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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
June 24, 1999
DIAMOND MULTIMEDIA SYSTEMS, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation)
0-25580 77-0390654
(Commission File No.) (IRS Employer Identification Number)
2880 Junction Avenue
San Jose, California 95134-1922
-------------------------------
(Address of Principal Executive Offices)
(408) 325-7000
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(Registrant's Telephone Number, Including Area Code)
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Item 5. Other Events
Diamond Multimedia Systems, Inc., a Delaware corporation (the
"Registrant" or "Diamond") and S3 Incorporated, a Delaware corporation ("S3"),
have entered into an Agreement and Plan of Merger, dated as of June 21, 1999
(the "Merger Agreement"), whereby a wholly-owned subsidiary of S3 ("Merger Sub")
will be merged with and into Diamond, with Diamond as the surviving entity (the
"Merger").
As a result of the Merger, the outstanding shares of common
stock, $0.001 par value per share, of Diamond (the "Diamond Common Stock") will
be converted into shares of Common Stock, $0.0001 par value per share, of S3
(the "S3 Common Stock") at an exchange ratio equal to 0.52 share of S3 Common
Stock for each share of Diamond Common Stock. As a result of the Merger, Diamond
will become a wholly-owned subsidiary of S3, and Diamond's board of directors
will consist of the directors of Merger Sub immediately prior to the effective
time of the Merger.
The closing of the Merger is subject to certain conditions,
including the approval of the Common Stock holders of Diamond and S3 and the
receipt of customary antitrust clearance.
S3 and Diamond entered into a Credit Agreement, dated as of June
10, 1999, and amended on June 14, 1999 (the "Credit Agreement"), pursuant to
which S3 agreed to make three (3) separate loans to Diamond in amounts not
exceeding $20.0 million in the aggregate. As of the date hereof, S3 has made two
of those three loans to Diamond in the aggregate amount of $10.0 million. In
connection with the aforesaid loans, Diamond issued to S3 three (3) warrants to
purchase an aggregate of 4,597,871 shares of Diamond Common Stock at exercise
prices ranging from $4.18 to $4.471875 per share.
Copies of the Merger Agreement and the Credit Agreement are
attached as exhibits to this report and are incorporated herein by reference.
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Item 7. Financial Statements and Exhibits.
(a) Exhibits.
2.1 Agreement and Plan of Merger between Diamond
Multimedia Systems, Inc. and S3
Incorporated, dated as of June 21, 1999.
10.1 Credit Agreement, dated as of June 11, 1999,
by and between Diamond Multimedia Systems,
Inc. and S3 Incorporated.
10.2 First Common Stock Purchase Warrant issued
by Diamond Multimedia Systems, Inc. to S3
Incorporated.
10.3 Second Common Stock Purchase Warrant issued
by Diamond Multimedia Systems, Inc. to S3
Incorporated.
10.4 Third Common Stock Purchase Warrant issued
by Diamond Multimedia Systems, Inc. to S3
Incorporated.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: June 24, 1999
DIAMOND MULTIMEDIA SYSTEMS, INC.
By /s/ James M. Walker
-------------------------------------
James M. Walker
Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger between Diamond Multimedia
Systems, Inc. and S3 Incorporated, dated as of June 21,
1999.
10.1 Credit Agreement, dated as of June 11, 1999, by and between
Diamond Multimedia Systems, Inc. and S3 Incorporated.
10.2 First Common Stock Purchase Warrant issued by Diamond
Multimedia Systems, Inc. to S3 Incorporated.
10.3 Second Common Stock Purchase Warrant issued by Diamond
Multimedia Systems, Inc. to S3 Incorporated.
10.4 Third Common Stock Purchase Warrant issued by Diamond
Multimedia Systems, Inc. to S3 Incorporated
</TABLE>
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EXHIBIT 2.1
AGREEMENT AND PLAN
OF MERGER
BETWEEN
DIAMOND MULTIMEDIA SYSTEMS, INC.
AND
S3 INCORPORATED
Dated as of June 21, 1999
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER
Section 1.1 The Merger...........................................................1
Section 1.2 Conversion of Shares.................................................2
Section 1.3 Surrender and Payment................................................3
Section 1.4 Stock Options........................................................4
Section 1.5 Adjustments..........................................................5
Section 1.6 Fractional Shares....................................................5
Section 1.7 Withholding Rights...................................................5
Section 1.8 Lost Certificates....................................................6
ARTICLE II
CERTAIN GOVERNANCE MATTERS
Section 2.1 Acquirer Board of Directors..........................................6
Section 2.2 Acquirer Officers....................................................6
Section 2.3 Certificate of Incorporation of the Surviving
Corporation..........................................................6
Section 2.4 By-Laws of the Surviving Corporation.................................6
Section 2.5 Directors and Officers of the Surviving Corporation. ................6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization and Qualification.......................................7
Section 3.2 Capitalization.......................................................7
Section 3.3 Authority............................................................8
Section 3.4 Governmental Authorization...........................................8
Section 3.5 Non-Contravention....................................................9
Section 3.6 Subsidiaries.........................................................9
Section 3.7 SEC Filings........................................................ 10
Section 3.8 Financial Statements. ............................................. 10
Section 3.9 Disclosure Documents............................................... 10
Section 3.11 No Undisclosed Material Liabilities................................ 11
Section 3.12 Litigation......................................................... 12
Section 3.13 Taxes.............................................................. 12
Section 3.14 Employee Benefit Plans............................................. 12
Section 3.15 Compliance with Laws............................................... 14
Section 3.16 Finders' or Advisors' Fees......................................... 14
Section 3.17 Environmental Matters.............................................. 14
Section 3.18 Labor Matters...................................................... 14
Section 3.19 Title to Property.................................................. 14
Section 3.20 Leaseholds......................................................... 15
Section 3.21 Management Payments................................................ 15
Section 3.22 Intellectual Property.............................................. 15
Section 3.23 Insurance.......................................................... 16
Section 3.25 Opinion of Financial Advisor....................................... 16
Section 3.26 Tax Treatment...................................................... 16
Section 3.27 Takeover Statutes.................................................. 16
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIRER
Section 4.1 Organization and Qualification..................................... 16
Section 4.2 Capitalization..................................................... 17
Section 4.3 Authority.......................................................... 18
Section 4.4 Governmental Authorization......................................... 18
Section 4.5 Non-Contravention.................................................. 18
Section 4.6 Subsidiaries....................................................... 18
Section 4.7 SEC Filings........................................................ 19
Section 4.8 Financial Statements. ............................................. 19
Section 4.9 Disclosure Documents............................................... 20
Section 4.11 No Undisclosed Material Liabilities................................ 21
Section 4.12 Litigation......................................................... 21
Section 4.13 Taxes.............................................................. 21
Section 4.14 Employee Benefit Plans............................................. 21
Section 4.15 Compliance with Laws............................................... 23
Section 4.16 Finders' or Advisors' Fees......................................... 23
Section 4.17 Environmental Matters.............................................. 23
Section 4.18 Labor Matters...................................................... 23
Section 4.19 Title to Property.................................................. 23
Section 4.20 Leaseholds......................................................... 23
Section 4.21 Management Payments................................................ 24
Section 4.22 Intellectual Property.............................................. 24
Section 4.23 Insurance.......................................................... 24
Section 4.25 Opinion of Financial Advisor....................................... 25
Section 4.26 Tax Treatment...................................................... 25
ARTICLE V
COVENANTS OF THE COMPANY
Section 5.1 Conduct of Business of the Company................................. 25
Section 5.2 No Solicitation.................................................... 26
ARTICLE VI
COVENANTS OF ACQUIRER
Section 6.1 Conduct of Business of Acquirer.................................... 27
Section 6.2 No Solicitation.................................................... 28
Section 6.3 Indemnification.................................................... 29
Section 6.4 NNM Listings....................................................... 30
Section 7.1 Access to Information.............................................. 30
Section 7.2 Registration Statement and Proxy Statement......................... 30
Section 7.3 Stockholders' Meetings............................................. 31
Section 7.4 Reasonable Efforts; Other Actions.................................. 31
Section 7.5 Public Announcements............................................... 31
Section 7.6 Notification of Certain Matters.................................... 31
Section 7.7 Expenses........................................................... 32
Section 7.8 Affiliates......................................................... 32
Section 7.9 Certain Benefit Plans.............................................. 32
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Section 7.10 Formation of Merger Subsidiary..................................... 32
ARTICLE VIII
CONDITIONS TO THE MERGER
Section 8.1 Conditions to the Obligations of Each Party........................ 33
Section 8.2 Conditions to the Obligations of Acquirer and Merger
Subsidiary......................................................... 33
Section 8.3 Conditions to the Obligations of the Company....................... 34
ARTICLE IX
TERMINATION
Section 9.1 Termination........................................................ 35
Section 9.2 Termination by Acquirer............................................ 35
Section 9.3 Termination by the Company......................................... 36
Section 9.4 Procedure for Termination.......................................... 36
Section 9.5 Effect of Termination.............................................. 37
ARTICLE X
MISCELLANEOUS
Section 10.1 Notices............................................................ 38
Section 10.2 Non-Survival of Representations and Warranties..................... 39
Section 10.3 Amendments; No Waivers............................................. 39
Section 10.4 Successors and Assigns............................................. 39
Section 10.5 Governing Law...................................................... 39
Section 10.6 Jurisdiction....................................................... 39
Section 10.7 Waiver of Jury Trial............................................... 40
Section 10.8 Counterparts; Effectiveness........................................ 40
Section 10.9 Entire Agreement................................................... 40
Section 10.10 Captions........................................................... 40
Section 10.11 Severability....................................................... 40
</TABLE>
SCHEDULES
Schedule 1.4 Company Stock Option Plans
Schedule 8.1(d) Required Third Party Consents
EXHIBITS
Exhibit 7.8 Form of Affiliate Agreement
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 21, 1999, (the
"AGREEMENT"), by and between DIAMOND MULTIMEDIA SYSTEMS, INC., a Delaware
corporation (the "COMPANY") and S3 INCORPORATED, a Delaware corporation
("ACQUIRER").
RECITALS
WHEREAS, Acquirer will cause a wholly owned Delaware corporation to be
formed as soon as practicable following the date hereof ("MERGER SUBSIDIARY");
WHEREAS, the respective Boards of Directors of Acquirer and the Company
have approved this Agreement, and deem it advisable and in the best interests of
each corporation and its respective stockholders to consummate the merger of
Merger Subsidiary with and into the Company upon the terms and subject to the
conditions of this Agreement;
WHEREAS, pursuant to the Merger, among other things, and subject to the
terms and conditions of this Agreement, all of the issued and outstanding shares
of capital stock of the Company shall be converted into the right to receive
shares of voting common stock of Acquirer, and all outstanding options to
purchase shares of common stock of the Company shall be assumed by Acquirer;
WHEREAS, it is intended that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "CODE") and be accounted for as a purchase transaction;
and
WHEREAS, each of the parties hereto desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby:
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. (a) In accordance with the provisions of this
Agreement and the General Corporation Law of the State of Delaware (the
"DELAWARE LAW"), at the Effective Time, Merger Subsidiary shall be merged (the
"MERGER") with and into the Company, whereupon the separate existence of Merger
Subsidiary shall cease and the Company shall be the surviving corporation
(hereinafter sometimes called the "SURVIVING CORPORATION") in the Merger and a
wholly owned subsidiary of Acquirer.
(b) As soon as practicable after but no later than two business days
following satisfaction or, to the extent permitted hereunder, waiver of all
conditions to the Merger, the Company and Merger Subsidiary shall file a
certificate of merger with the Secretary of State of the State of Delaware and
make all other filings or recordings required by Delaware Law in connection with
the Merger. The Merger shall become effective at such time as the certificate of
merger is duly filed with the Secretary of State of the State of Delaware or at
such later time as is specified in the certificate of merger (the "EFFECTIVE
TIME").
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(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, property, powers and franchises and be
subject to all of the restrictions, disabilities, debts and duties of the
Company and Merger Subsidiary, all as provided under the Delaware Law.
(d) Unless this Agreement is earlier terminated pursuant to Section 9, the
closing of the Merger (the "CLOSING") shall take place at the offices of
Pillsbury Madison & Sutro LLP, 2550 Hanover Street, Palo Alto, California as
soon as practicable, but in any event within two business days after the day on
which the last to be fulfilled or waived of the conditions set forth in Article
VIII (other than those conditions that by their nature are to be fulfilled at
the Closing, but subject to the fulfillment or waiver of such conditions) shall
be fulfilled or waived in accordance with this Agreement or at such other time,
place and date as is mutually agreed to in writing by the parties hereto. The
date of the Closing is referred to in this Agreement as the "CLOSING DATE."
Section 1.2 Conversion of Shares. (a) As of the Effective Time, by virtue
of the Merger and without any action on the part of the holders thereof:
(i) Each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become one
validly issued, fully paid and nonassessable share of common stock, par value
$.001 per share, of the Surviving Corporation with the same rights, powers and
privileges as the shares so converted, and such shares shall constitute the only
outstanding shares of capital stock of the Surviving Corporation. From and after
the Effective Time, all certificates representing the common stock of Merger
Subsidiary shall be deemed for all purposes to represent the number of shares of
common stock of the Surviving Corporation into which they were converted in
accordance with this Section 1.2(a)(i).
(ii) Each share of common stock, par value $.001 per share, of the Company
(a "COMPANY SHARE") held by the Company as treasury stock or owned by Acquirer
or any subsidiary of Acquirer, shall be cancelled, and no payment shall be made
with respect thereto.
(iii) Each Company Share outstanding immediately prior to the Effective
Time shall, except as otherwise provided in Section 1.2(a)(ii), by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive .052 shares (the "EXCHANGE RATIO") of validly issued,
fully paid and nonassessable common stock, par value $.0001 per share, of
Acquirer ("ACQUIRER COMMON STOCK").
(b) From and after the Effective Time, all Company Shares converted in
accordance with Section 1.2(a)(iii) shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such Company Shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration (as defined below), as applicable, and any dividends payable
pursuant to Section 1.3(f).
(c) The Acquirer Common Stock to be received as consideration pursuant to
the Merger by each holder of Company Shares (together with cash in lieu of
fractional shares of Acquirer Common Stock as specified below) is referred to
herein as the "MERGER CONSIDERATION."
(d) For purposes of this Agreement, the word "SUBSIDIARY" when used with
respect to any Person means any other Person, whether incorporated or
unincorporated, of which (i) more than fifty percent (50%) of the securities or
other ownership interests or (ii) securities or other interests having by their
terms ordinary voting power to elect more than fifty percent (50%) of the board
of directors or others performing similar functions with respect to such
corporation or other organization, is directly owned
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or controlled by such Person or by any one or more of its Subsidiaries. For
purposes of this Agreement, "PERSON" means an individual, a corporation, a
limited liability company, a partnership, an association, a trust or any other
entity or organization, including a government or political subdivision or any
agency or instrumentality thereof.
Section 1.3 Surrender and Payment. (a) Prior to the Effective Time,
Acquirer shall appoint an agent reasonably acceptable to the Company (the
"EXCHANGE AGENT") for the purpose of exchanging certificates representing
Company Shares (the "CERTIFICATES") for the Merger Consideration. Acquirer will
make available to the Exchange Agent, as needed, the Merger Consideration to be
paid in respect of the Company Shares. Promptly after the Effective Time,
Acquirer will send, or will cause the Exchange Agent to send, to each holder of
record at the Effective Time of Company Shares a letter of transmittal for use
in such exchange (which shall specify that the delivery shall be effected, and
risk of loss and title shall pass, only upon proper delivery of the Certificates
to the Exchange Agent) in such form as the Company and Acquirer may reasonably
agree, for use in effecting delivery of Company Shares to the Exchange Agent.
(b) Each holder of Company Shares that have been converted into a right to
receive the Merger Consideration, upon surrender to the Exchange Agent of a
Certificate, together with a properly completed letter of transmittal, will be
entitled to receive the Merger Consideration in respect of the Company Shares
represented by such Certificate. Until so surrendered, each such Certificate
shall, after the Effective Time, represent for all purposes only the right to
receive such Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid to a Person
other than the Person in whose name the Certificate is registered, it shall be a
condition to such payment that the Certificate so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the Person
requesting such payment shall pay to the Exchange Agent any transfer or other
taxes required as a result of such payment to a Person other than the registered
holder of such Certificate or establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no further registration of
transfers of Company Shares. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they shall be canceled and exchanged for
the consideration provided for, and in accordance with the procedures set forth,
in this Article I.
(e) Any portion of the Merger Consideration made available to the Exchange
Agent pursuant to Section 1.3(a) that remains unclaimed by the holders of
Company Shares one year after the Effective Time shall be returned to Acquirer,
upon demand, and any such holder who has not exchanged such holder's Company
Shares for the Merger Consideration in accordance with this Section 1.3 prior to
that time shall thereafter look only to Acquirer for payment of the Merger
Consideration in respect of such holder's Company Shares. Notwithstanding the
foregoing, Acquirer shall not be liable to any holder of Company Shares for any
amount paid to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(f) No dividends or other distributions with respect to Acquirer Common
Stock issued in the Merger shall be paid to the holder of any unsurrendered
Certificates until such Certificates are surrendered as provided in this Section
1.3. Subject to the effect of applicable laws, following such surrender, there
shall be paid, without interest, to the record holder of the Acquirer Common
Stock issued in exchange therefor (i) at the time of such surrender, all
dividends and other distributions payable in respect of such Acquirer Common
Stock with a record date after the Effective Time and a payment date on or prior
to the date of such surrender and not previously paid and (ii) at the
appropriate payment
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date, the dividends or other distributions payable with respect to such Acquirer
Common Stock with a record date after the Effective Time but with a payment date
subsequent to such surrender. For purposes of dividends or other distributions
in respect of Acquirer Common Stock, all Acquirer Common Stock to be issued
pursuant to the Merger (but not options therefor issued pursuant to Section 1.4
unless actually exercised at the Effective Time) shall be entitled to dividends
pursuant to the immediately preceding sentence as if issued and outstanding as
of the Effective Time.
Section 1.4 Stock Options. (a) At the Effective Time, each outstanding
option to purchase Company Shares (a "COMPANY STOCK OPTION") granted under the
Company's plans identified in the Schedule 1.4 as being the only compensation or
benefit plans or agreements pursuant to which Company Shares may be issued
(collectively, the "COMPANY STOCK OPTION PLANS"), whether vested or not vested,
shall be deemed assumed by Acquirer and shall thereafter be deemed to constitute
an option to acquire, on the same terms and conditions (including any provisions
for acceleration) as were applicable under such Company Stock Option prior to
the Effective Time (in accordance with the past practice of the Company with
respect to interpretation and application of such terms and conditions), the
number (rounded down to the nearest whole number) of shares of Acquirer Common
Stock determined by multiplying (x) the number of Company Shares subject to such
Company Stock Option immediately prior to the Effective Time by (y) the Exchange
Ratio, at a price per share of Acquirer Common Stock (rounded up to the nearest
whole cent) equal to (A) the exercise price per Company Share otherwise
purchasable pursuant to such Company Stock Option divided by (B) the Exchange
Ratio. The parties intend that the conversion of the Company Stock Options
hereunder will meet the requirements of Section 424(a) of the Code and this
Section 1.4(a) shall be interpreted consistent with such intention. Subject to
the terms of the Company Stock Options and the documents governing such Company
Stock Options, the Merger will not terminate or accelerate any Company Stock
Option or any right of exercise, vesting or repurchase relating thereto with
respect to Acquirer Common Stock acquired upon exercise of such assumed Company
Stock Option. Holders of Company Stock Options will not be entitled to acquire
Company Shares after the Merger. In addition, prior to the Effective Time, the
Company will make any amendments to the terms of such stock option or
compensation plans or arrangements that are necessary to give effect to the
transactions contemplated by this Section 1.4. Promptly following the Effective
Time, Acquirer will issue to each holder of an outstanding Company Stock Option
a document evidencing the foregoing assumption of such Company Stock Option by
Acquirer.
(b) Acquirer shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Acquirer Common Stock for delivery
pursuant to the terms set forth in this Section 1.4.
(c) At the Effective Time, each outstanding purchase right with respect to
all open offering periods under the Company's Employee Stock Purchase Plan (each
an "ASSUMED PURCHASE RIGHT") shall be assumed by Parent. Each Assumed Purchase
Right shall continue to have, and be subject to, the terms and conditions set
forth in the Company's Employee Stock Purchase Plan and the documents governing
the Assumed Purchase Right, except that the purchase price of such shares of
Acquirer Common Stock for each respective purchase date under each Assumed
Purchase Right shall be the lower of (i) the quotient determined by dividing
eighty-five percent (85%) of the fair market value of the Company Common Stock
on the offering date of each assumed offering period by the Exchange Ratio or
(ii) eighty-five percent (85%) of the fair market value of the Acquirer Common
Stock on each purchase date of each assumed offering period occurring after the
Effective Time (with the number of shares rounded down to the nearest whole
share and the purchase price rounded up to the nearest whole cent). The Assumed
Purchase Rights shall be exercised at such times following the Effective Time as
set forth in the Company's Employee Stock Purchase Plan, and each participant
shall, accordingly, be issued shares of Acquirer Common Stock at such times. The
Company's Employee Stock Purchase Plan shall terminate with the exercise of the
last Assumed Purchase Right, and no additional purchase rights shall
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be granted under the Company's Employee Stock Purchase Plan following the
Effective Time. Acquirer agrees that from and after the Effective Time,
employees of the Company may participate in Acquirer's employee stock purchase
plan, subject to the terms and conditions of such plan.
(d) At the Effective Time, each award or account (including restricted
stock, stock equivalents and stock units, but excluding Company Stock Options
and Assumed Purchase Rights) outstanding as of the date hereof ("COMPANY AWARD")
that has been established, made or granted under any employee incentive or
benefit plans, programs or arrangements and non-employee director plans
maintained by the Company on or prior to the date hereof which provide for
grants of equity-based awards or equity-based accounts shall be amended or
converted into a similar instrument of Acquirer, in each case with such
adjustments to the terms and conditions of such Company Awards as are
appropriate to preserve the value inherent in such Company Awards with no
detrimental effects on the holders thereof. The other terms and conditions of
each Company Award, and the plans or agreements under which they were issued,
shall continue to apply in accordance with their terms and conditions, including
any provisions for acceleration (as such terms and conditions have been
interpreted and applied by the Company in accordance with its past practice).
(e) At the Effective Time, Acquirer shall file with the Securities and
Exchange Commission (the "SEC") a registration statement on an appropriate form
or a post-effective amendment to a previously filed registration statement under
the Securities Act of 1933, as amended (the "1933 ACT"), with respect to the
Acquirer Common Stock subject to options and other equity-based awards issued
pursuant to this Section 1.4, and shall use all commercially reasonable efforts
to maintain the current status of the prospectus contained therein, as well as
comply with any applicable state securities or "blue sky" laws, for so long as
such options or other equity-based awards remain outstanding.
Section 1.5 Adjustments. If at any time during the period between the date
of this Agreement and the Effective Time, any change in the outstanding shares
of capital stock of Acquirer or the Company (other than as contemplated in
Section 3.2 or Section 4.2 or permitted under this Agreement) shall occur,
including, without limitation, by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, or any stock dividend thereon with a record date during such period, the
Merger Consideration shall be appropriately adjusted.
Section 1.6 Fractional Shares. (a) No fractional shares of Acquirer Common
Stock shall be issued in the Merger. All fractional shares of Acquirer Common
Stock that a holder of Company Shares would otherwise be entitled to receive as
a result of the Merger shall be aggregated and if a fractional share results
from such aggregation, such holder shall be entitled to receive from the
Exchange Agent, in lieu thereof, an amount in cash determined by multiplying the
closing price of one share of Acquirer Common Stock on the Nasdaq National
Market ("NNM") on the Closing Date by the fraction of a share of Acquirer Common
Stock to which such holder would otherwise have been entitled. The parties
acknowledge that payment of the cash consideration in lieu of issuing fractional
shares was not separately bargained for consideration but merely represents a
mechanical rounding off for purposes of simplifying the corporate and accounting
problems that would otherwise be caused by the issuance of fractional shares. As
promptly as practicable after the determination of the amount of cash, if any,
to be paid to holders of fractional interests, the Exchange Agent shall so
notify Acquirer, and Acquirer shall deposit or cause to be deposited with the
Exchange Agent such amount and shall cause the Exchange Agent to make available
such amounts to such holders of fractional interests without interest.
Section 1.7 Withholding Rights. Each of the Surviving Corporation and
Acquirer shall be entitled to deduct and withhold from the consideration
otherwise payable to any person pursuant to this Article I such amounts as it is
required to deduct and withhold with respect to the making of such
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payment under any provision of federal, state, local or foreign tax law. To the
extent that amounts are so withheld by the Surviving Corporation or Acquirer, as
the case may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Company Shares in respect of
which such deduction and withholding was made by the Surviving Corporation or
Acquirer, as the case may be.
Section 1.8 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Exchange Agent, the posting by such person of a bond, in such reasonable
amount as the Exchange Agent may direct, as indemnity against any claim that may
be made against it, the Surviving Corporation or the Exchange Agent with respect
to such Certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration to be paid in respect
of the Company Shares represented by such Certificate as contemplated by this
Article I.
ARTICLE II
CERTAIN GOVERNANCE MATTERS
Section 2.1 Acquirer Board of Directors. At the Effective Time, Acquirer
shall cause the Board of Directors of Acquirer to consist of either five or
seven directors (with the total number of directors to be established by
Acquirer), a majority of one of whom shall be directors of Acquirer prior to the
Effective Time and the remainder of whom shall be directors designated by the
Company after consultation with the Acquirer (the "COMPANY BOARD DESIGNEES").
Section 2.2 Acquirer Officers. The officers of the Acquirer after the
Effective Time shall be determined by the Board of Directors of the Acquirer
immediately after the Effective Time, following consultation between the
respective Chief Executive Officers of Acquirer and the Company, except that Mr.
Kenneth F. Potashner shall be the Chairman and Chief Executive Officer of
Acquirer and Mr. William J. Schroeder shall be offered the position of President
and Chief Operating Officer of Acquirer, to hold office from and after the
Effective Time (assuming such individuals desire to continue in such positions
as of such date) until their respective successors are duly appointed and
qualify in the manner provided in the By-Laws of the Acquirer or as otherwise
provided by law or their earlier resignation or removal.
Section 2.3 Certificate of Incorporation of the Surviving Corporation. The
certificate of incorporation of Merger Subsidiary in effect at the Effective
Time shall be the certificate of incorporation of the Surviving Corporation
until amended in accordance with applicable law.
Section 2.4 By-Laws of the Surviving Corporation. Subject to Section 6.3,
the by-laws of Merger Subsidiary in effect at the Effective Time shall be the
by-laws of the Surviving Corporation until amended in accordance with applicable
law.
Section 2.5 Directors and Officers of the Surviving Corporation. Subject
to Section 6.3, from and after the Effective Time, until successors are duly
elected or appointed and qualified in accordance with applicable law, (a) the
directors of Merger Subsidiary at the Effective Time shall be the directors of
the Surviving Corporation, and (b) the officers of the Company at the Effective
Time shall be the officers of the Surviving Corporation.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in a letter delivered by the Company to Acquirer
immediately prior to the execution of this Agreement and signed by a duly
authorized officer of the Company (the "COMPANY DISCLOSURE LETTER"), the Company
represents and warrants to Acquirer as follows:
Section 3.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own,
lease and operate its respective properties and to carry on its business as now
being conducted.
The Company is qualified to do business as a foreign corporation and is in
good standing under the laws of each state or other jurisdiction in which the
nature of its business requires such qualification, except where the failure to
be so qualified or in good standing which, taken together with all other such
failures, would not have a Material Adverse Effect on the Company. For purposes
of this Agreement, the term "MATERIAL ADVERSE EFFECT" means, when used in
connection with the Company or Acquirer, as the case may be, any change,
violation, inaccuracy, circumstance or effect that is materially adverse to the
business, properties, assets (including intangible assets), liabilities,
capitalization or financial condition of either party and its Subsidiaries,
taken as a whole, as the case may be; provided, however, that the following
shall not be taken into account in determining whether there has been or could
or would be a "Material Adverse Effect" on or with respect to a party: (i) any
occurrences relating to the economy of the United States in general or the
economies in which such entity operates or the multimedia and connectivity
products for personal computer industry in general and not specifically relating
to such party, (ii) the delay or cancellation of orders for such party's
products from customers or distributors (or other resellers) directly
attributable to the announcement of this Agreement or the pendency of the
Merger, (iii) the lack of or delay in availability of components or raw
materials from such party's suppliers directly attributable to the announcement
of this Agreement or the pendency of the Merger, (iv) any litigation brought or
threatened against a party or any officer or member of the Board of Directors of
such party in respect of this Agreement or the Merger (including any stockholder
class action litigation arising from allegations or a breach of fiduciary duty
relating to this Agreement), (v) the loss of employees as a result of reductions
in force that are mutually agreed upon by the Company and Acquirer, (vi) the
loss of employees with titles of director or officer in an amount not in excess
of fifteen percent (15%) of the number of such employees as of the date of this
Agreement or the loss of employees with titles other than director or officer in
an amount not in excess of fifteen percent (15%) of the number of such employees
as of the date of this Agreement (excluding in each case employees lost pursuant
to reductions in force described in clause (v) and in the case of employees with
titles of director or officer losses resulting solely from a failure by Acquirer
to offer commercially reasonable retention incentives to such employees prior to
the Closing), and (vii) changes in trading prices for such party's securities.
The Company has made available to Acquirer true and complete copies of the
Company's certificate of incorporation and by-laws, as amended to the date
hereof.
Section 3.2 Capitalization. The authorized capital stock of the Company
consists of 75,000,000 Company Shares and 8,000,000 shares of Preferred Stock,
par value $.001 per share, all of which shares of Preferred Stock have not been
designated. As of May 31, 1999, (i) 35,573,024 Company Shares were issued and
outstanding, (ii) no shares of Preferred Stock were issued and outstanding,
(iii) no Company Shares were held in the treasury of the Company or any of its
Subsidiaries, and (iv) 9,891,497 Company Shares are reserved for issuance
pursuant to the Company Option Plans, of which stock options to
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purchase 8,650,905 Company Shares have been granted (of which options to
purchase an aggregate of 1,954,324 shares were exercisable). As of May 31, 1999,
1,050,000 Company Shares were reserved under the Company's Employee Stock
Purchase Plan, of which 649,422 have been granted. All the outstanding shares of
the Company's capital stock are, and all Company Shares that may be issued
pursuant to the exercise of outstanding employee stock options will be, when
issued in accordance with the terms thereof, duly authorized, validly issued,
fully paid and non-assessable. Except as disclosed in the Company Disclosure
Letter and except for changes since the close of business on May 31, 1999
resulting from the exercise of employee stock options outstanding on such date
or options granted as permitted by Section 5.1, there are outstanding (x) no
shares of capital stock or other voting securities of the Company, (y) no
securities of the Company convertible into or exchangeable for shares of capital
stock or voting securities of the Company, and (z) no options, warrants or other
rights to acquire from the Company, and no preemptive or similar rights,
subscription or other rights, convertible securities, agreements, arrangements
or commitments of any character, relating to the capital stock of the Company,
obligating the Company to issue, transfer or sell, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Company or obligating the Company to grant, extend or
enter into any such option, warrant, subscription or other right, convertible
security, agreement, arrangement or commitment (the items in clauses (x), (y)
and (z) being referred to collectively as the "COMPANY SECURITIES"). There are
no outstanding obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any Company Securities. There are not as
of the date hereof and there will not be at the Effective Time any stockholder
agreements, voting trusts or other agreements or understandings to which the
Company or any of its Subsidiaries is a party or by which it is bound relating
to the voting of any shares of the capital stock of the Company or any
agreements, arrangements, or other understandings to which the Company or any of
its Subsidiaries is a party or by which it is bound that will limit in any way
the solicitation of proxies by or on behalf of the Company from, or the casting
of votes by, the stockholders of the Company with respect to the Merger.
Section 3.3 Authority. The Company has full corporate power and authority
to execute and deliver this Agreement and, subject to the requisite approval of
its stockholders, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized and
approved by the Company's Board of Directors, and other than the requisite
approval by its stockholders, no other corporate proceedings are necessary to
authorize this Agreement or the consummation of the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by the
Company and, assuming this Agreement constitutes a legal, valid and binding
agreement of the other parties hereto, it constitutes a legal, valid and binding
agreement of the Company, enforceable against it in accordance with its terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies.
Section 3.4 Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation of the Merger
by the Company require no consent of, or filing with, any governmental body,
agency, official or authority other than (a) the filing of a certificate of
merger in accordance with Delaware Law, (b) compliance with any applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR ACT"), (c) compliance with any applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "EXCHANGE ACT"), (d) compliance with any applicable requirements
of the 1933 Act and state securities laws, and (e) other actions or filings
which if not taken or made would not, individually or in the aggregate, have a
Material Adverse Effect on the Company.
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Section 3.5 Non-Contravention. The execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not and will not (a) assuming compliance
with the matters referred to in Section 3.3, contravene or conflict with the
certificate of incorporation or by-laws of the Company, (b) assuming compliance
with the matters referred to in Section 3.4, contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to the Company or any of
its Subsidiaries, (c) constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of the
Company or any of its Subsidiaries or to a loss of any benefit to which the
Company or any of its Subsidiaries is entitled under any provision of any
agreement, contract or other instrument binding upon the Company or any of its
Subsidiaries or any license, franchise, permit or other similar authorization
held by the Company or any of its Subsidiaries, or (d) result in the creation or
imposition of any Lien on any asset of the Company or any of its Subsidiaries,
except for such contraventions, conflicts or violations referred to in clause
(b) or defaults, rights of termination, cancellation or acceleration, or losses
or Liens referred to in clause (c) or (d) that would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. For purposes of this
Agreement, "LIEN" means, with respect to any asset of the Company or Acquirer,
as the case may be, any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind in respect of such asset other than any such mortgage,
lien, pledge, charge, security interest or encumbrance (i) for Taxes (as defined
in Section 3.13) not yet due or being contested in good faith (and for which
adequate accruals or reserves have been established on the Company Balance Sheet
or the Acquirer Balance Sheet (as such terms are defined in Sections 3.8 and
4.8, respectively), as the case may be) or (ii) which is a carriers',
warehousemen's, mechanics', materialmen's, repairmen's or other like lien
arising in the ordinary course of business. Except as disclosed in the Company
Disclosure Letter, neither the Company nor any Subsidiary of the Company is a
party to any agreement that expressly limits the ability of the Company or any
Subsidiary of the Company, or would limit Acquirer or any Subsidiary of Acquirer
after the Effective Time, to compete in or conduct any line of business or
compete with any Person or in any geographic area or during any period of time
except to the extent that any such limitation, individually or in the aggregate,
would not be reasonably likely to have a Material Adverse Effect on Acquirer
after the Effective Time.
Section 3.6 Subsidiaries. Each of the Company's Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted. Each of the Subsidiaries is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or leased or the nature
of its activities makes such qualification necessary, except where the failure
to be so qualified or in good standing would not have a Material Adverse Effect
on the Company. Exhibit 21 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 (the "1998 10-K"), as filed with SEC, lists
the only Subsidiaries of the Company at December 31, 1998, and all Subsidiaries
of the Company thereafter formed or acquired are listed in the Company
Disclosure Letter. All of the outstanding shares of capital stock of the
Subsidiaries are validly issued, fully paid and nonassessable and, other than
directors' qualifying shares in the case of foreign Subsidiaries, are owned by
the Company or by a wholly owned Subsidiary of the Company free and clear of all
material liens, claims, charges or encumbrances, and there are no irrevocable
proxies with respect to such shares. Except as set forth in the Company
Disclosure Letter and except for the capital stock of its Subsidiaries, the
Company does not own, directly or indirectly, any capital stock or other
ownership interest in any corporation, partnership, joint venture, limited
liability company or other entity which is material to the business of the
Company and its Subsidiaries, taken as a whole. There are no material
restrictions on the Company to vote the stock of any of its Subsidiaries.
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Section 3.7 SEC Filings. (a) The Company has made available to Acquirer
(i) its annual reports on Form 10-K for its fiscal years ended December 31,
1996, 1997 and 1998, (ii) its quarterly reports on Form 10-Q for its quarter
ended March 31, 1999, (iii) its proxy or information statements relating to
meetings of, or actions taken without a meeting by, the stockholders of the
Company held since December 31, 1998, and (iv) all of its other reports,
statements, schedules and registration statements filed with the SEC since
December 31, 1998 (the documents referred to in this Section 3.7(a) being
referred to collectively as the "COMPANY SEC DOCUMENTS"). The Company's
quarterly report on Form 10-Q for its fiscal quarter ended March 31, 1998 is
referred to herein as the "COMPANY 10-Q."
(b) As of its filing date, each Company SEC Document complied as to form
in all material respects with the applicable requirements of the Exchange Act
and the 1933 Act.
(c) As of its filing date, each Company SEC Document 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 made therein,
in the light of the circumstances under which they were made, not misleading.
(d) Each such registration statement, as amended or supplemented, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
Section 3.8 Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company (including any related notes and schedules) included in its annual
reports on Form 10-K and the quarterly report on Form 10-Q referred to in
Section 3.7 fairly present in all material respects, in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent basis
(except as may be indicated in the notes thereto), the consolidated financial
position of the Company and its consolidated Subsidiaries as of the dates
thereof and their consolidated results of operations and changes in financial
position for the periods then ended (subject to normal year-end adjustments and
the absence of notes in the case of any unaudited interim financial statements).
For purposes of this Agreement, "COMPANY BALANCE SHEET" means the consolidated
balance sheet of the Company as of March 31, 1999 set forth in the Company 10-Q
and "COMPANY BALANCE SHEET DATE" means March 31, 1999.
Section 3.9 Disclosure Documents. (a) The joint proxy statement of the
Company and Acquirer relating to the meetings of stockholders of the Company and
Acquirer contemplated by Section 7.3 and prospectus of Acquirer relating to the
shares of Acquirer Common Stock to be issued in connection with the Merger (the
"JOINT PROXY STATEMENT/PROSPECTUS") to be filed with the SEC in connection with
the Merger and the registration statement on Form S-4 of Acquirer (the "FORM
S-4") to be filed under the 1933 Act relating to the issuance of Acquirer Common
Stock in the Merger, and any amendments or supplements thereto, will, when
filed, subject to the last sentence of Section 3.9(b), comply as to form in all
material respects with the requirements of the Exchange Act and the 1933 Act.
(b) Neither the Joint Proxy Statement/Prospectus to be filed with the SEC,
nor any amendment or supplement thereto, will, at the date the Joint Proxy
Statement/Prospectus or any such amendment or supplement is first mailed to
stockholders of Company or at the time such stockholders vote on the adoption
and approval of this Agreement and the transactions contemplated hereby, contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Neither the Form S-4
nor any amendment or supplement thereto will at the time it becomes effective
under the 1933 Act
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or at the Effective Time contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading. No representation or warranty is made by the
Company in this Section 3.9 with respect to statements made or incorporated by
reference therein based on information supplied by Acquirer for inclusion or
incorporation by reference in the Joint Proxy Statement/Prospectus or the Form
S-4.
Section 3.10 Absence of Certain Changes. Except as set forth in the
Company Disclosure Letter, since the Company Balance Sheet Date, the Company and
its Subsidiaries have conducted their business in the ordinary course consistent
with past practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably would be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company or any
repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Company or any of its Subsidiaries, except
for the repurchase of shares of employees at cost upon termination of employment
with the Company;
(c) any amendment of any material term of any outstanding security of the
Company or any of its Subsidiaries;
(d) any transaction or commitment made, or any contract, agreement or
settlement entered into, by (or judgment, order or decree affecting) the Company
or any of its Subsidiaries relating to its assets or business (including the
acquisition or disposition of any assets) or any relinquishment by the Company
or any of its Subsidiaries of any contract or other right, in either case,
material to the Company and its Subsidiaries taken as a whole, other than
transactions, commitments, contracts, agreements or settlements (including
without limitation settlements of litigation and tax proceedings) in the
ordinary course of business consistent with past practice, those contemplated by
this Agreement, or as agreed to in writing by Acquirer;
(e) any change in any method of accounting or accounting practice (other
than any change for tax purposes) by the Company or any of its Subsidiaries,
except for any such change which is not significant or which is required by
reason of a concurrent change in GAAP; or
(f) any (i) grant of any severance or termination pay to (or amendment to
any such existing arrangement with) any director, officer or employee of the
Company or any of its Subsidiaries, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any such
existing agreement) with any director, officer or employee of the Company or any
of its Subsidiaries, (iii) increase in benefits payable under any existing
severance or termination pay policies or employment agreements or (iv) increase
in (or amendments to the terms of) compensation, bonus or other benefits payable
to directors, officers or employees of the Company or any of its Subsidiaries,
other than in the ordinary course of business consistent with past practice, as
permitted by this Agreement, or as agreed to in writing by Acquirer.
Section 3.11 No Undisclosed Material Liabilities. There are no liabilities
of the Company or any Subsidiary of the Company of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, other
than:
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(a) liabilities disclosed or provided for in the Company Balance Sheet or
in the notes thereto;
(b) liabilities which in the aggregate would not reasonably be expected to
have a Material Adverse Effect on the Company;
(c) liabilities disclosed in the Company SEC Documents filed prior to the
date hereof or set forth in the Company Disclosure Letter; and
(d) liabilities under this Agreement.
Section 3.12 Litigation. Except as disclosed in the Company SEC Documents
filed prior to the date hereof, there is no action, suit, investigation or
proceeding pending against, or to the knowledge of the Company threatened
against or affecting, the Company or any of its Subsidiaries or any of their
respective properties before any court or arbitrator or any governmental body,
agency or official which would reasonably be expected to have a Material Adverse
Effect on the Company.
