Exhibit 2.1
AGREEMENT
OF
REORGANIZATION AND MERGER
among
Electro Scientific Industries, Inc.
an Oregon corporation,
Chip Star Inc.
a California corporation,
CI Merger Corp.,
an Oregon corporation,
and
The Shareholders of
Chip Star Inc.
June 26, 1997
TABLE OF CONTENTS
Page
----
ARTICLE I
THE MERGER................................................................2
1.1 The Merger.........................................................2
1.2 Effect of Merger...................................................2
1.2.1 The Surviving Corporation................................2
1.2.2 Directors and Officers...................................3
1.3 Merger Consideration...............................................3
1.3.1 Chip Star Stock..........................................4
1.3.2 Merger Corp. Stock.......................................4
1.3.3 Options..................................................4
1.4 Surrender and Cancellation of Certificates.........................5
1.4.1 Surrender of Certificates................................5
1.4.2 Option Agreements........................................7
1.4.3 No Fractional Shares.....................................7
1.4.4 Escheat..................................................7
1.4.5 Withholding Rights.......................................7
1.5 Closing............................................................7
1.6 Subsequent Actions.................................................8
1.7 Unregistered Shares................................................8
1.8 Stock Certificate Legends..........................................9
ARTICLE II
FURTHER AGREEMENTS........................................................9
2.1 Employee Agreements................................................9
2.2 Escrow Agreement...................................................9
2.3 Noncompetition and Nonsolicitation................................10
ARTICLE III
REPRESENTATIONS AND WARRANTIES...........................................10
3.1 Representations and Warranties of Chip Star and the Shareholders..10
3.1.1 Organization and Status...................................10
3.1.2 Capitalization............................................10
3.1.3 Authority.................................................11
3.1.4 Governmental Filings......................................12
3.1.5 Investments; Subsidiaries.................................12
3.1.6 No Adverse Consequences...................................12
i
3.1.7 Financial Statements......................................13
3.1.8 Undisclosed Liabilities; Returns..........................13
3.1.9 Absence of Certain Changes or Events......................14
3.1.10 Prohibited Payments.......................................16
3.1.11 Litigation................................................16
3.1.12 Compliance with Laws; Judgments...........................16
3.1.13 Employment Matters........................................17
3.1.13.1 Labor Matters..................................17
3.1.13.2 Employee Benefits..............................18
3.1.13.3 Employment Agreements..........................19
3.1.13.4 Compensation...................................20
3.1.13.5 Confidentiality and Inventions Agreements......20
3.1.14 Title to and Condition of Real Property...................21
3.1.15 Title to and Condition of Fixed Assets....................21
3.1.16 Intellectual Property.....................................22
3.1.17 Certain Contracts and Arrangements........................22
3.1.18 Status of Contracts.......................................23
3.1.19 Insurance.................................................25
3.1.20 Permits and Licenses......................................25
3.1.21 Taxes.....................................................26
3.1.21.1 Returns........................................26
3.1.21.2 Taxes Paid or Reserved.........................27
3.1.21.3 Definition.....................................27
3.1.22 Related Party Interests...................................27
3.1.23 No Powers of Attorney or Restrictions.....................28
3.1.24 Environmental Conditions..................................29
3.1.24.1 Compliance.....................................29
3.1.24.2 Hazardous Substances...........................29
3.1.24.3 Filings and Notices............................30
3.1.24.4 Definitions....................................30
3.1.25 Consents and Approvals....................................30
3.1.26 Records...................................................31
3.1.27 Receivables...............................................31
3.1.28 Bank Accounts.............................................31
3.1.29 Product Warranties........................................31
3.1.30 Inventories...............................................32
3.1.31 Product Liability.........................................33
3.1.32 Backlog and Customer Information..........................33
3.1.33 Accounting Controls.......................................33
3.1.34 Brokers and Finders.......................................33
3.1.35 Reliance..................................................33
3.1.36 Customer Programs.........................................34
3.1.37 Liabilities Incurred in Ordinary Course...................34
3.1.38 Accuracy of Representations and Warranties................34
ii
3.1.39 Continuity of Business Enterprise.........................34
3.1.40 Fair Market Value of Chip Star Assets.....................35
3.1.41 No Chapter 11 Proceedings.................................35
3.1.42 Not an Investment Company.................................35
3.1.43 Not a Real Property Holding Company.......................35
3.1.44 Section 368(a)(2)(E) Asset Requirement....................35
3.1.45 Accredited Investor Status................................35
3.1.46 Acquisition for Investment................................35
3.1.47 Opportunity to Ask Questions..............................36
3.1.48 Xxxx Xxxxx Xxxxxx Act.....................................36
3.2 Representations and Warranties of ESI.............................36
3.2.1 Organization and Status...................................36
3.2.2 Capitalization............................................37
3.2.3 Corporate Authority.......................................37
3.2.4 Governmental Filings......................................37
3.2.5 SEC Reports and Financial Statements......................38
3.2.6 No Adverse Consequences...................................38
3.2.7 Brokers and Finders.......................................39
3.3 Representations and Warranties Relating to Merger Corp............39
3.3.1 Organization and Status...................................39
3.3.2 Capitalization............................................39
3.3.3 Corporate Authority.......................................39
3.3.4 Governmental Filings......................................40
ARTICLE IV
COVENANTS................................................................40
4.1 Mutual Covenants..................................................40
4.1.1 Consents and Approvals....................................40
4.1.2 Best Efforts..............................................40
4.1.3 Publicity.................................................41
4.1.4 Tax Matters...............................................41
4.2 Covenants of Chip Star............................................41
4.2.1 Conduct of Business.......................................41
4.2.2 Investigations............................................43
4.3 Covenants of ESI..................................................44
4.3.1 Conduct of Business.......................................44
4.3.2 Issuance of Certificates..................................44
4.3.3 Registration of Option Shares.............................44
4.3.4 Registration of ESI Common Stock..........................45
4.3.4.1 Registration...................................45
4.3.4.2 Indemnity......................................45
4.4 Covenants of Merger Corp........................................46
iii
ARTICLE V
CONDITIONS...............................................................46
5.1 Conditions to the Obligations of All Parties......................46
5.1.1 Regulatory Approvals......................................46
5.1.2 Litigation................................................46
5.1.3 Tax and Pooling Opinions..................................47
5.2 Conditions to the Obligations of Chip Star and the Shareholders...47
5.2.1 Representations, Warranties and Covenants.................47
5.2.2 No Material Adverse Change................................48
5.3 Conditions to the Obligations of ESI and Merger Corp..............48
5.3.1 Representations, Warranties and Covenants.................48
5.3.2 Opinion of Counsel........................................49
5.3.3 Consents and Approvals....................................49
5.3.4 No Material Adverse Change................................49
5.3.5 Continuity of Interests Letter............................49
5.3.6 Related Party Agreements..................................49
5.3.7 Shareholder Consent.......................................50
5.3.8 Employee Agreements.......................................50
5.3.9 Escrow Agreement..........................................50
5.3.10 Noncompetition Agreements.................................50
5.3.11 Updated Financial and Other Information...................50
5.3.12 Environmental Report......................................50
ARTICLE VI
SURVIVAL AND INDEMNIFICATION.............................................51
6.1 Survival..........................................................51
6.2 Scope of Indemnification..........................................51
6.3 Escrow............................................................51
6.4 Limitations.......................................................52
6.4.1 Minor Claims..............................................52
6.4.2 Escrowed Property.........................................52
6.5 Claim Procedure for Indemnification...............................52
6.5.1 Notice....................................................52
6.5.2 Response to Third Party Claim.............................53
6.5.3 Diligent Conduct..........................................53
6.6 Adjustment of the Basket..........................................53
6.6.1 Physical Count of Assets..................................53
6.6.2 Receivables...............................................54
ARTICLE VII
TERMINATION..............................................................54
iv
7.1 Termination by Mutual Consent.....................................54
7.2 Termination by Either Chip Star or ESI............................54
7.3 Effect of Termination and Abandonment.............................55
ARTICLE VIII
MISCELLANEOUS AND GENERAL................................................55
8.1 Payment of Expenses...............................................55
8.2 Entire Agreement..................................................55
8.3 Assignment........................................................55
8.4 Binding Effect; No Third Party Benefit............................55
8.5 Amendment and Modification........................................56
8.6 Waiver of Conditions..............................................56
8.7 Counterparts......................................................56
8.8 Captions..........................................................56
8.9 Subsidiary........................................................56
8.10 Notices...........................................................57
8.11 Choice of Law.....................................................58
8.12 Separability......................................................58
v
EXHIBITS
A - Plan of Merger
B - Form of ESI Employee Agreement
C - Form of Escrow Agreement
D - Form of Shareholder Noncompetition and Nonsolicitation Agreements
E - Form of Employee Confidentiality and Invention Agreement
F-1 - Opinion Certificate
F-2 - Opinion Certificate
G - Form of Counsel Opinion for Chip Star
H - Form of Continuity of Interests Letter
vi
SCHEDULES
Schedule Page
2.1 Employee Agreements 9
3.1 Representations and Warranties of Chip Star and
the Shareholders 10
3.1.2 Capitalization 11
3.1.13.2 Employee Benefits 18
3.1.13.3 Employment Agreements 19
3.1.13.4 Compensation 20
3.1.14 Title to and Condition of Real Property 21
3.1.15 Title to and Condition of Fixed Assets 21
3.1.16 Intellectual Property 22
3.1.17 Certain Contracts and Arrangements 22
3.1.19 Insurance 25
3.1.20 Permits and Licenses 25
3.1.21 Taxes 26
3.1.22 Related Party Interests 28
3.1.27 Receivables 54
3.1.28 Bank Accounts 31
3.1.29 Product Warranties 31
3.1.30 Inventories 32
3.1.32 Backlog and Customer Information 33
3.1.36 Customer Programs 34
3.2 Representations and Warranties of ESI 36
5.3.5 Continuity of Interests Letter 49
vii
INDEX OF TERMS
Term Section Page
---- ------- ----
Agreement Preamble 1
Articles of Incorporation Section 3.1.1 10
Bylaws Section 3.1.1 10
CCC Section 1.2 2
Chip Star Preamble 1
Chip Star Common Stock Section 1.1 2
Chip Star Disclosure Schedule Section 3.1 10
Chip Star Stock Agreement Section 3.1.2 11
Claim Notice Section 6.5.1 53
Closing Section 1.6 7
Closing Date Section 1.6 7
Code Recital B 1
Condition Completion Date Section 1.5 7
Contracts Section 3.1.18 24
Conversion Ratio Section 1.3 3
Current Balance Sheet Section 3.1.7 13
Damages Section 6.2 51
Effective Time Section 1.1 2
Environmental Law Section 3.1.24.4 30
ERISA Section 3.1.13.2 00
XXXXX Xxxxx Xxxxxxx 3.1.13.2 18
Escrow Agreement Section 2.2 9
Escrowed Property Section 6.3 51
ESI Preamble 1
ESI Common Stock Section 1.1 2
ESI Disclosure Schedule Section 3.2 36
ESI Employee Agreement Section 2.1 9
ESI SEC Reports Section 3.2.5 38
Financial Statements Section 3.1.7 13
Governmental Entity Section 3.1.4 12
Hazardous Substance Section 3.1.24.4 30
Indemnified Parties Section 6.2 51
Intellectual Property Section 3.1.16 22
Leased Real Property Section 3.1.14 21
Merger Section 1.1 2
Merger Consideration Section 1.3 3
Merger Corp. Preamble 1
Noncompetition Agreements Section 2.3 10
OBCA Section 1.2 2
viii
INDEX OF TERMS (continued)
Term Section Page
---- ------- ----
Options Section 1.3.3 5
Permits Section 3.1.20 25
Policies Section 3.1.19 25
Previously Leased Real Property Section 3.1.14 21
Returns Section 3.1.21.1 26
SEC Section 3.2.5 38
Shareholders Preamble 1
Subsidiary Section 8.9 56
Tangible Personal Property Section 3.1.15 21
Taxes Section 3.1.21.3 27
Third Party Claim Section 6.5.2 53
ix
AGREEMENT
OF
REORGANIZATION AND MERGER
THIS AGREEMENT OF REORGANIZATION AND MERGER (this "Agreement") is entered
into as of June 26, 1997 among Electro Scientific Industries, Inc., an Oregon
corporation ("ESI"), Chip Star Inc., a California corporation ("Chip Star"), CI
Merger Corp., an Oregon corporation ("Merger Corp.") and Denver Xxxxxx and
Xxxxxx Xxxxxxxx (together, the "Shareholders").
RECITALS
A. The Boards of Directors of ESI and Chip Star have determined that it is
in the best interests of their respective shareholders for ESI to acquire Chip
Star upon the terms and subject to the conditions set forth herein.
B. It is intended that the Merger (as defined below) qualify as a
reorganization under the provisions of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code").
AGREEMENT
In consideration of the mutual representations, warranties, covenants,
agreements and conditions contained herein, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Pursuant to the laws of the States of California and
Oregon, and subject to and in accordance with the terms and conditions of this
Agreement and the Plan of Merger attached hereto as Exhibit A, Merger Corp.
shall be merged with and into Chip Star, and the outstanding shares of Chip Star
Common Stock, no par value (the "Chip Star Common Stock") shall be converted
into shares of ESI Common Stock, without par value (the "ESI Common Stock"), in
a transaction intended to qualify as a tax-free reorganization under Section
368(a)(1)(A) and (a)(2)(E) of the Code. Chip Star and Merger Corp. shall execute
a Certificate of Merger and Articles of Merger, to be filed with the Secretary
of State of California and the Secretary of State of Oregon, respectively, on
the Closing Date, as defined in Section 1.5, or as soon thereafter as
practicable. The merger of Merger Corp. with and into Chip Star (the "Merger")
shall take effect (the "Effective Time") upon the later of the time when the
Certificate of Merger is duly filed with the Secretary of State of the State of
California, and the time when the Articles of Merger are duly filed with the
Corporation Division of the Secretary of State of the State of Oregon, or at
such other time as the parties may agree upon in writing pursuant to applicable
law.
1.2 Effect of Merger.
1.2.1 The Surviving Corporation. At the Effective Time, Merger Corp.
shall be merged with and into Chip Star in the manner and with the effect
provided by the California Corporations Code (the "CCC") and the Oregon Business
Corporation Act (the "OBCA"), the separate corporate existence of Merger Corp.
shall cease and Chip Star shall be the surviving
2
corporation (the "Surviving Corporation"). The outstanding shares of Chip Star
Common Stock shall be converted into shares of ESI Common Stock, and the
outstanding shares of capital stock of Merger Corp. shall be converted into
shares of capital stock of the Surviving Corporation, all on the basis, terms
and conditions described in Section 1.3.
1.2.2 Directors and Officers. At and as of the Effective Time, the
directors and officers of the Surviving Corporation shall be as follows:
Directors
Xxxxxx X. XxxXxxxxxx
Xxxxx X. Xxxxxx
Xxxxx X. Xxxx
Officers
Xxxxxx X. XxxXxxxxxx President and Chief Executive Officer
Xxxxx X. Xxxxxx Chief Financial Officer
Xxxxx X. Xxxx Secretary
1.3 Merger Consideration. Each share of Chip Star Common Stock outstanding
immediately before the Effective Time will be converted into the right to
receive a fraction of a share of ESI Common Stock (such ESI Common Stock, the
"Merger Consideration") that equals the ratio (the "Conversion Ratio," which
will be rounded to the nearest .0001 of a share) determined by dividing the
Conversion Ratio Numerator by the Conversion Ratio Denominator where:
(a) the "Conversion Ratio Numerator" will be 700,000 shares of ESI
Common Stock; and
(b) the "Conversion Ratio Denominator" will be equal to the number of
shares of Chip Star Common Stock outstanding immediately before the Effective
Time plus the number
3
of shares of Chip Star Common Stock that are issuable as of the Closing Date
upon the exercise of options and rights then outstanding under the Chip Star
Inc. Incentive Stock Option Plan dated April 23, 1993.
1.3.1 Chip Star Stock. Each share of Chip Star Common Stock that is
outstanding immediately before the Effective Time will, by virtue of the Merger
and without any action on the part of the holder thereof, cease to exist and be
converted into the right to receive the Merger Consideration.
1.3.2 Merger Corp. Stock. Each share of Common Stock of Merger Corp.
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
exist and be converted into and become one share of common stock of the
Surviving Corporation. After the Effective Time, ESI, the sole holder of shares
of Merger Corp. common stock outstanding immediately prior to the Effective
Time, shall, upon surrender for cancellation of a certificate representing such
shares to the Surviving Corporation, be entitled to receive in exchange
therefore a certificate representing the number of shares of common stock of the
Surviving Corporation into which such shares of Merger Corp. common stock have
been converted pursuant to this Section 1.3.2. Until so surrendered, the
certificates which prior to the Merger represented shares of Merger Corp. common
stock shall be deemed, for all corporate purposes, including voting entitlement,
to evidence ownership of the shares of the Surviving Corporation common stock
into which such shares of Merger Corp. common stock shall have been converted.
1.3.3 Options. Except as otherwise provided in this Section 1.3.3, the
terms and provisions of any stock options held by Chip Star option holders, all
of which are identified
4
in Schedule 3.1.2 (the "Options"), shall continue in full force and effect
following the Merger. By virtue of the Merger and at the Effective Time, and
without any further action on the part of any holder thereof, each Option shall
be assumed by ESI and shall be converted into an option to purchase the whole
number of shares of ESI Common Stock which the holder of the Option would have
been entitled to receive had such holder exercised the Option in full
immediately prior to the Effective Time (whether or not such Option shall then
have been exercisable) (rounded to the nearest whole number). The exercise price
per share shall be adjusted by dividing the stated exercise price by the
Conversion Ratio. The term, exercisability, vesting schedule, status as an
"Incentive Stock Option" under Section 422 of the Code, if applicable, and all
other terms and conditions of the Options will to the extent permitted by law
and otherwise reasonably practicable be unchanged; each Option which is an
Incentive Stock Option shall be adjusted in accordance with the requirements of
Section 424(a) of the Code so as not to constitute a modification, renewal or
extension of the Option within the meaning of Section 424(h) of the Code.
Continuous employment with Chip Star shall be credited to the optionee for
purposes of determining the vesting of the number of shares of ESI Common Stock
subject to exercise under the optionee's converted Option after the Effective
Time.
