-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FMu4PvqYQm73pokReSKhEJ0xIPoSRKYk8j8teQ3s1B7JAEsAxOmbNTdrFfFcQRlS SILFhtks5y1NiXEdBA23kA== 0000912057-96-002839.txt : 19960222 0000912057-96-002839.hdr.sgml : 19960222 ACCESSION NUMBER: 0000912057-96-002839 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19960221 SROS: NASD SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ANDROS INC CENTRAL INDEX KEY: 0000352425 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 941674541 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: 1934 Act SEC FILE NUMBER: 005-39222 FILM NUMBER: 96523657 BUSINESS ADDRESS: STREET 1: 2332 FOURTH ST CITY: BERKELEY STATE: CA ZIP: 94710 BUSINESS PHONE: 5108495700 MAIL ADDRESS: STREET 1: 2332 FOURTH STREET CITY: BERKELEY STATE: CA ZIP: 94710 FORMER COMPANY: FORMER CONFORMED NAME: ANDROS ANALYZERS INC DATE OF NAME CHANGE: 19901210 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ANDROS INC CENTRAL INDEX KEY: 0000352425 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 941674541 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: 2332 FOURTH ST CITY: BERKELEY STATE: CA ZIP: 94710 BUSINESS PHONE: 5108495700 MAIL ADDRESS: STREET 1: 2332 FOURTH STREET CITY: BERKELEY STATE: CA ZIP: 94710 FORMER COMPANY: FORMER CONFORMED NAME: ANDROS ANALYZERS INC DATE OF NAME CHANGE: 19901210 SC 14D9 1 SCHEDULE 14D-9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-9 SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------------- ANDROS INCORPORATED (NAME OF SUBJECT COMPANY) ANDROS INCORPORATED (NAME OF PERSON(S) FILING STATEMENT) COMMON STOCK, PAR VALUE $.01 PER SHARE (TITLE OF CLASS OF SECURITIES) 345281 (CUSIP NUMBER OF CLASS OF SECURITIES) ------------------------------ DANE NELSON PRESIDENT AND CHIEF EXECUTIVE OFFICER ANDROS INCORPORATED 2332 FOURTH STREET BERKELEY, CALIFORNIA 94710-2402 (510) 849-5700 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of the Person(s) Filing Statement) ------------------------ WITH A COPY TO: STEVEN J. TONSFELDT, ESQ. SUSAN COOPER PHILPOT, ESQ. BROBECK, PHLEGER & HARRISON LLP COOLEY GODWARD CASTRO HUDDLESON & TATUM ONE MARKET, SPEAR STREET TOWER ONE MARITIME PLAZA, SUITE 2000 SAN FRANCISCO, CALIFORNIA 94105 SAN FRANCISCO, CALIFORNIA 94111 (415) 442-0900 (415) 693-2000
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 1. SECURITY AND SUBJECT COMPANY The name of the subject company is Andros Incorporated, a Delaware corporation (the "Company"). The address of the principal executive offices of the Company is 2332 Fourth Street, Berkeley, California 94710-2402. The title of the class of equity securities to which this Statement relates is the common stock, par value $.01 per share, of the Company (the "Common Stock"). ITEM 2. TENDER OFFER OF THE BIDDER The Statement relates to a tender offer by Andros Acquisition Inc., a Delaware corporation (the "Purchaser") and a wholly owned subsidiary of Andros Holdings Inc., a Delaware corporation ("Parent"), disclosed in a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1"), dated February 21, 1996, to purchase all outstanding shares of Common Stock (the "Shares") at a price of $18.00 per Share (such amount, or any greater amount per Share paid pursuant to the Offer, being hereafter referred to as the "Per Share Amount"), net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated February 21, 1996 (the "Offer to Purchase") and the related Letter of Transmittal (which together constitute the "Offer"). Parent and the Purchaser are each direct or indirect wholly owned subsidiaries of Genstar Capital Partners II, L.P. ("GCP II"). The sole general partner of GCP II is Genstar Capital LLC ("GCLLC"). The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of February 14, 1996 (the "Merger Agreement"), among Parent, the Purchaser and the Company. The Merger Agreement provides that, among other things, as promptly as practicable after the consummation of the Offer and satisfaction or, if permissible, waiver of all conditions to the Merger, the Purchaser will be merged with and into the Company (the "Merger"), and the Company will continue as the surviving corporation (the "Surviving Corporation"). A copy of the Merger Agreement is attached hereto as Exhibit 2 and incorporated herein by reference. According to the Offer of Purchase, the principal executive offices of the Purchaser and Parent are located at Metro Tower, Suite 1170, 950 Tower Lane, Foster City, California 94404-2121. ITEM 3. IDENTITY AND BACKGROUND (a) The name and address of the Company, which is the person filing this Statement, are set forth in Item 1 above. (b) Each material contract, agreement, arrangement and understanding between the Company or its affiliates and (i) the Company, its executive officers, directors or affiliates or (ii) the Purchaser, its executive officers, directors or affiliates, is described in the Company's Information Statement set forth on SCHEDULE I hereto or set forth below. INDEMNIFICATION UNDER DGCL AND THE COMPANY'S CHARTER The Company is a Delaware corporation. Reference is made to Section 145 of the Delaware General Corporation Law (the "DGCL"), which provides that a corporation may indemnify any person who is, or is threatened to be made, a party to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the indemnified person in connection with such action, suit or proceeding, provided such officer, director, employee or agent acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best in interests and, for criminal proceeding, had no reasonable cause to believe that his conduct was unlawful. A Delaware corporation may indemnify officers and directors in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is 1 adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses that such officer or director actually and reasonably incurred. Reference is also made to Section 102(b)(7) of the DGCL, which enables a corporation in its original certificate of incorporation or an amendment thereto to eliminate or limit the personal liability of a director to the corporation or its stockholders for violations of the director's fiduciary duty, except (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL (providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions) or (iv) for any transaction from which a director derived an improper personal benefit. Article Twelfth of the Certificate of Incorporation of the Company provides that, except under certain circumstances, directors of the Company shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duties as a director. Article 5 of the Company's Bylaws provides that the Company shall, to the fullest extent permitted by Section 145 of the DGCL, indemnify any director, officer or trustee which it shall have power to indemnify under the Section against any expenses, liabilities or other matters referred to in or covered by that Section. Article 5 further provides that expenses incurred by a director of the Company in defending a civil or criminal action, suit or proceeding by reason of the fact that he is or was a director of the Company (or was serving at the Company's request as a director or officer of another corporation) shall be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company as authorized by relevant sections of the DGCL. The Merger Agreement provides that the Certificate of Incorporation and Bylaws of the Surviving Corporation shall contain the respective provisions that are set forth in the Article Twelfth of the Certificate of Incorporation of the Company and Article 5 of the Bylaws of the Company, which provisions shall not be amended, repealed or otherwise modified for a period of six (6) years from the Effective Time in any manner that would adversely affect the rights thereunder of individuals who at, or any time prior to, the Effective Time were entitled to indemnification thereunder unless such modification is required by law. The Merger Agreement also provides that the Surviving Corporation shall use commercially reasonable efforts to maintain in effect for six (6) years from the Effective Time, officers' and directors' liability insurance covering those persons who are currently covered by the Company's officers' and directors' liability insurance policy on terms comparable to such existing insurance coverage (including coverage amounts); provided, however, that in no event shall the Surviving Corporation be required to expend more than an amount per year equal to 150% of the current annual premiums paid by the Company for such insurance (which the Company has represented to be $61,000), and provided further that, if the annual premiums exceed such amount, Parent shall be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount. The Merger Agreement provides that Parent shall assume, as of the Effective Time, all obligations of the Company under Article Twelfth of the Certificate of Incorporation of the Company and Article 5 of the Bylaws of the Company, and shall pay all amounts that become due and payable under such provisions. The Merger Agreement also provides that the Surviving Corporation and Parent shall honor and fulfill in all respects the obligations of the Company pursuant to indemnification agreements with the Company's directors and officers existing at or before the Effective Time. The Company has entered into Indemnification Agreements with the following employees, directors and a former director of the Company: Dane Nelson, Lee R. Carlson, Ph.D., Robert L. Turner, Edward A. McClatchie, Ph.D., Moshe Alafi, John M. Huneke, Eugene Kleiner, Karl H. Schimmer, M.D., Robert C. Wilson and William W. Weiss. The Indemnification Agreements generally provide 2 that the Company shall hold harmless and indemnify each employee or director to the full extent authorized or permitted by the provisions of the DGCL, as may be amended from time to time. Subject to certain exclusions, the Company further agrees to hold harmless and indemnify each director and/ or employee (i) against any and all expenses (including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such director in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Company) to which the director is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that the director is, was or at any time becomes an officer, director, employee of agent of the Company, or is or was serving or at any time serves at the request of the Company as an officer, director, employee or agent of another corporation, partnership, joint venture, trust or other enterprise; and (ii) otherwise to the fullest extent as may be provided to such director by the Company under the non-exclusivity provisions of Article 5 of the Company's Bylaws and of the DGCL. THE MERGER AGREEMENT The following is a summary of certain provisions of the Merger Agreement. Such summary is qualified in its entirety by reference to the Merger Agreement. Capitalized terms not otherwise defined in the following summary of certain provisions of the Merger Agreement have the respective meaning ascribed to them in the Merger Agreement. THE OFFER. The Merger Agreement provides for the commencement of the Offer as promptly as reasonably practicable, but in no event later than five (5) business days following the initial public announcement of the Purchaser's intention to commence the Offer. The obligation of the Purchaser to accept for payment Shares tendered pursuant to the Offer is subject to the satisfaction of the Minimum Condition and the Financing Condition and certain other conditions that are described in Section 14 of the Offer to Purchase. The Purchaser has agreed that it shall not amend or modify the terms of the Offer to reduce the cash price to be paid pursuant to the Offer, reduce the number of Shares as to which the Offer is made, change the form of consideration to be paid in the Offer, modify or waive the Minimum Condition, or impose conditions to its obligation to accept for payment or pay for the Shares in addition to those set forth in Section 14 of the Offer to Purchase without the prior consent of the Company. THE MERGER. The Merger Agreement provides that, upon the terms and subject to the conditions thereof, and in accordance with the DGCL, at the Effective Time, the Purchaser will be merged with and into the Company. As a result of the Merger, the separate corporate existence of the Purchaser will cease and the Company will continue as the Surviving Corporation and will become a direct wholly owned subsidiary of Parent. Upon consummation of the Merger, each issued and then outstanding Share (other than any Shares held in the treasury of the Company, or owned by the Purchaser, Parent or the Company or any direct or indirect wholly owned subsidiary of Parent or of the Company and any Shares which are held by stockholders who have not voted in favor of the Merger or consented thereto in writing and who shall have demanded properly in writing appraisal for such Shares in accordance with the DGCL) shall be converted into the right to receive the Merger Consideration. Pursuant to the Merger Agreement, each share of common stock, par value $.01 per share, of the Purchaser issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and nonassessable share of common stock, par value $.01 per share, of the Surviving Corporation. The Merger Agreement provides that the directors and officers of the Purchaser immediately prior to the Effective Time shall become the directors and officers of the Surviving Corporation. The Merger Agreement further provides that, at the Effective Time the certificate of incorporation of the Purchaser, as in effect immediately prior to the Effective Time, will become the certificate of incorporation of the Surviving Corporation; provided, however, that, at the Effective Time, Article I of the certificate of incorporation of the Surviving Corporation will be amended to read as follows: "The 3 name of the corporation is Andros Incorporated." The Merger Agreement also provides that the bylaws of the Purchaser, as in effect immediately prior to the Effective Time, will become the bylaws of the Surviving Corporation. AGREEMENTS OF PARENT, THE PURCHASER AND THE COMPANY. Pursuant to the Merger Agreement, the Company shall, if required by the DGCL in order to consummate the Merger, cause a meeting of its stockholders (the "Stockholders' Meeting") to be duly called and held as soon as reasonably practicable for the purpose of voting on the approval and adoption of the Merger Agreement and the transactions contemplated thereby. If the Purchaser acquires at least a majority of the outstanding Shares, the Purchaser will have sufficient voting power to approve the Merger, even if no other stockholder votes in favor of the Merger. The Merger Agreement provides that in connection with the Stockholders' Meeting the Company shall promptly prepare and file with the Commission, use all reasonable efforts to have cleared by the Commission and thereafter mail to its stockholders as promptly as practicable a proxy statement and related proxy materials (the "Proxy Statement") with respect to such Stockholders' Meeting. The Company has agreed, subject to the fiduciary duties of the Board as advised by counsel to include in the Proxy Statement the recommendation of the Board that the stockholders of the Company approve and adopt the Merger Agreement and the transactions contemplated thereby and to use all reasonable efforts to obtain the necessary approvals of the Company's stockholders of the Merger Agreement and the transactions contemplated thereby. Parent has agreed to cause the Purchaser to vote all Shares beneficially owned by it in favor of adoption of the Merger Agreement and the transactions contemplated thereby at the Stockholders' Meeting, if any such meeting shall be required by the DGCL and, if no such meeting shall be required by the DGCL, to file a certificate ownership providing for the Merger as soon as permitted under applicable regulatory requirements and law. The Merger Agreement provides that, in the event that the Purchaser shall acquire at least 90% of the then outstanding Shares, Parent, the Purchaser and the Company agree, at the request of the Purchaser, to take all necessary and appropriate action to cause the Merger to become effective as soon as reasonably practicable after such acquisition, without a meeting of the Company's stockholders, in accordance with the DGCL. Pursuant to the Merger Agreement, the Company has covenanted and agreed that, during the period commencing on the date of the Merger Agreement and continuing until the first date on which designees of the Purchaser shall constitute a majority of the Board (the "Cut-Off Date") or until the termination of the Merger Agreement in accordance with its terms, the Company and each of its Subsidiaries shall conduct its operations in the ordinary and usual course consistent with past practice, and the Company and its Subsidiaries will each endeavor to preserve intact its business organization, to keep available the services of its officers and employees and to maintain satisfactory relations with suppliers, contractors, distributors, licensors, licensees, customers and others having business relationships with it. The Merger Agreement provides that without limiting the generality of the foregoing and except as provided therein, prior to the Cut-Off Date, neither the Company nor any of its Subsidiaries shall directly or indirectly do, or propose to do, any of the following, without the prior written consent of Parent: (a) declare or pay any dividends on or make any other distribution in respect of any of the capital stock of the Company; (b) split, combine or reclassify any of the capital stock of the Company or issue or authorize any other securities in respect of, in lieu of or in substitution for, shares of the capital stock of the Company or repurchase, redeem or otherwise acquire any shares of the capital stock of the Company; (c) issue, deliver, encumber, sell, or purchase any shares of the capital stock of the Company or any securities convertible into, or rights, warrants, options or other rights of any kind to acquire, any such shares of capital stock, other convertible securities or any other ownership interest (including, without limitation, any phantom interest) (other than the issuance of Common Stock upon the exercise of outstanding Stock Options); (d) amend or otherwise change its certificate of incorporation or bylaws (or other comparable organizational document); (e) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, 4 association or other business organization or division thereof; (f) sell, lease or otherwise dispose of any of its assets, other than in the ordinary course of business consistent with its past practices; (g) incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities of the Company or any corporation an amount of whose voting securities sufficient to elect at least a majority of its board of directors is owned directly or indirectly by the Company (any such corporation being referred to herein as a "Subsidiary") or guarantee any debt securities of others, other than in the ordinary course of business consistent with past practice; (h) enter into any contract or agreement other than in the ordinary course of business, consistent with past practice; (i) authorize any single capital expenditure which is in excess of $50,000 or capital expenditures which are, in the aggregate, in excess of $250,000 for the Company and its Subsidiaries taken as a whole; (j) increase the compensation payable or to become payable to its officers or employees, except for increases in accordance with past practices in salaries or wages of employees of the Company or any Subsidiary who are not officers of the Company, or grant any severance or termination pay to, or enter into any employment or severance agreement with any director, officer or other employee of the Company or any Subsidiary, or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any director, officer or employee; (k) take any action, other than reasonable and usual actions in the ordinary course of business and consistent with past practice, with respect to accounting policies or procedures (including, without limitation, procedures with respect to cash management, the payment of accounts payable and the collection of accounts receivable); (l) make any tax election or settle or compromise any material federal, state, local or foreign income tax liability, or execute or file with the IRS or any other taxing authority any agreement or other document extending, or having the effect of extending, the period of assessment or collection of any taxes; (m) amend or modify the warranty policy of the Company or any Subsidiary; (n) pay, discharge, satisfy, settle or compromise any suit, claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business and consistent with past practice, of liabilities reflected or reserved against in the Company's consolidated balance sheet dated as of July 30, 1995, as filed by the Company with the SEC in its Annual Report on Form 10-K for its fiscal year ended July 30, 1995, or subsequently incurred in the ordinary course of business and consistent with past practice; or (o) take any action that would result in any of the representations and warranties of the Company set forth in the Merger Agreement becoming untrue in any material respect or in any of the conditions to the Offer or any of the conditions to the Merger set forth in the Merger Agreement not being satisfied. The Merger Agreement provides that, promptly upon the purchase by the Purchaser of Shares pursuant to the Offer, and from time to time thereafter, the Purchaser shall be entitled to designate the number of directors, rounded up to the next whole number, on the Board as shall give the Purchaser representation on the Board that equals the product of (i) the total number of directors on the Board (giving effect to the election of any additional directors pursuant to this sentence) and (ii) the percentage that the number of Shares owned by the Purchaser, Parent and any direct or indirect wholly owned subsidiary of Parent (including Shares purchased in the Offer) bears to the total number of Shares outstanding, and to effect the foregoing the Company shall upon request by the Purchaser, at the Company's election, either increase the number of directors comprising the Board or seek and accept resignations of incumbent directors. The Merger Agreement also provides that, at such times, the Company will use its reasonable best efforts to cause individuals designated by the Purchaser to constitute the same percentage as such individuals represent on the Board of (i) each committee of the Board, (ii) each board of directors of each Subsidiary and (iii) each committee of each such board. The Merger Agreement provides that following the Cut-Off Date and prior to the Effective Time, any amendment of the Merger Agreement or the certificate of incorporation or bylaws of the Company or any of its Subsidiaries, any termination of the Merger Agreement by the Company, any extension by the Company of the time for the performance of any of the obligations or other acts of Parent or the 5 Purchaser or any exercise or waiver of any of the Company's rights thereunder, will require the concurrence of a majority of the directors of the Company then in office who were neither designated by the Purchaser, employees of the Company or any of its Subsidiaries nor otherwise affiliated with the Purchaser. Pursuant to the Merger Agreement, until the Effective Time, the Company shall, and shall cause its Subsidiaries and the officers, directors, employees, auditors and agents of the Company and its Subsidiaries to, afford the officers, employees and agents of Parent and the Purchaser and persons providing or committing to provide Parent or the Purchaser with financing for the transactions contemplated by the Merger Agreement reasonable access at all reasonable times to the officers, employees, agents, properties, offices, plants and other facilities, books and records of the Company and each Subsidiary, and shall furnish Parent and the Purchaser and persons providing or committing to provide Parent or the Purchaser with financing for the transactions contemplated by the Merger Agreement with all financial, operating and other data and information as Parent or the Purchaser, through its officers, employees or agents, may reasonably request and Parent and the Purchaser have agreed to keep such information confidential, except in certain circumstances. The Company has agreed that neither it nor any Subsidiary shall, directly or indirectly, through any officer, director, agent or otherwise, initiate, solicit or intentionally encourage (including by way of furnishing nonpublic information or assistance), or take any other