority which would
restrict or interfere with the performance by the Parent or the Merger Sub
of its obligations under the Transaction Documents to which it is a party.
5. No consent, approval, authorization, order, registration or
qualification of or with any United States federal or Massachusetts
governmental agency or body or any Delaware governmental agency or body
acting pursuant to the Delaware General Corporation Law or, to our
knowledge, any United States federal or Massachusetts court or Delaware
court acting pursuant to the Delaware General Corporation Law is required
to permit the execution and delivery by each of the Parent and the Merger
Sub of, and the performance of each of the Parent and the Merger Sub of
their obligations under, the Transaction Documents to which each is a party
and the consummation of the Merger and the other transactions contemplated
by the Agreement, except for the filing and acceptance of the Certificate
of Merger with the Delaware Secretary of State and except for such
consents, approvals, authorizations, orders, registrations or
qualifications (i) as may be required under state securities or Blue Sky
laws in connection with the issuance of Parent Shares or (ii) which if not
obtained would not reasonably be expected to have a Material Adverse Effect
on Parent.
6. Neither the execution, delivery or performance of the Transactions
Documents by the Parent and the Merger Sub nor the consummation of the
Merger and the other transactions contemplated thereby will violate any
United States federal or Massachusetts statute or any provision of the
Delaware General Corporation Law that is currently in effect and binding
upon or applicable to the Parent or the Merger Sub (other than applicable
antifraud provisions of United States federal securities laws and related
state securities laws, as to which we express no opinion), except (i) as
may be required under United States federal and state securities or Blue
Sky laws or (ii) for a violation or violations which, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect on Parent.
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APPENDIX B--CALIFORNIA GENERAL CORPORATION LAW CHAPTER 13
CHAPTER 13. DISSENTERS' RIGHTS
1300 [SHORT FORM MERGER; PURCHASE OF SHARES AT FAIR MARKET VALUE;
"DISSENTING SHARES" AND DISSENTING SHAREHOLDER].--(a) If the approval of the
outstanding shares (Section 152) of a corporation is required for a
reorganization under subdivisions (a) and (b) or subdivision (e) or (f) of
Section 1201, each shareholder of the corporation entitled to vote on the
transaction and each shareholder of a subsidiary corporation in a short-form
merger may, by complying with this chapter, require the corporation in which
the shareholder holds shares to purchase for cash at their fair market value
the shares owned by the shareholder which are dissenting shares as defined in
subdivision (b). The fair market value shall be determined as of the day before
the first announcement of the terms of the proposed reorganization or short-
form merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this Chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record. (Last amended by Ch.
543, L. '93, eff. 1-1-94.)
1301 [DISSENTER'S RIGHTS; DEMAND ON CORPORATION FOR PURCHASE OF SHARES].--
(a) If, in the case of a reorganization, any shareholders of a corporation have
a right under Section 1300, subject to compliance with paragraphs (3) and (4)
of subdivision (b) thereof, to require the corporation to purchase their shares
for cash, such corporation shall mail to each such shareholder a notice of the
approval of the reorganization by its outstanding shares (Section 152) within
10 days after the date of such approval, accompanied by a copy of Sections
1300, 1302, 1303, 1304 and this section, a statement of the price determined by
the corporation to represent the fair market value of the dissenting shares,
and a brief description of the procedure to be followed if the shareholder
desires to exercise the shareholder's right under such sections. The statement
of price constitutes an offer by the corporation to purchase at the price
stated any dissenting shares as defined in subdivision (b) of section 1300,
unless they lose their status as dissenting shares under Section 1309.
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(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
(Last amended by Ch. 1155, L. '80, eff. 1-1-81.)
1302 [DISSENTING SHARES, STAMPING OR ENDORSING].--Within 30 days after the
date on which notice of the approval by the outstanding shares or the notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, the
shareholder shall submit to the corporation at its principal office or at the
office of any transfer agent thereof, (a) if the shares are certificated
securities, the shareholder's certificates representing any shares which the
shareholder demands that the corporation purchase, to be stamped or endorsed
with a statement that the shares are dissenting shares or to be exchanged for
certificates of appropriate denomination so stamped or endorsed or (b) if the
shares are uncertificated securities, written notice of the number of shares
which the shareholder demands that the corporation purchase. Upon subsequent
transfers of the dissenting shares on the books of the corporation the new
certificates, initial transaction statement, and other written statements
issued therefor shall bear a like statement, together with the name of the
original dissenting holder of the shares. (Last amended by Ch. 766, L. '86,
eff. 1-1-87).