1.4 Surrender and Cancellation of Certificates.
1.4.1 Surrender of Certificates. After the Effective Time, each holder
of shares of Chip Star Common Stock outstanding immediately prior to the
Effective Time, upon surrender to ESI or its agent designated for such purpose
of a certificate or certificates representing such shares shall be entitled to
receive (x) a certificate representing the number of shares of ESI Common Stock
into which such shares of Chip Star Common Stock shall have
5
been converted pursuant to the provisions of Section 1.3 less the number of such
shares determined to be Escrowed Property (as defined in Section 6.3) and (y)
subject to Section 6.3 and the provisions of the Escrow Agreement, a certificate
representing the shares of ESI Common Stock determined to be Escrowed Property.
If any certificate for shares of ESI Common Stock is to be issued in a name
other than that in which the certificate for Chip Star Common Stock surrendered
in exchange therefor is registered, it shall be a condition of the issuance
thereof that the certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer, and that the person requesting such
exchange pay to ESI or its agent designated for such purpose any transfer or
other taxes required, or establish to the satisfaction of ESI or its agent that
such tax has been paid or is not payable. If any holder of Chip Star Common
Stock canceled and retired in accordance with this Agreement is unable to
deliver a certificate or certificates representing such shares of the holder,
ESI, in the absence of actual notice that any shares theretofore represented by
any such certificate have been acquired by a bona fide purchaser, shall deliver
to such holder the number of shares of Common Stock to which such holder is
entitled in accordance with the provisions of this Agreement upon the
presentation of the following: (i) evidence satisfactory to ESI (a) that such
person is the owner of the shares theretofore represented by each certificate
claimed by him to be lost, wrongfully taken or destroyed and (b) that he is the
person who would be entitled to present each such certificate for conversion
pursuant to this Agreement; and (ii) such security or indemnity as may be
reasonably requested by ESI to indemnify and hold ESI and the transfer agent
harmless.
6
1.4.2 Option Agreements. After the Effective Time, each holder of an
Option outstanding immediately prior to the Effective Time shall be deemed to
hold an option exercisable for ESI Common Stock in accordance with the
provisions of Section 1.3.3.
1.4.3 No Fractional Shares. No certificates or scrip evidencing
fractional shares of ESI Common Stock shall be issued in the Merger, and such
fractional share interests will not entitle the owner thereof to any rights as a
shareholder of ESI.
1.4.4 Escheat. Neither ESI nor Merger Corp. shall be liable to any
holder of shares of Chip Star Common Stock for any such shares of ESI Common
Stock (or dividends or distributions with respect thereto) or cash delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
1.4.5 Withholding Rights. ESI shall be entitled to deduct and withhold
from the Merger Consideration such amounts as ESI is required to deduct and
withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by ESI, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid by the holder of the shares of Chip Star Common
Stock in respect of which such deduction and withholding was made by ESI.
1.5 Closing. The closing of the Merger (the "Closing") shall take place at
the offices of Dostart Xxxxx Xxxxxxxx & Xxxxxxx, LLP, 0000 Xx Xxxxx Xxxxxxx
Xxxxx, Xxx Xxxxx, Xxxxxxxxxx at 9:00 a.m. local time on June 26, 1997, or on the
Condition Completion Date (as hereinafter defined), or on such other date and/or
at such other place and time as Chip Star, ESI and Merger Corp. may agree (the
"Closing Date"). The "Condition Completion Date" shall be the
7
day on which the last of the conditions set forth in Article V hereof shall have
been fulfilled or waived (other than those conditions which, by their terms, are
to occur at Closing).
1.6 Subsequent Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to, or under any of the rights,
properties or assets of Chip Star or Merger Corp. acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger or
otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation are authorized to execute and deliver, in the name and on
behalf of Chip Star or Merger Corp., or otherwise, all such deeds, bills of
sale, assignments and assurances, and to take and do, in the name and on behalf
of Chip Star or Merger Corp., or otherwise, all such other actions and things as
may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out the purposes of this Agreement.
1.7 Unregistered Shares. The Shareholders have been informed by ESI that
the distribution of the ESI Common Stock by any person has not been registered
under the Securities Act of 1933 (the "Act"), and that the ESI Common Stock must
be held for the time required by Rule 144, unless (i) the distribution for sale
of the ESI Common Stock has been registered under the Act (including
registration under Section 4.3.4), (ii) a sale of the ESI Common Stock is made
in conformity with the limitations of Rule 144, or (iii) in the opinion of
counsel, which
8
opinion is acceptable to ESI, some other exemption from registration is
available with respect to any such sale, transfer or other disposition of the
ESI Common Stock.
1.8 Stock Certificate Legends. Each Shareholder understands that stock
transfer instructions will be given to ESI's transfer agent with respect to the
ESI Common Stock and that there will be placed on the certificates for such
shares, or any substitution therefor, the following legends:
"The securities represented by this certificate have been
issued without registration under the Securities Act of 1933
(the 'Act') or any state securities laws. They may not be
sold, assigned, pledged or otherwise transferred for value
unless they are registered under the Act and any applicable
state securities laws or the Corporation receives an opinion
of counsel satisfactory to it, or otherwise satisfies
itself, that registration is not required."
"The securities represented by this certificate were issued
pursuant to a business combination which is being accounted
for as a pooling of interests and may not be sold, nor may
the owner thereof reduce his risk relative thereto in any
other way, until such time as the Corporation has published
the financial results covering at least 30 days of combined
operations after [here will be inserted the effective date
of the Merger], the Effective Time of the merger through
which the business combination was effected."
ARTICLE II
FURTHER AGREEMENTS
2.1 Employee Agreements. Chip Star shall cause each of the employees listed
on Schedule 2.1 to sign a confidentiality and inventions assignment agreement
(the "ESI Employee Agreement") substantially in the form of Exhibit B, and will
use its best efforts to cause each other employee to sign an ESI Employee
Agreement.
2.2 Escrow Agreement. Prior to or at the Closing, ESI and the Shareholders
shall execute and deliver an Escrow Agreement ("Escrow Agreement") substantially
in the form
9
attached as Exhibit C, and shall cause the Escrow Agent, as such term is defined
in the Escrow Agreement, to execute the Escrow Agreement.
2.3 Noncompetition and Nonsolicitation. Prior to or at the Closing each
of the Shareholders shall execute and deliver Noncompetition and Nonsolicitation
Agreements ("Noncompetition Agreements") substantially in the form attached as
Exhibit D.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Chip Star and the Shareholders. Chip
Star and the Shareholders jointly and severally hereby represent and warrant to
ESI and Merger Corp. that, except as specifically set forth in Schedule 3.1 (the
"Chip Star Disclosure Schedule") in a numbered paragraph that corresponds to the
section for which disclosure is made:
3.1.1 Organization and Status. Chip Star is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and is duly qualified and in good standing as a
foreign corporation in each jurisdiction where its properties (whether owned,
leased or operated) or its business conducted require such qualification, except
where failure to be so qualified would not have a material adverse affect on
Chip Star. Chip Star has all requisite corporate power and authority to own,
operate and lease its property and to carry on its businesses as they are now
being conducted. Chip Star has delivered to ESI complete and accurate copies of
its Articles of Incorporation ("Articles of Incorporation") and the Bylaws of
Chip Star ("Bylaws"), each as amended to the date hereof.
3.1.2 Capitalization. Chip Star has authorized capital stock
consisting of 1,500,000 shares of Chip Star Common Stock, of which 900,000
shares were outstanding on
10
June 16, 1997 and options to purchase 164,482 shares were outstanding on June
16, 1997 under grants made pursuant to stock option agreements identified in
Schedule 3.1.2 (collectively, the "Chip Star Option Agreements"). All of the
outstanding shares of capital stock of Chip Star have been duly authorized and
are validly issued, fully paid and nonassessable, and no shares were issued, and
no options were granted, in violation of preemptive or similar rights of any
shareholder or in violation of any applicable securities laws. Except as set
forth above, there are no shares of capital stock of Chip Star authorized,
issued or outstanding, and, except for options granted pursuant to the Chip Star
Option Agreements, there are no preemptive rights or any outstanding
subscriptions, options, warrants, rights, convertible securities or other
agreements or commitments of Chip Star of any character relating to the issued
or unissued capital stock or other securities of Chip Star. There are no
outstanding obligations of Chip Star to repurchase, redeem or otherwise acquire
any of its outstanding shares of capital stock. The list of shareholders and
option holders attached hereto as Schedule 3.1.2 sets forth a complete and
accurate list of the shareholders and option holders of Chip Star as of the date
hereof, indicating the number of shares of Chip Star Common Stock held by each
shareholder, or subject to options in the case of option holders, and the
percentage of the shares of all the Chip Star Common Stock outstanding
represented by the shares so held in the case of shareholders.
3.1.3 Authority. Chip Star has the corporate power and authority and
has taken all corporate action necessary to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. This Agreement has been
duly and validly authorized by the Board of Directors of Chip Star, validly
executed and delivered by Chip Star and the Shareholders and, as of the Closing
Date, will have been duly and validly approved by the
11
shareholders of Chip Star. This Agreement constitutes the valid and binding
obligation of Chip Star and the Shareholders, enforceable in accordance with its
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought.
3.1.4 Governmental Filings. Other than the filing of the Certificate
of Merger and Articles of Merger contemplated by Article I, no notices, reports
or other filings are required to be made by Chip Star or the Shareholders with,
nor are any consents, registrations, approvals, permits or authorizations
required to be obtained by Chip Star or the Shareholders from, any domestic or
foreign governmental or regulatory authority, agency, court, commission or other
entity ("Governmental Entity") in connection with the execution and delivery of
this Agreement by Chip Star and the Shareholders and the consummation by Chip
Star and the Shareholders of the transactions contemplated hereby.
3.1.5 Investments; Subsidiaries. No direct or indirect investments in
any corporation, partnership, association, joint venture or other entity by Chip
Star exist and Chip Star has no, and has never had any, subsidiaries.
3.1.6 No Adverse Consequences. Neither the execution and delivery of
this Agreement by Chip Star or the Shareholders nor the consummation of the
transactions contemplated by this Agreement will (a) result in the creation or
imposition of any lien, charge, encumbrance or restriction on any of the assets
or properties of Chip Star, (b) violate any provision of the Articles of
Incorporation or Bylaws of Chip Star, (c) violate any statute,
12
judgment, order, injunction, decree, rule, regulation or ruling of any
governmental authority applicable to Chip Star or the Shareholders, or (d)
either alone or with the giving of notice or the passage of time or both,
conflict with, constitute grounds for termination of, accelerate the performance
required by, accelerate the maturity of any indebtedness or obligation under,
result in the breach of the terms, conditions or provisions of or constitute a
default under any mortgage, deed of trust, indenture, note, bond, lease,
license, permit or other agreement, instrument or obligation to which Chip Star
or either of the Shareholders is a party or by which it or they are bound.
3.1.7 Financial Statements. Chip Star has furnished to ESI a balance
sheet of Chip Star as of April 30, 1997 (the "Current Balance Sheet") and the
related statements of income for the ten months then ended, and the financial
statements delivered at or before the Closing pursuant to Section 5.3.11 (all
such balance sheets and statements collectively, the "Financial Statements").
The Financial Statements are complete and accurate in all material respects and
present fairly the financial position and operating results of Chip Star as of
the dates and for the periods indicated therein, and have been prepared in
accordance with generally accepted accounting principles.
3.1.8 Undisclosed Liabilities; Returns. Except for current liabilities
which were incurred after April 30, 1997 in the ordinary course of business and
of a type and in an amount both consistent with past practices and not material
(either individually or in the aggregate), Chip Star has no liability or
obligation (whether absolute, accrued, contingent or otherwise, and whether due
or to become due) which is not accrued, reserved against, or identified in the
Current Balance Sheet. There are no rights of return or other agreements
13
between Chip Star and any customer which would cause any sales reflected in the
Financial Statements to fail to qualify as sales in accordance with generally
accepted accounting principles and Chip Star's revenue recognition policy as
reflected in the Financial Statements.
3.1.9 Absence of Certain Changes or Events. Since April 30, 1997,
there has not been:
(a) Any material adverse change in the business, results of
operations, financial condition, properties, assets or prospects of Chip Star;
(b) Any material damage, destruction, requisition, taking or casualty
loss, whether or not covered by insurance, of or to any of the assets or
properties of Chip Star;
(c) Any direct or indirect declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock, property or any
combination thereof) in respect of the Chip Star Common Stock, or any direct or
indirect repurchase, redemption or other acquisition by Chip Star of any shares
of its stock;
(d) Other than as disclosed pursuant to Section 3.1.13.4, any increase
in the rate or terms of compensation payable or to become payable by Chip Star
to its directors, officers or employees; any change in the rate or terms of any
bonus, insurance, pension or other employee benefit plan, payment or arrangement
made to, for or with any employees of Chip Star; any special bonus or
remuneration paid; any written employment contract executed or amended; or any
change in personnel policies;
(e) Any entry into any agreement, commitment or transaction
(including, without limitation, any license of intellectual property, any
borrowing, capital expenditure or capital financing, any purchase, acquisition,
sale or other disposition of assets (other than
14
inventory in the ordinary course of business), any lease or sublease, any
guaranty, assumption or endorsement of payment or performance of any loan or
obligation of another, or any amendment, modification or termination of any
existing agreement, commitment or transaction) by Chip Star as contemplated in
this Agreement;
(f) Any change by Chip Star in accounting methods, principles or
practices;
(g) Any issuance or sale of any stock of Chip Star or any issuance or
granting of any option, warrant or right to purchase any stock of Chip Star or
any commitment to do any of the foregoing;
(h) Any amendment to the Articles of Incorporation or Bylaws of Chip
Star;
(i) Any conduct of business which is outside the ordinary course of
business or not substantially in the manner that Chip Star previously conducted
its business;
(j) Any encumbrance or consent to encumbrance of any property or
assets;
(k) Any pending or threatened labor disputes, organizational
activities or disturbances;
(l) Any indication from any customer of Chip Star which purchased
$200,000 or more of products or services from Chip Star in the year ended June
30, 1996 or the ten months ended April 30, 1997 that such customer intends to,
is desirous of, or is actively considering terminating or reducing its purchases
from Chip Star for any reason; or
(m) Any change not described above in the assets, liabilities,
licenses, permits or franchises of Chip Star, or in any agreement to which Chip
Star is a party or is bound, which, either individually or in the aggregate, has
had or reasonably could be expected to have
15
a material adverse effect on the business, results of operations, financial
condition, properties, assets or prospects of Chip Star.
3.1.10 Prohibited Payments. Neither Chip Star nor any shareholder,
officer, director or other person or entity has, directly or indirectly, on
behalf of or with respect to the business or operations of Chip Star, (a) made
any payment outside the ordinary course of business to any purchasing or selling
agent or person charged with similar duties of any entity to which Chip Star
sells or from which Chip Star buys products, for the purpose of influencing such
agent or person to buy products from or sell products to Chip Star; or (b)
otherwise made or received any payment that was not legal to make or receive
under any applicable law or regulation of the United States or any other country
or territory; or (c) engaged in any transaction, maintained any bank account, or
used any corporate funds or assets except for transactions, bank accounts,
funds, and assets which have been and are reflected in the normally maintained
books and records of Chip Star.
3.1.11 Litigation. No litigation, proceeding or governmental
investigation is pending or threatened against or relating to Chip Star, its
officers or directors in their capacities as such, or any of Chip Star's
properties or businesses.
3.1.12 Compliance with Laws; Judgments. Chip Star has at all relevant
times conducted its business in compliance with the provisions of its Articles
of Incorporation, Bylaws, and all applicable laws, regulations and standards,
including without limitation the United States Export Control Act and foreign
counterparts to such laws and regulations. Chip Star is not in violation of any
applicable laws or regulations, other than violations which individually or in
the aggregate do not, and, with the passage of time will not, have a material
adverse effect on its
16
business, financial condition, results of operations, properties, assets or
prospects. Chip Star is not subject to any outstanding judgment, order, writ,
injunction or decree and has not been charged with, or threatened with a charge
of, a violation of any provision of any applicable law or regulation.
3.1.13 Employment Matters.
3.1.13.1 Labor Matters. Chip Star is not a party or otherwise
subject to any collective bargaining or other agreement governing the wages,
hours or terms of employment of its employees. Chip Star is and has been in
compliance with all applicable laws regarding employment and employment
practices, terms and conditions of employment, wages and hours and is not and
has not been engaged in any unfair labor practice. There is no (a) unfair labor
practice complaint against Chip Star pending before the National Labor Relations
Board or any other Governmental Entity, (b) labor strike, slowdown or work
stoppage actually occurring or, to the knowledge of Chip Star, threatened
against Chip Star, (c) representation petition respecting the employees of Chip
Star pending before the National Labor Relations Board or similar agency, or (d)
grievance or any arbitration proceeding pending arising out of or under
collective bargaining agreements applicable to Chip Star. Chip Star has not
experienced any primary work stoppage or other organized work stoppage involving
its employees in the past two years. Chip Star and the Shareholders are not
aware of any labor strike, slowdown, or work stoppage occurring or, to the
knowledge of Chip Star or the Shareholders, threatened against any of Chip
Star's principal suppliers that might be expected to have a material adverse
effect on the business, financial condition, results of operations, properties,
or assets of Chip Star. All of the employees of Chip Star are citizens or
permanent
17
residents of the United States. No employee of Chip Star is the beneficiary
under an employer-sponsored non-immigrant visa and no approvals, permits or
consents of any governmental entity are required in order for Chip Star to
employ any current employee as a result of or in connection with such employee's
immigration status in the United States. Chip Star has fully completed and
retained a Form I-9 for each of its employees in accordance with applicable law,
and Chip Star is not subject to examination in connection with such forms or to
any fines or other penalties under laws relating to employees who are not
authorized to work in the United States.
