Agreement and Plan of Merger - Chips and Technologies Inc. and Intel Corp.


   1
 
                          AGREEMENT AND PLAN OF MERGER
 
                                     AMONG
 
                         CHIPS AND TECHNOLOGIES, INC.,
 
                               INTEL CORPORATION
 
                                      AND
 
                          INTEL ENTERPRISE CORPORATION
 
                           DATED AS OF JULY 27, 1997
   2
 
                               TABLE OF CONTENTS
 
PAGE ---- ARTICLE I THE OFFER 1.1. The Offer........................................................................ 1 1.2 Company Actions.................................................................. 2 1.3. Boards of Directors and Committees; Section 14(f)................................ 4 ARTICLE II THE MERGER; CLOSING; EFFECTIVE TIME 2.1. The Merger....................................................................... 4 2.2. Closing.......................................................................... 5 2.3. Effective Time................................................................... 5 2.4. Options.......................................................................... 5 ARTICLE III CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION; OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION 3.1. Certificate of Incorporation..................................................... 5 3.2. By-Laws.......................................................................... 5 3.3. Directors........................................................................ 5 3.4. Officers......................................................................... 6 ARTICLE IV EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES FOR MERGER CONSIDERATION 4.1. Effect on Capital Stock.......................................................... 6 (a) Merger Consideration......................................................... 6 (b) Cancellation of Excluded Shares.............................................. 6 (c) Merger Sub................................................................... 6 4.2. Exchange of Certificates for Payment............................................. 6 (a) Exchange Agent............................................................... 6 (b) Exchange Procedures.......................................................... 6 (c) Transfers.................................................................... 7 (d) Termination of Merger Fund................................................... 7 (e) Return of Consideration...................................................... 7 (f) Lost, Stolen or Destroyed Certificates....................................... 7 4.3. Dissenters' Shares............................................................... 7 ARTICLE V REPRESENTATIONS AND WARRANTIES 5.1. Representations and Warranties of the Company.................................... 7 (a) Organization, Good Standing, Corporate Power and Qualification; Subsidiaries and Other Interests.............................................................. 7 (b) Capital Structure............................................................ 8
ii 3
PAGE ---- (c) Corporate Authority; Approval and Fairness................................... 9 (d) Governmental Filings; No Violations.......................................... 9 (e) Company Reports; Financial Statements........................................ 9 (f) Absence of Certain Changes................................................... 10 (g) Litigation and Liabilities................................................... 11 (h) Employee Benefits............................................................ 11 (i) Compliance with Laws......................................................... 12 (j) Takeover Statutes............................................................ 13 (k) Environmental Matters........................................................ 13 (l) Intellectual Property........................................................ 13 (m) Taxes........................................................................ 14 (n) Labor Matters................................................................ 15 (o) Insurance.................................................................... 15 (p) Rights Agreement............................................................. 15 (q) Brokers and Finders.......................................................... 15 (r) Certain Business Practices................................................... 15 (s) Product Warranties........................................................... 15 (t) Suppliers and Customers...................................................... 15 (u) Backlog Information.......................................................... 15 5.2. Representations and Warranties of Parent and Merger Sub.......................... 16 (a) Organization, Good Standing and Qualification................................ 16 (b) Ownership of Merger Sub...................................................... 16 (c) Corporate Authority.......................................................... 16 (d) Governmental Filings; No Violations.......................................... 16 (e) Brokers and Finders.......................................................... 17 (f) Financing.................................................................... 17 ARTICLE VI COVENANTS 6.1. Interim Operations............................................................... 17 6.2. Third Party Acquisitions......................................................... 18 6.3. Filings; Other Actions; Notification............................................. 20 6.4. Information Supplied............................................................. 21 6.5. Stockholders Meeting............................................................. 21 6.6. Access........................................................................... 21 6.7. Publicity........................................................................ 21 6.8. Status of Company Employees; Company Stock Options; Employee Benefits............ 22 6.9. Expenses......................................................................... 22 6.10. Indemnification; Directors' and Officers' Insurance.............................. 22 6.11. Other Actions by the Company and Parent.......................................... 24 (a) Rights Agreement............................................................. 24 (b) Takeover Statutes............................................................ 24 6.12. Parent Stock Option; Exercise; Adjustments....................................... 24
iii 4
PAGE ---- ARTICLE VII CONDITIONS 7.1. Conditions to Each Party's Obligation to Effect Merger........................... 25 (a) Stockholder Approval......................................................... 25 (b) Regulatory Consents.......................................................... 25 (c) Litigation................................................................... 25 7.2. Conditions to Obligations of Parent and Merger Sub............................... 25 (a) Representations and Warranties............................................... 25 (b) Performance of Obligations of the Company.................................... 25 7.3. Conditions to Obligations of the Company......................................... 25 (a) Representations and Warranties............................................... 25 (b) Performance of Obligations of Parent and Merger Sub.......................... 26 ARTICLE VIII TERMINATION 8.1. Termination Mutual Consent....................................................... 26 8.2. Termination by Either Parent or the Company...................................... 26 8.3. Termination by the Company....................................................... 26 8.4. Termination by Parent and Merger Sub............................................. 26 8.5. Effect of Termination and Abandonment............................................ 27 8.6. Procedure for Termination........................................................ 27 ARTICLE IX MISCELLANEOUS 9.1. Survival......................................................................... 28 9.2. Certain Definitions.............................................................. 28 9.3. No Personal Liability............................................................ 29 9.4. Modification or Amendment........................................................ 29 9.5. Waiver of Conditions............................................................. 29 9.6. Counterparts..................................................................... 29 9.7. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL.................................... 29 9.8. Notices.......................................................................... 30 9.9. Entire Agreement................................................................. 31 9.10. No Third Party Beneficiaries..................................................... 31 9.11. Obligations of the Company and Surviving Corporation............................. 31 9.12. Severability..................................................................... 31 9.13. Interpretation................................................................... 31 9.14. Assignment....................................................................... 31
iv 5 SCHEDULES
SCHEDULE DESCRIPTION -------- ----------- Schedule 5.1(a) Company Subsidiaries and Other Interests Schedule 5.1(d) Consents Schedule 5.1(f) Certain Changes Schedule 5.1(g) Litigation and Liabilities Schedule 5.1(h) Outstanding Company Options and Other Benefit Plan Matters Schedule 5.1(k) Environmental Matters Schedule 5.1(l)(ii) Outstanding Orders and Judgments on Intellectual Property Rights Schedule 5.1(l)(iii) Intellectual Property Material Contracts Schedule 5.1(m) Certain Tax Matters Schedule 5.1(s) Product Warranties
v 6 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated as of July 27, 1997, among CHIPS AND TECHNOLOGIES, INC., a Delaware corporation (the "Company"), INTEL CORPORATION, a Delaware corporation ("Parent"), and INTEL ENTERPRISE CORPORATION, a Delaware corporation and a direct, wholly-owned subsidiary of Parent ("Merger Sub"; the Company and Merger Sub sometimes being hereinafter together referred to as the "Constituent Corporations"). RECITALS WHEREAS, the respective Boards of Directors of each of Parent, Merger Sub and the Company have approved the merger of Merger Sub with and into the Company (the "Merger") and approved the Merger upon the terms and subject to the conditions set forth in this Agreement; and WHEREAS, in furtherance thereof, it is proposed that Parent shall, within five (5) Business Days after the public announcement hereof, commence a tender offer (the "Offer") to acquire all of the outstanding shares of common stock, par value $.01 per share, of the Company (the "Shares"), together with the associated Rights (as defined in Section 4.1(a)), at a price of $17.50 per Share, net to the seller in cash, less any required withholding taxes (such amount, or any greater amount per share paid pursuant to the Offer, being hereinafter referred to as the "Offer Price"), in accordance with the terms and subject to the conditions provided herein; and WHEREAS, Parent, Merger Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger; NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I THE OFFER 1.1. The Offer. (a) Provided that this Agreement shall not have been terminated and subject to the terms hereof, as promptly as practicable, but in no event later than five (5) Business Days after the public announcement of the execution hereof by the parties, Parent shall commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), the Offer for any and all of the Shares, at the Offer Price. The obligation of Parent to accept for payment and to pay for any Shares tendered shall be subject only to (i) the condition that at least a majority of Shares on a fully-diluted basis (including for purposes of such calculation all Shares issuable upon exercise of all vested and unvested stock options) be validly tendered (the "Minimum Condition"), and (ii) the other conditions set forth in Annex A. Parent expressly reserves the right to increase the Offer Price or to make any other changes in the terms and conditions of the Offer (provided that, unless previously approved by the Company in writing, no change may be made which (i) decreases the Offer Price, (ii) changes the form of consideration to be paid in the Offer, (iii) reduces the maximum number of Shares to be purchased in the Offer, (iv) imposes conditions to the Offer in addition to those set forth in Annex A, (v) amends the conditions set forth in Annex A to broaden the scope of such conditions, (vi) amends any other term of the Offer in a manner adverse to the holders of the Shares, (vii) extends the Offer except as provided in Section 1.1(b)), or (viii) amends the Minimum Condition. It is agreed that the conditions set forth in Annex A are for the sole benefit of Parent and may be waived by Parent, in whole or in part at any time and from time to time, in its sole discretion other than the Minimum Condition, as to which prior written Company approval is required. The failure by Parent at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right 7 which may be asserted at any time and from time to time. The Company agrees that no Shares held by the Company or any of its Subsidiaries (as defined in Section 9.2) will be tendered in the Offer. (b) Subject to the terms and conditions thereof, the Offer shall expire at midnight, New York City time, on the date that is twenty (20) Business Days after the date the Offer is commenced; provided, however, that without the consent of the Company's Board of Directors, Parent may (i) from time to time extend the Offer, if at the scheduled expiration date of the Offer any of the conditions to the Offer shall not have been satisfied or waived, until such time as such conditions are satisfied or waived; (ii) extend the Offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer; or (iii) extend the Offer for any reason on one or more occasions for an aggregate period of not more than twenty (20) Business Days beyond the latest expiration date that would otherwise be permitted under clause (i) or (ii) of this sentence if on such expiration date there shall not have been tendered at least 90% of the outstanding Shares. Parent agrees that if all of the conditions to the Offer set forth on Annex A are not satisfied on any scheduled expiration date of the Offer then, provided that all such conditions are reasonably capable of being satisfied prior to October 31, 1997, Parent shall extend the Offer from time to time until such conditions are satisfied or waived, provided that Parent shall not be required to extend the Offer beyond October 31, 1997. Subject to the terms and conditions of the Offer and this Agreement, Parent shall accept for payment, and pay for, all Shares validly tendered and not withdrawn pursuant to the Offer that Parent becomes obligated to accept for payment and pay for pursuant to the Offer, as promptly as practicable after the expiration of the Offer. (c) As soon as practicable on the date the Offer is commenced, Parent shall file with the SEC a Tender Offer Statement on Schedule 14D-1 (together with all amendments and supplements thereto, and including all exhibits thereto, the "Schedule 14D-1") with respect to the Offer. The Schedule 14D-1 shall contain as an exhibit or incorporate by reference the Offer to Purchase (or portions thereof) and forms of the related letter of transmittal and summary advertisement. Parent and Merger Sub agree that the Schedule 14D-1, the Offer to Purchase and all amendments or supplements thereto (which together constitute the "Offer Documents") shall comply in all material respects with the Exchange Act and the rules and regulations thereunder and other applicable Laws (as defined in Section 5.1(i)). Parent and Merger Sub further agree that the Offer Documents, on the date first published, sent or given to the Company's stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation or warranty is made by Parent or Merger Sub with respect to information supplied by the Company or any of its stockholders specifically for inclusion or incorporation by reference in the Offer Documents. The Company agrees that the information provided by the Company for inclusion or incorporation by reference in the Offer Documents shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Each of Parent, Merger Sub and the Company agrees promptly to correct any information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect, and Parent and Merger Sub further agree to take all steps necessary to cause the Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer Documents as so corrected to be disseminated to the Company's stockholders, in each case as and to the extent required by applicable federal securities laws. The Company and its counsel shall be given reasonable opportunity to review and comment on the Offer Documents prior to the filing thereof with the SEC. Parent agrees to provide the Company and its counsel in writing with any comments Parent or its counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after receipt of such comments. 