Section 3.13 Taxes. Except as set forth in the Company Balance Sheet
(including the notes thereto) or as otherwise set forth in the Company
Disclosure Letter and except as would not, individually or in the aggregate,
have a Material Adverse Effect on the Company, (i) all Company Tax Returns
required to be filed with any taxing authority by, or with respect to, the
Company and its Subsidiaries have been filed in accordance with all applicable
laws; (ii) the Company and its Subsidiaries have timely paid all Taxes shown as
due and payable on the Company Tax Returns that have been so filed, and, as of
the time of filing, the Company Tax Returns correctly reflected the facts
regarding the income, business, assets, operations, activities and the status of
the Company and its Subsidiaries (other than Taxes which are being contested in
good faith and for which adequate reserves are reflected on the Company Balance
Sheet); (iii) the Company and its Subsidiaries have made provision for all Taxes
payable by the Company and its Subsidiaries for which no Company Tax Return has
yet been filed; (iv) the charges, accruals and reserves for Taxes with respect
to the Company and its Subsidiaries reflected on the Company Balance Sheet are
adequate under GAAP to cover the Tax liabilities accruing through the date
thereof; (v) there is no action, suit, proceeding, audit or claim now proposed
or pending against or with respect to the Company or any of its Subsidiaries in
respect of any Tax where there is a reasonable possibility of an adverse
determination; and (vi) to the best of the Company's knowledge and belief,
neither the Company nor any of its Subsidiaries is liable for any Tax imposed on
any entity other than such Person, except as the result of the application of
Treas. Reg. Section 1.1502-6 (and any comparable provision of the tax laws of
any state, local or foreign jurisdiction) to the affiliated group of which the
Company is the common parent. For purposes of this Agreement, "TAXES" shall mean
any and all taxes, charges, fees, levies or other assessments, including,
without limitation, all net income, gross income, gross receipts, excise, stamp,
real or personal property, ad valorem, withholding, social security (or
similar), unemployment, occupation, use, service, service use, license, net
worth, payroll, franchise, severance, transfer, recording, employment, premium,
windfall profits, environmental (including taxes under Section 59A of the Code),
customs duties, capital stock, profits, disability, sales, registration, value
added, alternative or add-on minimum, estimated or other taxes, assessments or
charges imposed by any federal, state, local or foreign governmental entity and
any interest, penalties, or additions to tax attributable thereto. For purposes
of this Agreement, "TAX RETURNS" shall mean any return, report, form or similar
statement required to be filed with respect to any Tax (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return or declaration of estimated Tax.
Section 3.14 Employee Benefit Plans. (a) Prior to the date hereof, the
Company has provided Acquirer with a list (set forth in the Company Disclosure
Letter) identifying each material "employee
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benefit plan," as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA"), each material employment, severance or similar
contract, plan, arrangement or policy applicable to any director, former
director, employee or former employee of the Company and each material plan or
arrangement (written or oral), providing for compensation, bonuses,
profit-sharing, stock option or other stock related rights or other forms of
incentive or deferred compensation, vacation benefits, insurance coverage
(including any self-insured arrangements), health or medical benefits,
disability benefits, workers' compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance benefits) which is
maintained, administered or contributed to by the Company and covers any
employee or director or former employee or director of the Company, or under
which the Company has any liability. Such material plans (excluding any such
plan that is a "multiemployer plan," as defined in Section 3(37) of ERISA) are
referred to collectively herein as the "COMPANY EMPLOYEE PLANS."
(b) Except as set forth in the Company Disclosure Letter, each Company
Employee Plan has been maintained in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
(including but not limited to ERISA and the Code) which are applicable to such
Plan, except where failure to so comply would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
(c) Neither the Company nor any affiliate of the Company has incurred a
liability under Title IV of ERISA that has not been satisfied in full, and no
condition exists that presents a material risk to the Company or any affiliate
of the Company of incurring any such liability other than liability for premiums
due the Pension Benefit Guaranty Corporation (which premiums have been paid when
due).
(d) All Company Employee Plans that are intended to be qualified under
Section 401(a) of the Code have been the subject of determination, opinion,
notification or advisory letters from the Internal Revenue Service ("IRS") which
the Company has made available to Acquirer. Each such letter has the effect of
stating that each such Company Employee Plan is qualified and is exempt from
Federal income taxes under Section 501(a) of the Code. The remedial amendment
period with respect to each such Company Employee Plan has not expired for any
amendment to any such Company Employee Plan that was made on or after the date
of the application for the determination, opinion, notification or advisory
letter. No such determination, opinion, notification or advisory letter has been
revoked, nor has any event occurred since the date of the most recent such
letter that would adversely affect its qualification, other than as set forth in
the Company Disclosure Letter.
(e) Except as set forth in the Company Disclosure Letter, no director or
officer or other employee of the Company or any of its Subsidiaries will become
entitled to any retirement, severance or similar benefit or enhanced or
accelerated benefit (including any acceleration of vesting or lapse of
repurchase rights or obligations with respect to any employee stock option or
other benefit under any stock option plan or compensation plan or arrangement of
the Company) solely as a result of the transactions contemplated hereby.
(f) Except as set forth in the Company Disclosure Letter, no Company
Employee Plan provides post-retirement health and medical, life or other
insurance benefits for retired employees of the Company or any of its
Subsidiaries (other than benefit coverage mandated by applicable statute,
including benefits provided pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985, as codified in Code section 4980B and ERISA sections
601 et seq., as amended from time to time ("COBRA")).
(g) Except as set forth in the Company Disclosure Letter, there has been
no amendment to, written interpretation or announcement (whether or not written)
by the Company or any of its affiliates relating
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to, or change in employee participation or coverage under, any Company Employee
Plan which would increase materially the expense of maintaining such Company
Employee Plan above the level of the expense incurred in respect thereof for the
12 months ended on the Company Balance Sheet Date.
Section 3.15 Compliance with Laws. Neither the Company nor any of its
Subsidiaries is in violation of, or has since January 1, 1999 violated, any
applicable provisions of any laws, statutes, ordinances or regulations except
for any violations that, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on the Company.
Section 3.16 Finders' or Advisors' Fees. Except for Lazard Freres & Co.
and Wasserstein Perella & Co., Inc., there is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of the Company or any of its Subsidiaries who might be entitled to any
fee or commission in connection with the transactions contemplated by this
Agreement.
Section 3.17 Environmental Matters. (a) Except with such exceptions as,
individually or in the aggregate, have not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Company, (i) no notice,
notification, demand, request for information, citation, summons, complaint or
order has been received by, and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of the Company or any of
its Subsidiaries, threatened by any Person against, the Company or any of its
Subsidiaries, and no penalty has been assessed against the Company or any of its
Subsidiaries, in each case, with respect to any matters relating to or arising
out of any Environmental Law; (ii) the Company and its Subsidiaries are and have
been in compliance with all Environmental Laws; and (iii) there are no
liabilities of or relating to the Company or any of its Subsidiaries relating to
or arising out of any Environmental Law of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which could reasonably be
expected to result in such a liability.
(b) For purposes of this Section 3.17 and Section 4.17, the term
"ENVIRONMENTAL LAWS" means any federal, state, local and foreign statutes, laws
(including, without limitation, common law), judicial decisions, regulations,
ordinances, rules, judgments, orders, codes, injunctions, permits, governmental
agreements or governmental restrictions relating to human health and safety, the
environment or to pollutants, contaminants, wastes, or chemicals.
Section 3.18 Labor Matters. There are no controversies pending or, to the
best knowledge of each of the Company and its respective Subsidiaries,
threatened, between the Company or any of its Subsidiaries and any of their
respective employees, which controversies have or could reasonably be expected
to have a Material Adverse Effect on the Company. As of the date of this
Agreement, neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or its Subsidiaries nor does the Company or its
Subsidiaries know of any activities or proceedings of any labor union to
organize any such employees (i) as of the date of this Agreement and (ii) which,
as of the Closing Date, have or could reasonably be expected to have a Material
Adverse Effect on the Company and its Subsidiaries. As of the date of this
Agreement, neither the Company nor any of its Subsidiaries has any knowledge of
any strikes, slowdowns, work stoppages or lockouts, or threats thereof, by or
with respect to any employees of the Company or any of its Subsidiaries (x) as
of the date of this Agreement and (y) which, as of the Closing Date, have or
could reasonably be expected to have a Material Adverse Effect on the Company
and its Subsidiaries.
Section 3.19 Title to Property. The Company and each of its Subsidiaries
has good and marketable title to all of its material properties and assets, free
and clear of all Liens, except for liens
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for taxes not yet due and payable and such liens or other imperfections of title
and use restrictions, if any, as do not materially detract from the value of or
interfere with the present use of the property affected thereby or which,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.
Section 3.20 Leaseholds. Neither the Company nor any of its Subsidiaries
has given or received notice of any material default under any material lease
under which the Company or any of its Subsidiaries is the lessee of real
property (each a "COMPANY LEASE" and collectively the "COMPANY LEASES") and, to
the knowledge of the Company, neither the Company nor any of its Subsidiaries
nor any other party thereto is in default in any material respect under any of
the Company Leases. All of the Company Leases are in full force and effect, and
are valid, binding and enforceable in accordance with their terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' or
lessors' rights generally and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies. Except as set forth in the Company Disclosure Letter, neither the
Company nor any of its Subsidiaries has leased, subleased, licensed or assigned,
as the case may be, all or any portion of its leasehold interest under any
Company Lease to any person.
Section 3.21 Management Payments. Other than as set forth in the Company
Disclosure Letter, no employee or former employee of the Company will be
entitled to additional compensation or to the early vesting or acceleration of
payment of any compensation that arises out of or are related to the
consummation of the Merger and the transactions contemplated thereby.
Section 3.22 Intellectual Property. The Company or its Subsidiaries owns
each of the patents and patent applications referred to in the Company SEC
Documents and, except as set forth in the Company SEC Documents, (i) to the
knowledge of the Company, each of the Company and its Subsidiaries owns or
possesses, or could obtain ownership or possession of (on terms not materially
adverse to the consolidated financial position, stockholders' equity, or results
of operations of the Company and its Subsidiaries taken as a whole) adequate and
enforceable rights to use all other Intellectual Property (as defined below)
necessary for the conduct of their businesses, (ii) no claims are pending or, to
the knowledge of the Company, threatened that the Company or any Subsidiary is
infringing on or otherwise violating the rights of any Person with regard to any
Intellectual Property that, if the subject of an unfavorable decision, ruling or
finding, could reasonably be expected to (or, with respect to any pending patent
litigation, the Company does not believe will) have a Material Adverse Effect
and the Company knows of no basis therefor, and (iii) to the knowledge of the
Company, no person is infringing on or otherwise violating any right of the
Company or any Subsidiary with respect to any Intellectual Property owned by or
licensed to the Company or any Subsidiary. Except as set forth in the Company
SEC Documents, the Company has received no notice of potential indemnity claims
from customers based upon a notice of infringement any such customer has
received from a patent owner relating to an assertion of infringement of a
patent other than potential indemnity claims that individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect.
The Company's policy is to require that its employees execute agreements
assigning to the Company all rights such employees otherwise would have in
Intellectual Property developed by such employees while in the employ of the
Company.
For purposes of this Agreement, "INTELLECTUAL PROPERTY" shall mean, with
respect a Person, patents, copyrights, trademarks (registered and unregistered),
service marks, brand names, trade names, and registrations in any jurisdiction
of, and applications in any jurisdiction to register, the foregoing, technology,
know-how, software, and tangible or intangible proprietary information or
materials and any other trade secrets related thereto.
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Section 3.23 Insurance. The insurance carried by the Company and its
Subsidiaries is in such types and amounts and covering such risks as are
consistent with customary practices and standards of companies engaged in
businesses and operations similar to those of the Company and its Subsidiaries.
Except as would not have a Material Adverse Effect on the Company, all such
insurance is in full force and effect and none of the Company nor any of its
Subsidiaries is in default thereunder. Except as would not have a Material
Adverse Effect on the Company, all claims thereunder have been filed in a due
and timely fashion. Except as would not have a Material Adverse Effect on the
Company, neither the Company nor any of its Subsidiaries has been notified in
writing of a refusal of any material insurance coverage relating to products
liability (including renewals of any such products liability coverage) by any
insurance carrier to which it has applied for insurance during the past three
years.
Section 3.24 Year 2000 Compliance. Except as would not reasonably be
expected to have a Material Adverse Effect on the Company, all of the Company's
Information Technology (as defined below) effectively addresses the Year 2000
Issues, and will not cause an interruption in the ongoing operations of the
Company's business on or after January 1, 2000. For purposes of this Agreement,
the term "INFORMATION TECHNOLOGY" shall mean and include all software, hardware,
firmware, telecommunications systems, network systems, embedded systems and
other systems, components and/or services that are owned or used by the Company
in the conduct of its business, and the term "YEAR 2000 ISSUES" shall mean the
question of whether product or software accurately processes and stores
date/time data (including, but not limited to calculating, comparing,
displaying, recording and sequencing operations involving date/time data)
during, from and into and between the twentieth and twenty-first centuries, and
the years 1999 and 2000, including correct processing of leap year data.
Section 3.25 Opinion of Financial Advisor. The Company has received the
opinion of Wasserstein Perella & Co., Inc. to the effect that, as of the date of
such opinion, the Exchange Ratio is fair from a financial point of view to the
holders of Company Shares (other than Acquirer or any of its Subsidiaries or
affiliates), and, as of the date hereof, such opinion has not been withdrawn.
Section 3.26 Tax Treatment. Neither the Company nor, to the Company's
knowledge, any of its affiliates has taken or agreed to take any action or is
aware of any fact or circumstance that would prevent the Merger from qualifying
as a reorganization within the meaning of Section 368 of the Code (a "368
REORGANIZATION").
Section 3.27 Takeover Statutes. The Board of Directors of the Company has
taken the necessary action to make inapplicable Section 203 of the Delaware Law
and any other applicable antitakeover or similar statute or regulation to this
Agreement and the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIRER
Except as disclosed in a letter delivered by Acquirer to the Company
immediately prior to the execution of this Agreement and signed by a duly
authorized officer of Acquirer (the "ACQUIRER DISCLOSURE LETTER"), Acquirer
represents and warrants to the Company as follows (provided, that the following
representations and warranties relating to Merger Subsidiary shall instead be
made as of such time as Merger Subsidiary becomes a party hereto):
Section 4.1 Organization and Qualification. Each of Acquirer and Merger
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware
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and has all requisite corporate power and authority to own, lease and operate
its respective properties and to carry on its business as now being conducted.
Each of Acquirer and Merger Subsidiary is qualified to do business as a
foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which the nature of its business requires such
qualification, except where the failure to be so qualified or in good standing
which, taken together with all other such failures, would not have a Material
Adverse Effect on Acquirer.
Since the date of its incorporation, Merger Subsidiary has not engaged in
any activities other than in connection with or as contemplated by this
Agreement. Acquirer has made available to the Company true and complete copies
of Acquirer's and Merger Subsidiary's certificate of incorporation and by-laws,
as amended to the date hereof.
Section 4.2 Capitalization. The authorized capital stock of Acquirer
consists of 120,000,000 shares of Acquirer Common Stock and 5,000,000 shares of
preferred stock, par value $.0001 per share, of which there are designated
500,000 shares of Series A Participating Preferred Stock and the remaining
shares of which have not been designated. As of May 31, 1999, (i) 52,752,810
shares of Acquirer Common Stock were issued and outstanding, (ii) no shares of
Series A Participating Preferred Stock (all of which are reserved for issuance
in accordance with the Rights Agreement (the "ACQUIRER RIGHTS AGREEMENT") dated
as of May 14, 1997, between Acquirer and The First National Bank of Boston, as
Rights Agent, pursuant to which Acquirer has issued Rights (the "ACQUIRER
RIGHTS") to purchase Series A Participating Preferred Stock) were issued and
outstanding, and (iii) no shares of Acquirer Common Stock were held in the
treasury of Acquirer or any of its Subsidiaries. As of June 21, 1999, 30,734,468
shares of Acquirer Common Stock are reserved for issuance pursuant to Acquirer's
plans identified in the Acquirer Disclosure Letter as being the only
compensation or benefit plans or agreements pursuant to which shares of Acquirer
Common Stock may be issued (collectively, the "ACQUIRER STOCK OPTION PLANS"), of
which stock options to purchase 15,730,732 shares of Acquirer Common Stock have
been granted and are outstanding (of which options to purchase an aggregate of
6,283,522 shares were exercisable). All the outstanding shares of Acquirer's
capital stock are, and all shares of Acquirer Common Stock that may be issued
pursuant to the exercise of outstanding employee stock options and convertible
securities will be, when issued in accordance with the terms thereof, duly
authorized, validly issued, fully paid and non-assessable. Except as disclosed
in the Acquirer Disclosure Letter and except for changes since the close of
business on May 31, 1999, there are outstanding (x) no shares of capital stock
or other voting securities of Acquirer, (y) no securities of Acquirer
convertible into or exchangeable for shares of capital stock or voting
securities of Acquirer, and (z) no options, warrants or other rights to acquire
from Acquirer, and no preemptive or similar rights, subscription or other
rights, convertible securities, agreements, arrangements or commitments of any
character, relating to the capital stock of Acquirer, obligating Acquirer to
issue, transfer or sell, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of
Acquirer or obligating Acquirer to grant, extend or enter into any such option,
warrant, subscription or other right, convertible security, agreement,
arrangement or commitment (the items in clauses (x), (y) and (z) being referred
to collectively as the "ACQUIRER SECURITIES"). Except as set forth in the
Acquirer Disclosure Letter, there are no outstanding obligations of Acquirer or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any Acquirer
Securities. There are not as of the date hereof and there will not be at the
Effective Time any stockholder agreements, voting trusts or other agreements or
understandings to which Acquirer or any of its Subsidiaries is a party or by
which it is bound relating to the voting of any shares of the capital stock of
Acquirer or any agreements, arrangements, or other understandings to which
Acquirer or any of its Subsidiaries is a party or by which it is bound that will
limit in any way the solicitation of proxies by or on behalf of Acquirer from,
or the casting of votes by, the stockholders of Acquirer with respect to the
Merger.
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Section 4.3 Authority. Each of Acquirer and Merger Subsidiary has full
corporate power and authority to execute and deliver this Agreement and, subject
to the requisite approval of its stockholders, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized and approved by the respective Boards of Directors of Acquirer and
Merger Subsidiary, and except for any required approval by Acquirer's
stockholders of (i) the Merger, (ii) the amendment of Acquirer's certificate of
incorporation to increase the number of authorized shares of Acquirer Common
Stock to 175,000,000, (iii) the issuance of Acquirer Common Stock in connection
with the Merger, and (iv) the election of the Company Board Designees to
Acquirer's Board of Directors (clauses (i), (ii), (iii) and (iv) being the
"ACQUIRER STOCKHOLDER APPROVAL"), no other corporate proceedings are necessary
to authorize this Agreement or the consummation of the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
Acquirer and Merger Subsidiary and, assuming this Agreement constitutes a legal,
valid and binding agreement of the other parties hereto, it constitutes a legal,
valid and binding agreement of Acquirer, enforceable against it in accordance
with its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
Section 4.4 Governmental Authorization. The execution, delivery and
performance by Acquirer and Merger Subsidiary of this Agreement and the
consummation of the Merger by Acquirer and Merger Subsidiary require no consent
of, or filing with, any governmental body, agency, official or authority other
than (a) the filing of a certificate of merger in accordance with Delaware Law,
(b) compliance with any applicable requirements of the HSR Act, (c) compliance
with any applicable requirements of the Exchange Act, (d) compliance with any
applicable requirements of the 1933 Act and state securities laws, and (e) other
actions or filings which if not taken or made would not, individually or in the
aggregate, have a Material Adverse Effect on Acquirer.
Section 4.5 Non-Contravention. The execution, delivery and performance by
Acquirer and Merger Subsidiary of this Agreement and the consummation by
Acquirer and Merger Subsidiary of the transactions contemplated hereby do not
and will not (a) assuming compliance with the matters referred to in Section
4.3, contravene or conflict with the certificate of incorporation or by-laws of
Acquirer or Merger Subsidiary, (b) assuming compliance with the matters referred
to in Section 4.4, contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to Acquirer or any of its Subsidiaries, (c) constitute a
default under or give rise to a right of termination, cancellation or
acceleration of any right or obligation of Acquirer or any of its Subsidiaries
or to a loss of any benefit to which Acquirer or any of its Subsidiaries is
entitled under any provision of any agreement, contract or other instrument
binding upon Acquirer or any of its Subsidiaries or any license, franchise,
permit or other similar authorization held by Acquirer or any of its
Subsidiaries, or (d) result in the creation or imposition of any Lien on any
asset of Acquirer or any of its Subsidiaries, except for such contraventions,
conflicts or violations referred to in clause (b) or defaults, rights of
termination, cancellation or acceleration, or losses or Liens referred to in
clause (c) or (d) that would not, individually or in the aggregate, have a
Material Adverse Effect on Acquirer. Except as disclosed in the Acquirer
Disclosure Letter, neither Acquirer nor any Subsidiary of Acquirer is a party to
any agreement that expressly limits the ability of Acquirer or any Subsidiary of
Acquirer to compete in or conduct any line of business or compete with any
Person or in any geographic area or during any period of time except to the
extent that any such limitation, individually or in the aggregate, would not be
reasonably likely to have a Material Adverse Effect on Acquirer after the
Effective Time.
Section 4.6 Subsidiaries. Each of Acquirer's Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite
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corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted. Each of the Subsidiaries is
duly qualified as a foreign corporation to do business, and is in good standing,
in each jurisdiction where the character of its properties owned or leased or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified or in good standing would not have a Material
Adverse Effect on Acquirer. Exhibit 21 to Acquirer's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 (the "ACQUIRER 10-K"), as filed with
the SEC, lists the only Subsidiaries of Acquirer at December 31, 1998, and,
except for Merger Subsidiary, all Subsidiaries of Acquirer thereafter formed or
acquired are listed in the Acquirer Disclosure Letter. All of the outstanding
shares of capital stock of the Subsidiaries are validly issued, fully paid and
nonassessable and, other than directors' qualifying shares in the case of
foreign Subsidiaries, are owned by Acquirer or by a wholly owned Subsidiary of
Acquirer free and clear of all material liens, claims, charges or encumbrances,
and there are no irrevocable proxies with respect to such shares. Except as set
forth in the Acquirer Disclosure Letter and except for the capital stock of its
Subsidiaries, Acquirer does not own, directly or indirectly, any capital stock
or other ownership interest in any corporation, partnership, joint venture,
limited liability company or other entity which is material to the business of
Acquirer and its Subsidiaries, taken as a whole. There are no material
restrictions on Acquirer to vote the stock of any of its Subsidiaries.
Section 4.7 SEC Filings. (a) Acquirer has made available to the Company
(i) its annual reports on Form 10-K for its fiscal years ended December 31,
1996, 1997 and 1998, (ii) its quarterly reports on Form 10-Q for its quarter
ended March 31, 1999, (iii) its proxy or information statements relating to
meetings of, or actions taken without a meeting by, the stockholders of Acquirer
held since December 31, 1998, and (iv) all of its other reports, statements,
schedules and registration statements filed with the SEC since December 31, 1998
(the documents referred to in this Section 4.7(a) being referred to collectively
as the "ACQUIRER SEC DOCUMENTS"). Acquirer's quarterly report on Form 10-Q for
its fiscal quarter ended March 31, 1998 is referred to herein as the "ACQUIRER
10-Q."
(b) As of its filing date, each Acquirer SEC Document complied as to form
in all material respects with the applicable requirements of the Exchange Act
and the 1933 Act.
(c) As of its filing date, each Acquirer SEC Document 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 made
therein, in the light of the circumstances under which they were made, not
misleading.
(d) Each such registration statement, as amended or supplemented, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
Section 4.8 Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of Acquirer
(including any related notes and schedules) included in its annual reports on
Form 10-K and the quarterly report on Form 10-Q referred to in Section 4.7
fairly present in all material respects, in conformity with GAAP applied on a
consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of Acquirer and its consolidated Subsidiaries as
of the dates thereof and their consolidated results of operations and changes in
financial position for the periods then ended (subject to normal year-end
adjustments and the absence of notes in the case of any unaudited interim
financial statements). For purposes of this Agreement, "ACQUIRER BALANCE SHEET"
means the consolidated balance sheet of Acquirer as of March 31, 1999 set forth
in Acquirer 10-Q and "ACQUIRER BALANCE SHEET DATE" means March 31, 1999.
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Section 4.9 Disclosure Documents. (a) The Joint Proxy Statement/Prospectus
to be filed with the SEC in connection with the Merger and the Form S-4 to be
filed under the 1933 Act relating to the issuance of Acquirer Common Stock in
the Merger, and any amendments or supplements thereto, will, when filed, subject
to the last sentence of Section 4.9(b), comply as to form in all material
respects with the requirements of the Exchange Act and the 1933 Act.
(b) Neither the Joint Proxy Statement/Prospectus to be filed with the SEC,
nor any amendment or supplement thereto, will, at the date the Joint Proxy
Statement/Prospectus or any such amendment or supplement is first mailed to
stockholders of Acquirer or at the time such stockholders vote on the adoption
and approval of this Agreement and the transactions contemplated hereby, contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Neither the Form S-4
nor any amendment or supplement thereto will at the time it becomes effective
under the 1933 Act or at the Effective Time contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. No representation or
warranty is made by Acquirer in this Section 4.9 with respect to statements made
or incorporated by reference therein based on information supplied by the
Company for inclusion or incorporation by reference in the Joint Proxy
Statement/Prospectus or the Form S-4.
Section 4.10 Absence of Certain Changes. Except as set forth in the
Acquirer Disclosure Letter, since Acquirer Balance Sheet Date, Acquirer and its
Subsidiaries have conducted their business in the ordinary course consistent
with past practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably would be expected to have, individually or in
the aggregate, a Material Adverse Effect on Acquirer;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Acquirer or any
repurchase, redemption or other acquisition by Acquirer or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, Acquirer or any of its Subsidiaries;
(c) any amendment of any material term of any outstanding security of
Acquirer or any of its Subsidiaries;
(d) any transaction or commitment made, or any contract, agreement or
settlement entered into, by (or judgment, order or decree affecting) Acquirer or
any of its Subsidiaries relating to its assets or business (including the
acquisition or disposition of any assets) or any relinquishment by Acquirer or
any of its Subsidiaries of any contract or other right, in either case, material
to Acquirer and its Subsidiaries taken as a whole, other than transactions,
commitments, contracts, agreements or settlements (including without limitation
settlements of litigation and tax proceedings) in the ordinary course of
business consistent with past practice, those contemplated by this Agreement, or
as agreed to in writing by the Company;
(e) any change in any method of accounting or accounting practice (other
than any change for tax purposes) by Acquirer or any of its Subsidiaries, except
for any such change which is not significant or which is required by reason of a
concurrent change in GAAP; or
(f) any (i) grant of any severance or termination pay to (or amendment to
any such existing arrangement with) any director, officer or employee of
Acquirer or any of its Subsidiaries, (ii) entering
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into of any employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or employee
of Acquirer or any of its Subsidiaries, (iii) increase in benefits payable under
any existing severance or termination pay policies or employment agreements or
(iv) increase in (or amendments to the terms of) compensation, bonus or other
benefits payable to directors, officers or employees of Acquirer or any of its
Subsidiaries, other than in the ordinary course of business consistent with past
practice, as permitted by this Agreement, or as agreed to in writing by the
Company.
Section 4.11 No Undisclosed Material Liabilities. There are no liabilities
of Acquirer or any Subsidiary of Acquirer of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, other
than:
(a) liabilities disclosed or provided for in Acquirer Balance Sheet or in
the notes thereto;
(b) liabilities which in the aggregate would not reasonably be expected to
have a Material Adverse Effect on Acquirer;
(c) liabilities disclosed in Acquirer SEC Documents filed prior to the
date hereof or set forth in the Acquirer Disclosure Letter; and
(d) liabilities under this Agreement.
Section 4.12 Litigation. Except as disclosed in Acquirer SEC Documents
filed prior to the date hereof, there is no action, suit, investigation or
proceeding pending against, or to the knowledge of Acquirer threatened against
or affecting, Acquirer or any of its Subsidiaries or any of their respective
properties before any court or arbitrator or any governmental body, agency or
official which would reasonably be expected to have a Material Adverse Effect on
Acquirer.
Section 4.13 Taxes. Except as set forth in the Acquirer Balance Sheet
(including the notes thereto) or as otherwise set forth in the Acquirer
Disclosure Letter and except as would not, individually or in the aggregate,
have a Material Adverse Effect on Acquirer, (i) all Acquirer Tax Returns
required to be filed with any taxing authority by, or with respect to, Acquirer
and its Subsidiaries have been filed in accordance with all applicable laws;
(ii) Acquirer and its Subsidiaries have timely paid all Taxes shown as due and
payable on Acquirer Tax Returns that have been so filed, and, as of the time of
filing, Acquirer Tax Returns correctly reflected the facts regarding the income,
business, assets, operations, activities and the status of Acquirer and its
Subsidiaries (other than Taxes which are being contested in good faith and for
which adequate reserves are reflected on the Acquirer Balance Sheet); (iii)
Acquirer and its Subsidiaries have made provision for all Taxes payable by
Acquirer and its Subsidiaries for which no Acquirer Tax Return has yet been
filed; (iv) the charges, accruals and reserves for Taxes with respect to
Acquirer and its Subsidiaries reflected on the Acquirer Balance Sheet are
adequate under GAAP to cover the Tax liabilities accruing through the date
thereof; (v) there is no action, suit, proceeding, audit or claim now proposed
or pending against or with respect to Acquirer or any of its Subsidiaries in
respect of any Tax where there is a reasonable possibility of an adverse
determination; and (vi) to the best of Acquirer's knowledge and belief, neither
Acquirer nor any of its Subsidiaries is liable for any Tax imposed on any entity
other than such Person, except as the result of the application of Treas. Reg.
Section 1.1502-6 (and any comparable provision of the tax laws of any state,
local or foreign jurisdiction) to the affiliated group of which Acquirer is the
common parent.
Section 4.14 Employee Benefit Plans. (a) Prior to the date hereof,
Acquirer has provided the Company with a list (set forth in the Acquirer
Disclosure Letter) identifying each material "employee
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benefit plan," as defined in Section 3(3) of ERISA, each material employment,
severance or similar contract, plan, arrangement or policy applicable to any
director, former director, employee or former employee of Acquirer and each
material plan or arrangement (written or oral), providing for compensation,
bonuses, profit-sharing, stock option or other stock related rights or other
forms of incentive or deferred compensation, vacation benefits, insurance
coverage (including any self-insured arrangements), health or medical benefits,
disability benefits, workers' compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance benefits) which is
maintained, administered or contributed to by Acquirer and covers any employee
or director or former employee or director of Acquirer, or under which Acquirer
has any liability. Such material plans (excluding any such plan that is a
"multiemployer plan," as defined in Section 3(37) of ERISA) are referred to
collectively herein as the "ACQUIRER EMPLOYEE PLANS."
(b) Except as set forth in the Acquirer Disclosure Letter, each Acquirer
Employee Plan has been maintained in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
(including but not limited to ERISA and the Code) which are applicable to such
Plan, except where failure to so comply would not, individually or in the
aggregate, have a Material Adverse Effect on Acquirer.
(c) Neither Acquirer nor any affiliate of Acquirer has incurred a
liability under Title IV of ERISA that has not been satisfied in full, and no
condition exists that presents a material risk to Acquirer or any affiliate of
Acquirer of incurring any such liability other than liability for premiums due
the Pension Benefit Guaranty Corporation (which premiums have been paid when
due).
(d) All Acquirer Employee Plans that are intended to be qualified under
Section 401(a) of the Code have been the subject of determination, opinion,
notification or advisory letters from the IRS which Acquirer has made available
to the Company. Each such letter has the effect of stating that each such
Acquirer Employee Plan is qualified and is exempt from Federal income taxes
under Section 501(a) of the Code. The remedial amendment period with respect to
each such Acquirer Employee Plan has not expired for any amendment to any such
Acquirer Employee Plan that was made on or after the date of the application for
the determination, opinion, notification or advisory letter. No such
determination, opinion, notification or advisory letter has been revoked, nor
has any event occurred since the date of the most recent such letter that would
adversely affect its qualification, other than as set forth in the Acquirer
Disclosure Letter.
(e) Except as set forth in the Acquirer Disclosure Letter, no director or
officer or other employee of Acquirer or any of its Subsidiaries will become
entitled to any retirement, severance or similar benefit or enhanced or
accelerated benefit (including any acceleration of vesting or lapse of
repurchase rights or obligations with respect to any employee stock option or
other benefit under any stock option plan or compensation plan or arrangement of
Acquirer) solely as a result of the transactions contemplated hereby.
(f) Except as reflected in Acquirer SEC Documents filed prior to the date
hereof, no Acquirer Employee Plan provides post-retirement health and medical,
life or other insurance benefits for retired employees of Acquirer or any of its
Subsidiaries (other than benefit coverage mandated by applicable statute,
including benefits provided pursuant to COBRA).
(g) Except as set forth in the Acquirer Disclosure Letter, there has been
no amendment to, written interpretation or announcement (whether or not written)
by Acquirer or any of its affiliates relating to, or change in employee
participation or coverage under, any Acquirer Employee Plan which would
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increase materially the expense of maintaining such Acquirer Employee Plan above
the level of the expense incurred in respect thereof for the 12 months ended on
the Acquirer Balance Sheet Date.
Section 4.15 Compliance with Laws. Neither Acquirer nor any of its
Subsidiaries is in violation of, or has since January 1, 1999 violated, any
applicable provisions of any laws, statutes, ordinances or regulations except
for any violations that, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on Acquirer.
Section 4.16 Finders' or Advisors' Fees. Except for Lehman Brothers Inc.,
there is no investment banker, broker, finder or other intermediary which has
been retained by or is authorized to act on behalf of Acquirer or any of its
Subsidiaries who might be entitled to any fee or commission in connection with
the transactions contemplated by this Agreement.
Section 4.17 Environmental Matters. Except for such exceptions as,
individually or in the aggregate, have not had, and would not reasonably be
expected to have, a Material Adverse Effect on Acquirer, (i) no notice,
notification, demand, request for information, citation, summons, complaint or
order has been received by, and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of Acquirer or any of its
Subsidiaries, threatened by any Person against, Acquirer or any of its
Subsidiaries, and no penalty has been assessed against Acquirer or any of its
Subsidiaries, in each case, with respect to any matters relating to or arising
out of any Environmental Law; (ii) Acquirer and its Subsidiaries are and have
been in compliance with all Environmental Laws; and (iii) there are no
liabilities of or relating to Acquirer or any of its Subsidiaries relating to or
arising out of any Environmental Law of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which could reasonably be
expected to result in such a liability.
Section 4.18 Labor Matters. There are no controversies pending or, to the
best knowledge of each of Acquirer and its respective Subsidiaries, threatened,
between Acquirer or any of its Subsidiaries and any of their respective
employees, which controversies have or could reasonably be expected to have a
Material Adverse Effect of the Acquirer. As of the date of this Agreement,
neither Acquirer nor any of its Subsidiaries is a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by Acquirer or its Subsidiaries nor does Acquirer or its Subsidiaries
know of any activities or proceedings of any labor union to organize any such
employees (i) as of the date of this Agreement and (ii) which, as of the Closing
Date, have or could reasonably be expected to have a Material Adverse Effect on
Acquirer and its Subsidiaries. As of the date of this Agreement, neither
Acquirer nor any of its Subsidiaries has any knowledge of any strikes,
slowdowns, work stoppages or lockouts, or threats thereof, by or with respect to
any employees of Acquirer or any of its Subsidiaries (x) as of the date of this
Agreement and (y) which, as of the Closing Date, have or could reasonably be
expected to have a Material Adverse Effect on Acquirer and its Subsidiaries.
Section 4.19 Title to Property. Acquirer and each of its Subsidiaries has
good and marketable title to all of its material properties and assets, free and
clear of all Liens, except for liens for taxes not yet due and payable and such
liens or other imperfections of title and use restrictions, if any, as do not
materially detract from the value of or interfere with the present use of the
property affected thereby or which, individually or in the aggregate, would not
have a Material Adverse Effect on Acquirer.
Section 4.20 Leaseholds. Neither Acquirer nor any of its Subsidiaries has
given or received notice of any material default under any material lease under
which Acquirer or any of its Subsidiaries is the lessee of real property (each
an "ACQUIRER LEASE" and collectively the "ACQUIRER LEASES") and, to the
knowledge of Acquirer, neither Acquirer nor any of its Subsidiaries nor any
other party thereto
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is in default in any material respect under any of the Acquirer Leases. All of
the Acquirer Leases are in full force and effect, and are valid, binding and
enforceable in accordance with their terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' or lessors' rights generally and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies. Except as set forth in the
Acquirer Disclosure Letter, neither Acquirer nor any of its Subsidiaries has
leased, subleased, licensed or assigned, as the case may be, all or any portion
of its leasehold interest under any Acquirer Lease to any person.
Section 4.21 Management Payments. Other than as set forth in the Acquirer
Disclosure Letter, no employee or former employee of Acquirer will be entitled
to additional compensation or to the early vesting or acceleration of payment of
any compensation that arises out of or are related to the consummation of the
Merger and the transactions contemplated thereby.
Section 4.22 Intellectual Property. Acquirer or its Subsidiaries owns each
of the patents and patent applications referred to in the Acquirer SEC Documents
and, except as set forth in the Acquirer SEC Documents, (i) to the knowledge of
Acquirer, each of Acquirer and its Subsidiaries owns or possesses, or could
obtain ownership or possession of (on terms not materially adverse to the
consolidated financial position, stockholders' equity, or results of operations
of Acquirer and its Subsidiaries taken as a whole) adequate and enforceable
rights to use all other Intellectual Property necessary for the conduct of their
businesses, (ii) no claims are pending or, to the knowledge of Acquirer,
threatened that Acquirer or any Subsidiary is infringing on or otherwise
violating the rights of any Person with regard to any Intellectual Property
that, if the subject of an unfavorable decision, ruling or finding, could
reasonably be expected to (or, with respect to any pending patent litigation,
Acquirer does not believe will) have a Material Adverse Effect and Acquirer
knows of no basis therefor, and (iii) to the knowledge of Acquirer, no person is
infringing on or otherwise violating any right of Acquirer or any Subsidiary
with respect to any Intellectual Property owned by or licensed to Acquirer or
any Subsidiary. Except as set forth in the Acquirer SEC Documents, Acquirer has
received no notice of potential indemnity claims from customers based upon a
notice of infringement any such customer has received from a patent owner
relating to an assertion of infringement of a patent other than potential
indemnity claims that individually or in the aggregate would not reasonably be
expected to have a Material Adverse Effect. Acquirer's policy is to require that
its employees execute agreements assigning to Acquirer all rights such employees
otherwise would have in Intellectual Property developed by such employees while
in the employ of Acquirer.
Section 4.23 Insurance. The insurance carried by Acquirer and its
Subsidiaries is in such types and amounts and covering such risks as are
consistent with customary practices and standards of companies engaged in
businesses and operations similar to those of Acquirer and its Subsidiaries.
Except as would not have a Material Adverse Effect on Acquirer, all such
insurance is in full force and effect and none of Acquirer nor any of its
Subsidiaries is in default thereunder. Except as would not have a Material
Adverse Effect on Acquirer, all claims thereunder have been filed in a due and
timely fashion. Except as would not have a Material Adverse Effect on Acquirer,
neither Acquirer nor any of its Subsidiaries has been notified in writing of a
refusal of any material insurance coverage relating to products liability
(including renewals of any such products liability coverage) by any insurance
carrier to which it has applied for insurance during the past three years.
Section 4.24 Year 2000 Compliance. Except as would not reasonably be
expected to have a Material Adverse Effect on Acquirer, all of Acquirer's
Information Technology effectively addresses the Year 2000 Issues, and will not
cause an interruption in the ongoing operations of Acquirer's business on or
after January 1, 2000.
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Section 4.25 Opinion of Financial Advisor. Acquirer has received the
opinion of Lehman Brothers Inc. to the effect that, as of the date of such
opinion, the Exchange Ratio is fair from a financial point of view to Acquirer,
and, as of the date hereof, such opinion has not been withdrawn.
Section 4.26 Tax Treatment. Neither Acquirer nor, to Acquirer's knowledge,
any of its affiliates has taken or agreed to take any action or is aware of any
fact or circumstance that would prevent the Merger from qualifying as a 368
Reorganization.
ARTICLE V
COVENANTS OF THE COMPANY
Section 5.1 Conduct of Business of the Company. Except as contemplated by
this Agreement or as expressly agreed to in writing by Acquirer, during the
period from the date of this Agreement to the earlier of the termination of this
Agreement in accordance with Article IX (the "TERMINATION DATE") and the
Effective Time, each of the Company and its Subsidiaries will conduct its
operations according to its ordinary course of business consistent with past
practice, and will use all commercially reasonable efforts to preserve intact
its business organization, to keep available the services of its officers and
employees and to maintain satisfactory relationships with suppliers,
distributors, customers and others having business relationships with it and
will take no action which would materially adversely affect the ability of the
parties to consummate the transactions contemplated by this Agreement. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in this Agreement, prior to earlier of the Termination Date and the
Effective Time, the Company will not nor will it permit any of its Subsidiaries
to, without the prior written consent of Acquirer:
(a) amend its certificate of incorporation or by-laws;
(b) authorize for issuance, issue, sell, deliver, grant any options for,
or otherwise agree or commit to issue, sell or deliver any shares of any class
of its capital stock or any securities convertible into shares of any class of
its capital stock, except (i) pursuant to and in accordance with the terms of
currently outstanding convertible securities and options, and (ii) options
granted under the Company Stock Option Plans, in the ordinary course of business
consistent with past practice (but in no event shall options be granted covering
more than 5,000 Company Shares per individual or 100,000 Company Shares in the
aggregate);
(c) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property (including stock of any Subsidiary) or any combination thereof) in
respect of its capital stock or purchase, redeem or otherwise acquire any shares
of its own capital stock or any of its Subsidiaries, other than the repurchase
at cost of shares of employees upon termination of their employment with the
Company or its Subsidiaries;
(d) except in the ordinary course of business, consistent with past
practice (i) create, incur, assume, maintain or permit to exist any long-term
debt or any short-term debt for borrowed money other than under existing lines
of credit, except for any loans to be made by Acquirer to the Company pursuant
to the Credit Agreement dated as of June 11, 1999, as amended; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person except its
wholly owned Subsidiaries in the ordinary course of business and consistent with
past practices; or (iii) make any loans, advances or capital contributions to,
or investments in, any other person;
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(e) except as otherwise expressly contemplated by this Agreement or in the
ordinary course of business, consistent with past practice, (i) increase in any
manner the compensation of any of its directors, officers or other employees;
(ii) pay or agree to pay any pension, retirement allowance or other employee
benefit not required, or enter into or agree to enter into any agreement or
arrangement with such director, officer or employee, whether past or present,
relating to any such pension, retirement allowance or other employee benefit,
except as required under currently existing agreements, plans or arrangements;
(iii) grant any severance or termination pay to, or enter into any employment or
severance agreement with any of its directors, officers or other employees; or
(iv) except as may be required to comply with applicable law, become obligated
(other than pursuant to any new or renewed collective bargaining agreement)
under any new pension plan, welfare plan, multiemployer plan, employee benefit
plan, benefit arrangement, or similar plan or arrangement, which was not in
existence on the date hereof, including any bonus, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other benefit plan, agreement or
arrangement, or employment or consulting agreement with or for the benefit of
any person, and to amend any of such plans or any of such agreements in
existence on the date hereof;
(f) except as otherwise expressly contemplated by this Agreement and
except with respect to commitments or liabilities incurred in connection with
this Agreement and the transactions contemplated hereby, including the
incurrence of legal, accounting and investment banking fees and expenses, enter
into any other material agreements, commitments or contracts, other than
agreements, commitments or contracts for the purchase, sale or lease of goods or
services in the ordinary course of business, consistent with past practice;
(g) except in the ordinary course of business, consistent with past
practice, or as contemplated by this Agreement authorize, recommend, propose or
announce an intention to authorize, recommend or propose, or enter into any
agreement in principle or an agreement with respect to, any plan of liquidation
or dissolution, any acquisition of a material amount of assets or securities,
any sale, transfer, lease, license, pledge, mortgage, or other disposition or
encumbrance of a material amount of assets or securities or any material change
in its capitalization, or any entry into a material contract or any amendment or
modification of any material contract or any release or relinquishment of any
material contract rights; or
(h) agree to do any of the foregoing.