3.1.13.2 Employee Benefits. Schedule 3.1.13.2 lists all pension,
retirement, profit sharing, deferred compensation, bonus, commission, incentive
compensation (including cash, stock and option plans or arrangements), life
insurance, health and disability insurance, hospitalization and all other
employee benefit plans or arrangements (including, without limitation, any
contracts or agreements with trustees, insurance companies or others relating to
any such employee benefit plans or arrangements) established or maintained by
Chip Star, and complete and accurate copies of all those plans or arrangements
have been provided to ESI. The employee pension benefit plans (within the
meaning of Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) established and maintained by Chip Star that are subject
to ERISA (the "ERISA Plans") are listed separately as ERISA Plans on Schedule
3.1.13.2. The ERISA Plans comply in all material respects with the applicable
requirements of ERISA. Chip Star has received from the Internal Revenue Service
a favorable determination for each of the ERISA Plans and their related trusts
that each of the ERISA Plans is qualified under Section 401(a) of the Code and
the related trust is tax-exempt
18
under Section 501(a) of the Code. There has been no event subsequent to that
determination that has adversely affected the tax qualified status of the ERISA
Plans or the exemption of the related trusts other than changes in the Code that
are not effective as of the Closing Date. None of the ERISA Plans, its related
trusts or any trustee, investment manager or administrator thereof has engaged
in a nonexempt "prohibited transaction," as such term is defined in Section 406
of ERISA and Section 4975 of the Code. There are not and have not been any
excess deferrals or excess contributions under any ERISA Plan. Each ERISA Plan
is and has been operated and administered in conformity with the requirements of
all applicable laws and regulations, whether or not the ERISA Plan documents
have been amended to reflect such requirements. Chip Star has no obligation of
any kind (whether under the terms of the ERISA Plans or under any understanding
with employees) to make payments under, or to pay contributions to, any plan,
agreement or other arrangement for deferred compensation of employees, whether
or not tax qualified, including, without limitation, a single employer tax
qualified plan, a tax qualified plan of a controlled group of corporations, a
multiemployer pension plan, a "defined benefit" plan, a nonqualified deferred
compensation plan, an individual employment or compensation agreement or a
commitment to provide medical benefits to retirees.
3.1.13.3 Employment Agreements. Each employee of Chip Star is an
"at-will" employee and there are no written employment, commission or
compensation agreements of any kind between Chip Star and any of its employees.
Schedule 3.1.13.3 lists all Chip Star's employment or supervisory manuals,
employment or supervisory policies, and written information generally provided
to employees (such as applications or notices), and complete and accurate copies
of those manuals, policies and written information have been
19
provided to ESI. Chip Star does not have any agreements or understandings with
its employees, including without limitation any agreements or understandings
regarding compensation of any nature, severance payments or retirement benefits,
except as reflected in the items listed in Schedules 3.1.13.2 and 3.1.13.4.
3.1.13.4 Compensation. Schedule 3.1.13.4 contains a complete and
accurate list of all current directors, officers, employees or consultants of
Chip Star, specifying their names and job designations, the total amount paid or
payable as cash and noncash compensation to each such person, and the basis of
such compensation, whether fixed or commission or a combination thereof, and the
total amount of accrued benefits (including without limitation vacation, sick or
wellness pay) for such persons as of April 30, 1997. Except as set forth in
Schedules 3.1.13.2, 3.1.13.3 or the agreements described in Section 3.1.13.5,
Chip Star is not a party to any employment contract or agreement and has not
made any other commitment entitling any employee to any payment in the event of
termination or resignation that would constitute a "parachute payment" within
the meaning of Section 280G of the Code or would in the aggregate exceed 100
percent of such person's annual base cash compensation. The provisions for wages
and salaries accrued on the Current Balance Sheet are adequate for salaries and
wages, including accrued vacation pay and sick or wellness pay, and Chip Star
has accrued on its books and records all obligations for wages and salaries and
other compensation to its employees, including but not limited to, vacation pay
and sick or wellness pay, and all commissions and other fees payable to agents,
salesmen, and representatives.
3.1.13.5 Confidentiality and Inventions Agreements. Each
consultant that has been given access to Chip Star's Intellectual Property (as
defined in Section 3.1.16)
20
prior to the date a patent was filed in connection with such Intellectual
Property has previously signed a confidentiality and invention agreement in the
form or forms attached hereto as Exhibit E.
3.1.14 Title to and Condition of Real Property. Chip Star does not own
any real property. Schedule 3.1.14 contains a list of all real property
currently leased or occupied by Chip Star (the "Leased Real Property"),
including the dates of and parties to all leases and any amendments thereof and
a list of all real property previously leased or occupied by Chip Star (the
"Previously Leased Real Property"). All Leased Real Property (including
improvements thereon) is in satisfactory condition and repair consistent with
its present use, and is available for immediate use in the conduct of Chip
Star's business. Neither the operations of Chip Star on any Leased Real
Property, nor any improvements on the Leased Real Property, violates any
applicable building or zoning code or regulation of any governmental authority
having jurisdiction, except where such violation would not have a material
adverse affect on Chip Star. The Leased Real Property includes all real property
necessary to conduct the business of Chip Star as currently conducted. None of
the Leased Real Property has been condemned or otherwise taken by public
authority and no such condemnation is, to the knowledge of Chip Star and the
Shareholders, threatened or contemplated.
3.1.15 Title to and Condition of Fixed Assets. Schedule 3.1.15
contains a complete and accurate list of all tangible personal property
(excluding inventory) owned or leased by Chip Star (the "Tangible Personal
Property"), including the dates of and parties to all leases and any amendments
thereof. Except as set forth in Schedule 3.1.15, Chip Star has good and
marketable title to all of the Tangible Personal Property, free and clear of all
liens,
21
mortgages, pledges, leases, restrictions and other claims and encumbrances of
any nature whatsoever. The Tangible Personal Property is in good operating
condition and repair (ordinary wear and tear excepted), is performing
satisfactorily, and is adequate for the conduct of the business of Chip Star.
All Tangible Personal Property and the state of maintenance thereof are in
compliance with all applicable laws and regulations.
3.1.16 Intellectual Property. Chip Star owns, or has a valid license
to use, all patents, trademarks, service marks, trade names, copyrights, trade
secrets, technology, know-how and other intellectual property (the "Intellectual
Property") necessary to or used in the conduct of the business of Chip Star as
now conducted and as proposed to be conducted. Schedule 3.1.16 contains a
complete and accurate list of all patents, patent applications, trademarks and
service marks and related applications, trade names and copyrights owned by or
licensed to Chip Star. Schedule 3.1.16 also contains a description of all
agreements or licenses relating to the acquisition by or license to Chip Star of
such Intellectual Property or under which Chip Star has sold or granted a right
to use any Intellectual Property. All Intellectual Property owned by Chip Star
is owned by it free and clear of all liens, claims, encumbrances or adverse
claims of any third party. The conduct of Chip Star's business does not conflict
with or infringe upon any Intellectual Property rights of any other person and
no claims of conflict or infringement are pending or threatened against Chip
Star. Chip Star has made all necessary filings and recordations and has paid all
required fees and Taxes to maintain its ownership of its Intellectual Property.
3.1.17 Certain Contracts and Arrangements. Schedule 3.1.17, which is
organized by type of agreement, contains a complete and accurate list of each of
the following
22
types of agreements or arrangements, including any amendments thereto, to which
Chip Star is a party or by which it is bound:
(a) any mortgage, note or other instrument or agreement relating to
the borrowing of money or the incurrence of indebtedness or the guaranty of any
obligation for the borrowing of money;
(b) any contract, agreement, purchase order or acknowledgment form for
the purchase, sale, lease or other disposition of equipment, products, materials
or capital assets, or for the performance of services (including without
limitation consulting services), with respect to which the annual aggregate
dollar amount either due to or payable by Chip Star exceeds $100,000;
(c) contracts or agreements for the joint performance of work or
services, and all other joint venture agreements;
(d) contracts or agreements with agents, brokers, consignees, sales
representatives or distributors relating to the sale of products or services;
(e) confidentiality or inventions assignment agreements with parties
other than employees of Chip Star; and
(f) any other contract, instrument, agreement or obligation not
described in any other Schedule which contains unfulfilled obligations, is not
terminable without payment of premium or penalty upon 30 days' notice or less
and the annual amount either due to or payable by Chip Star exceeds $50,000 for
any single contract or $100,000 in the aggregate.
3.1.18 Status of Contracts. Each of the contracts, agreements,
commitments and instruments listed on Schedules 3.1.14, 3.1.15, 3.1.16, and
3.1.17 and the agreements described
23
in Section 3.1.13.5 (collectively, the "Contracts") is in full force and effect
and is valid, binding and enforceable by Chip Star in accordance with its terms,
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought. There is no existing
material default or violation by Chip Star under any Contract and no event has
occurred which (whether with or without notice, lapse of time or both) would
constitute a material default of Chip Star under any Contract. There is no
pending or threatened proceeding which would interfere with the quiet enjoyment
of any leasehold of which Chip Star is lessee or sublessee. All other parties to
the Contracts have consented or prior to the Closing will have consented (where
such consent is necessary) to the consummation of the transactions contemplated
by this Agreement without modification of the rights or obligations of Chip Star
under any Contract. Complete and accurate copies of all Contracts have been
delivered to ESI. Chip Star and the Shareholders are not aware of any default by
any other party to any Contract or of any event which (whether with or without
notice, lapse of time or both) would constitute a material default by any other
party with respect to obligations of that party under any Contract, and, to the
knowledge of Chip Star and the Shareholders, there are no facts that exist
indicating that any of the Contracts may be totally or partially terminated or
suspended by the other parties. Chip Star has not granted any waiver or
forbearance with respect to any of the Contracts. Chip Star is not a party to,
or bound by, any Contract that Chip Star can reasonably foresee will result in
any material loss to Chip Star upon
24
the performance thereof (including any liability for penalties or damages,
whether liquidated, direct, indirect, incidental or consequential).
3.1.19 Insurance. Schedule 3.1.19 contains a complete and accurate
list of all policies of fire, liability, worker's compensation and other forms
of insurance insuring Chip Star, its officers or directors, its assets or its
operations (the "Policies"), setting forth the applicable deductible amounts.
All the Policies are valid, enforceable and in full force and effect, all
premiums with respect to the Policies covering all periods up to and including
the date as of which this representation is being made have been paid and no
notice of cancellation or termination has been received with respect to any
Policy. The Policies are sufficient for compliance with all requirements of law
and agreements to which Chip Star is a party and provide insurance for the risks
and in the amounts and types of coverage usually obtained by persons using or
holding similar properties in similar businesses. There have been no claims made
for insurance payment under any of the Policies in the three years preceding the
date of this Agreement. Complete and accurate copies of the Policies and all
endorsements thereto have been delivered to ESI. Chip Star has not been refused
any insurance coverage and no insurance coverage has been canceled during the
three years preceding the date of this Agreement.
3.1.20 Permits and Licenses. Schedule 3.1.20 contains a complete and
accurate list of all governmental licenses, permits, franchises, easements and
authorizations (collectively, "Permits") held by Chip Star, listed by
governmental entity. Chip Star holds, and at all times has held, all Permits
necessary for the lawful conduct of its business pursuant to all applicable
statutes, laws, ordinances, rules and regulations of all governmental bodies,
agencies and other authorities having jurisdiction over it or any part of its
operations. Chip Star is in compliance
25
with each of the terms of the Permits listed on Schedule 3.1.20, and there are
no claims of violation by Chip Star of any of such Permits. Complete and
accurate copies of all Permits held by Chip Star have been delivered to ESI. All
governmental entities and agencies that have issued any Permits to or with
respect to Chip Star or its business have consented or prior to the Closing will
have consented (where such consent is necessary) to the consummation of the
transactions contemplated by this Agreement without requiring modification of
the rights or obligations of Chip Star under any of such Permits.
3.1.21 Taxes.
3.1.21.1 Returns. Chip Star has filed on a timely basis all
federal, state, foreign and other returns, reports, forms, declarations and
information returns required to be filed by it with respect to Taxes (as defined
below) which relate to the business, results of operations, financial condition,
properties or assets of Chip Star (collectively, the "Returns") and has paid on
a timely basis all Taxes shown to be due on the Returns. Chip Star is not part
of an affiliated group of corporations that files or has the privilege of filing
consolidated tax returns pursuant to Section 1501 of the Code or any similar
provisions of state, local or foreign law, and Chip Star is not a party to any
tax-sharing or tax-allocation agreement. Chip Star does not have any liability
for Taxes of any person (other than itself), whether arising under federal,
state, local or foreign law, as a transferee or successor, by contract or
otherwise. No extensions of time have been requested for Returns which have not
been filed except as set forth on Schedule 3.1.21. No Returns have been examined
by the applicable taxing authorities for all periods to and including the fiscal
year ended June 30, 1996 and, except as set forth on Schedule 3.1.21, Chip Star
has not received any notice of audit and there are no outstanding agreements
26
or waivers extending the applicable statutory periods of limitation for such
Taxes for any period. All Returns filed are complete and accurate in all
respects and no additional Taxes are owed by Chip Star with respect to the
periods covered by the Returns. Chip Star has provided ESI with complete and
accurate copies of Returns for each of Chip Star's fiscal years ended June 30,
1993 through 1996.
3.1.21.2 Taxes Paid or Reserved. The Reserves reflected in the
Current Balance Sheet are adequate for payment of Taxes in respect of periods
ending on or before the date of the Current Balance Sheet. All reserves for
Taxes have been determined in accordance with generally accepted accounting
principles consistently applied throughout the periods involved and with prior
periods. All Taxes which Chip Star has been required to collect or withhold have
been withheld or collected and, to the extent required, have been paid to the
proper taxing authority. Chip Star has not elected to be treated as a consenting
corporation pursuant to Section 341(f) of the Code.
3.1.21.3 Definition. The term "Taxes" shall mean all federal,
state, local or foreign taxes, charges, fees, levies or other assessments,
including, without limitation, all net income, gross income, gross receipts,
premium, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, estimated severance, stamp,
occupation, property or other taxes, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties (including penalties
for failure to file in accordance with applicable information reporting
requirements), and additions to tax.
3.1.22 Related Party Interests. Except as listed in Schedule 3.1.22,
no shareholder, officer or director of Chip Star (or any entity owned or
controlled by one or more
27
of such parties) (a) has any interest in any property, real or personal,
tangible or intangible, used in or pertaining to Chip Star's business, (b) is
indebted to Chip Star, or (c) has any financial interest, direct or indirect, in
any supplier or customer of, or other outside business which has significant
transactions with Chip Star. True and complete copies of all agreements listed
on Schedule 3.1.22 have been provided to ESI. Chip Star is not indebted to any
of its shareholders, directors or officers (or any entity owned or controlled by
one or more of such parties) except for amounts due under normal salary
arrangements and for reimbursement of ordinary business expenses. The
consummation of the transactions contemplated by this Agreement will not (either
alone or upon the occurrence of any act or event, or with the lapse of time, or
both) result in any payment (severance or other) becoming due from Chip Star to
any of its shareholders, officers, directors or employees (or any entity owned
or controlled by one or more of such parties).
3.1.23 No Powers of Attorney or Restrictions. No power of attorney or
similar authorization given by Chip Star is presently in effect or outstanding.
No contract or agreement to which Chip Star is a party or is bound or to which
any of its properties or assets is subject limits the freedom of Chip Star to
compete in any line of business or with any person. None of the Shareholders
and, to the knowledge of Chip Star and the Shareholders after due inquiry, none
of the other employees of Chip Star is obligated under any contract (including
licenses, covenants or commitments of any nature), or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of his or her best efforts to promote the interests of Chip Star or that
would conflict with the business of Chip Star as now conducted or proposed to be
conducted.
28
3.1.24 Environmental Conditions.
3.1.24.1 Compliance. The business and assets of Chip Star,
including without limitation the Leased Real Property and the Previously Leased
Real Property, are and have been in compliance with all Environmental Laws (as
defined below) and all Permits required under any Environmental Laws are listed
separately in Schedule 3.1.20. There are no pending or threatened claims,
actions or proceedings against Chip Star under any Environmental Law or related
Permit. All wastes generated in connection with Chip Star's business are and
have been transported and disposed of off-site in compliance with all
Environmental Laws, and true and correct logs of such transportation and
disposal have been made available to ESI.
3.1.24.2 Hazardous Substances. No Hazardous Substance has been
disposed of, spilled, leaked or otherwise released on, in, under or from the
Leased Real Property or the Previously Leased Real Property or has otherwise
come to be located in the soil or water (including surface and ground water) on
or under the Leased Real Property or the Previously Leased Real Property. None
of the assets of Chip Star or the improvements on the Leased Real Property or
the Previously Leased Real Property have incorporated into them any asbestos,
urea formaldehyde foam insulation, polychlorinated biphenyls (including in any
electrical transformer or capacitor located on such property), or any other
Hazardous Substance which is prohibited, restricted or regulated when present in
buildings, structures, fixtures or equipment. No Hazardous Substance is or has
been generated, manufactured, treated, stored, transported, used or otherwise
handled on the Leased Real Property or the Previously Leased Real Property or in
connection with the business of Chip Star. There are not and never have been any
above-ground
29
or underground storage tanks on the Leased Real Property or on the Previously
Leased Property (whether or not regulated and whether or not out of service,
closed or decommissioned).
3.1.24.3 Filings and Notices. Chip Star has timely filed all
required reports, obtained all required approvals and permits, and generated and
maintained all required data, documentation and records under all applicable
Environmental Laws. All notifications required by any Environmental Law in
respect of any discharge, release or emission, including any notices required to
be provided under applicable California law, if any, have been made within the
time prescribed by such Environmental Law, and copies of all such notifications
have been provided to ESI. No part of the Leased Real Property or the Previously
Leased Real Property is listed as a site contaminated by Hazardous Substances
pursuant to any Environmental Law.
3.1.24.4 Definitions. As used in this Agreement, (a)
"Environmental Law" means any federal, state, foreign or local statute,
ordinance or regulation pertaining to the protection of human health or the
environment and any applicable orders, judgments, decrees, permits, licenses or
other authorizations or mandates under such statutes, ordinances or regulations,
and (b) "Hazardous Substance" means any hazardous, toxic, radioactive or
infectious substance, material or waste as defined, listed or regulated under
any Environmental Law, and includes without limitation radioactive material and
petroleum oil and its fractions.
3.1.25 Consents and Approvals. Except as set forth in Section 3.1.4,
no consent, approval, or authorization of, or filing or registration with, any
court, regulatory authority, governmental body, or any other entity or person
not a party to this Agreement is
30
required to be obtained by Chip Star for the consummation of the transactions
described in this Agreement.
3.1.26 Records. The books of account, minute books, stock certificate
books and stock transfer ledgers of Chip Star are complete and accurate in all
material respects, and there has been no transaction involving the business or
stock ownership of Chip Star, or action of Chip Star's board of directors or
shareholders, which properly should have been set forth therein and which has
not been accurately so set forth. Complete and accurate copies of such books,
records and ledgers have been made available to ESI.
3.1.27 Receivables. Each of the receivables of Chip Star (including
accounts receivable, loans receivable and advances) that is reflected in the
Current Balance Sheet, and each of the receivables that has arisen since that
date, has arisen only from bona fide transactions in the ordinary course of Chip
Star's business and shall be fully collected when due, or in the case of each
account receivable, within 90 days after it arose, without resort to litigation
and without offset or counterclaim, except to the extent of the normal allowance
for doubtful accounts with respect to accounts receivable as reflected in the
Current Balance Sheet.