1.2. Company Actions. (a) The Company hereby approves of and consents to the Offer and represents that its Board of Directors, at a meeting duly called and held, has, subject to the terms and conditions set forth herein, (i) after evaluating the Merger in accordance with all of the provisions of Article Ninth of the Company's 2 8 certificate of incorporation, determined that this Agreement and the transactions contemplated hereby, including the Offer and the Merger, taken together, are at a price and on terms which are adequate and are otherwise in the best interests of the Company and its stockholders (other than Parent and its Affiliates), (ii) approved this Agreement and the transactions contemplated hereby, including the Offer and the Merger, in all respects and such approval constitutes approval of the Offer, this Agreement and the Merger for purposes of (x) Section 203 of the Delaware General Corporation Law (the "DGCL"), (y) similar provisions of any other similar state statutes that might be deemed applicable to the transactions contemplated hereby and (z) the Rights Agreement (as defined in Section 5.1(b)), (iii) resolved to recommend that the stockholders of the Company accept the Offer, tender their Shares thereunder to Parent and approve and adopt this Agreement and the Merger, and (iv) in accordance with the applicable provisions of the Assumed Stock Option Plan (as defined in Section 2.4), approved the assumption of the Assumed Stock Option Plan by Parent as contemplated by Section 6.8(c) and the conversion of the options under the Assumed Stock Option Plan outstanding at the Effective Time of the Merger. The Company consents to the inclusion of such recommendation and approval in the Offer Documents. The Company also represents that its Board of Directors has reviewed the opinion of Hambrecht & Quist LLC, financial advisor to the Board of Directors (the "Financial Advisor"), that, as of July 27, 1997, the consideration to be received pursuant to this Agreement is fair to the stockholders of the Company (other than Parent and its Affiliates) from a financial point of view (the "Fairness Opinion"). The Company has been authorized by the Financial Advisor to permit, subject to the prior review and consent by the Financial Advisor (such consent not to be unreasonably withheld), the inclusion of the fairness opinion (or a reference thereto) in the Offer Documents, the Schedule 14D-9 and the Proxy Statement. (b) The Company shall file with the SEC, concurrently with the filing of the Schedule 14D-1, a Solicitation/Recommendation Statement on Schedule 14D-9 (together with all amendments and supplements thereto, and including all exhibits thereto, the "Schedule 14D-9") containing the recommendations described in Section 1.2(a) and shall mail the Schedule 14D-9 to the stockholders of the Company promptly after the commencement of the Offer. The Company agrees that the Schedule 14D-9 shall comply in all material respects with the Exchange Act and the rules and regulations thereunder and other applicable Laws. The Company further agrees that Schedule 14D-9, on the date first published, sent or given to the Company's stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation or warranty is made by the Company with respect to information supplied by the Parent or Merger Sub specifically for inclusion or incorporation by reference in Schedule 14D-9. Each of the Company, Parent and Merger Sub agrees promptly to correct any information provided by it for use in the Schedule 14D-9 or the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect, and the Company further agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and be disseminated to the Company's stockholders, in each case as and to the extent required by applicable federal securities laws. Parent and its counsel shall be given reasonable opportunity to review and comment on the Schedule 14D-9 prior to the filing thereof with the SEC. (c) In connection with the Offer, the Company shall, or shall cause its transfer agent to, promptly furnish Parent with such information, including updated lists of the stockholders of the Company, mailing labels and updated lists of security positions, and such assistance as Parent or its agents may reasonably request in communicating the Offer to the record and beneficial holders of Shares. Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Merger, Parent and Sub and their agents shall hold in confidence the information contained in any such labels, listings and files, will use such information only in connection with the Offer and the Merger and, if this Agreement shall be terminated, will deliver, and will use their reasonable efforts to cause their agents to deliver, to the Company all copies and any extracts or summaries from such information then in their possession or control. 3 9 (d) Solely in connection with the tender and purchase of Shares pursuant to the Offer and the consummation of the Merger, the Company hereby waives any and all rights of first refusal it may have with respect to Shares owned by, or issuable to, any Person, other than rights to repurchase unvested shares, if any, that may be held by Persons following exercise of employee stock options. 1.3. Boards of Directors and Committees; Section 14(f). (a) Promptly upon the purchase by Parent of Shares pursuant to the Offer and from time to time thereafter, if the Minimum Condition has been met, and subject to the second to last sentence of this Section 1.3(a), Parent shall be entitled to designate up to such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as will give Parent representation on such Board equal to the product of the number of directors on such Board (giving effect to any increase in the number of directors pursuant to this Section 1.3) and the percentage that such number of Shares so purchased bears to the total number of outstanding Shares on a fully-diluted basis, and the Company shall use its best efforts to, upon request by Parent, promptly, at the Company's election, either increase the size of its Board of Directors (subject to the provisions of Article Sixth of the Company's certificate of incorporation) or secure the resignation of such number of directors as is necessary to enable Parent's designees to be elected to such Board and to cause Parent's designees to be so elected. At such times, and subject to the second to last sentence of this Section 1.3(a), the Company will use its best efforts to cause persons designated by Parent to constitute the same percentage as is on the Company's Board of Directors of (i) each committee of such Board (other than any committee of such Board established to take action under this Agreement), (ii) each Board of Directors of each Subsidiary of the Company and (iii) each committee of each such Board. Notwithstanding the foregoing, the Company shall use its best efforts to ensure that three of the members of its Board of Directors as of the date hereof ("Continuing Directors") shall remain members of such Board until the Effective Time (as defined in Section 2.3). In the event a Continuing Director resigns from the Company's Board of Directors, Parent, Merger Sub and the Company shall permit the remaining Continuing Director or Directors to appoint the resigning director's successor who shall be deemed to be a Continuing Director. (b) The Company's obligation to appoint designees to its Board of Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The Company shall promptly take all action required pursuant to such Section and Rule in order to fulfill its obligations under this Section 1.3 and shall include in the Schedule 14D-9 such information with respect to the Company and its officers and directors as is required under such Section and Rule in order to fulfill its obligations under this Section 1.3. Parent will supply to the Company in writing and be solely responsible for any information with respect to itself and its nominees, officers, directors and Affiliates required by such Section and Rule. (c) Following the election or appointment of Parent's designees pursuant to this Section 1.3 and prior to the Effective Time, if there shall be any Continuing Directors, any amendment of this Agreement, any termination of this Agreement by the Company, any extension by the Company of the time for the performance of any of the obligations or other acts of Parent or any waiver of any of the Company's rights hereunder, will require the concurrence of a majority of such Continuing Directors. ARTICLE II THE MERGER; CLOSING; EFFECTIVE TIME 2.1. The Merger. Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time (as defined in Section 2.3) Merger Sub shall be merged with and into the Company and the separate corporate existence of Merger Sub shall thereupon cease. The Company shall be the surviving corporation in the Merger (sometimes hereinafter referred to as the "Surviving Corporation") and shall continue to be governed by the laws of the State of Delaware, and the separate corporate existence of the Company with all its rights, privileges, immunities, powers and franchises shall continue unaffected by the Merger, except as set forth in Article III. At the election of Parent, to the extent that such action would not 4 10 cause a failure of a condition to the Offer of the Merger, the Merger may be structured so that the Company shall be merged with and into Merger Sub with the result that Merger Sub shall become the "Surviving Corporation." The Merger shall have the effects specified in the DGCL. Parent, as the sole stockholder of Merger Sub, hereby approves the Merger and this Agreement. 2.2. Closing. The closing of the Merger (the "Closing") shall take place (i) at the offices of Gibson, Dunn & Crutcher LLP, One Montgomery Street, San Francisco, California at 9:00 am., Pacific time, on the first Business Day after the day on which the last to be fulfilled or waived of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions) shall be satisfied or waived in accordance with this Agreement or (ii) at such other place and time and/or on such other date as the Company and Parent may agree in writing (the "Closing Date"). 2.3. Effective Time. As soon as practicable following the Closing, the Company and Parent will cause a Certificate of Merger (the "Delaware Certificate of Merger") to be executed, acknowledged and filed with the Secretary of State of Delaware as provided in Section 251 of the DGCL. The Merger shall become effective at the time when the Delaware Certificate of Merger has been duly filed with the Secretary of State of Delaware (the "Effective Time"). 2.4. Options. At the Effective Time, options under the Company's Amended and Restated 1994 Stock Option Plan (the "Assumed Stock Option Plan") to purchase Shares (each, a "Company Option"), which are then outstanding and unexercised, shall cease to represent a right to acquire Shares and shall be converted automatically into options to purchase shares of common stock, par value $.001 per share, of Parent ("Parent Common Stock"), and Parent shall assume each such Company Option subject to the terms of the Assumed Stock Option Plan, in each case as heretofore amended or restated, as the case may be, and the agreements evidencing grants thereunder; provided, however, that from and after the Effective Time, (i) the number of shares of Parent Common Stock purchasable upon exercise of such Company Option shall be equal to the number of Shares that were purchasable under such Company Option immediately prior to the Effective Time multiplied by the Exchange Ratio (as hereinafter defined), and rounding to the nearest whole share, and (ii) the per share exercise price under each such Company Option shall be adjusted by dividing the per share exercise price of each such Company Option by the Exchange Ratio, and rounding down to the nearest cent. The terms of each Company Option shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, stock dividend, recapitalization or other similar transaction with respect to Parent Common Stock on or subsequent to the Effective Date. Notwithstanding the foregoing, each Company Option which is intended to be an "incentive stock option": (as defined in Section 422 of the Internal Revenue Code of 1986, as amended, (the "Code")) shall be adjusted in accordance with the requirements of Section 424 of the Code. Accordingly, with respect to any incentive stock options, fractional shares shall be rounded down to the nearest whole number of shares and the per share exercise price shall be rounded down to the nearest cent. The Exchange Ratio is 0.197656. ARTICLE III CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION; OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION 3.1. Certificate of Incorporation. The certificate of incorporation of the Company as in effect immediately prior to the Effective Time shall be the certificate of incorporation of the Surviving Corporation (the "Charter"), until duly amended as provided therein or by applicable Law, except that Article Fourth of the Charter shall be amended to read in its entirety as follows: "The aggregate number of shares that the Corporation shall have the authority to issue is 1,000 shares of Common Stock, par value $.01 per share." 3.2. By-Laws. The by-laws of Merger Sub in effect at the Effective Time shall be the by-laws of the Surviving Corporation (the "By-Laws"), until thereafter amended as provided therein or by applicable Law. 5 11 3.3. Directors. The directors of Merger Sub at the Effective Time shall, from and after the Effective Time, be the directors of the Surviving Corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Charter and By-Laws. 3.4. Officers. The officers of the Company at the Effective Time shall, from and after the Effective Time, be the officers of the Surviving Corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Charter and By-Laws. ARTICLE IV EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES FOR MERGER CONSIDERATION 4.1. Effect on Capital Stock. At the Effective Time, as a result of the Merger and without any action on the part of the holder of any Capital Stock (as defined in Section 9.2) of the Company: (a) Merger Consideration. Each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by Parent, Merger Sub or any other direct or indirect Subsidiary of Parent or Shares that are owned by the Company or any direct or indirect Subsidiary of the Company (collectively, the "Excluded Shares")) shall be converted into, and become exchangeable for the Offer Price, without interest (the "Merger Consideration"). Unless the context otherwise clearly requires, each reference in this Agreement to the Shares shall include the associated "Rights" as defined in and issued pursuant to the Rights Agreement (the "Rights"). At the Effective Time, all Shares shall no longer be outstanding and shall be canceled and retired and shall cease to exist, and each certificate (a "Certificate") formerly representing any of such Shares (other than Excluded Shares) shall thereinafter represent only the right to receive the Merger Consideration. (b) Cancellation of Excluded Shares. Each Excluded Share issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, cease to be outstanding, shall be canceled and retired without payment of any consideration therefor and shall cease to exist. (c) Merger Sub. At the Effective Time, each share of Common Stock, par value $.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one share of Common Stock of the Surviving Corporation. 4.2. Exchange of Certificates for Payment. (a) Exchange Agent. As of the Effective Time, Parent shall deposit, or shall cause to be deposited, with an exchange agent selected by Parent (the "Exchange Agent"), for the benefit of the holders of Shares, cash in U.S. dollars in an amount equal to the Merger Consideration multiplied by the aggregate outstanding Shares (other than Excluded Shares) to be paid pursuant to Section 4.1(a) in exchange for outstanding Shares upon due surrender of the Certificates (or affidavits of loss in lieu thereof) pursuant to the provisions of this Article IV (such aggregate cash amount when paid to the Exchange Agent being hereinafter referred to as the "Merger Fund"). (b) Exchange Procedures. Promptly after the Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail to each holder of record of Shares (other than holders of Excluded Shares) (i) a letter of transmittal (which shall, among other matters, specify that delivery of the Certificates shall be effected, and risk of loss and title to the Certificates shall pass, only upon actual receipt of the Certificates (or affidavits of loss in lieu thereof) by the Exchange Agent) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration due and payable to such holder. Upon surrender of a Certificate for cancellation to the Exchange Agent together with such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor a check in the amount (after giving effect to any required tax withholdings) of the Merger Consideration due and payable in respect of such holder's Shares and the Certificate so surrendered shall forthwith be canceled. No interest will be paid or accrued on any amount payable upon 6 12 due surrender of the Certificates. All Merger Consideration paid upon surrender for exchange of Shares in accordance with the terms of this Agreement shall be deemed to have been paid in full satisfaction of all rights pertaining to such Shares. In the event of a transfer of ownership of Shares that is not registered in the transfer records of the Company, a check for the amount of cash to be paid upon due surrender of the Certificate may be delivered to such a transferee if the Certificate formerly representing such Shares is presented to the Exchange Agent, accompanied by all documents required by the Exchange Agent to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid. (c) Transfers. After the Effective Time, there shall be no transfers on the stock transfer books of the Company of the Shares that were outstanding immediately prior to the Effective Time. (d) Termination of Merger Fund. Any portion of the Merger Fund (including the proceeds of any investments thereof) that remains unclaimed by the stockholders of the Company for 180 days after the Effective Time shall be paid to Parent. Any stockholders of the Company who have not theretofore complied with this Article IV shall thereafter look only to Parent for payment of their Merger Consideration payable pursuant to Section 4.1 upon due surrender of their Certificates (or affidavits of loss in lieu thereof), in each case, without any interest thereon. Notwithstanding the foregoing, neither Parent, the Surviving Corporation, the Exchange Agent nor any other Person shall be liable to any former holder of Shares for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. Any amounts remaining unclaimed by holders of Shares on the two (2) year anniversary of the Effective Time (or such earlier date immediately prior to such time as such amounts would otherwise escheat to or become property of any Governmental Entity (as defined in Section 5.1(d)) shall, to the extent permitted by applicable Law, become the property of Parent, free and clear of any claims or interest of any Person previously entitled thereto. (e) Return of Consideration. Any portion of the Merger Fund representing Merger Consideration payable in respect of Dissenters' Shares (as defined in Section 4.3) for which appraisal rights have been perfected shall be returned to Parent, upon demand. (f) Lost, Stolen or Destroyed Certificates. In the event 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 Parent, the posting by such Person of a bond in an amount determined by Parent as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration payable pursuant to Section 4.1 upon due surrender of the Certificate representing such Shares pursuant to this Agreement. 