Section 5.2 No Solicitation. The Company agrees that, from and after the
date of this Agreement until the earlier of the Termination Date and the
Effective Time, neither it nor any of its Subsidiaries nor any of the officers
or directors of it or its Subsidiaries, nor its or their employees, investment
bankers, attorneys, accountants, financial advisors, agents or other
representatives (collectively, "REPRESENTATIVES"), shall directly or indirectly,
initiate, solicit or otherwise induce any inquiries or the making of a Company
Acquisition Proposal (as defined below). The Company further agrees that neither
it nor any of its Subsidiaries nor any of its or its Subsidiaries' officers or
directors shall, and that it shall direct and use its best reasonable efforts to
cause its Representatives not to, directly or indirectly, have any discussions
with or provide any confidential information or data to any Person relating to a
Company Acquisition Proposal or engage in any negotiations concerning a Company
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement a Company Acquisition Proposal; provided, however, that nothing
contained in this Agreement shall prevent the Company or its Board of Directors
from (i) making any disclosure to its stockholders if, in the good faith
judgment of its Board of Directors, failure so to disclose would be inconsistent
with its obligations under applicable law; (ii) negotiating with or furnishing
information to any Person who has made a bona fide written Company Acquisition
Proposal which did not result from a breach of this Section 5.2; or (iii)
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recommending such Company Acquisition Proposal to its stockholders, if and only
to the extent that, in the case of actions referred to in clause (ii) or clause
(iii), such Company Acquisition Proposal is a Superior Proposal (as defined
below) and Acquirer is given at least two business days' notice of the identity
of the third party and all material terms and conditions of the Superior
Proposal to respond to such Superior Proposal. The Company agrees that it will,
on the date hereof, immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any Person conducted heretofore
with respect to any Company Acquisition Proposal. Nothing contained in this
Agreement shall prevent the Board of Directors of the Company from complying
with Rule 14d-9 and Rule 14e-2 promulgated under the Exchange Act with regard to
a Company Acquisition Proposal; provided that the Board of Directors of the
Company shall not recommend that the stockholders of the Company tender their
shares in connection with a tender offer except to the extent the Board of
Directors of the Company determines in its good faith judgment that such a
recommendation is required to comply with the fiduciary duties of the Board of
Directors of the Company to stockholders under applicable law, after receiving
the advice of outside legal counsel.
For purposes of this Agreement, "COMPANY ACQUISITION PROPOSAL" shall mean
any offer or proposal (other than an offer or proposal by Acquirer) relating to
any transaction or series of related transactions involving: (A) any purchase
from the Company or acquisition by any Person or "group" (as defined under
Section 13(d) of the Exchange Act and the rules and regulations thereunder) of
more than a five percent (5%) interest in the total outstanding voting
securities of the Company or any tender offer or exchange offer that if
consummated would result in any person or "group" (as defined under Section
13(d) of the Exchange Act and the rules and regulations thereunder) beneficially
owning five percent (5%) or more of the total outstanding voting securities of
the Company or any merger, consolidation, business combination or similar
transaction involving the Company; (B) any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of more than five
percent (5%) of the assets of the Company; or (C) any liquidation or dissolution
of the Company. For purposes of this Agreement, a "SUPERIOR PROPOSAL" means, in
respect of the Company, an unsolicited, bona fide Company Acquisition Proposal
for or in respect of at least a majority of the outstanding Company Shares on
terms that the Board of Directors of the Company determines, in its good faith
judgment (based on consultation with its financial advisors) to be more
favorable to the Company's stockholders than the terms of the Merger, that is
not subject to a financing condition, and is from a Person that in the
reasonable judgment of the Company's Board of Directors (based on advice from a
nationally recognized investment bank) is financially capable of consummating
such proposal.
ARTICLE VI
COVENANTS OF ACQUIRER
Section 6.1 Conduct of Business of Acquirer. Except as contemplated by
this Agreement or as expressly agreed to in writing by the Company, during the
period from the date of this Agreement to the earlier of the Termination Date
and the Effective Time, each of Acquirer and its Subsidiaries will use all
commercially reasonable efforts to preserve intact its business organization, to
keep available the services of its officers and employees and to maintain
satisfactory relationships with suppliers, distributors, customers and others
having business relationships with it and will take no action which would
materially adversely affect the ability of the parties to consummate the
transactions contemplated by this Agreement. Notwithstanding anything to the
contrary herein, Acquirer may (subject to Section 6.2 and paragraph (d) below)
issue, sell or deliver, grant any options for, or commit to issue, sell or
deliver any shares of any class of its capital stock or other securities
convertible into any class of its capital stock prior to the Closing Date and
may (subject to Section 6.1(d) below) purchase or acquire
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the securities or assets of other entities. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in this Agreement,
prior to the Effective Time, Acquirer will not nor will it permit any of its
Subsidiaries to, without the prior written consent of the Company:
(a) amend its certificate of incorporation or by-laws, except as required
by the terms of this Agreement;
(b) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock or
purchase, redeem or otherwise acquire any shares of its own capital stock or any
of its Subsidiaries, other than the repurchase at cost of shares of employees
upon termination of their employment with Acquirer or its Subsidiaries;
(c) except in the ordinary course of business, consistent with past
practice, create, incur, assume, maintain or permit to exist any long-term debt
or any short-term debt for borrowed money other than under existing lines of
credit or in an amount in excess of $50,000,000;
(d) except in the ordinary course of business, consistent with past
practice, or as contemplated by this Agreement, authorize, recommend, propose or
announce an intention to authorize, recommend or propose, or enter into any
agreement in principle or an agreement with respect to, any plan of liquidation
or dissolution, or any acquisition of a material amount of assets or securities
that individually or in the aggregate would require Acquirer's stockholders'
approval or the acquisition of assets for consideration in excess of $50,000,000
or the acquisition, by merger or otherwise, of all the outstanding securities of
any entity whose securities are listed and publicly traded on the Nasdaq Stock
Market, the New York or American Stock Exchange or an equivalent foreign stock
exchange; or
(e) agree to do any of the foregoing.
Section 6.2 No Solicitation. Acquirer agrees that, from and after the date
of this Agreement until the earlier of the Termination Date and the Effective
Time, neither it nor any of its Subsidiaries nor any of the officers or
directors of it or its Subsidiaries or its or their Representatives shall,
directly or indirectly, initiate, solicit or otherwise facilitate any inquiries
or the making of an Acquirer Acquisition Proposal (as defined below). Acquirer
further agrees that neither it nor any of its Subsidiaries nor any of its or its
Subsidiaries' officers or directors shall, and that it shall direct and use its
best reasonable efforts to cause its Representatives not to, directly or
indirectly, have any discussions with or provide any confidential information or
data to any Person relating to an Acquirer Acquisition Proposal or engage in any
negotiations concerning an Acquirer Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquirer Acquisition
Proposal; provided, however, that nothing contained in this Agreement shall
prevent Acquirer or its Board of Directors from (i) making any disclosure to its
stockholders if, in the good faith judgment of its Board of Directors, failure
so to disclose would be inconsistent with its obligations under applicable law;
(ii) negotiating with or furnishing information to any Person who has made a
bona fide written Acquirer Acquisition Proposal which did not result from a
breach of this Section 6.2; or (iii) recommending such Acquirer Acquisition
Proposal to its stockholders, if and only to the extent that, in the case of
actions referred to in clause (ii) or clause (iii), such Acquirer Acquisition
Proposal is a Superior Proposal (as defined below) and the Company is given at
least two business days' notice of the existence of such Superior Proposal.
Acquirer agrees that it will, on the date hereof, immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
Person conducted heretofore with respect to any Acquirer Acquisition Proposal.
Nothing contained in this Agreement shall prevent the Board of Directors of
Acquirer from complying with Rule 14d-9 and Rule 14e-2 promulgated under the
Exchange
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Act with regard to an Acquirer Acquisition Proposal; provided that the Board of
Directors of Acquirer shall not recommend that the stockholders of Acquirer
tender their shares in connection with a tender offer except to the extent the
Board of Directors of Acquirer determines in its good faith judgment that such a
recommendation is required to comply with the fiduciary duties of the Board of
Directors of Acquirer to stockholders under applicable law, after receiving the
advice of outside legal counsel.
For purposes of this Agreement, "ACQUIRER ACQUISITION PROPOSAL" shall mean
any offer or proposal relating to any transaction or series of related
transactions involving: (A) any purchase from Acquirer or acquisition by any
person or "group" (as defined under Section 13(d) of the Exchange Act and the
rules and regulations thereunder) of more than a fifty percent (50%) interest in
the total outstanding voting securities of Acquirer or any tender offer or
exchange offer that if consummated would result in any Person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) beneficially owning fifty percent (50%) or more of the total
outstanding voting securities of Acquirer or any merger, consolidation, business
combination or similar transaction involving Acquirer in which the stockholders
of Acquirer immediately prior to such transaction do not own, immediately after
such transaction, at least a majority of the outstanding securities entitled to
vote generally for the election of directors or similar managing authority of
the surviving or resulting entity in such transaction; (B) any sale, lease
(other than in the ordinary course of business), exchange, transfer, license
(other than in the ordinary course of business), acquisition or disposition of
all or substantially all of the assets of Acquirer; or (C) any liquidation or
dissolution of Acquirer. For purposes of this Agreement, a "SUPERIOR PROPOSAL"
means, in respect of Acquirer, an unsolicited, bona fide Acquirer Acquisition
Proposal on terms that the Board of Directors of Acquirer determines, in its
good faith judgment (based on consultation with its financial advisors) to be
fair to Acquirer's stockholders, that is not subject to a financing condition,
and is from a Person that in the reasonable judgment of Acquirer's Board of
Directors (based on advice from a nationally recognized investment bank) is
financially capable of consummating such proposal.
Section 6.3 Indemnification. (a) Acquirer shall indemnify, defend and hold
harmless the present and former officers, directors, employees and agents of the
Company and its Subsidiaries against all losses, claims, damages, expenses or
liabilities arising out of actions or omissions or alleged actions or omissions
occurring at or prior to the Effective Time to the same extent and on the same
terms and conditions (including with respect to advancement of expenses)
provided for in the Company's certificate of incorporation and by-laws and
agreements in effect at the date hereof (to the extent consistent with
applicable law). The certificate of incorporation and by-laws of the Surviving
Corporation shall contain the provisions with respect to indemnification and
exculpation from liability set forth in the Company's certificate of
incorporation and by-laws on the date of this Agreement, which provisions shall
not be amended, repealed or otherwise modified for a period of six years after
the Effective Time in any manner that would adversely affect the rights
thereunder of any person who, immediately prior to the Effective Time, was an
indemnified party under such provisions.
(b) For a period of six years after the Effective Time, Acquirer shall
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by the Company (provided that Acquirer
may substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous) with respect to
claims arising from facts or events which occurred on or before the Effective
Time; provided, however, that Acquirer shall not be obligated to make annual
premium payments for such insurance to the extent such premiums exceed two
hundred percent (200%) of the premiums paid as of the date hereof by the Company
for such insurance.
(c) The provisions of this Section 6.3 are intended to be for the benefit
of, and shall be enforceable by each indemnified party hereunder, his or her
heirs and his or her representatives.
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Section 6.4 NNM Listings. Acquirer shall promptly following the execution
of this Agreement prepare and submit to The Nasdaq Stock Market a listing
application covering the shares of Acquirer Common Stock (and associated
Acquirer Rights) issuable in the Merger and upon exercise of the Company Stock
Options, and shall use all commercially reasonable efforts to obtain, prior to
the Effective Time, approval for the listing of such Acquirer Common Stock (and
associated Acquirer Rights), subject to official notice of issuance.
ARTICLE VII
COVENANTS OF ACQUIRER AND THE COMPANY
Section 7.1 Access to Information. (a) From the date of this Agreement
until the earlier of the Termination Date and the Effective Time, each of the
Company and Acquirer will give the other party and their authorized
representatives (including counsel, environmental and other consultants,
accountants and auditors) access during normal business hours to all facilities,
personnel and operations and to all books and records of it and its
Subsidiaries, will permit the other party to make such inspections as it may
reasonably require and will cause its officers and those of its Subsidiaries to
furnish the other party with such financial and operating data and other
information with respect to its business and properties as such party may from
time to time reasonably request.
(b) Each of the parties hereto will hold and will cause its consultants
and advisors to hold in strict confidence pursuant to the Confidentiality
Agreement previously entered into by the parties (the "CONFIDENTIALITY
AGREEMENT") all documents and information furnished to the other in connection
with the transactions contemplated by this Agreement as if each such consultant
or advisor was a party thereto.
Section 7.2 Registration Statement and Proxy Statement. (a) Acquirer and
the Company shall file with the SEC as soon as is reasonably practicable after
the date hereof the Joint Proxy Statement/Prospectus and Acquirer shall file the
Registration Statement in which the Joint Proxy Statement/Prospectus shall be
included. Acquirer and the Company shall use all commercially reasonable efforts
to have the Registration Statement declared effective by the SEC as promptly as
practicable. Acquirer shall also take any action required to be taken under
applicable state blue sky or securities laws in connection with the issuance of
shares of Acquirer Common Stock pursuant to this Agreement. Acquirer and the
Company shall promptly furnish to each other all information, and take such
other actions, as may reasonably be requested in connection with any action by
any of them in connection with this Section 7.2(a).
(b) If at any time prior to the Effective Time any event shall occur which
is required to be described in the Joint Proxy Statement/Prospectus or Form S-4,
such event shall be so described, and an amendment or supplement shall be
promptly filed with the SEC and, as required by law, disseminated to the
stockholders of Acquirer and the Company; provided that no amendment or
supplement to the Joint Proxy Statement/Prospectus or the Form S-4 will be made
by Acquirer or the Company without the approval of the other party. To the
extent applicable, each of Acquirer and the Company will advise the other,
promptly after it receives notice thereof, of the time when the Form S-4 has
become effective or any supplement or amendment has been filed, the issuance of
any stop order, the suspension of the qualification of the shares of Acquirer
Common Stock issuable in connection with the Merger for offering or sale in any
jurisdiction, or any request by the SEC for amendment of the Joint Proxy
Statement/Prospectus or the Form S-4 or comments thereon and responses thereto
or requests by the SEC for additional information.
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(c) Acquirer and the Company shall each use all commercially reasonable
efforts to cause to be delivered to the other a comfort letter of its
independent auditors, dated a date within two business days of the effective
date of the Form S-4, in form reasonably satisfactory to the other party and
customary in scope and substance for such letters in connection with similar
registration statements.
Section 7.3 Stockholders' Meetings. The Company and Acquirer each shall
call a meeting of its respective stockholders (the "COMPANY STOCKHOLDER MEETING"
and the "ACQUIRER STOCKHOLDER MEETING," respectively, and together, the
"STOCKHOLDERS MEETINGS") to be held as promptly as practicable in accordance
with applicable law and each company's certificate of incorporation and by-laws
for the purpose of voting upon (i) in the case of the Company, the adoption and
approval of this Agreement and the transactions contemplated hereby (the
"COMPANY STOCKHOLDER APPROVAL"), and (ii) in the case of Acquirer, the items
contemplated by the Acquirer Stockholder Approval. Except as otherwise required
by the fiduciary duties of its Board of Directors (as determined in good faith
by such Board following the receipt of advice of its outside legal counsel to
such effect) and in accordance with Sections 5.2 and 6.2, as the case may be, of
this Agreement, (i)(A) the Company will, through its Board of Directors,
recommend to its stockholders the approval and adoption of this Agreement and
the Merger and (B) Acquirer will, through its Board of Directors, recommend to
its stockholders the approval of the issuance of Acquirer Common Stock in the
Merger and the approval of the amendments to Acquirer's certificate of
incorporation to increase the authorized number of shares of Acquirer Common
Stock to 175,000,000 shares and (ii) each of the Company and Acquirer will use
all commercially reasonable efforts to obtain the foregoing approval of their
respective stockholders. Acquirer and the Company shall coordinate and cooperate
with respect to the timing of the Stockholders Meetings and shall each use all
commercially reasonable efforts to hold Stockholders Meetings on the same day as
soon as practicable after the date on which the Form S-4 becomes effective.
Section 7.4 Reasonable Efforts; Other Actions. Subject to the terms and
conditions herein provided and applicable law, the Company and Acquirer shall
use all commercially reasonable efforts promptly to take, or cause to be taken,
all other actions and do, or cause to be done, all other things necessary,
proper or appropriate under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement, including,
without limitation, (i) the filing of Notification and Report Forms under the
HSR Act with the Federal Trade Commission (the "FTC") and the Antitrust Division
of the Department of Justice (the "ANTITRUST DIVISION") and using their
reasonable best efforts to respond as promptly as practicable to all inquiries
received from the FTC or the Antitrust Division for additional information or
documentation, (ii) the taking of any actions required to qualify the Merger as
a 368 Reorganization, (iii) the obtaining of all necessary consents, approvals
or waivers under its material contracts, and (iv) the lifting of any legal bar
to the Merger.
Section 7.5 Public Announcements. Before issuing any press release or
otherwise making any public statements with respect to the Merger, Acquirer and
the Company will consult with each other as to its form and substance and shall
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by law.
Section 7.6 Notification of Certain Matters. Each of the Company and
Acquirer shall give prompt notice to the other party of (i) any notice of, or
other communication relating to, a breach of this Agreement or event which, with
notice or lapse of time or both, would become a breach, received by it or any of
its Subsidiaries subsequent to the date of this Agreement and prior to the
Effective Time, under any contract to which it or any of its Subsidiaries is a
party or it, any of its Subsidiaries or any of its or their respective
properties is subject, which breach would be reasonably likely to have a
Material Adverse Effect on it, or (ii) any notice or other communication from
any third party alleging
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that the consent of such third party is or may be required in connection with
the transactions contemplated by this Agreement.
Section 7.7 Expenses. Except as set forth in Section 9.5, Acquirer, and
the Company, shall bear their respective expenses incurred in connection with
the Merger, including, without limitation, the preparation, execution and
performance of this Agreement and the transactions contemplated hereby, and all
fees and expenses of investment bankers, finders, brokers, agents,
representatives, counsel and accountants, except that expenses incurred in
printing, mailing and filing (including without limitation, SEC filing fees and
stock exchange listing application fees) Form S-4 and the Joint Proxy
Statement/Prospectus shall be shared equally by the Company and Acquirer.
Section 7.8 Affiliates. Each of the Company and Acquirer shall deliver to
the other a letter identifying all persons who, as of the date hereof, may be
deemed to be "affiliates" thereof for purposes of Rule 145 under the Securities
Act (the "AFFILIATES") and shall advise the other in writing of any persons who
become an Affiliate prior to the Effective Time. The Company shall cause each
person who is so identified as an Affiliate to deliver to Acquirer, no later
than the earlier of July 8, 1999 or the date such person becomes an Affiliate, a
written agreement substantially in the form of Exhibit 7.8 hereto.
Section 7.9 Certain Benefit Plans. As soon as practicable after the
execution of this Agreement, the Company and Acquirer shall use their
commercially reasonable efforts to confer and work together in good faith to
agree upon mutually acceptable employee benefit arrangements (and terminate
Company Employee Plans immediately prior to the Effective Time if appropriate)
so as to provide benefits to employees of the Company generally equivalent in
the aggregate to those provided to similarly situated employees of Acquirer. In
addition, the Company agrees that it and its Subsidiaries shall terminate any
and all group severance, separation, retention and salary continuation plans,
programs or arrangements (other than contractual agreements disclosed on the
Company Disclosure Letter) prior to the Effective Time. Years of service with
the Company or any of its Subsidiaries or predecessor organizations thereof (and
service otherwise credited by the Company or any of its Subsidiaries or
predecessor organizations thereof) prior to the Effective Time shall be credited
under the Acquirer Employee Plans listed under Items 3, 11 and 12 of Schedule
4.14(a) to the Acquirer Disclosure Letter to the same extent as service with
Acquirer is credited under such Acquirer Employee Plans (including for purposes
of eligibility, vesting and benefit accrual). Employees of the Company who
participate in an Acquirer Employee Plan listed under Items 3, 11 and 12 of
Schedule 4.14(a) to the Acquirer Disclosure Letter shall participate in such
Acquirer Employee Plan on terms no less favorable than those offered by Acquirer
to employees of Acquirer (including those provisions relating to the coverage of
dependents). Acquirer shall use its commercially reasonable efforts to cause any
and all pre-existing condition limitations, eligibility waiting periods and
evidence of insurability requirements under any group plans to be waived with
respect to Employees of the Company who participate in any Acquirer Employee
Plan listed under Items 3, 11 and 12 of Schedule 4.14(a) to the Acquirer
Disclosure Letter, and their eligible dependents, and shall provide each such
participant and dependent with credit for any co-payments and deductibles paid
prior to the Effective Time for purposes of satisfying any applicable
deductible, out-of-pocket, or similar requirements under all such Acquirer
Employee Plans in which such participants are eligible to participate after the
Effective Time. Notwithstanding any of the foregoing to the contrary, none of
the provisions contained herein shall operate to duplicate any benefit provided
to any employee of the Company or the funding of any such benefit.
Section 7.10 Formation of Merger Subsidiary. As soon as practicable
following the execution of this Agreement, but no later than one week following
such date, Acquirer shall cause Merger Subsidiary to be formed in the State of
Delaware and to take all corporate action necessary to approve
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and to become a party to this Agreement. Each of the parties hereto agrees that
upon formation of Merger Subsidiary it shall execute an amendment to this
Agreement and such other documents as may be necessary to cause Merger
Subsidiary to become a party to this Agreement.
ARTICLE VIII
CONDITIONS TO THE MERGER
Section 8.1 Conditions to the Obligations of Each Party. The obligations
of the Company, Acquirer and Merger Subsidiary to consummate the Merger are
subject to the satisfaction (or, to the extent legally permissible, waiver) at
or prior to the Closing of the following conditions:
(a) this Agreement shall have been adopted by the stockholders of the
Company in accordance with Delaware Law;
(b) any applicable waiting period under the HSR Act relating to the Merger
shall have expired or terminated early;
(c) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit or enjoin the consummation of the
Merger;
(d) the parties shall have received all required approvals and third party
consents listed on Schedule 8.1(d);
(e) the matters constituting the Acquirer Stockholder Approval shall have
been approved by the stockholders of Acquirer in accordance with applicable law
or regulation;
(f) the Form S-4 shall have been declared effective under the 1933 Act and
no stop order suspending the effectiveness of the Form S-4 shall be in effect
and no proceedings for such purpose shall be pending before or threatened by the
SEC; and
(g) the shares of Acquirer Common Stock to be issued in the Merger shall
have been approved for listing on the NNM, subject to official notice of
issuance.
Section 8.2 Conditions to the Obligations of Acquirer and Merger
Subsidiary. The obligations of Acquirer and Merger Subsidiary to consummate the
Merger are subject to the satisfaction (or, to the extent legally permissible,
waiver) of the following further conditions:
(a)(i) the Company shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) the representations and warranties of the Company contained
in this Agreement shall be true and correct as of the Closing Date with the same
force and effect as if made on the Closing Date (provided that any such
representation and warranty made as of a specific date shall be true and correct
as of such specific date), except for such inaccuracies that individually or in
the aggregate do not have a Material Adverse Effect on the Company as of the
Closing Date and except for changes contemplated by this Agreement (it being
understood that, for purposes of determining the accuracy of such
representations and warranties, all "Material Adverse Effect" qualifications and
other qualifications based on the word "material" or similar phrases contained
in such representations and warranties shall be disregarded, and any update of
or modification to the Company Disclosure Letter made or proposed to have been
made after the execution of this Agreement
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shall be disregarded), and (iii) Acquirer shall have received a certificate
signed by the chief executive officer of the Company to the foregoing effect;
and
(b) Acquirer shall have received an opinion of Pillsbury Madison & Sutro
LLP in form and substance reasonably satisfactory to Acquirer, on the basis of
certain facts, representations and assumptions set forth in such opinion, dated
the Effective Time, to the effect that the Merger will be treated for federal
income tax purposes as a reorganization qualifying under the provisions of
Section 368(a) of the Code and that each of Acquirer, Merger Subsidiary and the
Company will be a party to the reorganization within the meaning of Section
368(b) of the Code. In rendering such opinion, such counsel shall be entitled to
rely upon certain representations of officers of Acquirer and the Company
reasonably requested by counsel. If the opinion referred to in this Section
8.2(b) is not delivered, such condition shall be deemed to be satisfied if the
Acquirer shall have received an opinion from Wilson Sonsini Goodrich & Rosati,
Professional Corporation, or another law firm selected by the Company and
reasonably acceptable to Acquirer. Acquirer will cooperate in obtaining such
opinion, including, without limitation, making (and requesting from affiliates)
appropriate representations with respect to relevant matters.
Section 8.3 Conditions to the Obligations of the Company. The obligation
of the Company to consummate the Merger is subject to the satisfaction (or, to
the extent legally permissible, waiver) of the following further conditions:
(a)(i) Acquirer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) the representations and warranties of Acquirer contained in
this Agreement shall be true and correct as of the Closing Date with the same
force and effect as if made on the Closing Date (provided that any such
representation and warranty made as of a specific date shall be true and correct
as of such specific date), except for such inaccuracies that individually or in
the aggregate do not have a Material Adverse Effect on Acquirer as of the
Closing Date and except for changes contemplated by this Agreement (it being
understood that, for purposes of determining the accuracy of such
representations and warranties, all "Material Adverse Effect" qualifications and
other qualifications based on the word "material" or similar phrases contained
in such representations and warranties shall be disregarded, and any update of
or modification to the Acquirer Disclosure Letter made or proposed to have been
made after the execution of this Agreement shall be disregarded), and (iii) the
Company shall have received a certificate signed by the chief executive officer
of Acquirer to the foregoing effect; and
(b) the Company shall have received an opinion of Wilson Sonsini Goodrich
& Rosati, Professional Corporation, in form and substance reasonably
satisfactory to the Company, on the basis of certain facts, representations and
assumptions set forth in such opinion, dated the Effective Time, to the effect
that the Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the Code and
that each of the Company, Merger Subsidiary and Acquirer will be a party to the
reorganization within the meaning of Section 368(b) of the Code. In rendering
such opinion, such counsel shall be entitled to rely upon certain
representations of officers of the Company and Acquirer reasonably requested by
counsel. If the opinion referred to in this Section 8.3(b) is not delivered,
such condition shall be deemed to be satisfied if the Acquirer shall have
received an opinion from Pillsbury Madison & Sutro LLP or another law firm
selected by Acquirer and reasonably acceptable to the Company. The Company will
cooperate in obtaining such opinion, including, without limitation, making (and
requesting from affiliates) appropriate representations with respect to relevant
matters.
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ARTICLE IX
TERMINATION
Section 9.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
stockholders of the Company or Acquirer:
(a) by mutual consent of Acquirer and the Company;
(b) by either Acquirer or the Company if the Merger shall not have been
consummated on or before December 31, 1999 (the "END DATE"), which date may be
extended by mutual written consent of the parties hereto; provided, however,
that the right to terminate this Agreement under this Section 9.1(b) shall not
be available to any party prior to February 28, 2000 whose action or failure to
act has been a principal cause of or resulted in the failure of the Merger to
occur on or before such date and such action or failure to act constitutes a
material breach of this Agreement.
(c) by either Acquirer or the Company, if any court of competent
jurisdiction in the United States or other governmental body in the United
States shall have issued an order (other than a temporary restraining order),
decree or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger, and such order, decree, ruling or other action shall
have become final and nonappealable; provided that the party seeking to
terminate this Agreement shall have used all commercially reasonable efforts to
avoid, remove or lift such order, decree or ruling; or
(d) by either Acquirer or the Company, if the requisite stockholder
approvals of the stockholders of either Acquirer or the Company are not obtained
at the meeting of stockholders duly called and held therefor; provided, however,
that the right to terminate this Agreement under this Section 9.1(d) shall not
be available to a Person where the failure to obtain stockholder approval of
such Person shall have been caused by the action or failure to act of such
Person and such action or failure to act constitutes a material breach by such
Person of this Agreement.
Section 9.2 Termination by Acquirer. This Agreement may be terminated by
action of the Board of Directors of Acquirer, at any time prior to the Effective
Time, before or after the approval by the stockholders of Acquirer or the
Company, if (a) the Company shall have failed to comply in any material respect
with any of the covenants or agreements contained in Articles I, V and VII of
this Agreement to be complied with or performed by the Company at or prior to
such date of termination; provided, however, that if such failure to comply is
capable of being cured prior to the End Date, such failure shall not have been
cured within 15 days of delivery to the Company of written notice of such
failure, (b) there exists a breach or breaches of any representation or warranty
of the Company contained in this Agreement such that the closing condition set
forth in Section 8.2(a) would not be satisfied; provided, however, that if such
breach or breaches are capable of being cured prior to the End Date, such
breaches shall not have been cured within 15 days of delivery to the Company of
written notice of such breach or breaches, (c) a Company Triggering Event (as
defined below) shall have occurred, or (d)(i) the Board of Directors of Acquirer
authorizes Acquirer, subject to complying with the terms of this Agreement, to
enter into a binding written agreement concerning a transaction that constitutes
a Superior Proposal with respect to Acquirer and Acquirer notifies the Company
in writing in accordance with Section 6.2 that it intends to enter into such an
agreement, attaching the most current version of such agreement (or a
description of all material terms and conditions thereof) to such notice and
(ii) Acquirer upon such termination pursuant to this clause (d) pays to the
Company in immediately available funds the fees required to be paid pursuant to
Section 9.5. Acquirer agrees to notify the Company promptly if its intention to
enter into a written agreement referred to in its notification pursuant to
clause (d) above shall change at any time after giving such notification.
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For the purposes of this Agreement, a "COMPANY TRIGGERING EVENT" shall be
deemed to have occurred if: (i) the Board of Directors of the Company or any
committee thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Acquirer its recommendation in favor of, the
adoption and approval of the Agreement or the approval of the Merger; (ii) the
Company shall have failed to include in the Joint Proxy Statement/Prospectus the
recommendation of the Board of Directors of the Company in favor of the adoption
and approval of the Agreement and the approval of the Merger; (iii) the Board of
Directors of the Company or any committee thereof shall have approved or
recommended any Superior Proposal with respect to the Company; or (iv) a tender
or exchange offer relating to securities of the Company shall have been
commenced by a Person unaffiliated with Acquirer and the Company shall not have
sent to its securityholders pursuant to Rule 14e-2 promulgated under the
Exchange Act, within ten business days after such tender or exchange offer is
first published, sent or given, a statement disclosing that the Company
recommends rejection of such tender or exchange offer.
Section 9.3 Termination by the Company. This Agreement may be terminated
at any time prior to the Effective Time, before or after the approval by the
stockholders of Acquirer or the Company, by action of the Board of Directors of
the Company, if (a) Acquirer shall have failed to comply in any material respect
with any of the covenants or agreements contained in Articles I, II, VI and VII
of this Agreement to be complied with or performed by Acquirer at or prior to
such date of termination; provided, however, that if such failure to comply is
capable of being cured prior to the End Date, such failure shall not have been
cured within 15 days of delivery to Acquirer of written notice of such failure,
(b) there exists a breach or breaches of any representation or warranty of
Acquirer contained in this Agreement such that the closing condition set forth
in Section 8.3(a) would not be satisfied; provided, however, that if such breach
or breaches are capable of being cured prior to the End Date, such breaches
shall not have been cured within 15 days of delivery to Acquirer of written
notice of such breach or breaches, (c) an Acquirer Triggering Event (as defined
below) shall have occurred, or (d)(i) the Board of Directors of the Company
authorizes the Company, subject to complying with the terms of this Agreement,
to enter into a binding written agreement concerning a transaction that
constitutes a Superior Proposal with respect to the Company and the Company
notifies Acquirer in writing in accordance with Section 5.2 that it intends to
enter into such an agreement, attaching the most current version of such
agreement (or a description of all material terms and conditions thereof) to
such notice and (ii) the Company upon such termination pursuant to this clause
(d) pays to Acquirer in immediately available funds the fees required to be paid
pursuant to Section 9.5.
For the purposes of this Agreement, an "ACQUIRER TRIGGERING EVENT" shall
be deemed to have occurred if: (i) the Board of Directors of Acquirer or any
committee thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to the Company its recommendation in favor of, the
adoption and approval of the Agreement or the approval of the Merger; (ii)
Acquirer shall have failed to include in the Joint Proxy Statement/Prospectus
the recommendation of the Board of Directors of Acquirer in favor of the
adoption and approval of the Agreement and the approval of the Merger; (iii) the
Board of Directors of Acquirer or any committee thereof shall have approved or
recommended any Superior Proposal with respect to Acquirer; or (iv) a tender or
exchange offer relating to securities of Acquirer shall have been commenced by a
Person unaffiliated with Acquirer and Acquirer shall not have sent to its
securityholders pursuant to Rule 14e- promulgated under the Exchange Act, within
ten business days after such tender or exchange offer is first published, sent
or given, a statement disclosing that Acquirer recommends rejection of such
tender or exchange offer.
Section 9.4 Procedure for Termination. In the event of termination by
Acquirer or the Company pursuant to this Article IX, written notice thereof
shall forthwith be given to the other.
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Section 9.5 Effect of Termination. (a) In the event of termination of this
Agreement pursuant to this Article IX, no party hereto (or any of its directors
or officers) shall have any liability or further obligation to any other party
to this Agreement, except as provided in this Section 9.5 and Section 7.1(b)
hereof.
(b) If
(i) the Company shall terminate this Agreement pursuant to Section
9.3(d);
(ii) Acquirer shall terminate this Agreement pursuant to Section
9.2(c), unless at the time of such Company Triggering Event, any of the
conditions set forth in Section 8.3(a) would not have been satisfied as of
such date and would not be reasonably capable of being satisfied; or
(iii) either the Company or Acquirer shall terminate this Agreement
pursuant to Section 9.1(d) in circumstances where the Company Stockholder
Approval was not been obtained at the Company Stockholder Meeting and
prior to the Company Stockholder Meeting a Company Acquisition Proposal
was made by any Person and within twelve months after termination of this
Agreement the Company consummates a Company Acquisition or enters into a
definitive agreement with respect to such Company Acquisition Proposal
that provides for a Company Acquisition;
then in any case as described in clause (i), (ii) or (iii) the Company shall pay
to Acquirer (by wire transfer of immediately available funds not later than the
date of termination of this Agreement or, in the case of clause (iii), the date
of such definitive agreement) an amount equal to $5,000,000. Except as provided
in Section 9.5(d), the fees provided for in this Section 9.5(b) are intended to
be liquidated damages and, as such, the sole and exclusive remedy for any and
all claims on any theory that might be asserted with respect to any of the
matters discussed in this Article IX, and no party hereto shall seek any
additional damages or remedies at law or in equity as a result or consequence of
any such matter. Acceptance by Acquirer of the payment referred to in the
foregoing sentence shall constitute conclusive evidence that this Agreement has
been validly terminated and upon acceptance of payment of such amount the
Company shall be fully released and discharged from any liability or obligation
resulting from or under this Agreement. For purposes of this Agreement, the term
"COMPANY ACQUISITION" shall mean (i) a merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving the Company pursuant to which the stockholders of the Company
immediately preceding such transaction hold less than fifty percent (50%) of the
aggregate equity interests in the surviving or resulting entity of such
transaction, (ii) a sale or other disposition by the Company of assets
representing in excess of fifty percent (50%) of the aggregate fair market value
of the Company's business immediately prior to such sale, or (iii) the
acquisition by any person or group (including by way of a tender offer or an
exchange offer or issuance by the Company), directly or indirectly, of
beneficial ownership or a right to acquire beneficial ownership of shares
representing in excess of fifty percent (50%) of the voting power of the then
outstanding shares of capital stock of the Company.
(c) If
(i) Acquirer shall terminate this Agreement pursuant to Section
9.2(d);
(ii) the Company shall terminate this Agreement pursuant to Section
9.3(c), unless at the time of such Acquirer Triggering Event, any of the
conditions set forth in Section 8.2(a) would not have been satisfied as of
such date and would not be reasonably capable of being satisfied;
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(iii) either the Company or Acquirer shall terminate this Agreement
pursuant to Section 9.1(d) in circumstances where the Acquirer Stockholder
Approval was not been obtained at the Acquirer Stockholder Meeting and
prior to the Acquirer Stockholder Meeting an Acquirer Acquisition Proposal
was made by any Person and within twelve months after termination of this
Agreement Acquirer consummates the transaction contemplated by such
Acquirer Acquisition Proposal or enters into a definitive agreement with
respect to such Acquirer Acquisition Proposal;
then in any case as described in clause (i), (ii) or (iii) Acquirer shall pay to
the Company (by wire transfer of immediately available funds not later than the
date of termination of this Agreement or, in the case of clause (iii), the date
of such definitive agreement) an amount equal to $5,000,000. Except as provided
in Section 9.5(d), the fees provided for in this Section 9.5(c) are intended to
be liquidated damages and, as such, the sole and exclusive remedy for any and
all claims on any theory that might be asserted with respect to any of the
matters discussed in this Article IX, and no party hereto shall seek any
additional damages or remedies at law or in equity as a result or consequence of
any such matter. Acceptance by the Company of the payment referred to in the
foregoing sentence shall constitute conclusive evidence that this Agreement has
been validly terminated and upon acceptance of payment of such amount Acquirer
shall be fully released and discharged from any liability or obligation
resulting from or under this Agreement.
(d) Notwithstanding anything to the contrary, payment of the fees provided
for in Section 9.5 shall not be in lieu of damages incurred in the event of a
willful or intentional breach of this Agreement by either party.
ARTICLE X
MISCELLANEOUS
Section 10.1 Notices. Any notice, request, instruction or other document
to be given hereunder by any party to the other shall be in writing and
delivered personally or sent by certified mail, postage prepaid, by telecopy
(with receipt confirmed and promptly confirmed by personal delivery, U.S. first
class mail, or courier), or by courier service, as follows:
(a) If to Acquirer or Merger Subsidiary to:
S3 Incorporated
2801 Mission College Boulevard
Santa Clara, CA 95052-8058
Attn: Chief Executive Officer
Telecopier: (408) 588-8050
with a copy to:
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
Attn: Jorge A. del Calvo
Telecopier: (650) 233-4545
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(b) If to the Company to:
Diamond Multimedia Systems, Inc.
2880 Junction Avenue
San Jose, CA 95134
Attention: Chief Executive Officer
Telecopier: (408) 325-7145
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94306
Attn: Jeffrey D. Saper
Telecopier: (650) 493-6811
Section 10.2 Non-Survival of Representations and Warranties. The
representations and warranties contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective Time or the
termination of this Agreement.
Section 10.3 Amendments; No Waivers. (a) Any provision of this Agreement
(including the Exhibits and Schedules hereto) may be amended or waived prior to
the Effective Time if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the Company, Acquirer and Merger
Subsidiary, or in the case of a waiver, by the party against whom the waiver is
to be effective; provided that after the adoption of this Agreement by the
stockholders of the Company, no such amendment or waiver shall, without the
further approval of such stockholders, alter or change (i) the amount or kind of
consideration to be received in exchange for any shares of capital stock of the
Company, (ii) any term of the certificate of incorporation of the Surviving
Corporation or (iii) any of the terms or conditions of this Agreement if such
alteration or change would adversely affect the holders of any shares of capital
stock of the Company.
(b) No failure or delay by any 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 other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 10.4 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto except that Merger Subsidiary
may transfer or assign, in whole or from time to time in part, to one or more of
its affiliates, its rights under this Agreement, but any such transfer or
assignment will not relieve Merger Subsidiary of its obligations hereunder.
Section 10.5 Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of Delaware, without regard
to principles of conflicts of law.
Section 10.6 Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby shall be brought
exclusively in the Court of Chancery of the State of Delaware, and each of the
parties hereby consents to the jurisdiction of such court (and of the
appropriate appellate
39
<PAGE> 44
courts therefrom) in any such suit, action or proceeding and irrevocably waives,
to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
in any such court or that any such suit, action or proceeding which is brought
in any such court has been brought in an inconvenient forum. Process in any such
suit, action or proceeding may be served on any party anywhere in the world,
whether within or without the jurisdiction of any such court. Without limiting
the foregoing, each party agrees that service of process on such party as
provided in Section 10.1 shall be deemed effective service of process on such
party.
SECTION 10.7 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
Section 10.8 Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
Section 10.9 Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto) and the Confidentiality Agreement constitute the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof. Except as provided in Section 6.3(c), no provision of this Agreement or
any other agreement contemplated hereby is intended to confer on any Person
other than the parties hereto any rights or remedies.
Section 10.10 Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
Section 10.11 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such
a determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that
40
<PAGE> 45
the transactions contemplated hereby be consummated as originally contemplated
to the fullest extent possible.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed,
all as of the date first above written.
S3 INCORPORATED
By /s/ KENNETH F. POTASHNER
--------------------------------------
Kenneth F. Potashner
President and Chief Executive Officer
DIAMOND MULTIMEDIA SYSTEMS, INC.
By /s/ WILLIAM J. SCHROEDER
--------------------------------------
William J. Schroeder
President and Chief Executive Officer
41
<PAGE> 46
SCHEDULE 1.4
COMPANY STOCK OPTION PLANS
1. 1992 Stock Plan
2. 1994 Stock Option Plan
3. 1998 Stock Option Plan
4. 1998 Nonstatutory Stock Option Plan
5. Director Stock Option Plan
<PAGE> 47
SCHEDULE 8.1(d)
TO THE AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 21, 1999
BETWEEN
S3 INCORPORATED
AND
DIAMOND MULTIMEDIA SYSTEMS, INC.
Consent and waiver from FINOVA under the Loan and Security Agreement
between FINOVA and the Company dated January 21, 1999.
<PAGE> 1
EXHIBIT 10.1
================================================================================
CREDIT AGREEMENT
BY AND BETWEEN
DIAMOND MULTIMEDIA SYSTEMS, INC.