3.1.28 Bank Accounts. Schedule 3.1.28 contains a complete and accurate
list of all the banks or other financial institutions at which Chip Star
maintains accounts or safe deposit boxes, together with numbers of such accounts
and boxes and the names of the persons authorized to draw thereon or permitted
access thereto. All cash in such accounts is held in demand deposits and is not
subject to any restriction or limitation as to withdrawal.
3.1.29 Product Warranties. Schedule 3.1.29 contains Chip Star's
standard form of product warranty, infringement indemnity and limitation of
liability provisions and a copy of
31
each negotiated warranty, indemnity and limitations provision that differs
materially from the standard form. Chip Star has not undertaken any performance
obligations or made any warranties or guarantees with respect to its products
other than those disclosed in Schedule 3.1.29, or sold any products or services
without the limitation of liability provisions disclosed in Schedule 3.1.29. The
aggregate cost to Chip Star to comply with its product warranties has not and is
not anticipated to exceed two percent (2%) of total revenue, as reported in Chip
Star's financial statements, for any fiscal year. All products under warranty as
of the date of this Agreement, serviced, distributed or sold by Chip Star, and
the delivery thereof, have been in conformity with Chip Star's warranty
commitments.
3.1.30 Inventories. Schedule 3.1.30 contains a true summary of all
inventory of Chip Star as of April 30, 1997. All inventories, whether finished
goods, work in process or raw materials, reflected on the Current Balance Sheet
or thereafter acquired, are all items of a quality usable or saleable in the
ordinary and usual course of Chip Star's business, except for inventory items
that have been written down to an amount not in excess of realizable market
value or for which adequate Reserves or allowances have been provided on the
Current Balance Sheet. The values at which inventories are carried reflect an
inventory valuation policy consistent with Chip Star's past practice and in
accordance with generally accepted accounting principles. Chip Star has good and
marketable title to all its inventories, free and clear of all liens, mortgages,
pledges, leases, restrictions and other claims and encumbrances of any nature
whatsoever.
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3.1.31 Product Liability. Chip Star has not recalled any products
manufactured, serviced, distributed, leased, or sold by Chip Star, and there is
no reasonable basis for any such recall on or after the Closing Date.
3.1.32 Backlog and Customer Information. Schedule 3.1.32 shows (a) the
aggregate backlog, including sales price, product cost and gross margin, and the
backlog by customer and product, for Chip Star as of April 30, 1997 and (b) a
list of the top five Chip Star customers for the fiscal year ended June 30, 1996
and the ten months ended April 30, 1997, with aggregate annual revenue for each
customer for each year.
3.1.33 Accounting Controls. Chip Star maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are accurately and completely recorded in Chip
Star's general ledger as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to maintain
accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
3.1.34 Brokers and Finders. Chip Star has not incurred any liability
for any brokerage or investment banking fees, commissions or finders' fees in
connection with the Merger. 3.1.35 Reliance. Chip Star and the Shareholders
recognize and agree that, notwithstanding any investigation by ESI, ESI is
relying upon the representations and warranties
33
made by Chip Star and the Shareholders in this Agreement and in the documents
attached to this Agreement as exhibits.
3.1.36 Customer Programs. Except as disclosed on Schedule 3.1.36,
there are no trade allowance, billback, rebate, discount or similar programs of
a material nature currently in effect with the customers of Chip Star,
regardless of whether Chip Star currently has an actual or contingent unpaid
liability thereunder.
3.1.37 Liabilities Incurred in Ordinary Course. The liabilities of
Chip Star and the liabilities to which the assets of Chip Star are subject were
incurred by Chip Star in the ordinary course of its business except for
reasonable expenses arising in connection with the negotiation and
implementation of this Agreement.
3.1.38 Accuracy of Representations and Warranties. None of the
representations or warranties of Chip Star and the Shareholders contained in
this Agreement contains or will contain any untrue statement of any material
fact or omits or misstates a material fact necessary to make the statements
contained in this Agreement not misleading. Chip Star and the Shareholders know
of no fact that has resulted or that, in the reasonable judgment of Chip Star
and the Shareholders may result, in any material adverse change in Chip Star's
business, results of operation, financial condition, properties, assets or
prospects that has not been set forth in this Agreement.
3.1.39 Continuity of Business Enterprise. Chip Star operates at least
one significant historic business line, or owns at least a significant portion
of its historic business assets, in each case within the meaning of Treasury
Regulation ss. 1.368-1(d).
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3.1.40 Fair Market Value of Chip Star Assets. The fair market value of
the assets of Chip Star at the Effective Time will exceed the sum of its
liabilities, plus the amount of liabilities, if any, to which the assets are
subject.
3.1.41 No Chapter 11 Proceedings. Chip Star is not under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
3.1.42 Not an Investment Company. Chip Star is not an investment
company as defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
3.1.43 Not a Real Property Holding Company. Chip Star has not been a
United States real property holding company within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
3.1.44 Section 368(a)(2)(E) Asset Requirement. Immediately after the
Effective Time, the Surviving Corporation will hold at least 90 percent of the
fair market value of the net assets and at least 70 percent of the fair market
value of the gross assets held by Chip Star immediately before the Merger.
3.1.45 Accredited Investor Status. Each of the Shareholders is an
"accredited investor" as defined in Rule 501 of the Securities and Exchange
Commission. Each Shareholder has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of the
investment in ESI Common Stock.
3.1.46 Acquisition for Investment. Each Shareholder is acquiring the
ESI Common Stock for investment for his own account, and not with a view to, or
for resale in connection with, any distribution of the ESI Common Stock.
35
3.1.47 Opportunity to Ask Questions. Each Shareholder acknowledges
that he has had the opportunity to ask questions of and receive answers from
officers and employees of ESI about ESI, the terms and conditions of the
investment and to receive and review the ESI SEC Reports (as defined below) and
such documents concerning ESI as he has reasonably requested.
3.1.48 Xxxx Xxxxx Xxxxxx Act. Denver Xxxxxx represents and warrants
that he has calculated the value of assets and annual net sales attributable to
him pursuant to the Xxxx Xxxxx Xxxxxx Antitrust Improvements Act, codified at 15
U.S.C. ss. 18a et. seq., and that the information regarding such asset and sales
calculations delivered in a letter to ESI on June 26, 1997 is complete and
accurate.
3.2 Representations and Warranties of ESI. ESI hereby represents and
warrants to Chip Star and the Shareholders that, except as specifically set
forth in Schedule 3.2 (the "ESI Disclosure Schedule") in a numbered paragraph
that corresponds to the section for which disclosure is made:
3.2.1 Organization and Status. Each of ESI and its subsidiaries is a
corporation duly organized and validly existing under the laws of its
jurisdiction of incorporation and is duly qualified and in good standing as a
foreign corporation in each jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification, except
where the failure to so qualify or be in good standing, when taken together with
all such failures, would not have a material adverse effect on ESI. Each of ESI
and its subsidiaries has all requisite corporate power and authority to own,
operate and lease its property and to carry on its businesses as they are now
being conducted.
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3.2.2 Capitalization. ESI has authorized capital stock consisting of
40,000,000 shares of Common Stock, without par value, of which 8,693,034 shares
were outstanding on February 28, 1997 and 1,000,000 shares of Preferred Stock,
of which no shares were outstanding on February 28, 1997. All of the outstanding
shares of capital stock of ESI have been duly authorized and are validly issued,
fully paid and nonassessable, and no shares were issued in violation of
preemptive or similar rights of any shareholder. Except under the terms of the
various ESI employee or director benefit plans, or as disclosed in the ESI SEC
Reports (defined in Section 3.2.5) there are no subscriptions, options,
warrants, rights, convertible securities or other agreements or commitments of
any character obligating ESI to issue any shares of capital stock.
3.2.3 Corporate Authority. ESI has the corporate power and authority
and has taken all corporate action necessary to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly authorized by the Board of Directors of ESI and duly
and validly executed and delivered by ESI. This Agreement constitutes the valid
and binding obligation of ESI, enforceable in accordance with its terms, except
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought.
3.2.4 Governmental Filings. Other than the filing of the Certificate
of Merger and Articles of Merger contemplated by Article I, no notices, reports
or other filings are
37
required to be made by ESI with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by ESI from, any Governmental
Entity in connection with the execution and delivery of this Agreement by ESI
and the consummation by ESI of the transactions contemplated hereby.
3.2.5 SEC Reports and Financial Statements. ESI has heretofore
furnished Chip Star and the Shareholders with complete copies of all
registration statements, reports and proxy statements, including amendments
thereto, filed with the Securities and Exchange Commission (the "SEC") since May
31, 1996 and prior to the date of this Agreement (collectively, the "ESI SEC
Reports").
3.2.6 No Adverse Consequences. Neither the execution and delivery of
this Agreement by ESI nor the consummation of the transactions contemplated by
this Agreement will (a) result in the creation or imposition of any lien,
charge, encumbrance or restriction on any of the assets or properties of ESI or
any subsidiary, (b) violate any provision of the Articles of Incorporation or
Bylaws of ESI or any subsidiary, (c) to the knowledge of ESI, violate any
statute, judgment, order, injunction, decree, rule, regulation or ruling of any
governmental authority applicable to ESI or any subsidiary, or (d) either alone
or with the giving of notice or the passage of time or both, conflict with,
constitute grounds for termination of, accelerate the performance required by,
accelerate the maturity of any indebtedness or obligation under, result in the
breach of the terms, conditions or provisions of or constitute a default under
any mortgage, deed of trust, indenture, note, bond, lease, license, permit or
other agreement, instrument or obligation to which either ESI or any subsidiary
is a party or by which any of them is bound.
38
3.2.7 Brokers and Finders. Neither ESI nor any of its subsidiaries has
incurred any liability for any brokerage or investment banking fees, commissions
or finders' fees in connection with the Merger.
3.3 Representations and Warranties Relating to Merger Corp. ESI and Merger
Corp. hereby represent and warrant to Chip Star that:
3.3.1 Organization and Status. Merger Corp. is a corporation duly
organized and validly existing under the laws of the State of Oregon. Merger
Corp. does not own any properties (other than the initial cash subscription for
shares) nor has it commenced any business or operations.
3.3.2 Capitalization. Merger Corp. has an authorized capital stock
consisting of 100 shares of Common Stock, of which 100 shares were issued and
outstanding on the date of this Agreement. All of the issued and outstanding
shares of capital stock of Merger Corp. are owned by ESI.
3.3.3 Corporate Authority. Merger Corp. has the corporate power and
authority and has taken all corporate action necessary to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
Agreement has been duly and validly authorized by the Board of Directors and
sole shareholder of Merger Corp., duly and validly executed and delivered by
Merger Corp. and constitutes the valid and binding obligation of Merger Corp.,
enforceable in accordance with its terms, except as enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy
39
of specific performance or injunctive relief is subject to the discretion of the
court before which any proceeding may be brought.
3.3.4 Governmental Filings. Other than the filing of the Certificate
of Merger and Articles of Merger contemplated by Article I, no notices, reports
or other filings are required to be made by Merger Corp. with, nor are any
consents, registrations, approvals, permits or authorizations required to be
obtained by Merger Corp. from, any Governmental Entity in connection with the
execution and delivery of this Agreement by Merger Corp. and the consummation by
Merger Corp. of the transactions contemplated hereby.
ARTICLE IV
COVENANTS
4.1 Mutual Covenants. Chip Star, the Shareholders and ESI mutually covenant
and agree as follows:
4.1.1 Consents and Approvals. Chip Star, the Shareholders and ESI each
will use reasonable best efforts to secure, and ESI will cause Merger Corp. to
use its reasonable best efforts to secure, all consents, approvals, licenses or
permits which may be required in connection with the Merger, and each will
cooperate with the other to secure all such consents, approvals, licenses or
permits in a form mutually satisfactory to Chip Star and ESI.
4.1.2 Best Efforts. Subject to the terms of this Agreement, Chip Star,
the Shareholders and ESI each will use reasonable best efforts, and ESI will
cause Merger Corp. to use its reasonable best efforts, to effectuate the
transactions contemplated hereby and to fulfill the conditions of their
respective obligations under this Agreement.
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4.1.3 Publicity. Except as required by law, no party will issue any
press releases or otherwise make any public statements with respect to the
transactions contemplated hereby without the prior written consent of ESI and
Chip Star, in each case not to be unreasonably withheld.
4.1.4 Tax Matters. ESI and Merger Corp., Chip Star and each of the
Shareholders shall execute and deliver to Xxxxxx Xxxxxxxx LLP, certificates
substantially in the form attached hereto as Exhibits F-1, F-2 and H,
respectively, at such time or times as reasonably requested by such firm in
connection with its delivery of the Tax Opinion and Pooling Opinions described
in Section 5.1.3 with respect to the transactions contemplated hereby. Prior to
the Effective Time, none of ESI, Merger Corp., Chip Star or the Shareholders
shall take or cause to be taken any action (or fail to take or cause to be taken
any action) which would cause to be untrue any of the representations in
Exhibits F-1, F-2 or H.
4.2 Covenants of Chip Star. Chip Star and the Shareholders covenant and
agree as follows:
4.2.1 Conduct of Business. Prior to the Effective Time, Chip Star will
carry on its business in the ordinary and usual manner and maintain its existing
relationships with suppliers, customers, employees and business associates, and
will not, without the prior written consent of ESI:
(a) amend its Articles of Incorporation or Bylaws;
(b) enter into any new agreements respecting an increase in
compensation or benefits payable to its officers or employees, except that Chip
Star may enter into
41
indemnification agreements with its officers and directors on terms consistent
with the provisions of Chip Star's Articles of Incorporation and Bylaws;
(c) split, combine, reclassify any of the outstanding shares of its
capital stock or otherwise change its authorized capitalization;
(d) declare, set aside or pay any dividends payable in cash, stock or
property with respect to shares of its capital stock;
(e) issue, sell, pledge, dispose of or encumber any additional shares
of, or securities convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of its capital
stock of any class;
(f) redeem, purchase or otherwise acquire any shares of its capital
stock, merge into or consolidate with any other corporation or permit any other
corporation to merge into or consolidate with it, liquidate or sell or dispose
of any of its assets, or close any plant or business operation;
(g) except for short-term indebtedness and indebtedness incurred
pursuant to Chip Star's revolving credit agreement and renewals, replacements
and amendments thereof not in excess of the current maximum under such credit
agreement incurred in the ordinary course of business, incur, assume or
guarantee any indebtedness, or modify or repay any existing indebtedness;
(h) enter into any transaction, make any commitment (whether or not
subject to the approval of the Board of Directors of Chip Star) or modify any
Contracts, except as otherwise contemplated or permitted by this Agreement, or
take or omit to take any action which
42
could be reasonably anticipated to have a material adverse effect on the
business, properties, financial condition or results of operations of Chip Star;
(i) transfer, lease, license, guarantee, sell, mortgage, pledge, or
dispose of, any property or assets (including without limitation any
intellectual property), encumber any property or assets or incur or modify any
liability, other than the sale of inventory in the ordinary and usual course of
business;
(j) authorize capital expenditures other than in the ordinary course
of business, form any subsidiary, or make any acquisition of, or investment in,
assets or stock of any other person or entity;
(k) make any tax election;
(l) permit any insurance policy naming it as a beneficiary or a loss
payable payee to be canceled, terminated or renewed without prior notice to ESI;
(m) change its method of accounting as in effect at December 31, 1995,
except as required by changes in generally accepted accounting principles as
concurred with by the Chip Star's independent auditors, or change its fiscal
year;
(n) conduct any transactions which, in the opinion of ESI or Xxxxxx
Xxxxxxxx LLP, could disqualify the Merger for pooling of interests accounting;
or
(o) authorize or enter into an agreement to do any of the actions
referred to in paragraphs (a) through (n) above.
4.2.2 Investigations. Chip Star agrees to give ESI and its
representatives and agents full access to all its premises, books and records
and agreements and files and to cause its officers of Chip Star to furnish ESI
with such financial and operating data and other
43
information with respect to its business and properties as ESI shall from time
to time request. Without limitation of the foregoing, Chip Star shall permit ESI
to conduct an operations review at the plant level during which ESI shall have
access to the plant managers, sales and marketing managers, finance officers,
and technology, environmental and human resource managers of each Chip Star
operating facility. Any such investigations (a) shall be conducted in such
manner as not to interfere unreasonably with the operation of Chip Star's
business; and (b) shall not diminish any of the representations and warranties
hereunder.
4.3 Covenants of ESI. ESI covenants and agrees as follows:
4.3.1 Conduct of Business. Prior to the Effective Time, ESI will not
take or omit to take any action which could be reasonably anticipated to have a
material adverse effect on the business, properties, financial condition or
results of operations of ESI.
4.3.2 Issuance of Certificates. After the Effective Time, ESI shall
issue and deliver, or shall cause to be issued and delivered, in accordance with
the provisions of Article I hereto, stock certificates representing the number
of shares of ESI Common Stock to be issued in the Merger.
4.3.3 Registration of Option Shares. ESI shall use its best efforts to
cause the shares of ESI Common Stock issuable upon exercise of the Options
(assumed pursuant to Section 1.3.3 of this Agreement) to be issued pursuant to a
then effective registration statement or otherwise to be registered after the
Effective Time on SEC Form S-8, filed no later than 90 days after the Effective
Time, and shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements for so long as such assumed
Options remain outstanding.
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4.3.4 Registration of ESI Common Stock.
4.3.4.1 Registration. Within ten days following the date on which
ESI publishes the financial results covering at least 30 days of combined
operations after the Effective Time, ESI will file with the Securities and
Exchange Commission a registration statement (the "Registration Statement") for
the purpose of registering for resale 100,000 shares of the Merger Consideration
(the "Registrable Securities") and will use its best efforts to cause the
Registration Statement to be declared effective as soon as possible. ESI will
use its best efforts to maintain the effectiveness of the Registration Statement
until the earlier of (i) the date on which all of the Registrable Securities
have been sold by the Shareholders, or (ii) the first anniversary of the
Effective Time. The Registrable Securities will include 66,667 shares issued to
Denver Xxxxxx and 33,333 shares issued to Xxxxxx Xxxxxxxx. The Registrable
Securities will not include any Escrowed Property (as defined in Section 6.3).
4.3.4.2 Indemnity. Each Shareholder, severally and not jointly,
will indemnify and hold harmless ESI, each officer of ESI who signs the
registration statement and each director of ESI, against all losses, claims,
damages or liabilities to which ESI or such officer or director may become
subject arising out of any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any final prospectus
contained therein, or any amendment or supplement thereof, or arising out of the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided in each case that such untrue statements or omissions are made in
reliance on information provided in writing to ESI by the Shareholders.