4.3. Dissenters' Shares. Notwithstanding Section 4.1, Shares outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger or consented thereto in writing and who has demanded appraisal for such Shares in accordance with the DGCL ("Dissenters' Shares") shall not be converted into a right to receive the Merger Consideration, unless such holder fails to perfect or withdraws or otherwise loses such holder's right to appraisal. If after the Effective Time such holder fails to perfect or withdraws or loses such holder's right to appraisal, such Dissenters' Shares shall be treated as if they had been converted as of the Effective Time into a right to receive the Merger Consideration. The Company shall give Parent prompt notice of any demands received by the Company for appraisal of Dissenters' Shares, and Parent shall have the right to participate in all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands. 7 13 ARTICLE V REPRESENTATIONS AND WARRANTIES 5.1. Representations and Warranties of the Company. The Company hereby represents and warrants to Parent and Merger Sub as follows: (a) Organization, Good Standing, Corporate Power and Qualification; Subsidiaries and Other Interests. (i) Each of the Company and its Subsidiaries (x) is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of organization, (y) has all requisite corporate or similar power and authority to own and operate its properties and assets and to carry on its business as presently conducted and (z) is qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the ownership or operation of its properties or conduct of its business requires such qualification, except where the failure to be so qualified or in good standing, individually or in the aggregate, has not had and is not reasonably likely to have a Company Material Adverse Effect (as defined in Section 9.2). The Company has made available to Parent a complete and correct copy of the Company's and its Subsidiaries' certificates of incorporation and by-laws (or comparable governing documents), each as amended to the date hereof. The Company's and its Subsidiaries' certificates of incorporation and by-laws (or comparable governing documents) made available are in full force and effect. (ii) Schedule 5.1(a) contains a correct and complete list of each of the Company's Subsidiaries, the jurisdiction where each of such Subsidiaries is organized and the percentage of outstanding Capital Stock of such Subsidiaries that is directly or indirectly owned by the Company. The Company or another Subsidiary of the Company owns its shares of the Capital Stock of each Subsidiary of the Company free and clear of all Liens except Permitted Liens (as defined in Section 9.2). Schedule 5.1(a) sets forth a true and complete list of each equity investment in an amount of $2,000,000 or more or which represents a 5% or greater ownership interest in the subject of such investment made by the Company or any of its Subsidiaries in any other Person other than the Company's Subsidiaries ("Other Interests"). The Other Interests are owned by the Company, by one or more of the Company's Subsidiaries or by the Company and one or more of its Subsidiaries, in each case free and clear of all Liens, except for Permitted Liens and Liens that may be created by any partnership or joint venture agreements for Other Interests. (b) Capital Structure. The authorized Capital Stock of the Company consists of (i) one hundred million (100,000,000) Shares, of which 22,003,195 were outstanding as of the close of business on July 27, 1997, and (ii) five million (5,000,000) shares of Preferred Stock, par value $.01 per share (the "Preferred Shares"), none of which is outstanding. All of the outstanding Shares have been duly authorized and are validly issued, fully paid and nonassessable. The Company has no Preferred Shares reserved for issuance. Schedule 5.1(h) contains a correct and complete list as of July 27, 1997 of each outstanding purchase right or option (each a "Company Option") to purchase Shares, including all Company Options issued under the Company's Amended and Restated Employee Stock Purchase Plan, the Company's Amended and Restated 1994 Stock Option Plan and the Company's First Amended 1988 Nonqualified Stock Option Plan for Outside Directors, in each case as amended to the date hereof (collectively, the "Stock Option Plans"), including the holder, date of grant, exercise price and number of Shares subject thereto. The Stock Option Plans are the only plans under which any Company Options are outstanding. As of July 27, 1997, other than (1) the 3,983,598 Shares reserved for issuance upon exercise of outstanding Company Options and (2) Shares reserved for issuance pursuant to the Rights Agreement, dated as of August 23, 1989, between the Company and Bank of America, NT & SA, as Rights Agent (the "Rights Agreement"), there are no Shares reserved for issuance or any commitments for the Company to issue Shares. Each of the outstanding shares of Capital Stock or other securities of each of the Company's Subsidiaries directly or indirectly owned by the Company is duly authorized, validly issued, fully paid and nonassessable and owned by the Company or by a direct or indirect Subsidiary of the Company, free and clear of any limitation or restriction (including any restriction on the 8 14 right to vote or sell the same except as may be provided as a matter of Law). Except for Company Options, there are no preemptive or other outstanding rights, options, warrants, conversion rights, stock appreciation rights, redemption rights, repurchase rights, agreements or commitments to issue or sell any shares of Capital Stock or other securities of the Company or any of its Subsidiaries or any securities or obligations convertible or exchangeable into or exercisable for, or giving any Person a right to subscribe for or acquire, any shares of Capital Stock or other securities of the Company or any of its Subsidiaries, and no securities or obligations evidencing such rights are authorized, issued or outstanding. The Company does not have outstanding any bonds, debentures, notes or other obligations the holders of which have the right to vote (or convertible into or exercisable for securities having the right to vote) with the stockholders of the Company on any matter ("Voting Debt"). If Parent takes the actions provided for in Section 6.8(c) hereof, after the Effective Time, the Surviving Corporation will have no obligation to issue, transfer or sell any shares of Capital Stock or other securities of the Surviving Corporation pursuant to the Stock Option Plans. The Shares constitute the only class of securities of the Company or any of its Subsidiaries registered or required to be registered under the Exchange Act. (c) Corporate Authority; Approval and Fairness. (i) The Company has all requisite corporate power and authority and has taken all corporate action necessary in order to execute, deliver and perform its obligations under this Agreement and to consummate, subject (if required by law) only to approval of this Agreement by the holders of a majority of the outstanding Shares (the "Company Requisite Vote"), the Merger. Assuming due execution and delivery by Parent and Merger Sub, this Agreement is a valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy laws or creditors' rights generally or by general principles of equity. (ii) The Board of Directors of the Company has unanimously approved this Agreement and the Merger and the other transactions contemplated hereby including, without limitation, the Offer and the assumption referred to in Section 6.8(c), has received and reviewed the Fairness Opinion and duly taken all other actions described in Sections 1.2(a), 5.1(j) and 5.1(p). (d) Governmental Filings; No Violations. (i) Other than the filings and/or notices (A) pursuant to Section 1.2, (B) with the Delaware Secretary of State, (C) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and the Exchange Act, (D) to comply with state securities or "blue sky" laws and (E) with the National Association of Securities Dealers (the "NASD"), no notices, reports or other filings are required to be made nor are any consents, registrations, approvals, permits or authorizations (collectively, "Government Consents") required to be obtained by the Company from any court or other governmental or regulatory authority, agency, commission, body or other governmental entity (a "Governmental Entity"), in connection with the execution and delivery of this Agreement by the Company and the consummation by the Company of the Merger and the other transactions contemplated hereby, except those that the failure to make or obtain are not, individually or in the aggregate, reasonably likely to have a Company Material Adverse Effect or prevent, materially delay or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement. (ii) The execution, delivery and performance of this Agreement by the Company does not, and the consummation by the Company of the Merger and the other transactions contemplated hereby will not, constitute or result in (A) a breach or violation of or a default under, the certificate of incorporation or by-laws of the Company or the comparable governing instruments of any of its Subsidiaries, (B) a breach or violation of, or a default under, the acceleration of any obligations or the creation of any Lien on the assets of the Company or any of its Subsidiaries (with or without notice, lapse of time or both) pursuant to, any agreement, lease, contract, note, mortgage, indenture or other obligation (a "Contract") binding upon the Company or any of its Subsidiaries or any order, writ, injunction, decree of any court or any Law or governmental or non-governmental permit or 9 15 license to which the Company or any of its Subsidiaries is subject or (C) any change in the rights or obligations of any party under any Contract, except, in the case of clause (B) or (C) above, for any breach, violation, default, acceleration, creation or change that, individually or in the aggregate, is not reasonably likely to have a Company Material Adverse Effect or prevent, materially delay or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement. Except as set forth on Schedule 5.1(d), there are no Contracts of the Company or its Subsidiaries which are material to the Company and its Subsidiaries, taken as a whole, pursuant to which consents or waivers are or may be required prior to consummation of the Offer or the Merger and the other transactions contemplated by this Agreement. (e) Company Reports; Financial Statements. The Company has made available to Parent each registration statement, report, proxy statement or information statement filed with the SEC by it since June 30, 1996 (the "Audit Date"), including the Company's Annual Report on Form 10-K for the year ended June 30, 1996 (the "Company 10-K") in the form (including exhibits, annexes and any amendments thereto) filed with the SEC (collectively, including any such reports filed subsequent to the date hereof, the "Company Reports"). As of their respective dates, the Company Reports complied, and any Company Reports filed with the SEC after the date hereof will comply, as to form in all material respects with the applicable requirements of the Exchange Act and the Securities Act of 1933, as amended (the "Securities Act"), and the Company Reports did not, and any Company Reports filed with the SEC after the date hereof will not, at the time of their filing, 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 made therein, in light of the circumstances in which they were made, not misleading. Each of the consolidated balance sheets included in or incorporated by reference into the Company Reports (including the related notes and schedules) fairly presents, or will fairly present, the consolidated financial position of the Company and its Subsidiaries as of its date and each of the consolidated statements of income and of changes in financial position included in or incorporated by reference into the Company Reports (including any related notes and schedules) fairly presents, or will fairly present, the results of operations, retained earnings and changes in financial position, as the case may be, of the Company and its Subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to notes and normal year-end audit adjustments that will not be material in amount or effect), in each case in accordance with United States generally accepted accounting principles ("GAAP") consistently applied during the periods involved, except as may be noted therein. The Company has heretofore made available or promptly will make available to Parent a complete and correct copy of all amendments or modifications which are required to be filed with the SEC but have not yet been filed with the SEC to the Company Reports, agreements, documents or other instruments which previously had been filed by the Company with the SEC pursuant to the Exchange Act. For purposes of this Agreement, "Balance Sheet" means the consolidated balance sheet of the Company as of June 30, 1996 set forth in the Company 10-K. Except as set forth in Company Reports filed with the SEC prior to the date hereof or as incurred in the ordinary course of business since the date of the most recent financial statements included in the Company Reports, neither the Company nor any of its subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) which would be required under GAAP to be set forth on a consolidated balance sheet of the Company and its subsidiaries taken as a whole and which individually or in the aggregate would have a Company Material Adverse Effect. (f) Absence of Certain Changes. Except as disclosed in Schedule 5.1(f) or in the Company Reports filed prior to the date hereof, since the Audit Date, the Company and its Subsidiaries have conducted their respective businesses in all material respects only in, and have not engaged in any material transaction other than according to, the ordinary and usual course of such businesses consistent with past practices, and there has not been any (i) change in the financial condition, properties, business or results of operations of the Company and its Subsidiaries, except for those changes that, individually or in the aggregate, have not had and are not reasonably likely to have a Company Material Adverse Effect; (ii) material damage, destruction or other casualty loss with respect to any material asset or property owned, leased or otherwise used by the Company or any of its Subsidiaries, not covered by insurance; 10 16 (iii) declaration, setting aside or payment of any dividend or other distribution in respect of the Capital Stock of the Company or any of its Subsidiaries (other than wholly-owned Subsidiaries) 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; (iv) amendment of any material term of any outstanding security of the Company or any of its Subsidiaries; (v) incurrence, assumption or guarantee by the Company or any of its Subsidiaries of any indebtedness for borrowed money other than in the ordinary course of business and in amounts and on terms consistent with past practices; (vi) creation or assumption by the Company or any of its Subsidiaries of any Lien (other than Permitted Liens) on any material asset other than in the ordinary course of business consistent with past practices; (vii) making of any loan, advance or capital contributions by the Company or any of its Subsidiaries to, or investment in, any Person other than (x) loans or advances to employees in connection with business-related travel (y) loans made to employees consistent with past practices which are not in the aggregate in excess of $250,000, and (z) loans, advances or capital contributions to or investments in wholly-owned Subsidiaries, and in each case made in the ordinary course of business consistent with past practices; (viii) transaction or commitment made, or any contract or agreement entered into, by 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 and commitments in the ordinary course of business consistent with past practices and those contemplated by this Agreement; (ix) labor dispute, other than routine individual grievances, or any activity or proceeding by a labor union or representative thereof to organize any employees of the Company or any of its Subsidiaries, or any lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to such employees; or (x) change by the Company or any of its Subsidiaries in accounting principles, practices or methods. Since the Audit Date, except as disclosed in the Company Reports filed prior to the date hereof or increases in the ordinary course of business consistent with past practices, there has not been any increase in the compensation payable or that could become payable by the Company or any of its Subsidiaries to (a) officers of the Company or any of its Subsidiaries or (b) any employee of the Company or any of its Subsidiaries whose annual cash compensation is $150,000 or more, or any amendment of any of the Compensation and Benefit Plans (as defined in Section 5.1(h)). (g) Litigation and Liabilities. Except as disclosed in Schedule 5.1(g) or in the Company Reports filed prior to the date hereof, and except for matters which, individually or in the aggregate, have not had and are not reasonably likely to have a Company Material Adverse Effect or prevent, delay or impair the ability of the Company to consummate the transactions contemplated by this Agreement, there are no (i) civil, criminal or administrative actions, suits, claims, hearings, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries or (ii) obligations or liabilities, whether or not accrued, contingent or otherwise and whether or not required to be disclosed, including those relating to matters involving any Environmental Law (as defined in Section 5.1(k)) or any other facts or circumstances of which the Company has knowledge that are reasonably likely to result in any claims against, or material obligations or liabilities of, the Company or any of its Subsidiaries. (h) Employee Benefits. (i) For purposes of this Agreement, "Compensation and Benefit Plans" means, collectively, each bonus, deferred compensation, pension, retirement, profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase, restricted stock, stock option, employment, termination, severance, compensation, medical, health, or other plan, agreement, policy or arrangement, whether written or oral, that covers employees or directors of the Company or any of its Subsidiaries, or pursuant to which former employees or directors of the Company or any of its Subsidiaries are entitled to current or future benefits. The Company has made available to Parent copies of all "employee pension benefit plans" (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (sometimes referred to herein as "Pension Plans"), 11 17 "employee welfare benefit plans" (as defined in Section 3(1) of ERISA) and all other Compensation and Benefit Plans maintained, or contributed to, by the Company or of its subsidiaries or any person or entity that, together with the Company and its subsidiaries, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended (the "Code") (the Company and each such other person or entity, a "Commonly Controlled Entity") for the benefit of any current employees, officers or directors of the Company or any of its subsidiaries. The Company has also made available to Parent true, complete and correct copies of (1) the most recent annual report on Form 5500 filed with the Internal Revenue Service with respect to each Compensation and Benefit Plan (if any such report was required), (2) the most recent summary plan description for each Compensation and Benefit Plan for which such summary plan description is required and (3) each trust agreement and group annuity contract related to any Compensation and Benefit Plan. Except as would not have a material adverse effect on the Company, each Compensation and Benefit Plan has been administered in accordance with its terms. Except as would not have a Company Material Adverse Effect, each of its subsidiaries and all the Compensation and Benefit Plans are all in compliance with applicable provisions of ERISA and the Code. (ii) Except as would not have a Company Material Adverse Effect, all Pension Plans have been the subject of determination letters from the Internal Revenue Service to the effect that such Pension Plans are qualified and exempt from Federal income taxes under Sections 401(a) and 501(a), respectively, of the Code, and no such determination letter has been revoked nor has any event occurred since the date of its most recent determination letter or application therefor that would adversely affect its qualification or materially increase its costs. (iii) Neither the Company, nor any of its Subsidiaries, nor any Commonly Controlled Entity has maintained, contributed or been obligated to contribute to any Benefit Plan that is subject to Title IV of ERISA. (iv) Schedule 5.1(h) lists all outstanding Stock Options as of July 27, 1997, showing for each such option: (1) the number of shares issuable, (2) the number of vested shares, (3) the date of expiration and (4) the exercise price. (v) All contributions required to be made under the terms of any Compensation and Benefit Plan as of the date hereof have been timely made. (vi) Except as provided by this Agreement or in Schedule 5.1(h), no employee of the Company or any of its Subsidiaries will be entitled to any additional compensation or benefits or any acceleration of the time of payment or vesting of any compensation or benefits under any Benefit Plan as a result of the transactions contemplated by this Agreement. (vii) All Compensation and Benefit Plans covering current or former non-U.S. employees of the Company or any of its Subsidiaries comply in all material respects with applicable local Laws. The Company and its Subsidiaries have no unfunded liabilities with respect to any Pension Plan that covers such non-U.S. employees. (viii) Each Compensation and Benefit Plan complies in all material respects with all applicable requirements of (i) the Age Discrimination in Employment Act of 1967, as amended, and the regulations thereunder and (ii) Title VII of the Civil Rights Act of 1964, as amended, and the regulations thereunder and all other applicable laws. All amendments and actions required to bring each of the Employee Benefit Plans into conformity with all of the applicable provisions of ERISA and other applicable laws have been made or taken except to the extent that such amendments or actions are not required by law to be made or taken until a date after the Closing Date and are disclosed on Schedule 5.1(h). (ix) Each group medical plan sponsored by the Company materially complies with the health care continuation provisions of COBRA and (ii) the Medicare Secondary Payor Provisions of Section 1826 (b) of the Social Security Act, and the regulations promulgated thereunder. 12 18 (i) Compliance with Laws. Except as set forth in the Company Reports filed prior to the date hereof, the businesses of each of the Company and its Subsidiaries have not been, and are not being, conducted in violation of any law, ordinance, regulation, judgment, order, injunction, decree, arbitration award, license or permit of any Governmental Entity (collectively, "Laws"), except for violations or possible violations that, individually or in the aggregate, have not had and are not reasonably likely to have a Company Material Adverse Effect or prevent, materially delay or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement. Except as set forth in the Company Reports filed prior to the date hereof, no investigation or review by any Governmental Entity with respect to the Company or any of its Subsidiaries is pending or, to the knowledge of the Company, threatened, nor has any Governmental Entity indicated an intention to conduct the same, except for those the outcome of which are not, individually or in the aggregate, reasonably likely to have a Company Material Adverse Effect or prevent, materially delay or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement. (j) Takeover Statutes. No "fair price," "moratorium," "control share acquisition" or other similar anti-takeover statute or regulation (each a "Takeover Statute") is applicable to the Company, the Shares, the Offer, the Merger or any of the other transactions contemplated by this Agreement. The Board of Directors of the Company has approved the Offer, the Merger and this Agreement, and such approval is sufficient to render inapplicable to the Offer, the Merger, this Agreement, and the transactions contemplated by this Agreement the provisions of Section 203 of DGCL to the extent, if any, such Section is applicable to the Offer, the Merger, this Agreement and the transactions contemplated by this Agreement. (k) Environmental Matters. (i) The term "Environmental Laws" means any Federal, state, local or foreign statute, treaty, ordinance, rule, regulation, policy, permit, consent, approval, license, judgment, order, decree or injunction relating to: (A) Releases (as defined in 42 U.S.C. sec. 9601(22) and California Health and Safety Code sec. 25501(r)) or threatened Releases of Hazardous Material (as hereinafter defined) into the environment, (B) the generation, treatment, storage, presence disposal, use, handling, manufacturing, transportation or shipment of Hazardous Material, (C) the health or safety of employees in the workplace environment, (D) natural resources, or (E) the environment, and includes all "Environmental Laws" as they are defined in any indemnification provision in any contract, lease, or agreement to which Company is a party. The term "Hazardous Material" means (1) hazardous substances (as defined in 42 U.S.C. sec. 9601(14)) and California Health and Safety Code sec. 25501(o), including "hazardous waste" as defined in California Health and Safety Code sec. 25501(p), (2) petroleum, including crude oil and any fractions thereof, (3) natural gas, synthetic gas and any mixtures thereof, (4) asbestos and/or asbestos containing materials, (5) PCBs or materials containing PCBs and (6) any material regulated as a medical waste or infectious waste but excludes commonly available office and janitorial supplies, (7) lead containing paint, (8) radioactive materials, and (9) "Hazardous Substance" or "Hazardous Material" as those terms are defined in any indemnification provision in any contract, lease, or agreement to which the Company is a party. (ii) During the period of ownership or operation by the Company and its Subsidiaries of any of their current or previously owned or leased properties, there have been no Releases of Hazardous Material by the Company or any of its Subsidiaries in, on, under or affecting such properties or any surrounding site, and neither the Company nor any of its Subsidiaries has disposed of any Hazardous Material in a manner that has led, or could reasonably be anticipated to lead to a Release, except in each case for those which individually or in the aggregate would not have a Company Material Adverse Effect, and except as disclosed in the Company Reports. Except as set forth on Schedule 5.1(k), to the Company's knowledge there have been no Releases of Hazardous Material by the Company or any of its Subsidiaries in, on, under or affecting such properties or any surrounding site at times outside of such periods of ownership, operation, or lease or by any other party except in each case for those which individually on in the aggregate would not have a Company Material Adverse Effect. The Company and its Subsidiaries have not received any written notice of, or entered into 13 19 any order, settlement or decree relating to: (A) any violation of any Environmental Laws or the institution or pendency of any suit, action, claim, proceeding or investigation by any Governmental Entity or any third party in connection with any alleged violation of Environmental Laws, (B) the response to or remediation of Hazardous Material at or arising from any of the Company's properties or any Subsidiary's properties. To the Company's knowledge there have been no violations of any Environmental Laws which violations individually or in the aggregate would have a Company Material Adverse Effect. (l) Intellectual Property. (i) The Company and its subsidiaries own, or are validly licensed or otherwise have the right to use all (i) foreign and United States federal and state patents, trademarks, trade names, service marks and copyright registrations, (ii) foreign and United States federal and state patent, trademark, trade name, service mark and copyright applications for registration, (iii) common law claims to trademarks, service marks and trade names, (iv) claims of copyright which exist although no registrations have been issued with respect thereto, (v) fictitious business name filings with any state or local Governmental Entity and (vi) inventions, concepts, designs, improvements, original works of authorship, computer programs, know-how, research and development, techniques, modifications to existing copyrightable works of authorship, data and other proprietary and intellectual property rights (whether or not patentable or subject to copyright, mask work or trade secret protection), in each case which are material to the conduct of the business of the Company and its Subsidiaries (collectively, the "Intellectual Property Rights"). There are no Liens other than Permitted Liens on the Intellectual Property Rights. There are no outstanding and, to the Company's knowledge, no threatened disputes or disagreements with respect to any Contract in respect of the Intellectual Property Rights. (ii) Neither the Company nor any of its Subsidiaries is, nor has it during the three (3) years preceding the date of this Agreement been, a party to any litigation or arbitral or other proceeding, nor, to the knowledge of the Company, is any such proceeding threatened as to which there is a reasonable possibility of a determination adverse to the Company or one of its Subsidiaries, that involved a claim of infringement by the Company or one of its Subsidiaries or any other Person (including any Governmental Entity) of any Intellectual Property Right. No Intellectual Property Right is subject to any outstanding order, judgment, decree, stipulation or agreement restricting the use thereof by the Company or any of its Subsidiaries or, in the case of any Intellectual Property Right owned by the Company or its Subsidiaries licensed to others, restricting the sale, transfer, assignment or licensing thereof by the Company or any of its Subsidiaries to any other Person. Except as set forth on Schedule 5.1(ii), the Company has no knowledge that would cause it to believe that its or any Subsidiary's use of any Intellectual Property Right conflicts with, infringes upon or violates any patent, patent license, trademark, tradename, copyright, service mark, brand mark or brand name, or any trade secret of any Person. (iii) Schedule 5.1(l) (iii) sets forth a complete list of (a) any material contracts related to the Intellectual Property Rights and (b) all documents which license or otherwise convey any of the Intellectual Property Rights owned by the Company or any of its Subsidiaries to a third party. (iv) All employees and independent contractors of the Company or any of its Subsidiaries involved with the development of graphics and video controllers for portable computers, desktop PC motherboard products and other products and computer software in connection therewith (collectively, "Products") for the Company or any of its Subsidiaries have executed written agreements with the Company or applicable Subsidiary that assign to the Company or such Subsidiary all rights to any Intellectual Property Rights and that otherwise appropriately protect the Intellectual Property Assets. (m) Taxes. Except as set forth on Schedule 5.1(m), (i) the Company and its Subsidiaries have timely filed or will timely file all returns and reports required to be filed by them with any taxing authority with respect to Taxes for any period ending on or before the date hereof, taking into account any 14 20 extension of time to file granted to or obtained on behalf of the Company or any of its Subsidiaries; (ii) all Taxes shown to be payable on such returns or reports that are due prior to the date hereof have been timely paid; (iii) as of the date hereof, no deficiency for any amount of Tax has been asserted or assessed or, to the Company's knowledge, has been threatened or is likely to be assessed by a taxing authority against the Company or any of its Subsidiaries other than deficiencies as to which adequate reserves have been provided for in the Company's consolidated financial statements; and (iv) the Company has provided in accordance with GAAP adequate reserves in its consolidated financial statements for any Taxes that have not been paid, whether or not shown as being due on any returns. For purposes of this Agreement, "Taxes" means any and all taxes, fees, levies, duties, tariffs, imposts and other charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental Entity or other taxing authority, including taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, Capital Stock, payroll, employment, social security, workers' compensation, unemployment compensation, or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value added or gains taxes; license, registration and documentation fees; and customers' duties, tariffs and similar charges. Neither the Company nor any of its Subsidiaries is subject to any Tax sharing agreement. No payments to be made to any of the employees of the Company or any of its Subsidiaries will, as a direct or indirect result of the Offer or the consummation of the Merger, be subject to the deduction limitations of Section 280G of the Code. (n) Labor Matters. Neither the Company nor any of its Subsidiaries is a party to or otherwise bound by any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is the Company or any of its Subsidiaries the subject of any proceeding asserting that the Company or any of its Subsidiaries has committed an unfair labor practice or is seeking to compel it to bargain with any labor union or labor organization, nor is there pending or, to the knowledge of the Company, threatened, any labor strike, dispute, walkout, work stoppage, slow-down or lockout involving the Company or any of its Subsidiaries. (o) Insurance. The Company maintains insurance policies (the "Insurance Policies") against all risks of a character and in such amounts as are usually insured against by similarly situated companies in the same or similar businesses. Each Insurance Policy is in full force and effect and is valid, outstanding and enforceable, and all premiums due thereon have been