AND
S3 INCORPORATED
-------------
DATED AS OF JUNE 11, 1999
-------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS...................................................................1
1.1 Definitions...................................................................1
1.2 Accounting Terms..............................................................6
ARTICLE 2 LOANS.........................................................................6
2.1 Loans.........................................................................6
(a) Loans..................................................................6
(b) Note...................................................................6
(c) Borrowing Procedures for Loan..........................................6
2.2 Interest......................................................................6
(a) Interest Rate..........................................................6
(b) Payment of Interest....................................................6
(c) Computation of Interest................................................7
(d) Excess Interest........................................................7
2.3 Payments of Principal.........................................................8
(a) Repayment..............................................................8
(b) Prepayment of Loan.....................................................8
(c) Payments...............................................................8
(d) Offset.................................................................8
ARTICLE 3 CONDITIONS OF CLOSING AND LOANS...............................................8
3.1 Closing.......................................................................8
3.2 Conditions to First Loan......................................................8
(a) Closing Documents......................................................9
(b) No Existing Default....................................................9
(c) Representations and Warranties Correct.................................9
(d) Consents and Approvals.................................................9
(e) Litigation.............................................................9
3.3 Conditions to Second Loan.....................................................9
(a) Merger Agreement and Warrant......................................... 10
(b) No Existing Default.................................................. 10
(c) Representations and Warranties Correct............................... 10
(d) Borrowing Request and Note........................................... 10
(e) No Material Adverse Change........................................... 10
3.4 Conditions to Third Loan.................................................... 10
(a) Closing Documents.................................................... 10
(b) No Existing Default.................................................. 11
(c) Representations and Warranties Correct............................... 11
(d) Borrowing Request and Note........................................... 11
(e) No Material Adverse Change........................................... 11
(f) Payment of Taxes..................................................... 11
3.5 Conditions for the Benefit of the Lender.................................... 11
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE BORROWER.............................. 11
4.1 Organization of Borrower.................................................... 11
4.2 Requisite Power............................................................. 11
4.3 No Conflict................................................................. 12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.4 Authorities................................................................. 12
4.5 No Event of Default......................................................... 12
4.6 Subsidiaries................................................................ 12
4.7 Indebtedness................................................................ 13
4.8 Intellectual Property Rights................................................ 13
4.9 Litigation.................................................................. 13
4.10 Taxes....................................................................... 13
4.11 Title to Property........................................................... 14
4.12 Leaseholds.................................................................. 14
4.13 Insurance................................................................... 14
4.14 Labor Matters............................................................... 14
4.15 SEC Filings................................................................. 15
4.16 Financial Statements........................................................ 15
4.17 Absence of Certain Changes.................................................. 15
4.18 No Undisclosed Material Liabilities......................................... 16
4.19 Employee Benefit Plans...................................................... 16
4.20 Compliance With Laws........................................................ 17
4.21 Environmental Laws.......................................................... 17
4.23 Statutory Regulation........................................................ 18
4.24 Use of Proceeds............................................................. 18
ARTICLE 5 AFFIRMATIVE COVENANTS....................................................... 18
5.1 Accounting Records.......................................................... 18
5.2 Financial Statements and Notices............................................ 18
5.3 Access...................................................................... 19
5.4 Maintenance of Existence.................................................... 19
5.5 Qualifications To Do Business............................................... 19
5.6 Insurance................................................................... 19
5.7 Collateral.................................................................. 20
5.8 Taxes and Other Liabilities................................................. 20
5.9 Governmental Approvals...................................................... 20
5.10 Compliance With Governmental Approvals and Governmental Requirements........ 20
5.11 Prevent Contamination....................................................... 20
5.12 Liens and Perfection........................................................ 20
5.13 Change of Location.......................................................... 21
ARTICLE 6 NEGATIVE COVENANTS.......................................................... 21
6.1 Mergers..................................................................... 21
6.2 Restricted Payments......................................................... 21
6.3 Change of Name, Etc......................................................... 21
6.4 Accounting Policies......................................................... 21
6.5 Liens....................................................................... 21
6.6 Contingent Obligations...................................................... 21
6.7 Indebtedness................................................................ 22
6.8 Sale of Assets.............................................................. 22
6.9 Loans to Affiliates......................................................... 22
6.10 Certain ERISA Payments...................................................... 22
6.11 No Solicitation............................................................. 22
ARTICLE 7 EVENTS OF DEFAULT........................................................... 23
7.1 Events of Default........................................................... 23
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
7.2 Termination of Commitment and Acceleration.................................. 25
ARTICLE 8 MISCELLANEOUS............................................................... 25
8.1 Successors and Assigns...................................................... 25
8.2 No Implied Waiver........................................................... 25
8.3 Amendments; Waivers......................................................... 25
8.4 Remedies Cumulative......................................................... 25
8.5 Severability................................................................ 25
8.6 Costs, Expenses and Attorneys' Fees......................................... 25
8.7 Indemnification............................................................. 26
8.8 Notices..................................................................... 26
8.9 Interpretation.............................................................. 27
8.10 Governing Law and Consent to Jurisdiction................................... 27
8.11 Counterparts................................................................ 28
8.12 Headings.................................................................... 28
8.13 Survival.................................................................... 28
8.14 Calculations................................................................ 28
8.15 Confidential................................................................ 28
</TABLE>
Exhibit A Note
Exhibit B Borrowing Request
Exhibit C Security Agreement
Exhibit D Patent, Trademark and Copyright Collateral Assignment
Exhibit E Pledge Agreement
Exhibit F Officer's Certificate
Exhibit G Opinion of Counsel to Borrower
iii
<PAGE> 5
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of June 11, 1999, by and between
DIAMOND MULTIMEDIA SYSTEMS, INC., a Delaware corporation, and S3 INCORPORATED, a
Delaware corporation,
W I T N E S S E T H:
WHEREAS, Diamond Multimedia Systems, Inc. desires to borrow an amount
not exceeding in the aggregate twenty million dollars ($20,000,000) from S3
Incorporated, and S3 Incorporated is prepared to make such a loan upon the terms
and conditions hereof:
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. Except as otherwise expressly provided or unless the
context otherwise requires, the terms defined in this Section 1.1 shall, for all
purposes of this Agreement, have the meanings herein specified, the following,
definitions being equally applicable to the singular and plural forms of any of
the terms herein defined:
"Acceleration" means that the Loans (i) shall not have been paid at the
Final Maturity Date or (ii) shall have become due and payable prior to their
stated maturity pursuant to Section 7.2 hereof.
"Affiliate" means with respect to any Person (i) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, ten percent (10%) or more of the capital stock
having ordinary voting power in the election of directors of such Person, (ii)
each Person that controls, is controlled by or is under common control with such
Person or any Affiliate of such Person or (iii) each of such Person's officers,
directors, joint venturers and partners. For the purposes of this definition,
the term "control" (including with correlative meanings the terms "controlling,"
"controlled by" and "under common control with") as applied to any Person shall
mean the possession, directly or indirectly beneficially, of the power to direct
or cause the direction of its management or policies, whether through the
ownership of voting securities, by contract or otherwise.
"Agreement" means this Credit Agreement between the Borrower and the
Lender (including the Schedules and Exhibits hereto), as originally executed or
as it may from time to time be supplemented, modified or amended as provided
herein.
"Authorized Officer" means an officer of the Borrower designated in the
latest Certificate of Incumbency executed by or on behalf of the Borrower. The
Lender shall be entitled to conclusively rely on the latest such Certificate of
Incumbency delivered to it.
"Borrower" means Diamond Multimedia Systems, Inc., a Delaware
corporation.
"Borrowing Request" means each request by the Borrower for a Loan as
specified in such request, which shall be in the form of Exhibit B attached
hereto. Each Borrowing Request shall be accompanied by the documents which are
required to substantiate such request.
"Business Day" means a day other than a Saturday, Sunday or any other
day on which commercial
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<PAGE> 6
banks in San Francisco, California are required or authorized to be closed.
"Capitalized Lease Obligation" means any lease obligation that, in
accordance with GAAP, is required to be shown as a liability on the financial
statements of the lessee. The amount of a Capitalized Lease Obligation shall be
the amount required by GAAP so to be shown.
"Certificate of Incumbency" means the latest Certificate of Incumbency
executed by or on behalf of the Borrower and delivered to the Lender.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means the property, real or personal, in which the Lender
has a security interest under the Security Documents.
"Contingent Obligation" means, as applied to any Person, without
duplication, any direct or indirect liability, contingent or otherwise, of that
Person with respect to any indebtedness, lease, dividend, letter of credit or
other obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, including, without limitation, or to provide
funds for the payment or discharge of such obligation (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain the solvency or any balance sheet item, level of income or other
financial condition of the obligor of such obligation, or to make payment for
any products, materials or supplies or for any transportation, services or lease
regardless of the nondelivery or nonfurnishing thereof, in any such case if the
purpose or intent of such agreement is to provide assurance that such obligation
will be paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such obligation will be protected (in
whole or in part) against loss in respect thereof. The amount of any Contingent
Obligation shall be equal to the actual amount of the obligation so guaranteed
or otherwise supported.
"Disclosure Letter" means the letter delivered by the Borrower to the
Lender immediately prior to the execution of this Agreement, and signed by an
Authorized Officer of the Borrower.
"Effective Date" means the date specified as such in Section 3.1 hereof.
"Environmental Laws" means any federal, state, local and foreign
statutes, laws (including, without limitation, common law), judicial decisions,
regulations, ordinances, rules, judgments, orders, codes, injunctions, permits,
governmental agreements or governmental restrictions relating to human health
and safety, the environment or to pollutants, contaminants, wastes, or
chemicals.
"Existing Debt" means the Indebtedness of the Borrower and its
Subsidiaries (a) to Finova Capital Corporation ("FINOVA") under the Loan and
Security Agreement dated January 21, 1999 between Finova and the Borrower, the
Secured Revolving Credit Note in an original principal amount of $50,000,000
dated January 21, 1999 by the Borrower in favor of Finova, (b) loans in a
principal amount not to exceed DM10,000,000 to the Borrower and Spea Software
Gmbh from BHF Bank, and (c) loans in a principal amount of 350,000,000 Japanese
Yen (approximately $2,900,000) to the Borrower's Japanese Subsidiary, Diamond
MultiMedia Systems, KK from Sanwa Bank, Ltd., which loans are guaranteed by the
Borrower and for which the Borrower has posted a standby letter of credit issued
by Imperial Bank.
"Event of Default" shall have the meaning set forth in Article 7 hereof.
"Final Maturity Date" means June 10, 2000.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and
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<PAGE> 7
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession, which are applicable to the circumstances
as of the date of determination.
"Incipient Default" means any event which, upon the lapse of time or the
giving of notice or both, would constitute an Event of Default.
"Indebtedness" of a Person means (a) any obligation of such Person for
borrowed money; (b) any obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments; (c) any obligation of such
Person to pay the deferred purchase price of property or for services (other
than in the ordinary course of business); (d) any Capitalized Lease Obligation
of such Person; (e) any obligation or liability of others secured by a lien on
any asset of such Person, whether or not such obligation or liability is
assumed; (f) indebtedness of such Person consisting of reimbursement obligations
under letters of credit issued for the account of such person; and (g) any other
obligation or liability which is required by GAAP to be shown as part of the
Consolidated Liabilities on a consolidated balance sheet of such Person.
"Lender" means S3 Incorporated, a Delaware corporation.
"Lien" means any interest in property securing an obligation, whether
such interest is based on common law, statute or contract, and including but not
limited to any security interest or lien arising from a mortgage, encumbrance,
pledge, charge, easement, servitude, security agreement, conditional sale or
trust receipt or a lease, consignment or bailment for security purposes. The
term "Lien" shall also include reservations, exceptions, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
property.
"Loan" means a loan made pursuant to Section 2.1 hereof.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, powers of attorney, consents, assignments, contracts, notices,
leases, financing statements, reimbursement agreements, certificates,
statements, reports and notices and all other writings heretofore, now or
hereafter executed by, on behalf of or for the benefit of the Borrower and
delivered to the Lender pursuant to or in connection with this Agreement or the
transactions contemplated hereby, together with all amendments, modifications
and supplements thereto.
"Material Adverse Change" means any change, violation, inaccuracy,
circumstance or effect that is materially adverse to the business, properties,
assets (including intangible assets), liabilities, capitalization or financial
condition of the Borrower and its Subsidiaries, taken as a whole, as the case
may be; provided, however, that the following shall not be taken into account in
determining whether there has been or could or would be a "Material Adverse
Effect" on or with respect to a party: (i) any occurrences relating to the
economy of the United States in general or the economies in which such entity
operates or the multimedia and connectivity products for personal computer
industry in general and not specifically relating to such party, (ii) the delay
or cancellation of orders for such party's products from customers or
distributors (or other resellers) directly attributable to the announcement of
this Agreement, the Merger Agreement or the consummation of the transactions
thereunder, (iii) the lack of or delay in availability of components or raw
materials from such party's suppliers directly attributable to the announcement
of this Agreement or the Merger Agreement, (iv) any litigation brought or
threatened against a party or any officer or member of the Board of Directors of
such party in respect of this Agreement or the Merger Agreement (including any
stockholder class action litigation arising from allegations or a breach of
fiduciary duty relating to this Agreement), (v) changes in trading prices for
such party's securities, and (vi) the loss of employees as a result of reduction
in force that are mutually agreed upon by the Borrower and the Lender.
"Maturity" means any date on which the Loan or any portion thereof
becomes due and payable whether as stated, by acceleration or otherwise.
-3-
<PAGE> 8
"Maturity Triggering Event" shall mean an event or series of related
events as a result of which (i) any person or "group" (as such term is defined
under section 13(d) of the Securities Exchange Act of 1934 and the rules and
regulations thereunder), other than the Lender or any Affiliate of the Lender,
becomes the beneficial owner of shares of the Borrower representing more than
fifty percent (50%) of the combined voting power of the then outstanding
securities entitled to vote generally in the election of directors of the
Borrower ("Voting Securities"), or (ii) the Borrower consolidates with or merges
with or into or effects a business combination or similar transaction with
another entity, or conveys, transfers or leases all or substantially all of its
assets to any person, other than in each case with the Lender or any affiliate
of the Lender, and, in the case of any such transaction, the stockholders of the
Borrower immediately prior to such transaction do not own, immediately after
such transaction, at least a majority of the combined voting power of the then
outstanding securities entitled to vote generally in the election of directors
or similar managing authority of the surviving or resulting entity in such
transaction in substantially the same proportion as their ownership of Voting
Securities immediately before such transaction.
"Note" means one of the Borrower's promissory notes substantially in the
form of Exhibit A attached hereto, evidencing the Loan as provided in Section
2.1(b) hereof.
"Obligations" means all loans, advances, debts, liabilities obligations,
covenants and duties owing to the Lender by the Borrower of any kind or nature,
present or future, whether or not evidenced by any note, guaranty or other
instrument, arising under this Agreement, either of the Notes, the Security
Documents, or any of the other Loan Documents, whether or not for the payment of
money, arising by reason of an extension of credit, absolute or contingent, due
or to become due, now existing or hereafter arising, including all principal,
interest, charges, expenses, fees, attorneys' fees and disbursements and any
other sum chargeable to the Borrower under this Agreement or any other Loan
Document.
"Other Assurances" means any agreement, instrument, conveyance,
mortgage, pledge, hypothecation or other document executed and delivered
pursuant to Section 5.12 hereof (as amended, modified or supplemented from time
to time).
"Patent, Trademark and Copyright Assignment" means the Patent Collateral
Assignment in the form attached hereto as Exhibit D.
"PBGC" means the Pension Benefit Guaranty Corporation and any successor
to all or any part of such corporation's functions under ERISA.
"Permitted Liens" means: (a) the Liens created under the Security
Documents; (b) carriers', warehousemen's, mechanics', landlords', materialmen's,
suppliers', tax, assessment, governmental and other like liens and charges
arising in the ordinary course of business securing obligations that are not
incurred in connection with the obtaining of any advance or credit and which are
not overdue, or are being contested in good faith by appropriate proceedings,
provided that, in accordance with GAAP, adequate reserves have been set aside on
the books of the Borrower for the eventual payment thereof in the event it is
determined that such obligations are payable by the Borrower; (c) Liens arising
in connection with worker's compensation, unemployment insurance, appeal and
release bonds and progress payments under government contracts; (d) any
"banker's lien" or similar right of offset; (e) any lien arising in connection
with a Capitalized Lease Obligation not prohibited hereunder on the asset which
is the subject of the related lease; (f) Liens for any Taxes, or other
governmental charges, either not delinquent or secured by a bond reasonably
acceptable to the Lender or not yet due and being contested in good faith and by
appropriate proceedings, so long as (x) such proceedings shall not involve any
substantial danger of the sale, forfeiture or loss of a material portion of the
Collateral or have a Material Adverse Effect on the Borrower, or (y) a bond or
other security acceptable to the Lender, in its sole discretion, has been posted
or provided in such manner and amount as to assure the Lender that any amounts
determined to be due will be promptly paid in full when such contest is
determined; and (g) Liens existing on the Effective Date in favor of holders of
Existing Debt, (h) purchase money security interests in specific equipment, (i)
leases of specific equipment, (j) Liens existing
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<PAGE> 9
on equipment at the time of its acquisition or lease by the Borrower, provided
that the Lien is confined solely to equipment and improvements acquired prior to
January 21, 1999, (k) any judgment that does not otherwise cause an Event of
Default, unless the judgment is not discharged or the execution thereof
effectively stayed and bonded against pending appeal within 30 days of the entry
thereof, (l) licenses granted to others on the Borrower's intellectual property
that do not interfere in any material respect with the business of the Borrower,
and (m) easements, rights of way, servitudes or zoning or building restrictions
and other minor encumbrances on real property and irregularities in the title to
such property which do not in the aggregate materially impair the use or value
of such property or risk the loss or forfeiture of title thereto.
"Person" means any individual, corporation, partnership, trust, joint
stock company, unincorporated organization, association or other entity or
organization, including any government, political subdivision, agency or
instrumentality thereof.
"Pledge Agreement" means the Pledge Agreement substantially in the form
attached hereto as Exhibit E.
"Restricted Payment" means, as applied to the Borrower, (a) any dividend
or other distribution on any of the shares now or hereafter outstanding of the
capital stock of the Borrower or return of capital to its stockholders as such;
and (b) any purchase or other acquisition for value of (i) any shares of the
capital stock of the Borrower (except shares acquired solely upon the conversion
thereof into other shares of its capital stock) or (ii) any security convertible
into, or any option, warrant or other right to acquire, shares of the capital
stock of the Borrower.
"Security Agreement" means the Security Agreement substantially in the
form of Exhibit C attached hereto.
"Security Documents" means the Security Agreement, the Pledge Agreement,
the Patent, Trademark and Copyright Security Agreement and the Other Assurances.
"Subsidiary" means any corporation, partnership, joint venture,
association or other business entity of which the Borrower now or hereafter
owns, directly or indirectly, securities or other ownership interests having
ordinary voting power to elect a majority of the board of directors or other
governing body thereof.
"Taxes" means any and all governmental or quasi-governmental fees
(including, without limitation, license, filing and registration fees), taxes,
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, excise, stamp, real or personal
property, ad valorem, withholding, social security (or similar), unemployment,
occupation, use, service, service use, license, net worth, payroll, franchise,
severance, transfer, recording, employment, premium, windfall profits,
environmental (including taxes under section 59A of the Code, as amended),
customs duties, capital stock, profits, disability, sales, registration, value
added, alternative or add-on minimum, estimated or other taxes, assessments or
charges imposed by any federal, state, local or foreign governmental entity and
any interest, penalties, or additions to tax attributable thereto.
1.2 Accounting Terms. Each accounting term not defined herein and each
accounting term partly defined herein to the extent not defined shall be
construed in accordance with GAAP.
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ARTICLE 2
LOANS
2.1 Loans.
(a) Loans. Subject to all of the terms and conditions of this Agreement,
the Lender agrees to make three loans (the "LOANS") to the Borrower in the
aggregate amount not to exceed twenty million dollars ($20,000,000) each to be
governed by the terms and conditions of, and repaid in accordance with, this
Agreement. The first Loan, in an amount not to exceed five million dollars
($5,000,000), will be made upon satisfaction of the conditions specified in
Section 3.2. The second Loan, in an amount not to exceed five million dollars
($5,000,000), will be made as soon as reasonably practicable after the
conditions set forth in Section 3.3 have been satisfied. The third Loan, in an
amount not to exceed ten million dollars ($10,000,000), will be made as soon as
reasonably practicable after the conditions set forth in Section 3.4 have been
satisfied. The Lender shall have no obligation to make the second Loan after
July 1, 1999 and the third Loan after September 30, 1999. Amounts repaid in
respect of the Loans (whether repaid when due or prepaid) may not be reborrowed.
(b) Notes. Each Loan made by the Lender shall be evidenced by a single
promissory note of the Borrower, such note to be substantially in the form
attached hereto as Exhibit A, dated the date on which such Loan is made, payable
to the order of the Lender and in a principal amount equal to the amount of such
Loan and otherwise duly completed. On the date on which the Borrower submits a
Borrowing Request for a Loan, the Borrower shall deliver the Note to the Lender.
(c) Borrowing Procedures for Loan. The Borrower shall give the Lender
written notice of its request for the first and second Loans no later than 11
a.m. on the Business Day on which the Loan requested is to be made and two (2)
Business Days' written notice of its request for the third Loan, specifying in
each case the information required by the form of Borrowing Request attached
hereto as Exhibit B. No Borrowing Request may be delivered to the Lender after
the date falling thirty (30) days after the Effective Date. Subject to the
Lender's receipt of a Borrowing Request, and satisfaction of the other
conditions specified in Article 3 hereof on the date requested, the Lender shall
wire transfer the portion of the Loan so requested as specified in the Borrowing
Request.
2.2 Interest.
(a) Interest Rate. The Obligations shall bear interest from the date of
disbursement on the unpaid principal amount thereof until such amount shall
become due and payable (whether upon Maturity, by Acceleration or otherwise) at
the lesser of the "Prime Rate" or the maximum permitted by law. Upon Maturity,
the Loans (or such portion thereof as has so become due and payable) shall, to
the extent permitted by applicable law, bear interest at a rate equal to the
lesser of the Prime Rate plus two percentage points per annum or the maximum
permitted by law. "Prime Rate" is a per annum rate equal to the rate of interest
published in the "Money Rates" section of The Wall Street Journal as the "prime
rate" (the "PRIME RATE"). The interest rate chargeable hereunder in respect of
the Loans shall be increased or decreased, as the case may be, without notice or
demand of any kind, upon the announcement of any change in the Prime Rate. Each
change in the Prime Rate shall be effective hereunder on the first day following
the announcement of such change.
(b) Payment of Interest. Interest on the average daily balance of the
principal outstanding on the Loan shall be payable in arrears on the last day of
each month and on the Final Maturity Date.
(c) Computation of Interest. Interest shall be computed for the actual
number of days elapsed on the basis of a year consisting of three hundred
sixty-five (365) days.
(d) Excess Interest. The contracted for rate of interest of the Loans
contemplated hereby, without
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limitation, shall consist of the following: (i) the interest rate set forth in
Section 2.1(a), calculated and applied to the principal balance of the
Obligations in accordance with the provisions of this Agreement; (ii) interest
after an Event of Default, calculated and applies to the amount of the
Obligations in accordance with the provisions hereof, and (iii) all Additional
Sums (as herein defined), if any. The Borrower agrees to pay an effective
contracted for rate of interest which is the sum of the above-referenced
elements. The other charges, goods, things in action or any other sums or things
of value paid or payable by Borrower (collectively, the "ADDITIONAL SUMS"),
whether pursuant to this Agreement or any other documents or instruments in any
way pertaining to this lending transaction or otherwise with respect to this
lending transaction, that under any applicable law may be deemed to be interest
with respect to this lending transaction, for the purpose of any applicable law
that may limit the maximum amount of interest to be charged with respect to this
lending transaction, shall be payable by Borrower as, and shall be deemed to be,
additional interest and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the inclusion of the Additional
Sums.
(e) It is the intent of the parties to comply the usury laws of the
State of California (the "APPLICABLE USURY LAW"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Agreement, or in any of
the documents securing payment hereof or otherwise relating hereto, in no event
shall this Agreement or such documents require the payment or permit the
collection of interest in excess of the maximum contract rate permitted by the
Applicable Usury Law (the "MAXIMUM INTEREST RATE"). In the event (i) any such
excess of interest otherwise would be contracted for, charged or received from
the Borrower or otherwise in connection with the loan evidenced hereby, or (ii)
the maturity of the Obligations is accelerated in whole or in part, or (iii) all
or part of the Obligations shall be prepaid, so that under any of such
circumstances the amount of interest contracted for, shared or received in
connection with the loan evidenced hereby, would exceed the Maximum Interest
Rate, then in any such event (A) the provisions of this paragraph shall govern
and control, (B) neither Borrower nor any other Person now or hereafter liable
for the payment of the Obligations shall be obligated to pay the amount of such
interest to the extent that it is in excess of the Maximum Interest Rate, (C)
any such excess which may have been collected shall be either applied as a
credit against the then unpaid principal amount of the Obligations or refunded
to the Borrower, at the Lender's option, and (D) the effective rate of interest
shall be automatically reduced to the Maximum Interest Rate. It is further
agreed, without limiting the generality of the foregoing, that to the extent
permitted by the Applicable Usury Law; (x) all calculations of interest which
are made for the purpose of determining whether such rate would exceed the
Maximum Interest Rate shall be made by amortizing, prorating, allocating and
spreading during the period of the full stated term of the loan evidenced
hereby, all interest at any time contracted for, charged or received from the
Borrower or otherwise in connection with such loan: and (y) in the event that
the effective rate of interest on the loan should at any time exceed the Maximum
Interest Rate, such excess interest that would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law shall be paid to the
Lender's from time to time, if and when the effective interest rate on the loan
otherwise falls below the Maximum Interest Rate, to the extent that interest
paid to the date of calculation does not exceed the Maximum Interest Rate, until
the entire amount of interest which would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law has been paid in full.
The Borrower further agrees that should the Maximum Interest Rate be increased
at any time hereafter because of a change in the Applicable Usury Law, such
increases shall apply to all indebtedness evidenced hereby regardless of when
incurred; but, again to the extent not prohibited by, the Applicable Usury Law,
should the Maximum Interest Rate be decreased because of a change in the
Applicable Usury Law, such decreases shall not apply to the indebtedness
evidenced hereby regardless of when incurred.
2.3 Payments of Principal.
(a) Repayment. The Borrower shall repay the principal amount of the Loan
on the Final Maturity Date.
(b) Prepayment of Loan. The Loans are subject to prepayment as follows:
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(i) The Borrower may prepay the Loans in part or whole at any
time without penalty or premium.
(ii) The Borrower shall promptly prepay the interest accrued on
and the principal outstanding of the Loans upon the occurrence of a
Maturity Triggering Event or a sale by the Borrower of substantially all
of its assets.
(iii) The Borrower shall, to the extent permitted by the Existing
Debt, promptly prepay the interest accrued on and the principal
outstanding of the Loans from the net cash proceeds of any equity in the
Borrower issued thereby or of any Indebtedness incurred by the Borrower
which is subordinate to the Obligations.
(c) Payments. All payments of interest on and principal amounts of the
Loans and other amounts payable by the Borrower hereunder shall be in United
States Dollars, in immediately available funds, to Wells Fargo Bank, 121 Park
Center Plaza, San Jose, CA 95113, ABA Routing No. 121000248, for credit to the
Lender's account No. 4572045219, not later than 2:00 p.m. San Francisco,
California time on the date on which such payment is due. All (whether or not
scheduled) payments received after 2:00 p.m. San Francisco, California time
shall be considered to have been received the next Business Day. The Borrower
shall give the Lender notice on the date of any prepayments. Whenever any
payment falls on a day which is not a Business Day, such payment shall be made
the next succeeding Business Day, such extension of time shall be included in
the computation of interest. The Lender is hereby authorized to note the date,
amount and interest rate of the Loan and each payment of principal and interest
with respect thereto on the Lender's books and records (either manually or by
electronic entry), which notation shall be presumptive evidence of the
information noted absent manifest error.
(d) Offset. In addition to and not in limitation of all rights of offset
that the Lender may have under applicable law, the Lender, upon the occurrence
and during the continuance of an Acceleration, shall have the right to
appropriate and apply to the payment of all Obligations any and all balances,
credits or moneys of the Borrower then or thereafter with the Lender.
ARTICLE 3
CONDITIONS OF CLOSING AND LOANS
3.1 Closing. The execution and delivery of the Loan Documents by all of
the parties thereto shall take place on June 11, 1999 or such later date as
shall be agreed to by the Lender and the Borrower (the "EFFECTIVE DATE"), at the
offices of Pillsbury Madison & Sutro LLP, 2550 Hanover Street, Palo Alto,
California 94304.
3.2 Conditions to First Loan. The obligation of the Lender to disburse
any portion of the first Loan shall be subject to the prior or contemporaneous
satisfaction of each of the following conditions precedent:
(a) Closing Documents. The Lender shall have received all of the
following, each duly executed (where appropriate) and dated as of the Effective
Date (or such earlier date as shall be satisfactory to the Lender), in form and
substance satisfactory to the Lender:
(i) This Agreement.
(ii) The Borrowing Request for the first Loan.
(iii) The Note for the first Loan.
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<PAGE> 13
(iv) The Common Stock Purchase Warrant granted by the Borrower,
as issuer, to the Lender, as purchaser.
(v) A certificate of the Secretary or an Assistant Secretary of
the Borrower as to (A) the Borrower's bylaws, (B) authorization of the
execution, delivery and performance of this Agreement and all of the
other Loan Documents executed by the Borrower (including action of
shareholders where required) and (C) the incumbency and signatures of
Authorized Officers authorized to act hereunder and thereunder.
(vi) A certificate, in the form of Exhibit F attached hereto,
signed by a Authorized Officer of the Borrower, stating (A) that the
representations and warranties contained in Article 4 hereof are then
true and accurate as though made on and as of such date, and (B) that
there has then occurred no Event of Default or Incipient Default which
is continuing.
(vii) Articles of Incorporation of the Borrower, certified to by
the Secretary of State of Delaware not more than ten (10) days before
the Effective Date.
(b) No Existing Default. No Event of Default or Incipient Default shall
exist on the Effective Date, or after giving effect to the transactions
contemplated to take place hereunder on such date.
(c) Representations and Warranties Correct. The representations and
warranties set forth in Article 4 shall be true and correct in all material
respects on the Effective Date, and after giving effect to the transactions
contemplated to occur on such date.
(d) Consents and Approvals. The consents of the holders of the Existing
Debt and all Governmental Approvals required to be taken, given or obtained for
the execution and delivery of, and the performance of the obligations under, the
Loan Documents executed on the Effective Date shall have been taken, given or
obtained, as the case may be, and shall be in full force and effect on the
Effective Date and the time for appeal or challenge with respect to any thereof
shall have expired (or, if an appeal or challenge shall have been taken or
brought, the same shall have been dismissed) and shall not be subject to any
pending proceedings or appeals, administrative, judicial or otherwise.
(e) Litigation. No action, proceeding or investigation shall have been
instituted nor shall governmental action before any Governmental Authority be
threatened, nor shall any order, judgment or decree have been issued or proposed
to be issued by any Governmental Authority to set aside, restrain, enjoin or
prevent the consummation of this Agreement, the transactions contemplated hereby
or by any other Loan Document.
3.3 Conditions to Second Loan. The obligation of the Lender to advance
any portion of the second Loan is subject to the prior or contemporaneous
satisfaction of each of the following conditions precedent:
(a) Merger Agreement and Warrant. The Borrower shall have issued a
common stock purchase warrant on terms agreed between the Borrower and the
Lender and entered into an agreement ("MERGER AGREEMENT") with the Lender
pursuant to which the Borrower will merge into, combine its business and assets
with or transfer substantially all of its business and assets to the Lender.
Nothing in this Agreement, however, shall be deemed to imply an obligation for
the Lender or the Borrower to negotiate the terms of such warrant or for the
Borrower or Lender to agree as to the terms of such warrant or to enter into any
agreement pursuant to which the Borrower will merge into, combine its business
and assets with or transfer substantially all of its business and assets to the
Lender.
(b) No Existing Default. No Event of Default or Incipient Default shall
exist at the date of making such advance or after giving effect to the
transactions contemplated to take place hereunder on such date.
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<PAGE> 14
(c) Representations and Warranties Correct. The representations and
warranties set forth in Article 4 hereof shall be true and correct at the date
of making such advance, and after giving effect to the transactions contemplated
to take place hereunder on such date (except that to the extent that such
representations and warranties by their terms relate solely to an earlier date,
in which such case such representations and warranties shall have been true and
correct in all material respects as of the date when made).
(d) Borrowing Request and Note. The Lender shall have received a
Borrowing Request and the Note in connection with the request for the second
Loan.
(e) No Material Adverse Change. No Material Adverse Change shall have
occurred since the Effective Date.
3.4 Conditions to Third Loan. The obligation of the Lender to advance
any portion of the third Loan is subject to the prior or contemporaneous
satisfaction of each of the following conditions:
(a) Closing Documents. The Lender shall have received all of the
following, each duly executed (where appropriate), in form and substance
satisfactory to the Lender:
(i) The Security Agreement.
(ii) The Patent, Trademark and Copyright Security Agreement.
(iii) The Pledge Agreement.
(iv) Uniform Commercial Code financing statements naming the
Borrower as debtor and the Lender as secured party for filing in the
offices as the Lender shall reasonably request.
(v) Certificates of existence or good standing for the Borrower
from the offices of the Secretaries of State of Delaware, California,
Oregon, Washington, Massachusetts, and other states as the Lender shall
reasonably request.
(vi) A written opinion by Messrs. Wilson Sonsini Goodrich and
Rosati, as counsel to the Borrower, covering the matters set forth in
Exhibit G attached hereto.
(vii) Any other document, instrument, undertaking or certificate
stated in any of the Loan Documents to be delivered on the Effective
Date.
(b) No Existing Default. No Event of Default or Incipient Default shall
exist at the date of making such advance or after giving effect to the
transactions contemplated to take place hereunder on such date.
(c) Representations and Warranties Correct. The representations and
warranties set forth in Article 4 hereof and the other Loan Documents shall be
true and correct in all material respects at the date of making such advance,
and after giving effect to the transactions contemplated to take place hereunder
on such date (except that to the extent that such representations and warranties
by their terms relate solely to an earlier date, in which such case such
representations and warranties shall have been true and correct in all material
respects as of the date when made).
(d) Borrowing Request and Note. The Lender shall have received a
Borrowing Request and the Note in connection with the request for the third
Loan.
(e) No Material Adverse Change. No Material Adverse Change shall have
occurred since the Effective Date.
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<PAGE> 15
(f) Payment of Taxes. All fees payable in connection with the execution,
delivery, recordation and filing of all the documents and instruments referred
to in this Agreement shall have been fully paid.
3.5 Conditions for the Benefit of the Lender. The conditions set forth
in this Article 3 are for the exclusive benefit of the Lender and may be waived,
for purposes of this Agreement, only by the Lender.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
In order to induce the Lender to enter into or become a party to this
Agreement and to make the Loan, the Borrower makes the following representations
and warranties to the Lender except as disclosed in the Disclosure Letter:
4.1 Organization of Borrower and Subsidiaries.
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own, lease and operate its respective
properties and to carry on its business as now being conducted. The Borrower is
qualified to do business as a foreign corporation and is in good standing under
the laws of each state or other jurisdiction in which the nature of its business
requires such qualification, except where the failure to be so qualified or in
good standing which, taken together with all other such failures, would not have
a Material Adverse Effect on the Borrower.
(b) The chief executive office of the Borrower is located at Diamond
Multimedia Systems, Inc., 2880 Junction Avenue, San Jose, CA 95134-1922.
4.2 Requisite Power. The Borrower has full corporate power and authority
to execute and deliver this Agreement and the other Loan Documents to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the other Loan Documents and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized and approved by the Borrower's Board of Directors, and except as set
forth in the Disclosure Letter, no other corporate proceedings are necessary to
authorize this Agreement or the consummation of the transactions contemplated
hereby. This Agreement and the Note have been duly and validly executed and
delivered by the Borrower. Each of this Agreement and the Note constitute, and
the other Loan Documents, when executed and delivered by the Borrower will
constitute, a legal, valid and binding agreement of the other parties hereto, it
constitutes a legal, valid and binding agreement of the Borrower, enforceable
against it in accordance with its terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (b) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
4.3 No Conflict. The execution, delivery and performance by the Borrower
of this Agreement and the other Loan Documents and the consummation by the
Borrower of the transactions contemplated hereby and thereby do not and will not
(a) contravene or conflict with the certificate of incorporation or bylaws of
the Borrower, (b) contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to the Borrower or any of its Subsidiaries, (c) constitute a
default under or give rise to a right of termination, cancellation or
acceleration of any right or obligation of the Borrower or any of its
Subsidiaries or to a loss of any benefit to which the Borrower or any of its
Subsidiaries is entitled under any provision of any agreement, contract or other
instrument binding upon the Borrower or any of its Subsidiaries or any license,
franchise, permit or other similar authorization held by the Borrower or any of
its Subsidiaries, or (d) result in the creation or
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<PAGE> 16
imposition of any Lien on any asset of the Borrower or any of its Subsidiaries,
except for such contraventions, conflicts or violations referred to in clause
(b) or defaults, rights of termination, cancellation or acceleration, or losses
or Liens referred to in clause (c) or (d) that would not, individually or in the
aggregate, have a Material Adverse Effect on the Borrower.
4.4 Authorities. The execution, delivery and performance by the Borrower
of this Agreement and the other Loan Documents and the consummation of the
transactions contemplated hereby and thereby require no consent of, or filing
with, any governmental body, agency, official or authority other than (a)
compliance with any applicable requirements of the 1933 Act and state securities
laws, and (b) other actions or filings which if not taken or made would not,
individually or in the aggregate, have a Material Adverse Effect on the
Borrower.
4.5 No Event of Default. No Event of Default or Incipient Default has
occurred and is continuing or would result from the execution of this Agreement.
4.6 Subsidiaries.
(a) Except as set forth on the Disclosure Letter, the Borrower does not
have any subsidiaries, or any interests, direct or indirect, in any corporation,
partnership, joint venture or other business entity. The Disclosure Letter shows
for each subsidiary (i) the respective jurisdictions of their corporation; and
(ii) the jurisdictions in which they are qualified to do business as a foreign
corporation.
(b) Each of the Borrower's Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted. Each of the Subsidiaries is duly qualified as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the
character of its properties owned or leased or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
or in good standing would not have a Material Adverse Effect on the Borrower.
All of the outstanding shares of capital stock of the Subsidiaries are validly
issued, fully paid and nonassessable and, other than directors' qualifying
shares in the case of foreign Subsidiaries, are owned by the Borrower or by a
wholly owned Subsidiary of the Borrower free and clear of all Liens except for
the Lien in favor of Finova, and there are no irrevocable proxies with respect
to such shares. Except as set forth in the Disclosure Letter and except for the
capital stock of its Subsidiaries, the Borrower does not own, directly or
indirectly, any capital stock or other ownership interest in any corporation,
partnership, joint venture, limited liability company or other entity which is
material to the business of the Borrower and its Subsidiaries, taken as a whole.
There are no material restrictions on the Borrower to vote the stock of any of
its Subsidiaries.
4.7 Indebtedness. The Borrower is not liable for any Indebtedness except
for the Existing Debt and Indebtedness incurred under the Loan Documents.
4.8 Intellectual Property Rights.
(a) The Disclosure Letter accurately lists and describes in summary form
all United States and foreign letters patent and pending applications, patent,
trade name and trademark registrations and pending applications, service mark
registrations and pending applications, copyright registrations and pending
applications, those trade names and common law trademarks which are currently in
use by the Borrower or any Subsidiary, now owned in whole or in part by the
Borrower or any Subsidiary.
(b) The Borrower or its Subsidiaries owns each of the patents and patent
applications referred to in the Borrower SEC Documents and, except as set forth
in the Borrower SEC Documents, (i) to the knowledge of the Borrower, each of the
Borrower and its Subsidiaries owns or possesses, or could obtain ownership or
possession of (on terms not materially adverse to the consolidated financial
position, stockholders' equity, or results of operations of the Borrower and its
Subsidiaries taken as a whole) adequate
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<PAGE> 17
and enforceable rights to use all other Intellectual Property (as defined below)
necessary for the conduct of their businesses, (ii) no claims are pending or, to
the knowledge of the Borrower, threatened that the Borrower or any Subsidiary is
infringing on or otherwise violating the rights of any Person with regard to any
Intellectual Property that, if the subject of an unfavorable decision, ruling or
finding, could reasonably be expected to (or, with respect to any pending patent
litigation, the Borrower does not believe will) have a Material Adverse Effect
and the Borrower knows of no basis therefor, and (iii) to the knowledge of the
Borrower, no person is infringing on or otherwise violating any right of the
Borrower or any Subsidiary with respect to any Intellectual Property owned by or
licensed to the Borrower or any Subsidiary. Except as set forth in the Borrower
SEC Documents, the Borrower has received no notice of potential indemnity claims
from customers based upon a notice of infringement any such customer has
received from a patent owner relating to an assertion of infringement of a
patent other than potential indemnity claims that individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect.
The Borrower's policy is to require that its employees execute agreements
assigning to the Borrower all rights such employees otherwise would have in
Intellectual Property developed by such employees while in the employ of the
Borrower.
For purposes of this Agreement, "INTELLECTUAL PROPERTY" shall mean, with
respect a Person, patents, copyrights, trademarks (registered and unregistered),
service marks, brand names, trade names, and registrations in any jurisdiction
of, and applications in any jurisdiction to register, the foregoing, technology,
know-how, software, and tangible or intangible proprietary information or
materials and any other trade secrets related thereto.
4.9 Litigation. Except as disclosed in the Borrower SEC Documents filed
prior to the date hereof, there is no action, suit, investigation or proceeding
pending against, or to the knowledge of the Borrower threatened against or
affecting, the Borrower or any of its Subsidiaries or any of their respective
properties before any court or arbitrator or any governmental body, agency or
official which would reasonably be expected to have a Material Adverse Effect on
the Borrower.