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The indemnity obligations set forth in this Section 4.3.4.2 are subject to the
limitations set forth in Article VI.
4.4 Covenants of Merger Corp. Merger Corp. covenants and agrees that,
except as is contemplated by this Agreement, prior to the Effective Time, Merger
Corp. will not engage in any business activities or liquidate, merge into or
consolidate with any other corporation or permit any other corporation to merge
into or consolidate with it; or increase its authorized capital stock; or issue
options, rights or warrants to purchase any of its capital stock.
ARTICLE V
CONDITIONS
5.1 Conditions to the Obligations of All Parties. The obligations of Chip
Star, the Shareholders, ESI and Merger Corp. to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or before the
Closing of each of the following conditions:
5.1.1 Regulatory Approvals. The parties shall have made all filings
and received all approvals of any governmental or regulatory agency of competent
jurisdiction necessary in order to consummate the Merger, and each of such
approvals shall be in full force and effect at the Closing and not subject to
any condition which requires the taking or refraining from taking of any action
which would have a material adverse effect on Chip Star or on ESI and its
subsidiaries.
5.1.2 Litigation. There shall not be in effect any order, decree or
injunction of a Federal or State court of competent jurisdiction restraining,
enjoining or prohibiting the consummation of the transactions contemplated by
this Agreement (each party agreeing to use
46
its best efforts, including appeals to higher courts, to have any such
non-final, appealable order, decree or injunction set aside or lifted), and no
action shall have been taken, and no statute, rule or regulation shall have been
enacted, by any state or federal government or governmental agency in the United
States which would prevent the consummation of the Merger.
5.1.3 Tax and Pooling Opinions. The Shareholders and ESI shall have
received opinions from Xxxxxx Xxxxxxxx LLP that the Merger qualifies as a
tax-free reorganization under Section 368(a)(1)(A) and (a)(2)(E) of the Code
(the "Tax Opinion") and that the Merger can be accounted for as a pooling of
interests (the "Pooling Opinion"); provided, however, that receipt of the Tax
Opinion and Pooling Opinion shall only be a condition to the obligations of the
Shareholders if they have delivered to Xxxxxx Xxxxxxxx LLP all applicable
documentation described in Section 4.1.4.
5.2 Conditions to the Obligations of Chip Star and the Shareholders. The
obligations of Chip Star and the Shareholders to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or before the
Closing of each of the following conditions:
5.2.1 Representations, Warranties and Covenants. The representations
and warranties of ESI and Merger Corp. contained in this Agreement shall be
correct (a) at the date of this Agreement and (b) as of the Closing, with the
same effect as though made on and as of such date, except for representations
and warranties made as of a specific date, which representations and warranties
need only be true and correct as of such date and for changes specifically
contemplated by this Agreement, and ESI and Merger Corp. shall have performed
all of their respective covenants and obligations hereunder to be performed as
of the Closing.
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Chip Star shall have received at the Closing certificates to the foregoing
effect, dated the Closing Date, and executed on behalf of ESI by an executive
officer of ESI and on behalf of Merger Corp. by an executive officer of Merger
Corp. For purposes of affirming the accuracy of the representations and
warranties of ESI made as of the Closing, the term "ESI SEC Reports" shall be
deemed to include all registration statements, reports and proxy statements,
including all amendments thereto, filed by ESI with the SEC after the date of
this Agreement and prior to Closing.
5.2.2 No Material Adverse Change. Since February 28, 1997 there shall
have been no material adverse change, or discovery of a condition or occurrence
of an event which has resulted or reasonably can be expected to result in a
material adverse change, in the business, properties, financial condition or
results of operations of ESI and its subsidiaries taken as a whole.
5.3 Conditions to the Obligations of ESI and Merger Corp. The obligations
of ESI and Merger Corp. to consummate the transactions contemplated by this
Agreement are subject to the fulfillment at or before the Closing of each of the
following conditions:
5.3.1 Representations, Warranties and Covenants. The representations
and warranties of Chip Star and the Shareholders contained in this Agreement
shall be correct (a) at the date of this Agreement and (b) as of the Closing
Date, with the same effect as though made on and as of such date, except for
representations and warranties made as of a specific date which representations
and warranties need only be true and correct as of such date and for changes
specifically contemplated by this Agreement and Chip Star and the Shareholders
shall have performed in all material respects all of their covenants and
obligations hereunder to be
48
performed as of the Closing. ESI shall have received at the Closing certificates
to the foregoing effect, dated the Closing Date, and executed by each of the
Shareholders and on behalf of Chip Star by an executive officer of Chip Star.
5.3.2 Opinion of Counsel. ESI shall have received from Dostart Xxxxx
Xxxxxxxx & Xxxxxxx, LLP, counsel to Chip Star, an opinion dated the Closing Date
substantially in the form of Exhibit G attached hereto.
5.3.3 Consents and Approvals. All nongovernmental consents and
approvals required to be obtained by Chip Star for consummation of the Merger
shall have been obtained.
5.3.4 No Material Adverse Change. Since April 30, 1997 there shall
have been no material adverse change, or discovery of a condition or occurrence
of an event which has resulted or reasonably can be expected to result in such
change, in the business, properties, financial condition or results of
operations of Chip Star, other than changes permitted under or contemplated by
this Agreement.
5.3.5 Continuity of Interests Letter. ESI shall have received from
each of the persons listed on Schedule 5.3.5 a duly executed Continuity of
Interests Letter, substantially in the form of Exhibit H, containing certain
representations and warranties with respect to the ownership of capital stock of
Chip Star by such person or entity and certain representations, warranties,
covenants and acknowledgments with respect to the shares of ESI Common Stock to
be acquired hereby and the transfer of such shares.
5.3.6 Related Party Agreements. All agreements or arrangements
described on Schedule 3.1.22 (Related Parties), if requested by ESI, shall have
been terminated or amended to the reasonable satisfaction of ESI.
49
5.3.7 Shareholder Consent. ESI shall have received evidence
satisfactory to it that all of the shareholders of Chip Star have voted in favor
of the Merger in accordance with applicable provisions of the CCC and the
Articles of Incorporation and Bylaws of Chip Star.
5.3.8 Employee Agreements. All employees of Chip Star listed on
Schedule 2.1 shall have signed an ESI Employee Agreement.
5.3.9 Escrow Agreement. The Escrow Agreement to be delivered under
Article II shall have been signed and delivered by the parties to such
agreements other than ESI.
5.3.10 Noncompetition Agreements. The Noncompetition Agreements to be
delivered under Article II shall have been signed and delivered by each of the
Shareholders.
5.3.11 Updated Financial and Other Information. ESI shall have
received (a) the unaudited balance sheet of Chip Star and the related statements
of income and stockholder's equity for the most recent accounting period of Chip
Star ended prior to the Closing Date, and (b) schedules of accounts receivable
(including an aging analysis), inventories (organized by category), and backlog
(by customer and product), in each case as of immediately prior to Closing and
in each case with an officer's certificate as to accuracy and completeness of
such schedule.
5.3.12 Environmental Report. ESI shall have received a Phase I
environmental audit report with respect to the Leased Real Property, prepared by
an environmental audit firm selected by ESI, the results of which audit shall be
reasonably satisfactory to ESI.
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ARTICLE VI
SURVIVAL AND INDEMNIFICATION
6.1 Survival. All representations and warranties of any party contained in
this Agreement shall survive the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby, but shall be
extinguished and be of no further force or effect one year after the Closing
Date. No Claim Notice shall be effective if delivered after the time period
referred to above in this Section 6.1.
6.2 Scope of Indemnification. From and after the Effective Time and subject
to the limitations of this Article VI, each Shareholder will severally indemnify
and hold harmless ESI and Merger Corp. and their respective officers, directors
and shareholders (collectively, the "Indemnified Parties") from, for and against
any such losses, costs, expenses, damages and liabilities, including reasonable
attorneys' fees (collectively, "Damages"), incurred by an Indemnified Party by
reason of or arising out of any inaccuracy in any representation or warranty or
the breach of any covenant of Chip Star or the Shareholders made in this
Agreement; provided, however, that the limitation of liability for each
Shareholder shall be the shares of ESI Common Stock placed in escrow by such
Shareholder pursuant to Section 6.3.
6.3 Escrow. On the Closing Date, ESI shall, on behalf of each of the
Shareholders, deliver to the Escrow Agent 10 percent of such Shareholder's
shares of the ESI Common Stock to be received by such Shareholder pursuant to
Section 1.3, provided that the shares to be delivered on behalf of each
Shareholder shall be rounded downward to the nearest whole share of ESI Common
Stock (such deposited shares shall be referred to as the "Escrowed Property").
The Escrowed Property will be deposited with the Escrow Agent pursuant to the
terms of the
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Escrow Agreement. The escrow and the Escrow Agreement shall terminate and the
Escrowed Property shall be distributed to the Shareholders at the earliest time
provided for in the Escrow Agreement, but not later than the first anniversary
of the Closing Date.
6.4 Limitations. The liability of the Shareholders pursuant to Section 6.2
shall be subject to the following limitations:
6.4.1 Minor Claims. The Shareholders shall not have any liability or
indemnity obligation under Section 6.2 with respect to the first $25,000 of
Damages of the Indemnified Parties (the "Basket"). The Basket is subject to
adjustment as set forth in Section 6.6.
6.4.2 Escrowed Property. The indemnity obligation of the Shareholders
under Section 6.2 shall be satisfied solely out of the Escrowed Property in
accordance with the Escrow Agreement. To make a claim against the Escrowed
Property, the Indemnified Parties must deliver a Claim Notice within 12 months
of the Closing Date.
6.5 Claim Procedure for Indemnification. The obligations and liabilities of
the Shareholders in connection with claims for indemnification for Damages by an
Indemnified Party shall be subject to the following terms and conditions:
6.5.1 Notice. The Indemnified Party shall give written notice to the
Shareholders and, for claims made during the term of the Escrow Agreement, the
Escrow Agent of its claim for indemnification as promptly as practicable
whenever the Indemnified Party shall have determined that there are facts or
circumstances which entitle ESI to indemnification under this Article VI;
provided, however, that the failure to give a timely notice of a claim for
indemnification shall not diminish the indemnification obligations hereunder
except to the extent that the delay in giving such notice materially adversely
affects the ability of the Shareholders
52
to mitigate Damages with respect to any claim. The notice ("Claim Notice") shall
set forth in reasonable detail the basis for the claim, the nature of the
Damages and the amount thereof, to the extent known.
6.5.2 Response to Third Party Claim. If the Claim Notice states that a
claim has been asserted by a third party against the Indemnified Party (a "Third
Party Claim"), ESI shall undertake, conduct and control, through counsel of its
choosing, the good faith settlement or defense of the Third Party Claim. The
Shareholders shall be kept apprised of the status of such Third Party Claims.
6.5.3 Diligent Conduct. If, within five days after receipt by ESI from
the Shareholders of written notice that ESI is not diligently conducting the
defense or attempted settlement in good faith, ESI does not provide reasonably
sufficient evidence to the Shareholders that ESI is diligently conducting the
defense or attempting settlement in good faith, the Shareholders shall
thereafter have the right to contest, settle or compromise the Third Party
Claim.
6.6 Adjustment of the Basket.
6.6.1 Physical Count of Assets. On or before July 31, 1997, ESI will
conduct a physical count of Chip Star inventory. If and to the extent the
aggregate value of the inventory determined by such count (the "Physical Count
Value") exceeds the book value for inventory reflected on Chip Star books and
records as of the date of the count, that amount will be added to the Basket; if
and to the extent the Physical Count Value is less than the book value for
inventory reflected on Chip Star books and records as of the date of the count,
the Basket will be reduced by that amount. If the Physical Count Value is less
than the book value of the
53
inventory, and the difference is greater than the size of the Basket, then the
Basket will be reduced to zero, and any difference in book value and the
Physical Count Value in excess of the Basket will be paid to ESI out of the
Escrowed Property.
6.6.2 Receivables. If all accounts receivable reflected on the
Current Balance Sheet are collected when due, then the Basket will be increased
by up to $16,087, the amount of unreconciled accounts set forth on Schedule
3.1.27.
ARTICLE VII
TERMINATION
7.1 Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by the mutual
consent of Chip Star and ESI.
7.2 Termination by Either Chip Star or ESI. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time:
(a) by ESI or Chip Star if the Merger shall not have become effective
on or prior to August 1, 1997, provided, however, that the right to terminate
this Agreement pursuant to this Section 7.2(a) shall not be available to any
party whose breach of this Agreement has been the cause of, or resulted in, the
failure of the Merger to occur on or before such date; or
(b) by ESI or Chip Star if any court of competent jurisdiction in the
United States or any state shall have issued an order, judgment or decree (other
than a temporary restraining order) restraining, enjoining or otherwise
prohibiting the Merger and such order, judgment or decree shall have become
final and nonappealable.
54
7.3 Effect of Termination and Abandonment. In the event of termination of
this Agreement and abandonment of the Merger pursuant to this Article VII, (i)
this Agreement immediately will become void and of no effect, except that
Sections 4.1.3 and 8.1 will survive the event of termination; and (ii) no party
hereto (or any of its directors of officers) shall have any liability or further
obligation to any other party to this Agreement, except for breach of this
Agreement.
ARTICLE VIII
MISCELLANEOUS AND GENERAL
8.1 Payment of Expenses. Other than in the event of breach of this
Agreement by the other party, each party shall be responsible for the costs and
expenses incurred by it in connection with the transactions contemplated by this
Agreement. Nothing in this Agreement is meant to limit the right of a
non-breaching party to obtain reimbursement of expenses and other damages,
including attorneys fees, incurred as a result breach of this Agreement by the
other party.
8.2 Entire Agreement. This Agreement, including the schedules and the
exhibits hereto, constitutes the entire agreement between the parties hereto and
supersede all prior agreements and understandings, oral and written, among the
parties hereto with respect to the subject matter hereof.
8.3 Assignment. This Agreement shall not be assignable by any of the
parties hereto without the prior written consent of each of ESI and Chip Star.
8.4 Binding Effect; No Third Party Benefit. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns, subject to
55
the restrictions on assignment contained in Section 8.3. Nothing express or
implied in this Agreement is intended or shall be construed to confer upon or
give to a person, firm or corporation other than the parties hereto any rights
or remedies under or by reason of this Agreement or any transaction contemplated
hereby.
8.5 Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified and supplemented at any time prior to or at the
Closing, whether before or after the votes of shareholders of Chip Star, by
written agreement executed and delivered by the duly authorized officers of Chip
Star and ESI.
8.6 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; provided, however, that any waiver by a party must be in
writing.
8.7 Counterparts. For the convenience of the parties hereto, 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.
8.8 Captions. The article, section and paragraph captions 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.
8.9 Subsidiary. When a reference is made in this Agreement to a subsidiary
of a party, the term "subsidiary" means any corporation or other organization,
whether incorporated or unincorporated, of which at least a majority of the
securities or interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or others performing
56
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or more
of its subsidiaries, or by such party and one or more of its subsidiaries.
8.10 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally
or mailed, certified or registered mail with postage prepaid, or sent by telex,
telegram or facsimile (in each case with evidence of confirmed transmission) as
follows:
If to the Shareholders, to them at:
Denver Xxxxxx
000 Xxxxx Xxxx
Xxx Xxxxxx, Xxxxxxxxxx 00000
Fax:
Xxxxxx Xxxxxxxx
000 Xxxx Xxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Fax:
with copies to:
Dostart Xxxxx Xxxxxxxx & Xxxxxxx, LLP
0000 Xx Xxxxx Xxxxxxx Xx.
Xxxxx 000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxxx, Esq.
Fax: (000) 000-0000
If to ESI or Merger Corp., to it at:
00000 XX Xxxxxxx Xxxx Xxxxx
Xxxxxxxx, Xxxxxx 00000
Attention: President and Chief Executive Officer
Fax: (000) 000-0000
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with copies to:
Stoel Rives LLP
000 XX Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxx 00000
Attention: Xxxxxxx X. Xxxxx
Fax: (000) 000-0000
or to such other person or address as any party shall specify by notice in
writing. All such notices, requests, demands, waivers and communications shall
be deemed to have been received on the date of delivery or on the third business
day after the mailing thereof.
8.11 Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Oregon, exclusive of choice of law
rules, except that the provisions of this Agreement relating to the Merger shall
also be governed by the merger provisions of the CCC.
8.12 Separability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
58
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first
hereinabove written.
ELECTRO SCIENTIFIC INDUSTRIES, INC.
By XXXXX X. XXXXXX
--------------------------------------
Xxxxx X. Xxxxxx,
Senior Vice President and Chief
Financial Officer
CHIP STAR INC.
By DENVER XXXXXX
--------------------------------------
Denver Xxxxxx,
President
CI MERGER CORP.
By XXXXX X. XXXXXX
--------------------------------------
Xxxxx X. Xxxxxx,
Senior Vice President and Chief
Financial Officer
DENVER XXXXXX
-----------------------------------------
Denver Xxxxxx
XXXXXX XXXXXXXX
-----------------------------------------
Xxxxxx Xxxxxxxx
59
EXHIBIT A
PLAN OF MERGER
MERGING
CI MERGER CORP.
WITH AND INTO
CHIP STAR INC.
1. Parties. The names of the corporations proposing to merge are Chip Star
Inc., a California corporation ("Chip Star"), and CI Merger Corp., an Oregon
corporation ("Merger Corp."), a wholly-owned subsidiary of Electro Scientific
Industries, Inc., an Oregon corporation ("ESI"). The surviving corporation in
the merger (the "Merger") will be Chip Star.
2. Terms and Conditions. Upon consummation of the Merger (the "Effective
Time"), Merger Corp. shall be merged with and into Chip Star in the manner and
with the effect provided by the California Corporations Code (the "CCC") and the
Oregon Business Corporation Act (the "OBCA"), the separate corporate existence
of Merger Corp. shall cease, and Chip Star shall be the surviving corporation.
The outstanding shares of Chip Star Common Stock shall be converted into shares
of ESI Common Stock, without par value (the "ESI Common Stock"). The outstanding
shares of Merger Corp. Common Stock shall be converted into shares of Chip Star
Common Stock (the "Surviving Corporation Common Stock").
3. Conversion of Shares. Chip Star has issued one class of Common Stock.
Merger Corp. has issued one class of Common Stock. The manner and basis of
converting the shares of capital stock of Chip Star and Merger Corp. shall be as
follows:
(a) Exchange for ESI Stock. Each of the 900,000 shares of Chip Star
Common Stock outstanding immediately before the Effective Time shall by virtue
of the Merger and without any action on the part of the holder thereof, cease to
exist and be converted into 0.6576 of a share of ESI Common Stock.