paid in full. None of the Insurance Policies will terminate or lapse (or be affected in any other materially adverse manner) by reason of the transactions contemplated by this Agreement. The Company and its Subsidiaries have complied in all material respects with the provisions of each Insurance Policy under which it is the insured party. No insurer under any Insurance Policy has canceled or generally disclaimed liability under any such policy or, to the Company's knowledge, indicated any intent to do so or not to renew any such policy. All material claims under the Insurance Policies have been filed in a timely fashion. (p) Rights Agreement. The Company has taken all necessary action to ensure that neither the entering into of this Agreement, the making of the Offer nor the consummation of the Offer or the Merger will cause the Rights to become exercisable, cause Parent or Merger Sub to become an "Acquiring Person" (as defined in the Rights Agreement), or cause there to occur a "Distribution Date" or a "Section 11(a)(ii) Event" (each as defined in the Rights Agreement). (q) Brokers and Finders. Neither the Company nor any of its Subsidiaries, officers, directors, or employees or other Affiliates has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders' fees in connection with the Offer, the Merger or the other transactions contemplated by this Agreement, except that the Company has employed the Financial Advisor, the arrangements with which have been disclosed to Parent prior to the date hereof. (r) Certain Business Practices. Neither the Company, any of its Subsidiaries nor any directors, officers, agents or employees of the Company or any of its Subsidiaries has (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to political activity; (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or 15 21 domestic political parties or campaigns or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iii) made any other payment prohibited by applicable Law. (s) Product Warranties. Schedule 5.1(s) sets forth complete and accurate copies of the written, and descriptions of all oral, warranties and guaranties by the Company or any of its Subsidiaries currently in effect with respect to the Products. There have not been any material deviations from such warranties and guaranties, and none of the Company's or any of its Subsidiaries' salesmen, employees, distributors and agents is authorized to undertake obligations to any customer or to other third parties in excess of such warranties or guaranties. (t) Suppliers and Customers. The documents and information supplied by the Company to Parent, Merger Sub or any of their representatives in connection with this Agreement with respect to relationships and volumes of business done with significant suppliers and customers was accurate in all material respects. (u) Backlog Information. None of the documents or information delivered to Parent, Merger Sub or any of their respective counsel, accountants and other agents and representatives in connection with backlog and billing contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein not misleading. 5.2. Representations and Warranties of Parent and Merger Sub. Parent and Merger Sub each hereby represents and warrants to the Company as follows: (a) Organization, Good Standing and Qualification. Each of Parent and Merger Sub (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, (ii) has all requisite corporate or similar power and authority to own and operate its properties and assets and to carry on its business as presently conducted and (iii) is qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the ownership or operation of its properties or conduct of its business requires such qualification, except where the failure to be so qualified or in such good standing, when taken together with all other such failures, has not had and is not reasonably likely to have a Parent Material Adverse Effect (as defined in Section 9.2). Parent has made available to the Company a complete and correct copy of Parent's certificate or incorporation and by-laws, as amended to the date hereof. Parent's certificate of incorporation and by-laws so delivered are in full force and effect. (b) Ownership of Merger Sub. All of the issued and outstanding Capital Stock of Merger Sub is, and at the Effective Time will be, owned by Parent, and there are no (i) other outstanding shares of Capital Stock or other voting securities of Merger Sub, (ii) securities of Merger Sub convertible into or exchangeable for shares of Capital Stock or other voting securities of Merger Sub or (iii) options or other rights to acquire from Merger Sub, and no obligations of Merger Sub to issue, any Capital Stock, other voting securities or securities convertible into or exchangeable for Capital Stock or other voting securities of Merger Sub. Merger Sub was formed solely for the purpose of engaging in the transactions contemplated hereby, has engaged in no other business activities and has conducted its operations only as contemplated hereby. (c) Corporate Authority. Each of Parent and Merger Sub has all requisite corporate power and authority and has taken all corporate action necessary in order to execute, deliver and perform its obligations under this Agreement and to consummate the Offer and the Merger. Assuming due execution and delivery by the Company, this Agreement is a valid and binding agreement of Parent and Merger Sub, enforceable against each of them in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy laws or creditors' rights generally or by general principles of equity. (d) Governmental Filings; No Violations. (i) Other than the filings and/or notices (A) pursuant to Section 1.2, (B) under the HSR Act and the Exchange Act, (C) to comply with state securities or "blue sky" laws, and (D) required to be made with the NASD, no notices, reports or other filings are required to be made by Parent or Merger Sub with, nor are any Government Consents required to be obtained by Parent or Merger 16 22 Sub from, any Governmental Entity, in connection with the execution and delivery of this Agreement by Parent and Merger Sub, the Offer and the consummation by Parent and Merger Sub of the Merger and the other transactions contemplated hereby, except those that the failure to make or obtain are not, individually or in the aggregate, reasonably likely to have a Parent Material Adverse Effect or prevent, materially delay or materially impair the ability of the Parent or Merger Sub to consummate the transactions contemplated by this Agreement. (ii) The execution, delivery and performance of this Agreement by Parent and Merger Sub do not, and the consummation by Parent and Merger Sub of the Merger and the other transactions contemplated hereby will not, constitute or result in (A) a breach or violation of, or a default under, the certificate or by-laws of Parent or Merger Sub, (B) a breach or violation of, or a default under, the acceleration of or the creation of a Lien, on the assets of Parent or any of its Subsidiaries (with or without notice, lapse of time or both) pursuant to, any Contract binding upon Parent or any of its Subsidiaries or any Law to which Parent or any of its Subsidiaries is subject or (C) any change in the rights or obligations of any party under any such Contract, except, in the case of clause (B) or (C) above, for any breach, violation, default, acceleration, creation or change that, individually or in the aggregate, is not reasonably likely to have a Parent Material Adverse Effect or prevent, materially delay or materially impair the ability of the Parent or Merger Sub to consummate the transactions contemplated by this Agreement. (e) Brokers and Finders. Neither Parent nor Merger Sub, nor any of their respective officers, directors, employees or other Affiliates, has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders' fees in connection with the Offer, the Merger or the other transactions contemplated by this Agreement. (f) Financing. At the expiration of the Offer and at the Effective Time, Parent and Merger Sub will have available all the funds necessary for the acquisition of all Shares pursuant to the Offer and to perform their respective obligations under this Agreement, including without limitation payment in full for all Shares validly tendered or outstanding as of the Effective Time. ARTICLE VI COVENANTS 6.1. Interim Operations. The Company covenants and agrees as to itself and its Subsidiaries that, after the date hereof and prior to the Effective Time (unless Parent shall otherwise approve in writing, which approval shall not be unreasonably withheld, and except as otherwise expressly contemplated by this Agreement): (a) the business of it and its Subsidiaries shall be conducted in the ordinary and usual course consistent with past practices and, to the extent consistent therewith, it and its Subsidiaries shall use commercially reasonable efforts to preserve its business organization intact and maintain its existing relations and goodwill with customers, suppliers, distributors, creditors, lessors, employees and business associates; (b) it shall not, (i) issue, sell otherwise dispose of or subject to Lien (other than Permitted Liens) any of its Subsidiaries' Capital Stock owned by it; (ii) amend its charter, by-laws or, except for any amendment which will not hinder, delay or make more costly to Parent the Offer or the Merger; the Rights Agreement; (iii) split, combine or reclassify its outstanding shares of Capital Stock; (iv) declare, set aside or pay any dividend payable in cash, stock or property in respect of any Capital Stock other than the issuance of Rights in connection with the issuance of Capital Stock upon the exercise of Company Options; (v) repurchase, redeem or otherwise acquire or permit any of its Subsidiaries to purchase or otherwise acquire, any shares of its Capital Stock; or any securities convertible into or exchangeable or exercisable for any shares of its Capital Stock; or (vi) adopt a plan of complete or partial liquidation or dissolution, merger or otherwise restructure or recapitalize or consolidate with any Person other than Merger Sub or another wholly-owned Subsidiary of Parent; 17 23 (c) neither it nor any of its Subsidiaries shall (i) authorize for issuance or issue, sell or otherwise dispose of or subject to any Lien (other than Permitted Liens) any shares of, or securities convertible into or exchangeable or exercisable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of its Capital Stock of any class or any Voting Debt (other than Shares issuable pursuant to Company Options outstanding on the date hereof, the grant of Company Options to newly hired employees in accordance with a benefit matrix previously provided to Parent and after notification of Parent and automatic grants of director stock options as mandated by the Company's First Amended 1988 Nonqualified Stock Option Plan for Outside Directors); (ii) other than in the ordinary and usual course of business consistent with past practices, transfer, lease, license, guarantee, sell or otherwise dispose of or subject to any Lien (other than Permitted Liens) any other property or assets or incur or modify any material indebtedness or other liability (except for additional borrowings in the ordinary course under lines of credit in existence on the date hereof); (iii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other Person except in the ordinary course of business consistent with past practices and except for obligations of Subsidiaries of the Company incurred in the ordinary course of business; (iv) make any loans to any other Person (other than to Subsidiaries of the Company or, customary loans or advances to employees in connection with business-related travel in the ordinary course of business consistent with past practices); or (v) make any commitments for, make or authorize any capital expenditures other than in amounts less than $150,000 individually and $3,000,000 in the aggregate or, by any means, make any acquisition of, or investment in, assets or stock of any other Person; (d) except as may be required to comply with applicable law or by existing contractual commitments, neither it nor any of its Subsidiaries shall (i) enter into any new agreements or commitments for any severance or termination pay to, or enter into any employment or severance agreement with, any of its directors, officers or employees or consultants except for (a) specific arrangements with ten of the Company's employees and one of its directors which have been previously disclosed to Parent and (b) reasonable severance payments made to employees in the ordinary course of business and consistent with past practices, or (ii) terminate, establish, adopt, enter into, make any new grants or awards under, amend or otherwise modify, any Compensation and Benefit Plan or increase or accelerate the salary, wage, bonus or other compensation of any employees or directors (except for increases occurring in the ordinary and usual course of business, which shall include normal periodic performance reviews and related compensation and benefit increases, but not any general across-the-board increases) or consultants or pay or agree to pay any pension, retirement allowance or other employee benefit not required by any existing Compensation and Benefit Plan; (e) neither it nor any of its Subsidiaries shall, except as may be required as a result of a change in law or in GAAP, change any of the accounting principles or practices used by it; (f) neither it nor any of its Subsidiaries shall revalue in any respect any of its material assets, including writing down the value of inventory or writing-off notes or accounts receivable, other than in the ordinary course of business consistent with past practices; (g) neither it nor any of its Subsidiaries shall settle or compromise any material claims or litigation or terminate or materially amend or modify any of its material Contracts or waive, release or assign any material rights or claims; (h) neither it nor any of its Subsidiaries shall make any Tax election or permit any insurance policy naming it as a beneficiary or loss-payable payee to be canceled or terminated; (i) neither it nor any of its Subsidiaries shall take any action or omit to take any action that would cause any of its representations and warranties herein to become untrue in any material respect; and (j) neither it nor any of its Subsidiaries will authorize or enter into any agreement to do any of the foregoing. 18 24 6.2. Third Party Acquisitions. (a) The Company agrees that neither it nor any of its Subsidiaries nor any of its or its Subsidiaries' employees or directors shall, and it shall direct and use its best efforts to cause its and its Subsidiaries' agents and representatives (including the Financial Advisor or any other investment banker and any attorney or accountant retained by it or any of its Subsidiaries (collectively, "Company Advisors")) not to, directly or indirectly, initiate, solicit, encourage or otherwise facilitate any inquiries in respect of, or the making of any proposal for, a Third Party Acquisition (as defined in Section 6.2(b)). The Company further agrees that neither it nor any of its Subsidiaries nor any of its or its Subsidiaries' employees or directors shall, and it shall direct and use its best efforts to cause all Company Advisors not to, directly or indirectly, engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any Third Party (as defined in Section 6.2(b)) relating to the proposal of a Third Party Acquisition, or otherwise facilitate any effort or attempt to make or implement a Third Party Acquisition; provided, however, that if at any time prior to the acceptance for payment of Shares pursuant to the Offer, the Board of Directors of the Company determines in good faith, after consultation with outside counsel, that it is necessary to do so in order to comply with its fiduciary duties to the Company's stockholders under applicable law, the Company may, in response to an inquiry, proposal or offer for a Third Party Acquisition which was not solicited subsequent to the date hereof, (x) furnish only such information with respect to the Company to any such person pursuant to a customary confidentiality agreement as was delivered to Parent prior to the execution of this Agreement and (y) participate in the discussions and negotiations regarding such inquiry, proposal or offer; and further provided, that nothing contained in this Agreement shall prevent the Company or its Board of Directors from complying with Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any proposed Third Party Acquisition. The Company shall immediately cease and cause to be terminated any existing activities, discussions or negotiations with any Third Parties conducted heretofore with respect to any of the foregoing. The Company shall take the necessary steps to promptly inform all Company Advisors of the obligations undertaken in this Section 6.2(a). The Company agrees to notify Parent promptly if (i) any inquiries relating to or proposals for a Third Party Acquisition are received by the Company, any of its Subsidiaries or any of the Company Advisors, (ii) any confidential or other non-public information about the Company or any of its Subsidiaries is requested from the Company, any of its Subsidiaries or any of the Company Advisors, or (iii) any negotiations or discussions in connection with a possible Third Party Acquisition are sought to be initiated or continued with the Company, any of its Subsidiaries or any of the Company Advisors indicating, in connection with such notice, the principal terms and conditions of any proposals or offers, and thereafter shall keep Parent informed in writing, on a reasonably current basis, on the status and terms of any such proposals or offers and the status of any such negotiations or discussions. The Company also agrees promptly to request each Person that has heretofore executed a confidentiality agreement in connection