action to intentionally facilitate, any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Competing Transaction (as defined below), or enter into or maintain or continue discussions or negotiate with any person or entity in furtherance of such inquiries or to obtain a Competing Transaction, or agree to or endorse any Competing Transaction, or authorize or permit any of the officers, directors or employees of the Company or any investment banker, financial advisor, attorney, accountant or other agent or representative of the Company to take any such action; provided, however, that the foregoing shall not prohibit the Board from (i) furnishing information to, or entering into discussions or negotiations with, any person or entity that makes an unsolicited, bona fide written proposal to acquire the Company pursuant to a merger, consolidation, share exchange, business combination, tender or exchange offer or other similar transaction, if, and only to the extent that, (A) the Board determines in good faith (after consultation with its financial advisor) that the proposal would, if consummated, result in a transaction more favorable to the Company's stockholders from a financial point of view than the transactions contemplated by the Merger Agreement, (B) the Board further determines in good faith after consultation with counsel that the failure to do so would cause the Board to breach its fiduciary duties to the Company or its stockholders under applicable law (any such proposal being referred to herein and in the Merger Agreement as a "Superior Proposal"), and (C) no information is so furnished, and no such discussions or negotiations are held, prior to the execution by the receiving party and the Company of a confidentiality and standstill agreement on terms no less favorable to the Company than those contained in the Confidentiality Agreement, or (ii) complying with Rule 14e-2 promulgated under the Exchange Act with regard to a tender or exchange offer. The Company has further agreed to notify Parent promptly if any such proposal or offer, or any inquiry or contact with any person with respect thereto, is made and shall, in any such notice to Parent, indicate in reasonable detail the identity of the person making such proposal, offer, inquiry or contact and the terms and conditions of such proposal, offer, inquiry or contact. The Company has also agreed not to release any third party from, or waive any provision of, any confidentiality or standstill agreement to which the Company is a party (except to the extent necessary in connection with the delivery of a Superior Proposal). For purposes of this Offer to Purchase and the Merger Agreement, "Competing Transaction" means any of the following involving the Company: (i) any merger, consolidation, share exchange, business combination, or other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of more than 25% of the assets of the Company in a single transaction or series of transactions; (iii) any tender offer or exchange offer for more than 25% of the Shares or the filing of a registration statement under the Securities Act in connection therewith; or (iv) any person having acquired beneficial ownership or the 6 right to acquire beneficial ownership of, or any "group" (as such term is defined under Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) having been formed which beneficially owns or has the right to acquire beneficial ownership of, more than 25% of the Shares. The Merger Agreement provides that, prior to the Effective Time, the Board of Directors of the Company (or, if appropriate, any committee administering the Stock Option Plans (as defined below)) shall adopt such resolutions or take such other actions as are required to provide that each option ("Company Options") theretofore granted under any stock option, stock appreciation rights or stock purchase plan, program or arrangement of the Company (collectively, the "Stock Option Plans") outstanding immediately prior to consummation of the Merger, whether or not then exercisable, shall, unless otherwise consented to by Parent in its sole discretion, be exchanged, in whole and not in part, for a cash payment from the Company in an amount (subject to any applicable withholding tax) equal to the product of (i) the excess of $18.00 over the per share exercise price of the Company Option multiplied by (ii) the number of Shares covered by the option immediately prior to the Effective Time. The Merger Agreement provides that except as provided therein or as otherwise agreed to by the parties and to the extent permitted by the Stock Option Plans, (i) the Stock Option Plans shall terminate as of the Effective Time and (ii) the Company shall use reasonable efforts to ensure that following the Effective Time no holder of options or any participant in the Stock Option Plans shall have any right thereunder to acquire any equity securities of the Company, the Surviving Corporation or any subsidiary thereof. The Merger Agreement provides that the Company shall take all actions necessary pursuant to the terms of the Company's Stock Purchase Plan (the "Stock Purchase Plan") in order to shorten the offering period under such plan which includes the Effective Time (the "Current Offering"), such that the Current Offering shall terminate at or prior to the Effective Time (the final day of the Current Offering period being referred to as the "Final Purchase Date"). On the Final Purchase Date, the Company shall apply the funds credited as of such date under the Stock Purchase Plan within each participant's payroll withholdings account to the purchase of whole shares of Common Stock in accordance with the terms of the Stock Purchase Plan. The cost to each participant in the Stock Purchase Plan for shares of Common Stock shall be the lower of 85% of the closing sale price of Common Stock on the Nasdaq National Market (the "NNM") on (i) the first day of the Current Offering period and (ii) the last trading day on or prior to the Final Purchase Date. The Merger Agreement provides that the Company shall promptly notify Parent, and Parent shall promptly notify the Company of (i) receipt of any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the transactions contemplated by the Merger Agreement; (ii) receipt of any notice or other communication from any Governmental Entity in connection with the transactions contemplated by the Merger Agreement; (iii) receipt of notice that any actions, suits, claims, investigations or proceedings have been commenced or, to the knowledge threatened against, or involving the Company or any of its Subsidiaries, or Parent, as applicable, which, if pending on the date of the Merger Agreement, would have been required to have been disclosed under the terms of the Merger Agreement or which relate to the consummation of the transactions contemplated by the Merger Agreement; (iv) the occurrence, or non-occurrence, of any event the occurrence, or non-occurrence, of which would be likely to cause any representation or warranty of it (and, in the case of Parent, of the Purchaser) contained in the Merger Agreement to be untrue or inaccurate; and (v) any failure of the Company, Parent or the Purchaser, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under the Merger Agreement. The Merger Agreement further provides that the certificate of incorporation and bylaws of the Surviving Corporation shall contain the respective provisions that were set forth, as of the date of the Merger Agreement, in Article Twelfth of the certificate of incorporation and Article 5 of the bylaws of the Company, which provisions shall not be amended, repealed or otherwise modified for a period of 7 six years from the Effective Time in any manner that would affect adversely the rights thereunder of individuals who at or at any time prior to the Effective Time were entitled to indemnification thereunder, unless such modification shall be required by law. The Merger Agreement provides that the Surviving Corporation shall use commercially reasonable efforts to maintain in effect for six years from the Effective Time directors' and officers' liability insurance covering those persons who are currently covered by the Company's directors' and officers' liability insurance policy with respect to matters occurring prior to the Effective Time on terms comparable to such existing insurance coverage (including coverage amounts); provided, however, that in no event shall the Surviving Corporation be required to expend more than an amount per year equal to 150% of the current annual premiums paid by the Company for such insurance (which premiums the Company has represented to Parent and the Purchaser to be $61,000 in the aggregate) and provided further that if the annual premiums exceed such amount, Parent shall be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount. Parent, the Purchaser and the Company have each agreed that it will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on such party with respect to the Offer and the Merger (including furnishing all information required under the HSR Act) and will take all reasonable actions necessary to cooperate promptly with and furnish information to the other parties in connection with any such requirements imposed upon such other parties in connection with the Offer and the Merger. Parent, the Purchaser and the Company have also each agreed that it will take or cause to be taken all reasonable actions necessary to obtain (and will take all reasonable actions necessary to cooperate promptly with the other parties in obtaining) any consent, authorization, order or approval of, or any exemption by, any court, administrative agency, commission or other governmental or regulatory authority or instrumentality, domestic or foreign (a "Government Entity"), or other third party, required to be obtained or made by any such party in connection with the Offer or the Merger or the taking of any action contemplated thereby or by the Merger Agreement. Parent has agreed that it will take all action necessary to cause the Purchaser to perform its obligations under the Merger Agreement and to consummate the Merger on the terms and conditions set forth in the Merger Agreement. REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various customary representations and warranties of the parties thereto including representations by the Company as to the conduct of the Company's business and the absence of certain changes or events with respect thereto, financial statements and other documents filed with the Commission, litigation, labor relations and employees, employee benefit plans, taxes and intellectual property. CONDITIONS TO THE MERGER. Under the Merger Agreement, the respective obligations of each party to effect the Merger are subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) if required by the DGCL, the Merger Agreement and the Merger shall have been approved and adopted by the affirmative vote or consent of stockholders of the Company to the extent required by the DGCL and the certificate of incorporation of the Company; (b) no temporary restraining order, preliminary or permanent injunction or other order issued by any Governmental Entity of competent jurisdiction nor any statute, rule, regulation or executive order promulgated or enacted by any Governmental Entity, nor other legal restriction, restraint or prohibition, preventing the consummation of the Merger shall be in effect; provided however, that each of the parties shall have used reasonable efforts to prevent the entry of any such injunction or other order and to appeal as promptly practicable any injunction or other order that may be entered; and (c) the Purchaser shall have purchased Shares pursuant to the Offer. TERMINATION; FEES AND EXPENSES. The Merger Agreement provides that it may be terminated and the Merger may be abandoned at any time prior to the Effective Time, notwithstanding any approval of the Merger Agreement by the stockholders of the Company: (a) by mutual written consent duly authorized by the boards of directors of Parent, the Purchaser and the Company; (b) by either Parent 8 or the Company if (i) the Cut-Off Date shall not have occurred on or before May 31, 1996; provided, however, that the right to terminate the Merger Agreement pursuant to this clause shall not be available (A) to any party whose failure to fulfill any obligation under the Merger Agreement has been the substantial cause of, or resulted in, the failure of the Cut-Off Date to occur on or before such date, or (B) to Parent if it shall fail to designate persons that will constitute a majority of the Board in accordance with the Merger Agreement by May 24, 1996; or (ii) any court of competent jurisdiction or other governmental authority shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the acceptance for payment of, or payment for, Shares pursuant to the Offer or the Merger and such order, decree, ruling or other action shall have become final and nonappealable; (c) by Parent or the Company if (i) as a result of an occurrence or circumstance that would result in a failure to satisfy any condition set forth in Section 14 hereof the Offer shall have terminated or expired in accordance with its terms without the Purchaser having accepted for payment any Shares pursuant to the Offer, or (ii) the Purchaser shall not have accepted for payment any Shares pursuant to the Offer within 100 days following commencement of the Offer; provided, however, that the right to terminate the Merger Agreement pursuant to this clause shall not be available to any party the failure of which (or the failure of the affiliates of which) to perform in any material respect any of its material obligations under the Merger Agreement results in the failure of any such condition or if the failure of such condition results from facts or circumstances that constitute a material breach of a representation or warranty under the Merger Agreement by such party; (d) by Parent if prior to the purchase of Shares pursuant to the Offer, (i) the Board or any committee thereof shall have withdrawn or modified in a manner adverse to the Purchaser or Parent its approval or recommendation of the Offer, the Merger Agreement, the Merger or any other transaction contemplated by the Merger Agreement, (ii) the Board or any committee thereof shall have recommended to the stockholders of the Company acceptance of a Competing Transaction, (iii) the Company shall have entered into any definitive agreement with respect to a Competing Transaction, or (iv) the Board or any committee thereof shall have resolved to do any of the foregoing; or (e) by the Company if (i) the Board shall have withdrawn or modified in a manner adverse to the Purchaser or Parent its approval or recommendation of the Offer, the Merger Agreement or the Merger in order to approve the execution by the Company of a definitive agreement providing for the transactions contemplated by a Superior Proposal or (ii) Parent or the Purchaser shall have breached in any material respect any of their respective representations, warranties, covenants or other agreements contained in the Merger Agreement which breach cannot be or has not been cured 20 days after the giving of written notice to Parent or the Purchaser, as applicable, except, in any case, for such breaches which are not reasonably likely to affect adversely Parent's or the Purchaser's ability to complete the Offer or the Merger. In the event of the termination of the Merger Agreement, the Merger Agreement provides that it shall forthwith become void and of no effect with no liability on the part of any party thereto, except for fraud and for willful breach of a material obligation contained therein and except under the provisions of the Merger Agreement related to fees described below and under certain other provisions of the Merger Agreement which survive termination. The Merger Agreement provides that in the event that (a) any person (including, without limitation, the Company or any affiliate thereof), other than Parent or any affiliate of Parent, shall have become the beneficial owner of a majority of the then outstanding Shares and the Merger Agreement shall have been terminated pursuant to the provisions described in the second preceding paragraph above; (b) any person shall have commenced, publicly proposed or communicated to the Company a Competing Transaction and (i) the Offer shall have remained open for at least 20 business days, (ii) the Minimum Condition shall not have been satisfied, (iii) the Merger Agreement shall have been terminated pursuant to the provisions described in the second preceding paragraph above, and (iv) the Company shall have consummated a Competing Transaction with any person other than Parent or any of its affiliates before or within 12 months after the date of such termination; or (c) the Merger Agreement is terminated (i) pursuant to the provisions described in clause (d) or (e)(i) of the second preceding paragraph or (ii) pursuant to the provisions described in clause (c) of the second preceding 9 paragraph to the extent that the termination or the failure to accept any Shares for payment as set forth in such clause (c) shall relate to the intentional failure of the Company to perform in any material respect any material covenant or agreement of it contained in the Merger Agreement or the intentional material breach by the Company of any material representation or warranty of it contained in the Merger Agreement; then, in any such event, the Company shall pay Parent promptly (but in no event later than one business day after the first of such events shall have occurred) a fee of $3.1 million, which amount shall be payable in immediately available funds. MANAGEMENT ROLL-OVER AGREEMENTS As set forth above, the Merger Agreement provides that, prior to the Effective Time, the Board of Directors of the Company (or, if appropriate, the Stock Option Committee of the Board of Directors) shall adopt such resolutions or take such other actions as are required to that each Company Option theretofore granted under any Stock Option Plan outstanding immediately prior to the consummation of the Merger, whether or not then exercisable, shall, unless otherwise consented to by Parent in its sole discretion, be exchanged, in whole and not in part, for a cash payment from the Company in an amount (subject to any applicable withholding tax) equal to the product of (i) the excess of $18.00 over the per share exercise price of the Company Option multiplied by (ii) the number of Shares covered by the option immediately prior to the Effective Time. In the exercise of this discretion, Parent has requested that all or a portion of the Company Options held by four of the Company's officers not be cashed out in the foregoing manner, but instead be rolled over and exchanged for options to acquire shares of Parent common stock. The four Company officers (the "Roll-Over Officers") who will be permitted to roll-over their Company Options in this manner are: (i) Dane Nelson (as to Company Options to acquire 72,000 shares of Common Stock); Donald Madsen (as to Company Options to acquire 20,000 shares of Common Stock); William W. Weiss (as to Company Options to acquire 3,000 shares of Common Stock); and Susan M. Fixmer (as to Company Options to acquire 3,400 shares of Common Stock). To formalize this arrangement, Parent and the the Purchaser has entered into a Management Roll-Over Agreement dated February 14, 1996 with each of the Roll-Over Officers. These agreements further provide that the Roll-Over Officers will, at or prior to the consummation of the Merger, enter into a stockholders' agreement, upon reasonably satisfactory terms, governing the post-Merger exercise of such options and the terms of common stock issuable pursuant to such options. The form of the Management Roll-Over Agreement is attached hereto as Exhibit 3 and incorporated herein by reference. ITEM 4. THE SOLICITATION OR RECOMMENDATION RECOMMENDATION OF THE BOARD OF DIRECTORS. The Board has approved the Merger Agreement and the transactions contemplated thereby and determined that each of the Offer and the Merger is fair to, and in the best interests of, the stockholders of the Company. The Board recommends that all holders of Shares accept the Offer and tender their Shares pursuant to the Offer. BACKGROUND. In the period preceding and immediately following the conclusion of the Company's fiscal year ending July 31, 1994, there developed a general view among the members of the Board of Directors of the Company that, while the Company's financial performance had improved significantly as compared with recent periods, this improvement was generally not reflected in the market price for the Common Stock. In addition, it was noted that relatively few research analysts followed the Company and the trading volume in the Common Stock remained relatively low. There was also a broadly held view among the members of the Board that, because the Company operated in a number of different market sectors, the market did not truly understand the Company and its operations and business plan. Consequently, the members of the Board believed that the market valuation of the Company did not adequately reflect the Company's financial performance and prospects and that there was not a significant likelihood that the market would begin to recognize the true value of the Company at anytime in the near future. In response to these factors and after numerous informal discussions among its members, the Board authorized the formation of a Special 10 Committee, consisting of two members of the Board, which was charged with the responsibility of exploring various alternatives to maximize shareholder value. The Special Committee was further empowered to contact possible finacial advisors to assist it in the performance of this assignment. In September 1994, the Special Committee approached DLJ concerning a possible engagement to consider various strategic and financial alternatives for the Company, including a possible sale of the Company. On October 25, 1994, a letter agreement (the "Engagement Letter") was entered into between the Special Committee and DLJ, pursuant to which the Special Committee engaged DLJ to consider and advise it with respect to various strategic and financial alternatives and to evaluate, and as appropriate to render a "fairness opinion" regarding, (i) any proposal which the Company might receive for the acquisition of all or a substantial amount of its business, stock or assets, whether by means of merger, consolidation, or other business combination, tender or exchange offer, public or private purchase of the Company's securities or assets, or otherwise, or (ii) any other similar transaction, including any leveraged buyout, recapitalization, recapitalization involving management or employee stock or stock option plans and incentives, divestiture, sale or spinoff. At the time DLJ was retained to serve as the Company's financial advisor, the Special Committee also retained special outside counsel to advise it with respect to any strategic or financial proposals that it might be asked to consider. Following a presentation in December 1994 by DLJ to the Board regarding various strategic and financial alternatives that the Board might consider, the Board (upon the recommendation of the Special Committee and with one abstention) directed DLJ to begin exploring a possible sale of the Company, among other financial alternatives. Acting on that direction, the Company and DLJ prepared a descriptive memorandum regarding the Company which set forth certain information regarding the Company's operations and its financial performance and prospects. DLJ, on behalf of the Company, contacted numerous corporations and other entities which the Company and DLJ believed might have an interest in purchasing the Company ("Potential Purchasers"), and based upon interest expressed by certain of such Potential Purchasers, distributed to such Potential Purchasers copies of the descriptive memorandum on a confidential basis. From time to time thereafter, Potential Purchasers who expressed interest in a transaction were given the opportunity to tour the Company's facilities, talk with management and conduct other due diligence inquiries. The Company, through DLJ, invited such Potential Purchasers to submit proposals regarding an acquisition. The invitation stated that the proposals should include, among other things, the proposed purchase price and form of consideration, as well as a description of sources of financing and evidence of firm lending commitments, if any. No assurances were given that the Company would enter into an agreement with any party, it being the Company's intention to enter into a definitive agreement only on