(b) Exchange for Surviving Corporation Stock. Each of the 100 shares
of Merger Corp. Common Stock outstanding immediately before the effective time
shall by virtue of the Merger and without any action on the part of the holder
thereof, cease to exist and be converted into one share of Surviving Corporation
Common Stock.
Exhibit B
CALIFORNIA FORM OF
EMPLOYEE CONFIDENTIALITY
AND ASSIGNMENT AGREEMENT
In consideration of my employment by Electro Scientific Industries, Inc.,
or by one of its subsidiaries and affiliates (herein collectively called "ESI"),
I agree to the following:
1. Confidentiality. I acknowledge that my employment gives me access to
manufacturing processes, business plans, customer lists, drawings, documents,
reports, facilities, formulas, computer data, computer programs (including
algorithms, flowcharts, source code, object code and firmware), and other
information all of which ESI regards as confidential and treats as trade
secrets. I recognize that my employment creates a relationship of confidence and
trust which requires me to protect the secrecy of such confidential information.
2. Nondisclosure and Nonuse. Except as the duties of my employment may
require, I will not use, publish or disclose any confidential information to
which I am given access. This obligation will continue even if I cease to be
employed by ESI. On termination of my employment, I shall deliver to ESI all
files, notes, records, data and documents which are under my control and which
relate to confidential information of ESI.
3. Assignment of Inventions. I shall promptly disclose and I hereby assign
to ESI all proprietary rights, including any patents or copyrights which may be
obtained, in all inventions, processes, ideas, improvements, computer programs
embodied in any medium and at any stage of development (including but not
limited to algorithms, flowcharts, source code, object code and firmware), and
any other discoveries which are conceived by me, alone or with others, while I
am employed by ESI and for one year thereafter, and which relate to the business
of ESI (herein collectively called "the Inventions"). This obligation shall
apply even if the Inventions are not patentable and even if they were not
conceived during regular working hours.
4. Patents and Copyrights. I shall cooperate fully with ESI during and
subsequent to my employment if ESI decides, at its expense, to obtain U.S. or
worldwide patents or copyrights covering my Inventions. If ESI elects not to
file patent or copyright applications within one year after I have submitted a
written disclosure on an Invention, and if ESI determines that the Invention
does not constitute a trade secret of ESI, the Invention will be released to me
with the retention by ESI of a transferable, nonexclusive and royalty-free
license under any patents or copyrights which may subsequently be issued.
5. Bonus. If ESI elects to seek patent or copyright protection on any
Invention disclosed by me, it will pay me a bonus of $100.00 for each Invention
of which I am the sole inventor or my pro rata share of $100.00 if there are
multiple investors.
6. Prior Inventions. I have set out below a complete list of all
Inventions, if any, patented or unpatented, including the numbers of all patents
and patent applications filed thereon, and a brief description of all unpatented
Inventions, which I made prior to my employment by the Company, and which are to
be excluded from the scope of this Agreement. I agree that any patentable
improvements made upon the listed Inventions subsequent to my employment by the
ESI are to be the property of ESI if within the scope of Paragraph 3 hereof.
7. I hereby irrevocably consent to and authorize the use and reproduction
by ESI or anyone authorized by ESI, of any and all photographs which are taken
of me during my employment by ESI, negative or positive, proofs of which will be
retained in ESI files, for any purpose whatsoever, without further compensation
to me. All negatives and positive, together with the prints shall constitute ESI
property, solely and completely.
8. Litigation. I recognize that ESI will not have an adequate monetary
remedy to compensate it if I violate the terms of this Agreement. Accordingly,
if I fail to honor my obligations, I hereby consent to the immediate entry of a
temporary restraining order and preliminary injunction against me by a court of
competent jurisdiction. If any litigation is commenced to enforce this
Agreement, the prevailing party at trial and on appeal shall be entitled to an
award of reasonable attorneys' fees.
9. Binding Effect. The provisions of this Agreement shall inure to the
benefit of and be binding upon the heirs, legal representatives, successors and
assigns of the parties.
Reserved Inventions (drawings, photographs, etc.; attached).
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Please note that Section 2870 of the California Labor Code provides that
the above Agreement between you and ESI does not require you to assign to ESI
any invention that you developed entirely on your own time without using ESI's
equipment, supplies, facilities, or trade secret information except for those
inventions that either: (i) relate at the time of conception or reduction to
practice of the invention to ESI's business, or actual or demonstrably
anticipated research or development of ESI, or (ii) result from any work
performed by you for ESI. By signing this Agreement, you acknowledge that this
paragraph shall constitute written notice of the provisions of Section 2870.
Employee Name ___________________________
(please print)
Employee Signature ______________________
Date ____________________________________
2
Accepted:
Electro Scientific Industries, Inc.
By ____________________________________
(Authorized Signature)
Date __________________________________
3
Exhibit C
PLEDGE AND ESCROW AGREEMENT
This PLEDGE AND ESCROW AGREEMENT (the "Agreement"), dated as of June 26,
1997, is among Electro Scientific Industries, Inc., an Oregon corporation
("ESI"), The First National Bank of Chicago, a national banking association
organized under the laws of the United States ("Escrow Agent"), and the
shareholders of Chip Star Inc., a California corporation ("Chip Star") listed on
Schedule A (the "Shareholders").
RECITALS
A. ESI, Chip Star, CI Merger Corp., an Oregon corporation ("Merger Corp."),
and the Shareholders are parties to an Agreement of Reorganization and Merger,
dated as of June 26, 1997 (the "Merger Agreement").
B. Pursuant to the Merger Agreement, upon the merger of Merger Corp. into
Chip Star (the "Merger"), each Shareholder will be entitled to receive shares of
Common Stock, no par value, of ESI ("ESI Common Stock") in exchange for shares
of Common Stock, no par value, of Chip Star held by such Shareholder at the time
the Merger becomes effective (the "Effective Time").
C. The Merger Agreement further provides that the Shareholders severally
will indemnify ESI and Merger Corp. as and to the extent provided in Article VI
of the Merger Agreement (the "Indemnities").
D. To secure the performance of the Indemnities under the Merger Agreement,
the Merger Agreement provides that the Shareholders are to pledge and deposit 10
percent of the shares of ESI Common Stock to be issued to the Shareholders
pursuant to Section 1.3 of the Merger Agreement, to be held in escrow under this
Agreement (such shares of ESI Common Stock to be pledged, deposited, and held,
the "Escrow Shares").
E. The Escrow Agent has agreed to hold the Escrow Shares pursuant to the
terms of this Agreement.
F. It is a condition to the consummation of the transactions contemplated
by the Merger Agreement that the Shareholders and the Escrow Agent execute and
deliver to ESI and Merger Corp. this Agreement.
AGREEMENT
NOW, THEREFORE, the parties agree as follows:
1. Additional Definitions. In addition to the terms defined above, the
following terms have the indicated meanings:
"Claim" has the meaning specified in Section 4.1.
"Claim Notice" has the meaning specified in Section 4.1.
"Indemnified Party" has the meaning specified in Section 4.1.
"Proceeds" means, as to any given Escrow Share, any stock or
liquidating dividend, return of capital, or other distribution made on or in
respect of such Escrow Share, whether resulting from a subdivision, combination,
or reclassification of the outstanding capital stock of ESI or received in
exchange for such Escrow Share or as a result of any merger, consolidation,
acquisition or other exchange of assets to which ESI may be a party or
otherwise, provided that "Proceeds" will not include any non-liquidating
dividend payable in cash or property other than capital stock.
"Valuation Price" means the closing per share selling price of ESI
Common Stock as reported in The Wall Street Journal on the date of this
Agreement, subject to appropriate adjustment in the event that, ESI:
(a) declares a dividend payable in shares of its common stock;
(b) splits or combines the shares of its common stock then
outstanding;
(c) declares a distribution (other than a non-liquidating cash
dividend) on shares of its common stock;
(d) merges or consolidates with any corporation in which ESI Common
Stock is exchanged or converted; or
(e) reorganizes, recapitalizes or reclassifies any of the shares of
its common stock.
2. Pledge and Acknowledgment; Deposit.
2.1 Pledge and Acknowledgment. As security for the performance of the
Indemnities, the Shareholders hereby pledge the Escrow Shares, and consent to
the deposit with the Escrow Agent of certificates for the Escrow Shares,
together with stock powers endorsed to ESI, to be held and dealt with by the
Escrow Agent pursuant to the terms and subject to the conditions of this
Agreement. The Escrow Agent acknowledges receipt of a copy of the Merger
Agreement but, except for reference thereto for definitions of certain words or
terms not defined herein, the Escrow Agent is not charged with any duties or
responsibilities under the Merger Agreement.
2
2.2 Deposit; Allocation of Payments. ESI will issue a certificate for
the Escrow Shares registered in the name of each Shareholder as set forth in
Schedule A, and will deposit all such certificates with the Escrow Agent on
behalf of each Shareholder. The interest in, and payments out of, the Escrow
Shares will be allocated among the Shareholders on a pro rata basis according to
the number of Escrow Shares set forth on Schedule A for each Shareholder except
as set forth in Section 4.5. Each Shareholder's interest in the Escrow Shares
will otherwise be uncertificated and nontransferable.
3. Use of Escrow Shares and Proceeds. The Escrow Shares will remain
registered in the name of each Shareholder and, along with the Proceeds, will be
held in escrow (the "Escrow") by the Escrow Agent under this Agreement in
accordance with its terms.
4. Disposition of Escrow Shares; Termination.
4.1 Claim Notices. ESI, Merger Corp., and their respective officers,
directors, and shareholders (each, an "Indemnified Party") may, at any time or
from time to time for a period of 12 months following the Effective Time, assert
a claim for breach of a representation, warranty, or covenant of Chip Star
contained in the Merger Agreement in accordance with the procedure set forth in
Section 6.5 of the Merger Agreement (a "Claim") against the Escrow Shares by
notice (a "Claim Notice") to the Shareholders, with a copy to the Escrow Agent.
The Claim Notice must set forth in reasonable detail the basis for the Claim,
the nature of the damages, and the total dollar amount thereof, to the extent
known.
4.2 Effect of Claim Notices. Upon receipt of a Claim Notice, the
Escrow Agent will designate as "Escrow Shares Subject to Claim" that number of
Escrow Shares that, based on the Valuation Price, is equal in value to the
estimate of the damages in the Claim Notice, or the remaining Escrow Shares if
such value is less than such estimate. Thereafter, the Escrow Agent will deliver
to ESI the Escrow Shares Subject to Claim not less than 40 days after delivery
of the Claim Notice, unless the Escrow Agent receives an objection from the
Shareholder pursuant to Section 4.3.
4.3 Objections to Claims. If any Shareholder notifies the Escrow Agent
in writing of his good faith objections to any Claim Notice within 30 days
following delivery of such Claim Notice pursuant to Section 4.1, then the Escrow
Agent will instead hold such Escrow Shares Subject to Claim in Escrow until
either (a) the Shareholder and ESI have agreed upon the disposition of such
Escrow Shares with respect to such Claim Notice and notified the Escrow Agent of
such an agreement in writing signed by Shareholder and by ESI or (b) such
disposition is finally determined by binding arbitration pursuant to Section 4.4
and the Escrow Agent receives written notice of the final determination made by
the arbitrator in such arbitration.
4.4 Dispute Resolution. If ESI and the Shareholder are unable, within
60 days after delivery of the written objection under Section 4.3, to agree upon
the disposition of the applicable Escrow Shares Subject to Claim, the dispute
will be resolved by binding
3
arbitration in San Francisco, California, conducted in accordance with the rules
and procedures of the American Arbitration Association.
4.5 Disposition of Escrow Shares. At the end of the 12-month period
following the Effective Time, the Escrow Agent will, within five business days,
deliver to the Shareholders stock certificates equal to the number of Escrow
Shares then remaining in Escrow. Such Escrow Shares will be distributed pro rata
to the Shareholders in accordance with the number of Escrow Shares originally
deposited into Escrow as set forth on Schedule A.
4.6 Escrow Shares Subject to Any Claim. Any Escrow Shares Subject to
Claim will be retained in Escrow and will be held by the Escrow Agent subject to
the terms and conditions of this Agreement and upon resolution of any such
pending Claims, stock certificates for the Escrow Shares not required to satisfy
such Claims (together with any Escrow Shares remaining in Escrow due to the
effect of the rounding provisions of Section 4.8) will be delivered to the
Shareholders, pro rata in accordance with the number of Escrow Shares originally
deposited into Escrow as set forth in Schedule A.
4.7 Proceeds. Upon the delivery of any Escrow Shares to either ESI or
the Shareholders as provided in this Section 4, the Escrow Agent will deliver to
the party receiving such Escrow Shares the Proceeds relating to such Escrow
Shares.
4.8 No Fractional Escrow Shares. Should any fractional share result
from the calculations described in this Section 4, the number of Escrow Shares
affected will be rounded to the nearest whole number.
4.9 Third Party Claims. If any Claim Notice specifies that the
applicable Claim arises as a result of a claim asserted against the Indemnified
Party by a third party, the Escrow Shares will be subject to being used to
satisfy the expenses of the Indemnified Party defending against such claim,
provided, that if notice of objections to such Claim Notice is given pursuant to
Section 4.3, Escrow Shares will be available to satisfy such expenses only if
such objections are resolved in favor of release of Escrow Shares pursuant to
Section 4.3 or 4.4.
4.10 Termination. This Agreement will terminate upon the delivery of
all of the Escrow Shares and Proceeds.
5. Dividends and Proxies with respect to Escrow Shares. So long as any
Escrow Shares are held by the Escrow Agent hereunder:
(a) Each Shareholder will be entitled to exercise any and all voting
and consensual rights and powers accruing to such Shareholder with respect
to his, her, or its Escrow Shares.
4
(b) Each Shareholder will be entitled to receive any and all
non-liquidating dividends payable in respect of his, her, or its Escrow
Shares, which dividends will be paid directly by ESI to such Shareholder.
All Proceeds in respect of the Escrow Shares, including stock dividends in
respect of any Escrow Shares, will be delivered to and retained by the
Escrow Agent and will not be distributed except in accordance with the
terms of this Agreement.
6. Stock Powers. Each Shareholder will sign and deliver to the Escrow Agent
stock powers endorsed to ESI to permit the Escrow Agent to transfer to ESI the
number of Escrow Shares determined in accordance with the provisions of Section
4.
7. Escrow Agent Provisions.
7.1 Investment Instructions. The Escrow Agent will invest and reinvest
the cash funds in Escrow, if any, in the Pegasus Institutional U.S. Government
Securities Cash Management Fund, which invests in short term securities issued
or guaranteed as to principal and interest by the U.S. Government and repurchase
agreements with respect to such securities. No such investment by the Escrow
Agent may have a maturity that exceeds the shorter of (a) one year from the date
of purchase or (b) such period of time as remains between the date upon which
the investment is made and the remaining term of this Agreement. Interest and
other earnings on the cash invested will be added to the cash in Escrow to be
held and distributed in accordance with Section 4. Any loss incurred from an
investment will be borne by the Escrow. Investment and reinvestment of the cash
in Escrow may be made only in accordance with this Section 7.1.
7.2 Limited to Agreement. The duties and obligations of the Escrow
Agent hereunder will be determined solely by the express provisions of this
Agreement, and the Escrow Agent is under no obligation to refer to any other
documents between or among the parties related in any way to this Agreement.
7.3 Exculpation. The Escrow Agent will not be liable to anyone
whomsoever by reason of any error of judgment, or for any act done or step taken
or omitted by it, or for any mistake of fact or law, or for anything that it may
do or refrain from doing in connection herewith unless in any such case caused
by or arising out of its own gross negligence or willful misconduct. The Escrow
Agent may act pursuant to the advice of the Escrow Agent's counsel with respect
to any matter relating to this Agreement and will not be liable for any action
taken or omitted by it in good faith in accordance with such advice. ESI will
indemnify and hold the Escrow Agent harmless from and against any and all
liability and expense that may arise out of any action taken or omitted by the
Escrow Agent in accordance with this Agreement, except such liability and
expense as may result from the gross negligence or willful misconduct of the
Escrow Agent. The indemnities in this Section 7.3 will survive the termination
of this Agreement.
7.4 Reliance. The Escrow Agent is entitled to rely on, and will be
protected in acting in reliance upon, any instructions or directions furnished
to it in writing
5
signed by both ESI and a Shareholder pursuant to any provision of this Agreement
and will be entitled to treat as genuine, and as the document it purports to be,
any letter, paper, or other document that is furnished to it by either ESI or a
Shareholder and that the Escrow Agent reasonably believes to be genuine and to
have been signed and presented by the proper party or parties.
8. Compensation of Escrow Agent. ESI will pay the Escrow Agent the fees and
expenses payable in accordance with Schedule 8 attached hereto, including its
attorney's fees and expenses, that it incurs in connection with the performance
of its duties under this Agreement, or under the indemnity provided in Section
7.3.
9. Expenses. Any stock transfer taxes incurred in connection with the
release and delivery of any Escrow Shares by the Escrow Agent under this
Agreement will be borne by the recipient of such Escrow Shares.
10. Notices. All notices required or permitted to be given hereunder must
be in writing and will be deemed given or delivered hereunder when delivered in
person or sent by facsimile with a confirmation copy sent by certified mail,
return receipt requested, or when received if given by Federal Express or other
nationally recognized overnight courier service, or five business days after
being deposited in the United States mail, postage prepaid, registered or
certified mail, return receipt requested, addressed to the applicable party as
follows:
If to the Escrow Agent, addressed to the Escrow Agent at:
---------------------------------------------------------
The First National Bank of Chicago
Xxx Xxxxx Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000-0000
Attention: Corporate Trust Administration
Fax: (000) 000-0000
If to ESI or Merger Corp., addressed to ESI at:
-----------------------------------------------
Electro Scientific Industries, Inc.
00000 XX Xxxxxxx Xxxx Xx.
Xxxxxxxx, Xxxxxx 00000
Attention: President and Chief Executive Officer
Fax: (000) 000-0000
6
with a copy to:
Stoel Rives LLP
Suite 2300
000 XX Xxxxx Xxx.
Xxxxxxxx, Xxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxx
Fax: (000) 000-0000
If to a Shareholder addressed to him at the appropriate address shown
on Schedule A, and/or such other respective addresses and/or addressees as
may be designated by notice given in accordance with the provisions of this
Section 10.
11. Taxes. As between each Shareholder and ESI in connection with this
Escrow, such Shareholder will be treated as the grantor thereof for tax purposes
and will include in such Shareholder's tax return his, her, or its share of any
earnings of the Escrow and pay any taxes incurred in connection therewith.