with its consideration of acquiring the Company or any of its Subsidiaries, if any, to return all confidential information heretofore furnished to such Person by or on half of the Company or any of its Subsidiaries. (b) Except as permitted by this Section 6.2(b), the Board of Directors of the Company shall not withdraw its recommendation of the Offer or the Merger and other transactions contemplated hereby or approve or recommend, or cause the Company to enter into any agreement with respect to, any Third Party Acquisition. Notwithstanding the preceding sentence, if the Board of Directors of the Company determines in its good faith judgment, after consultation with legal counsel, that it is necessary to do so in order to comply with its fiduciary duties, the Board of Directors may withdraw its recommendation of the Offer or the Merger and the other transactions contemplated hereby, or approve or recommend or cause the Company to enter into an agreement with respect to a Superior Proposal (as defined below), but in each case only (i) after providing written notice to Parent (a "Notice of Superior Proposal") advising Parent that the Board of Directors has received a Superior Proposal, specifying the material terms and conditions of such Superior Proposal and identifying the Person making such Superior Proposal and (ii) if Parent does not, within five (5) Business Days (or within two (2) Business Days with respect to any amendment to any Superior Proposal which was noticed at least five (5) Business Days prior to such amendment) after Parent's receipt of the Notice of Superior Proposal, make an offer which the Board of 19 25 Directors of the Company determines in its good faith judgment (based on the advice of the Financial Advisor or another financial adviser of nationally recognized reputation) to be as favorable to the Company's stockholders as such Superior Proposal; provided, however, that the Company shall not be entitled to enter into any agreement with respect to a Superior Proposal unless this Agreement is concurrently terminated by its terms pursuant to Section 8.3(b). For purposes of this Agreement, "Third Party Acquisition" means the occurrence of any of the following events: (i) the acquisition of the Company by merger or otherwise by any Person (which includes a "person" as such term is defined in Section 13(d)(3) of the Exchange Act) other than Parent, Merger Sub or any Affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of 20% or more of the total assets of the Company and its Subsidiaries, taken as a whole (other than the purchase of the Company's products in the ordinary course of business); (iii) the acquisition by a Third Party of 20% or more of the outstanding Shares; (iv) the adoption by the Company of a plan of partial or complete liquidation or the declaration or payment of an extraordinary dividend; (v) the repurchase by the Company or any of its Subsidiaries of 20% or more of the outstanding Shares; or (vi) the acquisition by the Company or any of its Subsidiaries by merger, purchase of stock or assets, joint venture or otherwise of a direct or indirect ownership interest or investment in any business whose annual revenues, net income or assets is equal to or greater than 20% of the annual revenues, net income or assets of the Company and its Subsidiaries, taken as a whole. For purposes of this Agreement, a "Superior Proposal" means any bona fide proposal to acquire directly or indirectly for consideration consisting of cash and/or securities more than 50% of the Shares then outstanding or all or substantially all the assets of the Company and its Subsidiaries, taken as a whole, and otherwise on terms which the Board of Directors of the Company by a majority vote determines in its good faith judgment (based on consultation with the Financial Advisor or another financial adviser of nationally recognized reputation) to be reasonably capable of being completed (taking into account all legal, financial, regulatory and other aspects of the proposal and the Person making the proposal, including the availability of financing therefor) and more favorable to the Company's stockholders than the Merger. 6.3. Filings; Other Actions; Notification. (a) If a vote of the Company's stockholders is required by law, the Company shall promptly, following the acceptance for payment of Shares by Parent, pursuant to the Offer, prepare and file with the SEC the Proxy Statement, which shall include the recommendation of the Board of Directors of the Company that stockholders of the Company vote in favor of the approval and adoption of this Agreement and the written opinion of the Financial Advisor that the cash consideration to be received by the stockholders of the Company pursuant to the Merger is fair to such stockholders from a financial point of view. The Company shall use all reasonable efforts to have the Proxy Statement cleared by the SEC as promptly as practicable after such filing, and promptly thereafter mail the Proxy Statement to the stockholders of the Company. The Company shall also use its best efforts to obtain all necessary state securities law or "blue sky" permits and approvals required in connection with the Merger and to consummate the other transactions contemplated by this Agreement and will pay all expenses incident thereto. (b) Upon and subject to the terms and conditions set forth in this Agreement, the Company and Parent shall cooperate with each other and use (and shall cause their respective Subsidiaries to use) all reasonable efforts to take or cause to be taken all actions, and do or cause to be done all things, necessary, proper or advisable under this Agreement and applicable Laws to consummate and make effective the Offer, the Merger and the other transactions contemplated by this Agreement as soon as practicable, including preparing and filing as promptly as practicable all documentation to effect all necessary applications, notices, petitions, filings and other documents and to obtain as promptly as practicable all permits, consents, approvals and authorizations necessary or advisable to be obtained from any third party and/or any Governmental Entity in order to consummate the Offer, the Merger or any of the other transactions contemplated by this Agreement; provided, however, that nothing in this Section 6.3 shall require, or be construed to require, Parent to proffer to, or agree to, sell or hold separate and agree to sell, before or after the Effective Time, any material assets, businesses or any interest in any material assets or 20 26 businesses of Parent, the Company or any of their respective Affiliates (or to consent to any sale, or agreement to sell, by the Company of any of its material assets or businesses) or to agree to any material change in or restriction on the operations of any such assets or businesses; provided further, that nothing in this Section 6.3 shall require, or be construed to require, a proffer or agreement that would, in the good faith judgment of Parent, be likely to have a significant adverse effect on the benefits to Parent of the transactions contemplated by this Agreement. Subject to applicable Laws relating to the exchange of information, Parent and the Company shall have the right to review in advance, and to the extent practicable each will consult the other on, all the information relating to Parent or the Company, as the case may be, and any of their respective Subsidiaries, that appears in any filing made with, or written materials submitted to, any third party and/or any Governmental Entity in connection with the Offer, the Merger and the other transactions contemplated by this Agreement, including the Proxy Statement. In exercising the foregoing right, the Company and Parent shall act reasonably and as promptly as practicable. (c) Each of the Company and Parent shall, upon request by the other, furnish the other with all information concerning itself, its Subsidiaries, directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with the Proxy Statement or any other statement, filing, notice or application made by or on behalf of Parent, the Company or any of their respective Subsidiaries to any Governmental Entity or other Person (including the NASD) in connection with the Offer, the Merger and the other transactions contemplated by this Agreement. (d) Each of the Company and Parent shall keep the other apprised of the status of matters relating to completion of the transactions contemplated hereby, including promptly furnishing the other with copies of notices or other communications received by Parent or the Company, as the case may be, or any of their respective Subsidiaries, from any third party and/or any Governmental Entity with respect to the Offer, the Merger and the other transactions contemplated by this Agreement. Each of the Company and Parent shall give prompt notice to the other of any change that is reasonably likely to have a Company Material Adverse Effect or a Parent Material Adverse Effect, respectively. 6.4. Information Supplied. Each of Parent and the Company agrees, as to information provided by itself and its Subsidiaries, that none of the information included or incorporated by reference in the proxy statement delivered by the Company to its stockholders in connection with the Merger and any amendment or supplement thereto (the "Proxy Statement") will, at the time the Proxy Statement is cleared by the SEC, at the date of mailing to stockholders of the Company, and at the time of the Stockholders Meeting (as defined in Section 6.5),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, in light of the circumstances under which they were made, not misleading. 6.5. Stockholders Meeting. (a) If a vote of the Company's stockholders is required by law, the Company will, following the acceptance for payment of Shares by Parent pursuant to the Offer, take, in accordance with applicable Law and its certificate of incorporation and by-laws, all action necessary to convene a meeting of holders of Shares (the "Stockholders Meeting") as promptly as practicable after the Proxy Statement is cleared by the SEC to consider and vote upon the approval of this Agreement. The Proxy Statement shall, include a statement that the Board approved this Agreement and recommended that Stockholders vote in favor of this Merger, and the Company shall use all reasonable and customary efforts to solicit such approval. Notwithstanding the foregoing, if Parent, Merger Sub and/or any other Subsidiary of Parent shall acquire at least 90% of the outstanding Shares, the parties shall take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after the expiration of the Offer without a Stockholders Meeting in accordance with Section 253 of the DGCL. (b) Parent agrees to cause all Shares purchased pursuant to the Offer and all other Shares owned by Parent or any Subsidiary of Parent to be voted in favor of the Merger. 21 27 6.6. Access. Upon reasonable notice, and except as may otherwise be required by applicable law or relevant contractual provisions contained in such agreements, the Company shall (and shall cause its Subsidiaries to) (i) afford Parent's officers, employees, counsel, accountants and other authorized representatives (collectively, "Representatives") access, during normal business hours throughout the period prior to the Effective Time, to its properties, books, contracts and records and, during such period, (ii) furnish promptly to Parent all information concerning its business, properties and personnel as may reasonably be requested; provided, however, that no investigation pursuant to this Section 6.6 shall affect or be deemed to modify any representation or warranty made by the Company. All requests for information made pursuant to this Section 6.6 shall be directed to an executive officer of the Company or such Person as may be designated by its officers. Notwithstanding the foregoing, the parties shall comply with, and shall cause their respective Representatives to comply with, all their respective obligations under the Confidentiality Agreement, dated July 22, 1997, between the Company and Parent. 6.7. Publicity. The initial press release concerning the Merger has been approved by Parent and the Company and thereafter the Company and its Subsidiaries, on the one hand, and Parent and Merger Sub, on the other hand, shall consult with each other prior to issuing any press releases or otherwise making public announcements with respect to the Merger and the other transactions contemplated by this Agreement and prior to making any filings with any Governmental Entity or other Person (including the NASD) with respect hereto, except as may be required by law or by obligations pursuant to any listing agreement with the National Market. 6.8. Status of Company Employees; Company Stock Options; Employee Benefits. (a) Except as contemplated by this Agreement, Parent agrees that, for a period of twelve (12) months following the Effective Time, the Surviving Corporation shall maintain employee benefits plans and arrangements (directly or in conjunction with Parent) which, in the aggregate, will provide a level of benefits to Continuing Employees of the Surviving Corporation and its Subsidiaries similar to those provided under the Compensation and Benefit Plans as in effect immediately prior to the Effective Time (other than discretionary benefits); provided, however, that Parent may cause modifications to be made to such employee benefit plans and arrangements to the extent necessary to comply with applicable Law or to reflect widespread adjustments in benefits (or costs thereof) provided to employees under compensation and benefit plans of Parent and its Subsidiaries, and no specific Compensation and Benefit Plans need be provided. Parent shall use Continuing Employee's hire date with Company as the basis for determining eligibility and vesting of Parent's defined benefit and Supplemental Employee Retirement Medical Account (SERMA) plans. Parent shall use Effective Time as the basis for determining eligibility under the Parent's sabbatical plan and for determining benefit accruals under Parent's defined benefit and SERMA plans. For purposes of determining eligibility and vesting with respect to all other benefits maintained by Parent, Parent shall use Continuing Employee's hire date with the Company. Nothing in this Section 6.8(a) shall be construed or applied to restrict the ability of the Surviving Corporation and its Subsidiaries to establish such types and levels of compensation and benefits as they determine to be appropriate. (b) From and after the date hereof, the Company agrees that, except with respect to grants in connection with offers of employment outstanding on July 22, 1997, it will not grant additional stock options under the Assumed Stock Option Plan and its Board of Directors will take all actions necessary to provide that all options outstanding under the Assumed Stock Option Plan can be assumed by Parent. (c) The Board of Directors of Parent will adopt a resolution assuming on behalf of Parent the obligations and rights of the Company under all options outstanding under the Assumed Stock Option Plan. 6.9. Expenses. The Surviving Corporation shall pay all charges and expenses, including those of the Exchange Agent, in connection with the transactions contemplated in Article IV. Except as otherwise provided in Sections 8.5, whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the Merger and the other transactions contemplated by this Agreement shall be paid by the party incurring such expense. 22 28 6.10. Indemnification; Directors' and Officers' Insurance. (a) From and after the Effective Time, the Surviving Corporation shall indemnify, defend and hold harmless each person who is now, or has been at any time prior to the date of this Agreement or who becomes prior to the Effective Time a director or officer of the Company or any of its Subsidiaries (when acting in such capacity) (the "Indemnified Parties"), against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, demands, liabilities, damages or liabilities (collectively, "Costs") incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal or administrative arising out of matters existing or occurring prior to or after the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, which is based in whole or in part on, or arising in whole or in part out of the fact that such person is or was a director or officer of the Company or any of its Subsidiaries including, without limitation, all losses, claims, damages, costs, expenses, liabilities, judgments or settlement amounts based in whole or in part on, or arising in whole or in part out of, or pertaining to this Agreement or the transactions contemplated hereby to the fullest extent that the Company would have been permitted under the DGCL and its certificate of incorporation, by-laws and other agreements in effect on the date hereof to indemnify such individual. (b) Any Indemnified Party wishing to claim indemnification under subsection (a) of this Section 6.10, upon learning of any such claim, action, suit, proceeding or investigation, shall promptly notify Parent and the Surviving Corporation thereof (but the failure so to notify the Surviving Corporation shall not relieve it from any liability which it may have under this Section 6.10 except to the extent such failure materially prejudices such party). In the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the Effective Time), (i) the Surviving Corporation shall have the right to assume the defense thereof and the Surviving Corporation shall not be liable to any such Indemnified Party for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof, (ii) the Indemnified Party will cooperate in all respects as requested by the Surviving Corporation in the defense of any such matter and (iii) the Surviving Corporation shall not be liable for any settlement effected without its prior written consent which consent shall not be unreasonably withheld; provided, however, that the Surviving Corporation shall not have any obligation hereunder to any Indemnified Party if and when a court shall ultimately determine, and such determination shall have become final, that the indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by Law. (c) Parent and the Surviving Corporation shall maintain the Company's and its Subsidiaries' existing officers' and directors' liability insurance ("D&O Insurance") for a period of six (6) years after the Effective Time so long as the annual premium therefor is not in excess of 150% of the last annual premium paid prior to the date hereof (the "Current Premium"); provided, however, that if the existing D&O Insurance expires, is terminated or canceled during such six-year period, the Surviving Corporation will use its commercially reasonable efforts to obtain as much D&O Insurance as can be obtained for the remainder of such period for a premium not in excess (on an annualized basis) of 150% of the Current Premium; provided further, that, in lieu of maintaining such existing D&O Insurance as provided above, Parent may cause coverage to be provided under any policy maintained for the benefit of Parent or any of its Subsidiaries, so long as the terms are no less advantageous to the intended beneficiaries thereof than the existing D&O Insurance. In lieu of the purchase of such insurance by Parent or the Surviving Corporation, the Company may purchase a six-year extended reporting period endorsement ("reporting tail coverage") under its existing directors' and liability insurance coverage, provided that the total cost of the reporting tail coverage shall not exceed $350,000, and provided that such reporting tail coverage shall extend the director and officer liability coverage in force as of the date hereof for a period of six (6) years from the Effective Time for any claims based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving wrongful acts or omissions occurring on or prior to the Effective Time, including without limitation all claims based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving the Offer, the Merger and any and all related transactions or related events. 