4.10 Taxes. Except as set forth in the Borrower Balance Sheet (including
the notes thereto) or as otherwise set forth in the Disclosure Letter and except
as would not, individually or in the aggregate, have a Material Adverse Effect
on the Borrower, (a) all Borrower Tax Returns required to be filed with any
taxing authority by, or with respect to, the Borrower and its Subsidiaries have
been filed in accordance with all applicable laws; (b) the Borrower and its
Subsidiaries have timely paid all Taxes shown as due and payable on the Borrower
Tax Returns that have been so filed, and, as of the time of filing, the Borrower
Tax Returns correctly reflected the facts regarding the income, business,
assets, operations, activities and the status of the Borrower and its
Subsidiaries (other than Taxes which are being contested in good faith and for
which adequate reserves are reflected on the Borrower Balance Sheet); (c) the
Borrower and its Subsidiaries have made provision for all Taxes payable by the
Borrower and its Subsidiaries for which no Borrower Tax Return has yet been
filed; (d) the charges, accruals and reserves for Taxes with respect to the
Borrower and its Subsidiaries reflected on the Borrower Balance Sheet are
adequate under GAAP to cover the Tax liabilities accruing through the date
thereof; (e) there is no action, suit, proceeding, audit or claim now proposed
or pending against or with respect to the Borrower or any of its Subsidiaries in
respect of any Tax where there is a reasonable possibility of an adverse
determination; and (f) to the best of the Borrower's knowledge and belief,
neither the Borrower nor any of its Subsidiaries is liable for any Tax imposed
on any entity other than such Person, except as the result of the application of
Treas. Reg. section 1.1502-6 (and any comparable provision of the tax laws of
any state, local or foreign jurisdiction) to the affiliated group of which the
Borrower is the common parent. For purposes of this Agreement, "TAX RETURNS"
shall mean any return, report, form or similar statement required to be filed
with respect to any Tax (including any attached schedules), including, without
limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
4.11 Title to Property. The Borrower and each of its Subsidiaries has
good and marketable title to all of its material properties and assets, free and
clear of all Liens, except for Permitted Liens.
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4.12 Leaseholds. Neither the Borrower nor any of its Subsidiaries has
given or received notice of any material default under any material lease under
which the Borrower or any of its Subsidiaries is the lessee of real property
(each a "BORROWER LEASE" and collectively the "BORROWER LEASES") and, to the
knowledge of the Borrower, neither the Borrower nor any of its Subsidiaries nor
any other party thereto is in default in any material respect under any of the
Borrower Leases. All of the Borrower Leases are in full force and effect, and
are valid, binding and enforceable in accordance with their terms, except (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' or
lessors' rights generally and (b) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies. Except as set forth in the Disclosure Letter, neither the Borrower nor
any of its Subsidiaries has leased, subleased, licensed or assigned, as the case
may be, all or any portion of its leasehold interest under any Borrower Lease to
any person.
4.13 Insurance. The insurance carried by the Borrower and its
Subsidiaries is in such types and amounts and covering such risks as are
consistent with customary practices and standards of companies engaged in
businesses and operations similar to those of the Borrower and its Subsidiaries.
Except as would not have a Material Adverse Effect on the Borrower, all such
insurance is in full force and effect and none of the Borrower nor any of its
Subsidiaries is in default thereunder. Except as would not have a Material
Adverse Effect on the Borrower, all claims thereunder have been filed in a due
and timely fashion. Except as would not have a Material Adverse Effect on the
Borrower, neither the Borrower nor any of its Subsidiaries has been notified in
writing of a refusal of any material insurance coverage relating to products
liability (including renewals of any such products liability coverage) by any
insurance carrier to which it has applied for insurance during the past three
(3) years.
4.14 Labor Matters. There are no controversies pending or, to the best
knowledge of each of the Borrower and its respective Subsidiaries, threatened,
between the Borrower or any of its Subsidiaries and any of their respective
employees, which controversies have or could reasonably be expected to have a
Material Adverse Effect of the Borrower. As of the Effective Date, neither the
Borrower nor any of its Subsidiaries is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Borrower or its Subsidiaries nor does the Borrower or its Subsidiaries know of
any activities or proceedings of any labor union to organize any such employees
as of the Effective Date which have or could reasonably be expected to have a
Material Adverse Effect on the Borrower and its Subsidiaries. As of the
Effective Date, neither the Borrower nor any of its Subsidiaries has any
knowledge of any strikes, slowdowns, work stoppages or lockouts, or threats
thereof, by or with respect to any employees of the Borrower or any of its
Subsidiaries as of the Effective Date which have or could reasonably be expected
to have a Material Adverse Effect on the Borrower and its Subsidiaries.
4.15 SEC Filings.
(a) The Borrower has made available to the Lender (i) its annual reports
on Form 10-K for its fiscal years ended December 31, 1996, 1997 and 1998, (ii)
its quarterly reports on Form 10-Q for its quarter ended March 31, 1999, (iii)
its proxy or information statements relating to meetings of, or actions taken
without a meeting by, the stockholders of the Borrower held since December 31,
1998, and (iv) all of its other reports, statements, schedules and registration
statements filed with the SEC since December 31, 1998 (the documents referred to
in this Section 4.15(a) being referred to collectively as the "BORROWER SEC
DOCUMENTS"). The Borrower's quarterly report on Form 10-Q for its fiscal quarter
ended March 31, 1998 is referred to herein as the "BORROWER 10-Q."
(b) As of its filing date, each Borrower SEC Document complied as to
form in all material respects with the applicable requirements of the Exchange
Act and the 1933 Act.
(c) As of its filing date, each Borrower SEC Document 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 made
therein, in the light of the circumstances under which they were made, not
misleading.
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(d) Each such registration statement, as amended or supplemented, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
4.16 Financial Statements. The audited consolidated financial statements
and unaudited consolidated interim financial statements of the Borrower
(including any related notes and schedules) included in its annual reports on
Form 10-K and the quarterly report on Form 10-Q referred to in Section 4.15
fairly present in all material respects, in conformity with GAAP applied on a
consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of the Borrower and its consolidated
Subsidiaries as of the dates thereof and their consolidated results of
operations and changes in financial position for the periods then ended (subject
to normal year-end adjustments and the absence of notes in the case of any
unaudited interim financial statements). For purposes of this Agreement,
"BORROWER BALANCE SHEET" means the consolidated balance sheet of the Borrower as
of March 31, 1999 set forth in the Borrower 10-Q and "BORROWER BALANCE SHEET
DATE" means March 31, 1999.
4.17 Absence of Certain Changes. Except as set forth in the Disclosure
Letter, since Borrower Balance Sheet Date, the Borrower and its Subsidiaries
have conducted their business in the ordinary course consistent with past
practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably would be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Borrower;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Borrower or any
repurchase, redemption or other acquisition by the Borrower or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Borrower or any of its Subsidiaries;
(c) any amendment of any material term of any outstanding security of
the Borrower or any of its Subsidiaries;
(d) any transaction or commitment made, or any contract, agreement or
settlement entered into, by (or judgment, order or decree affecting) the
Borrower or any of its Subsidiaries relating to its assets or business
(including the acquisition or disposition of any assets) or any relinquishment
by the Borrower or any of its Subsidiaries of any contract or other right, in
either case, material to the Borrower and its Subsidiaries taken as a whole,
other than transactions, commitments, contracts, agreements or settlements
(including without limitation settlements of litigation and tax proceedings) in
the ordinary course of business consistent with past practice, those
contemplated by this Agreement, or as agreed to in writing by the Borrower;
(e) any change in any method of accounting or accounting practice (other
than any change for tax purposes) by the Borrower or any of its Subsidiaries,
except for any such change which is not significant or which is required by
reason of a concurrent change in GAAP; or
(f) any (i) grant of any severance or termination pay to (or amendment
to any such existing arrangement with) any director, officer or employee of the
Borrower or any of its Subsidiaries, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any such
existing agreement) with any director, officer or employee of the Borrower or
any of its Subsidiaries, (iii) increase in benefits payable under any existing
severance or termination pay policies or employment agreements or (iv) increase
in (or amendments to the terms of) compensation, bonus or other benefits payable
to directors, officers or employees of the Borrower or any of its Subsidiaries,
other than in the ordinary course of business consistent with past practice, as
permitted by this Agreement, or as agreed to in
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writing by the Borrower.
4.18 No Undisclosed Material Liabilities. There are no liabilities of
the Borrower or any Subsidiary of the Borrower of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, other
than:
(a) liabilities disclosed or provided for in the Borrower Balance Sheet
or in the notes thereto;
(b) liabilities which in the aggregate would not reasonably be expected
to have a Material Adverse Effect on the Borrower;
(c) liabilities disclosed in Borrower SEC Documents filed prior to the
date hereof or set forth in the Disclosure Letter; and
(d) liabilities under this Agreement.
4.19 Employee Benefit Plans.
(a) Prior to the date hereof, the Borrower has provided the Borrower
with a list (set forth in the Disclosure Letter) identifying each material
"employee benefit plan," as defined in section 3(3) of ERISA, each material
employment, severance or similar contract, plan, arrangement or policy
applicable to any director, former director, employee or former employee of the
Borrower and each material plan or arrangement (written or oral), providing for
compensation, bonuses, profit-sharing, stock option or other stock related
rights or other forms of incentive or deferred compensation, vacation benefits,
insurance coverage (including any self-insured arrangements), health or medical
benefits, disability benefits, workers' compensation, supplemental unemployment
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance benefits)
which is maintained, administered or contributed to by the Borrower and covers
any employee or director or former employee or director of the Borrower, or
under which the Borrower has any liability. Such material plans (excluding any
such plan that is a "multiemployer plan," as defined in section 3(37) of ERISA)
are referred to collectively herein as the "BORROWER EMPLOYEE PLANS."
(b) Except as set forth in the Disclosure Letter, each Borrower Employee
Plan has been maintained in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations (including but
not limited to ERISA and the Code) which are applicable to such Plan, except
where failure to so comply would not, individually or in the aggregate, have a
Material Adverse Effect on the Borrower.
(c) Neither the Borrower nor any affiliate of the Borrower has incurred
a liability under Title IV of ERISA that has not been satisfied in full, and no
condition exists that presents a material risk to the Borrower or any affiliate
of the Borrower of incurring any such liability other than liability for
premiums due the Pension Benefit Guaranty Corporation (which premiums have been
paid when due).
(d) All Borrower Employee Plans that are intended to be qualified under
section 401(a) of the Code have been the subject of determination, opinion,
notification or advisory letters from the Internal Revenue Service ("IRS") which
the company has made available to the Lender. Each such letter as the effect of
stating that each such Borrower Employee Plan is qualified and is exempt from
Federal income taxes under section 501(a) of the Code. The remedial amendment
period with respect to each such Borrower Employee Plan has not expired for any
amendment to any such Borrower Employee Plan that was made on or after the date
of the application for the determination, opinion, notification or advisory
letter. No such determination, opinion, notification or advisory letter has been
revoked, nor has any event occurred since the date of the most recent such
letter that would adversely affect its qualification, other than as set forth in
the Disclosure Letter.
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<PAGE> 21
(e) Except as set forth in the Disclosure Letter, no director or officer
or other employee of the Borrower or any of its Subsidiaries will become
entitled to any retirement, severance or similar benefit or enhanced or
accelerated benefit (including any acceleration of vesting or lapse of
repurchase rights or obligations with respect to any employee stock option or
other benefit under any stock option plan or compensation plan or arrangement of
the Borrower) solely as a result of the transactions contemplated hereby.
(f) Except as reflected in Disclosure Letter, no Borrower Employee Plan
provides post-retirement health and medical, life or other insurance benefits
for retired employees of the Borrower or any of its Subsidiaries (other than
benefit coverage mandated by applicable statute, including benefits provided
pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as
codified in Code section 4980B and ERISA section 601 et seq., as amended from
time to time ("COBRA")).
(g) Except as set forth in the Disclosure Letter, there has been no
amendment to, written interpretation or announcement (whether or not written) by
the Borrower or any of its affiliates relating to, or change in employee
participation or coverage under, any Borrower Employee Plan which would increase
materially the expense of maintaining such Borrower Employee Plan above the
level of the expense incurred in respect thereof for the twelve (12) months
ended on the Borrower Balance Sheet Date.
4.20 Compliance With Laws. Neither the Borrower nor any of its
Subsidiaries is in violation of, or has since January 1, 1999 violated, any
applicable provisions of any laws, statutes, ordinances or regulations except
for any violations that, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on the Borrower.
4.21 Environmental Laws. Except for such exceptions as, individually or
in the aggregate, have not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Borrower, (a) no notice, notification, demand,
request for information, citation, summons, complaint or order has been received
by, and no investigation, action, claim, suit, proceeding or review is pending
or, to the knowledge of the Borrower or any of its Subsidiaries, threatened by
any Person against, the Borrower or any of its Subsidiaries, and no penalty has
been assessed against the Borrower or any of its Subsidiaries, in each case,
with respect to any matters relating to or arising out of any Environmental Law;
(b) the Borrower and its Subsidiaries are and have been in compliance with all
Environmental Laws; and (c) there are no liabilities of or relating to the
Borrower or any of its Subsidiaries relating to or arising out of any
Environmental Law of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition,
situation or set of circumstances which could reasonably be expected to result
in such a liability.
4.22 Year 2000 Compliance. Except as would not reasonably be expected to
have a Material Adverse Effect on the Borrower, all of the Borrower's
Information Technology (as defined below) is effectively addresses the Year 2000
issues, and will not cause an interruption in the ongoing operations of the
Borrower's business on or after January 1, 2000. For purposes of this Agreement,
the term "Information Technology" shall mean and include all software, hardware,
firmware, telecommunications systems, network systems, embedded systems and
other systems, components and/or services that are owned or used by the Borrower
in the conduct of its business, and the term "Year 2000 Issues" shall mean the
question of whether product or software accurately processes and stores
date/time data (including, but not limited to calculating, comparing,
displaying, recording and sequencing operations involving date/time data)
during, from and into and between the twentieth and twenty-first centuries, and
the years 1999 and 2000, including correct processing of leap year data.
4.23 Statutory Regulation. The Borrower is not an investment company
within the meaning of the Investment Borrower Act of 1940, as amended, and to
the Borrower's knowledge, is not, directly or indirectly, controlled by or
acting on behalf of any person which is an investment company, within the
meaning of said Act. The Borrower is not subject to any Governmental Requirement
regulating public utilities or similar entities, and is not, within the meaning
of the Public Utility Holding Borrower Act of
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1935, as amended, (a) a holding company; (b) a subsidiary or affiliate of a
holding company; or (c) a public utility. The Borrower is not subject to
regulation under the Federal Power Act or to any other Governmental Requirement
limiting or placing conditions upon their respective power or right to borrow
money.
4.24 Use of Proceeds. The proceeds of the Loans will be used solely for
working capital purposes.
ARTICLE 5
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that so long as any Obligation is
outstanding it shall comply with the following provisions; provided that the
Borrower shall have no obligation under this Article 5 if the Borrower and the
Lender enter into the Merger Agreement so long as that agreement remains in full
force and effect:
5.1 Accounting Records. The Borrower shall maintain adequate books and
accounts in accordance with sound business practices and GAAP consistently
applied. The Borrower shall promptly furnish to the Lender any information
regarding their business or finances as the Lender may reasonably request,
provided that nothing in this Section 5.1 shall entitle the Lender to any
information which would result in a disclosure of the Borrower's proprietary
information or trade secrets.
5.2 Financial Statements and Notices. The Borrower shall furnish to the
Lender all of the following financial statements, information and notices:
(a) The Borrower shall, within thirty (30) days after it is required to
file the same with the Securities and Exchange Commission, deliver copies of the
annual reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Securities and Exchange Commission
may from time to time by rules and regulations prescribe) which the Borrower may
be required to file with the Securities and Exchange Commission pursuant to
section 23 or section 15(d) of the Securities Exchange Act of 1934, as amended.
(b) Promptly but in no event later than one (1) Business Day after (i)
the occurrence of an Event of Default or an Incipient Default, or (ii) any
default or Event of Default as defined in any evidence of Indebtedness or under
any agreement, indenture or other instrument under which such evidence of
Indebtedness has been issued, whether or not such Indebtedness is accelerated or
such default waived, the Borrower shall notify the Lender thereof, and within
five (5) calendar days after obtaining such an occurrence, a statement of a
Authorized Officer setting forth details of such Event of Default or Incipient
Default and the action which the Borrower proposes to take with respect thereto.
(c) As soon as practicable written notice of any actual or threatened
claims, litigation, suits, investigations, proceedings or disputes against or
affecting the Borrower, including, without limitation: (i) any claims,
litigations, suits, investigations, proceedings or disputes involving in
aggregate a monetary amount in excess of fifty thousand dollars ($50,000),
whether or not covered by insurance; (ii) any labor controversy which is
reasonably expected to result in a strike against the Borrower; (iii) any
proposal by any Governmental Authority to acquire any of the assets or business
of the Borrower; (iv) any investigation or proceeding before or by any
Governmental Authority, the effect of which could reasonably be expected
materially to limit, prohibit or restrict the manner in which the Borrower
currently conducts its business or to declare any substance contained in the
products manufactured or distributed by the Borrower to be dangerous; (v) any
summons, citation, directive, notice, complaint, letter or other communication,
whether oral or written, from any person concerning any alleged violation by the
Borrower, or any predecessor of the Borrower, of any Environmental Law, or any
alleged noncompliance of any of the properties or the operations of the Borrower
therewith; or (vi) any investigation of or request for information from the
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Borrower relating to the handling, storage or disposal of any Hazardous
Substance, or the release thereof into the environment, by the Borrower or any
of their predecessors or any other Person, which investigation or request is
other than routine.
5.3 Access. Following the occurrence and during the continuance of an
Event of Default, the Borrower shall permit the Lender, at such reasonable times
and intervals as the Lender may designate upon reasonable notice, at its own
expense (unless as part of an audit of the Collateral as provided in Section 5.1
hereof), by and through the representatives and agents of the Lender, to
inspect, audit and examine its books and records, to make copies thereof, to
discuss its affairs, finances and accounts with its officers and independent
public accountants, and to visit and inspect its properties; provided, however,
that nothing in this Section 5.3 shall entitle the Lender to make inquiries
which would result in disclosure of the Borrower's proprietary information or
trade secrets.
5.4 Maintenance of Existence. The Borrower shall preserve and maintain
its corporate existence.
5.5 Qualifications To Do Business. The Borrower shall qualify to do
business and shall be and (in the case of corporations) remain in good standing
in each jurisdiction in which the nature of its business requires it to be so
qualified, except where the failure to be so qualified could not reasonably be
expected to have a Material Adverse Effect.
5.6 Insurance. The Borrower shall maintain in full force and effect
insurance normal and customary for the business of the Borrower and increase,
and the Borrower shall add to such insurance coverage insurance of the types and
amounts customarily carried in their respective lines of business, including,
but not limited to, fire, public liability, property damage, products liability
and workers' compensation insurance.
5.7 Collateral. The Borrower shall keep the Collateral in good repair,
working order and condition, and from time to time shall make necessary repairs
or replacements thereto so that the Collateral shall be maintained adequately
for their intended use. The Borrower shall not move any Collateral, other than
inventory sold in the ordinary course of business, from its location on the
Effective Date without giving the Lender prior written notice of the new
location to which such Collateral will be moved.
5.8 Taxes and Other Liabilities. The Borrower shall pay and discharge
when due any and all material Taxes, except as may be subject to good faith
contest or as to which a bona fide dispute may arise; provided, however, that
adequate reserves in accordance with GAAP or other provision is made to the
satisfaction of the Lender for prompt payment thereof in the event that it is
found that the same are its obligations.
5.9 Governmental Approvals. The Borrower shall apply for, diligently
pursue, and obtain or cause to be obtained, and shall thereafter maintain in
full force and effect all Governmental Approvals that shall now or hereafter be
necessary under any Governmental Requirement (a) for land use, public and
employee health and safety, pollution or protection of the environment, (b) for
the grant by the Borrower of the Liens granted by any of the Security Documents
and for the validity and enforceability thereof or for the perfection of and the
exercise by the Lender of its rights and remedies thereunder, and (c) for the
operation of the business of the Borrower, except where the failure to be so
qualified could not reasonably be expected to have a Material Adverse Effect.
The Borrower shall promptly notify the Lender in the event of any, and provide
the Lender with a copy of all notices of, denial, suspension, variance or
revocation of any material Governmental Approvals.
5.10 Compliance With Governmental Approvals and Governmental
Requirements. The Borrower shall materially comply with all Governmental
Requirements, all terms and conditions of all Governmental Approvals and with
all other limitations, restrictions, obligations, schedules, timetables and
reporting requirements in any Governmental Requirements.
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<PAGE> 24
5.11 Prevent Contamination. The Borrower shall conduct its operations on
property owned, leased or used by it in such a way as to prevent material
contamination of any part of such property by any Hazardous Substance through
the action of the Borrower. The Borrower shall use reasonable efforts to manage
all Hazardous Substances in a manner that does not require a Hazardous Waste
Facility Permit, and in compliance in all material respects with all
Governmental Requirements and Governmental Approvals. Without limiting the
foregoing covenants, the Borrower shall not intentionally or recklessly, shall
endeavor not to unintentionally, and shall use reasonable efforts to assure that
no other Person to, emit, release or discharge on or from any property owned,
leased exclusively or used exclusively by the Borrower into air, soil, surface
water or groundwater any Hazardous Substance in excess of permitted levels or
reportable quantities, or other concentrations, standards or limitations under
any Governmental Requirements or Governmental Approvals.
5.12 Liens and Perfection.
(a) From and after the Effective Date, the Borrower shall cause the
Security Documents to be and remain, except for Permitted Liens, first priority
Liens on all Collateral for the benefit of the Lender and to become first
priority Liens on any real or personal property now owned or hereafter received
by the Borrower upon the disposition of any of the Collateral which property is
not subject to the Liens created by the Security Documents. The Borrower shall,
upon the request of the Lender, execute and deliver or cause to be executed and
delivered to the Lender any agreement, instrument, conveyance, mortgage, pledge,
hypothecation or financing statement, in form and substance reasonably
satisfactory to the Lender, which agreement, instrument, conveyance, mortgage,
pledge, hypothecation, document or financing statement the Lender shall
reasonably determine is necessary to obtain, perfect or enforce a first priority
Lien on any property owned by the Borrower on which the Lender does not have a
perfected security interest or lien or any property received by the Borrower
upon its disposition of any of the Collateral.
(b) Without limiting the generality of Section 5.12(a) hereof, the
Borrower shall from time to time do all things and deliver all documents and
instruments reasonably requested by the Lender to perfect, protect and enforce
the Liens granted under the Security Documents and pursuant to this Section
5.12. Such acts include, without limitation, the filing of financing statements
under the Uniform Commercial Code and of other documents and instruments under
other applicable laws.
5.13 Change of Location. The Borrower shall notify the Lender not later
than thirty (30) days in advance of any change in the location of its chief
executive office.
ARTICLE 6
NEGATIVE COVENANTS
The Borrower covenants and agrees that so long as any Obligation is
outstanding it shall comply and, if applicable, cause each Subsidiary to comply
with all of the following provisions; provided that the Borrower shall have no
obligation under this Article 6 if the Borrower and the Lender enter into the
Merger Agreement so long as that agreement remains in full force and effect:
6.1 Mergers. Except for consolidations and mergers as may be agreed with
the Lender, the Borrower shall not enter into any merger, consolidation,
reorganization or recapitalization, or any agreement, in each case, to do any of
the foregoing.
6.2 Restricted Payments. The Borrower shall not make Restricted Payments
to its shareholders unless it has received the prior written consent of the
Lender.
6.3 Change of Name, Etc. The Borrower shall not (a) change its name
without at least thirty (30) days' prior notice to the Lender, or (b) change the
nature of its business or engage in any other business
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<PAGE> 25
other than the businesses in which it is engaged as of the Effective Date
without the prior written consent of the Lender.
6.4 Accounting Policies. Except in order to comply with GAAP, the
Borrower shall not materially change any of its accounting policies or its
fiscal year.
6.5 Liens. The Borrower shall not create or permit to exist any Lien
upon any of the Collateral, except for Permitted Liens, or enter into any
agreement to grant a Lien (other than in connection with the granting or
sufferance of a Permitted Lien, provided that such agreement pertains only to
the property covered by the Permitted Lien) on any of the Collateral.
6.6 Contingent Obligations. The Borrower shall not become liable,
directly or indirectly, for any Contingent Obligation except by (a) endorsement
of instruments for deposit, (b) for the existing guarantees made by the Borrower
prior to the date hereof, if any, which are set forth in the Disclosure Letter;
(c) contingent obligation with respect to letters of credit, banker's
acceptances, surety bonds and the like in the ordinary course of business, (d)
contingent obligations of the Borrower with respect to any obligations of a
Subsidiary, (e) contingent obligations in connection with investments, and (f)
contingent obligations consisting of guaranties and other credit support in
respect of transactions entered into in the ordinary course of business and any
other contingent obligations, not to exceed $20,000,000 in the aggregate at any
time.
6.7 Indebtedness. The Borrower shall not incur, create, assume or permit
to exist any Indebtedness except (a) the Obligations, (b) the Existing Debt (and
any amendment, modification, refinancing or refunding thereof on terms no less
materially unfavorable to the Borrower), (c) trade payables and other
contractual obligations to suppliers and customers incurred in the ordinary
course of business, (d) Indebtedness subordinated to the Obligations on terms
reasonably acceptable to the Lender, (e) intercompany Indebtedness, (f)
Indebtedness consisting of Contingent Obligations permitted by Section 6.6, (g)
purchase money Indebtedness secured by Permitted Liens, and (h) other
Indebtedness not to exceed ten million dollars ($10,000,000) at any time
outstanding.
6.8 Sale of Assets. Except for (a) inventory sold in the ordinary course
of business, (b) sales of assets that are obsolete or no longer useful or sales,
and (c) transfers, leases, license or other dispositions of assets that are not,
in the aggregate, material between or among any of the Borrower and its
Subsidiaries, neither the Borrower nor any Subsidiary shall sell, transfer,
lease, license or otherwise dispose of any of its assets.
6.9 Loans to Affiliates. The Borrower shall not, directly or indirectly,
make any loan or advance to any Affiliate, except in the ordinary course of
business and as permitted in Section 6.7.
6.10 Certain ERISA Payments. The Borrower shall not make any payment of
any material liability arising under ERISA or under the Code of any ERISA
Affiliate.
6.11 No Solicitation. The Borrower agrees that, from and after the date
of this Agreement until 12:01 a.m. on Tuesday, June 15, 1999, neither it nor any
of its Subsidiaries nor any of the officers or directors of it or its
Subsidiaries, nor its or their employees, investment bankers, attorneys,
accountants, financial advisors, agents or other representatives (collectively,
"REPRESENTATIVES"), shall directly or indirectly, initiate, solicit or otherwise
induce any inquiries or the making of an Acquisition Proposal (as defined
below). The Borrower further agrees that neither it nor any of its Subsidiaries
nor any of its or its Subsidiaries' officers or directors shall, and that it
shall direct and use its best reasonable efforts to cause its Representatives
not to, directly or indirectly, have any discussions with or provide any
confidential information or data to any Person relating to an Acquisition
Proposal or engage in any negotiations concerning an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal. The Borrower agrees that it will, on the date hereof, immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any Person conducted heretofore with
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respect to any Acquisition Proposal. Nothing contained in this Agreement shall
prevent the Board of Directors of the Borrower from complying with Rule 14d-9
and Rule 14e-2 promulgated under the Securities Exchange Act of 1934 (the
"EXCHANGE ACT") with regard to an Acquisition Proposal; provided that the Board
of Directors of the Borrower shall not recommend that the stockholders of the
Borrower tender their shares in connection with a tender offer. Notwithstanding
the foregoing, the Borrower may continue to provide information to and conduct
negotiations with the parties listed in Schedule 6.11 of the Disclosure Letter
in connection with due diligence related to the proposed equity financing
described therein.
For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any
offer or proposal (other than an offer or proposal by Lender) relating to any
transaction or series of related transactions involving: (a) any purchase from
the Borrower or acquisition by any Person or "group" (as defined under section
13(d) of the Exchange Act and the rules and regulations thereunder) of more than
a five percent (5%) interest in the total outstanding voting securities of the
Borrower or any of its subsidiaries or any tender offer or exchange offer that
if consummated would result in any person or "group" (as defined under section
13(d) of the Exchange Act and the rules and regulations thereunder) beneficially
owning five percent (5%) or more of the total outstanding voting securities of
the Borrower or any of its Subsidiaries or any merger, consolidation, business
combination or similar transaction involving the Borrower; (b) any sale, lease
(other than in the ordinary course of business), exchange, transfer, license
(other than in the ordinary course of business), acquisition or disposition of
more than five percent (5%) of the assets of the Borrower; or (c) any
liquidation or dissolution of the Borrower.
ARTICLE 7
EVENTS OF DEFAULT
7.1 Events of Default. Each of the following shall constitute an Event
of Default under this Agreement:
(a) Payments. The Borrower shall fail to pay when due:
(i) any installment of principal hereunder;
(ii) any payment of interest or any other sum payable hereunder
or under any of the other Loan Documents within three (3) Business Days
of when due; or
(iii) any amounts aggregating to $2,000,000 due to the Lender
under any contract (including any purchase order) pursuant to which the
Lender does business with the Borrower not paid within twenty (20) days
of when due.
(b) Other Covenants and Agreements. The Borrower shall default in the
performance of any of its agreements set forth in any other provision herein or
in any of the other Loan Documents (and not constituting an Event of Default
under any of the other clauses of this Section 7.1).
(c) Representations and Warranties. Any warranty, representation or
certification made by the Borrower or any officer of the Borrower in any of the
Loan Documents, shall be untrue in any material respect or shall omit to state a
fact necessary to make it not materially misleading in light of the
circumstances under which it was made, in any case on any date as of which the
facts set forth are stated or certified.
(d) Judgment. A judgment or judgments shall be entered against the
Borrower in the aggregate amount of five million dollars ($5,000,000) or more on
an uninsured claim or claims or a claim or claims which the insurer does not
undertake to pay, and such judgment or judgments shall remain unstayed,
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<PAGE> 27
unvacated, undischarged or unsatisfied for ten (10) days.
(e) Liens for Pension Contributions. Any material Lien shall have been
placed upon the assets of the Borrower or any ERISA Affiliate under the Code or
ERISA.
(f) Plan Termination or Withdrawal Liability. Any termination of a
single employer plan (as defined in section 4001(a)(15) of ERISA) or any
complete or partial withdrawal from a multiemployer plan (as defined in section
4001(a)(3) of ERISA) shall occur, or steps shall have been taken by any Person
that make it reasonable to expect that such termination or withdrawal will
occur, and such termination or withdrawal could reasonably be expected to result
in liability of the Borrower or any ERISA Affiliate to the PBGC, to a trustee or
to such multiemployer plan in the aggregate amount of one million dollars
($1,000,000) or more. A plan amendment described in section 4041(e) of ERISA
shall be treated as a plan termination for purposes of this paragraph.
(g) Funding Waiver. The Borrower or any ERISA Affiliate shall apply
under section 412 of the Code for a waiver of the minimum funding standard.
(h) Plan Qualification. Any plan of the Borrower or an ERISA Affiliate
that is intended to have qualification under section 401(a) of the Code loses
such qualification, if the loss of such qualification can reasonably be expected
to impose on the Borrower or any ERISA Affiliate liabilities (for additional
taxes, to plan participants or otherwise) in the aggregate amount of one million
dollars ($1,000,000) or more.
(i) Cross-Default. The Borrower shall default in the payment when due,
whether by acceleration or otherwise, of an amount greater than ten million
dollars ($10,000,000) on any of its Indebtedness (not arising hereunder or under
any of the other Loan Documents), or default in the performance or observance
(subject to any applicable grace period) of any agreement, covenant or condition
with respect to any such Indebtedness if the effect of such default is to
accelerate the maturity of any such Indebtedness or to permit the holder or
holders of any such Indebtedness, or any trustee or agent for such holders, to
cause such Indebtedness to become due and payable prior to its expressed
maturity or, if such Indebtedness is a guaranty, to call upon such guaranty in
advance of nonpayment of the guaranteed indebtedness.
(j) Collateral. A judgment creditor of the Borrower shall obtain
possession of any material portion of the Collateral) by any means, including,
but not limited to, levy, distraint, replevin or self-help.
(k) Impairment of Collateral. The Lender's Lien, or the priority
thereof, on any material portion of the Collateral shall become impaired or
otherwise unenforceable.
(l) Bankruptcy. The Borrower shall institute a voluntary case seeking
liquidation or reorganization under Chapter 7 or Chapter 11, respectively, of
the United States Bankruptcy Code, or shall consent to the institution of an
involuntary case thereunder against it; or the Borrower shall file a petition
initiating or shall otherwise institute any similar proceeding under any other
applicable federal or state law, or shall consent thereto; or the Borrower shall
apply for, or by consent or acquiescence there shall be an appointment of, a
receiver, liquidator, sequestrator, trustee or other officer with similar
powers, or the Borrower shall make an assignment for the benefit of creditors;
or the Borrower shall admit in writing its inability to pay its debts generally
as they become due; or, if an involuntary case shall be commenced seeking the
liquidation or reorganization of the Borrower under Chapter 7 or Chapter 11,
respectively, of the United States Bankruptcy Code, or any similar proceeding
shall be commenced against the Borrower under any other applicable federal or
state law, and (i) the petition commencing the involuntary case is not timely
controverted; or (ii) the petition commencing the involuntary case is not
dismissed within forty-five (45) days of its filing; or (iii) an interim trustee
is appointed to take possession of all or a portion of the property and/or to
operate all or any part of the business of the Borrower; or (iv) an order for
relief shall have been issued or entered therein; or a decree or order of a
court having jurisdiction in the premises for the appointment of a receiver,
liquidator, sequestrator, trustee or other officer having similar powers over
the Borrower, or of all or a part of the property of any of the foregoing, shall
have been entered; or any other similar relief shall be
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<PAGE> 28
granted against the Borrower under any applicable federal or state law.
(m) Material Adverse Change. The Lender shall have determined that a
Material Adverse Change other than solely as a result of losses incurred by the
Borrower in the ordinary course of business has occurred since the Effective
Date.
(n) Invalidity of Loan Documents. Any of the Loan Documents shall cease
for any reason to be in full force and effect in any material respect or any
party thereto (other than the Lender) shall purport to disavow its obligations
thereunder, shall declare that it does not have any further obligation
thereunder or shall contest the validity or enforceability thereof.
7.2 Termination of Commitment and Acceleration. If any Event of Default
described in Section 7.1(l) shall occur, the Notes and all other Obligations
shall become immediately due and payable, all without notice of any kind. If any
other Event of Default shall be continuing, the Lender may declare its
obligation to advance further portions of the Loans to be terminated and the
outstanding Notes and all other Obligations to be due and payable, or all of the
foregoing, whereupon the Notes and all other Obligations shall immediately
become due and payable, all as so declared by the Lender and without
presentment, demand, protest or other notice of any kind.
ARTICLE 8
MISCELLANEOUS
8.1 Successors and Assigns. The terms and provisions of this Agreement
shall be binding upon, and the benefits thereof shall inure to, the parties
hereto and their respective successors and assigns; provided, however, that the
Borrower shall not assign this Agreement or any of the rights, duties or
obligations of the Borrower hereunder without the prior written consent of the
Lender.
8.2 No Implied Waiver. No delay or omission to exercise any right, power
or remedy accruing to the Lender upon any breach or default of the Borrower
under this Agreement or under any of the other Loan Documents shall impair any
such right, power or remedy of the Lender, nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default occurring thereafter, nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring theretofore or thereafter.
8.3 Amendments; Waivers.
(a) No amendment, modification or waiver of, or consent with respect to,
any provision of this Agreement, the Note or any of the other Loan Documents
shall in any event be effective unless the same shall be in writing and signed
and delivered by the Lender and the Borrower.
(b) Any amendment, modification, waiver or consent hereunder shall be
effective only in the specific instance and for the specific purpose for which
given.
8.4 Remedies Cumulative. All rights and remedies, either under this
Agreement, by law or otherwise afforded to the Lender shall be cumulative and
not exclusive, and any single or partial exercise of any power or right
hereunder or thereunder does not preclude other or further exercise thereof, or
the exercise of any other power or right.
8.5 Severability. Any provision of this Agreement, the Note or any of
the other Loan Documents which is prohibited or unenforceable in any
jurisdiction shall be, only as to such jurisdiction, ineffective to the extent
of such prohibition or unenforceability, but all the remaining provisions of
this Agreement, the Note and the other Loan Documents shall remain valid.
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<PAGE> 29
8.6 Costs, Expenses and Attorneys' Fees. If, at any time or times, the
Lender or, in subsection (a) below, the Borrower shall employ counsel or other
professional advisors for advice or other representation or shall incur
reasonable legal, appraisal, accounting, consulting or other costs and expenses
in connection with any of the following:
(a) Any litigation, contest, dispute, suit, proceeding or action
(whether instituted by any party to any Loan or any other Person) in any way
relating to the Collateral, any of the Loan Documents or any other agreements to
be executed or delivered in connection herewith, including any litigation,
contest, dispute, suit, case, proceeding or action, and any appeal or review
thereof, in connection with a case commenced by or against the Borrower or any
other Person that may be obligated to the Lender by virtue of the Loan, under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable federal, state or foreign bankruptcy or other similar law;
provided, however, that in any litigation between the Borrower and the Lender
the prevailing party shall be entitled to recover reasonable attorneys' fees
under this Section 8.6(a).
(b) Any attempt to inspect, verify, protect, collect, sell, liquidate or
otherwise dispose of any or all of the Collateral.
In any such event, the reasonable fees of such attorneys and other professional
advisors arising from such services, including those of any appellate
proceedings, and all reasonable expenses, costs, charges and other fees incurred
by such counsel or other professionals in any way or respect arising in
connection with or relating to any of the events or actions described in this
Section 8.6 shall be payable, on demand. Without limiting the generality of the
foregoing, such reasonable expenses, costs, charges and fees may include:
attorneys' fees, costs and expenses, paralegal fees, costs and expenses;
accountants' fees, costs and expenses; appraisers' fees, costs and expenses;
other consultants' fees, costs and expenses; court costs and expenses;
photocopying and duplicating expenses; court reporter fees, costs and expenses;
long distance telephone charges; air express, courier and other delivery
charges; telegram charges; facsimile costs and expenses; secretarial overtime
charges; and expenses for travel, lodging and food paid or incurred in
connection with the performance of such legal or other professional services.
8.7 Indemnification. The Borrower shall indemnify, defend and hold
harmless the Lender and its directors, officers, employees, Affiliates,
attorneys and agents (collectively called the "the Lender Indemnitees") from and
against any and all liabilities, obligations, losses, damages, penalties,
impositions and charges imposed by any Governmental Authority, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever, whether or not well founded, meritorious or in meritorious
(including, without limitation, any expenses (including attorneys' fees)
incurred by any such the Lender Indemnitee in connection with any investigation
or administrative or judicial proceeding, whether or not any such the Lender
Indemnitee shall be designated a party thereto) which may be imposed on,
incurred by or asserted against such the Lender Indemnitees by any Person other
than the Lender (whether direct, indirect, consequential or punitive and whether
based on any Governmental Requirement, including, without limitation,
securities, environmental and commercial laws and regulations, under common law
or at equitable cause, or on contract or otherwise) in any manner relating to or
arising, directly or indirectly, out of this Agreement, any other Loan
Documents, or any act, event or transaction related or attendant thereto; the
making of Loans hereunder, the management of the Loans (including any liability
under federal, state or local environmental laws or regulations), the use or
intended use of the proceeds of the Loans (collectively, the "Indemnified
Matters"); provided, however, that the Borrower shall have no obligation to a
the Lender Indemnitee under this Section 8.7 with respect to Indemnified Matters
to the extent such Indemnified Matters were caused by or resulted from the gross
negligence or willful misconduct of a the Lender Indemnitee. To the extent that
the undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Borrower shall contribute to the payment and satisfaction of all
Indemnified Matters incurred by the Lender Indemnitees the maximum portion which
the Borrower is permitted to pay and satisfy under applicable law. This
indemnification shall survive repayment by the Borrower of all Loans made under
this Agreement,
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<PAGE> 30
and the termination of this Agreement. This Section 8.7 shall apply only if the
second Loan is not made.
8.8 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid, by telecopy (with receipt
confirmed and promptly confirmed by personal delivery, U.S. first class mail, or
courier), or by courier service, as follows:
(a) If to the Lender to:
S3 Incorporated
2801 Mission College Boulevard
Santa Clara, CA 95052-8058
Attn: Chief Executive Officer
Fax:
with a copy to:
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
Attn: Jorge A. del Calvo
Fax: (650) 233-4545
(b) If to the Borrower to:
Diamond Multimedia Systems, Inc.
2880 Junction Avenue
San Jose, CA 95134-1922
Attention: Chief Executive Officer
Fax:
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94306
Attn: Jeffrey D. Saper
Fax: (650) 493-6811
8.9 Interpretation. This Agreement, together with the Schedules and
Exhibits to this Agreement and all of the other Loan Documents, is intended by
the Lender and the Borrower as a final expression of their agreement and,
together with all of the other Loan Documents, is intended as a complete
statement of the terms and conditions of their agreement.
8.10 Governing Law and Consent to Jurisdiction. THE VALIDITY,
CONSTRUCTION AND EFFECT OF THIS AGREEMENT, THE NOTE AND EACH OF THE OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
REGARD TO ITS CHOICE OF APPLICABLE LAW PRINCIPLES.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE BORROWER WITH RESPECT TO
THIS AGREEMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN
ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF CALIFORNIA,
AND THE BORROWER ACCEPTS FOR ITSELF AND ITS ASSETS AND PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION
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<PAGE> 31
OF THE AFORESAID COURTS.
THE BORROWER WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH
JURISDICTION. NOTING HEREIN SHALL LIMIT THE RIGHT OF THE LENDER TO BRING
PROCEEDINGS AGAINST THE BORROWER IN THE COURT OF ANY OTHER JURISDICTION.
8.11 Counterparts. This Agreement may be executed in any number of
counterparts each of which shall be an original with the same effect as if the
signatures thereto and hereto were upon the same instrument.
8.12 Headings. Captions, headings and the table of contents in this
Agreement are for convenience only, and are not to be deemed part of this
Agreement.
8.13 Survival. The obligation of the Borrower under Sections 8.6 and 8.7
of this Agreement shall survive the repayment of the Loans.
8.14 Calculations. Any calculations made by the Lender pursuant to this
Agreement shall be prima facie evidence in the absence of manifest error.
8.15 Confidential.
(a) Neither of the parties hereto shall make any public announcement
regarding the transactions contemplated in this Agreement and the other Loan
Documents without the prior consent of the other party. Each of the parties
hereto shall keep strictly confidential any and all information furnished to it
or to its Affiliates, agents or representatives in the course of negotiations
relating to this Agreement or any transaction contemplated by this Agreement and
the other Loan Documents, and the business and financial reviews and
investigation conducted by the parties hereto in connection with this Agreement
and the other Loan Documents, and such parties have instructed their respective
officers, employees and other representatives having access to such information
of such obligation of confidentiality. The parties hereto covenant and agree
that they will not use any information so obtained except in connection with the
transactions contemplated by this Agreement, will not disclose or divulge such
information to any other person and will keep confidential any information so
obtained; provided, however, that any disclosure of such information may be made
by the Lender to protect or enforce its rights in the Collateral to the extent
disclosure is reasonably necessary for such protection or enforcement or after
consultation with the other party to the extent required by applicable
Governmental Requirement and that such information may be used as evidence in or
in connection with any pending or threatened litigation related to this
Agreement or other Loan Documents or any transactions contemplated hereunder or
thereunder. The obligations of confidentiality set forth herein shall not apply
to information generally available to the public or in the possession of the
receiving party prior to its disclosure under this Agreement or that is given to
the receiving party by another person other than in breach of obligations of
confidentiality owed by such person to the disclosing party under this
Agreement.