the basis of a proposal which it, in its sole discretion, considered satisfactory. From December 1994 until it entered into the Letter of Intent (as defined below) pursuant to which it committed to the Exclusivity Period (each as defined below), the Company entertained proposals from and engaged in discussions with several Potential Purchasers. No definitive agreement was reached with any such Potential Purchaser. Also, during this period the Special Committee of the Board was reconstituted to include all of the members of the Board other than Mr. Nelson. In the last week of September 1995, DLJ received, on behalf of the Company, two formal acquisition proposals, one of which was a proposal from GCLLC (the "GCLLC Proposal") regarding an acquisition of the Company in a leveraged buy-out transaction for $20.00 per Share. DLJ also received at that time several informal indications of interest from other Potential Purchasers. The GCLLC Proposal set forth a plan pursuant to which an affiliate of GCLLC would commence a tender offer for all of the Shares at $20.00 per Share, payable in cash, subject to certain conditions, to be followed by a merger of such affiliate with and into the Company. The GCLLC Proposal was conditioned upon 11 completion of financing arrangements, execution of a definitive merger agreement and reaching understandings with senior management of the Company as to their future levels of compensation and their equity investments in Parent. The Board (upon the recommendation of the Special Committee and with one abstention), with the advice and assistance of its legal and financial advisors, determined that of the acquisition proposals received, the GCLLC Proposal was the most attractive to the Company's stockholders. A letter of intent between the Company and GCLLC was signed on September 29, 1995 (the "Letter of Intent"). The Letter of Intent contemplated that the Offer would be made at a price of $20.00 per Share. The Letter of Intent provided that consummation of the proposed transaction was conditioned upon, among other things, satisfactory completion by GCLLC of a due diligence review of the Company and completion of financing arrangements by GCLLC. The Letter of Intent also provided that the Company would not solicit, encourage or negotiate with others concerning any proposal for the sale of the Company until November 14, 1995 (the "Exclusivity Period") and that the Company would reimburse GCLLC for up to $75,000 of GCLLC's expenses in the event that the Company elected not to proceed with the contemplated transactions for any reason. Between September 29, 1995 and November 10, 1995, GCLLC and its representatives continued their due diligence investigation of the Company and their efforts to complete their financing arrangements. On November 10, 1995, an amendment to the Letter of Intent was executed pursuant to which (i) the Offer price was set at $20.25, (ii) certain conditions, including the condition regarding due diligence, were deleted, and (iii) the Exclusivity Period was extended until December 21, 1995, by which time the parties contemplated that the Offer would be commenced. Between November 10, 1995 and December 21, 1995, GCLLC, its representatives and financing sources continued their due diligence investigations of the Company. On December 21, 1995, another amendment to the Letter of Intent was signed pursuant to which the Exclusivity Period was extended until January 10, 1996 and the Company's obligation to reimburse GCLLC for expenses was deleted. On January 8, 1996, certain prospective purchasers of subordinated debt of the Purchaser notified GCLLC that they were no longer interested in providing financing to the Purchaser in connection with the Offer and the Merger on the terms originally contemplated under their financing proposal. On January 10, 1996, GCLLC informed the Company that, in light of certain developments with respect to the Company, including its deteriorating operating performance and regulatory and market uncertainties with respect to its products, financing for the transactions contemplated by the Offer and the Merger would not be available on the terms and conditions previously contemplated, and that therefore the Offer and the Merger could not be consummated at a price of $20.25. At GCLLC's request, the Special Committee convened a meeting on January 13, 1996 to consider a revised proposal from GCLLC. At that meeting GCLLC made an oral presentation of alternatives which it believed addressed the Company's changed circumstances and would be satisfactory to prospective financing sources. On January 23, 1996, GCLLC reiterated in writing its proposal to the Company that the cash tender offer price for all of the Shares would be reduced to $18.00 per share. At a meeting of the Board held on January 26, 1996, the Board voted (upon the recommendation of the Special Committee and with one abstention and with one member voting against the proposal) to pursue an agreement with Parent and the Purchaser based on an all cash tender offer for all outstanding Shares at a price of $18.00 per Share. Between January 26, 1996 and February 14, 1996, the parties completed negotiations regarding the Merger Agreement and GCLLC completed its arrangement of financing. At a meeting on February 5, 1996, the Board, after presentations by the Special Committee's financial and legal advisors and the Company's outside counsel, voted (upon the recommendation of the Special Committee and with one abstention and with one member voting against the proposal) to approve the form of Merger 12 Agreement presented to it, as well as the Offer and the Merger. On February 14, 1996, Parent, the Purchaser and the Company executed the Merger Agreement, and the financing commitment letters were signed and delivered to GCP II. On February 21, 1996, the Purchaser commenced the Offer. REASONS FOR THE BOARD'S CONCLUSIONS. In approving the Merger Agreement and the transactions contemplated thereby and recommending that all stockholders tender their Shares pursuant to the Offer, the Board considered a number of factors, including: -Information relating to the financial condition and results of operations of the Company and management's estimates of the prospects of the Company which, in the Board's view, supported a determination that the Offer and the Merger were fair to the Company's stockholders; -The Board's general belief that the market price for the Common Stock would not adequately reflect the true value of the Company and its business (with reference to its financial performance and prospects) for the foreseeable future due to the fact or Board's perception, among other things, that (i) relatively few research analysts follow the Company, (ii) trading volume in the Common Stock remains relatively low and is anticipated to remain relatively low in the foreseeable future, and (iii) because the Company will continue to operate in a number of different market sectors, the market does not, and would continue not to, truly understand the Company and its operations and business plan; -The fact that the Company had made a public announcement in April 1995 that it had retained DLJ to explore strategic and financial alternatives on the Company's behalf, thereby alerting the market that the Company would be open to inquiries and possible proposals from potential purchasers or partners; -The relationship of the Offer price to recent historical market prices of the Shares, particularly that the $18.00 per share Offer price represents a premium of approximately 22% over the closing sales price for shares in the Nasdaq National Market on February 5, 1996, the last trading day prior to the approval of the Merger Agreement and the transactions contemplated thereby by the Company's Board of Directors, and a premium of approximately 16% over the closing sales price for shares in the Nasdaq National Market on February 14, 1996, the last trading day prior to the public announcement of the execution of the Merger Agreement; -The financial and valuation analyses presented to the Board by DLJ, the financial advisor to the Company, at various Board meetings beginning in December 1994 and continuing through February 1996, including market prices and financial data relating to other companies engaged in business considered comparable to the Company, the prices and premiums paid in recent selected acquisitions of companies engaged in business considered by DLJ to be comparable to that of the Company; -The written opinion (the "Fairness Opinion") of DLJ, dated February 14, 1996, that the consideration to be received by the stockholders of the Company pursuant to the Merger Agreement, is fair to the Company's stockholders from a financial point of view. The Fairness Opinion contains a description of the factors considered, the assumptions made and the scope of review undertaken by DLJ in rendering the Fairness Opinion and is attached hereto as Exhibit 5 and is incorporated by reference herein. STOCKHOLDERS ARE URGED TO READ THE FAIRNESS OPINION CAREFULLY AND IN ITS ENTIRETY; -The likelihood that the proposed acquisition would be consummated, including the experience, reputation and financial condition of GCLLC and its affiliates; and -The terms and conditions of the Merger Agreement, including, without limitation, the fact that, the Company is not prohibited from responding to any unsolicited proposal made in writing to acquire the Company pursuant to a merger, consolidation, share exchange, business combination, or other similar transaction or to acquire all or substantially all of the assets of 13 the Company, to the extent the Board, after consultation with independent legal counsel, determines in good faith that such action is required for the Board to comply with its fiduciary duty to the Company's stockholders imposed by the DGCL. The members of the Board evaluated the factors listed above in light of their knowledge of the business and operations of the Company and their business judgment. In view of the wide variety of factors considered in connection with its evaluation of the Offer and the Merger, the Board did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors considered in reaching its determination. The Board recognized that the Merger is not structured to require the approval of a majority of the stockholders of the Company other than the Purchaser, and that the Purchaser, if it purchases a sufficient number of Shares to satisfy the Minimum Condition, would have sufficient voting power to approve the Merger without the affirmative vote of any other stockholder of the Company. While consummation of the Offer would result in the stockholders of the Company receiving a premium for their Shares over the trading prices of the Shares prior to the announcement of the Offer and the Merger, it would eliminate any opportunity for stockholders of the Company other than Parent and the Purchaser to participate in the potential future growth prospects of the Company. The Board, however, believed that this was reflected in the Offer price to be paid and also recognized that there can be no assurance as to the level of growth, if any, to be attained by the Company in the future. The Board determined that it was necessary to appoint a committee of independent directors for the purpose of negotiating the terms of the Merger Agreement. In making such determination, the Board considered that one of the directors is employed by the Company and will have a financial interest in the Company following consummation of the Merger. As noted above, the Board has determined that each of the Offer and the Merger is fair to, and in the best interests of, the stockholders of the Company. In addition, the Board recognized that certain officers of the Company may have interests in the Offer and the Merger that could be deemed to present them with certain conflicts of interest. The Board was aware of these potential conflicts of interest and considered them along with the other matters described above. The Company has been advised by each of its directors and executive officers that they intend either to tender all Shares beneficially owned by them to the Purchaser pursuant to the Offer or to vote such Shares in favor of the approval and adoption by the stockholders of the Company of the Merger Agreement and the transactions contemplated hereby. ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED Pursuant to a letter agreement dated October 25, 1994 (the "Engagement Letter"), the Company retained DLJ to act as the exclusive financial advisor to the Company and the Special Committee of the Company's Board of Directors with respect to the sale, merger, consolidation or any other business combination, in one or a series of transactions, involving all or a substantial amount of the business, securities or assets of the Company. The Company agreed to compensate the DLJ for its services in an amount of (a) $100,000, payable upon the execution of the Engagement Letter, (b) $300,000 as compensation for the delivery of the Fairness Opinion, payable at the time DLJ notifies the Special Committee that it is prepared to deliver the Fairness Opinion, and (c) an amount equal to one percent (1%) of the aggregate amount of consideration received by the Company and/or its stockholders in connection with any of the above-mentioned transactions less any amounts paid by the Company pursuant to clause (a) or (b) above. The Company also agreed to reimburse DLJ for all reasonable out-of-pocket expenses (including reasonable fees and expenses of counsel) incurred by DLJ in connection with its engagement, whether or not a transaction is consummated. The Company further agreed to indemnify DLJ against certain liabilities and expenses in connection with its engagement, including liabilities arising under federal securities laws. ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES (a) No transactions in the Shares have been effected during the past 60 days by the Company or, to the best of the Company's knowledge, by any executive officer, director or affiliate. 14 (b) To the best of the Company's knowledge, to the extent permitted by applicable securities laws, rules or regulations, each executive officer, director or affiliate of the Company currently intends to tender all Shares over which he or she has sole dispositive power to the Purchaser. ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY (a) Except as set forth above, the Company is not engaged in any negotiation in response to the Offer which relates to or would result in (i) an extraordinary transaction, such as a merger or reorganization, involving the Company; (ii) a purchase, sale or transfer of a material amount of assets by the Company; (iii) a tender offer for or other acquisition of securities by or of the Company; or (iv) any material change in the present capitalization or dividend policy of the Company. (b) Except as described in Items 3(b) or 4 above, there are no transactions, Board resolutions, agreements in principle or signed contracts in response to the Offer that relate to or would result in one or more of the events referred to in Item 7(a) above. ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED The Information Statement attached as SCHEDULE I hereto is being furnished in connection with the possible designation by the Purchaser, pursuant to the Merger Agreement, of certain persons to be appointed to the Board other than at a meeting of the Company's stockholders. ITEM 9. MATERIAL TO BE FILED AS EXHIBITS Exhibit 1 Letter to Stockholders of the Company, dated February 21, 1996.* Exhibit 2 Agreement and Plan of Merger, dated as of February 14, 1996, among Andros Holdings Inc. (formerly CHO Holdings Inc.), Andros Acquisition Inc. (formerly CHO Acquisition Inc.), and the Company. Exhibit 3 Form of Management Roll-Over Agreement dated February 14, 1996 entered into among Andros Holdings Inc. (fomerly CHO Holdings Inc.) and Andros Acquisition Inc. (formerly CHO Acquisition Inc.) and each of Dane Nelson, Donald Madsen, William W. Weiss and Susan M. Fixmer. Exhibit 4 Engagement Letter, dated October 25, 1994, between the Company and Donaldson, Lufkin & Jenrette Securities Corporation. Exhibit 5 Opinion of Donaldson, Lufkin & Jenrette Securities Corporation, dated February 14, 1996.* Exhibit 6 Press Release issued jointly by the Company and Genstar Capital Partners II, L.P., dated February 14, 1996.
- ------------------------ * Included with Schedule 14D-9 mailed to stockholders. 15 After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: February 21, 1996 ANDROS INCORPORATED By: /s/__Dane Nelson__________________ Dane Nelson President and Chief Executive Officer 16 SCHEDULE I ANDROS INCORPORATED 2332 Fourth Street Berkeley, California 94710-2402 INFORMATION STATEMENT PURSUANT TO SECTION 14(F) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT. NO PROXIES ARE BEING SOLICITED AND YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY. This Information Statement is being mailed on or about February 21, 1996, as a part of the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") to the holders of record of the Shares at the close of business on or about February 20, 1996. You are receiving this Information Statement in connection with the possible election of persons designated by the Purchaser to a majority of the seats on the Board of Directors of the Company. The Merger Agreement requires the Company to use its reasonable best efforts to cause the Purchaser Designees (as defined below) to be elected to the Board of Directors of the Company (the "Board" or "Board of Directors") under the circumstances described therein. This Information Statement is required by Section 14(f) of the Exchange Act and Rule 14f-1 thereunder. See "Board of Directors, Executive Officers and The Purchaser Designees -- Right to Designate Directors; The Purchaser Designees." You are urged to read this Information Statement carefully. You are not, however, required to take any action. Capitalized terms used herein and not otherwise defined herein shall have the meaning set forth in the Schedule 14D-9. Pursuant to the Merger Agreement, the Purchaser commenced the Offer on February 20, 1996. The Offer is scheduled to expire at midnight, New York City time, on Monday, March 20, 1996, unless the Offer is extended. Following the election of the Purchaser Designees and prior to the consummation of the Merger, any amendment of the Merger Agreement or the Certificate of Incorporation or By-Laws of the Company, any termination of the Merger Agreement by the Company, any extension by the Company of the time for the performance of any of the obligations or the acts of Parent or the Purchaser or waiver of any of the Company's rights thereunder shall require the concurrence of a majority of the directors of the Company who are neither (i) designees of the Purchaser nor (ii) employees of the Company. This information contained in this Information Statement concerning the Purchaser and the Purchaser Designees has been furnished to the Company by the Purchaser, and the Company assumes no responsibility for the accuracy or completeness of such information. INFORMATION WITH RESPECT TO THE COMPANY GENERAL The Shares are the only class of voting securities of the Company outstanding. Each Share is entitled to one vote. As of January 31, 1996, there were 4,628,054 Shares outstanding. The Board of Directors currently consists of five (5) members. Each director holds office until such director's successor is elected and qualified or until such director's earlier resignation or removal. BOARD OF DIRECTORS, EXECUTIVE OFFICERS AND PURCHASER DESIGNEES RIGHT TO DESIGNATE DIRECTORS; THE PURCHASER DESIGNEES Pursuant to the Merger Agreement, promptly upon the purchase by the Purchaser of Shares pursuant to the Offer, and from time to time thereafter, the Purchaser shall be entitled to designate up to such number of directors (the "Purchaser Designees"), rounded up to the next whole number, on the Company's Board of Directors as shall give the Purchaser representation equal to the product of the total number of directors on the Company's Board of Directors (giving effect to the directors elected pursuant to this sentence) multiplied by the percentage that the aggregate number of Shares owned by the Purchaser, Parent and any direct or indirect wholly-owned subsidiary of Parent (including the Shares purchased pursuant to the Offer) bears to the total number of Shares outstanding, and the Company shall, upon request by the Purchaser and at the Company's election, increase the number of directors comprising the Company's Board of Directors or seek and accept resignations of incumbent directors. At such times, the Company shall use its reasonable best efforts to cause persons designated by the Purchaser to constitute the same percentage as persons designated by the Purchaser shall constitute of the board of each committee of the Board, each board of directors of each Subsidiary of the Company and each committee of such board. The Purchaser has informed the Company that each of the Purchaser Designees listed below has consented to act as a director. It is expected that the Purchaser Designees may assume office at any time following the purchase by the Purchaser of a majority of the Shares pursuant to the Offer, which purchase cannot be earlier than midnight March 20, 1996, and that, upon assuming office, the Purchaser Designees will thereafter constitute at least a majority of the Board. Biographical information concerning each of the Purchaser Designees, directors and executive officers is presented on the following pages. PURCHASER DESIGNEES Set forth below are the names of the Purchaser Designees, their principal occupations and certain other information about them:
NAME PRINCIPAL OCCUPATION - ------------------------- ----------------------------------------------------------------------------- Richard D. Paterson Director and Chairman of Parent and Chairman of Purchaser since February 12, 1996. Managing member of GCLLC since September 1995. Executive Vice President of Genstar Investment Corporation, Metro Tower, Suite 1170, 950 Tower Lane, Foster City, California 94404-2121, since February 1987. Director of Wolverine Tube, Inc., 1525 Perimeter Parkway, Huntsville, Alabama 35806, from January 1991 to October 1995. Director and Chairman of Prestolite Electric Inc., 2100 Commonwealth Boulevard, Ann Arbor, Michigan 48105, since October 1991. Director and Chairman of Seaspan International Ltd., 10 Pemberton, North Vancouver, British Columbia V7P 2R1, Canada, since October 1994. Director, Genstar Capital Corporation, 40 King Street West, Suite 4900, Toronto, Ontario M5H 4A2, Canada, from November 1988 to August 1995. Director of Gentek Building Products, 280 North Park Avenue, Warren, Ohio 44481, since December 1994. Director, Atlantic Industries, Inc., 999 Jenkins Road, Hardeeville, South Carolina 29927, from December 1990 to November 1993. Director of Eurocal Trading, Inc., 3478 Buskirk Avenue, Pleasant Hill, California 94523 from August 1991 to October 1995.
2 Mark E. Bandeen Director and President of Parent and President of Purchaser since February 12, 1996. Managing director of GCLLC since September 1995. Senior Vice President of Genstar Investment Corporation, Metro Tower, Suite 1170, 950 Tower Lane, Foster City, California 94404-2121, since July 1987. Director of Wolverine Tube, Inc., 1525 Perimeter Parkway, Huntsville, Alabama 35806, from January 1991 to September 1995. Director of Prestolite Electric Inc., 2100 Commonwealth Boulevard, Ann Arbor, Michigan 48105, since October 1991. Director of Seaspan International Ltd., 10 Pemberton, North Vancouver, British Columbia V7P 2R1, Canada, since October 1994. Director, Genstar Capital Corporation, 40 King Street West, Suite 4900, Toronto, Ontario M5H 4A2, Canada, from April 1989 to May 1995. Director of Gentek Building Products, 280 North Park Avenue, Warren, Ohio 44481, since December 1994. David J. Boverman Director and Vice President and Secretary of Parent and Purchaser since February 12, 1996. Principal of GCLLC since September 1995. Vice President of Genstar Investment Corporation, Metro Tower, Suite 1170, 950 Tower Lane, Foster City, California 94404-2121, since April 1989. Jean-Pierre L. Conte Director and Vice President and Treasurer of Parent and Purchaser since February 12, 1996. Principal of GCLLC since September 1995. Vice President of Genstar Investment Corporation, Metro Tower, Suite 1170, 950 Tower Lane, Foster City, California 94404-2121 since July 1995. Principal of The NTC Group, Inc., 3 Pickwick Plaza, Greenwich, Connecticut 06830, from June 1989 to March 1995. Director of TB Woods Corporation, 440 North First Avenue, Chambersburg, Pennsylvania 17201, since March 1990.