23 29 (d) The provisions of this Section 6.10 are intended to be for the benefit of, and shall be enforceable by, each of the Indemnified Parties and their respective heirs and estates. Nothing in this Section 6.10 shall limit in any way any other rights to indemnification that any current or former director or officer of the Company may have by contract or otherwise. (e) From and after the Effective Time, the Surviving Corporation shall fulfill, assume and honor in all respects the obligations of the Company pursuant to the Company's Certificate of Incorporation, Bylaws and any indemnification agreement between the Company and any of the Company's directors and officers existing and in force as of the Effective Time. The Company agrees that the indemnification obligations set forth in the Company's Certificate of Incorporation and Bylaws, in each case as of the date of this Agreement, shall survive the Merger (and, as of or prior to the Effective Time, Parent shall cause the Bylaws of Sub to reflect such previsions) and shall not be amended, repealed or otherwise modified for a period of six (6) years after the Effective Time in any manner that would adversely affect the rights thereunder of the Indemnified Parties. (f) If the Surviving Corporation or any of its successors or assigns (i) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation or Person of such consolidation or merger or (ii) shall transfer all or substantially all of its properties and assets to any Person, then and in each such case, proper provisions shall be made so that the successors and assigns of the Surviving Corporation shall assume all of the obligations set forth in this Section 6.10. 6.11. Other Actions by the Company and Parent. (a) Rights Agreement. Prior to the Effective Time, the Board of Directors of the Company shall take all necessary action to ensure that the representation and warranty in Section 5.1(p) is true and correct. (b) Takeover Statutes. If any Takeover Statute is or may become applicable to the Merger or the other transactions contemplated by this Agreement, each of Parent and the Company and their respective Boards of Directors shall grant such approvals and take such lawful actions as are necessary so that such transactions may be consummated as promptly as practicable on the terms contemplated by this Agreement or by the Merger and otherwise act to eliminate or minimize the effects of such statute, and any regulations promulgated thereunder, on such transactions. 6.12. Parent Stock Option; Exercise; Adjustments. (a) Subject to the terms and conditions set forth herein, the Company hereby grants to Parent an irrevocable option (the "Parent Option") to purchase that number of authorized and unissued shares of Common Stock equal to 19.99% of the outstanding Shares immediately prior to the exercise of the Parent Option (the "Option Shares") at a purchase price of $17.50 per Option Share (the "Option Price"). Subject to the conditions set forth in Subsection (c) below, the Parent Option may be exercised by Parent, in whole or in part, at any time or from time to time after the date on which Parent has accepted for payment the Shares tendered pursuant to the Offer and prior to the termination of this Agreement pursuant to Article VIII. If Parent wishes to exercise the Parent Option, Parent shall send a written notice to the Company (the "Exercise Notice") specifying a date (not earlier than the next Business Day following the date such notice is given) for the closing of such purchase and containing a representation by Parent that upon the issuance and delivery of the Option Shares, there will be no further conditions precedent that need to be satisfied for Parent and Merger Sub to effect the Merger, and that Parent and Merger Sub will take all actions required on their respective parts to effect the Merger. (b) In the event of any change in the number of issued and outstanding Shares by reason of any stock dividend, stock split, split-up, recapitalization, merger or other change in the corporate or capital structure of the Company, the number of Option Shares and the Option Price shall be appropriately adjusted to restore Parent to its rights hereunder. 24 30 (c) The Company's obligation to issue and deliver the Option Shares upon exercise of the Parent Option is subject only to the following conditions: (i) No preliminary or permanent injunction or other order issued by any federal or state court of competent jurisdiction in the United States prohibiting the delivery of the Option Shares shall be in effect; (ii) Any applicable waiting periods under the HSR Act, or other applicable United States or foreign Laws shall have expired or been terminated; and (iii) The number of Option Shares plus the number of Shares accepted for payment by Parent pursuant to the Offer will, upon issuance of the Option Shares, constitute at least ninety percent (90%) of the Company's issued and outstanding shares of Common Stock. (d) Any closing hereunder shall take place on the date specified by Parent in its Exercise Notice delivered pursuant to subsection (a) above at 9:00 a.m., California time, or the first day thereafter on which all of the conditions in subsection (c) above are met, at the offices of Parent's counsel, or at such other time and place as the parties may agree (the "Option Closing Date"). On the Option Closing Date, the Company will deliver to Parent a certificate or certificates representing the Option Shares in the denominations designated by Parent in its Exercise Notice and Parent will purchase such Option Shares from the Company at a price per Option Share equal to the Option Price. Any payment made by Parent to the Company pursuant to this subsection (d) shall be made by certified, cashier's or bank check or by wire transfer of immediately available funds to an account designated by the Company. The certificates representing the Option Shares may bear an appropriate legend relating to the fact that such Option Shares have not been registered under the Securities Act. ARTICLE VII CONDITIONS 7.1. Conditions to Each Party's Obligation to Effect Merger. The respective obligation of each party to effect the Merger is subject to the satisfaction or waiver at or prior to the Closing of each of the following conditions: (a) Stockholder Approval. If required by applicable law this Agreement shall have been duly approved by holders of the number of Shares constituting at least the Company Requisite Vote. (b) Regulatory Consents. The waiting period applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated and, other than filing the Delaware Certificate of Merger, all filings with any Governmental Entity required to be made prior to the Effective Time by the Company or Parent or any of their respective Subsidiaries, with, and all Government Consents required to be obtained prior to the Effective Time by the Company or Parent or any of their respective Subsidiaries in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by the Company, Parent and Merger Sub shall have been made or obtained (as the case may be), except where the failure to so make or obtain will not result in either a Company Material Adverse Effect or a Parent Material Adverse Effect. (c) Litigation. No court or other Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) that is in effect and restrains, enjoins or otherwise prohibits consummation of the transactions contemplated by this Agreement (collectively, an "Order"), and no Governmental Entity shall have instituted any proceeding or formally threatened to institute any proceeding seeking any such Order and such proceeding or threat remains unresolved. 25 31 7.2. Conditions to Obligations of Parent and Merger Sub. The obligations of Parent and Merger Sub to effect the Merger are also subject to the satisfaction or waiver by Parent prior to the Effective Time of the following conditions: (a) Representations and Warranties. The representations and warranties of the Company set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date it being understood that representations and warranties shall be deemed to be true and correct unless the respects in which the representations and warranties (without giving effect to any "materiality" limitations or references to "material adverse effect" set forth therein) are untrue or incorrect in the aggregate is likely to have a Company Material Adverse Effect. (b) Performance of Obligations of the Company. The Company shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date. 7.3. Conditions to Obligations of the Company. The obligation of the Company to effect the Merger is also subject to the satisfaction or waiver by the Company prior to the Effective Time of the following conditions: (a) Representations and Warranties. The representations and warranties of Parent and Merger Sub set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date it being understood that representations and warranties shall be deemed to be true and correct unless the respects in which the representations and warranties (without giving effect to any "materiality" limitations or references to "material adverse effect" set forth therein) are untrue or incorrect in the aggregate is likely to have a Parent Material Adverse Effect. (b) Performance of Obligations of Parent and Merger Sub. Each of Parent and Merger Sub shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date. ARTICLE VIII TERMINATION 8.1. Termination by Mutual Consent. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after its approval by the Company Requisite Vote, by mutual written consent of the Company (through the Continuing Directors or their designated successors), Parent and Merger Sub. 8.2. Termination by Either Parent or the Company. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time by either Parent or the Company if any Order permanently restraining, enjoining or otherwise prohibiting the Merger shall be entered (whether before or after the approval by the stockholders of the Company) and such Order is or shall have become nonappealable. 8.3. Termination by the Company. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after its approval by the Company Requisite Vote, by the Company if: (a) after October 31, 1997, Parent shall have failed to pay for Shares pursuant to the Offer; provided, however, that the right to terminate this Agreement pursuant to this subsection (a) shall not be available to the Company if it has breached in any material respects its obligations under this Agreement that in any manner shall have proximately contributed to the failure referenced in this clause (a); 26 32 (b) prior to Parent's purchase of Shares pursuant to the Offer, (i) the Company enters into a binding written agreement concerning a Superior Proposal after fully complying with the procedures set forth in Section 6.2 and (ii) the Company concurrently with such termination pays to Parent in immediately available funds all expense reimbursements due Parent pursuant to Section 8.5(a) and the first installment of the Termination Fee pursuant to Section 8.5(b); or (c) there has been a material breach by Parent or Merger Sub of any representation, warranty, covenant or agreement contained in this Agreement that is not curable or, if curable, is not cured prior to the earlier of (i) twenty (20) days after written notice of such breach is given by the Company to Parent and (ii) two (2) Business Days before the date on which the Offer expires. 8.4. Termination by Parent and Merger Sub. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after its approval by the Company Requisite Vote, by Parent and Merger Sub if: (a) the Merger shall not have been consummated by January 15, 1998; provided, however, that the right to terminate this Agreement pursuant to this subsection (a) shall not be available to Parent and Merger Sub if either of them has breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the occurrence of the failure referred to in this subsection; (b) the Board of Directors of the Company shall have withdrawn or adversely modified its approval or recommendation of this Agreement; (c) there has been a material breach by the Company of any representation, warranty, covenant or agreement contained in this Agreement that is not curable or, if curable, is not cured within twenty (20) days after written notice of such breach is given by Parent to the Company and which is likely to have a Company Material Adverse Effect; or (d) Parent shall have terminated the Offer in accordance with the provisions of Annex A; provided, however, that the right to terminate this Agreement pursuant to this subsection (d) shall not be available to Parent and Merger Sub if either of them has breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the termination of the Offer. 8.5. Effect of Termination and Abandonment. (a) If this Agreement is terminated and the Merger abandoned pursuant to this Article VIII, this Agreement (other than as set forth in Section 9.1) shall become void and of no further effect with no liability of any party hereto (or any of its directors, officers, employees, agents, stockholders, legal, accounting and financial advisors or other representatives); provided, however, that, except as otherwise provided herein, no such termination shall relieve any party hereto of any liability or damages resulting from any breach of this Agreement; provided further, that the Company shall reimburse Parent in the amount of $2,000,000 as reimbursement for all of its costs and expenses in connection with this Agreement, the Offer and the Merger unless: (i) the Agreement has been terminated by the parties pursuant to Section 8.1 or by either party pursuant to Section 8.2; (ii) the Company has terminated this Agreement pursuant to Sections 8.3(a) or 8.3(c); or (iii) the Parent has terminated this Agreement pursuant to Section 8.4(a) or Section 8.4(d) and, further, the Company has not breached in any material respect its obligations under this Agreement in any manner which proximately contributed to the failure to close the Merger or Parent's termination of the Offer, respectively. (b)(i) In lieu of any liability or obligation to pay damages (other than the obligation to reimburse Parent for expenses pursuant to Section 8.5(a)), if (A) there shall be a proposal by a Third Party for a Third Party Acquisition existing at the time of termination of the Agreement by Parent and Merger Sub, and (B) Parent and Merger Sub shall have terminated this Agreement pursuant to Section 8.4(b) or (c) or (d) and, with respect to a termination pursuant to Section 8.4(d), the Company has breached in any material respect its obligations under this Agreement in any manner which proximately contributed to Parent and Merger Sub's termination of the Offer, the Company shall pay to Parent (i) within two (2) 27 33 business days after such termination $5,000,000 and (ii) an additional $8,000,000 upon consummation, if any, of any Third Party Acquisition with a Person who had proposed a Third Party Acquisition prior to the time of the termination of this Agreement by the Parent and Merger Sub. (ii) In lieu of any liability or obligation to pay damages (other than the obligation to reimburse Parent for expenses pursuant to Section 8.5(a)), (A) if there shall not have been a material breach of any representation, warranty, covenant or agreement on the part of Parent or Merger Sub and (B) the Company shall have terminated this Agreement pursuant to Section 8.3(b), the Company shall pay to Parent (i) concurrently with such termination $5,000,000 and (ii) an additional $8,000,000 upon consummation, if any, of either the Superior Proposal giving right to terminate this Agreement under Section 8.3 (b) or any Third Party Acquisition with a Person who had proposed a Third party Acquisition prior to the termination of this Agreement under section 8.3(b). (Such amounts payable pursuant to Section 8.5(b)(i) or this Section 8.5(b)(ii) are referred to in the aggregate in this Agreement as the "Termination Fee".) (c) The Company acknowledges that the agreements contained in Section 8.5 are an integral part of the transactions contemplated by this Agreement and that, without these agreements, Parent and Merger Sub would not enter into this Agreement; accordingly, if the Company fails promptly to pay the amounts required pursuant to Section 8.5 and, in order to obtain such payment Parent or Merger Sub commences a suit which results in a final nonappealable judgment against the Company for such amounts, the Company shall pay to Parent or Merger Sub (i) its costs and expenses (including attorneys' fees) in connection with such suit and (ii) if (and only if) this Agreement has been terminated pursuant to Section 8.3(b) or 8.4(c), interest on the amount at the rate announced by Bank of America, NT & SA as its "reference rate" in effect on the date such payment was required to be made. 8.6. Procedure for Termination. A termination of this Agreement pursuant to this Article VIII shall, in order to be effective, require in the case of Parent, Merger Sub or the Company, action by its Board of Directors. ARTICLE IX MISCELLANEOUS 9.1. Survival. This Article IX and the agreements of the Company, Parent and Merger Sub contained in Sections 6.8 (Benefits), 6.9 (Expenses) and 6.10 (Indemnification; Directors' and Officers' Insurance) shall survive the consummation of the Merger. This Article IX and the agreements of the Company, Parent and Merger Sub contained in Section 6.9 (Expenses) and Section 8.5 (Effect of Termination and Abandonment) shall survive the termination of this Agreement. All other representations, warranties, agreements and covenants in this Agreement and in any certificate or schedule delivered pursuant hereto shall not survive the consummation of the Merger or the termination of this Agreement. 