(b) Notwithstanding the foregoing in this Section 8.17, if either party
shall be required to disclose any information concerning this Agreement or
required to make any public announcement or press release, such party shall not
disclose such information or make any public announced or press release without
consulting the other party and jointly making such disclosure, announcement or
press release.
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<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the date and year first above written.
DIAMOND MULTIMEDIA SYSTEMS, INC.
By________________________________________
Its_______________________________________
S3 INCORPORATED
By________________________________________
Its_______________________________________
<PAGE> 33
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment"), dated
as of June 14, 1999, by and between DIAMOND MULTIMEDIA SYSTEMS, INC., a Delaware
corporation (the "Borrower"), and S3 INCORPORATED, a Delaware corporation (the
"Lender"),
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender are parties to a Credit Agreement,
dated as of June 11, 1999 (the "Credit Agreement") pursuant to which the Lender
has extended certain credit facilities to the Borrower; and
WHEREAS, the parties desire to amend the Credit Agreement to revise
certain conditions to the funding of the second Loan and the third Loan as set
forth in Sections 3.3 and 3.4 of the Credit Agreement and to make other changes
as more specifically provided for herein:
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise specifically defined herein, each
term used herein which is defined in the Credit Agreement has the meaning
assigned to such term in the Credit Agreement.
2. Amendments.
(a) Section 3.3(a) of the Credit Agreement is hereby amended to read in
its entirety as follows:
"(a) Warrant. The Borrower shall have issued a common stock
purchase warrant on terms satisfactory to the Lender. Nothing in this
Agreement, however, shall be deemed to imply an obligation for the
Lender or the Borrower to negotiate the terms of such warrant or for the
Borrower or Lender to agree as to the terms of such warrant."
(b) New Sections 3.4(g), (h) and (i) shall be added after Section 3.4(f)
of the Credit Agreement as follows:
"(g) Merger Agreement and Warrant. The Borrower shall have issued
a common stock purchase warrant on terms agreed between the Borrower and
the Lender and entered into an agreement ("MERGER AGREEMENT") with the
Lender pursuant to which the Borrower will merge into, combine its
business and assets with or transfer substantially all of its business
and assets to the Lender. Nothing in this Agreement,
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<PAGE> 34
however, shall be deemed to imply an obligation for the Lender or the
Borrower to negotiate the terms of such warrant or for the Borrower or
Lender to agree as to the terms of such warrant or to enter into any
agreement pursuant to which the Borrower will merge into, combine its
business and assets with or transfer substantially all of its business
and assets to the Lender.
(h) Assignment or License of Trademark. The Borrower shall have
entered into an assignment or license agreement pursuant to which the
Borrower shall assign or license its rights in a trademark on terms to
be agreed upon between the Borrower and the Lender. Nothing in this
Agreement, however, shall be deemed to imply an obligation for the
Lender or the Borrower to negotiate the terms of such agreement or for
the Borrower or Lender to agree as to the terms of such agreement.
(i) Negotiation of a Supply Agreement. The Borrower shall have
entered into a supply agreement with the Lender upon terms to be agreed
upon between the Borrower and the Lender. Nothing in this Agreement,
however, shall be deemed to imply an obligation for the Lender or the
Borrower to negotiate the terms of such agreement or for the Borrower or
Lender to agree as to the terms of such agreement."
(c) The reference to "Tuesday, June 15, 1999" in Line 2 of Section 6.11
of the Credit Agreement shall be changed to "Tuesday, June 22."
3. Governing Law. This First Amendment shall be governed by and
construed in accordance with the laws of the State of California (without regard
to principles of conflicts of law).
4. Counterparts; Effectiveness; Entire Agreement. This First Amendment
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This First Amendment shall be effective on the date when the Lender
shall have received a duly executed counterpart hereof signed by Borrower. This
First Amendment, together with the Credit Agreement, contains the entire and
exclusive agreement of the parties hereto with reference to the matters
discussed herein and therein. This First Amendment supersedes all prior drafts
and communications with respect thereto. This First Amendment may not be amended
except in accordance with the provisions of Section 8.3 of the Credit Agreement.
5. Ratification of Credit Agreement. Except as amended hereby, all of
the provisions set forth in the Credit Agreement remain in full force and
effect. As of the effective date of this First Amendment, any reference in the
Credit Agreement to "this Agreement" shall mean the Credit Agreement as amended
by this First Amendment.
6. Severability. If any provision of this First Amendment shall be held
to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
7. Headings. The headings hereof are for convenience only and are not
intended to
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<PAGE> 35
affect the meaning or interpretation of this First Amendment.
8. Benefit of Agreement. This First Amendment shall inure to the benefit
of, and be enforceable by the Lender, the Borrower, and their respective
successors and assigns provided that the condition in Section 8.1 of the Credit
Agreement is satisfied.
9. Further Assurances. The Borrower agrees, upon the reasonable request
of the Lender, to execute any additional documents and to take any further
action, that may be deemed necessary or advisable by the Lender to effectuate
the purpose of this First Amendment.
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<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the date first above written.
DIAMOND MULTIMEDIA SYSTEMS, INC.
By_______________________________________
Its____________________________________
S3 INCORPORATED
By_______________________________________
Its____________________________________
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<PAGE> 1
EXHIBIT 10.2
================================================================================
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
***********************************************
DIAMOND MULTIMEDIA SYSTEMS, INC.
FIRST COMMON STOCK PURCHASE WARRANT
***********************************************
This certifies that, for good and valuable consideration, Diamond
Multimedia Systems, Inc., a Delaware corporation ("Diamond" or the "Company"),
grants to S3 Incorporated, a Delaware corporation ("S3" or the "Warrantholder"),
the right to subscribe for and purchase from the Company the number of fully
paid and nonassessable shares (the "Warrant Shares") of the Company's Common
Stock, $0.001 par value (the "Common Stock") specified herein, at the purchase
price per share (the "Exercise Price") determined as set forth herein,
exercisable, subject to the restrictions set forth herein, during the period
(the "Exercise Period") set forth in Section 1.4 hereof, all subject to the
terms, conditions and adjustments herein set forth. This Warrant (the "First
Warrant") is issued in connection with and pursuant to that certain Loan
Agreement (the "Loan Agreement"), dated as of June 10, 1999, by and between the
Company and S3. Certain capitalized terms used herein are defined in Section 8
hereof. Capitalized terms used herein not otherwise defined herein shall have
the meanings assigned to them in the Loan Agreement.
================================================================================
<PAGE> 2
1. Exercise of Warrant.
1.1 Duration and Exercise of Warrant.
(a) Cash Exercise. This Warrant may be exercised by the Warrantholder by
(i) the surrender of this Warrant to the Company, with a duly executed Exercise
Form specifying the number of Warrant Shares to be purchased, during normal
business hours on any Business Day during the Exercise Period and (ii) the
delivery of payment to the Company, for the account of the Company, of the
Exercise Price for the number of Warrant Shares specified in the Exercise Form,
(A) by wire transfer of immediately available funds to a bank account specified
by the Company; (B) by certified or bank cashier's check; (C) by cancellation of
indebtedness under the Loan Agreement, or (D) of any other amount due to the
Warrantholder under any other contract (including any purchase order) pursuant
to which the Warrantholder does business with the Company not paid within twenty
(20) days of when due, or as otherwise mutually agreed to between the parties.
The Company agrees that such Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for the Warrant Shares as aforesaid. A stock certificate or
certificates for the Warrant Shares specified in the Exercise Form shall be
delivered to the Warrantholder as promptly as practicable. If this Warrant shall
have been exercised only in part, the Company shall, at the time of delivery of
the stock certificate or certificates, deliver to the Warrantholder a new
Warrant evidencing the rights to purchase the remaining Warrant Shares, which
new Warrant shall in all other respects be identical with this Warrant. No
adjustments shall be made on Warrant Shares issuable on the exercise of this
Warrant for any cash dividends paid or payable to holders of record of Common
Stock prior to the date as of which the Warrantholder shall be deemed to be the
record holder of such Warrant Shares.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 1.1(a), this Warrant may be exercised by the Warrantholder by the
surrender of this Warrant to the Company, with a duly executed Exercise Form
marked to reflect Net Issue Exercise and specifying the number of Warrant Shares
to be purchased, during normal business hours on any Business Day during the
Exercise Period. The Company agrees that such Warrant Shares shall be deemed to
be issued to the Warrantholder as the record holder of such Warrant Shares as of
the close of business on the date on which this Warrant shall have been
surrendered as aforesaid. Upon such exercise, the Warrantholder shall be
entitled to receive shares equal to the value of this Warrant (or the portion
hereof being exercised) computed as of the date of surrender of this Warrant to
the Company using the following formula:
X = Y x (A-B)
--------
A
Where X = the number of shares of Common Stock to be issued to Warrantholder
under this Section 1.1(b);
Y = the number of shares of Common Stock otherwise purchasable
under this Warrant (at the date of such calculation);
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<PAGE> 3
A = the fair market value of one share of Common Stock (at the
date of such calculation);
B = the Exercise Price (as adjusted to the date of such calculation).
(c) Fair Market Value. For purposes of Section 1.1(b) "fair market
value" of one share of Common Stock shall mean:
(i) the average closing price per share of the Common Stock on
the principal national securities exchange on which the Common Stock is
listed or admitted to trading for the ten (10) Trading Day period ending
on the date of exercise, or,
(ii) if not listed or traded on any such exchange, the average
last reported sales price per share of the Common Stock on the Nasdaq
National Market or The Nasdaq SmallCap Market (collectively, "Nasdaq")
for the ten (10) Trading Day period ending on the date of exercise, or,
(iii) if not listed or traded on any such exchange or Nasdaq, the
average of the mean of the bid and asked prices per share of the Common
Stock as reported in the OTC Bulletin Board or, if not so reported, in
the "pink sheets" published by the National Quotation Bureau, Inc. for
the ten (10) Trading Day period ending on the date of exercise, or,
(iv) if such quotations are not available, the fair market value
per share of the Common Stock on the date such notice was received by
the Company as reasonably determined by the Board of Directors of the
Company.
1.2 Number of Warrant Shares. This Warrant shall entitle the
Warrantholder to purchase 1,165,501 shares of Common Stock.
1.3 Exercise Price. The Exercise Price shall be equal to $4.29 (the
"Exercise Price"). From and after the issuance of this Warrant, the Exercise
Price shall be adjusted in accordance with Section 6 hereof.
1.4 Term of Warrant and Exercisability.
(a) Term of Warrant. This Warrant shall terminate on the later of (i)
June 10, 2000; (ii) the date on which the indebtedness of the Company to the
Warrantholder under the Loan Agreement is paid in full; provided, however, that
this Warrant shall terminate upon the consummation of an S3 Acquisition. Nothing
in this Section 1.4(a), however, shall require S3 or Diamond to negotiate or
enter into an agreement providing for the merger of Diamond with S3 (directly or
indirectly), and neither party shall have any liability for failing to do so.
The parties' rights and obligations under Sections 2, 8 and 9 hereof shall
survive the termination of this Warrant.
(b) Exercisability. This Warrant shall be immediately exercisable,
during the Exercise Period, in whole or in part as to ninety-nine percent (99%)
of the Warrant Shares. This
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<PAGE> 4
Warrant shall become exercisable, during the Exercise Period, as to the
remaining one percent (1%) of the Warrant Shares upon a Change of Control of
Diamond. Notwithstanding anything to the contrary herein, this Warrant may not
be exercised prior to June 15, 1999.
1.5 Payment of Taxes. The issuance of certificates for Warrant Shares
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; provided, however, that the Warrantholder
shall be required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.6 Information. Upon receipt of a written request from a Warrantholder,
the Company agrees to deliver promptly to such Warrantholder a copy of its
current publicly available financial statements and to provide such other
publicly available information concerning the Company as such Warrantholder may
reasonably request (if electronic access to such information via EDGAR is not
then generally available to the public) in order to assist the Warrantholder in
evaluating the merits and risks of exercising the Warrant and to make an
informed investment decision in connection with such exercise.
2. Registration Under the Securities Act of 1933.
2.1 Piggyback Registration.
(a) Right to Include Registrable Securities. If at any time or from time
to time prior to the fifth anniversary of the date hereof, the Company proposes
to register any of its securities under the Securities Act on any form for the
registration of securities under such Act, whether or not for its own account
(other than by a registration statement on Form S-8 or other form which does not
include substantially the same information as would be required in a form for
the general registration of securities or would not be available for the
Registrable Securities) (a "Piggyback Registration"), it shall as expeditiously
as reasonably possible give written notice to all Holders of its intention to do
so and of such Holders' rights under this Section 2.1. Such rights are referred
to hereinafter as "Piggyback Registration Rights." All references to "Warrant
Shares" and "Warrants" for purposes of this Article 2 shall refer to any such
shares or warrants issued by Diamond to S3. Upon the written request of any such
Holder made within ten (10) days after receipt of any such notice (which request
shall specify the Registrable Securities intended to be disposed of by such
Holder), the Company shall include in the Registration Statement the Registrable
Securities which the Company has been so requested to register by the Holders
thereof and the Company shall keep such registration statement in effect and
maintain compliance with each federal and state law or regulation for the period
necessary for such Holder to effect the proposed sale or other disposition (but
in no event for a period greater than ninety (90) days).
(b) Withdrawal of Piggyback Registration by Company. If, at any time
after giving written notice of its intention to register any securities in a
Piggyback Registration but prior to the effective date of the related
Registration Statement, the Company shall determine for any reason not to
register such securities, the Company shall give notice of such determination to
each Holder and, thereupon, shall be relieved of its obligation to register any
Registrable Securi-
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<PAGE> 5
ties in connection with such Piggyback Registration. All best efforts
obligations of the Company pursuant to Section 2.4 shall cease if the Company
determines to terminate prior to such effective date any registration where
Registrable Securities are being registered pursuant to this Section 2.1.
(c) Piggyback Registration of Underwritten Public Offerings. If a
Piggyback Registration involves an offering by or through underwriters, then (i)
all Holders requesting to have their Registrable securities included in the
Company's Registration Statement must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as apply
to other selling shareholders and (ii) any Holder requesting to have his or its
Registrable Securities included in such Registration Statement may elect in
writing, not later than seven (7) Business Days prior to the effectiveness of
the Registration Statement filed in connection with such registration, not to
have his or its Registrable Securities so included in connection with such
registration.
(d) Payment of Registration Expenses for Piggyback Registration. The
Company shall pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to a Piggyback Registration Right
contained in this Section 2.1.
(e) Priority in Piggyback Registration. If a Piggyback Registration
involves an offering by or through underwriters, the Company, except as
otherwise provided herein, shall not be required to include Registrable
Securities therein if and to the extent the underwriter managing the offering
reasonably believes in good faith and advises each Holder requesting to have
Registrable Securities included in the Company's Registration Statement that
such inclusion would materially adversely affect such offering; provided that
(i) if other selling shareholders who are employees, officers, directors or
other affiliates of the Company have requested registration of securities in the
proposed offering, the Company will reduce or eliminate such other selling
shareholders' securities before any reduction or elimination of Registrable
Securities; and (ii) any such reduction or elimination (after taking into
account the effect of clause (i)) shall be pro rata to all other holders of the
securities of the Company exercising "Piggyback Registration Rights" similar to
those set forth herein in proportion to the respective number of shares they
have requested to be registered.
2.2 Demand Registration.
(a) Request for Registration. Unless this Warrant is exercised pursuant
to Section 1.1(b) hereof, if, at any time prior to the fifth anniversary of the
date hereof, Holders holding the greater of (i) at least twenty-five percent
(25%) of the combined total of Warrant Shares issuable and Warrant Shares
outstanding pursuant to the First Warrant and any subsequent warrant issued by
Diamond to S3 or (ii) one hundred percent (100%) of such shares issued or
issuable pursuant to the First Warrant, at such time request that the Company
file a registration statement on Form S-3 (or Form S-1 if Form S-3 is not then
available to the Company) under the Securities Act, as soon as practicable
thereafter the Company shall use its commercially reasonable efforts to file a
registration statement with respect to all Warrant Shares that it has been so
requested to include (the "Demand Registration") and obtain the effectiveness
thereof, and to take all other action necessary under any federal or state law
or regulation to permit the Warrant Shares that are held and/or that may be
acquired upon the exercise of the Warrants specified in the notices of the
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<PAGE> 6
Holders or holders thereof to be sold or otherwise disposed of, and the Company
shall maintain such compliance with each such federal and state law and
regulation for the period necessary for such Holders or holders to effect the
proposed sale or other disposition, which period shall be not less than thirty
(30) days; provided, however, the Company shall be entitled to defer such
registration for a period of up to forty-five (45) days if and to the extent
that its Board of Directors shall determine that such registration would
interfere with a pending corporate transaction. The Company shall also promptly
give written notice to the Holders and the holders of any other Warrants and/or
the holders of any Warrant Shares who or that have not made a request to the
Company pursuant to the provisions of this Section 2.2(a) of its intention to
effect any required registration or qualification, and shall use its
commercially reasonable efforts to effect as expeditiously as possible such
registration or qualification of all such other Warrant Shares that are then
held and/or that may be acquired upon the exercise of the Warrants, the Holder
or holders of which have requested such registration or qualification within
fifteen (15) days after such notice has been given by the Company. The Company
shall be required to effect a registration or qualification pursuant to this
Section 2.2(a) on a total of one (1) occasion.
(b) Payment of Registration Expenses for Demand Registration. The
Company shall pay all Registration Expenses in connection with the Demand
Registration.
(c) Selection of Underwriters. If the Demand Registration is requested
to be in the form of an underwritten offering, the managing underwriter shall be
selected by the Holders of a majority of the Warrant Shares to be registered.
Such selection shall be subject to the Company's consent, which consent shall
not be unreasonably withheld.
(d) Procedure for Requesting Demand Registration. Any request for a
Demand Registration shall specify the aggregate number of the Registrable
Securities proposed to be sold and the intended method of disposition. Within
ten (10) days after receipt of such a request the Company will give written
notice of such registration request to all Holders, and the Company will include
in such registration all Registrable Securities with respect to which the
Company has received written requests for inclusion therein within fifteen (15)
Business Days after the date on which such notice is given by the Company. Each
such request shall also specify the aggregate number of Registrable Securities
to be registered and the intended method of disposition thereof.
2.3 Registration Procedures. If and whenever the Company is required to
use its commercially reasonable efforts to take action pursuant to any federal
or state law or regulation to permit the sale or other disposition of any
Registrable Securities that are then held or that may be acquired upon exercise
of the Warrants in order to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Article 2, the Company
shall, as expeditiously as practicable:
(a) prepare and file with the SEC, as soon as practicable within
forty-five (45) days after the end of the period within which requests for
registration may be given to the Company (but subject to the provision for
deferral contained in Section 2.2(a) hereof) a Registration Statement or
Registration Statements relating to the registration on any appropriate form
under the Securities Act, which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof, subject to Section 2.1(e) hereof, and use its commercially
reasonable efforts to cause such Registration Statements to
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<PAGE> 7
become effective; provided that before filing a Registration Statement or
Prospectus or any amendment or supplements thereto, including documents
incorporated by reference after the initial filing of any Registration
Statement, the Company will furnish to the Holders of the Registrable Securities
covered by such Registration Statement and the underwriters, if any, copies of
all such documents provided to be filed, which documents will be subject to the
review of such Holders and underwriters;
(b) prepare and file with the SEC such amendments and post-effective
amendments to a Registration Statement as may be necessary to keep such
Registration Statement effective for a period of thirty (30) days; cause the
related Prospectus to be supplemented by any required Prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 under the Securities Act;
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such Registration Statement or supplement to such
Prospectus;
(c) notify the selling Holders of Registrable Securities and the
managing underwriters, if any, promptly, and (if requested by any such Person)
confirm such advice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related Prospectus or for additional information;
(iii) of the issuance by the SEC of any stop order suspending the effectiveness
of a Registration Statement or the initiation of any proceedings for that
purpose; (iv) if at any time the representations and warranties of the Company
contemplated by paragraph (m) below cease to be true and correct in all material
respects; (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, and (vi) of the happening of any event that makes any statement of
a material fact made in the Registration Statement, the Prospectus or any
document incorporated therein by reference untrue or which requires the making
of any changes in the Registration Statement or Prospectus so that they will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(e) if reasonably requested by the managing underwriters, immediately
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters believe (on advice of counsel) should
be included therein as required by applicable law relating to such sale of
Registrable Securities, including, without limitation, information with respect
to the purchase price being paid for the Registrable Securities by such
underwriters and with respect to any other terms of the underwritten (or
"best-efforts" underwritten) offering; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment;
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<PAGE> 8
(f) furnish to each selling Holder of Registrable Securities and each
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(g) deliver to each selling Holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including each preliminary Prospectus) any amendment or supplement
thereto as such Persons may reasonably request; the Company consents to the use
of such Prospectus or any amendment or supplement thereto by each of the selling
Holders of Registrable Securities and the underwriters, if any, in connection
with the offering and sale of the Registrable Securities covered by such
Prospectus or any amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities, cooperate
with the selling Holders of Registrable Securities, the underwriters, if any,
and their respective counsel in connection with the registration or
qualification of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any selling Holder or underwriter reasonably requests in writing, keep each such
registration or qualification effective during the period such Registration
Statement is required to be kept effective and do any and all other acts or
things necessary or advisable to enable the disposition in such jurisdictions of
the Registrable Securities covered by the applicable Registration Statement;
provided that the Company will not be required to qualify to do business in any
jurisdiction where it is not then so qualified or to take any action which would
subject the Company to general service of process in any jurisdiction where it
is not at the time so subject;
(i) cooperate with the selling Holders of Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold and not bearing
any restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters may
request at least two (2) Business Days prior to any sale of Registrable
Securities to the underwriters;
(j) use its commercially reasonable efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities within the
United States as may be necessary to enable the seller or sellers thereof or the
underwriters, if any, to consummate the disposition of such Registrable
Securities;
(k) upon the occurrence of any event contemplated by Section 2.3(c)(vi)
above, prepare a supplement or post-effective amendment to the applicable
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold thereunder,
such that the Prospectus will not contain an untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein not
misleading in the light of the circumstances under which they were made;
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<PAGE> 9
(l) with respect to each issue or class of Registrable Securities, use
its commercially reasonable efforts to cause all Registrable Securities covered
by the Registration Statement to be listed on each securities exchange, if any,
on which similar securities issued by the Company are then listed if requested
by the Holders of a majority of such issue or class of Registrable Securities;
(m) enter into such agreements (including an underwriting agreement) and
take all such other action reasonably required in connection therewith in order
to expedite or facilitate the disposition of such Registrable Securities and in
such connection, if the registration is in connection with an underwritten
offering (i) make such representations and warranties to the underwriters, in
such form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and when
requested; (ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions in form, scope and substance shall be reasonably
satisfactory to the underwriters) addressed to the underwriters covering the
matters customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such underwriters; (iii)
obtain "cold comfort" letters and updates thereof from the Company's accountants
addressed to the underwriters, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters by
underwriters in connection with underwritten offerings; (iv) set forth in full
in any underwriting agreement entered into the indemnification provisions and
procedures of Section 2.4 hereof with respect to all parties to be indemnified
pursuant to said Section; and (v) deliver such documents and certificates as may
be reasonably requested by the underwriters to evidence compliance with clause
(i) above and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company; the above shall be
done at each closing under such underwriting or similar agreement or as and to
the extent required hereunder;
(n) make available for inspection by one or more representatives of the
Holders of Registrable Securities being sold, any underwriter participating in
any disposition pursuant to such registration, and any attorney or accountant
retained by such Holders or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such representatives, in connection with such; and
(o) otherwise use its commercially reasonable efforts to comply with all
applicable federal and state regulations; and take such other action as may be
reasonably necessary to or advisable to enable each such Holder and each such
underwriter to consummate the sale or disposition in such jurisdiction or
jurisdiction in which any such Holder or underwriter shall have requested that
the Registrable Securities be sold.
Except as otherwise provided in this Agreement, the Company shall have
sole control in connection with the preparation, filing, withdrawal, amendment
or supplementing of each Registration Statement, the selection of underwriters,
and the distribution of any preliminary Prospectus included in the Registration
Statement, and may include within the coverage thereof additional shares of
Common Stock or other securities for its own account or for the account of one
or more of its other security holders.
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<PAGE> 10
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities and such other
information as may otherwise be required by the Securities Act to be included in
such Registration Statement.
2.4 Indemnification.
(a) Indemnification by Company. In connection with each Registration
Statement relating to disposition of Registrable Securities, the Company shall
indemnify and hold harmless each Holder and each underwriter of Registrable
Securities and each Person, if any, who controls such Holder or underwriter
(within the meaning of section 15 of the Securities Act or section 20 of the
Exchange Act) against any and all losses, claims, damages and liabilities, joint
or several (including any reasonable investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of any action,
suit or proceeding or any claim asserted), to which they, or any of them, may
become subject under the Securities Act, the Exchange Act or other federal or
state law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary Prospectus or any amendment
thereof or supplement thereto, or arise out of or are based upon any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided, however,
that such indemnity shall not inure to the benefit of any Holder or underwriter
(or any person controlling such Holder or underwriter within the meaning of
section 15 of the Securities Act or section 20 of the Exchange Act) on account
of any losses, claims, damages or liabilities arising from the sale of the
Registrable Securities if such untrue statement or omission or alleged untrue
statement or omission was made in such Registration Statement, Prospectus or
preliminary Prospectus, or such amendment or supplement, in reliance upon and in
conformity with information furnished in writing to the Company by such Holder
or underwriter specifically for use therein; provided, further, that the Company
shall not be liable to such Holder or any underwriter (or any person controlling
such Holder or underwriter) with respect to any such untrue statement or alleged
untrue statement or omission made in any preliminary Prospectus that is
corrected in the Prospectus (or any amendment or supplement thereto) if the
person asserting any such loss, claim, damage or liability purchased shares of
the Common Stock from such Holder or underwriter but was not given a copy of the
Prospectus (as amended or supplemented) in any case where such delivery of the
Prospectus (as amended or supplemented) was required by the Securities Act. The
Company shall also indemnify selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors and each Person who controls such Persons (within the
meaning of section 15 of the Securities Act or section 20 of the Exchange Act)
to the same extent as provided above with respect to the indemnification of the
Holders of Registrable Securities, if requested. This indemnity agreement shall
be in addition to any liability which the Company may otherwise have.
(b) Indemnification by Holder. In connection with each Registration
Statement, each Holder shall indemnify, to the same extent as the
indemnification provided by the Company in Section 2.4(a), the Company, its
directors and each officer who signs the Registration Statement and each Person
who controls the Company (within the meaning of section 15 of the Securities
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<PAGE> 11
Act and section 20 of the Exchange Act) but only insofar as such losses, claims,
damages and liabilities arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which was made in the
Registration Statement, the Prospectus or preliminary Prospectus or any
amendment thereof or supplement thereto, in reliance upon and in conformity with
information furnished in writing by such Holder to the Company specifically for
use therein. In no event shall the liability of any selling Holder of
Registrable Securities hereunder be greater in amount than the dollar amount of
the net proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as provided above, with respect to information
so furnished in writing by such Persons specifically for inclusion in any
Prospectus, Registration Statement or preliminary Prospectus or any amendment
thereof or supplement thereto.
(c) Conduct of Indemnification Procedure. Any party that proposes to
assert the right to be indemnified hereunder will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or parties
under this Section, notify each such indemnifying party of the commencement of
such action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 2.4(a) or 2.4(b) shall be available to
any party who shall fail to give notice as provided in this Section 2.4(c) if
the party to whom notice was not given was unaware of the proceeding to which
such notice would have related and was materially prejudiced by the failure to
give such notice, but the omission so to notify such indemnifying party of any
such action, suit or proceeding shall not relieve it from any liability that it
may have to any indemnified party for contribution otherwise than under this
Section. In case any such action, suit or proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof
and the approval by the indemnified party of such counsel, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses, except as provided below and except for the reasonable costs of
investigation subsequently incurred by such indemnified party in connection with
the defense thereof. The indemnified party shall have the right to employ its
counsel in any such action, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the employment of counsel by
such indemnified party has been authorized in writing by the indemnifying
parties, (ii) the indemnified party shall have reasonably concluded that there
may be a conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in which case
the indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party) or (iii) the indemnifying parties
shall not have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of which cases
the fees and expenses of counsel shall be at the expense of the indemnifying
parties. An indemnified party shall not be liable for any settlement of any
action, suit, proceeding or claim effected without its written consent.
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<PAGE> 12
(d) Contribution. In connection with each Registration Statement
relating to the disposition of Registrable Securities, if the indemnification
provided for in Section 2.4(a) or 2.4(b) hereof is unavailable to an indemnified
party thereunder in respect to any losses, claims, damages or liabilities
referred to therein, then the indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of the losses, claims,
damages or liabilities referred to in paragraphs (a) or (b) of this Section 2.4
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. Relative fault shall 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 the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
paragraph (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim.
(e) Underwriting Agreement to Control. Notwithstanding the foregoing
provisions of this Section 2.4, to the extent that the provisions on
indemnification and contribution contained in any underwriting agreement entered
into in connection with the underwritten public offering of the Registrable
Securities are in conflict with the foregoing provisions, the provisions in such
underwriting agreement shall control.
(f) Specific Performance. The Company and the Holder acknowledge that
remedies at law for the enforcement of this Section 2.4 may be inadequate and
intend that this Section 2.4 shall be specifically enforceable.
(g) Survival of Obligations. The obligations of the Company and the
Holder under this Section 2.4 shall survive the completion of any offering of
Registrable Securities pursuant to a Registration Statement under this Article
2, and otherwise.
2.5 Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the
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<PAGE> 13
reporting requirements of SEC Rule 144, the Securities Act and the Exchange Act,
or that it qualifies as a registrant whose securities may be resold pursuant to
Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed by the Company and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form.
2.6 Restrictions on Transfer; Compliance with Securities Laws. This
Warrant and the Warrant Shares issued upon the exercise of the Warrant may not
be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and transferee
(including the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if such are requested by the Company).
The Warrantholder, by acceptance hereof, acknowledges that this Warrant and the
Warrant Shares to be issued upon exercise hereof are being acquired solely for
the Warrantholder's own account and not as a nominee for any other party, and
for investment, and that the Warrantholder will not offer, sell or otherwise
dispose of any Warrant Shares to be issued upon exercise hereof except under
circumstances that will not result in a violation of the Securities Act or any
state securities laws. Upon exercise of this Warrant, the Warrantholder shall,
if requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
Warrantholder's own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale.
2.7 Restrictive Legends. This Warrant shall (and each Warrant issued
upon transfer in whole or in part of this Warrant pursuant to this Section 2 or
issued in substitution for this Warrant pursuant to Section 4 shall) be stamped
or otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT."
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<PAGE> 14
Notwithstanding the foregoing, the Warrantholder may require the Company
to issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Warrantholder (except as otherwise may be
prohibited, restricted or limited by law or any rule or regulation of a
regulatory entity) as follows:
3.1 Organization; Authority Relative to this Warrant. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to execute and deliver this Warrant, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Warrant by the Company and the consummation by the Company
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of the Company. This Warrant has been
duly and validly executed and delivered by the Company and constitutes a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally, and by general equitable principles.
3.2 Authority to Issue Shares. The Company has taken all necessary
corporate action to authorize and reserve and permit it to issue, and at all
times from the date hereof through the end of the Exercise Period shall have
reserved, all the Warrant Shares issuable pursuant to this Warrant. All of the
shares of Common Stock issuable under this Warrant, upon their issuance and
delivery in accordance with the terms of this Warrant, will be duly authorized,
validly issued, fully paid and nonassessable, will be delivered free and clear
of all security interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on the Warrantholder's voting rights, charges,
adverse rights and other encumbrances of any nature whatsoever (other than this
Warrant) and will not be subject to any preemptive rights.
3.3 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Warrant by the Company does not,
and the performance by the Company of its obligations hereunder and the
consummation of the transactions contemplated hereby will not, (i) conflict with
or violate the certificate of incorporation or bylaws of the Company, (ii)
assuming that all consents and filings described in Section 3.3(b) have been
obtained or made, conflict with or violate any law applicable to the Company or
by which any property or asset of the Company is bound or affected or (iii)
result in any violation pursuant to, any note, bond, mortgage, indenture,
contract, agreement , lease, license, permit, franchise or other instrument or
obligation to which the Company is a party or by which the Company or any of its
properties may be bound or affected.
(b) No consent of, or filing with, any governmental entity is required
by the Company in connection with the execution and delivery of this Warrant,
the performance by the Company
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<PAGE> 15
of its obligations hereunder or the consummation by the Company of the
transactions contemplated hereby, except for (i) compliance with the
Hart-Scott-Rodino Act and (ii) consents or filings the failure of which to be
obtained or made would not, individually or in the aggregate, prevent or
materially delay the consummation of the transactions contemplated hereby or the
performance by the Company of any of its obligations hereunder.
3.4 Reservation and Registration of Shares, Etc. The Company covenants
and agrees that all Warrant Shares which are issuable upon the exercise of this
Warrant will, upon issuance, be validly issued, fully paid and nonassessable and
free from all taxes, liens, security interests, charges and other encumbrances
with respect to the issue thereof, other than taxes in respect of any transfer
occurring contemporaneously with such issue. The Company further covenants and
agrees that, during the Exercise Period, the Company will at all times have
authorized and reserved, and keep available free from preemptive rights, a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant and will, at its expense, upon each such
reservation of shares, procure such listing of such shares of Common Stock
(subject to issuance or notice of issuance) as then may be required on all stock
exchanges on which the Common Stock is then listed or on Nasdaq.
4. Exchange, Loss or Destruction of Warrant. Upon receipt by the Company
of evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, of such bond or
indemnification as the Company may require, and, in the case of such mutilation,
upon surrender and cancellation of this Warrant, the Company will execute and
deliver a new Warrant of like tenor. The term "Warrant" as used in this
Agreement shall be deemed to include any Warrants issued in substitution or
exchange for this Warrant.
5. Ownership of Warrant. The Company may deem and treat the person in
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary.
6. Certain Adjustments.
6.1 Adjustments. The number of Warrant Shares purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
as follows:
(a) Stock Dividends. If at any time prior to the exercise of this
Warrant in full (i) the Company shall fix a record date for the issuance of any
stock dividend payable in shares of Common Stock or (ii) the number of shares of
Common Stock shall have been increased by a subdivision or split-up of shares of
Common Stock, then, on the record date fixed for the determination of holders of
Common Stock entitled to receive such dividend or immediately after the
effective date of subdivision or split-up, as the case may be, the number of
shares of Common Stock to be delivered upon exercise of this Warrant will be
increased so that the Warrantholder will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
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<PAGE> 16
(b) Combination of Stock. If at any time prior to the exercise of this
Warrant in full the number of shares of Common Stock outstanding shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of shares
of Common Stock to be delivered upon exercise of this Warrant will be decreased
so that the Warrantholder thereafter will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(c) Reorganization, etc. If at any time prior to the exercise of this
Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation of the Company with
or merger of the Company with or into any other person or any sale, lease or
other transfer of all or substantially all of the assets of the Company to any
other person, shall be effected in such a way that the holders of Common Stock
shall be entitled to receive stock, other securities or assets (whether such
stock, other securities or assets are issued or distributed by the Company or
another person) with respect to or in exchange for Common Stock, then, upon
exercise of this Warrant the Warrantholder shall have the right to receive the
kind and amount of stock, other securities or assets receivable upon such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer by a holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 6.
(d) Fractional Shares. No fractional shares of Common Stock or scrip
shall be issued to any Warrantholder in connection with the exercise of this
Warrant. Instead of any fractional shares of Common Stock that would otherwise
be issuable to such Warrantholder, the Company will pay to such Warrantholder a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the fair market value of one share of Common Stock
as of the date of exercise.
(e) Carryover. Notwithstanding any other provision of this Section 6, no
adjustment shall be made to the number of shares of Common Stock to be delivered
to the Warrantholder (or to the Exercise Price) if such adjustment represents
less than one percent (1%) of the number of shares to be so delivered, but any
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which together with any adjustments
so carried forward shall amount to one percent (1%) or more of the number of
shares to be so delivered.
(f) Exercise Price Adjustment. Whenever the number of Warrant Shares
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
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<PAGE> 17
(g) No Duplicate Adjustments. Notwithstanding anything else to the
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 6 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an adjustment
having substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 6 is made by the
Company for any such event to the number of shares of Common Stock (or other
securities) issuable upon exercise of this Warrant.
6.2 No Adjustment for Dividends. Except as provided in Section 1 hereof
or Section 6.1 hereof, no adjustment in respect of any dividends shall be made
during the term of the Warrant or upon the exercise of this Warrant.
6.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial officer of the Company setting forth the number of Warrant
Shares and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made.
7. Notices of Corporate Action. In the event of:
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of Control,
or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for the securities or other property deliverable upon such
reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up. Such notice shall be mailed at least ten
(10) days prior to the date therein specified, in the case of any date referred
to in the foregoing subdivision (i), and at least ten (10) days prior to the
date therein specified, in the case of the date referred to in the foregoing
subdivision (ii).
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<PAGE> 18
8. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
national banks are authorized by law to close in the City of San Francisco,
State of California.
Change of Control: shall mean (i) the consolidation of the Company with
or merger of the Company with or into any other person in which the Company is
not the surviving corporation or in which the Company's stockholders prior to
such transaction do not own, directly or indirectly, immediately after such
transaction, fifty percent (50%) or more of the outstanding securities entitled
to vote generally for the election of directors or similar managing authority of
the surviving or resulting entity in such transaction, (ii) the sale of all or
substantially all of the assets of the Company to any other person or (iii) any
sale or transfer of any capital stock of the Company after the date of this
Warrant, following which forty (40%) or more of the combined voting power of the
Company becomes beneficially owned by one person or group acting together. For
purposes of this definition of Change of Control, "group" shall have the meaning
as such term is used in section 13(d) under the Exchange Act and the rules and
regulations thereunder.
Company: Diamond Multimedia Systems, Inc., a Delaware corporation.
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall include a
reference to a comparable section, if any, of any successor federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit A.
Exercise Price: the meaning specified in Section 1.3, as such price may
be adjusted pursuant to Section 6 hereof.
Holder: shall mean a holder of Registrable Securities.
Nasdaq: the meaning specified in Section 1.1(c)(ii).
Person: shall mean an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
Prospectus: shall mean any prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and all other amendments and supplements
to the Prospectus, including post-effective amendments and all material
incorporated by reference in such Prospectus.
Registration Expenses: shall mean any and all expenses incurred in
connection with any registration or action incident to performance of or
compliance by the Company with Article 2,
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<PAGE> 19
including, without limitation, (i) all SEC, national securities exchange and
NASD registration and filing fees; all listing fees and all transfer agent fees;
(ii) all fees and expenses of complying with state securities or blue sky laws
(including the fees and disbursements of counsel of the underwriters in
connection with blue sky qualifications of the Registrable Securities); (iii)
all printing, mailing, messenger and delivery expenses, (iv) all fees and
disbursements of counsel for the Company and of its accountants, including the
expenses of any special audits and/or "cold comfort" letters required by or
incident to such performance and compliance, and (v) any disbursements of
underwriters customarily paid by issuers or sellers of securities including the
reasonable fees and expenses of any special experts retained in connection with
the requested registration, but excluding underwriting discounts and
commissions, brokerage fees and transfer taxes, if any, and fees of counsel or
accountants retained by the Holders of Registrable Securities to advise them in
their capacity as Holders of Registrable Securities.
Registrable Securities: shall mean any Warrant Shares issued to the
Warrantholder, and/or other securities that may be or are issued by the Company
upon exercise of this Warrant, including those which may thereafter be issued by
the Company in respect of any such securities by means of any stock splits,
stock dividends, recapitalizations, reclassifications or the like, and as
adjusted pursuant to Article 6 hereof; provided, however, that as to any
particular security contained in Registrable Securities, such securities shall
cease to be Registrable Securities when (i) a Registration Statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such Registration Statement; or (ii) they shall have been sold to the
public pursuant to Rule 144 (or any successor provision) under the Securities
Act.
Registration Statement: shall mean any registration statement of the
Company filed or to be filed with the SEC which covers any of the Registrable
Securities pursuant to the provisions of this Warrant, including all amendments
(including post-effective amendments) and supplements thereto, all exhibits
thereto and all material incorporated therein by reference.
SEC: the Securities and Exchange Commission or any other federal agency
at the time administering the Securities Act or the Exchange Act, whichever is
the relevant statute for the particular purpose.
Securities Act: the Securities Act of 1933, as amended, or any successor
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section of
the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
S3 Acquisition: shall mean any transaction or series of related
transactions involving: (i) any purchase from S3 or acquisition by any Person or
"group" (as defined under section 13(d) of the Exchange Act and the rules and
regulations thereunder) of more than a fifty percent (50%) interest in the total
outstanding voting securities of S3 or any tender offer or exchange offer that
if consummated would result in any person or "group" (as defined under section
13(d) of the Exchange Act and the rules and regulations thereunder) beneficially
owning fifty percent (50%) or more of the total outstanding voting securities of
S3 or any merger, consolidation, business combination or similar transaction
involving S3 in which the stockholders of S3 immediately prior to such
transaction do not own, immediately after such transaction, at least a majority
of the
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<PAGE> 20
outstanding securities entitled to vote generally for the election of directors
or similar managing authority of the surviving or resulting entity in such
transaction; or (ii) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of all or substantially all of the assets
of S3, other than to an entity of which at least a majority of the outstanding
securities entitled to vote generally for the election of directors or similar
managing authority are directly or indirectly owned or controlled by S3.
Trading Day: any day other than a day on which securities are not
traded, listed or reported on the principal securities exchange or securities
market on which the Common Stock is traded, listed or reported.
Warrantholder: the meaning specified on the cover of this Warrant.
Warrant Shares: the meaning specified on the cover of this Warrant,
subject to the provisions of Section 1 and Section 6 hereof.
9. Miscellaneous.
9.1 Entire Agreement. This Warrant constitutes the entire agreement
between the Company and the Warrantholder with respect to this Warrant.
9.2 Binding Effects; Benefits. This Warrant shall inure to the benefit
of and shall be binding upon the Company and the Warrantholder and their
respective successors. Nothing in this Warrant, expressed or implied, is
intended to or shall confer on any person other than the Company and the
Warrantholder, or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Warrant.
9.3 Restrictions on Transferability. Subject to the terms and conditions
of this Warrant and compliance with all applicable securities laws, this Warrant
and all rights hereunder (and any shares of common stock acquired upon exercise
of this Warrant) may be transferred in whole or in part, only (a) to a wholly
owned subsidiary of the Warrantholder, or (b) in a sale effectuated pursuant to
Rule 144 promulgated under the Securities Act, or (c) in an offering registered
under section 5 of the Securities Act.