1303 [DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST; TIME OF
PAYMENT].--(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement. (Last amended by Ch. 766, L.
'86, eff. 1-1-87).
1304 [DISSENTERS ACTIONS; JOINDER; CONSOLIDATION; APPOINTMENT OF
APPRAISERS].--(a) If the corporation denies that the shares are dissenting
shares, or the corporation and the shareholder fail to agree upon the fair
market values of the shares, then the shareholder demanding purchase of such
shares as dissenting shares or any interested corporation, within six months
after the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed
to the shareholder, but not thereafter, may file a complaint in the superior
court of the proper county praying the court to determine whether the shares
are dissenting shares or the fair market value of the dissenting shares or both
or may intervene in any action pending on such a complaint.
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<PAGE>
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
1305 [APPRAISERS DUTY AND REPORT; COURT JUDGEMENT; PAYMENT; APPEAL; COSTS OF
ACTION].--(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file
a report in the office of the clerk of the court. Thereupon, on the motion of
any party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which
any dissenting shareholder who is a party, or who has intervened, is entitled
to require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of
Section 1301). (Last amended by Ch. 766 L. '86, eff. 1-1-87.)
1306 [DISSENTING SHAREHOLDERS: EFFECT OF PREVENTION OF PAYMENT OF FAIR
MARKET VALUE].--To the extent that the provisions of Chapter 5 prevent the
payment to any holders of dissenting shares of their fair market value, they
shall become creditors of the corporation for the amount thereof together with
interest at the legal rate on judgments until the date of payment, but
subordinate to all other creditors in any liquidation proceeding, such debt to
be payable when permissible under the provisions of Chapter 5.
1307 [DISSENTING SHARES, DISPOSITION OF DIVIDENDS].--Cash dividends declared
and paid by the corporation upon the dissenting shares after the date of
approval of the reorganization by the outstanding shares (Section 152) and
prior to payment for the shares by the corporation shall be credited against
the total amount to be paid by the corporation therefor.
1308 [DISSENTING SHARES, RIGHTS AND PRIVILEGES].--Except as expressly
limited in this chapter, holders of dissenting shares continue to have all the
rights and privileges incident to their shares, until the fair market value of
their shares is agreed upon or determined. A dissenting shareholder may not
withdraw a demand for payment unless the corporation consents thereto.
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1309 [DISSENTING SHARES, LOSS OF STATUS].--Dissenting shares lose their
status as dissenting shares and the holders thereof cease to be dissenting
shareholders and cease to be entitled to require the corporation to purchase
their shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses included in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
1310 [SUSPENSION OF CERTAIN PROCEEDINGS WHILE LITIGATION IS PENDING].--If
litigation is instituted to test the sufficiency or regularity of the votes of
the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
1311 [CHAPTER INAPPLICABLE TO CERTAIN CLASSES OF SHARES].--This chapter,
except Section 1312, does not apply to classes of shares whose terms and
provisions specifically set forth the amount to be paid in respect to such
shares in the event of a reorganization or merger. (Last amended by Ch. 919, L.
'88, eff. 1-1-89.)
1312 [VALIDITY OF REORGANIZATION OR SHORT FORM MERGER, ATTACK ON;
SHAREHOLDERS' RIGHTS; BURDEN OF PROOF].--(a) No shareholder of a corporation
who has a right under this chapter to demand payment of cash for the shares
held by the shareholder shall have any right at law or in equity to attack the
validity of the reorganization or short-form merger, or to have the
reorganization or short-form merger set aside or rescinded, except in an action
to test whether the number of shares required to authorize or approve the
reorganization have been legally voted in favor thereof; but any holder of
shares of a class whose terms and provisions specifically set forth the amount
to be paid in respect to them in the event of a reorganization or short-form
merger is entitled to payment in accordance with those terms and provisions or,
if the principal terms of the reorganization are approved pursuant to
subdivision (b) of Section 1202, is entitled to payment in accordance with the
terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-
form merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days, prior notice to the corporation and upon a determination
by the court that clearly no other remedy will adequately protect the
complaining shareholder or the class of shareholders of which such shareholder
is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set
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aside or rescinded, (1) a party to a reorganization or short-form merger which
controls another party to the reorganization or short-form merger shall have
the burden of proving that the transaction is just and reasonable as to the
shareholders of the controlled party, and (2) a person who controls two or more
parties to a reorganization shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of any party so
controlled. (Last amended by Ch. 919, L. '88, eff. 1-1-89.)
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