9.2. Certain Definitions. For the purposes of this Agreement each of the following terms shall have the meanings set forth below: (a) "Affiliate" means a Person that, directly or indirectly, through one or more intermediaries controls, is controlled by or is under common control with the first-mentioned Person. (b) "Business Day" means any day other than a day on which banks in the State of California are authorized to close or the NASDAQ National Market is closed. (c) "Capital Stock" means common stock, preferred stock, partnership interests, limited liability company interests or other ownership interests entitling the holder thereof to vote with respect to matters involving the issuer thereof. (d) "Company Material Adverse Effect" means a material adverse effect on the financial condition, properties, business or results of operations of the Company and its Subsidiaries, taken as a whole it being understood that none of the following shall be deemed by itself or by themselves, either alone or in 28 34 combination, to constitute a Company Material Adverse Effect: (a) a change in the market price or trading volume of the Company Common Stock, (b) a failure by the Company to meet internal earnings or revenue projections or the revenue or earnings predictions of equity analysts as reflected in the First Call consensus estimate, or any other revenue or earnings predictions or expectations, for any period ending (or for which earnings are released) on or after the date of this Agreement and prior to the Effective Date, (c) conditions affecting the semi-conductor industry as a whole or the U.S. economy as a whole, (d) any disruption of customer or supplier relationships arising primarily out of or resulting primarily from actions contemplated by the parties in connection with, or which is primarily attributable to, the announcement of this Agreement and the transactions contemplated hereby, to the extent so attributable. (e) "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, encumbrance, hypothecation, title defect or adverse claim of any kind in respect of such asset. (f) "Parent Material Adverse Effect" means a material adverse effect on the ability of Parent or Merger Sub to conduct the Offer or consummate the Merger or any of the other material transactions contemplated by this Agreement (g) "Permitted Liens" means (i) Liens for Taxes or other governmental assessments, charges or claims the payment of which is not yet due; (ii) statutory liens of landlords and liens of carriers, warehousemen, mechanics, materialmen and other similar Persons and other liens imposed by applicable Law incurred in the ordinary course of business for sums not yet delinquent or immaterial in amount and being contested in good faith; (iii) liens specifically identified as such in the Balance Sheet or the notes thereto; (iv) liens constituting or securing executory obligations under any lease that constitutes an "operating lease" under GAAP; and (v) any other Lien arising in the ordinary course of business, the imposition of which would not constitute a Company Material Adverse Effect; provided, however, that, with respect to each of the foregoing clauses (i) through (iv), to the extent that any such lien arose prior to the Audit Date and relates to, or secures the payment of, a liability that is required to be accrued on the Balance Sheet under GAAP, such lien shall not be a Permitted lien unless accruals for such liability have been established therefor on the Balance Sheet in conformity with GAAP. Notwithstanding the foregoing, no lien arising under the Code or ERISA with respect to the operation, termination, restoration or funding of any Compensation and Benefit Plan sponsored by, maintained by or contributed to by the Company or any of its ERISA Affiliates or arising in connection with any excise tax or penalty tax with respect to such Compensation and Benefit Plan shall be a Permitted lien. (h) "Person" means an individual, corporation (including not-for-profit), partnership, limited liability company, association, trust, unincorporated organization, joint venture, estate, Governmental Entity or other legal entity. (i) "Subsidiary" or "Subsidiaries" of the Company, Parent, the Surviving Corporation or any other Person means any corporation, partnership, limited liability company, association, trust, unincorporated association or other legal entity of which the Company, Parent, the Surviving Corporation or any such other Person, as the case may be, either alone or through or together with any other Subsidiary, owns, directly or indirectly, 50% or more of the Capital Stock, the holders of which are generally entitled to vote for the election of the Board of Directors or other governing body of such corporation or other legal entity. 9.3. No Personal Liability. This Agreement shall not create or be deemed to create any personal liability or obligation on the part of any direct or indirect stockholder of the Company, Merger Sub or Parent, or any of their respective officers, directors, employees, agents or representatives. 9.4. Modification or Amendment. Subject to the provisions of applicable Law, at any time prior to the Effective Time, the parties hereto may modify or amend this Agreement, by written agreement executed and delivered by duly authorized officers of the respective parties. 9.5. Waiver of Conditions. The conditions to each of the parties' obligations to consummate the Merger are for the sole benefit of such party and may be waived by such party in whole or in part to the extent permitted by applicable Law. The failure of any party hereto to exercise any right, power or remedy provided 29 35 under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon strict compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its rights to exercise any such or other right, power or remedy or to demand such compliance. 9.6. Counterparts. This Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. 9.7. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The parties hereby irrevocably submit to the jurisdiction of the courts of the State of Delaware and the Federal courts of the United States of America located in the State of Delaware solely in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement, and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a Delaware State or Federal court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 9.8 or in such other manner as may be permitted by applicable Law, shall be valid and sufficient service thereof. (b) The parties agree that irreparable damage would occur and that the parties would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any Federal court located in the State of Delaware or in Delaware state court, this being in addition to any other remedy to which they are entitled at law or in equity. (c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE INITIAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.7. 30 36 9.8. Notices. Any notice, request, instruction or other document to be given hereunder by any party to the others shall be deemed given if in writing and delivered personally or sent by registered or certified mail (return receipt requested) or overnight courier (providing proof of delivery), postage prepaid, or by facsimile (which is confirmed): If to Parent or Merger Sub: Intel Corporation. 2200 Mission College Blvd. Santa Clara, CA 95052-8119 Attention: General Counsel Fax: (408) 765-7636 with a copy to: Richard A. Strong, Esq. Gibson, Dunn & Crutcher LLP 333 So. Grand Avenue Los Angeles, CA 90071 Fax: (213) 229-6205 If to the Company: Chips and Technologies, Inc. 2950 Zanker Road San Jose, CA 95134 Attention: Jeffery Anne Tatum Fax: (408) 894-2088 with a copy to: Bradley J. Rock, Esq. Gray Cary Ware & Freidenrich 400 Hamilton Avenue Palo Alto, CA 94301 Fax: (415) 327-3699 or to such other Persons or addresses as may be designated in writing by the party to receive such notice as provided above. 9.9. Entire Agreement. This Agreement (including any schedules, exhibits or annexes hereto) and the Confidentiality Agreement hereto constitute the entire agreement, and supersede all other prior agreements, understandings, representations and warranties both written and oral, among the parties, with respect to the subject matter hereof. 9.10. No Third Party Beneficiaries. Except as provided in Section 6.10 (Indemnification; Directors' and Officers' Insurance), this Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. 9.11. Obligations of the Company and Surviving Corporation. Whenever this Agreement requires a Subsidiary of the Company to take any action, such requirement shall be deemed to include and undertaking on the part of the Company to cause such Subsidiary to take such action and, after the Effective Time, on the part of the Surviving Corporation to cause such Subsidiary to take such action. 9.12. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any of the other provisions hereof. If any provision of this Agreement, or the application thereof to any Person or any circumstance, is illegal, invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to 31 37 other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. 9.13. Interpretation. The table of contents and Article, Section and subsection headings herein are for convenience of reference only, do not constitute a part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. Where a reference in this Agreement is made to a Section, Schedule, Annex or Exhibit, such reference shall be to a Section of, or Schedule, Annex or Exhibit to, this Agreement, unless otherwise indicated. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. References to a Person are also to its permitted successors and assigns and, in the case of an individual, to his or her heirs and estate, as applicable. 9.14. Assignment. This Agreement shall not be assignable by operation of Law or otherwise and any attempted assignment of this Agreement in violation of this sentence shall be void; provided, however, that Parent may designate, by written notice to the Company, another wholly-owned, direct subsidiary to be a Constituent Corporation in lieu of Merger Sub, in the event of which, all references herein to Merger Sub shall be deemed references to such other Subsidiary except that all representations and warranties made herein with respect to Merger Sub as of the date of this Agreement shall be deemed representations and warranties made with respect to such other Subsidiary as of the date of such designation. 32 38 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by duly authorized officers of the parties hereto as of the date hereof. CHIPS AND TECHNOLOGIES, INC. By: ------------------------ Name: Title: INTEL CORPORATION By: ------------------------ Name: Title: INTEL ENTERPRISE CORPORATION By: ------------------------ Name: Title: 33 39 ANNEX A CONDITIONS OF THE OFFER Notwithstanding any other provision of the Offer or this Agreement, and subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) relating to Parent's obligation to pay for or return tendered shares after termination of the Offer, Parent shall not be required to accept for payment or pay for any Shares tendered pursuant to the Offer, shall delay the acceptance for payment of any Shares and if required by Section 1.1(b) of this Agreement, shall extend the Offer by one or more extensions until October 31, 1997, and may terminate the Offer at any time after October 31, 1997 if (i) less than a majority of the outstanding Shares on a fully-diluted basis (including for purposes of such calculation all Shares issuable upon exercise of all vested and unvested options) has been tendered pursuant to the Offer by the expiration of the Offer and not withdrawn; (ii) any applicable waiting period under the HSR Act has not expired or terminated; (iii) all necessary Government Consents shall not have been obtained on terms and conditions reasonably satisfactory to Parent; or (iv) at any time after the date of this Agreement, and before acceptance for payment of any Shares, any of the following events shall occur and be continuing on or after October 31, 1997: (a) there shall have been any action taken, or any statute, rule, regulation, judgment, order or injunction promulgated, entered, enforced, enacted, issued or deemed applicable to the Offer or the Merger by any domestic or foreign court or other Governmental Entity which directly or indirectly (i) prohibits, or imposes any material limitations on, Parent's ownership or operation (or that of any of its Subsidiaries or other Affiliates) of all or a material portion of their or the Company's businesses or assets, or compels Parent or any of its Subsidiaries or other Affiliates to dispose of or hold separate any material portion of the business or assets of the Company or Parent and its respective Subsidiaries, in each case taken as a whole, (ii) prohibits, or makes illegal, the acceptance for payment, payment for or purchase of Shares or the consummation of the Offer, the Merger or the other transactions contemplated by this Agreement, (iii) results in the delay in or restricts the ability of Parent, or renders Parent unable, to accept for payment, pay for or purchase some or all of the Shares, (iv) imposes material limitations on the ability of Parent effectively to exercise full rights of ownership of the Shares, including the right to vote the Shares purchased by it on all matters properly presented to the Company's stockholders, or (v) otherwise has a Company Material Adverse Effect; (b) (i) the representations and warranties of the Company set forth in this Agreement shall not be true and correct in any material respect as of the date of this Agreement and as of consummation of the Offer as though made on or as of such date (except for representations and warranties made as of a specified date) but only if the respects in which the representations and warranties made by the Company (without giving effect to any "materiality" limitations or references to "material adverse effect" set forth therein) are inaccurate would in the aggregate have a Company Material Adverse Effect, (ii) the Company shall have failed to comply with its covenants and agreements contained in this Agreement in all material respects, or (iii) there shall have occurred any events or changes which have had or which are likely to have a Company Material Adverse Effect; (c) it shall have been publicly disclosed or Parent shall have otherwise learned that (i) any Person or "group" (as defined in Section 13(d)(3) of the Exchange Act) shall have acquired or entered into a definitive agreement or agreement in principle to acquire beneficial ownership of more than 20% of the Shares or any other class of Capital Stock of the Company, through the acquisition of stock, the formation of a group or otherwise, or shall have been granted any option, right or warrant, conditional or otherwise, to acquire beneficial ownership of more than 20% of the Shares and (ii) such Person or group shall not have tendered such Shares pursuant to the Offer; (d) the Board of Directors of the Company shall have withdrawn, or modified or changed in a manner adverse to Parent (including by amendment of the Schedule 14D-9), its recommendation of the Offer, this Agreement or the Merger, or recommended another proposal or offer, or the Board of Directors of the Company, shall have resolved to do any of the foregoing; or 34 40 (e) this Agreement shall have terminated in accordance with its terms; which in the good faith judgment of Parent, in any such case, and regardless of the circumstances (including any action or inaction by Parent) giving rise to such condition makes it inadvisable to proceed with the Offer or the acceptance for payment of or payment for the Shares. The foregoing conditions, other than condition (i) above are for the sole benefit of Parent and may be waived by Parent, in whole or in part at any time and from time to time, in the sole discretion of Parent. The failure by Parent at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. 35