9.4 Amendments and Waivers. This Warrant may not be modified or amended
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
9.5 Section and Other Headings. The section and other headings contained
in this Warrant are for reference purposes only and shall not be deemed to be a
part of this Warrant or to affect the meaning or interpretation of this Warrant.
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<PAGE> 21
9.6 Further Assurances. Each of the Company and the Warrantholder shall
do and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Agreement.
9.7 Notices. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by United States mail, postage
prepaid, or by facsimile (with electronic confirmation of successful
transmission) to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
(a) if to the Company, Diamond Multimedia Systems, Inc.
addressed to: 2880 Junction Avenue
San Jose, CA 95134
Attention: President and Chief
Executive Officer
Telecopier: ___________________
(b) if to the Warrantholder, S3 Incorporated
addressed to: 2801 Mission College Boulevard
Santa Clara, CA 95052-8058
Attention: President and Chief
Executive Officer
Telecopier: ___________________
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
9.8 Separability. Any term or provision of this Warrant which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
9.9 Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of California (irrespective of its choice of law
principles).
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<PAGE> 22
9.10 No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be determined as conferring upon the Warrantholder any rights as a
stockholder of the Company or as imposing any liabilities on the Warrantholder
to purchase any securities whether such liabilities are asserted by the Company
or by creditors or stockholders of the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Dated: June 10, 1999.
DIAMOND MULTIMEDIA SYSTEMS, INC.
By_______________________________________
Title____________________________________
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<PAGE> 23
EXHIBIT A
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
[ ] herewith tenders payment for _______ of the Warrant Shares to
the order of Diamond Multimedia Systems, Inc. in the amount of
$_________ in accordance with the terms of this Warrant; or
[ ] herewith tenders this Warrant for _______ Warrant Shares
pursuant to the Net Issue Exercise provisions of Section 1.1(b)
of the Warrant.
The undersigned requests that a certificate (or certificates) for such
Warrant Shares be registered in the name of the undersigned and that such
certificate (or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, or for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: ___________________.
__________________________________
Signature
__________________________________
(Print Name)
__________________________________
(Street Address)
__________________________________
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under
the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
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<PAGE> 1
EXHIBIT 10.3
================================================================================
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
***********************************************
DIAMOND MULTIMEDIA SYSTEMS, INC.
SECOND COMMON STOCK PURCHASE WARRANT
***********************************************
This certifies that, for good and valuable consideration, Diamond
Multimedia Systems, Inc., a Delaware corporation ("Diamond" or the "Company"),
grants to S3 Incorporated, a Delaware corporation ("S3" or the "Warrantholder"),
the right to subscribe for and purchase from the Company the number of fully
paid and nonassessable shares (the "Warrant Shares") of the Company's Common
Stock, $0.001 par value (the "Common Stock") specified herein, at the purchase
price per share (the "Exercise Price") determined as set forth herein,
exercisable, subject to the restrictions set forth herein, during the period
(the "Exercise Period") set forth in Section 1.4 hereof, all subject to the
terms, conditions and adjustments herein set forth. This Warrant (the "Second
Warrant") is issued in connection with and pursuant to that certain Credit
Agreement (the "Credit Agreement"), dated as of June 10, 1999, by and between
the Company and S3. Another Warrant, dated as of June 10, 1999, has also been
issued to S3 in connection with the Credit Agreement (the "First Warrant").
Certain capitalized terms used herein are defined in Section 8 hereof.
Capitalized terms used herein not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement.
================================================================================
<PAGE> 2
1. Exercise of Warrant.
1.1 Duration and Exercise of Warrant.
(a) Cash Exercise. This Warrant may be exercised by the Warrantholder by
(i) the surrender of this Warrant to the Company, with a duly executed Exercise
Form specifying the number of Warrant Shares to be purchased, during normal
business hours on any Business Day during the Exercise Period and (ii) the
delivery of payment to the Company, for the account of the Company, of the
Exercise Price for the number of Warrant Shares specified in the Exercise Form,
(A) by wire transfer of immediately available funds to a bank account specified
by the Company; (B) by certified or bank cashier's check; (C) by cancellation of
indebtedness under the Credit Agreement, or (D) of any other amount due to the
Warrantholder under any other contract (including any purchase order) pursuant
to which the Warrantholder does business with the Company not paid within twenty
(20) days of when due, or as otherwise mutually agreed to between the parties.
The Company agrees that such Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for the Warrant Shares as aforesaid. A stock certificate or
certificates for the Warrant Shares specified in the Exercise Form shall be
delivered to the Warrantholder as promptly as practicable. If this Warrant shall
have been exercised only in part, the Company shall, at the time of delivery of
the stock certificate or certificates, deliver to the Warrantholder a new
Warrant evidencing the rights to purchase the remaining Warrant Shares, which
new Warrant shall in all other respects be identical with this Warrant. No
adjustments shall be made on Warrant Shares issuable on the exercise of this
Warrant for any cash dividends paid or payable to holders of record of Common
Stock prior to the date as of which the Warrantholder shall be deemed to be the
record holder of such Warrant Shares.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 1.1(a), this Warrant may be exercised by the Warrantholder by the
surrender of this Warrant to the Company, with a duly executed Exercise Form
marked to reflect Net Issue Exercise and specifying the number of Warrant Shares
to be purchased, during normal business hours on any Business Day during the
Exercise Period. The Company agrees that such Warrant Shares shall be deemed to
be issued to the Warrantholder as the record holder of such Warrant Shares as of
the close of business on the date on which this Warrant shall have been
surrendered as aforesaid. Upon such exercise, the Warrantholder shall be
entitled to receive shares equal to the value of this Warrant (or the portion
hereof being exercised) computed as of the date of surrender of this Warrant to
the Company using the following formula:
X = Y x (A-B)
--------
A
Where X = the number of shares of Common Stock to be issued to Warrantholder
under this Section 1.1(b);
Y = the number of shares of Common Stock otherwise purchasable
under this Warrant (at the date of such calculation);
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<PAGE> 3
A = the fair market value of one share of Common Stock (at the
date of such calculation);
B = the Exercise Price (as adjusted to the date of such calculation).
(c) Fair Market Value. For purposes of Section 1.1(b) "fair market
value" of one share of Common Stock shall mean:
(i) the average closing price per share of the Common Stock on
the principal national securities exchange on which the Common Stock is
listed or admitted to trading for the ten (10) Trading Day period ending
on the date of exercise, or,
(ii) if not listed or traded on any such exchange, the average
last reported sales price per share of the Common Stock on the Nasdaq
National Market or The Nasdaq SmallCap Market (collectively, "Nasdaq")
for the ten (10) Trading Day period ending on the date of exercise, or,
(iii) if not listed or traded on any such exchange or Nasdaq, the
average of the mean of the bid and asked prices per share of the Common
Stock as reported in the OTC Bulletin Board or, if not so reported, in
the "pink sheets" published by the National Quotation Bureau, Inc. for
the ten (10) Trading Day period ending on the date of exercise, or,
(iv) if such quotations are not available, the fair market value
per share of the Common Stock on the date such notice was received by
the Company as reasonably determined by the Board of Directors of the
Company.
1.2 Number of Warrant Shares. This Warrant shall entitle the
Warrantholder to purchase 1,196,172 shares of Common Stock.
1.3 Exercise Price. The Exercise Price shall be equal to $4.18 (the
"Exercise Price"). From and after the issuance of this Warrant, the Exercise
Price shall be adjusted in accordance with Section 6 hereof.
1.4 Term of Warrant and Exercisability.
(a) Term of Warrant. This Warrant shall terminate on the later of (i)
June 15, 2000; (ii) the date on which the indebtedness of the Company to the
Warrantholder under the Credit Agreement is paid in full; provided, however,
that this Warrant shall terminate upon the consummation of an S3 Acquisition.
Nothing in this Section 1.4(a), however, shall require S3 or Diamond to
negotiate or enter into an agreement providing for the merger of Diamond with S3
(directly or indirectly), and neither party shall have any liability for failing
to do so. The parties' rights and obligations under Sections 2, 8 and 9 hereof
shall survive the termination of this Warrant.
(b) Exercisability. This Warrant shall be immediately exercisable,
during the Exercise Period, in whole or in part as to ninety-nine percent (99%)
of the Warrant Shares. This
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<PAGE> 4
Warrant shall become exercisable, during the Exercise Period, as to the
remaining one percent (1%) of the Warrant Shares upon a Change of Control of
Diamond. Notwithstanding anything to the contrary herein, this Warrant may not
be exercised prior to June 15, 1999.
1.5 Payment of Taxes. The issuance of certificates for Warrant Shares
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; provided, however, that the Warrantholder
shall be required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.6 Information. Upon receipt of a written request from a Warrantholder,
the Company agrees to deliver promptly to such Warrantholder a copy of its
current publicly available financial statements and to provide such other
publicly available information concerning the Company as such Warrantholder may
reasonably request (if electronic access to such information via EDGAR is not
then generally available to the public) in order to assist the Warrantholder in
evaluating the merits and risks of exercising the Warrant and to make an
informed investment decision in connection with such exercise.
2. Registration Under the Securities Act of 1933.
2.1 Piggyback Registration.
(a) Right to Include Registrable Securities. If at any time or from time
to time prior to the fifth anniversary of the date hereof, the Company proposes
to register any of its securities under the Securities Act on any form for the
registration of securities under such Act, whether or not for its own account
(other than by a registration statement on Form S-8 or other form which does not
include substantially the same information as would be required in a form for
the general registration of securities or would not be available for the
Registrable Securities) (a "Piggyback Registration"), it shall as expeditiously
as reasonably possible give written notice to all Holders of its intention to do
so and of such Holders' rights under this Section 2.1. Such rights are referred
to hereinafter as "Piggyback Registration Rights." All references to "Warrant
Shares" and "Warrants" for purposes of this Article 2 shall refer to any such
shares or warrants issued by Diamond to S3. Upon the written request of any such
Holder made within ten (10) days after receipt of any such notice (which request
shall specify the Registrable Securities intended to be disposed of by such
Holder), the Company shall include in the Registration Statement the Registrable
Securities which the Company has been so requested to register by the Holders
thereof and the Company shall keep such registration statement in effect and
maintain compliance with each federal and state law or regulation for the period
necessary for such Holder to effect the proposed sale or other disposition (but
in no event for a period greater than ninety (90) days).
(b) Withdrawal of Piggyback Registration by Company. If, at any time
after giving written notice of its intention to register any securities in a
Piggyback Registration but prior to the effective date of the related
Registration Statement, the Company shall determine for any reason not to
register such securities, the Company shall give notice of such determination to
each Holder and, thereupon, shall be relieved of its obligation to register any
Registrable Securi-
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<PAGE> 5
ties in connection with such Piggyback Registration. All best efforts
obligations of the Company pursuant to Section 2.4 shall cease if the Company
determines to terminate prior to such effective date any registration where
Registrable Securities are being registered pursuant to this Section 2.1.
(c) Piggyback Registration of Underwritten Public Offerings. If a
Piggyback Registration involves an offering by or through underwriters, then (i)
all Holders requesting to have their Registrable securities included in the
Company's Registration Statement must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as apply
to other selling shareholders and (ii) any Holder requesting to have his or its
Registrable Securities included in such Registration Statement may elect in
writing, not later than seven (7) Business Days prior to the effectiveness of
the Registration Statement filed in connection with such registration, not to
have his or its Registrable Securities so included in connection with such
registration.
(d) Payment of Registration Expenses for Piggyback Registration. The
Company shall pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to a Piggyback Registration Right
contained in this Section 2.1.
(e) Priority in Piggyback Registration. If a Piggyback Registration
involves an offering by or through underwriters, the Company, except as
otherwise provided herein, shall not be required to include Registrable
Securities therein if and to the extent the underwriter managing the offering
reasonably believes in good faith and advises each Holder requesting to have
Registrable Securities included in the Company's Registration Statement that
such inclusion would materially adversely affect such offering; provided that
(i) if other selling shareholders who are employees, officers, directors or
other affiliates of the Company have requested registration of securities in the
proposed offering, the Company will reduce or eliminate such other selling
shareholders' securities before any reduction or elimination of Registrable
Securities; and (ii) any such reduction or elimination (after taking into
account the effect of clause (i)) shall be pro rata to all other holders of the
securities of the Company exercising "Piggyback Registration Rights" similar to
those set forth herein in proportion to the respective number of shares they
have requested to be registered.
2.2 Demand Registration.
(a) Request for Registration. Unless this Warrant is exercised pursuant
to Section 1.1(b) hereof, if, at any time prior to the fifth anniversary of the
date hereof, Holders holding the greater of (i) at least twenty-five percent
(25%) of the combined total of Warrant Shares issuable and Warrant Shares
outstanding pursuant to the Second Warrant and any prior or subsequent warrant
issued by Diamond to S3 or (ii) one hundred percent (100%) of such shares issued
or issuable pursuant to the First Warrant, at such time request that the Company
file a registration statement on Form S-3 (or Form S-1 if Form S-3 is not then
available to the Company) under the Securities Act, as soon as practicable
thereafter the Company shall use its commercially reasonable efforts to file a
registration statement with respect to all Warrant Shares that it has been so
requested to include (so long as such Warrant Shares represent the greater of
the amount set forth in clause (i) or clause (ii) above)(the "Demand
Registration") and obtain the effectiveness thereof, and to take all other
action necessary under any federal or state law or
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<PAGE> 6
regulation to permit the Warrant Shares that are held and/or that may be
acquired upon the exercise of the Warrants specified in the notices of the
Holders or holders thereof to be sold or otherwise disposed of, and the Company
shall maintain such compliance with each such federal and state law and
regulation for the period necessary for such Holders or holders to effect the
proposed sale or other disposition, which period shall be not less than thirty
(30) days; provided, however, the Company shall be entitled to defer such
registration for a period of up to forty-five (45) days if and to the extent
that its Board of Directors shall determine that such registration would
interfere with a pending corporate transaction. The Company shall also promptly
give written notice to the Holders and the holders of any other Warrants and/or
the holders of any Warrant Shares who or that have not made a request to the
Company pursuant to the provisions of this Section 2.2(a) of its intention to
effect any required registration or qualification, and shall use its
commercially reasonable efforts to effect as expeditiously as possible such
registration or qualification of all such other Warrant Shares that are then
held and/or that may be acquired upon the exercise of the Warrants, the Holder
or holders of which have requested such registration or qualification within
fifteen (15) days after such notice has been given by the Company. The Company
shall be required to effect a registration or qualification pursuant to this
Section 2.2(a) on a total of one (1) occasion.
(b) Payment of Registration Expenses for Demand Registration. The
Company shall pay all Registration Expenses in connection with the Demand
Registration.
(c) Selection of Underwriters. If the Demand Registration is requested
to be in the form of an underwritten offering, the managing underwriter shall be
selected by the Holders of a majority of the Warrant Shares to be registered.
Such selection shall be subject to the Company's consent, which consent shall
not be unreasonably withheld.
(d) Procedure for Requesting Demand Registration. Any request for a
Demand Registration shall specify the aggregate number of the Registrable
Securities proposed to be sold and the intended method of disposition. Within
ten (10) days after receipt of such a request the Company will give written
notice of such registration request to all Holders, and the Company will include
in such registration all Registrable Securities with respect to which the
Company has received written requests for inclusion therein within fifteen (15)
Business Days after the date on which such notice is given by the Company. Each
such request shall also specify the aggregate number of Registrable Securities
to be registered and the intended method of disposition thereof.
2.3 Registration Procedures. If and whenever the Company is required to
use its commercially reasonable efforts to take action pursuant to any federal
or state law or regulation to permit the sale or other disposition of any
Registrable Securities that are then held or that may be acquired upon exercise
of the Warrants in order to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Article 2, the Company
shall, as expeditiously as practicable:
(a) prepare and file with the SEC, as soon as practicable within
forty-five (45) days after the end of the period within which requests for
registration may be given to the Company (but subject to the provision for
deferral contained in Section 2.2(a) hereof) a Registration Statement or
Registration Statements relating to the registration on any appropriate form
under the Securities Act, which form shall be available for the sale of the
Registrable Securities in
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<PAGE> 7
accordance with the intended method or methods of distribution thereof, subject
to Section 2.1(e) hereof, and use its commercially reasonable efforts to cause
such Registration Statements to become effective; provided that before filing a
Registration Statement or Prospectus or any amendment or supplements thereto,
including documents incorporated by reference after the initial filing of any
Registration Statement, the Company will furnish to the Holders of the
Registrable Securities covered by such Registration Statement and the
underwriters, if any, copies of all such documents provided to be filed, which
documents will be subject to the review of such Holders and underwriters;
(b) prepare and file with the SEC such amendments and post-effective
amendments to a Registration Statement as may be necessary to keep such
Registration Statement effective for a period of thirty (30) days; cause the
related Prospectus to be supplemented by any required Prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 under the Securities Act;
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such Registration Statement or supplement to such
Prospectus;
(c) notify the selling Holders of Registrable Securities and the
managing underwriters, if any, promptly, and (if requested by any such Person)
confirm such advice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related Prospectus or for additional information;
(iii) of the issuance by the SEC of any stop order suspending the effectiveness
of a Registration Statement or the initiation of any proceedings for that
purpose; (iv) if at any time the representations and warranties of the Company
contemplated by paragraph (m) below cease to be true and correct in all material
respects; (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, and (vi) of the happening of any event that makes any statement of
a material fact made in the Registration Statement, the Prospectus or any
document incorporated therein by reference untrue or which requires the making
of any changes in the Registration Statement or Prospectus so that they will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(e) if reasonably requested by the managing underwriters, immediately
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters believe (on advice of counsel) should
be included therein as required by applicable law relating to such sale of
Registrable Securities, including, without limitation, information with respect
to the purchase price being paid for the Registrable Securities by such
underwriters and with respect to any other terms of the underwritten (or
"best-efforts" underwritten) offering; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as
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<PAGE> 8
notified of the matters to be incorporated in such Prospectus supplement or
post-effective amendment;
(f) furnish to each selling Holder of Registrable Securities and each
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(g) deliver to each selling Holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including each preliminary Prospectus) any amendment or supplement
thereto as such Persons may reasonably request; the Company consents to the use
of such Prospectus or any amendment or supplement thereto by each of the selling
Holders of Registrable Securities and the underwriters, if any, in connection
with the offering and sale of the Registrable Securities covered by such
Prospectus or any amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities, cooperate
with the selling Holders of Registrable Securities, the underwriters, if any,
and their respective counsel in connection with the registration or
qualification of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any selling Holder or underwriter reasonably requests in writing, keep each such
registration or qualification effective during the period such Registration
Statement is required to be kept effective and do any and all other acts or
things necessary or advisable to enable the disposition in such jurisdictions of
the Registrable Securities covered by the applicable Registration Statement;
provided that the Company will not be required to qualify to do business in any
jurisdiction where it is not then so qualified or to take any action which would
subject the Company to general service of process in any jurisdiction where it
is not at the time so subject;
(i) cooperate with the selling Holders of Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold and not bearing
any restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters may
request at least two (2) Business Days prior to any sale of Registrable
Securities to the underwriters;
(j) use its commercially reasonable efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities within the
United States as may be necessary to enable the seller or sellers thereof or the
underwriters, if any, to consummate the disposition of such Registrable
Securities;
(k) upon the occurrence of any event contemplated by Section 2.3(c)(vi)
above, prepare a supplement or post-effective amendment to the applicable
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold thereunder,
such that the Prospectus will not contain an untrue statement of a material fact
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<PAGE> 9
or omit to state any material fact necessary to make the statements therein not
misleading in the light of the circumstances under which they were made;
(l) with respect to each issue or class of Registrable Securities, use
its commercially reasonable efforts to cause all Registrable Securities covered
by the Registration Statement to be listed on each securities exchange, if any,
on which similar securities issued by the Company are then listed if requested
by the Holders of a majority of such issue or class of Registrable Securities;
(m) enter into such agreements (including an underwriting agreement) and
take all such other action reasonably required in connection therewith in order
to expedite or facilitate the disposition of such Registrable Securities and in
such connection, if the registration is in connection with an underwritten
offering (i) make such representations and warranties to the underwriters, in
such form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and when
requested; (ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions in form, scope and substance shall be reasonably
satisfactory to the underwriters) addressed to the underwriters covering the
matters customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such underwriters; (iii)
obtain "cold comfort" letters and updates thereof from the Company's accountants
addressed to the underwriters, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters by
underwriters in connection with underwritten offerings; (iv) set forth in full
in any underwriting agreement entered into the indemnification provisions and
procedures of Section 2.4 hereof with respect to all parties to be indemnified
pursuant to said Section; and (v) deliver such documents and certificates as may
be reasonably requested by the underwriters to evidence compliance with clause
(i) above and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company; the above shall be
done at each closing under such underwriting or similar agreement or as and to
the extent required hereunder;
(n) make available for inspection by one or more representatives of the
Holders of Registrable Securities being sold, any underwriter participating in
any disposition pursuant to such registration, and any attorney or accountant
retained by such Holders or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such representatives, in connection with such; and
(o) otherwise use its commercially reasonable efforts to comply with all
applicable federal and state regulations; and take such other action as may be
reasonably necessary to or advisable to enable each such Holder and each such
underwriter to consummate the sale or disposition in such jurisdiction or
jurisdiction in which any such Holder or underwriter shall have requested that
the Registrable Securities be sold.
Except as otherwise provided in this Agreement, the Company shall have
sole control in connection with the preparation, filing, withdrawal, amendment
or supplementing of each Registration Statement, the selection of underwriters,
and the distribution of any preliminary Prospectus included in the Registration
Statement, and may include within the coverage thereof
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<PAGE> 10
additional shares of Common Stock or other securities for its own account or for
the account of one or more of its other security holders.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities and such other
information as may otherwise be required by the Securities Act to be included in
such Registration Statement.
2.4 Indemnification.
(a) Indemnification by Company. In connection with each Registration
Statement relating to disposition of Registrable Securities, the Company shall
indemnify and hold harmless each Holder and each underwriter of Registrable
Securities and each Person, if any, who controls such Holder or underwriter
(within the meaning of section 15 of the Securities Act or section 20 of the
Exchange Act) against any and all losses, claims, damages and liabilities, joint
or several (including any reasonable investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of any action,
suit or proceeding or any claim asserted), to which they, or any of them, may
become subject under the Securities Act, the Exchange Act or other federal or
state law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary Prospectus or any amendment
thereof or supplement thereto, or arise out of or are based upon any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided, however,
that such indemnity shall not inure to the benefit of any Holder or underwriter
(or any person controlling such Holder or underwriter within the meaning of
section 15 of the Securities Act or section 20 of the Exchange Act) on account
of any losses, claims, damages or liabilities arising from the sale of the
Registrable Securities if such untrue statement or omission or alleged untrue
statement or omission was made in such Registration Statement, Prospectus or
preliminary Prospectus, or such amendment or supplement, in reliance upon and in
conformity with information furnished in writing to the Company by such Holder
or underwriter specifically for use therein; provided, further, that the Company
shall not be liable to such Holder or any underwriter (or any person controlling
such Holder or underwriter) with respect to any such untrue statement or alleged
untrue statement or omission made in any preliminary Prospectus that is
corrected in the Prospectus (or any amendment or supplement thereto) if the
person asserting any such loss, claim, damage or liability purchased shares of
the Common Stock from such Holder or underwriter but was not given a copy of the
Prospectus (as amended or supplemented) in any case where such delivery of the
Prospectus (as amended or supplemented) was required by the Securities Act. The
Company shall also indemnify selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors and each Person who controls such Persons (within the
meaning of section 15 of the Securities Act or section 20 of the Exchange Act)
to the same extent as provided above with respect to the indemnification of the
Holders of Registrable Securities, if requested. This indemnity agreement shall
be in addition to any liability which the Company may otherwise have.
(b) Indemnification by Holder. In connection with each Registration
Statement, each Holder shall indemnify, to the same extent as the
indemnification provided by the Company in
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<PAGE> 11
Section 2.4(a), the Company, its directors and each officer who signs the
Registration Statement and each Person who controls the Company (within the
meaning of section 15 of the Securities Act and section 20 of the Exchange Act)
but only insofar as such losses, claims, damages and liabilities arise out of or
are based upon any untrue statement or omission or alleged untrue statement or
omission which was made in the Registration Statement, the Prospectus or
preliminary Prospectus or any amendment thereof or supplement thereto, in
reliance upon and in conformity with information furnished in writing by such
Holder to the Company specifically for use therein. In no event shall the
liability of any selling Holder of Registrable Securities hereunder be greater
in amount than the dollar amount of the net proceeds received by such Holder
upon the sale of the Registrable Securities giving rise to such indemnification
obligation. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, to the same extent as provided
above, with respect to information so furnished in writing by such Persons
specifically for inclusion in any Prospectus, Registration Statement or
preliminary Prospectus or any amendment thereof or supplement thereto.
(c) Conduct of Indemnification Procedure. Any party that proposes to
assert the right to be indemnified hereunder will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or parties
under this Section, notify each such indemnifying party of the commencement of
such action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 2.4(a) or 2.4(b) shall be available to
any party who shall fail to give notice as provided in this Section 2.4(c) if
the party to whom notice was not given was unaware of the proceeding to which
such notice would have related and was materially prejudiced by the failure to
give such notice, but the omission so to notify such indemnifying party of any
such action, suit or proceeding shall not relieve it from any liability that it
may have to any indemnified party for contribution otherwise than under this
Section. In case any such action, suit or proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof
and the approval by the indemnified party of such counsel, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses, except as provided below and except for the reasonable costs of
investigation subsequently incurred by such indemnified party in connection with
the defense thereof. The indemnified party shall have the right to employ its
counsel in any such action, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the employment of counsel by
such indemnified party has been authorized in writing by the indemnifying
parties, (ii) the indemnified party shall have reasonably concluded that there
may be a conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in which case
the indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party) or (iii) the indemnifying parties
shall not have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of which cases
the fees and expenses of counsel shall be at
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<PAGE> 12
the expense of the indemnifying parties. An indemnified party shall not be
liable for any settlement of any action, suit, proceeding or claim effected
without its written consent.
(d) Contribution. In connection with each Registration Statement
relating to the disposition of Registrable Securities, if the indemnification
provided for in Section 2.4(a) or 2.4(b) hereof is unavailable to an indemnified
party thereunder in respect to any losses, claims, damages or liabilities
referred to therein, then the indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of the losses, claims,
damages or liabilities referred to in paragraphs (a) or (b) of this Section 2.4
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. Relative fault shall 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 the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
paragraph (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim.
(e) Underwriting Agreement to Control. Notwithstanding the foregoing
provisions of this Section 2.4, to the extent that the provisions on
indemnification and contribution contained in any underwriting agreement entered
into in connection with the underwritten public offering of the Registrable
Securities are in conflict with the foregoing provisions, the provisions in such
underwriting agreement shall control.
(f) Specific Performance. The Company and the Holder acknowledge that
remedies at law for the enforcement of this Section 2.4 may be inadequate and
intend that this Section 2.4 shall be specifically enforceable.
(g) Survival of Obligations. The obligations of the Company and the
Holder under this Section 2.4 shall survive the completion of any offering of
Registrable Securities pursuant to a Registration Statement under this Article
2, and otherwise.
2.5 Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
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<PAGE> 13
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144, the Securities
Act and the Exchange Act, or that it qualifies as a registrant whose securities
may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a
copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company and (iii) such other information
as may be reasonably requested in availing any Holder of any rule or regulation
of the SEC which permits the selling of any such securities without registration
or pursuant to such form.
2.6 Restrictions on Transfer; Compliance with Securities Laws. This
Warrant and the Warrant Shares issued upon the exercise of the Warrant may not
be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and transferee
(including the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if such are requested by the Company).
The Warrantholder, by acceptance hereof, acknowledges that this Warrant and the
Warrant Shares to be issued upon exercise hereof are being acquired solely for
the Warrantholder's own account and not as a nominee for any other party, and
for investment, and that the Warrantholder will not offer, sell or otherwise
dispose of any Warrant Shares to be issued upon exercise hereof except under
circumstances that will not result in a violation of the Securities Act or any
state securities laws. Upon exercise of this Warrant, the Warrantholder shall,
if requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
Warrantholder's own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale.
2.7 Restrictive Legends. This Warrant shall (and each Warrant issued
upon transfer in whole or in part of this Warrant pursuant to this Section 2 or
issued in substitution for this Warrant pursuant to Section 4 shall) be stamped
or otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT."
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<PAGE> 14
Notwithstanding the foregoing, the Warrantholder may require the Company
to issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Warrantholder (except as otherwise may be
prohibited, restricted or limited by law or any rule or regulation of a
regulatory entity) as follows:
3.1 Organization; Authority Relative to this Warrant. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to execute and deliver this Warrant, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Warrant by the Company and the consummation by the Company
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of the Company. This Warrant has been
duly and validly executed and delivered by the Company and constitutes a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally, and by general equitable principles.
3.2 Authority to Issue Shares. The Company has taken all necessary
corporate action to authorize and reserve and permit it to issue, and at all
times from the date hereof through the end of the Exercise Period shall have
reserved, all the Warrant Shares issuable pursuant to this Warrant. All of the
shares of Common Stock issuable under this Warrant, upon their issuance and
delivery in accordance with the terms of this Warrant, will be duly authorized,
validly issued, fully paid and nonassessable, will be delivered free and clear
of all security interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on the Warrantholder's voting rights, charges,
adverse rights and other encumbrances of any nature whatsoever (other than this
Warrant) and will not be subject to any preemptive rights.
3.3 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Warrant by the Company does not,
and the performance by the Company of its obligations hereunder and the
consummation of the transactions contemplated hereby will not, (i) conflict with
or violate the certificate of incorporation or bylaws of the Company, (ii)
assuming that all consents and filings described in Section 3.3(b) have been
obtained or made, conflict with or violate any law applicable to the Company or
by which any property or asset of the Company is bound or affected or (iii)
result in any violation pursuant to, any note, bond, mortgage, indenture,
contract, agreement , lease, license, permit, franchise or other instrument or
obligation to which the Company is a party or by which the Company or any of its
properties may be bound or affected.
(b) No consent of, or filing with, any governmental entity is required
by the Company in connection with the execution and delivery of this Warrant,
the performance by the Company
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<PAGE> 15
of its obligations hereunder or the consummation by the Company of the
transactions contemplated hereby, except for (i) compliance with the
Hart-Scott-Rodino Act and (ii) consents or filings the failure of which to be
obtained or made would not, individually or in the aggregate, prevent or
materially delay the consummation of the transactions contemplated hereby or the
performance by the Company of any of its obligations hereunder.
3.4 Reservation and Registration of Shares, Etc. The Company covenants
and agrees that all Warrant Shares which are issuable upon the exercise of this
Warrant will, upon issuance, be validly issued, fully paid and nonassessable and
free from all taxes, liens, security interests, charges and other encumbrances
with respect to the issue thereof, other than taxes in respect of any transfer
occurring contemporaneously with such issue. The Company further covenants and
agrees that, during the Exercise Period, the Company will at all times have
authorized and reserved, and keep available free from preemptive rights, a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant and will, at its expense, upon each such
reservation of shares, procure such listing of such shares of Common Stock
(subject to issuance or notice of issuance) as then may be required on all stock
exchanges on which the Common Stock is then listed or on Nasdaq.
4. Exchange, Loss or Destruction of Warrant. Upon receipt by the Company
of evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, of such bond or
indemnification as the Company may require, and, in the case of such mutilation,
upon surrender and cancellation of this Warrant, the Company will execute and
deliver a new Warrant of like tenor. The term "Warrant" as used in this
Agreement shall be deemed to include any Warrants issued in substitution or
exchange for this Warrant.
5. Ownership of Warrant. The Company may deem and treat the person in
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary.
6. Certain Adjustments.
6.1 Adjustments. The number of Warrant Shares purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
as follows:
(a) Stock Dividends. If at any time prior to the exercise of this
Warrant in full (i) the Company shall fix a record date for the issuance of any
stock dividend payable in shares of Common Stock or (ii) the number of shares of
Common Stock shall have been increased by a subdivision or split-up of shares of
Common Stock, then, on the record date fixed for the determination of holders of
Common Stock entitled to receive such dividend or immediately after the
effective date of subdivision or split-up, as the case may be, the number of
shares of Common Stock to be delivered upon exercise of this Warrant will be
increased so that the Warrantholder will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
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<PAGE> 16
(b) Combination of Stock. If at any time prior to the exercise of this
Warrant in full the number of shares of Common Stock outstanding shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of shares
of Common Stock to be delivered upon exercise of this Warrant will be decreased
so that the Warrantholder thereafter will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(c) Reorganization, etc. If at any time prior to the exercise of this
Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation of the Company with
or merger of the Company with or into any other person or any sale, lease or
other transfer of all or substantially all of the assets of the Company to any
other person, shall be effected in such a way that the holders of Common Stock
shall be entitled to receive stock, other securities or assets (whether such
stock, other securities or assets are issued or distributed by the Company or
another person) with respect to or in exchange for Common Stock, then, upon
exercise of this Warrant the Warrantholder shall have the right to receive the
kind and amount of stock, other securities or assets receivable upon such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer by a holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 6.
(d) Fractional Shares. No fractional shares of Common Stock or scrip
shall be issued to any Warrantholder in connection with the exercise of this
Warrant. Instead of any fractional shares of Common Stock that would otherwise
be issuable to such Warrantholder, the Company will pay to such Warrantholder a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the fair market value of one share of Common Stock
as of the date of exercise.
(e) Carryover. Notwithstanding any other provision of this Section 6, no
adjustment shall be made to the number of shares of Common Stock to be delivered
to the Warrantholder (or to the Exercise Price) if such adjustment represents
less than one percent (1%) of the number of shares to be so delivered, but any
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which together with any adjustments
so carried forward shall amount to one percent (1%) or more of the number of
shares to be so delivered.
(f) Exercise Price Adjustment. Whenever the number of Warrant Shares
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
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<PAGE> 17
(g) No Duplicate Adjustments. Notwithstanding anything else to the
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 6 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an adjustment
having substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 6 is made by the
Company for any such event to the number of shares of Common Stock (or other
securities) issuable upon exercise of this Warrant.
6.2 No Adjustment for Dividends. Except as provided in Section 1 hereof
or Section 6.1 hereof, no adjustment in respect of any dividends shall be made
during the term of the Warrant or upon the exercise of this Warrant.
6.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial officer of the Company setting forth the number of Warrant
Shares and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made.
7. Notices of Corporate Action. In the event of:
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of Control,
or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for the securities or other property deliverable upon such
reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up. Such notice shall be mailed at least ten
(10) days prior to the date therein specified, in the case of any date referred
to in the foregoing subdivision (i), and at least ten (10) days prior to the
date therein specified, in the case of the date referred to in the foregoing
subdivision (ii).
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8. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
national banks are authorized by law to close in the City of San Francisco,
State of California.
Change of Control: shall mean (i) the consolidation of the Company with
or merger of the Company with or into any other person in which the Company is
not the surviving corporation or in which the Company's stockholders prior to
such transaction do not own, directly or indirectly, immediately after such
transaction, fifty percent (50%) or more of the outstanding securities entitled
to vote generally for the election of directors or similar managing authority of
the surviving or resulting entity in such transaction, (ii) the sale of all or
substantially all of the assets of the Company to any other person or (iii) any
sale or transfer of any capital stock of the Company after the date of this
Warrant, following which forty (40%) or more of the combined voting power of the
Company becomes beneficially owned by one person or group acting together. For
purposes of this definition of Change of Control, "group" shall have the meaning
as such term is used in section 13(d) under the Exchange Act and the rules and
regulations thereunder.
Company: Diamond Multimedia Systems, Inc., a Delaware corporation.
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall include a
reference to a comparable section, if any, of any successor federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit A.
Exercise Price: the meaning specified in Section 1.3, as such price may
be adjusted pursuant to Section 6 hereof.
Holder: shall mean a holder of Registrable Securities.
Nasdaq: the meaning specified in Section 1.1(c)(ii).
Person: shall mean an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
Prospectus: shall mean any prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and all other amendments and supplements
to the Prospectus, including post-effective amendments and all material
incorporated by reference in such Prospectus.
Registration Expenses: shall mean any and all expenses incurred in
connection with any registration or action incident to performance of or
compliance by the Company with Article 2,
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<PAGE> 19
including, without limitation, (i) all SEC, national securities exchange and
NASD registration and filing fees; all listing fees and all transfer agent fees;
(ii) all fees and expenses of complying with state securities or blue sky laws
(including the fees and disbursements of counsel of the underwriters in
connection with blue sky qualifications of the Registrable Securities); (iii)
all printing, mailing, messenger and delivery expenses, (iv) all fees and
disbursements of counsel for the Company and of its accountants, including the
expenses of any special audits and/or "cold comfort" letters required by or
incident to such performance and compliance, and (v) any disbursements of
underwriters customarily paid by issuers or sellers of securities including the
reasonable fees and expenses of any special experts retained in connection with
the requested registration, but excluding underwriting discounts and
commissions, brokerage fees and transfer taxes, if any, and fees of counsel or
accountants retained by the Holders of Registrable Securities to advise them in
their capacity as Holders of Registrable Securities.
Registrable Securities: shall mean any Warrant Shares issued to the
Warrantholder, and/or other securities that may be or are issued by the Company
upon exercise of this Warrant, including those which may thereafter be issued by
the Company in respect of any such securities by means of any stock splits,
stock dividends, recapitalizations, reclassifications or the like, and as
adjusted pursuant to Article 6 hereof; provided, however, that as to any
particular security contained in Registrable Securities, such securities shall
cease to be Registrable Securities when (i) a Registration Statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such Registration Statement; or (ii) they shall have been sold to the
public pursuant to Rule 144 (or any successor provision) under the Securities
Act.
Registration Statement: shall mean any registration statement of the
Company filed or to be filed with the SEC which covers any of the Registrable
Securities pursuant to the provisions of this Warrant, including all amendments
(including post-effective amendments) and supplements thereto, all exhibits
thereto and all material incorporated therein by reference.
SEC: the Securities and Exchange Commission or any other federal agency
at the time administering the Securities Act or the Exchange Act, whichever is
the relevant statute for the particular purpose.
Securities Act: the Securities Act of 1933, as amended, or any successor
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section of
the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
S3 Acquisition: shall mean any transaction or series of related
transactions involving: (i) any purchase from S3 or acquisition by any Person or
"group" (as defined under section 13(d) of the Exchange Act and the rules and
regulations thereunder) of more than a fifty percent (50%) interest in the total
outstanding voting securities of S3 or any tender offer or exchange offer that
if consummated would result in any person or "group" (as defined under section
13(d) of the Exchange Act and the rules and regulations thereunder) beneficially
owning fifty percent (50%) or more of the total outstanding voting securities of
S3 or any merger, consolidation, business combination or similar transaction
involving S3 in which the stockholders of S3 immediately prior to such
transaction do not own, immediately after such transaction, at least a majority
of the
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<PAGE> 20
outstanding securities entitled to vote generally for the election of directors
or similar managing authority of the surviving or resulting entity in such
transaction; or (ii) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of all or substantially all of the assets
of S3, other than to an entity of which at least a majority of the outstanding
securities entitled to vote generally for the election of directors or similar
managing authority are directly or indirectly owned or controlled by S3.
Trading Day: any day other than a day on which securities are not
traded, listed or reported on the principal securities exchange or securities
market on which the Common Stock is traded, listed or reported.
Warrantholder: the meaning specified on the cover of this Warrant.
Warrant Shares: the meaning specified on the cover of this Warrant,
subject to the provisions of Section 1 and Section 6 hereof.
9. Miscellaneous.
9.1 Entire Agreement. This Warrant constitutes the entire agreement
between the Company and the Warrantholder with respect to this Warrant.
9.2 Binding Effects; Benefits. This Warrant shall inure to the benefit
of and shall be binding upon the Company and the Warrantholder and their
respective successors. Nothing in this Warrant, expressed or implied, is
intended to or shall confer on any person other than the Company and the
Warrantholder, or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Warrant.
9.3 Restrictions on Transferability. Subject to the terms and conditions
of this Warrant and compliance with all applicable securities laws, this Warrant
and all rights hereunder (and any shares of common stock acquired upon exercise
of this Warrant) may be transferred in whole or in part, only (a) to a wholly
owned subsidiary of the Warrantholder, or (b) in a sale effectuated pursuant to
Rule 144 promulgated under the Securities Act, or (c) in an offering registered
under section 5 of the Securities Act.
9.4 Amendments and Waivers. This Warrant may not be modified or amended
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
9.5 Section and Other Headings. The section and other headings contained
in this Warrant are for reference purposes only and shall not be deemed to be a
part of this Warrant or to affect the meaning or interpretation of this Warrant.
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9.6 Further Assurances. Each of the Company and the Warrantholder shall
do and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Agreement.
9.7 Notices. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by United States mail, postage
prepaid, or by facsimile (with electronic confirmation of successful
transmission) to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
(a) if to the Company, Diamond Multimedia Systems, Inc.
addressed to: 2880 Junction Avenue
San Jose, CA 95134
Attention: President and Chief
Executive Officer
Telecopier: ___________________
(b) if to the Warrantholder, S3 Incorporated
addressed to: 2801 Mission College Boulevard
Santa Clara, CA 95052-8058
Attention: President and Chief
Executive Officer
Telecopier: ___________________
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
9.8 Separability. Any term or provision of this Warrant which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
9.9 Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of California (irrespective of its choice of law
principles).
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<PAGE> 22
9.10 No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be determined as conferring upon the Warrantholder any rights as a
stockholder of the Company or as imposing any liabilities on the Warrantholder
to purchase any securities whether such liabilities are asserted by the Company
or by creditors or stockholders of the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Dated: June 15, 1999.
DIAMOND MULTIMEDIA SYSTEMS, INC.
By__________________________________
Title_______________________________
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<PAGE> 23
EXHIBIT A
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
[ ] herewith tenders payment for _______ of the Warrant Shares to
the order of Diamond Multimedia Systems, Inc. in the amount of
$_________ in accordance with the terms of this Warrant; or
[ ] herewith tenders this Warrant for _______ Warrant Shares
pursuant to the Net Issue Exercise provisions of Section 1.1(b)
of the Warrant.
The undersigned requests that a certificate (or certificates) for such
Warrant Shares be registered in the name of the undersigned and that such
certificate (or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, or for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: ___________________.
_______________________________
Signature
_______________________________
(Print Name)
_______________________________
(Street Address)
_______________________________
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under
the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
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<PAGE> 1
EXHIBIT 10.4
================================================================================
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
***********************************************
DIAMOND MULTIMEDIA SYSTEMS, INC.