CURRENT DIRECTORS Set forth below are the names of the Company's directors, their principal occupations and their ages at January 31, 1996, and certain other information about them:
NAME AGE PRINCIPAL OCCUPATION - ----------------------------- --- --------------------------------------------------------- John M. Huneke 66 Private Investor Eugene Kleiner 72 Private Investor Dane Nelson 43 President and Chief Executive Officer Karl H. Schimmer, M.D. 73 Private Investor Robert C. Wilson 76 Private Consultant and Advisor to the President
Mr. Huneke is a founder of the Company and has been a director of Andros since its inception in 1968. Between 1973 and 1987, he was employed in various capacities by companies comprising the Bechtel Group, including Bechtel Investments and Bechtel National, Inc. Since 1987, he has been a private investor. Mr. Kleiner has been a director of Andros since 1972 and served as Chairman of the Board from January 1993 until July 1995. He was a founding partner of Kleiner Perkins Caufield & Byers. Since 1987, Mr. Kleiner has been a private investor. Mr. Kleiner is currently a director of Resound Corporation and a trustee of Polytechnic University in New York. Mr. Nelson joined Andros in 1990. He was promoted to President, Chief Executive Officer and a Director of the Company on September 1, 1991. From May 1990 to September 1991, he was Vice President, Operations. Prior to joining Andros, Mr. Nelson served as President, Nelken Supplies 3 Solutions, a retail computer and office supplies company, from March 1989 through May 1990. Mr. Nelson served as Operations Manager of the Supplies Division of Convergent Technologies, a computer manufacturer, from 1988 through March 1989. Dr. Schimmer has been a director of Andros since 1975. From 1959 until his retirement in 1981, he was a member of the staff, Department of Anesthesiology, St. Francis Memorial hospital in San Francisco. Since 1981, he has been a private investor. Mr. Wilson has been a director of Andros since December 1992, and has served as Chairman of the Board since July 1995. He has also been employed by the Company as an advisor to the President of the Company since November 1992. He is Chairman of Wilson & Chambers Inc., a consulting firm. He is currently also a director of Storage Technology Corporation, Resound Corporation, Syquest Technology, Inc., and Giga-Tronics Incorporated. From 1974 until his retirement in 1980, Mr. Wilson served as Chief Executive Officer of Memorex. BOARD COMMITTEES The Compensation Committee, consisting of Mr. Huneke, Mr. Kleiner and Dr. Schimmer as of the end of fiscal 1995, considers matters concerning compensation of employees, including officers. It also has the authority to select optionees for the Company's employee stock option plan and determine the number of shares covered by options granted under that plan. The Compensation Committee held seven meetings during fiscal 1995. The Audit Committee reviews, acts on and reports to the Board of Directors with respect to various auditing and accounting matters, including the scope and results of the audit procedures and the internal accounting controls and procedures of the Company. The Audit Committee held one meeting during fiscal 1995. The members of the Audit Committee, as of the end of fiscal 1995, were Mr. Huneke and Mr. Kleiner. ATTENDANCE AT MEETINGS During fiscal 1995, the Board of Directors of the Company held a total of 8 meetings. All directors of the Company attended 75% or more of the aggregate of all Board meetings and all meetings of Committees of which they were members. DIRECTORS' REMUNERATION Each non-employee director of the Company received an annual fee of $9,000 in fiscal 1995, a fee of $1,000 for each of the other meetings of the Board of Directors attended in person (except for Mr. Kleiner, formerly Chairman of the Board, received a fee of $1,500 for each of such meetings), and a fee of $500 for each meeting of the Board of Directors in which such director participated by telephone (including any committee meeting) (except that Mr. Kleiner received a fee of $750 for each of such meetings). In fiscal 1995, the total compensation paid to non-employee directors was $113,000. Non-employee directors are granted options pursuant to the 1991 Stock Option Plan (the "Plan") under the Automatic Grant Program (the "Automatic Program"). Under the Automatic Program, each individual who was serving as a non-employee Board member on October 4, 1991, was automatically granted on such date a non-statutory stock option to purchase 25,000 shares of Common Stock at an exercise price of $8.00 per share, the fair market value of the Common Stock at date of grant. The Automatic Program also provides for an automatic grant of an option to purchase 25,000 shares of Common Stock to each individual who becomes a new non-employee Board member after October 4, 1991. Each option granted under the Automatic Program has a ten year term, becomes exercisable for 15,000 share upon completion of one year of Board service (measured from the date of grant) and for an addition 5,000 shares upon completion of each of the next two years of Board service thereafter, and provides for an exercise price equal to 100% of the fair market value per share of the Company's Common Stock on the date of grant. Options granted under the Automatic Program are intended by the Company not to qualify as incentive stock options under the Internal Revenue Code of 1986, as amended (the "Code"). 4 During fiscal 1994 and fiscal 1995, no options were granted under the Automatic Program. During fiscal 1994, all four non-employee directors exercised options (granted under the Company's former Stock Option Plan for Directors, which was consolidated with the Company's other stock option plans into the Plan in October 1991) to purchase an aggregate of 42,500 shares of Common Stock at an exercise price of $9.13 per share (and with a net value realized equal to the excess of fair market value at the date of exercise over the exercise price) as follows: Mr. Alafi, 15,000 shares ($127,425); Mr. Huneke, 7,500 shares ($59,650); Mr. Kleiner, 15,000 shares ($125,300); Dr. Schimmer, 5,000 shares ($53,100). The aggregate value realized on such exercises was $365,475. EXECUTIVE OFFICERS The following table sets forth certain information with respect to the executive officers (excluding Donald Madsen, the "Named Executive Officers") of the Company:
NAME AGE POSITION - ---------------------------------- --- ----------------------------------------------- Dane Nelson 43 President, Chief Executive Officer Edward A. McClatchie, Ph.D. 54 Senior Vice President, Sales & Corporate Development William W. Weiss 50 Acting Chief Financial Officer Robert L. Turner 58 Vice President, Marketing Lee R. Carlson, Ph.D. 48 Vice President, Engineering Donald Madsen 51 Vice President, Sales
Dane Nelson, 43, joined the Company in 1990. He was promoted to President, Chief Executive Officer and a Director of the Company on September 1, 1991. From May 1990 to September 1991, he was Vice President, Operations. Prior to joining the Company, Mr. Nelson served as President, Nelken Supplies Solutions, a retail computer and office supplies company, from March 1989 through May 1990. Mr. Nelson served as Operations Manager of the Supplies Division of Convergent Technologies, a computer manufacturer, from 1988 through March 1989. Edward A. McClatchie, Ph.D., 54, joined the Company in 1969. He became Senior Vice President, Sales & Corporate Development in September 1991. From 1988 to 1991, Dr. McClatchie was Vice President, Corporate Development. Prior to joining the Company, Dr. McClatchie was a Postdoctoral Fellow at the Lawrence Radiation Laboratory in Berkeley, California, and a Science Research Fellow at Queens University, Belfast, Northern Ireland. His doctorate is in Physics. William W. Weiss, 50, joined the Company in 1977. He was elected Acting Chief Financial Officer on October 17, 1994. From 1984 to 1994, he was Controller. Mr. Weiss has a B.S. in Business Administration from California State University, Hayward, California. Robert L. Turner, 58, joined the Company in 1992. He is the Vice President, Marketing. Prior to joining the Company, Mr. Turner was hired as Vice President, Marketing & Sales at Microsensor Technology, a developer and manufacturer of a proprietary gas analyzer, in 1982. He was elected to the office President at Microsensor Technology in 1985 and remained so until coming to the Company. Mr. Turner has a B.S. degree in Electrical Engineering from UC Davis, California. Lee R. Carlson, Ph.D., 48, joined the Company in 1990 and is the Vice President, Engineering. Prior to joining the Company, Dr. Carlson was Vice President and founder of Iris Medical Instruments from 1989 to 1990, and headed up their product development effort on a diode laser endophotocoagulator. Dr. Carlson previously held positions of Director of Research & Development at Coherent Inc. in 1988, and Engineering Manager at Spectra Physics from 1982 to 1988. His doctorate is in Physical Chemistry from UC Berkeley, and he has a B.A. degree from Purdue University. On September 15, 1995, Donald Madsen, 51, became Vice President, Sales. He has been with the Company since March 1986, acting as Vice President over various departments. He was previously with ITT/Qume Corporation for more than 13 years, having hired on there as one of their start-up engineers. He holds an A.A. degree in Engineering. 5 Officers serve at the discretion of the Board of Directors. BENEFICIAL OWNERSHIP OF COMMON STOCK The following table sets forth certain information regarding the ownership of the Company's common stock as of January 31, 1996 by: (i) each director; (ii) each Named Executive Officer; (iii) all executive officers and directors of the Company as a group; and (iv) all those known by the Company to be beneficial owners of more than 5% of its common stock:
BENEFICIAL OWNERSHIP (1) -------------------------- NUMBER OF PERCENT OF NAME OF BENEFICIAL OWNER SHARES OWNED TOTAL - ----------------------------------------------------------------------------------------- ------------- ----------- Persons and entities affiliated with S.A.C. Capital Management (2) ...................... 719,494 15.5% 520 Madison Avenue New York, NY 10022 Neuberger & Berman (3) .................................................................. 536,200 11.6 605 Third Avenue New York, NY 10158 Dimensional Fund Advisors Inc. (4) ...................................................... 237,500 5.1 Dane Nelson (5) ......................................................................... 150,000 3.1 John M. Huneke (6) ...................................................................... 35,905 * Eugene Kleiner (6) ...................................................................... 85,845 1.8 Karl H. Schimmer, M.D. (6)(7) ........................................................... 44,785 * Robert C. Wilson (5) .................................................................... 55,000 1.2 Edward A. McClatchie, Ph.D. (5).......................................................... 100,109 2.1 Lee R. Carlson, Ph.D. (5)(6) ............................................................ 55,800 1.2 Robert L. Turner (5) .................................................................... 61,000 1.3 William W. Weiss (5) .................................................................... 10,132 * All executive officers and directors as a group (9 persons) (9) ......................... 532,278 10.5
- ------------------------ * Less than 1% (1) This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the SEC. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 4,628,054 shares outstanding on January 31, 1996, adjusted as required by rules promulgated by the SEC. (2) Based on a Schedule 13D filed with the SEC on February 1, 1996. Of such shares: 333,300 shares are owned by Steven A. Cohen; 220,130 shares are owned by S.A.C. Capital Management, L.P.; and 166,064 shares are owned by S.A.C. Investments, L.P. Mr. Cohen has the sole power and dispose of the shares held by him, and has shared voting and dispositive power with respect to the other shares. Mr. Cohen is the Managing Member of S.A.C. Capital Management, LLC, the General Partner of S.A.C. Capital Management, L.P. and S.A.C. Investments, L.P. (3) Based on a Schedule 13G filed with the SEC on September 10, 1995. The Schedule 13G states that N&B disclaims any economic interest in such securities, that portfolio clients of N&B have the sole right to receive and the power to direct the receipt of dividends from or proceeds from the sale of such securities and that no client has an interest that related to 5% or more of this security. Of the shares set forth above, N&B has shared dispositive power with respect to all 536,200 shares, sole voting power with respect to 288,900 shares and shared voting power with respect to 100,000 6 shares. Partners of N&B own 2,000 shares. Partners own these shares in their own personal securities accounts. N&B disclaims beneficial ownership of these shares because these shares were purchased with each partners' personal funds and each partner has exclusive dispositive and voting power over the shares held in their respective accounts. (4) Based on a Schedule 13G filed with the SEC on February 7, 1996. All of such shares are held in portfolios of DFA Investment Dimensions Group Inc., a registered open-end investment company; in series of the DFA Investment Trust Company, a Delaware business trust; or the DFA Group Trust and DFA Participation Group Trust, investment vehicles for qualified employee benefit plans. Dimensional Find Advisors Inc., a registered investment adviser, serves as investment manager to each of such entities, and disclaims beneficial ownership of such shares. (5) Includes shares subject to outstanding stock options that will be exercisable on March 31, 1996, subject to the Company's right to repurchase all or a portion of the unvested shares, as follows: Dane Nelson, 150,000 shares; Robert C. Wilson, 50,000 shares; Edward A. McClatchie, Ph.D., 90,500; Lee R. Carlson, Ph.D., 54,000 shares; Robert L. Turner, 60,000 shares; William W. Weiss, 10,132 shares; and all employee directors and executive officers as a group (6 persons), 442,218 shares. (6) Includes shares that certain non-employee directors of the Company have the right to acquire by March 31, 1996 pursuant to outstanding options and warrants, as follows: John M. Huneke, 30,000 shares; Eugene Kleiner, 30,000 shares; Karl H. Schimmer, M.D., 25,000 shares. (7) Does not include 13,275 shares beneficially owned by the Anesthesiologist Medical Group of San Francisco Inc. Profit Sharing and Pension Trust, of which Dr. Schimmer is a beneficiary but does not have or share investment or voting control. (8) Does not include 600 shares held by Dr. Carlson's son, with respect to which Dr. Carlson disclaims beneficial ownership. (9) Includes shares described in the notes above, where applicable. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee of the Board of Directors (the "Compensation Committee") is responsible for setting policies related to the Company's executive compensation program and overseeing its administration. During fiscal 1995, the Compensation Committee consisted of Mr. Huneke, Mr. Kleiner, Dr. Schimmer and, until July 21, 1995, Mr. Moshe Alafi (a former member of the Board of Directors), none of whom is or has been an employee of the Company. In August 1995, the Board of Directors reconstituted the Compensation Committee to consist of all of the members of the Board of Directors and delegated the administration of the Company's 1991 Stock Option Plan and Employee Stock Purchase Plan to the Stock Option Committee, which now consists of all members of the Board of Directors except Mr. Nelson. The objective of the Company's executive compensation program is to attract, motivate and retain executive officers capable of leading the Company to the fulfillment of its business objectives. To this end, the Compensation Committee approaches its responsibilities with the philosophy that the Company should provide executives with total compensation opportunities that are competitive and that reward executive contributions to corporate and stockholder value. Until August 1995, the Compensation Committee articulated this philosophy through its administration of the various components of the executive compensation program, including annual compensation in the form of base salary and long-term incentive compensation in the form of stock option grants. The Compensation Committee will continue to articulate this philosophy through determination of base salaries and incentive bonus compensation, and the Stock Option Committee will do the same in its administration of the Company's 1991 Stock Option Plan and Employee Stock Purchase Plan. In making decisions regarding compensation, the Compensation Committee has typically considered a mix of factors, including individual merit, corporate performance (including revenues, profits 7 and other corporate developments such as acquisitions and restructurings), competitive pay practices and long-term incentive value. The Compensation Committee historically has not assigned relative weights to any one factor or set specific individual or corporate performance goals, but rather evaluates corporate performance and individual executive achievement on a subjective basis. However, in August 1995, the Compensation Committee adopted new guidelines for executive compensation that contemplate an annual bonus to executives based on specific performance objectives to be set by the Compensation Committee. BASE SALARY. The Compensation Committee sets executive salaries with reference to executive salary levels at companies in the electronics industry that are comparable to the Company in terms of annual revenues. Market salary levels are estimated based on independent published reports of executive compensation in the electronics industry. These survey reports reflect compensation payments at a broad sample of companies, including a significant number of privately-owned companies. The group of companies that participate in the surveys is not identical to the companies that make up the industry index used in the Comparison of Five Year Total Cumulative Return on Investment, which is entirely made up of publicly-owned companies. The Compensation Committee also engaged an independent consultant to study executive salaries relative to market to assist it in determining fiscal 1995 salary levels. The new compensation guidelines adopted by the Compensation Committee in August 1995 also call for each executive's salary to be set within a range based on that executive's performance for the prior fiscal year. None of the Named Executive Officers' (as defined herein) base salaries were materially changed from fiscal 1994 to fiscal 1995. The Compensation Committee believes that the adjustments made during fiscal 1993 for fiscal 1994 (discussed in the report of the Compensation Committee in the Proxy Statement for the 1993 Annual Meeting of Stockholders) were sufficient to maintain salary levels at a competitive level through fiscal 1995. In particular, the Compensation Committee believes that Mr. Nelson's salary was between the estimated market's 50th and 75th percentiles throughout fiscal 1995 and that the other Named Executive Officers' salaries generally approximated the market median, except that the salary of Mr. McClatchie (who, subsequent to the end of fiscal 1995, is no longer an executive officer of the Company) exceeded the market median. Salary ranges for fiscal 1996 will be determined in a manner substantially similar to that described above. INCENTIVE BONUS COMPENSATION. In each of fiscal 1993, fiscal 1994 and fiscal 1995, there was no executive incentive bonus plan and, with the exception of an amount paid to one executive officer during fiscal 1993 as reimbursement for unused vacation time, no bonuses were paid to any of the Named Executive Officers. As described above, the Compensation Committee has adopted guidelines for the payment of incentive bonus compensation in subsequent fiscal years. STOCK OPTION COMPENSATION. In each of fiscal 1993, fiscal 1994 and fiscal 1995, the Compensation Committee used stock option grants to increase the recipient's incentive to remain in the Company's employ and to maximize the value of the Company's stock. By providing executives with an opportunity to increase their ownership of the Company and to participate in the appreciation of the Company's stock price, stock options align executive interests with those of the stockholders while helping ensure that the total executive compensation opportunity is competitive. Further, because stock options generally become exercisable over a multi-year period, they encourage executives to remain in the long-term employ of the Company. As described above, the Stock Option Committee is now charged with making stock option grants to achieve the same objectives. The Compensation Committee generally has set the exercise price of stock options equal to 85% of the grant date fair market value of the Company's stock. This practice is intended to increase the compensation value of the stock options, and to strengthen the link that the stock options provide between the recipient's long-term interests and those of the stockholders by providing the executive with an immediate gain that (a) is unrealizable until the options vest and (b) changes in value when the price of the Company's stock changes, whether the change is an increase or a decrease. 8 During fiscal 1995, the Compensation Committee did not make stock option grants to any of the Named Executive Officers (as defined herein), because it believes that the option grants made to date (including those made in fiscal 1994) are sufficient to provide the necessary incentive for such executive officers to remain in the Company's employ on a long-term basis and to maximize the value of the Company's stock. DEDUCTIBILITY OF EXECUTIVE COMPENSATION. In December 1993, the Internal Revenue Service (the "IRS") issued proposed regulations limiting the deduction a publicly-held corporation may take for compensation paid to its Chief Executive Officer and its four other most highly compensated employees paid over $100,00 per year. The IRS regulations limit the amount that such a company may deduct to $1 million per person unless the compensation constitutes "performance based" compensation, as defined in the Internal Revenue Code. The statute containing this law and the applicable Treasury regulations offer a number of transitional exemptions to this deduction limit for preexisting compensation plans, arrangements and binding contracts. The Compensation Committee believes that no Named Executive Officer's compensation currently exceeds the $1 million limit. As a result, the Compensation Committee has not yet formulated a policy for determining which forms of compensation will be designated to qualify as "performance-based compensation." The Compensation Committee intends to continue to evaluate the effects of such statute and Treasury regulations and to comply with Internal Revenue Code Section 162(m) in the future to the extent in keeping with the best interests of the Company. The members of the Compensation Committee are Mr. John M. Huneke, Mr. Eugene Kleiner and Mr. Karl H. Schimmer, M.D. SUMMARY COMPENSATION TABLE The following table sets forth, for fiscal years 1995, 1994 and 1993, certain compensation awarded or paid to, or earned by, the Company's Chief Executive Officer and its other four most highly compensated executive officers at the end of fiscal 1995:
LONG-TERM COMPENSATION AWARDS (2) ------------- ANNUAL COMPENSATION (1) SECURITIES ------------------------------------- UNDERLYING ALL OTHER FISCAL SALARY (3) BONUS OPTIONS (4) COMPENSATION (5) NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($) - -------------------------------------------- --------- ----------- ------------- ------------- ----------------- Dane Nelson 1995 $ 215,010 -- -- $ 4,620 President and 1994 221,742 -- 30,000 9,117 Chief Executive Officer 1993 172,723 -- 35,000 -- Edward A. McClatchie, Ph.D. 1995 175,011 -- -- 4,620 Senior Vice President, 1994 181,550 -- -- 4,622 Sales and Corporate Development 1993 167,903 $ 13,078(6) 20,000 5,960 Lee R. Carlson, Ph.D. 1995 115,003 -- -- 3,822 Vice President, 1994 117,533 -- 5,000 4,125 Marketing 1993 98,547 -- 30,000 4,049 Robert L. Turner 1995 113,422 -- -- 3,970 Vice President, 1994 115,280 -- 10,000 2,965 Marketing 1993 104,826 -- 20,000 4,854 William W. Weiss 1995 71,569 -- -- -- Acting Chief Financial Officer 1994 -- -- -- -- and Controller 1993 -- -- -- --