12. Governing Law. The construction and performance of this Agreement will
be governed by the laws of the state of Oregon, exclusive of choice of law rules
13. Entire Agreement. This Agreement embodies the entire agreement of the
parties with respect to its subject matter and supersedes all prior or
contemporaneous understandings and agreements, whether oral or written,
regarding its subject matter.
14. Amendment; Waiver. The provisions of this Agreement may be amended or
waived only by an instrument in writing signed by each of ESI, the Escrow Agent,
and each of the Shareholders.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same Agreement.
16. Transfer of Escrow Shares. The Shareholders acknowledge and understand
that the Escrow Shares have not been registered under the Securities Act of 1933
(the "Act") or any state securities laws, and that the transfer of the Escrow
Shares is therefore restricted. The Escrow Shares are also subject to certain
restrictions because they have been issued in a business combination accounted
for as a pooling of interests (the "Pooling Restrictions"). Each of the
foregoing restrictions is described in Section 1.8 of the Merger Agreement and
in the legends printed on certificates representing the Escrow Shares. The
Escrow Shares (i) can only be transferred if they are registered under the Act
and any state securities laws or there is an available exemption from such
registration and (ii) can only be sold (and the holder thereof may only reduce
his risk relative thereto) after ESI has published financial results covering at
least 30 days of combined operations following the Effective Time of the Merger.
In the event an exemption becomes available or the Escrow Shares are registered
7
under the Act during the term of this Agreement and after the Pooling
Restrictions have lapsed, thereby permitting the transfer of such shares, ESI
will notify the Escrow Agent to this effect, and ESI, the Shareholders and the
Escrow Agent agree to amend this Agreement to provide that, subject to
compliance with all procedural requirements requested by the Escrow Agent, (i) a
Shareholder may direct the Escrow Agent to transfer the Escrow Shares for value,
(ii) upon transfer, any value received for such Escrow Shares in excess of the
Valuation Price will be promptly distributed to the Shareholder, and (iii) an
amount equal to the Valuation Price will be retained by the Escrow Agent to
satisfy Claims for the term of this Agreement.
8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
ESI ELECTRO SCIENTIFIC INDUSTRIES, INC.
-----------------------------------------
By: Xxxxx X. Xxxxxx
Title: Senior Vice President and Chief
Financial Officer
ESCROW AGENT THE FIRST NATIONAL BANK OF CHICAGO
By: _____________________________________
Title: __________________________________
SHAREHOLDERS
-----------------------------------------
Denver Xxxxxx
-----------------------------------------
Xxxxxx Xxxxxxxx
9
Schedule A
SHAREHOLDERS
Percentage of
Number of Total
Shareholder Address Escrow Shares Escrow Shares
----------- ------- ------------- -------------
1. Denver Xxxxxx 000 Xxxxx Xxxx 39,456 66.66%
Xxx Xxxxxx, XX 00000
2. Xxxxxx Xxxxxxxx 000 Xxxx Xxxxx Xxxxx 19,728 33.33%
Xxxxxxxxx, XX 00000
10
Schedule 8
COMPENSATION OF ESCROW AGENT
11
Exhibit D
NONCOMPETITION AND NONSOLICITATION AGREEMENT
This NONCOMPETITION AND NONSOLICITATION AGREEMENT (the "Agreement"),
dated as of June 26, 1997, is among Electro Scientific Industries, Inc., an
Oregon corporation ("ESI"), CI Merger Corp., an Oregon corporation ("Merger
Corp."), a wholly-owned subsidiary of ESI and ___________________ ("Selling
Shareholder").
RECITALS
A. Selling Shareholder owns shares in Chip Star, Inc., a California
corporation ("Chip Star").
B. ESI, Chip Star, Merger Corp. and the shareholders of Chip Star have
entered into an Agreement of Reorganization and Merger (the "Merger Agreement"),
dated as of June 26, 1997, providing for the merger (the "Merger") of Merger
Corp. into Chip Star, with Chip Star as the surviving corporation ("New Chip
Star").
C. Selling Shareholder is entering into this Agreement as an
inducement to ESI and Merger Corp. to consummate the Merger, with all of the
attendant financial benefits to Selling Shareholder from the disposition of his
capital stock of Chip Star.
AGREEMENT
The parties agree as follows:
1. Acknowledgements by Selling Shareholder. Selling Shareholder
acknowledges that by virtue of his relationship with Chip Star, he has developed
considerable technical expertise in the design, manufacture and sale of the
equipment designed, manufactured and sold by Chip Star and considerable
expertise in the business operations of Chip Star and has access to extensive
confidential information with respect to Chip Star. Selling Shareholder
recognizes that ESI and Merger Corp. would be irreparably damaged, and ESI's
substantial investment in New Chip Star materially impaired, if Selling
Shareholder were to enter into an activity competing with any business of New
Chip Star in violation of the terms of this Agreement. Accordingly, Selling
Shareholder expressly acknowledges that he is voluntarily entering into this
Agreement and that the terms and conditions of this Agreement are fair and
reasonable to Selling Shareholder in all respects.
2. Noncompetition. Until five years after the effective date of the
Merger, Selling Shareholder shall not, directly or indirectly, without the prior
written consent of ESI, engage or be engaged, in any capacity, directly or
indirectly, including but not limited as an employee, agent, consultant,
manager, executive, owner, lender or stockholder in any business entity engaged
in competition with any business conducted by Chip Star or New Chip Star at the
effective time of the Merger in any geographic location at which business was
conducted by Chip Star or New Chip Star
at the effective time of the Merger. Notwithstanding the above, Selling
Shareholder shall not be deemed to be engaged directly or indirectly in any
business in contravention of the preceding sentence if he participates in any
such business solely as a passive investor of up to 1 percent of the equity
securities of a company or partnership, the securities of which are publicly
traded.
3. Noninterference. Selling Shareholder further agrees that until five
years after the Closing Date, he will not, without the prior written consent of
ESI, (a) interfere with the business of New Chip Star by soliciting, attempting
to solicit, inducing, or otherwise causing any employee of New Chip Star to
terminate his or her employment as such in order to become an employee,
consultant or independent contractor to or for any competitor of New Chip Star
or to or for any company with which Selling Shareholder is associated in any
way; or (b) induce or attempt to induce any supplier of New Chip Star, or any
customers, distributors, resellers, or independent contractors of New Chip Star
to terminate their relationships with, or to take any action that would be
disadvantageous to the business of, New Chip Star.
4. Independence of Obligations. The covenants of Selling Shareholder
set forth in this Agreement shall be construed as independent of any other
agreement or arrangement between Selling Shareholder, New Chip Star, or ESI and
any of its subsidiaries and the existence of any claim or cause of action by
Selling Shareholder against New Chip Star or ESI or any of its subsidiaries
shall not constitute a defense to the enforcement of this Agreement against
Selling Shareholder.
5. Equitable Relief. Selling Shareholder expressly acknowledges that
damages alone will not be an adequate remedy for any breach by Selling
Shareholder of the covenants set forth in Sections 2 and 3 hereof and that the
other parties hereto, in addition to any other remedies which they may have,
shall be entitled as a matter of right, to injunctive relief, including specific
performance, in any court of competent jurisdiction with respect to any actual
or threatened breach by Selling Shareholder of any of such covenants.
7. Severability. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be excessively broad as to duration, activity
or geographic scope, it shall be deemed to extend only over the maximum
duration, activity or geographic scope as to which such provision shall be valid
and enforceable under applicable law. If any provisions shall, for any reason,
be held by a court of competent jurisdiction to be invalid, illegal or
unenforceable, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement, but this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had never been contained
herein.
8. Effectiveness. This Agreement shall become effective only upon the
effective time of the Merger. If the Merger is not consummated and the Merger
Agreement is terminated, this Agreement shall be terminated and shall be without
force or effect.
9. Notices. All notices or other communications hereunder shall be in
writing and deemed given if and when delivered to a party in person, or if and
when mailed by registered or
2
certified mail, return receipt requested, to the parties at the addresses set
forth below or such other addresses as shall be specified by notice to the other
party hereunder:
To ESI or New Chip Star at: 00000 XX Xxxxxxx Xxxx Xxxxx
Xxxxxxxx, Xxxxxx 00000
Attention: President and
Chief Executive Officer
with a copy to: Stoel Rives LLP
000 XX Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, Xxxxxx 00000
Attention: Xxxxxxx X. Xxxxx
Fax: (000) 000-0000
To Selling Shareholder at: ________________________________
________________________________
________________________________
10. Waiver of Breach. The failure or delay by ESI or New Chip Star in
enforcing any provision of this Agreement shall not operate as a waiver thereof,
and any waiver shall not operate or be construed as a waiver of any subsequent
breach or violation thereof. All waivers shall be in writing and signed by the
party to be bound.
11. Assignment; Binding Effect. This Agreement is not assignable by
Selling Shareholder. This Agreement shall be binding upon and inure to the
benefit of ESI, Merger Corp. and their respective successors and assigns.
12. Entire Agreement; Amendment. This Agreement represents the entire
agreement and understanding of the parties with respect to the subject matter
hereof and supersedes all prior agreements and understandings of the parties in
connection therewith. This Agreement may not be altered or amended except by an
agreement in writing signed by the parties to be bound.
13. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Oregon, exclusive of choice of law rules.
3
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
Electro Scientific
Industries, Inc. Selling Shareholder
By: _____________________________________ ____________________________________
Xxxxx X. Xxxxxx, Senior Vice
President and Chief Executive Officer
CI Merger Corp.
By: _____________________________________
Xxxxx X. Xxxxxx, Senior Vice
President and Chief Executive Officer
4
Exhibit X-0
Xxxxxx Xxxxxxxx XXX
Xxxxx 0000
000 XX Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxx 00000-0000
Gentlemen:
This letter is being delivered to you pursuant to Section 4.1.4 of the Agreement
of Reorganization and Merger (the "Agreement"), dated as of June 26, 1997, among
Electro Scientific Industries, Inc. an Oregon corporation ("Parent"), CI Merger
Corp., an Oregon corporation and a wholly owned subsidiary of Parent ("Merger
Corp."), Chip Star Inc., a California corporation (the "Company"), and Denver
Xxxxxx and Xxxxxx Xxxxxxxx, the principal shareholders of Chip Star (the
"Shareholders"). Unless otherwise indicated, capitalized terms not defined
herein have the meaning set forth in the Agreement.
After due inquiry and investigation regarding the meaning of and factual support
for the following representations, the undersigned hereby certifies and
represents that the following facts are true:
1. Pursuant to the Merger, Merger Corp. will merge with and into the
Company, and the Company will acquire all of the assets and liabilities of
Merger Corp.. Specifically, the assets transferred to the Company pursuant to
the Merger will represent at least ninety percent (90%) of the fair market value
of the net assets and at least seventy percent (70%) of the fair market value of
the gross assets held by Merger Corp. immediately prior to the Merger. In
addition, at least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair market value of the gross
assets held by the Company immediately prior to the Merger will continue to be
held by the Company immediately after the Merger. For the purpose of determining
the percentage of the Company's and Merger Corp.'s net and gross assets held by
the Company immediately following the Merger, the following assets will be
treated as property held by Merger Corp. or the Company, as the case may be,
immediately prior but not subsequent to the Merger: (i) assets used by the
Company or Merger Corp. (other than assets transferred from Parent to Merger
Corp. for such purpose) to pay shareholders perfecting dissenters' rights or
other expenses or liabilities incurred in connection with the Merger and (ii)
assets used to make distributions, redemptions or other payments in respect of
stock of the Company (except for regular, normal distribution) or in respect of
rights to acquire such stock (including payments treated as such for tax
purposes) that are made in contemplation of the Merger or that are related
thereto;
2. Merger Corp. was formed solely for the purpose of consummating the
transactions contemplated by the Agreement and at no time will Merger Corp.
conduct any business activities or other operations, or dispose of any of its
assets, other than pursuant to its obligations under the Agreement;
3. Parent's principal reasons for participating in the Merger are bona fide
business purposes not related to taxes;
4. Prior to the Merger, Parent will be in "Control" of Merger Corp.. As
used in this letter, "Control" shall consist of direct ownership of share of
stock possessing at least eighty percent (80%) of the total combined voting
power of all classes of stock entitled to vote and at least eighty percent (80%)
of the total number of shares of all other classes of stock of the corporation.
For purposes of
determining Control, a person shall not be considered to own shares of voting
stock if rights to vote such shares (or to restrict or otherwise control the
voting of such shares) are held by a third party (including a voting trust)
other than an agent of such person;
5. In the Merger, shares of stock of the Company representing Control of
the Company will be exchanged solely for shares of voting stock of Parent. For
purposes of this paragraph, shares of stock of the Company exchanged in the
Merger for cash and other property (including, without limitation, cash paid to
shareholders of the Company perfecting dissenters' rights) will be treated as
shares of stock of the Company outstanding on the date of the Merger but not
exchanged for shares of voting stock of Parent;
6. Parent has no plan or intention to cause the Company to issue additional
shares of stock after the Merger, or take any other action, that would result in
Parent losing Control of the Company;
7. Parent has no plan or intention to reacquire any of its stock issued
pursuant to the Merger;
8. Parent has no plan or intention to liquidate the Company; to merge the
company with or into another corporation, including Parent or its affiliates; to
sell, distribute or otherwise dispose of the stock of the Company; or to cause
the Company to sell or otherwise dispose of any of its assets or of any assets
acquired from Merger Corp., except for dispositions made in the ordinary course
of business or payment of expenses, including payments to shareholders of the
Company perfecting dissenters' rights, incurred by the Company pursuant to the
Merger and except for transfers described in both Section 368(a)(2)(C) of the
Code and Treasury Regulation Section 1.368-2(j)(4);
9. In the Merger, Merger Corp. will have no liabilities assumed by the
Company and will not transfer to the Company any assets subject to liabilities,
except to the extent incurred in connection with the transactions contemplated
by the Agreement;
10. Following the Merger, the Company will continue its historic business
or use a significant portion of its historic business assets in a business;
11. During the past five (5) years, none of the outstanding share of
capital stock of the Company, including the right to acquire or vote any such
shares, have directly or indirectly been owned by Parent;
12. Neither Parent nor Merger Corp. is an "investment company" within the
meaning of Sections 368(a)(2)(F)(iii) and (iv) of the Code;
13. The fair market value of the Parent stock received by each stockholder
of the Company will be approximately equal to the fair market value of the stock
of the Company surrendered in exchange therefor, and the aggregate consideration
received by shareholders of the Company in exchange for their stock of the
Company will be approximately equal to the fair market value of all the
outstanding shares of stock of the Company immediately prior to the Merger;
14. Merger Corp., Parent, the Company and the shareholders of the Company
will each pay separately its or their own expenses relating to the Merger;
15. There is no intercorporate indebtedness existing between Parent and the
Company or between Merger Corp. and the Company that was issued, acquired or
will be settled at a discount as a result of the Merger;
16. The terms of the Agreement are the product of arm's-length
negotiations;
17. None of the amounts received by any shareholder of the Company that
engages in any transaction with the Company other than in his or her capacity as
a shareholder will be separate consideration for, or allocable to, any of his or
her shares of stock of the Company; none of the shares of Parent stock received
by any such shareholder will be separate consideration for, or allocable to, any
employment agreement, any covenant not to compete, any lease, license or other
agreement or arrangement relating to the performance of services or transfer or
use of property (other than the shares of Company stock surrendered in the
Merger); and the amounts paid to any such shareholder will be for services
actually rendered or property actually acquired or used and will be commensurate
with amounts paid to third parties bargaining at arm's-length for similar
services or property;
18. The Merger will qualify as a merger under State law;
19. Parent and Merger Corp. are authorized to make all of the
representations set forth herein; and
20. The Agreement represents the full and complete agreement among Parent,
Merger Corp. and the Company regarding the Merger, and there are no other
written or oral agreements regarding the Merger.
It is understood that (i) your opinions will be based on the completeness
and accuracy of, and compliance with, representations set forth herein and on
the statements contained in the Agreement (including all schedules and exhibits
thereto) and documents related thereto, and (ii) your opinions will be subject
to certain limitations and qualifications, including that they may not be relied
upon if any such representations are not accurate in all material respect.
It is understood that your opinions will not address any tax consequences
of the Merger or any action taken in connection therewith except as expressly
set forth in such opinions.
Very truly yours,
ELECTRO SCIENTIFIC INDUSTRIES, INC.,
AN OREGON CORPORATION
By: _____________________________________
Title: __________________________________
CI MERGER CORP.,
AN OREGON CORPORATION
By: _____________________________________
Title: __________________________________
Exhibit X-0
Xxxxxx Xxxxxxxx XXX
Xxxxx 0000
000 XX Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxx 00000-0000
Gentlemen:
This letter is being delivered to you pursuant to Section 4.1.4 of the Agreement
of Reorganization and Merger (the "Agreement"), dated as of June 26, 1997, among
Electro Scientific Industries, Inc. an Oregon corporation ("Parent"), CI Merger
Corp., an Oregon corporation and a wholly owned subsidiary of Parent ("Merger
Corp."), Chip Star Inc., a California corporation (the "Company"), and Denver
Xxxxxx and Xxxxxx Xxxxxxxx, the principal shareholders of Chip Star (the
"Shareholders"). Unless otherwise indicated, capitalized terms not defined
herein have the meaning set forth in the Agreement.