THIRD COMMON STOCK PURCHASE WARRANT
***********************************************
This certifies that, for good and valuable consideration, Diamond
Multimedia Systems, Inc., a Delaware corporation ("Diamond" or the "Company"),
grants to S3 Incorporated, a Delaware corporation ("S3" or the "Warrantholder"),
the right to subscribe for and purchase from the Company the number of fully
paid and nonassessable shares (the "Warrant Shares") of the Company's Common
Stock, $0.001 par value (the "Common Stock") specified herein, at the purchase
price per share (the "Exercise Price") determined as set forth herein,
exercisable, subject to the restrictions set forth herein, during the period
(the "Exercise Period") set forth in Section 1.4 hereof, all subject to the
terms, conditions and adjustments herein set forth. This Warrant (the "Third
Warrant") is issued in connection with (i) that certain Credit Agreement, as
amended (the "Credit Agreement"), dated as of June 11, 1999, by and between the
Company and S3 and (ii) that certain Agreement and Plan of Merger (the "Merger
Agreement"), dated as of June 21, 1999, by and between the Company and S3. Two
other Warrants, dated as of June 10, 1999, and June 15, 1999, respectively, have
also been issued to S3 in connection with the Credit Agreement (respectively,
the "First Warrant" and the "Second Warrant"). Certain capitalized terms used
herein are defined in Section 8 hereof. Capitalized terms used herein not
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement.
================================================================================
<PAGE> 2
1. Exercise of Warrant.
1.1 Duration and Exercise of Warrant.
(a) Cash Exercise. This Warrant may be exercised by the Warrantholder by
(i) the surrender of this Warrant to the Company, with a duly executed Exercise
Form specifying the number of Warrant Shares to be purchased, during normal
business hours on any Business Day during the Exercise Period and (ii) the
delivery of payment to the Company, for the account of the Company, of the
Exercise Price for the number of Warrant Shares specified in the Exercise Form,
(A) by wire transfer of immediately available funds to a bank account specified
by the Company; (B) by certified or bank cashier's check; (C) by cancellation of
indebtedness under the Credit Agreement, or (D) of any other amount due to the
Warrantholder under any other contract (including any purchase order) pursuant
to which the Warrantholder does business with the Company not paid within twenty
(20) days of when due, or as otherwise mutually agreed to between the parties.
The Company agrees that such Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for the Warrant Shares as aforesaid. A stock certificate or
certificates for the Warrant Shares specified in the Exercise Form shall be
delivered to the Warrantholder as promptly as practicable. If this Warrant shall
have been exercised only in part, the Company shall, at the time of delivery of
the stock certificate or certificates, deliver to the Warrantholder a new
Warrant evidencing the rights to purchase the remaining Warrant Shares, which
new Warrant shall in all other respects be identical with this Warrant. No
adjustments shall be made on Warrant Shares issuable on the exercise of this
Warrant for any cash dividends paid or payable to holders of record of Common
Stock prior to the date as of which the Warrantholder shall be deemed to be the
record holder of such Warrant Shares.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 1.1(a), this Warrant may be exercised by the Warrantholder by the
surrender of this Warrant to the Company, with a duly executed Exercise Form
marked to reflect Net Issue Exercise and specifying the number of Warrant Shares
to be purchased, during normal business hours on any Business Day during the
Exercise Period. The Company agrees that such Warrant Shares shall be deemed to
be issued to the Warrantholder as the record holder of such Warrant Shares as of
the close of business on the date on which this Warrant shall have been
surrendered as aforesaid. Upon such exercise, the Warrantholder shall be
entitled to receive shares equal to the value of this Warrant (or the portion
hereof being exercised) computed as of the date of surrender of this Warrant to
the Company using the following formula:
X = Y x (A-B)
--------
A
Where X = the number of shares of Common Stock to be issued to Warrantholder
under this Section 1.1(b);
Y = the number of shares of Common Stock otherwise purchasable
under this Warrant (at the date of such calculation);
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<PAGE> 3
A = the fair market value of one share of Common Stock (at the
date of such calculation);
B = the Exercise Price (as adjusted to the date of such calculation).
(c) Fair Market Value. For purposes of Section 1.1(b) "fair market
value" of one share of Common Stock shall mean:
(i) the average closing price per share of the Common Stock on
the principal national securities exchange on which the Common Stock is
listed or admitted to trading for the ten (10) Trading Day period ending
on the date of exercise, or,
(ii) if not listed or traded on any such exchange, the average
last reported sales price per share of the Common Stock on the Nasdaq
National Market or The Nasdaq SmallCap Market (collectively, "Nasdaq")
for the ten (10) Trading Day period ending on the date of exercise, or,
(iii) if not listed or traded on any such exchange or Nasdaq, the
average of the mean of the bid and asked prices per share of the Common
Stock as reported in the OTC Bulletin Board or, if not so reported, in
the "pink sheets" published by the National Quotation Bureau, Inc. for
the ten (10) Trading Day period ending on the date of exercise, or,
(iv) if such quotations are not available, the fair market value
per share of the Common Stock on the date such notice was received by
the Company as reasonably determined by the Board of Directors of the
Company.
1.2 Number of Warrant Shares. This Warrant shall entitle the
Warrantholder to purchase 2,236,198 shares of Common Stock.
1.3 Exercise Price. The Exercise Price shall be equal to $4.471875 (the
"Exercise Price"). From and after the issuance of this Warrant, the Exercise
Price shall be adjusted in accordance with Section 6 hereof.
1.4 Term of Warrant and Exercisability.
(a) Term of Warrant. This Warrant shall terminate on the later of (i)
June 21, 2000; (ii) the date on which the indebtedness of the Company to the
Warrantholder under the Credit Agreement is paid in full; provided, however,
that this Warrant shall terminate upon the consummation of an S3 Acquisition.
Nothing in this Section 1.4(a), however, shall require S3 to advance any portion
of the third Loan pursuant to Section 3.4 of the Credit Agreement, and S3 shall
not have any liability for failing to do so. The parties' rights and obligations
under Sections 2, 8 and 9 hereof shall survive the termination of this Warrant.
(b) Exercisability. Notwithstanding anything to the contrary herein,
this Warrant shall become immediately exercisable, in whole or in part, as to
one hundred percent (100%) of the Warrant Shares concurrently with the advance
by S3 of the third Loan to Diamond pursuant
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<PAGE> 4
to Section 3.4 of the Credit Agreement. This Warrant shall also become
immediately exercisable, in whole or in part, as to one hundred percent (100%)
of the Warrant Shares if (i) Diamond materially breaches its obligations under
the Credit Agreement for so long as such breach shall be continuing; (ii) S3
does not advance the third Loan to Diamond on July 1, 1999 pursuant to Section
3.4 of the Credit Agreement, because any one of the conditions to the third Loan
set forth in Section 3.4(b), Section 3.4(c), Section 3.4(d) (unless such failure
is due to a failure by Finova to consent to the terms of the Credit Agreement),
or Section 3.4(e), of the Credit Agreement is not satisfied on or prior to such
date, or (iii) prior to the time that S3 advances the third Loan to Diamond
pursuant to Section 3.4 of the Credit Agreement, Diamond receives a Superior
Proposal (as defined in the Merger Agreement) in respect of Diamond from a third
party Person and executes a definitive agreement for a transaction that, if
consummated, would constitute a Change of Control of Diamond. If this Warrant
has become exercisable as to one hundred percent (100%) of the Warrant Shares
pursuant to the provisions of this Section 1.4(b), and S3 receives a Superior
Proposal (as defined in the Merger Agreement) in respect of S3 from a third
party Person for a transaction that, if consummated, would constitute an S3
Acquisition, then this Warrant shall cease to be exercisable as to one hundred
percent (100%) of the Warrant Shares until and unless S3 terminates discussions
with such third party Person (without consummation of the transaction that would
constitute an S3 Acquisition), irrespective of whether S3 has executed a
definitive agreement with such third party Person for a transaction that would
constitute an S3 Acquisition; provided, however, that if prior to the time S3
receives a Superior Proposal (as defined in the Merger Agreement) in respect of
S3 from a third party Person for a transaction that, if consummated, would
constitute an S3 Acquisition, Diamond has already received a Superior Proposal
(as defined in the Merger Agreement) in respect of Diamond from a third party
Person for a transaction that, if consummated, would constitute a Change of
Control of Diamond, this sentence shall not apply, and this Warrant shall remain
exercisable as to one hundred percent (100%) of the Warrant Shares unless and
until Diamond terminates discussions with such third party Person (without
consummation of the transaction that would constitute a Change in Control of
Diamond) irrespective of whether Diamond has executed a definitive agreement
with such third party Person for a transaction that would constitute a Diamond
Change in Control. Unless this Warrant has become exercisable as to the Warrant
Shares pursuant to the provisions of this Section 1.4(b), this Warrant shall not
be exercisable as to the Warrant Shares.
1.5 Payment of Taxes. The issuance of certificates for Warrant Shares
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; provided, however, that the Warrantholder
shall be required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.6 Information. Upon receipt of a written request from a Warrantholder,
the Company agrees to deliver promptly to such Warrantholder a copy of its
current publicly available financial statements and to provide such other
publicly available information concerning the Company as such Warrantholder may
reasonably request (if electronic access to such information via EDGAR is not
then generally available to the public) in order to assist the Warrantholder in
evaluating the merits and risks of exercising the Warrant and to make an
informed investment decision in connection with such exercise.
-4-
<PAGE> 5
2. Registration Under the Securities Act of 1933.
2.1 Piggyback Registration.
(a) Right to Include Registrable Securities. If at any time or from time
to time prior to the fifth anniversary of the date hereof, the Company proposes
to register any of its securities under the Securities Act on any form for the
registration of securities under such Act, whether or not for its own account
(other than by a registration statement on Form S-8 or other form which does not
include substantially the same information as would be required in a form for
the general registration of securities or would not be available for the
Registrable Securities) (a "Piggyback Registration"), it shall as expeditiously
as reasonably possible give written notice to all Holders of its intention to do
so and of such Holders' rights under this Section 2.1. Such rights are referred
to hereinafter as "Piggyback Registration Rights." All references to "Warrant
Shares" and "Warrants" for purposes of this Article 2 shall refer to any such
shares or warrants issued by Diamond to S3. Upon the written request of any such
Holder made within ten (10) days after receipt of any such notice (which request
shall specify the Registrable Securities intended to be disposed of by such
Holder), the Company shall include in the Registration Statement the Registrable
Securities which the Company has been so requested to register by the Holders
thereof and the Company shall keep such registration statement in effect and
maintain compliance with each federal and state law or regulation for the period
necessary for such Holder to effect the proposed sale or other disposition (but
in no event for a period greater than ninety (90) days).
(b) Withdrawal of Piggyback Registration by Company. If, at any time
after giving written notice of its intention to register any securities in a
Piggyback Registration but prior to the effective date of the related
Registration Statement, the Company shall determine for any reason not to
register such securities, the Company shall give notice of such determination to
each Holder and, thereupon, shall be relieved of its obligation to register any
Registrable Securities in connection with such Piggyback Registration. All best
efforts obligations of the Company pursuant to Section 2.4 shall cease if the
Company determines to terminate prior to such effective date any registration
where Registrable Securities are being registered pursuant to this Section 2.1.
(c) Piggyback Registration of Underwritten Public Offerings. If a
Piggyback Registration involves an offering by or through underwriters, then (i)
all Holders requesting to have their Registrable securities included in the
Company's Registration Statement must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as apply
to other selling shareholders and (ii) any Holder requesting to have his or its
Registrable Securities included in such Registration Statement may elect in
writing, not later than seven (7) Business Days prior to the effectiveness of
the Registration Statement filed in connection with such registration, not to
have his or its Registrable Securities so included in connection with such
registration.
(d) Payment of Registration Expenses for Piggyback Registration. The
Company shall pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to a Piggyback Registration Right
contained in this Section 2.1.
-5-
<PAGE> 6
(e) Priority in Piggyback Registration. If a Piggyback Registration
involves an offering by or through underwriters, the Company, except as
otherwise provided herein, shall not be required to include Registrable
Securities therein if and to the extent the underwriter managing the offering
reasonably believes in good faith and advises each Holder requesting to have
Registrable Securities included in the Company's Registration Statement that
such inclusion would materially adversely affect such offering; provided that
(i) if other selling shareholders who are employees, officers, directors or
other affiliates of the Company have requested registration of securities in the
proposed offering, the Company will reduce or eliminate such other selling
shareholders' securities before any reduction or elimination of Registrable
Securities; and (ii) any such reduction or elimination (after taking into
account the effect of clause (i)) shall be pro rata to all other holders of the
securities of the Company exercising "Piggyback Registration Rights" similar to
those set forth herein in proportion to the respective number of shares they
have requested to be registered.
2.2 Demand Registration.
(a) Request for Registration. Unless this Warrant is exercised pursuant
to Section 1.1(b) hereof, if, at any time prior to the fifth anniversary of the
date hereof, Holders holding the greater of (i) at least twenty-five percent
(25%) of the combined total of Warrant Shares issuable and Warrant Shares
outstanding pursuant to the Second Warrant and any prior or subsequent warrant
issued by Diamond to S3 or (ii) one hundred percent (100%) of such shares issued
or issuable pursuant to the First Warrant, at such time request that the Company
file a registration statement on Form S-3 (or Form S-1 if Form S-3 is not then
available to the Company) under the Securities Act, as soon as practicable
thereafter the Company shall use its commercially reasonable efforts to file a
registration statement with respect to all Warrant Shares that it has been so
requested to include (so long as such Warrant Shares represent the greater of
the amount set forth in clause (i) or clause (ii) above)(the "Demand
Registration") and obtain the effectiveness thereof, and to take all other
action necessary under any federal or state law or regulation to permit the
Warrant Shares that are held and/or that may be acquired upon the exercise of
the Warrants specified in the notices of the Holders or holders thereof to be
sold or otherwise disposed of, and the Company shall maintain such compliance
with each such federal and state law and regulation for the period necessary for
such Holders or holders to effect the proposed sale or other disposition, which
period shall be not less than thirty (30) days; provided, however, the Company
shall be entitled to defer such registration for a period of up to forty-five
(45) days if and to the extent that its Board of Directors shall determine that
such registration would interfere with a pending corporate transaction. The
Company shall also promptly give written notice to the Holders and the holders
of any other Warrants and/or the holders of any Warrant Shares who or that have
not made a request to the Company pursuant to the provisions of this Section
2.2(a) of its intention to effect any required registration or qualification,
and shall use its commercially reasonable efforts to effect as expeditiously as
possible such registration or qualification of all such other Warrant Shares
that are then held and/or that may be acquired upon the exercise of the
Warrants, the Holder or holders of which have requested such registration or
qualification within fifteen (15) days after such notice has been given by the
Company. The Company shall be required to effect a registration or qualification
pursuant to this Section 2.2(a) on a total of one (1) occasion.
-6-
<PAGE> 7
(b) Payment of Registration Expenses for Demand Registration. The
Company shall pay all Registration Expenses in connection with the Demand
Registration.
(c) Selection of Underwriters. If the Demand Registration is requested
to be in the form of an underwritten offering, the managing underwriter shall be
selected by the Holders of a majority of the Warrant Shares to be registered.
Such selection shall be subject to the Company's consent, which consent shall
not be unreasonably withheld.
(d) Procedure for Requesting Demand Registration. Any request for a
Demand Registration shall specify the aggregate number of the Registrable
Securities proposed to be sold and the intended method of disposition. Within
ten (10) days after receipt of such a request the Company will give written
notice of such registration request to all Holders, and the Company will include
in such registration all Registrable Securities with respect to which the
Company has received written requests for inclusion therein within fifteen (15)
Business Days after the date on which such notice is given by the Company. Each
such request shall also specify the aggregate number of Registrable Securities
to be registered and the intended method of disposition thereof.
2.3 Registration Procedures. If and whenever the Company is required to
use its commercially reasonable efforts to take action pursuant to any federal
or state law or regulation to permit the sale or other disposition of any
Registrable Securities that are then held or that may be acquired upon exercise
of the Warrants in order to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Article 2, the Company
shall, as expeditiously as practicable:
(a) prepare and file with the SEC, as soon as practicable within
forty-five (45) days after the end of the period within which requests for
registration may be given to the Company (but subject to the provision for
deferral contained in Section 2.2(a) hereof) a Registration Statement or
Registration Statements relating to the registration on any appropriate form
under the Securities Act, which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof, subject to Section 2.1(e) hereof, and use its commercially
reasonable efforts to cause such Registration Statements to become effective;
provided that before filing a Registration Statement or Prospectus or any
amendment or supplements thereto, including documents incorporated by reference
after the initial filing of any Registration Statement, the Company will furnish
to the Holders of the Registrable Securities covered by such Registration
Statement and the underwriters, if any, copies of all such documents provided to
be filed, which documents will be subject to the review of such Holders and
underwriters;
(b) prepare and file with the SEC such amendments and post-effective
amendments to a Registration Statement as may be necessary to keep such
Registration Statement effective for a period of thirty (30) days; cause the
related Prospectus to be supplemented by any required Prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 under the Securities Act;
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such Registration Statement or supplement to such
Prospectus;
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<PAGE> 8
(c) notify the selling Holders of Registrable Securities and the
managing underwriters, if any, promptly, and (if requested by any such Person)
confirm such advice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related Prospectus or for additional information;
(iii) of the issuance by the SEC of any stop order suspending the effectiveness
of a Registration Statement or the initiation of any proceedings for that
purpose; (iv) if at any time the representations and warranties of the Company
contemplated by paragraph (m) below cease to be true and correct in all material
respects; (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, and (vi) of the happening of any event that makes any statement of
a material fact made in the Registration Statement, the Prospectus or any
document incorporated therein by reference untrue or which requires the making
of any changes in the Registration Statement or Prospectus so that they will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(e) if reasonably requested by the managing underwriters, immediately
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters believe (on advice of counsel) should
be included therein as required by applicable law relating to such sale of
Registrable Securities, including, without limitation, information with respect
to the purchase price being paid for the Registrable Securities by such
underwriters and with respect to any other terms of the underwritten (or
"best-efforts" underwritten) offering; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment;
(f) furnish to each selling Holder of Registrable Securities and each
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(g) deliver to each selling Holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including each preliminary Prospectus) any amendment or supplement
thereto as such Persons may reasonably request; the Company consents to the use
of such Prospectus or any amendment or supplement thereto by each of the selling
Holders of Registrable Securities and the underwriters, if any, in connection
with the offering and sale of the Registrable Securities covered by such
Prospectus or any amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities, cooperate
with the selling Holders of Registrable Securities, the underwriters, if any,
and their respective counsel in connection with the registration or
qualification of such Registrable Securities for offer and sale
-8-
<PAGE> 9
under the securities or Blue Sky laws of such jurisdictions within the United
States as any selling Holder or underwriter reasonably requests in writing, keep
each such registration or qualification effective during the period such
Registration Statement is required to be kept effective and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided that the Company will not be required to
qualify to do business in any jurisdiction where it is not then so qualified or
to take any action which would subject the Company to general service of process
in any jurisdiction where it is not at the time so subject;
(i) cooperate with the selling Holders of Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold and not bearing
any restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters may
request at least two (2) Business Days prior to any sale of Registrable
Securities to the underwriters;
(j) use its commercially reasonable efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities within the
United States as may be necessary to enable the seller or sellers thereof or the
underwriters, if any, to consummate the disposition of such Registrable
Securities;
(k) upon the occurrence of any event contemplated by Section 2.3(c)(vi)
above, prepare a supplement or post-effective amendment to the applicable
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold thereunder,
such that the Prospectus will not contain an untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein not
misleading in the light of the circumstances under which they were made;
(l) with respect to each issue or class of Registrable Securities, use
its commercially reasonable efforts to cause all Registrable Securities covered
by the Registration Statement to be listed on each securities exchange, if any,
on which similar securities issued by the Company are then listed if requested
by the Holders of a majority of such issue or class of Registrable Securities;
(m) enter into such agreements (including an underwriting agreement) and
take all such other action reasonably required in connection therewith in order
to expedite or facilitate the disposition of such Registrable Securities and in
such connection, if the registration is in connection with an underwritten
offering (i) make such representations and warranties to the underwriters, in
such form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and when
requested; (ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions in form, scope and substance shall be reasonably
satisfactory to the underwriters) addressed to the underwriters covering the
matters customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such underwriters; (iii)
obtain "cold comfort" letters and updates thereof from the Company's accountants
addressed to the underwriters,
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<PAGE> 10
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters by underwriters in connection with
underwritten offerings; (iv) set forth in full in any underwriting agreement
entered into the indemnification provisions and procedures of Section 2.4 hereof
with respect to all parties to be indemnified pursuant to said Section; and (v)
deliver such documents and certificates as may be reasonably requested by the
underwriters to evidence compliance with clause (i) above and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company; the above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required hereunder;
(n) make available for inspection by one or more representatives of the
Holders of Registrable Securities being sold, any underwriter participating in
any disposition pursuant to such registration, and any attorney or accountant
retained by such Holders or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such representatives, in connection with such; and
(o) otherwise use its commercially reasonable efforts to comply with all
applicable federal and state regulations; and take such other action as may be
reasonably necessary to or advisable to enable each such Holder and each such
underwriter to consummate the sale or disposition in such jurisdiction or
jurisdiction in which any such Holder or underwriter shall have requested that
the Registrable Securities be sold.
Except as otherwise provided in this Agreement, the Company shall have
sole control in connection with the preparation, filing, withdrawal, amendment
or supplementing of each Registration Statement, the selection of underwriters,
and the distribution of any preliminary Prospectus included in the Registration
Statement, and may include within the coverage thereof additional shares of
Common Stock or other securities for its own account or for the account of one
or more of its other security holders.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities and such other
information as may otherwise be required by the Securities Act to be included in
such Registration Statement.
2.4 Indemnification.
(a) Indemnification by Company. In connection with each Registration
Statement relating to disposition of Registrable Securities, the Company shall
indemnify and hold harmless each Holder and each underwriter of Registrable
Securities and each Person, if any, who controls such Holder or underwriter
(within the meaning of section 15 of the Securities Act or section 20 of the
Exchange Act) against any and all losses, claims, damages and liabilities, joint
or several (including any reasonable investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of any action,
suit or proceeding or any claim asserted), to which they, or any of them, may
become subject under the Securities Act, the Exchange Act or other federal or
state law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based upon any untrue
statement or alleged
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<PAGE> 11
untrue statement of a material fact contained in any Registration Statement,
Prospectus or preliminary Prospectus or any amendment thereof or supplement
thereto, or arise out of or are based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that such indemnity
shall not inure to the benefit of any Holder or underwriter (or any person
controlling such Holder or underwriter within the meaning of section 15 of the
Securities Act or section 20 of the Exchange Act) on account of any losses,
claims, damages or liabilities arising from the sale of the Registrable
Securities if such untrue statement or omission or alleged untrue statement or
omission was made in such Registration Statement, Prospectus or preliminary
Prospectus, or such amendment or supplement, in reliance upon and in conformity
with information furnished in writing to the Company by such Holder or
underwriter specifically for use therein; provided, further, that the Company
shall not be liable to such Holder or any underwriter (or any person controlling
such Holder or underwriter) with respect to any such untrue statement or alleged
untrue statement or omission made in any preliminary Prospectus that is
corrected in the Prospectus (or any amendment or supplement thereto) if the
person asserting any such loss, claim, damage or liability purchased shares of
the Common Stock from such Holder or underwriter but was not given a copy of the
Prospectus (as amended or supplemented) in any case where such delivery of the
Prospectus (as amended or supplemented) was required by the Securities Act. The
Company shall also indemnify selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors and each Person who controls such Persons (within the
meaning of section 15 of the Securities Act or section 20 of the Exchange Act)
to the same extent as provided above with respect to the indemnification of the
Holders of Registrable Securities, if requested. This indemnity agreement shall
be in addition to any liability which the Company may otherwise have.
(b) Indemnification by Holder. In connection with each Registration
Statement, each Holder shall indemnify, to the same extent as the
indemnification provided by the Company in Section 2.4(a), the Company, its
directors and each officer who signs the Registration Statement and each Person
who controls the Company (within the meaning of section 15 of the Securities Act
and section 20 of the Exchange Act) but only insofar as such losses, claims,
damages and liabilities arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which was made in the
Registration Statement, the Prospectus or preliminary Prospectus or any
amendment thereof or supplement thereto, in reliance upon and in conformity with
information furnished in writing by such Holder to the Company specifically for
use therein. In no event shall the liability of any selling Holder of
Registrable Securities hereunder be greater in amount than the dollar amount of
the net proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as provided above, with respect to information
so furnished in writing by such Persons specifically for inclusion in any
Prospectus, Registration Statement or preliminary Prospectus or any amendment
thereof or supplement thereto.
(c) Conduct of Indemnification Procedure. Any party that proposes to
assert the right to be indemnified hereunder will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an
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<PAGE> 12
indemnifying party or parties under this Section, notify each such indemnifying
party of the commencement of such action, suit or proceeding, enclosing a copy
of all papers served. No indemnification provided for in Section 2.4(a) or
2.4(b) shall be available to any party who shall fail to give notice as provided
in this Section 2.4(c) if the party to whom notice was not given was unaware of
the proceeding to which such notice would have related and was materially
prejudiced by the failure to give such notice, but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not relieve
it from any liability that it may have to any indemnified party for contribution
otherwise than under this Section. In case any such action, suit or proceeding
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and the approval by the indemnified party of such counsel, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses, except as provided below and except for the reasonable costs
of investigation subsequently incurred by such indemnified party in connection
with the defense thereof. The indemnified party shall have the right to employ
its counsel in any such action, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the employment of counsel
by such indemnified party has been authorized in writing by the indemnifying
parties, (ii) the indemnified party shall have reasonably concluded that there
may be a conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in which case
the indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party) or (iii) the indemnifying parties
shall not have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of which cases
the fees and expenses of counsel shall be at the expense of the indemnifying
parties. An indemnified party shall not be liable for any settlement of any
action, suit, proceeding or claim effected without its written consent.
(d) Contribution. In connection with each Registration Statement
relating to the disposition of Registrable Securities, if the indemnification
provided for in Section 2.4(a) or 2.4(b) hereof is unavailable to an indemnified
party thereunder in respect to any losses, claims, damages or liabilities
referred to therein, then the indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of the losses, claims,
damages or liabilities referred to in paragraphs (a) or (b) of this Section 2.4
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. Relative fault shall 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 the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
paragraph (d) shall be deemed to include any legal or other expenses
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<PAGE> 13
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim.
(e) Underwriting Agreement to Control. Notwithstanding the foregoing
provisions of this Section 2.4, to the extent that the provisions on
indemnification and contribution contained in any underwriting agreement entered
into in connection with the underwritten public offering of the Registrable
Securities are in conflict with the foregoing provisions, the provisions in such
underwriting agreement shall control.
(f) Specific Performance. The Company and the Holder acknowledge that
remedies at law for the enforcement of this Section 2.4 may be inadequate and
intend that this Section 2.4 shall be specifically enforceable.
(g) Survival of Obligations. The obligations of the Company and the
Holder under this Section 2.4 shall survive the completion of any offering of
Registrable Securities pursuant to a Registration Statement under this Article
2, and otherwise.
2.5 Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144, the Securities
Act and the Exchange Act, or that it qualifies as a registrant whose securities
may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a
copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company and (iii) such other information
as may be reasonably requested in availing any Holder of any rule or regulation
of the SEC which permits the selling of any such securities without registration
or pursuant to such form.
2.6 Restrictions on Transfer; Compliance with Securities Laws. This
Warrant and the Warrant Shares issued upon the exercise of the Warrant may not
be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and transferee
(including the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if such are requested by the Company).
The Warrantholder, by acceptance hereof, acknowledges that this Warrant and the
Warrant Shares to be issued upon exercise hereof are being acquired solely for
the Warrantholder's own account and not as a nominee for any other party, and
for investment, and that the Warrantholder will not offer, sell or otherwise
dispose of any Warrant Shares to be issued upon exercise hereof except
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<PAGE> 14
under circumstances that will not result in a violation of the Securities Act or
any state securities laws. Upon exercise of this Warrant, the Warrantholder
shall, if requested by the Company, confirm in writing, in a form satisfactory
to the Company, that the Warrant Shares so purchased are being acquired solely
for the Warrantholder's own account and not as a nominee for any other party,
for investment, and not with a view toward distribution or resale.
2.7 Restrictive Legends. This Warrant shall (and each Warrant issued
upon transfer in whole or in part of this Warrant pursuant to this Section 2 or
issued in substitution for this Warrant pursuant to Section 4 shall) be stamped
or otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT."
Notwithstanding the foregoing, the Warrantholder may require the Company
to issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Warrantholder (except as otherwise may be
prohibited, restricted or limited by law or any rule or regulation of a
regulatory entity) as follows:
3.1 Organization; Authority Relative to this Warrant. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to execute and deliver this Warrant, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Warrant by the Company and the consummation by the Company
of the transactions contemplated hereby have been duly and validly authorized by
all
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<PAGE> 15
necessary corporate action on the part of the Company. This Warrant has been
duly and validly executed and delivered by the Company and constitutes a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally, and by general equitable principles.
3.2 Authority to Issue Shares. The Company has taken all necessary
corporate action to authorize and reserve and permit it to issue, and at all
times from the date hereof through the end of the Exercise Period shall have
reserved, all the Warrant Shares issuable pursuant to this Warrant. All of the
shares of Common Stock issuable under this Warrant, upon their issuance and
delivery in accordance with the terms of this Warrant, will be duly authorized,
validly issued, fully paid and nonassessable, will be delivered free and clear
of all security interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on the Warrantholder's voting rights, charges,
adverse rights and other encumbrances of any nature whatsoever (other than this
Warrant) and will not be subject to any preemptive rights.
3.3 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Warrant by the Company does not,
and the performance by the Company of its obligations hereunder and the
consummation of the transactions contemplated hereby will not, (i) conflict with
or violate the certificate of incorporation or bylaws of the Company, (ii)
assuming that all consents and filings described in Section 3.3(b) have been
obtained or made, conflict with or violate any law applicable to the Company or
by which any property or asset of the Company is bound or affected or (iii)
result in any violation pursuant to, any note, bond, mortgage, indenture,
contract, agreement , lease, license, permit, franchise or other instrument or
obligation to which the Company is a party or by which the Company or any of its
properties may be bound or affected.
(b) No consent of, or filing with, any governmental entity is required
by the Company in connection with the execution and delivery of this Warrant,
the performance by the Company of its obligations hereunder or the consummation
by the Company of the transactions contemplated hereby, except for (i)
compliance with the Hart-Scott-Rodino Act and (ii) consents or filings the
failure of which to be obtained or made would not, individually or in the
aggregate, prevent or materially delay the consummation of the transactions
contemplated hereby or the performance by the Company of any of its obligations
hereunder.
3.4 Reservation and Registration of Shares, Etc. The Company covenants
and agrees that all Warrant Shares which are issuable upon the exercise of this
Warrant will, upon issuance, be validly issued, fully paid and nonassessable and
free from all taxes, liens, security interests, charges and other encumbrances
with respect to the issue thereof, other than taxes in respect of any transfer
occurring contemporaneously with such issue. The Company further covenants and
agrees that, during the Exercise Period, the Company will at all times have
authorized and reserved, and keep available free from preemptive rights, a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant and will, at its expense, upon each such
reservation of shares, procure such listing of such shares of Common Stock
(subject to issuance or notice of issuance) as then may be required on all stock
exchanges on which the Common Stock is then listed or on Nasdaq.
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<PAGE> 16
4. Exchange, Loss or Destruction of Warrant. Upon receipt by the Company
of evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, of such bond or
indemnification as the Company may require, and, in the case of such mutilation,
upon surrender and cancellation of this Warrant, the Company will execute and
deliver a new Warrant of like tenor. The term "Warrant" as used in this
Agreement shall be deemed to include any Warrants issued in substitution or
exchange for this Warrant.
5. Ownership of Warrant. The Company may deem and treat the person in
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary.
6. Certain Adjustments.
6.1 Adjustments. The number of Warrant Shares purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
as follows:
(a) Stock Dividends. If at any time prior to the exercise of this
Warrant in full (i) the Company shall fix a record date for the issuance of any
stock dividend payable in shares of Common Stock or (ii) the number of shares of
Common Stock shall have been increased by a subdivision or split-up of shares of
Common Stock, then, on the record date fixed for the determination of holders of
Common Stock entitled to receive such dividend or immediately after the
effective date of subdivision or split-up, as the case may be, the number of
shares of Common Stock to be delivered upon exercise of this Warrant will be
increased so that the Warrantholder will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(b) Combination of Stock. If at any time prior to the exercise of this
Warrant in full the number of shares of Common Stock outstanding shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of shares
of Common Stock to be delivered upon exercise of this Warrant will be decreased
so that the Warrantholder thereafter will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(c) Reorganization, etc. If at any time prior to the exercise of this
Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation of the Company with
or merger of the Company with or into any other person or any sale, lease or
other transfer of all or substantially all of the assets of the Company to any
other person, shall be effected in such a way that the holders of Common Stock
shall be entitled to receive stock, other securities or assets (whether such
stock, other securities or assets are issued or distributed by the Company or
another person) with respect to or in exchange for Common Stock, then, upon
exercise of this Warrant the Warrantholder shall have the right to receive the
kind and amount of stock, other securities or assets receivable upon such
reorgani-
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<PAGE> 17
zation, reclassification, consolidation, merger or sale, lease or other transfer
by a holder of the number of shares of Common Stock that such Warrantholder
would have been entitled to receive upon exercise of this Warrant had this
Warrant been exercised immediately before such reorganization, reclassification,
consolidation, merger or sale, lease or other transfer, subject to adjustments
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 6.
(d) Fractional Shares. No fractional shares of Common Stock or scrip
shall be issued to any Warrantholder in connection with the exercise of this
Warrant. Instead of any fractional shares of Common Stock that would otherwise
be issuable to such Warrantholder, the Company will pay to such Warrantholder a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the fair market value of one share of Common Stock
as of the date of exercise.
(e) Carryover. Notwithstanding any other provision of this Section 6, no
adjustment shall be made to the number of shares of Common Stock to be delivered
to the Warrantholder (or to the Exercise Price) if such adjustment represents
less than one percent (1%) of the number of shares to be so delivered, but any
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which together with any adjustments
so carried forward shall amount to one percent (1%) or more of the number of
shares to be so delivered.
(f) Exercise Price Adjustment. Whenever the number of Warrant Shares
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
(g) No Duplicate Adjustments. Notwithstanding anything else to the
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 6 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an adjustment
having substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 6 is made by the
Company for any such event to the number of shares of Common Stock (or other
securities) issuable upon exercise of this Warrant.
6.2 No Adjustment for Dividends. Except as provided in Section 1 hereof
or Section 6.1 hereof, no adjustment in respect of any dividends shall be made
during the term of the Warrant or upon the exercise of this Warrant.
6.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial officer of the Company setting forth the number of Warrant
Shares and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief
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<PAGE> 18
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made.
7. Notices of Corporate Action. In the event of:
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of Control,
or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for the securities or other property deliverable upon such
reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up. Such notice shall be mailed at least ten
(10) days prior to the date therein specified, in the case of any date referred
to in the foregoing subdivision (i), and at least ten (10) days prior to the
date therein specified, in the case of the date referred to in the foregoing
subdivision (ii).
8. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
national banks are authorized by law to close in the City of San Francisco,
State of California.
Change of Control: shall mean (i) the consolidation of the Company with
or merger of the Company with or into any other person in which the Company is
not the surviving corporation or in which the Company's stockholders prior to
such transaction do not own, directly or indirectly, immediately after such
transaction, fifty percent (50%) or more of the outstanding securities entitled
to vote generally for the election of directors or similar managing authority of
the surviving or resulting entity in such transaction, (ii) the sale of all or
substantially all of the assets of the Company to any other person or (iii) any
sale or transfer of any capital stock of the Company after the date of this
Warrant, following which forty (40%) or more of the combined voting power of the
Company becomes beneficially owned by one person or group acting together. For
purposes of this definition of Change of Control, "group" shall have the meaning
as such term is used in section 13(d) under the Exchange Act and the rules and
regulations thereunder.
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<PAGE> 19
Company: Diamond Multimedia Systems, Inc., a Delaware corporation.
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall include a
reference to a comparable section, if any, of any successor federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit A.
Exercise Price: the meaning specified in Section 1.3, as such price may
be adjusted pursuant to Section 6 hereof.
Holder: shall mean a holder of Registrable Securities.
Nasdaq: the meaning specified in Section 1.1(c)(ii).
Person: shall mean an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
Prospectus: shall mean any prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and all other amendments and supplements
to the Prospectus, including post-effective amendments and all material
incorporated by reference in such Prospectus.
Registration Expenses: shall mean any and all expenses incurred in
connection with any registration or action incident to performance of or
compliance by the Company with Article 2, including, without limitation, (i) all
SEC, national securities exchange and NASD registration and filing fees; all
listing fees and all transfer agent fees; (ii) all fees and expenses of
complying with state securities or blue sky laws (including the fees and
disbursements of counsel of the underwriters in connection with blue sky
qualifications of the Registrable Securities); (iii) all printing, mailing,
messenger and delivery expenses, (iv) all fees and disbursements of counsel for
the Company and of its accountants, including the expenses of any special audits
and/or "cold comfort" letters required by or incident to such performance and
compliance, and (v) any disbursements of underwriters customarily paid by
issuers or sellers of securities including the reasonable fees and expenses of
any special experts retained in connection with the requested registration, but
excluding underwriting discounts and commissions, brokerage fees and transfer
taxes, if any, and fees of counsel or accountants retained by the Holders of
Registrable Securities to advise them in their capacity as Holders of
Registrable Securities.
Registrable Securities: shall mean any Warrant Shares issued to the
Warrantholder, and/or other securities that may be or are issued by the Company
upon exercise of this Warrant, including those which may thereafter be issued by
the Company in respect of any such securities by means of any stock splits,
stock dividends, recapitalizations, reclassifications or the like, and as
adjusted pursuant to Article 6 hereof; provided, however, that as to any
particular security
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<PAGE> 20
contained in Registrable Securities, such securities shall cease to be
Registrable Securities when (i) a Registration Statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such Registration
Statement; or (ii) they shall have been sold to the public pursuant to Rule 144
(or any successor provision) under the Securities Act.
Registration Statement: shall mean any registration statement of the
Company filed or to be filed with the SEC which covers any of the Registrable
Securities pursuant to the provisions of this Warrant, including all amendments
(including post-effective amendments) and supplements thereto, all exhibits
thereto and all material incorporated therein by reference.
SEC: the Securities and Exchange Commission or any other federal agency
at the time administering the Securities Act or the Exchange Act, whichever is
the relevant statute for the particular purpose.
Securities Act: the Securities Act of 1933, as amended, or any successor
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section of
the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
S3 Acquisition: shall mean any transaction or series of related
transactions involving: (i) any purchase from S3 or acquisition by any Person or
"group" (as defined under section 13(d) of the Exchange Act and the rules and
regulations thereunder) of more than a fifty percent (50%) interest in the total
outstanding voting securities of S3 or any tender offer or exchange offer that
if consummated would result in any person or "group" (as defined under section
13(d) of the Exchange Act and the rules and regulations thereunder) beneficially
owning fifty percent (50%) or more of the total outstanding voting securities of
S3 or any merger, consolidation, business combination or similar transaction
involving S3 in which the stockholders of S3 immediately prior to such
transaction do not own, immediately after such transaction, at least a majority
of the outstanding securities entitled to vote generally for the election of
directors or similar managing authority of the surviving or resulting entity in
such transaction; or (ii) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of all or substantially all of the assets
of S3, other than to an entity of which at least a majority of the outstanding
securities entitled to vote generally for the election of directors or similar
managing authority are directly or indirectly owned or controlled by S3.
Trading Day: any day other than a day on which securities are not
traded, listed or reported on the principal securities exchange or securities
market on which the Common Stock is traded, listed or reported.
Warrantholder: the meaning specified on the cover of this Warrant.
Warrant Shares: the meaning specified on the cover of this Warrant,
subject to the provisions of Section 1 and Section 6 hereof.
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9. Miscellaneous.
9.1 Entire Agreement. This Warrant constitutes the entire agreement
between the Company and the Warrantholder with respect to this Warrant.
9.2 Binding Effects; Benefits. This Warrant shall inure to the benefit
of and shall be binding upon the Company and the Warrantholder and their
respective successors. Nothing in this Warrant, expressed or implied, is
intended to or shall confer on any person other than the Company and the
Warrantholder, or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Warrant.
9.3 Restrictions on Transferability. Subject to the terms and conditions
of this Warrant and compliance with all applicable securities laws, this Warrant
and all rights hereunder (and any shares of common stock acquired upon exercise
of this Warrant) may be transferred in whole or in part, only (a) to a wholly
owned subsidiary of the Warrantholder, or (b) in a sale effectuated pursuant to
Rule 144 promulgated under the Securities Act, or (c) in an offering registered
under section 5 of the Securities Act.
9.4 Amendments and Waivers. This Warrant may not be modified or amended
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
9.5 Section and Other Headings. The section and other headings contained
in this Warrant are for reference purposes only and shall not be deemed to be a
part of this Warrant or to affect the meaning or interpretation of this Warrant.
9.6 Further Assurances. Each of the Company and the Warrantholder shall
do and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Agreement.
9.7 Notices. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by United States mail, postage
prepaid, or by facsimile (with electronic confirmation of successful
transmission) to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
(a) if to the Company, Diamond Multimedia Systems, Inc.
addressed to: 2880 Junction Avenue
San Jose, CA 95134
Attention: President and Chief
Executive Officer
Telecopier: (408) 325-7145
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S3 Incorporated
2801 Mission College Boulevard
(b) if to the Warrantholder, Santa Clara, CA 95052-8058
addressed to: Attention: President and Chief
Executive Officer
Telecopier: (408) 588-8050
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
9.8 Separability. Any term or provision of this Warrant which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
9.9 Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of California (irrespective of its choice of law
principles).
9.10 No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be determined as conferring upon the Warrantholder any rights as a
stockholder of the Company or as imposing any liabilities on the Warrantholder
to purchase any securities whether such liabilities are asserted by the Company
or by creditors or stockholders of the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Dated: June 21, 1999.
DIAMOND MULTIMEDIA SYSTEMS, INC.
By__________________________________
Title_______________________________
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<PAGE> 23
EXHIBIT A
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
[ ] herewith tenders payment for _______ of the Warrant Shares to
the order of Diamond Multimedia Systems, Inc. in the amount of
$_________ in accordance with the terms of this Warrant; or
[ ] herewith tenders this Warrant for _______ Warrant Shares
pursuant to the Net Issue Exercise provisions of Section 1.1(b)
of the Warrant.
The undersigned requests that a certificate (or certificates) for such
Warrant Shares be registered in the name of the undersigned and that such
certificate (or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, or for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: ___________________.
___________________________________
Signature
___________________________________
(Print Name)
___________________________________
(Street Address)
___________________________________
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under
the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
A-1