- ------------------------ (1) As permitted by rules promulgated by the SEC, with respect to fiscal 1993, 1994 and 1995, no amounts are shown for "perquisites", as such amounts for each Named Executive Officer do not exceed the lesser of 10% of such executive's salary plus bonus or $50,000. 9 (2) To date, the Company has not granted any awards of restricted stock. The Company does not have any long-term incentive plan. (3) Includes amounts earned but deferred at the election of the Named Executive Officer pursuant to the Company's Savings and Investment Plan, which is a qualified plan under Section 401(k) of the Code. (4) To date, the Company has not granted any stock appreciation rights (SARs) under the Plan, although the Company has granted limited stock appreciation rights in tandem with outstanding options held by officers and directors of the Company. STOCK OPTIONS The Company grants options to its executive officers under the discretionary Grant Program of the Plan ("Discretionary Program"). As of September 1, 1995, options to purchase an aggregate of 2,050,000 shares had been granted under the Plan and options to purchase 373,198 shares remained available for grant thereunder. There were no option grants under the Plan in fiscal 1995. The terms of options granted to the Named Executive Officers are generally consistent with those of options granted to other employees under the Discretionary Program. Options granted under the Discretionary Program may be either incentive or non-statutory stock options. The exercise price of non-statutory options must be at least 85% of fair market value on the date of grant and the exercise price of incentive stock options must be at least 100%. In the event of certain changes in control of the Company, vesting of outstanding options automatically accelerates, and the options remain exercis- able through the option term. In the event of certain other corporate transactions, unless assumed by a successor corporation, vesting of outstanding options will automatically accelerate, and the options will expire if not exercised prior to the consummation of such corporate transaction. Certain limited stock appreciation rights are granted to officers and directors of the Company in tandem with their outstanding options. Any option with such a limited stock appreciation right in effect for at least six months will automatically be cancelled upon the occurrence of certain hostile takeovers, and the optionee will in return be entitled to a cash distribution from the Company in an amount equal to the excess of (i) the take-over price of the shares of common stock at the time subject to the cancelled option (whether or not the option is otherwise at the time exercisable for such shares, or (ii) the aggregate exercise price payable for such shares. The 1991 Plan contains provisions permitting the Compensation Committee to reprice outstanding options. Options generally vest in equal daily installments over a four-year period. AGGREGATED OPTION EXERCISES IN 1995 AND YEAR-END OPTION VALUES During fiscal 1995, no options were granted to executive officers. The following table shows, for fiscal 1995, aggregated option exercises and the fiscal year-end option values by the names executive officers: AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT SHARE ACQUIRED ON VALUE OPTIONS AT FY-END (#) FY-END ($) EXERCISABLE/ NAME EXERCISE (#) REALIZED ($)(1) EXERCISABLE/UNEXERCISABLE (2/3) UNEXERCISABLE (2/4) - ------------------ ------------------- ----------------- ----------------------------- ----------------------- Mr. Nelson -- -- 107,102 / 42,898 $688,676 / $117,274 Dr. McClatchie -- -- 75,194 / 15,306 543,372 / 49,228 Dr. Carlson -- -- 33,108 / 20,892 146,979 / 53,141 Mr. Turner -- -- 38,554 / 21,446 152,886 / 62,214 Mr. Weiss -- -- 6,131 / 4,001 27,076 / 10,843
- ------------------------ (1) Represents the fair market value of the Company's common stock on the date of exercise (based on the closing sales price reported on the Nasdaq National Market or the actual sales price if the shares were sold by the optionee) less the exercise price, and does not necessarily imply that the shares were sold by the optionee. 10 (2) Reflects shares vested and unvested at fiscal year end. Options granted under the Discretionary Program are immediately exercisable, but are subject to the Company's right to repurchase unvested shares on termination of employment. (3) Includes both "in-the-money" and "out-of-the-money" options. In-the-money options are options with exercise prices below the market price of the Company's common stock at July 30, 1995. (4) Represents the fair market clue of the Company's common stock at July 30, 1995 ($15.875), based on the closing sales price reported on the Nasdaq National Market, less the exercise price. 07/27/90 07/26/91 07/24/92 07/24/93 07/29/94 07/28/95 - --------- --------- --------- --------- --------- --------- 100.0 64.6 143.9 151.2 161.0 154.9 100.0 114.6 133.6 165.8 171.8 100.0 100.0 106.6 128.4 212.3 242.7 562.5
11 COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 The Company's directors and executive officers and any persons holding more than ten percent (10%) of the Company's Common Stock are required by Section 16 of the Securities Exchange Act of 1934 to report their initial ownership of the Company's Common Stock and any subsequent changes in that ownership to the Securities and Exchange Commission. Specific due dates for these reports have been established and the Company is required to disclose in this proxy statement any failure to file by these dates. To the Company's knowledge, all of these filing requirements were satisfied during fiscal 1995. CERTAIN TRANSACTIONS The Company has entered into indemnity agreements with certain officers and directors that provide, among other things, that the Company will indemnify such officers or directors, under the circumstances and to the extent provided for therein, for expenses, damages, judgments, fines and settlements he or she may be required to pay in actions or proceedings to which he is or may be made a party by reason of his position as a director, officer or other agent of the Company, and otherwise to the full extent permitted under Delaware law and the Company's By-Laws. In December 1993, Scitec entered into a three-year employment agreement with Lawrence R. Lynott providing for an annual base salary of $100,000, subject to increase in accordance with the policies of the Company. On June 7, 1995, Mr. Lynott's employment with Scitec was terminated and on September 19, 1995, pursuant to the terms of the contract, Mr. Lynott was paid a lump sum severance of $155,890.26 and vesting on options on 13,655 shares of the Company's common stock was accelerated. 12 EX-1 2 EXHIBIT 1 EXHIBIT 1 [ANDROS INCORPORATED LETTERHEAD] February 21, 1996 To Our Stockholders: I am pleased to inform you that on February 14, 1996 Andros Incorporated entered into an Agreement and Plan of Merger with Andros Holdings Inc. and Andros Acquisition Inc., both direct or indirect wholly owned subsidiaries of Genstar Capital Partners II, L.P. Under the Agreement, Andros Acquisition Inc. has commenced a cash tender offer to purchase all of the outstanding shares of Andros Common Stock for $18.00 per share. The Offer will be followed by a Merger in which any remaining shares of Andros Common Stock will be converted into the right to receive $18.00 per share in cash, without interest. YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, HAS APPROVED THE OFFER AND THE MERGER, AND RECOMMENDS THAT COMPANY STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. In arriving at its recommendation, the Board of Directors gave careful consideration to a number of factors, which are described in the attached Schedule 14D-9 that is being filed today with the Securities and Exchange Commission. These factors include, among other things, the opinion of Donaldson, Lufkin & Jenrette Securities Corporation, the Company's financial advisor, that the consideration to be received by the stockholders of the Company pursuant to the Agreement is fair to the stockholders of the Company from a financial point of view. In addition to the attached Schedule 14D-9 relating to the Offer, also enclosed is the Offer to Purchase, dated February 21, 1996, of Andros Acquisition Inc., together with related materials to be used for tendering your shares. These documents set forth the terms and conditions of the Offer and the Merger and provide instructions as to how to tender your shares. I urge you to read the enclosed materials carefully. Sincerely, /s/ Dane Nelson Dane Nelson President and Chief Executive Officer EX-2 3 EXHIBIT 2 EXHIBIT 2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AGREEMENT AND PLAN OF MERGER DATED AS OF FEBRUARY 14, 1996 BY AND AMONG CHO HOLDINGS INC., CHO ACQUISITION INC. AND ANDROS INCORPORATED - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ----- ARTICLE I THE TENDER OFFER.............................................................. 1 SECTION 1.1 The Offer..................................................................... 1 SECTION 1.2 Company Action................................................................ 3 SECTION 1.3 Directors..................................................................... 4 ARTICLE II THE MERGER.................................................................... 5 SECTION 2.1 Merger........................................................................ 5 SECTION 2.2 Conversion of Shares.......................................................... 6 SECTION 2.3 Exchange of Certificates...................................................... 7 SECTION 2.4 Dissenting Shares............................................................. 8 SECTION 2.5 Certificate of Incorporation and Bylaws of the Surviving Corporation.......... 9 SECTION 2.6 Directors and Officers of the Surviving Corporation........................... 9 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER.................... 9 SECTION 3.1 Corporate Organization........................................................ 9 SECTION 3.2 Authority..................................................................... 10 SECTION 3.3 Consents and Approvals; No Violation.......................................... 10 SECTION 3.4 Financing..................................................................... 11 SECTION 3.5 Surviving Corporation After the Merger........................................ 11 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................. 11 SECTION 4.1 Corporate Organization........................................................ 11 SECTION 4.2 Capitalization................................................................ 12 SECTION 4.3 Subsidiaries.................................................................. 12 SECTION 4.4 Authority..................................................................... 13 SECTION 4.5 Consents and Approvals; No Violation.......................................... 13 SECTION 4.6 Proxy or Information Statement................................................ 14 SECTION 4.7 Conduct of Business........................................................... 14 SECTION 4.8 SEC Documents................................................................. 15 SECTION 4.9 Litigation.................................................................... 16 SECTION 4.10 Labor Relations; Employees.................................................... 16 SECTION 4.11 Certain Agreements and Employee Benefit Plans................................. 17 SECTION 4.12 Taxes......................................................................... 18 SECTION 4.13 Absence of Certain Changes or Events.......................................... 20 SECTION 4.14 Properties.................................................................... 21 SECTION 4.15 Intellectual Property......................................................... 21 SECTION 4.16 Material Contracts............................................................ 21 SECTION 4.17 Fees.......................................................................... 22 SECTION 4.18 Business Combination Statute Inapplicable..................................... 22 ARTICLE V COVENANTS OF THE COMPANY AND PARENT........................................... 22 SECTION 5.1 Conduct of Business of the Company............................................ 22 SECTION 5.2 Stockholder Meeting; Proxy Material; Information Statement.................... 24 SECTION 5.3 No Solicitation of Competing Transactions..................................... 25 ARTICLE VI ADDITIONAL AGREEMENTS......................................................... 26 SECTION 6.1 Access to Information......................................................... 26 SECTION 6.2 Legal Conditions to Offer and Merger.......................................... 27
i
PAGE ----- SECTION 6.3 Confidentiality Agreement..................................................... 27 SECTION 6.4 Public Announcements.......................................................... 28 SECTION 6.5 Directors' and Officers' Insurance and Indemnification........................ 28 SECTION 6.6 Employee Arrangements......................................................... 29 SECTION 6.7 Company Stock Option Plans.................................................... 29 SECTION 6.8 Company Employee Stock Purchase Plan.......................................... 30 SECTION 6.9 Notice of Certain Events...................................................... 30 SECTION 6.10 Obligations of Purchaser...................................................... 31 SECTION 6.11 Voting of Shares.............................................................. 31 ARTICLE VII CONDITIONS PRECEDENT.......................................................... 31 SECTION 7.1 Conditions of Each Party's Obligation to Effect the Merger.................... 31 SECTION 7.2 Conditions to the Obligations of the Company to Effect the Merger............. 31 ARTICLE VIII TERMINATION................................................................... 32 SECTION 8.1 Termination................................................................... 32 SECTION 8.2 Effect of Termination......................................................... 33 SECTION 8.3 Certain Payments.............................................................. 33 ARTICLE IX GENERAL PROVISIONS............................................................ 34 SECTION 9.1 Amendment..................................................................... 34 SECTION 9.2 Extension; Waiver............................................................. 34 SECTION 9.3 Nonsurvival of Representations, Warranties and Agreements..................... 34 SECTION 9.4 Entire Agreement.............................................................. 34 SECTION 9.5........... Severability.................................................................. 34 SECTION 9.6 Notices....................................................................... 35 SECTION 9.7 Headings...................................................................... 36 SECTION 9.8 Expenses...................................................................... 36 SECTION 9.9 Benefits; Assignment.......................................................... 36 SECTION 9.10 Specific Performance.......................................................... 36 SECTION 9.11 Governing Law................................................................. 37 SECTION 9.12 Counterparts.................................................................. 37 ANNEX I CONDITIONS TO THE OFFER
ii INDEX OF DEFINED TERMS
DEFINED TERM REFERENCE - --------------------------------------------------------------------------------- ------------ Agreement........................................................................ Preamble CERCLA........................................................................... Section.47(c) Certificates..................................................................... Section.23(a) Code............................................................................. Section.411(a) Common Stock..................................................................... Recitals Company.......................................................................... Preamble Competing Transaction............................................................ Section 5.3 Confidentiality Agreement........................................................ Section 6.3 Constituent Corporations......................................................... Section 2.1 (a) Cut-off Date..................................................................... Section 1.3 (a) Current Offering................................................................. Section 6.8 DGCL............................................................................. Recitals Dissenting Shares................................................................ Section 2.4 (a) Dissenting Stockholder........................................................... Section 2.4 (a) Effective Time................................................................... Section 2.1 (b) Environmental Laws............................................................... Section 4.7 (c) ERISA............................................................................ Section 4.11(b) Exchange Act..................................................................... Section 1.1 (a) Exchange Agent................................................................... Section 2.3 (a) Financing Commitments............................................................ Section 3.4 Fully Diluted Shares............................................................. Section 4.2 Governmental Entity.............................................................. Section 3.3 Hazardous Materials.............................................................. Section 4.7 (c) HSR Act.......................................................................... Section 3.3 Information Statement............................................................ Section 4.6 ISO.............................................................................. Section 4.11(c) IRS.............................................................................. Section 4.11(b) Lien............................................................................. Section 4.14 Material Adverse Effect.......................................................... Section 4.1 Material Contracts............................................................... Section 4.16 Material Plans................................................................... Section 4.11(b) Merger........................................................................... Recitals Merger Price..................................................................... Section 2.2 (a) Minimum Shares................................................................... Section 1.1 (a) Minimum Share Condition.......................................................... Section 1.1 (a) Offer............................................................................ Recitals Offer Documents.................................................................. Section 1.1 (b) Parent........................................................................... Preamble Permits.......................................................................... Section 4.7 (b) Proxy Statement.................................................................. Section 4.6 Purchaser........................................................................ Preamble Schedule 14D-9................................................................... Section 1.2 (b) SEC.............................................................................. Section 1.1 (b) SEC Documents.................................................................... Section 4.8 Securities Act................................................................... Section 4.8 Shares........................................................................... Recitals Special Committee................................................................ Section 1.2 (a) Stock Options.................................................................... Section 4.2 Stock Option Plans............................................................... Section 6.7 (a) Stock Purchase Plan.............................................................. Section 4.2
iii
DEFINED TERM REFERENCE - --------------------------------------------------------------------------------- ------------ Stockholders' Meeting............................................................ Section.52(a) Subsidiary....................................................................... Section.13(a) Superior Proposal................................................................ Section.53 Surviving Corporation............................................................ Section.21(a) Taxes............................................................................ Section.412(a) Tendered Shares.................................................................. Section.11(a)
iv AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of February 14, 1996, is entered into by and among CHO HOLDINGS INC., a Delaware corporation ("Parent"), CHO ACQUISITION INC., a Delaware corporation and a wholly owned subsidiary of Parent (the "Purchaser"), and ANDROS INCORPORATED, a Delaware corporation (the "Company"). R E C I T A L S WHEREAS, the respective Boards of Directors of the Company, Parent and the Purchaser have approved the acquisition of the Company by the Purchaser and, in furtherance of such acquisition, Parent proposes to cause the Purchaser to make a cash tender offer (the "Offer") for all of the outstanding shares of common stock, par value $.01 per share ("Common Stock"), of the Company ("Shares") on the terms specified herein and the Board of Directors of the Company has approved the Offer and recommended that it be accepted by the stockholders of the Company; and WHEREAS, the Boards of Directors of the Company and the Purchaser deem it advisable and in the best interests of the stockholders of such corporations to effect the merger (the "Merger") of the Purchaser with and into the Company following the consummation of the Offer, all pursuant to this Agreement and in accordance with the General Corporation Law of the State of Delaware (the "DGCL"); NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements herein contained, Parent, the Purchaser and the Company hereby agree as follows: ARTICLE I THE TENDER OFFER SECTION 1.1 THE OFFER. (a) Subject to the provisions of this Agreement and provided that nothing shall have occurred that would result in a failure to satisfy any of the conditions set forth in ANNEX I hereto, Parent shall cause the Purchaser to, as promptly as reasonably practicable after the date hereof, but in no event later than five (5) business days following the initial public announcement of the Purchaser's intention to commence the Offer, commence (within the meaning of Rule 14d-2(a) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), the Offer for all of the outstanding Shares at a price of $18.00 per Share, net to the seller in cash, subject only (i) to a minimum of 2,649,538 Shares (or such other number of Shares, when added to the number of Shares already owned by Parent, the Purchaser or any direct or indirect wholly owned Subsidiary (as defined in Section 1.3(a)) of Parent, as shall constitute a majority of the Company's Fully Diluted Shares (as defined in Section 4.2) (the "Minimum Shares") being validly tendered prior to the expiration or termination of the Offer and not withdrawn (the "Minimum Share Condition") and (ii) to the other conditions to the Offer set forth in ANNEX I. The Purchaser may at any time transfer or assign to one or more corporations directly or indirectly wholly owned by Parent the right to purchase all or any portion of the Shares tendered pursuant to the Offer (the "Tendered Shares"), but no such assignment shall relieve the Purchaser of its obligations hereunder. The Purchaser expressly reserves the right to waive any of the conditions to the Offer set forth in ANNEX I and to modify the terms and conditions of the Offer; PROVIDED, HOWEVER, that, without the prior written approval of the Company, the Purchaser shall not amend or modify the terms of the Offer to (i) reduce the cash price to be paid pursuant to the Offer, (ii) reduce the number of Shares as to which the Offer is made, (iii) change the form of consideration to be paid in the Offer, (iv) modify or waive the Minimum Share Condition, or (v) impose conditions to its obligation to accept for payment or pay for the Tendered Shares other than those set forth in ANNEX I. The Offer may not be extended without the Company's prior written consent; PROVIDED, HOWEVER, that the Purchaser may extend (and re-extend) the Offer for up to a total of 20 1 business days if, as of the initial expiration date, which shall be 20 business days following commencement of the Offer, there shall not have been validly tendered and not withdrawn that number of Shares necessary to permit the Merger to be effected without a meeting of the Company's stockholders in accordance with the DGCL. (b) As soon as reasonably practicable on the date of commencement of the Offer, the Purchaser shall file with the Securities and Exchange Commission ("SEC") a Tender Offer Statement on Schedule 14D-1 with respect to the Offer, which shall contain or shall incorporate by reference an offer to purchase and a related letter of transmittal and summary advertisement (such Schedule 14D-1 and the documents included therein or incorporated therein by reference pursuant to which the Offer will be made, together with any supplements or amendments thereto, the "Offer Documents"). Parent and the Purchaser agree that the Offer Documents shall comply as to form in all material respects with the Exchange Act, and the rules and regulations promulgated thereunder, and, on the date filed with the SEC and on the date first published, sent or given to the Company's stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by Parent or the Purchaser with respect to information supplied by the Company or any of its representatives which is included in the Offer Documents. Each of Parent, the Purchaser and the Company agrees to correct promptly any information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or misleading, and each of Parent and the Purchaser further agrees to take all steps necessary to amend or supplement the Offer Documents and to cause the Offer Documents as so amended or supplemented to be filed with the SEC and to be disseminated to the Company's stockholders, in each case as and to the extent required by applicable federal securities laws. The Company and its counsel shall be given a reasonable opportunity to