After due inquiry and investigation regarding the meaning of and factual support
for the following representations, the undersigned hereby certifies and
represents that the following facts are true:
1. Pursuant to the Merger, Merger Corp. will merge with and into the
Company, and the Company will acquire all of the assets and liabilities of
Merger Corp.. Specifically, the assets transferred to the Company pursuant to
the Merger will represent at least ninety percent (90%) of the fair market value
of the net assets and at least seventy percent (70%) of the fair market value of
the gross assets held by Merger Corp. immediately prior to the Merger. In
addition, at least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair market value of the gross
assets held by the Company immediately prior to the Merger will continue to be
held by the Company immediately after the Merger. For the purpose of determining
the percentage of the Company's and Merger Corp.'s net and gross assets held by
the Company immediately following the Merger, the following assets will be
treated as property held by Merger Corp. or the Company, as the case may be,
immediately prior but not subsequent to the Merger: (i) assets used by the
Company or Merger Corp. (other than assets transferred from Parent to Merger
Corp. for such purpose) to pay shareholders perfecting dissenters' rights or
other expenses or liabilities incurred in connection with the Merger and (ii)
assets used to make distributions, redemptions or other payments in respect of
stock of the Company (except for regular, normal distributions) or in respect of
rights to acquire such stock (including payments treated as such for tax
purposes) that are made in contemplation of the Merger or that are related
thereto;
2. Other than in the ordinary course of business or pursuant to its
obligations under the Agreement, the Company has not disposed of any of its
assets (including any distribution of assets with respect to, or in redemption
of, stock) since commencement of negotiations with Parent regarding the Merger;
3. The Company's principal reasons for participating in the Merger are bona
fide business purposes unrelated to taxes;
4. The Company has no outstanding warrants, options, convertible securities
or any other type of right to acquire the Company stock (or any other equity
interest in the Company) or to vote (or restrict or otherwise control the vote
of) shares of stock of the Company which, if exercised, would affect Parent's
acquisition and retention of Control of the Company;
5. In the Merger, shares of stock of the Company representing "Control" of
the Company will be exchanged solely for shares of voting stock of Parent. For
purposes of this paragraph, shares of the stock of Company exchanged in the
Merger for cash and other property (including, without limitation, cash paid to
shareholders of the Company perfecting dissenters' rights) will be treated as
shares of stock of the Company outstanding on the date of the Merger but not
exchanged for shares of voting stock of Parent. As used in this letter,
"Control" shall consist of direct ownership of shares of stock possessing at
least eighty percent (80%) of the total combined voting power of all classes of
stock entitled to vote and eighty percent (80%) of the total number of shares of
all other classes of stock of the corporation. For purposes of determining
Control, a person shall not be considered to own share of voting stock if rights
to vote such shares (or to restrict or otherwise control the voting of such
shares) are held by a third party (including a voting trust) other than an agent
of such person;
6. The Company has no plan or intention to issue additional shares of stock
after the Merger, or take any other action, that would result in Parent losing
Control of the Company;
7. The Company has no plan or intention to sell or otherwise dispose of any
of its assets or of any of the assets acquired from Merger Corp. in the Merger
except for dispositions made in the ordinary course of business or payment of
expenses, including payments to shareholders of the Company perfecting
dissenters' rights, incurred by the Company pursuant to the Merger and except
for transfers described in both Section 368(a)(2)(C) of the Code and Treasury
Regulation Section 1.368-2(j)(4);
8. Following the Merger, the Company will continue its historic business or
use a significant portion of its historic business assets in a business;
9. The fair market value of the Company's assets will, at the Effective
Time of the Merger, exceed the aggregate liabilities of the Company plus the
amount of liabilities, if any, to which such assets are subject;
10. The Company is not an "investment company" within the meaning of
Sections 368(a)(2)(F)(iii) and (iv) of the Code;
11. The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code;
12. The Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code;
13. There is no plan or intention ("Plan") on the part of the shareholders
of the Company who own one percent or more of the Company stock and, after due
inquiry with its officers and directors, the Company has no knowledge of, and
believes that there does not exist, any Plan on the part of the remaining
shareholders of the Company to engage in a sale, exchange, transfer,
distribution (including, without limitation, a distribution by a corporation to
its stockholders), pledge, disposition or any other transaction which results in
a reduction in the risk of ownership or a direct or indirect disposition (a
"Sale") of any shares of Parent stock received in the Merger that would reduce
ownership by the shareholders of the Company of Parent stock to a number of
shares having a value
as of the effective time of the Merger of less than fifty percent (50%) of the
aggregate fair market value, as determined immediately prior to the Merger, of
all outstanding shares of the Company stock. For purposes of this paragraph,
shares of the Company stock (i) with respect to which a shareholder of the
Company receives consideration in the Merger other than shares of Parent stock
(including, without limitation, cash received pursuant to the exercise of
dissenters' rights) and/or (ii) with respect to which a Sale occurs prior to,
and in contemplation of, the Merger, shall be considered outstanding shares of
stock of the Company exchanged for shares of Parent stock in the Merger and then
disposed of pursuant to a Plan;
14. The fair market value of the shares of Parent stock received by each
shareholder of the Company will be approximately equal to the fair market value
of the shares of stock of the Company surrendered in exchange therefor and the
aggregate consideration received by shareholders of the Company in exchange for
their shares of stock in the Company will be approximately equal to the fair
market value of all of the outstanding shares of stock of the Company
immediately prior to the Merger;
15. Merger Corp., Parent, the Company and the shareholders of the Company
will each pay separately its or their own expenses relating to the Merger;
16. There is no intercorporate indebtedness existing between Parent and the
Company or between Merger Corp. and the Company that was issued, acquired, or
will be settled at a discount as a result of the Merger;
17. The terms of the Agreement are the product of arm's-length
negotiations;
18. None of the amounts received by any shareholder of the Company that
engages in any transaction with the Company other than in his or her capacity as
a shareholder will be separate consideration for, or allocable to, any of his or
her shares of stock of the Company; none of the shares of Parent stock received
by any such shareholder will be separate consideration for, or allocable to, any
employment agreement, any covenant not to compete, any lease, license or other
agreement or arrangement relating to the performance of services or transfer or
use of property (other than the shares of Company stock surrendered in the
Merger); and the amounts paid to any such shareholder will be for services
actually rendered or property actually acquired or used and will be commensurate
with amounts paid to third parties bargaining at arm's-length for similar
services or property;
19. To the best knowledge of the Company, during the past five (5) years,
none of the outstanding shares of capital stock of the Company, including the
right to acquire or vote any such shares, have directly or indirectly been owned
by Parent;
20. The Merger will qualify as a merger under State law;
21. The Company is authorized to make all of the representations set forth
herein; and
22. The Agreement represents the full and complete agreement among Parent,
Merger Corp. and the Company regarding the Merger, and there are no other
written or oral agreements regarding the Merger.
It is understood that (i) your opinions will be based on the
representations set forth herein and on the statements contained in the
Agreement (including all schedules and exhibits thereto) and documents related
thereto, and (ii) your opinions will be subject to certain limitations and
qualifications including that they may not be relied upon if any such
representations are not accurate in all material respects.
Notwithstanding anything herein to the contrary, the undersigned makes no
representations regarding any actions or conduct of the Company pursuant to
Parent's exercise of control over the Company after the Merger. It is understood
that your opinions will not address any tax consequence of the Merger or any
action taken in connection therewith except as expressly set forth in such
opinions.
Very truly yours,
CHIP STAR INC.
A CALIFORNIA CORPORATION
By: _____________________________________
Title: __________________________________
EXHIBIT G
FORM OF CHIP STAR COUNSEL OPINION
[Letterhead of Dostart Xxxxx Xxxxxxxx & Xxxxxxx, LLP]
[Closing Date]
Electro Scientific Industries
00000 XX Xxxxxxx Xxxx Xxxxx
Xxxxxxxx, XX 00000
Re: Agreement of Reorganization and Merger among Electro Scientific
Industries, Inc., Chip Star Inc., CI Merger Corp. and Shareholders
of Chip Star Inc.
Ladies and Gentlemen:
We have acted as counsel for Chip Star Inc., a California corporation (the
"Company"), Denver Xxxxxx and Xxxxxx Xxxxxxxx (together, the "Shareholders") in
connection with the Agreement of Reorganization and Merger dated as of June 26,
1997 (the "Merger Agreement"), among Electro Scientific Industries, Inc.
("ESI"), CI Merger Corp. ("Merger Corp."), the Company and the Shareholders,
providing, among other things, for the merger of Merger Corp. into the Company.
This opinion is furnished to you pursuant to Section 5.3.2 of the Merger
Agreement. Unless otherwise defined herein, capitalized terms used herein shall
have the same meanings assigned to them in the Merger Agreement.
In connection with this opinion, we have examined and reviewed the Merger
Agreement, the Pledge and Escrow Agreement (the "Escrow Agreement") and the
documents delivered pursuant thereto and have taken such additional steps and
reviewed such additional documents and matters as we deemed necessary in order
to render our opinion.
Based on the foregoing, and subject to the qualifications set forth below,
it is our opinion that:
1. The Company is a corporation duly incorporated, existing and in good
standing under the laws of the state of its incorporation, and has all necessary
corporate power and authority under applicable corporate law and its
organizational documents to own or lease its properties and to carry on its
business as currently conducted.
Electro Scientific Industries, Inc.
[Closing Date]
Page 2
2. The authorized capital stock of the Company consists of 1,500,000 shares
of common stock, without par value ("Company Common Stock"). As of the date
hereof, there are 900,000 shares of Company Common Stock issued and outstanding
to the persons and in amounts set forth in Schedule 3.1.2 of the Merger
Agreement. All of the issued and outstanding capital stock of the Company has
been duly authorized and validly issued, is fully paid, nonassessable, and free
of preemptive rights. The Company's securities were issued in compliance with
available exemptions from registration under applicable securities laws. As of
the date hereof, there are not, except as disclosed in the Chip Star Disclosure
Schedule or the Merger Agreement, any outstanding subscriptions, options,
warrants, preemptive rights, stock appreciation rights, calls, rights,
convertible securities or other agreements or commitments of any character
relating to issued or unissued capital stock or other securities of the Company,
or otherwise obligating the Company to issue, transfer or sell any shares of the
capital stock of the Company, or other securities convertible into, exchangeable
for, or evidencing the right to subscribe for, any shares of the capital stock
of the Company.
3. No consent, authorization, order or approval of, or filing or
registration with, any Governmental Entity is required for the execution and
delivery of the Merger Agreement by the Company and the Shareholders, the
execution and delivery of the Escrow Agreement by the Shareholders, or the
performance by the Company or any Shareholder of their respective obligations
contemplated by the Merger Agreement or the Escrow Agreement, other than filing
of the Articles of Merger with the Secretary of State of Oregon and the
Certificate of Merger with the Secretary of State of California.
4. The Company has the corporate power and authority to enter into and
perform the Merger Agreement. The Company has taken all corporate action
necessary to authorize the execution and performance of the Merger Agreement and
the execution and delivery of the closing documents to be executed by it.
5. The Merger Agreement has been duly executed and delivered by a duly
authorized officer of the Company and by each Shareholder. The Escrow Agreement
has been duly executed and delivered by each Shareholder. The Merger Agreement
is valid, binding and enforceable against the Company and each Shareholder and
the Escrow Agreement is valid, binding and enforceable against each Shareholder,
each in accordance with its terms, except as such enforceability may be limited
by or subject to any bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights and except
that the remedies of specific performance, injunction and other forms of
equitable relief are subject to certain tests of equity jurisdiction, equitable
defenses and the discretion of the court before which any proceeding therefor
may be brought.
Electro Scientific Industries, Inc.
[Closing Date]
Page 3
6. Neither the execution and delivery of the Merger Agreement by the
Company or the Shareholders nor the performance by the Company and the
Shareholders of the obligations therein contemplated will conflict with or
result in a breach of any of the terms, conditions or provisions of the
Company's Articles of Incorporation or Bylaws, or to the best of our knowledge,
of any statute or administrative regulation applicable to the Company, or, to
the best of our knowledge, of any writ, injunction, judgment or decree of any
court or any governmental authority or of any arbitration award binding upon the
Company or the Shareholders.
7. Except as set forth in the Chip Star Disclosure Schedule, to the best of
our knowledge, there is no litigation or proceeding, in law or in equity, and
there are no proceedings or governmental investigations before any commission or
other administrative authority, pending or threatened, against the Company or
the Shareholders (a) which relate to the Company's business or operations and
which would, if decided adversely to the Company, have a material adverse
effect, or (b) which relate to the consummation of the transactions contemplated
by the Merger Agreement.
8. Upon the consummation of the transactions and execution and delivery of
the documents contemplated by the Merger Agreement and the filing with the
Secretary of State of California of a Certificate of Merger in accordance with
the laws of the State of California, the Merger will have been validly effected
in accordance with the laws of the State of California.
The opinions set forth above are subject to the following qualifications:
1. We have assumed the genuineness of all signatures, the authenticity of
all documents submitted to us as originals, the conformity to the originals of
all documents submitted to us as copies and the authenticity of the originals of
all such latter documents.
2. We have assumed the due execution and delivery for value of the Merger
Agreement and the Escrow Agreement by ESI or Merger Corp., as applicable and
each of the other documents delivered in connection therewith by each of the
parties thereto, other than the Company and the Shareholders.
3. We have relied (to the extent we have no contrary knowledge), without
investigation, as to matters of fact upon certificates furnished by officers of
the Company whose positions and authority would reasonably require them to have
knowledge of the facts certified, and by governmental officials, and search
reports of recognized search companies.
Electro Scientific Industries, Inc.
[Closing Date]
Page 4
4. We are qualified to practice law in the State of California and have not
made a special examination of any law other than the law of the State of
California and the federal law of the United States. Accordingly, in connection
with the rendering of this opinion, we express no opinion as to the laws of any
state, or as to any matter subject to such laws, other than the laws of the
State of California and the federal law of the United States. We have assumed
that, if and where applicable, laws of other states are the same as the laws of
the State of California.
5. Our opinion is limited to matters expressly set forth herein and no
opinion is to be implied or inferred beyond the matters expressly so stated.
This opinion is furnished for your benefit and may not be copied, quoted or
provided to any other person, or relied upon by any person other than your legal
counsel in this matter without our prior written consent. This opinion speaks
only as of the date hereof and is limited to present statutes, laws and
regulations and to the facts as they currently exist, and we have assumed no
obligation to update or supplement this opinion.
Very truly yours,
Exhibit H
CONTINUITY OF INTEREST LETTER
Electro Scientific Industries, Inc.
00000 XX Xxxxxxx Xxxx Xxxxx
Xxxxxxxx, XX 00000
Xxxxxx Xxxxxxxx LLP
Suite 1400
000 XX Xxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000-0000
Dear Sirs:
In consideration of Electro Scientific Industries, Inc. ("ESI") entering
into the Agreement of Reorganization and Merger ("Merger Agreement") dated June
26, 1997 among ESI, Chip Star Inc. ("Chip Star"), CI Merger Corp. ("Merger
Corp.") and the Shareholders of Chip Star (the "Shareholders") providing for the
merger of Merger Corp. into Chip Star (the "Merger"), the undersigned
shareholder of Chip Star represents, warrants and covenants to and with ESI as
follows:
1. There is no plan, intention, agreement or arrangement ("Plan") on the
part of the undersigned, and the undersigned has no knowledge of and believes
that there does not exist any Plan on the part of the remaining holders of
shares of Chip Star Common Stock (as defined in the Merger Agreement), to engage
in a sale, exchange, transfer, distribution (including a distribution by a
partnership to its partners or by a corporation to its stockholders), redemption
or reduction in any way of the undersigned's risk of ownership (by short sale or
otherwise), or other disposition, directly or indirectly (such actions being
collectively referred to herein as a "Sale"), or Sales of the shares of ESI
Common Stock (as defined in the Merger Agreement) to be received in the Merger
such that the aggregate fair market value, as of the Effective Time (as defined
in the Merger Agreement), of shares subject to such Sales would exceed fifty
percent (50%) of the aggregate fair market value of all shares of outstanding
Chip Star Common Stock immediately prior to the Merger. For purposes of the
preceding sentence, shares of Chip Star Common Stock (or the portion thereof)
(i) with respect to which a shareholder of Chip Star receives consideration in
the Merger other than shares of ESI Common Stock (including, without limitation,
cash received pursuant to the exercise of dissenters' rights) or (ii) with
respect to which a Sale occurs prior to and in contemplation of the Merger,
shall be considered shares of outstanding Chip Star Common Stock exchanged for
shares of ESI Common Stock in the Merger and then disposed of pursuant to a
Plan.
Electro Scientific Industries, Inc., and
Xxxxxx Xxxxxxxx LLP
Page 2
2. The undersigned owns ________________ shares of Chip Star Common Stock
as of the date hereof.
3. The undersigned represents and warrants that he has not engaged in any
Sale (as defined above), and will not prior to the Effective Time of the Merger
engage in any Sale of any shares of Chip Star capital stock in contemplation of
the Merger. The undersigned has not engaged in any Sales of any shares of Chip
Star capital stock during the 24 months preceding the date hereof.
4. The undersigned agrees that the undersigned will not sell, transfer or
otherwise dispose of any ESI Common Stock or reduce his or its risk relating
thereto until after such time as ESI has published financial results covering at
least 30 days of combined operations after the Effective Time.
5. The undersigned does not own any shares of ESI Common Stock except as
set forth on Schedule 1, and the undersigned will not acquire prior to the
Effective Time, any shares of ESI Common Stock.
6. The undersigned does not own, and as of the Effective Time will not own,
any option or other rights to acquire Chip Star Common Stock from Chip Star.
7. The undersigned understands and agrees that all certificates
representing shares of ESI Common Stock deliverable to the undersigned pursuant
to the Merger Agreement and any certificates subsequently issued with respect
thereto or in substitution therefor, shall bear legends substantially as
described in Section 1.8 of the Merger Agreement.
8. The undersigned agrees that ESI, at its discretion, may cause a stop
transfer order to be placed with its transfer agent with respect to the
certificates for the shares of ESI Common Stock so legended.
9. The undersigned has carefully read this letter and the Merger Agreement
and discussed their requirements and impacts on the ability of the undersigned
to sell, transfer or otherwise dispose of the ESI Common Stock to be acquired by
the undersigned in the Merger with counsel for the undersigned or counsel for
Chip Star.
10. To the best of the knowledge of the undersigned, all of the statements
set forth in Exhibit F-1 and Exhibit F-2 to the Merger Agreement, are true,
correct and complete.
Electro Scientific Industries, Inc., and
Xxxxxx Xxxxxxxx LLP
Page 3
11. Except to the extent written notification to the contrary is received
by ESI from the undersigned prior to the Merger, the representations, warranties
and covenants contained herein shall be true and correct at all times from the
date hereof through the date of the Effective Time (as defined in the Merger
Agreement). The undersigned agrees to promptly notify ESI prior to the Merger if
at any time after the date hereof and prior to the Merger, the undersigned would
no longer be able to make the representations, warranties and covenants set
forth herein.
12. The undersigned understands and agrees that irreparable damage would
result in the event of a breach of this Continuity of Interest Letter. The
rights and obligations under this Continuity of Interest Letter shall be
enforceable through a decree of specific performance and appropriate injunctive
relief as may be applied for and granted in connection therewith. Such remedies
and all other remedies are cumulative and not exclusive and shall be available
in addition to any other remedies which a party may have.
13. The undersigned acknowledges that the Merger is intended to qualify as
a "reorganization" within the meaning of Section 368 of the Code and agrees that
ESI, Chip Star, Merger Corp., the Shareholders and their respective counsel and
accountants shall be entitled to rely upon (a) the truth and accuracy of the
representations and warranties contained herein and (b) the undersigned's
performance of the obligations set forth herein.
Dated: June __, 1997.
Very truly yours,
-------------------------------
(Signed)
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(Printed)