review the Offer Documents and all amendments and supplements thereto prior to their filing with the SEC or dissemination to stockholders of the Company. Parent and the Purchaser agree to provide the Company and its counsel any comments Parent, the Purchaser or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt of such comments. (c) Subject to the terms and conditions of the Offer, the Purchaser shall pay for Shares which have been validly tendered and not withdrawn pursuant to the Offer as promptly as practicable following expiration of the Offer. SECTION 1.2 COMPANY ACTION. (a) The Company hereby approves of and consents to the Offer and represents that at a meeting duly called and held the Board of Directors of the Company has, after receiving the recommendation in favor thereof of the special committee of the Board of Directors of the Company (the "Special Committee") formed to consider this Agreement and the transactions contemplated hereby, (i) approved and adopted this Agreement and the transactions contemplated hereby and determined that the Offer and the Merger are in the best interests of the Company and its stockholders and on terms that are fair to such stockholders, and (ii) recommended that the Company's stockholders accept the Offer and tender all of their Shares in connection therewith and, if required under the DGCL, approve this Agreement and the transactions contemplated hereby. The Company represents that its Board of Directors has received the written opinion of Donaldson, Lufkin & Jenrette Securities Corporation that the consideration to be received by the Company's stockholders pursuant to each of the Offer and the Merger is fair to the Company's stockholders from a financial point of view, and that a complete and correct signed copy of such opinion will be delivered promptly following the date hereof by the Company to Parent. The Company represents that the Special Committee has duly adopted resolutions providing for the dissolution of the Special Committee on the Cut-Off Date (as defined below). (b) As soon as reasonably practicable on the date of commencement of the Offer, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to 2 the Offer (such Schedule 14D-9, as amended and supplemented from time to time, the "Schedule 14D-9") and shall mail the Schedule 14D-9 to the stockholders of the Company. Subject to the fiduciary duties of the Board of Directors as advised by counsel, the Offer Documents and the Schedule 14D-9 shall contain the recommendation of the Company's Board of Directors described in Section 1.2(a). The Company agrees that the Schedule 14D-9 shall comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder and, on the date filed with the SEC and on the date first published, sent or given to the Company's stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by the Company with respect to information supplied by Parent or the Purchaser or any of their respective representatives which is included in the Schedule 14D-9. Each of the Company, Parent and the Purchaser agrees to correct promptly any information provided by it for use in the Schedule 14D-9 if and to the extent that such information shall have become false or misleading, and the Company further agrees to take all steps necessary to amend or supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented to be filed with the SEC and disseminated to the Company's stockholders, in each case as and to the extent required by applicable federal securities laws. Parent and its counsel shall be given a reasonable opportunity to review the Schedule 14D-9 and all amendments and supplements thereto prior to their filing with the SEC or dissemination to stockholders of the Company. The Company agrees to provide Parent and its counsel with any comments the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments. (c) In connection with the Offer, the Company shall cause its transfer agent to furnish the Purchaser promptly with mailing labels containing the names and addresses of the record holders of Common Stock as of a recent date and of those persons becoming record holders subsequent to such date, together with copies of all lists of stockholders, security position listings and computer files and all other information in the Company's possession or control regarding the beneficial owners of Common Stock, and shall furnish to the Purchaser such information and assistance (including updated lists of stockholders, security position listings and computer files) as the Purchaser may reasonably request in communicating the Offer to the Company's stockholders. Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Offer or the Merger, Parent and the Purchaser and their agents shall hold in confidence the information contained in any such labels, listings and files, will use such information only in connection with the Offer and the other transactions contemplated hereby and, if this Agreement shall be terminated, will deliver, and will use their reasonable best efforts to cause their agents to deliver, to the Company all copies of such information then in their possession or control. SECTION 1.3 DIRECTORS. (a) Promptly upon the purchase by the Purchaser of Shares in the Offer, and from time to time thereafter, the Purchaser shall be entitled to designate the number of directors, rounded up to the next whole number, on the Company's Board of Directors that equals the product of (i) the total number of directors on the Company's Board of Directors (giving effect to the election of any additional directors pursuant to this Section 1.3) and (ii) the percentage that the number of Shares owned by the Purchaser, Parent and any direct or indirect wholly owned Subsidiary of Parent (including Shares purchased in the Offer) bears to the total number of Shares outstanding, and to effect the foregoing the Company shall upon request by the Purchaser, at the Company's election, either increase the number of directors comprising the Company's Board of Directors or seek and accept resignations of incumbent directors. The first date on which designees of the Purchaser shall constitute a majority of the Company's Board of Directors is referred to in this Agreement as the "Cut-Off Date." At such times, the Company will use its reasonable best efforts to cause individuals designated by the Purchaser to constitute the same percentage as such individuals represent on the Company's 3 Board of Directors of (x) each committee of the Board, (y) each board of directors of each Subsidiary of the Company and (z) each committee of each such board. As used in this Agreement, a "Subsidiary" of any other corporation means a corporation an amount of whose voting securities sufficient to elect at least a majority of its Board of Directors is owned directly or indirectly by such other corporation. (b) The Company shall promptly take all actions required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section and shall include in the Schedule 14D-9 such information with respect to the Company and its officers and directors as is required under Section 14(f) and Rule 14f-1 to fulfill its obligations under this Section 1.3. The Purchaser will supply to the Company and be solely responsible for any information with respect to itself and its nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1. (c) Following the Cut-Off Date and prior to the Effective Time, any amendment of this Agreement or the Certificate of Incorporation or Bylaws of the Company or any of its Subsidiaries, any termination or amendment of this Agreement by the Company, any extension by the Company of the time for the performance of any of the obligations or other acts of Parent or the Purchaser or any exercise or waiver of any of the Company's rights hereunder, will require the concurrence of a majority of the directors of the Company then in office who are neither designated by the Purchaser, employees of the Company or any of its Subsidiaries nor otherwise affiliated with the Purchaser. ARTICLE II THE MERGER SECTION 2.1 MERGER. (a) At the Effective Time (as defined in subsection (b) below) and subject to the terms and conditions hereof and the provisions of the DGCL, the Purchaser will be merged with and into the Company in accordance with the DGCL, the separate existence of the Purchaser shall thereupon cease and the Company shall continue as the surviving corporation (the "Surviving Corporation"). The Purchaser and the Company are sometimes hereinafter referred to collectively as the "Constituent Corporations." (b) Subject to the terms and conditions hereof, the Merger shall be consummated as promptly as practicable after the expiration of the Offer and the Stockholders' Meeting (as defined in Section 5.2), if any, by duly filing an appropriate certificate of merger or certificate of ownership, as the case may be, in such form as is required by, and executed in accordance with, the relevant provisions of the DGCL. The Merger shall be effective at such time as the certificate of merger or certificate of ownership is duly filed with the Secretary of State of the State of Delaware in accordance with the DGCL or at such later time as is specified in the certificate of merger or certificate of ownership (the "Effective Time"). Prior to such filing, a closing shall take place at the offices of Shearman & Sterling, 555 California Street, San Francisco, California, or at such other place as the parties shall agree, for the purpose of confirming the satisfaction or waiver of the conditions contained in Article VII hereof. (c) The separate corporate existence of the Company, as the Surviving Corporation, with all its purposes, objects, rights, privileges, powers, certificates and franchises, shall continue unimpaired by the Merger. The Surviving Corporation shall succeed to all the properties and assets of the Constituent Corporations and to all debts, choses in action and other interests due or belonging to the Constituent Corporations and shall be subject to, and responsible for, all the debts, liabilities and duties of the Constituent Corporations with the effect set forth in Section 259 of the DGCL. 4 SECTION 2.2 CONVERSION OF SHARES. At the Effective Time and by virtue of the Merger and without any action on the part of the holders of the capital stock of the Constituent Corporations: (a) Each Share issued and outstanding immediately prior to the Effective Time (other than (i) Shares to be cancelled pursuant to subsection (b) below and (ii) Dissenting Shares (as defined in Section 2.4)) shall be converted into the right to receive in cash an amount per Share equal to the highest price paid per Share pursuant to the Offer (the "Merger Price"); (b) Each Share held in the treasury of the Company and each Share owned by Parent, the Purchaser or the Company, or by any direct or indirect wholly owned Subsidiary of any of them, shall be cancelled and retired without payment of any consideration therefor; and (c) Each share of Common Stock, par value $.01 per share, of the Purchaser issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and nonassessable share of Common Stock, par value $.01 per share, of the Surviving Corporation. SECTION 2.3 EXCHANGE OF CERTIFICATES. (a) From and after the Effective Time, a bank or trust company to be designated by Parent with the concurrence of the Company shall act as exchange agent (the "Exchange Agent") in effecting the exchange of the Merger Price for certificates which prior to the Effective Time represented Shares and which as of the Effective Time represent the right to receive the Merger Price (the "Certificates"). Promptly after the Effective Time, the Exchange Agent shall mail to each record holder of Certificates a form of letter of transmittal and instructions for use in surrendering such Certificates and receiving the Merger Price therefor in a form approved by Parent and the Company. At or prior to the Effective Time, the Purchaser shall deposit in trust with the Exchange Agent immediately available funds in an amount sufficient to pay the Merger Price for all such Shares to the Company's stockholders as contemplated by this Section 2.3. Such funds shall be invested by the Exchange Agent as directed by Parent or the Surviving Corporation, PROVIDED that such investments shall be in obligations of or guaranteed by the United States of America or of any agency thereof and backed by the full faith and credit of the United States of America, in commercial paper obligations rated A-1 or P-1 or better by Moody's Investors Services, Inc. or Standard & Poor's Corporation, respectively, or in deposit accounts, certificates of deposit or banker's acceptances of, repurchase or reverse repurchase agreements with, or Eurodollar time deposits purchased from, commercial banks with capital, surplus and undivided profits aggregating in excess of $250 million (based on the most recent financial statements of such bank which are then publicly available at the SEC or otherwise). Upon the surrender of each Certificate and the issuance and delivery by the Exchange Agent of the Merger Price for the Shares represented thereby in exchange therefor, the Certificate shall forthwith be cancelled. Until so surrendered and exchanged, each Certificate shall represent solely the right to receive the Merger Price for the Shares represented thereby, without any interest thereon. Upon the surrender and exchange of such an outstanding Certificate, the holder thereof shall receive the Merger Price multiplied by the number of Shares represented by such Certificate, without any interest thereon. If any cash is to be paid to a name other than that in which the Certificate surrendered in exchange therefor is registered, it shall be a condition to such payment or exchange that the person requesting such payment or exchange shall pay to the Exchange Agent any transfer or other taxes required by reason of the payment of such cash to a name other than that of the registered holder of the Certificate surrendered, or such person shall establish to the satisfaction of the Exchange Agent that such tax has been paid or is not applicable. Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto shall be liable to a holder of Certificates for any part of the Merger Price payments made to a public official pursuant to applicable abandoned property, escheat or similar laws. (b) Promptly following the sixth month after the Effective Time, the Exchange Agent shall return to the Surviving Corporation all cash relating to the transactions described in this Agreement, 5 and the Exchange Agent's duties shall terminate. Thereafter, each holder of a Certificate may surrender such Certificate to the Surviving Corporation and (subject to applicable abandoned property, escheat and similar laws) receive in exchange therefor the Merger Price for such Shares, without any interest thereon, but shall have no greater rights against the Surviving Corporation than may be accorded to general creditors of the Surviving Corporation under applicable law. At and after the Effective Time, holders of Certificates shall cease to have any rights as stockholders of the Company except for the right to surrender such Certificates in exchange for the Merger Price for such Shares or to perfect their right to receive payment for their Shares pursuant to Section 262 of the DGCL and Section 2.4 below, and there shall be no transfers on the stock transfer books of the Company or the Surviving Corporation of any Shares that were outstanding immediately prior to the Merger. SECTION 2.4 DISSENTING SHARES. (a) Notwithstanding the provisions of Section 2.2 or any other provision of this Agreement to the contrary, Shares that are issued and outstanding immediately prior to the Effective Time and are held by stockholders who have not voted such Shares in favor of the approval and adoption of this Agreement and who shall have properly demanded appraisal of such Shares in accordance with Section 262 of the DGCL ("Dissenting Shares") shall not be converted into the right to receive the Merger Price at the Effective Time, unless and until the holder of such Dissenting Shares shall have failed to perfect or shall have effectively withdrawn or lost such right to appraisal and payment under the DGCL. If a holder of Dissenting Shares (a "Dissenting Stockholder") shall have so failed to perfect or shall have effectively withdrawn or lost such right to appraisal and payment, then, as of the Effective Time or the occurrence of such event, whichever last occurs, such Dissenting Shares shall be converted into and represent solely the right to receive the Merger Price, without any interest thereon, as provided in Section 2.2. (b) The Company shall give Parent (i) prompt notice of any written demands for appraisal, withdrawals of demands for appraisal and any other instruments served pursuant to Section 262 of the DGCL received by the Company, and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under Section 262 of the DGCL. The Company shall not, except with the prior written consent of Parent, make any payment with respect to any demands for appraisal or settle or offer to settle any such demands. SECTION 2.5 CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION. (a) Subject to the terms of Section 6.5, at the Effective Time the Certificate of Incorporation of the Purchaser, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by law and such Certificate of Incorporation; PROVIDED, HOWEVER, that Article I of the Certificate of Incorporation of the Surviving Corporation shall be amended to read as follows: "The name of the corporation is Andros Incorporated." (b) Subject to the terms of Section 6.5, the Bylaws of the Purchaser, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended as provided by law, the Certificate of Incorporation of the Surviving Corporation or such Bylaws. SECTION 2.6 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. At the Effective Time, the directors of the Purchaser immediately prior to the Effective Time shall become the directors of the Surviving Corporation, each of such directors to hold office, subject to the applicable provisions of the Certificate of Incorporation and Bylaws of the Surviving Corporation, until the next annual stockholders' meeting of the Surviving Corporation and until their successors shall be duly elected or appointed and shall duly qualify. At the Effective Time, the officers of the Purchaser immediately prior to the Effective Time shall become the officers of the Surviving Corporation until their respective successors are duly elected or appointed and qualified. 6 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER Parent and the Purchaser hereby jointly and severally represent and warrant to the Company that, except as and to the extent set forth in a Disclosure Schedule delivered to the Company on or prior to the date hereof setting forth additional exceptions specified therein to the representations and warranties contained in this Article III, which Disclosure Schedule shall identify exceptions by specific Section references: SECTION 3.1 CORPORATE ORGANIZATION. (a) Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Purchaser has not engaged in any business since it was incorporated other than in connection with the transactions contemplated by this Agreement. Parent owns all of the outstanding capital stock of the Purchaser. SECTION 3.2 AUTHORITY. Each of Parent and the Purchaser has the full corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly approved by the respective Boards of Directors of Parent and the Purchaser and no other corporate proceedings on the part of Parent or the Purchaser are necessary to consummate the transactions so contemplated (other than, with respect to the Merger, the filing and recordation or the appropriate merger documents as required by the DGCL). This Agreement has been duly executed and delivered by each of Parent and the Purchaser and, assuming the due authorization, execution and delivery thereof by the Company, constitutes a valid and binding obligation of each of Parent and the Purchaser, enforceable against such parties in accordance with its terms. SECTION 3.3 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution and delivery of this Agreement by Parent and the Purchaser nor the consummation by Parent and the Purchaser of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of their respective Certificates of Incorporation or Bylaws, or (ii) assuming compliance with the matters referred to in clause (iii) below, constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or give rise to a right of termination, cancellation or acceleration of any obligation contained in or to the loss of a benefit under, or result in the creation of any lien or other encumbrance upon any of the properties or assets of Parent or the Purchaser under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease agreement or other agreement, instrument, obligation, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent or the Purchaser, or to which either of them or any of their respective properties or assets may be subject, except for such violations, conflicts, breaches, defaults, terminations, accelerations or creations of liens or other encumbrances, which, individually or in the aggregate, will not have a material adverse effect on Parent and its Subsidiaries taken as a whole or (iii) require any consent, approval, authorization or permit of, or filing with or notification to, any court, administrative agency, commission or other governmental or regulatory authority or instrumentality, domestic or foreign (a "Governmental Entity"), except (A) pursuant to the Exchange Act, (B) filing a certificate of merger or certificate of ownership, as the case may be, pursuant to the DGCL, (C) filings required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the termination of the waiting periods thereunder or (D) consents, approvals, authorizations, permits, filings or notifications which if not obtained or made will not, individually or in the aggregate, have a material adverse effect on Parent and its Subsidiaries taken as a whole or prevent or materially delay consummation of the Offer or the Merger. 7 SECTION 3.4 FINANCING. The Purchaser has received loan commitment letters from one or more commercial banks and purchase commitment letters from subordinated debt investors (together, the "Financing Commitments"), copies of which have been provided to the Company. The Purchaser has or will have, prior to the expiration of the Offer and the Effective Time of the Merger, sufficient cash or cash-equivalent funds available to purchase all of the Shares outstanding in the Offer and the Merger, to provide adequate working capital for the Company following the Effective Time and to pay all related fees and expenses incurred in connection with the Offer and the Merger. SECTION 3.5 SURVIVING CORPORATION AFTER THE MERGER. At the Effective Time and after and giving effect to any changes in the Surviving Corporation's assets and liabilities as a result of the Merger and after and giving effect to the financing contemplated by the Financing Commitments, the Surviving Corporation will not (i) be insolvent (either because its financial condition is such that the sum of its debts is greater than the fair value of its assets or because the present fair saleable value of its assets will be less than the amount required to pay its probable liability on its debts as they become absolute and matured), (ii) have unreasonably small capital with which to engage in its business or (iii) have incurred or plan to incur debts beyond its ability to pay as they become absolute and matured. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Parent and the Purchaser that, except as and to the extent set forth in a Disclosure Schedule delivered to Parent on or prior to the date hereof setting forth additional exceptions specified therein to the representations and warranties contained in this Article IV, which Disclosure Schedule shall identify exceptions by specific Section references: SECTION 4.1 CORPORATE ORGANIZATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. All Subsidiaries of the Company are corporations duly organized, validly existing and in good standing under the laws of their respective jurisdictions of incorporation, and the Company and its Subsidiaries have the requisite corporate power and authority and all necessary governmental approvals to own or lease and operate their properties and assets and to carry on their businesses as they are now being conducted, and are duly qualified or licensed as foreign corporations to do business and in good standing in each jurisdiction in which the nature of the businesses conducted by them or the character or location of the properties owned or leased by them makes such qualification or licensing necessary, except where the failure to be so organized, existing, in good standing, qualified or licensed would not have a Material Adverse Effect. As used herein, the term "Material Adverse Effect" means any change or effect that, individually or in the aggregate, is or is reasonably likely to be materially adverse to the business, operations, properties, financial condition, assets or liabilities (including, without limitation, contingent liabilities) of the Company and the Subsidiaries taken as a whole. SECTION 4.2 CAPITALIZATION. The authorized capital stock of the Company consists of 10,000,000 shares of Common Stock. As of the close of business on January 31, 1996, 4,628,054 shares of Common Stock were issued and outstanding, 671,021 shares of Common Stock were reserved for issuance upon the exercise of outstanding options to acquire shares of Common Stock ("Stock Options"), no shares of Common Stock were held by the Company in its treasury and 16,430 shares of Common Stock were reserved for issuance under the Company's employee stock purchase plan (the "Stock Purchase Plan") and no shares of Preferred Stock were issued and outstanding. The number of issued and outstanding shares of Common Stock at any time taken together with the number of shares of Common Stock reserved for issuance upon the exercise of outstanding Stock Options at such time is referred to herein as the "Fully Diluted Shares." All of the issued and outstanding shares of Common Stock are validly issued, fully paid and nonassessable and are not subject to preemptive rights created by statute, the Certificates of Incorporation or Bylaws of the Company or any agreement to which the Company is a party or by which the Company or its assets is bound. Except as 8 disclosed in this Section 4.2, there are no shares of capital stock of the Company issued or outstanding, and except for the Stock Options and rights to purchase shares of Common Stock under the Stock Purchase Plan, there are no outstanding subscriptions, options, warrants, rights, convertible securities or other agreements or commitments of any character (including, without limitation, rights which will or could become exercisable as a result of this Agreement or any transaction contemplated hereby) relating to the issued or unissued capital stock or other securities of the Company obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of the Company or obligating the Company to grant, extend or enter into any subscription, option, warrant, right, convertible security or other similar agreement or commitment. There are no voting trusts or other agreements or understandings to which the Company or any Subsidiary of the Company is a party with respect to the voting of the capital stock of the Company or such Subsidiary. SECTION 4.3 SUBSIDIARIES. The Subsidiaries of the Company are listed on SCHEDULE 4.3. All of the outstanding shares of capital stock of each Subsidiary of the Company are validly issued, fully paid and nonassessable and are owned by the Company or a wholly owned Subsidiary of the Company, free and clear of all liens, claims or encumbrances. There are no existing subscriptions, options, warrants, rights, convertible securities or other agreements or commitments of any character relating to the issued or unissued capital stock or other securities of any Subsidiary of the Company obligating any such Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of any Subsidiary of the Company or obligating any Subsidiary of the Company to grant, extend or enter into any subscription, option, warrant, right, convertible security or other similar agreement or commitment. Except as disclosed in SCHEDULE 4.3, the Company does not own, directly or indirectly, any equity or similar interest in, or any interest convertible into or exchangeable for, any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity. SECTION 4.4 AUTHORITY. The Company has the full corporate power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly approved by the Board of Directors of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions so contemplated (other than, with respect to the Merger, the approval and adoption of this Agreement by the stockholders of the Company if and to the extent required by applicable law, and the filing and recordation of the appropriate merger documents as required by DGCL). This Agreement has been duly executed and delivered by, and, assuming the due authorization, execution and delivery thereof by Parent and the Purchaser, constitutes a valid and binding obligation of, the Company, enforceable against the Company in accordance with its terms. SECTION 4.5 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution and delivery of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby will (i) conflict with or result in any breach or violation of any provision of the Certificate of Incorporation or Bylaws (or other comparable organizational documents) of the Company or any Subsidiary of the Company, or (ii) constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or give rise to a right of termination, cancellation or acceleration of any obligation contained in or to the loss of a benefit under, or result in the creation of any lien or other encumbrance upon any of the properties or assets of the Company or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any such Subsidiary or to which they or any of their respective properties or assets may be subject, except for such violations, conflicts, breaches, terminations, accelerations or creations of liens or other encumbrances, which will not have a Material Adverse Effect, or (iii) require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental 9 Entity, except (A) pursuant to the Exchange Act, (B) filing a certificate of merger pursuant to the DGCL, (C) filings under the HSR Act and the termination of the waiting periods thereunder or (D) consents, approvals, authorizations, permits, filings or notifications which if not obtained or made will not have a Material Adverse Effect or prevent or materially delay consummation of the Offer or the Merger. SECTION 4.6 PROXY OR INFORMATION STATEMENT. If the DGCL shall require a Stockholders' Meeting to be convened in connection with the Merger, the proxy statement to be provided to stockholders of the Company in connection with the Stockholders' Meeting (together with the amendments thereof and supplements thereto, the "Proxy Statement") and all amendments thereof and supplements thereto shall, and if the DGCL shall not require a Stockholders' Meeting to be convened in connection with the Merger, the information statement to be provided to stockholders of the Company in connection with the Merger (together with the amendments thereof and supplements thereto, the "Information Statement") shall, comply as to form in all material respects with the applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder, and shall not, at the time of (i) first mailing thereof or (ii) in the case of the Proxy Statement, the Stockholders' Meeting to be held in connection with the Merger, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that (x) no representation is made by the Company with respect to information supplied in writing by Parent or any affiliates or representatives of Parent or Purchaser for inclusion in the Proxy Statement or Information Statement, as the case may be, and (y) no representation is made with respect to a Proxy Statement or Information Statement, as the case may be, prepared by the Company and provided to the Company's stockholders at any time following the Cut-Off Date. SECTION 4.7 CONDUCT OF BUSINESS. (a) The businesses of the Company and its Subsidiaries are not being conducted in default or violation of any term, condition or provision of (i) its respective charter or bylaws, or (ii) any note, bond, mortgage, indenture, deed of trust, lease, agreement, or other instrument or obligation of any kind to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or any of their respective properties or assets may be bound, or (iii) any federal, state, local or foreign statue, law, ordinance, rule, regulation, judgment, decree, order, concession, grant, franchise, permit or license or other governmental authorization or approval applicable to the Company or any of its Subsidiaries, excluding from the foregoing clauses (ii) and (iii) defaults or violations that would not have a Material Adverse Effect. (b) The Company and each of its Subsidiaries have all licenses, permits, orders or approvals of, and have made all required registrations with, all Governmental Entities that are material to the conduct of the business of the Company and its Subsidiaries taken as a whole (collectively, "Permits"). To the knowledge of the Company, (i) all Permits are in full force and effect; (ii) no material violations are or have been recorded in respect of any Permit; and (iii) no proceeding is pending or threatened to revoke or limit any Permit. (c) Neither the Company nor any of its Subsidiaries has received any written communication from a Governmental Entity that alleges that the Company or any Subsidiary of the Company is not in compliance with any Environmental Law (as defined below) if such non-compliance could reasonably be expected to have a Material Adverse Effect. The Company has no knowledge of any environmental materials or information, including on-site or off-site disposal or releases of Hazardous Materials (as defined below), that could reasonably be expected to have a Material Adverse Effect. As used in this Agreement, the term "Environmental Laws" means any applicable treaties, laws, regulations, enforceable requirements, orders, decrees or judgments issued, promulgated or entered into by any Governmental Entity, which relate to (A) pollution or protection of the environment or (B) the generation, storage, use, handling, disposal or transportation of or exposure to Hazardous Materials, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as 10 amended, 42 U.S.C. SectionSection 9601, ET SEQ. ("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42 U.S.C. SectionSection 6901 ET SEQ., the Federal Water Pollution Control Act, as amended, 33 U.S.C. SectionSection 1251 ET SEQ., the Clean Air Act of 1970, as amended, 42 U.S.C. SectionSection 7401 ET SEQ., the Toxic Substances Control Act of 1976, 15 U.S.C. SectionSection 2601 ET SEQ., the Hazardous Materials Transportation Act, 49 U.S.C. SectionSection 1801 ET SEQ., and any similar or implementing state or local law, and all amendments or regulations promulgated thereunder. As used in this Agreement, the term "Hazardous Materials" means all explosive or regulated radioactive materials or substances, biological hazards, genotoxic or mutagenic hazards, hazardous or toxic substances, medical wastes or other wastes or chemicals, petroleum or petroleum distillates, asbestos or asbestos-containing materials, and all other materials or chemicals regulated pursuant to any Environmental Law, including materials listed in 49 C.F.R. SectionSection 172.101 and materials defined as hazardous pursuant to Section 101(14) of CERCLA. SECTION 4.8 SEC DOCUMENTS. The Company has filed all required reports, schedules, forms, statements and other documents with the SEC since July 31, 1992 (the "SEC Documents"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Documents, and, at the time of filing, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of the Company and its Subsidiaries as of the dates thereof and their consolidated statements of operations, stockholders' equity and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal and recurring year-end audit adjustments which were and are not expected to have a Material Adverse Effect). Except as and to the extent set forth on the consolidated balance sheet of the Company and the Subsidiaries as at July 30, 1995, including the notes thereto, neither the Company nor any Subsidiary has any liability or obligation of any nature (whether accrued, absolute, contingent or otherwise) which would be required to be reflected on a balance sheet, or in the notes thereto, prepared in accordance with generally accepted accounting principles, except for liabilities and obligations incurred in the ordinary course of business consistent with past practice since July 30, 1995 which could not reasonably be expected to have a Material Adverse Effect. The Company has heretofore made available to Parent complete and correct copies of all of the SEC Documents and all amendments and modifications thereto, as well as, to the extent any shall exist, all amendments and modifications that have not been filed by the Company with the SEC to all agreements, documents and other instruments that previously had been filed by the Company with the SEC and are currently in effect. SECTION 4.9 LITIGATION. There is no suit, action or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries that, individually or in the aggregate, could reasonably be expected to (i) have a Material Adverse Effect, (ii) materially impair the ability of the Company to perform its obligations under this Agreement or (iii) prevent the consummation of any of the transactions contemplated by this Agreement, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity outstanding against the Company or any of its subsidiaries having, or that could reasonably be expected to have, any such effect. SECTION 4.10 LABOR RELATIONS; EMPLOYEES. (i) Neither the Company nor any of its Subsidiaries is, directly or indirectly, a party to or bound by any collective bargaining agreement; (ii) no collective bargaining agreement is currently being negotiated by the Company or its Subsidiaries; and (iii) to the knowledge of the Company, no representation question exists respecting the employees of the Company or its Subsidiaries. 11 SECTION 4.11 CERTAIN AGREEMENTS AND EMPLOYEE BENEFIT PLANS. (a) Neither the Company nor any of its Subsidiaries is a party to any written (i) employment, severance, collective bargaining or consulting agreement not terminable on 60 days' or less notice, (ii) agreement with any executive officer or other key employee of the Company or any Subsidiary of the Company (A) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company or any Subsidiary of the Company of the nature of any of the transactions contemplated by this Agreement, (B) providing any term of employment or compensation guarantee extending for a period longer than one year, or (C) providing severance benefits or other benefits after the termination of employment of such executive officer or key employee regardless of the reason for such termination of employment, (iii) agreement, plan or arrangement under which any person may receive payments subject to the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or (iv) agreement or plan, including, without limitation, any stock option plan (other than the Stock Option Plans), stock appreciation right plan, restricted stock plan or stock purchase plan, the benefits of which would be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. (b) SCHEDULE 4.11(B) contains a true and complete summary or list of, or otherwise describes (i) all employee benefit plans (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock purchase, restricted stock, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance or other benefit plans, programs or arrangements, and all employment, termination, severance or other contracts or agreements to which the Company or any Subsidiary is a party, with respect to which the Company or any Subsidiary has any obligations which while are material in amount and which are maintained, contributed to or sponsored by the Company or any Subsidiary for the benefit of any current or former employee, officer or director of the Company or any Subsidiary and (ii) each employee benefit plan for which the Company or any Subsidiary could incur liability under Section 4069 of ERISA, in the event such plan were terminated, or under Section 4212(c) of ERISA, or in respect of which the Company or any Subsidiary remains secondarily liable under Section 4204 of ERISA (collectively, the "Material Plans"). Each Material Plan is in writing and the Company has previously made available to Parent a true and complete copy of each Material Plan and a true and complete copy of each material document prepared in connection with each such Material Plan including, without limitation: (i) a copy of each trust or other funding arrangement, (ii) the most current summary plan description and summary of material modifications, (iii) the most recently filed Internal Revenue Service ("IRS") Form 5500, (iv) the most recently received IRS determination letter for each such Material Plan, and (v) the most recently prepared actuarial report and financial statement in connection with each such Material Plan. Neither the Company nor any Subsidiary has any express or implied commitment (i) to create, incur liability with respect to or cause to exist any other employee benefit plan, program or arrangement, (ii) to enter into any contract or agreement to provide compensation or benefits to any individual or (iii) to modify, change or terminate any Material Plan, other than with respect to a modification, change or termination required by ERISA or the Code. To the extent applicable, the Material Plans comply with the requirements of ERISA and the Code, and any Material Plan intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified and has been so qualified during the period from its adoption to date. No Material Plan is covered by Title IV of ERISA or Section 412 of the Code. Neither the Company, its Subsidiaries nor any officer or director of the Company or any of its Subsidiaries has incurred any liability or penalty under Sections 4975 through 4980 of the Code or Title I of ERISA. To the knowledge of the Company, each Material Plan has been maintained and administered in all material respects in compliance with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations, including but not limited to ERISA and the Code, which are applicable to such Material Plans. There are no pending or anticipated claims against or otherwise involving any of the Material Plans and no suit, action or other litigation (excluding claims for benefits 12 incurred in the ordinary course of Material Plan activities) has been brought, or to the knowledge of the Company is threatened, against or with respect to any such Material Plan. All material contributions, reserves or premium payments required to be made or accrued as of the date hereof to the Material Plans have been made or accrued. (c) SCHEDULE 4. 11(C) contains a true and correct list of each person who holds any Stock Option as of the date hereof, together with (i) the number of shares of Common Stock subject to such Stock Option, (ii) the date of grant of such Stock Option, (iii) the extent to which such Stock Option is currently vested or scheduled to vest by June 30, 1996, (iv) the exercise price of such Stock Option, (v) whether such Stock Option is intended to qualify as an incentive stock option within the meaning of Section 422(b) of the Code (an "ISO") and (vi) the expiration date of such Stock Option. SCHEDULE 4.11(C) also sets forth the aggregate number of ISO's and nonqualified Stock Options outstanding as of the date hereof. SECTION 4.12 TAXES. (a) The Company and its Subsidiaries (i) have filed when due (taking into account extensions) with the appropriate federal, state, local, foreign and other governmental agencies, all tax returns, estimates and reports required to be filed by it, (ii) either paid when due and payable or established adequate reserves or otherwise accrued all requisite federal, state, local or foreign taxes, levies, imposts, duties, licenses and registration fees and charges of any nature whatsoever, and unemployment and social security taxes and income tax withholding, including interest and penalties thereon ("Taxes") and there are and will be no tax deficiencies claimed in writing and received by the Company or its Subsidiaries in respect of any period preceding the Effective Time that, in the aggregate, would result in any tax liability in excess of the amount of the reserves or accruals, and (iii) have established or will establish in accordance with its normal accounting practices and procedures accruals and reserves that, in the aggregate, are adequate for the payment of all Taxes not yet due and payable and attributable to any period preceding the Effective Time. (b) No taxes, interest, penalties, assessments or deficiencies have been threatened or claimed in a writing and received by the Company or any of its Subsidiaries by any taxing authority in respect of any tax returns filed by the Company and its Subsidiaries (or any predecessor corporations). Neither the Company nor any of its Subsidiaries (nor any predecessor corporation) have executed or filed with the IRS or any other taxing authority any agreement or other document extending, or having the effect of extending, the period of assessment or collection of any Taxes. Neither the Company nor any of its Subsidiaries is currently being audited by any taxing authority or have received notice of a proposed audit pertaining to Taxes. There are no tax liens on any assets of the Company or any affiliate, except for Taxes not yet due and payable. The accruals and reserves for taxes reflected in the consolidated balance sheet of the Company and the Subsidiaries as at July 30, 1995 are in all material respects adequate to cover all Taxes accruable through the date thereof (including interest and penalties, if any, thereon and Taxes being contested) in accordance with generally accepted accounting principles. (c) The Company neither is a party to, is bound by, nor has any obligation under any tax sharing or similar agreement. (d) Neither the Company nor any of its Subsidiaries is required to include in income (i) any amount in respect of any adjustment under Section 481 of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) any deferred intercompany transaction or (iii) any installment sale gain, where the inclusion in income would result in a tax liability materially in excess of the reserves therefor. Neither the Company nor any of its Subsidiaries has given a consent under Section 341(f) of the Code. Neither the Company nor any of its Subsidiaries is, or has been at any time, a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code. (e) Neither the Company nor any of its Subsidiaries is a party to any agreement, contract or arrangement that may result, separately or in the aggregate, in the payment of any "excess parachute 13 payment" within the meaning of Section 280G of the Code by reason of the consummation of the Offer or the Merger, determined without regard to Section 280G(b)(4) of the Code. No acceleration of the vesting schedule for any property that is substantially unvested within the meaning of the regulations under Section 83 of the Code will occur in connection with the transactions contemplated by this Agreement. Neither the Company nor any of its Subsidiaries is or has been subject to any accumulated earnings tax or personal holding company tax. Neither the Company nor any of its Subsidiaries owns stock in (i) a passive foreign investment company within the meaning of Section 1296 of the Code or (ii) a controlled foreign corporation within the meaning of Section 957 of the Code. Neither the Company nor any of its Subsidiaries is obligated under any agreement with respect to industrial development bonds or other obligations with respect to which the excludibility from gross income of the holder for federal income tax purposes could be affected by the transactions contemplated hereunder. Neither the Company nor any of its Subsidiaries has an unrecaptured overall foreign loss within the meaning of Section 904(f) of the Code or has participated in or cooperated with an international boycott within the meaning of Section 999 of the Code. Neither the Company nor any of its Subsidiaries owns any property of a character the transfer of which would give rise to (x) a revaluation of such property for purposes of any AD VALOREM or similar tax, or (y) any documentary, stamp or other transfer tax. Neither the Company nor any of its Subsidiaries has an "excess loss account" for purposes of the Treasury Regulations promulgated under Section 1502 of the Code. SECTION 4.13 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since July 30, 1995, except as contemplated by this Agreement or disclosed in any SEC Document filed since July 30, 1995 and prior to the date of this Agreement, the Company and its Subsidiaries have conducted their respective businesses only in the ordinary course consistent with past practice, and there has not been (i) any damage, destruction or loss, whether covered by insurance or not, having or which, insofar as reasonably can be foreseen, in the future would have a Material Adverse Effect, (ii) any declaration, setting aside or payment of any dividend (whether in cash, stock or property) with respect to Common Stock, or any redemption, purchase or other acquisition of any of its securities, (iii) any change in the business, operations, properties, financial condition, assets or liabilities (including, without limitation, contingent liabilities) of the Company or any Subsidiary having a Material Adverse Effect, (iv) any labor dispute, other than routine matters, none of which is material to the Company and its Subsidiaries taken as a whole, (v) any entry into any material commitment or transaction (including, without limitation, any borrowing or capital expenditure) other than in the ordinary course of business consistent with past practice, (vi) any material change by the Company in its accounting methods, principles or practices, (vii) any revaluation by the Company of any asset (including, without limitation, any writing down of the value of inventory or writing off of notes or accounts receivable), other than in the ordinary course of business consistent with past practice, or (viii) any increase in or establishment of any bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, stock option (including, without limitation, the granting of stock options, stock appreciation rights, performance awards, or restricted stock awards), stock purchase or other employee benefit plan, or any other increase in the compensation payable or to become payable to any officers or key employees of the Company or any Subsidiary, except in the ordinary course of business consistent with past practice. SECTION 4.14 PROPERTIES. All of the properties and assets owned by the Company and each of its Subsidiaries are owned by each of them, respectively, free and clear of any lien, claim, encumbrance or restriction of any nature whatsoever (a "Lien"), except for Liens which could not reasonably be expected to have a Material Adverse Effect. To the knowledge of the Company, the Company and its Subsidiaries have good and marketable title subject to no Liens, other than those permitted under this Section 4.14, to all of the properties and assets necessary for the conduct of their business other than to the extent that the failure to have such title could not reasonably be expected to have a Material Adverse Effect. SECTION 4.15 INTELLECTUAL PROPERTY. The Company and the Subsidiaries own or possess adequate licenses or other valid rights to use all patents, patent rights, trademarks, trademark rights, 14 trade names, trade name rights, copyrights, service marks, trade secrets, applications for trademarks and for service marks, know-how and other proprietary rights and information used or held or intended as of the date hereof by management of the Company to be used by the Company or any Subsidiary in, and all such intellectual property necessary in the conduct of, the business of the Company and the Subsidiaries as currently conducted or as contemplated to be conducted as of the date hereof by management of the Company, and there are no other items of intellectual property that are material to the Company or any Subsidiary or the business of the Company and the Subsidiaries. The Company is unaware of any assertion or claim challenging the validity of any of the foregoing which could reasonably be expected to have a Material Adverse Effect. The conduct of the business of the Company and the Subsidiaries as currently conducted and as contemplated to be conducted as of the date hereof by management of the Company does not and will not conflict in any way with any patent, patent right, license, trademark, trademark right, trade name, trade name right, service mark or copyright of any third party that could reasonably be expected to have a Material Adverse Effect, and neither the Company nor any Subsidiary has received any claim or written notice from any person to such effect. To the knowledge of the Company, there are no infringements of any proprietary rights owned by or licensed by or to the Company or any Subsidiary which could reasonably be expected to have a Material Adverse Effect. To the knowledge of the Company, neither it nor any Subsidiary has licensed or otherwise permitted the use by any third party of any proprietary information on terms or in a manner which could reasonably be expected to have a Material Adverse Effect. SECTION 4.16 MATERIAL CONTRACTS. All contracts, leases and other agreements to which the Company or any of its Subsidiaries is a party that would be required to be filed as Exhibits to the SEC Documents (the "Material Contracts") have been filed as Exhibits to the SEC Documents. To the knowledge of the Company: (i) each Material Contract is in full force and effect except as the same may have expired in accordance with its terms; (ii) neither the Company nor any of its Subsidiaries has received any written assertion of default under any Material Contract; and (iii) neither the Company nor any of its Subsidiaries reasonably expects or has received any notice related to any termination or material change to, or proposal with respect to, any of the Material Contracts as a result of the transactions contemplated by this Agreement; in each case except where the result of a failure of a representation contained in clauses (i), (ii) or (iii) above could not reasonably be expected to have a Material Adverse Effect. SECTION 4.17 FEES. Except for the fees payable by the Company to Donaldson, Lufkin and Jenrette Securities Corporation described in an engagement letter dated October 22, 1994, a complete and correct copy of which has been provided to Parent, neither the Company nor any of its Subsidiaries has paid or will become obligated to pay any fee or commission to any broker, finder or intermediary in connection with the transactions contemplated hereby. SECTION 4.18 BUSINESS COMBINATION STATUTE INAPPLICABLE. As of the date hereof and pursuant to Section 203(a)(1) of the DGCL, the restrictions contained in Section 203 of the DGCL are, and at all times on or prior to the Effective Time such restrictions shall be, inapplicable to the Offer, the Merger and the transactions contemplated by this Agreement, including, without limitation, the pledge of the shares of the Company Common Stock acquired in the Offer to the lending institutions providing the financing for the Offer, and the transfer of such shares upon the exercise or remedies under the applicable agreements. The Company has heretofore delivered to Parent a complete and correct copy of the resolutions of the Board of Directors of the Company to the effect that pursuant to Section 203(a)(1) of the DGCL the restrictions contained in Section 203 of the DGCL are and shall be inapplicable to the Offer, the Merger and the transactions contemplated by this Agreement. ARTICLE V COVENANTS OF THE COMPANY AND PARENT SECTION 5.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by this Agreement, during the period commencing on the date of this Agreement and continuing until the Cut-Off 15 Date or until the termination of this Agreement in accordance with its terms, the Company and each of its Subsidiaries shall conduct its operations in the ordinary and usual course consistent with past practice, and the Company and its Subsidiaries will each endeavor to preserve intact its business organization, to keep available the services of its officers and employees and to maintain satisfactory relations with suppliers, contractors, distributors, licensors, licensees, customers and others having business relationships with it. Without limiting the generality of the foregoing and except as provided in this Agreement, prior to the Cut-Off Date, neither the Company nor any of its Subsidiaries shall directly or indirectly do, or propose to do, any of the following, without the prior written consent of Parent: (a) Declare or pay any dividends on or make any other distribution in respect of any of the capital stock of the Company; (b) Split, combine or reclassify any of the capital stock of the Company or issue or authorize any other securities in respect of, in lieu of or in substitution for, shares of the capital stock of the Company or repurchase, redeem or otherwise acquire any shares of the capital stock of the Company; (c) Issue, deliver, encumber, sell or purchase any shares of the capital stock of the Company or any securities convertible into, or rights, warrants, options or other rights of any kind to acquire, any such shares of capital stock, other convertible securities or any other ownership interest (including, without limitation, any phantom interest) (other than the issuance of Common Stock upon the exercise of outstanding Stock Options); (d) Amend or otherwise change its Certificate of Incorporation or Bylaws (or other comparable organizational document); (e) Acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof; (f) Sell, lease or otherwise dispose of any of its assets, other than in the ordinary course of business consistent with its past practices; (g) Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities of the Company or any Subsidiary of the Company or guarantee any debt securities of others, other than in the ordinary course of business consistent with past practice; (h) Enter into any contract or agreement other than in the ordinary course of business consistent with past practice; (i) Authorize any single capital expenditure which is in excess of $50,000 or capital expenditures which are, in the aggregate, in excess of $250,000 for the Company and the Subsidiaries taken as a whole; (j) Increase the compensation payable or to become payable to its officers or employees, except for increases in accordance with past practices in salaries or wages of employees of the Company or any Subsidiary who are not officers of the Company, or grant any severance or termination pay to, or enter into any employment or severance agreement with any director, officer or other employee of the Company or any Subsidiary, or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any director, officer or employee; 16 (k) Take any action, other than reasonable and usual actions in the ordinary course of business and consistent with past practice, with respect to accounting policies or procedures (including, without limitation, procedures with respect to cash management, the payment of accounts payable and the collection of accounts receivable); (l) Make any tax election or settle or compromise any material federal, state, local or foreign income tax liability, or execute or file with the IRS or any other taxing authority any agreement or other document extending, or having the effect of extending, the period of assessment or collection of any taxes; (m) Amend or modify the warranty policy of the Company or any Subsidiary; (n) Pay, discharge, satisfy, settle or compromise any suit, claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business and consistent with past practice, of liabilities reflected or reserved against in the Company's consolidated balance sheet dated as of July 30, 1995, as filed by the Company with the SEC in its Annual Report on Form 10--K for its fiscal year ended July 30, 1995, or subsequently incurred in the ordinary course of business and consistent with past practice; or (o) Take any action that would result in any of the representations and warranties of the Company set forth in this Agreement becoming untrue in any material respect or in any of the conditions to the Offer or any of the conditions to the Merger set forth in Article VII not being satisfied. SECTION 5.2 STOCKHOLDER MEETING; PROXY MATERIAL; INFORMATION STATEMENT. (a) If this Agreement is required by the DGCL to be approved by the Company's stockholders, then the Company shall cause a meeting of its stockholders (the "Stockholders' Meeting") to be duly called and held as soon as reasonably practicable for the purpose of voting on the approval and adoption of this Agreement and the transactions contemplated hereby. The Board of Directors of the Company shall, subject to their fiduciary duties as advised by counsel, recommend approval and adoption of this Agreement and the Merger by the Company's stockholders. In connection with such meeting, the Company (i) shall promptly prepare and file with the SEC, use all reasonable efforts to have cleared by the SEC and thereafter mail to its stockholders as promptly as practicable the Proxy Statement and all other proxy materials for such meeting, (ii) shall notify Parent of the receipt of any comments of the SEC with respect to the Proxy Statement and of any requests by the SEC for any amendment or supplement thereto or for additional information and shall provide to Parent promptly copies of all correspondence between the Company or any representative of the Company and the SEC, (iii) shall give Parent and its counsel the opportunity to review the Proxy Statement prior to its being filed with the SEC and shall give Parent and its counsel the opportunity to review all amendments and supplements to the Proxy Statement and all responses to requests for additional information and replies to comments prior to their being filed with, or sent to, the SEC, (iv) shall, subject to the fiduciary duties of its Board of Directors as advised by counsel, use all reasonable efforts to obtain the necessary approvals by its stockholders of this Agreement and the transactions contemplated hereby and (v) shall otherwise comply with all legal requirements applicable to such meeting. (b) Notwithstanding the foregoing, in the event that Purchaser shall acquire at least 90% of the then outstanding Shares, the parties hereto agree, at the request of Purchaser, subject to Article VII, to take all necessary and appropriate action, including the preparation and mailing of the Information Statement, to cause the Merger to become effective, in accordance with Section 253 of the DGCL, as soon as reasonably practicable after such acquisition, without a meeting of the stockholders of the Company. SECTION 5.3 NO SOLICITATION OF COMPETING TRANSACTIONS. Neither the Company nor any Subsidiary shall, directly or indirectly, through any officer, director, agent or otherwise, initiate, solicit or intentionally encourage (including by way of furnishing non-public information or assistance), or 17 take any other action to intentionally facilitate, any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Competing Transaction (as defined below), or enter into or maintain or continue discussions or negotiate with any person or entity in furtherance of such inquiries or to obtain a Competing Transaction, or agree to or endorse any Competing Transaction, or authorize or permit any of the officers, directors or employees of the Company or any investment banker, financial advisor, attorney, accountant or other agent or representative of the Company to take any such action; provided, however, that nothing contained in this Section 5.3 shall prohibit the Board of Directors of the Company from (i) furnishing information to, or entering into discussions or negotiations with, any person or entity that makes an unsolicited, bona fide written proposal to acquire the Company pursuant to a merger, consolidation, share exchange, business combination, tender or exchange offer or other similar transaction, if, and only to the extent that, (A) the Board of Directors of the Company determines in good faith (after consultation with its financial advisor) that the proposal would, if consummated, result in a transaction more favorable to the Company's stockholders from a financial point of view than the transactions contemplated by this Agreement, (B) the Board of Directors of the Company further determines in good faith after consultation with counsel that the failure to do so would cause the Board of Directors of the Company to breach its fiduciary duties to the Company or its stockholders under applicable law (any such proposal, a "Superior Proposal") and (C) no information is so furnished, and no such discussions or negotiations are held, prior to the execution by the receiving party and the Company of a confidentiality and standstill agreement on terms no less favorable to the Company than those contained in the Confidentiality Agreement, or (ii) complying with Rule 14e-2 promulgated under the Exchange Act with regard to a tender or exchange offer. The Company shall notify Parent promptly if any such proposal or offer, or any inquiry or contact with any person with respect thereto, is made and shall, in any such notice to Parent indicate in reasonable detail the identity of the person making such proposal, offer, inquiry or contact and the terms and conditions of such proposal, offer, inquiry or contact. The Company agrees not to release any third party from, or waive any provision of, any confidentiality or standstill agreement to which the Company is a party (except to the extent necessary to permit such third party to deliver a Superior Proposal). For purposes of this Agreement, "Competing Transaction" shall mean any of the following involving the Company: (i) any merger, consolidation, share exchange, business combination, or other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of more than 25% of the assets of the Company in a single transaction or series of transactions; (iii) any tender offer or exchange offer for more than 25% of the Shares or the filing of a registration statement under the Securities Act in connection therewith; or (iv) any person having acquired beneficial ownership or the right to acquire beneficial ownership of, or any "group" (as such term is defined under Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) having been formed which beneficially owns or has the right to acquire beneficial ownership of, more than 25% of the Shares. ARTICLE VI ADDITIONAL AGREEMENTS SECTION 6.1 ACCESS TO INFORMATION. Between the date of this Agreement and the Cut-Off Date, the Company and its Subsidiaries will afford to Parent and its authorized representatives for the transactions contemplated hereby and the authorized representatives of such parties and persons providing or committing to provide Parent or the Purchaser financing for the transactions contemplated hereby, reasonable access at all reasonable times to the officers, employees, agents, properties, offices and all other facilities, books and records of the Company and its Subsidiaries as Parent may reasonably request. Additionally, the Company will permit Parent and its authorized representatives for the transactions contemplated hereby, and the authorized representatives of such parties and persons providing or committing to provide Parent or the Purchaser financing for the transactions contemplated hereby to make such inspections of the Company and its operations at all reasonable times as it may reasonably require and will cause its officers, employees and agents, and those of its 18 Subsidiaries to furnish Parent with such financial and operating data and other information with respect to the business and properties of the Company and its Subsidiaries as Parent may from time to time reasonably request. No investigation pursuant to this Section 6.1 shall affect any representation or warranty in this Agreement of any party hereto or any condition to the obligations of the parties hereto. SECTION 6.2 LEGAL CONDITIONS TO OFFER AND MERGER. (a) The Company will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on the Company with respect to the Offer and the Merger (including furnishing all information required under the HSR Act) and will take all reasonable actions necessary to cooperate promptly with and furnish information to the Purchaser or Parent in connection with any such requirements imposed upon the Purchaser or Parent in connection with the Offer and the Merger. The Company will take, and will cause its Subsidiaries to take, all reasonable actions necessary to obtain (and will take all reasonable actions necessary to cooperate promptly with the Purchaser and Parent in obtaining) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity, or other third party, required to be obtained or made by the Company or any of its Subsidiaries (or by the Purchaser or Parent) in connection with the Offer or the Merger or the taking of any action contemplated thereby or by this Agreement. In addition to the foregoing, prior to the Effective Time, the parties shall take, or cause to be taken, all such actions as may be necessary or appropriate in order to effectuate, as expeditiously as practicable, the Offer and the Merger and the other transactions contemplated by this Agreement, including any necessary consents and waivers. (b) The Purchaser and Parent will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on them with respect to the Offer and the Merger (including furnishing all information required under the HSR Act) and will take all reasonable actions necessary to cooperate promptly with and furnish information to the Company in connection with any such requirements imposed upon the Company or any Subsidiary of the Company in connection with the Offer and the Merger. The Purchaser and Parent will take all reasonable actions necessary to obtain (and will take all reasonable actions necessary to cooperate promptly with the Company and its Subsidiaries in obtaining) any consent, authorization, order or approval of, or exemption by, any Governmental Entity, or other third party, required to be obtained or made by the Purchaser or Parent (or by the Company or any of its Subsidiaries) in connection with the Offer or the Merger or the taking of any action contemplated thereby or by this Agreement. SECTION 6.3 CONFIDENTIALITY AGREEMENT. The Company and Parent acknowledge that the existing confidentiality agreement between such parties (the "Confidentiality Agreement") shall remain in full force and effect at all times prior to the Effective Time and after any termination of this Agreement, and such parties agree to comply with the terms of such Agreement. SECTION 6.4 PUBLIC ANNOUNCEMENTS. he Purchaser, Parent and the Company will consult with each other before issuing any press release or otherwise making any public statements with respect to the Offer, the Merger or any transaction contemplated hereby and shall not issue any such press release or make any such public statement except as they may mutually agree unless required so to do by law or by obligations pursuant to any listing agreement with any national securities exchange or the National Association of Securities Dealers, Inc. The Company and Parent have agreed as to the form of joint press release announcing execution of this Agreement. SECTION 6.5 DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION. (a) The Certificate of Incorporation and the Bylaws of the Surviving Corporation shall contain the respective provisions that are set forth, as of the date of this Agreement, in Article Twelfth of the Certificate of Incorporation of the Company and Article 5 of the Bylaws of the Company, which provisions shall not be amended, repealed or otherwise modified for a period of six years from the Effective Time in any manner that would affect adversely the rights thereunder of individuals who at or at any time prior to the Effective Time were entitled to indemnification thereunder unless such modification shall be required by law. 19 (b) Parent hereby agrees (i) to assume, as of the Effective Time, all obligations of the Company under Article Twelfth of the Certificate of Incorporation of the Company and Article 5 of the Bylaws of the Company, and (ii) to pay all amounts that become due and payable under such provisions. (c) The Surviving Corporation and Parent shall honor and fulfill in all respects the obligations of the Company pursuant to indemnification agreements with the Company's directors and officers existing at or before the Effective Time. (d) The Surviving Corporation shall use commercially reasonable efforts to maintain in effect for six years from the Effective Time directors' and officers' liability insurance covering those persons who are currently covered by the Company's directors' and officers' liability insurance policy on terms comparable to such existing insurance coverage (including coverage amounts); PROVIDED, HOWEVER, that in no event shall the Surviving Corporation be required to expend pursuant to this Section 6.5 more than an amount per year equal to 150% of current annual premiums paid by the Company for such insurance (which premiums the Company represents and warrants to be $61,000 in the aggregate) and PROVIDED FURTHER that if the annual premiums exceed such amount, Parent shall be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount. (e) This Section shall survive the consummation of the Offer and the Merger, is intended to benefit the Company, the Surviving Corporation and each indemnified party, shall be binding, jointly and severally, on all successors and assigns of the Surviving Corporation and Parent, and shall be enforceable by the indemnified parties. (f) After the date of consummation of the Offer, neither Parent nor the Purchaser shall take any action that would cause the Company not to honor in accordance with their terms, any employment, severance, consulting, change of control and other compensation contracts between the Company or any of its Subsidiaries and any current or former director, officer or employee thereof listed on SCHEDULE 4.11(B). SECTION 6.6 EMPLOYEE ARRANGEMENTS. From and after the Effective Time, Parent shall, or shall cause the Surviving Corporation to, cause any employee benefit plans, programs, policies or arrangements of the Surviving Corporation covering any active, former or retired employee of the Surviving Corporation or its Subsidiaries to give full credit for each participant's period of service with the Company and its Subsidiaries prior to the Effective Time for all purposes for which such service was recognized under the Material Plans prior to the Effective Time, including, but not limited to, recognition of service for vesting, amount of benefits, eligibility to participate and eligibility for disability and early retirement benefits (including subsidies relating to such benefits) and full credit for deductibles satisfied under the Material Plans toward any applicable deductibles for the same period following the Effective Time. SECTION 6.7 COMPANY STOCK OPTION PLANS. (a) Prior to the Effective Time, the Board of Directors of the Company (or, if appropriate, any committee administering the Stock Option Plans (as defined below)) shall adopt such resolutions or take such other actions as are required to provide that each outstanding Stock Option heretofore granted under any stock option, stock appreciation rights or stock purchase plan, program or arrangement of the company (collectively, the "Stock Option Plans") outstanding immediately prior to the consummation of the Offer, whether or not then exercisable, shall be, unless otherwise consented to by Parent in its sole discretion, exchanged, in whole and not in part, for a cash payment from the Company in an amount (subject to any applicable withholding tax) equal to the product of (i) the excess of the Merger Price over the per share exercise price of the Stock Option, multiplied by (ii) the number of Shares covered by the Stock Option immediately prior to the Effective Time. (b) Except as provided in this Agreement or as otherwise agreed to by the parties and to the extent permitted by the Stock Option Plans, (i) the Stock Option Plans shall terminate as of the Effective Time and (ii) the Company shall use reasonable efforts to ensure that following the Effective 20 Time no holder of options or any participant in the Stock Option Plans shall have any right thereunder to acquire any equity securities of the Company, the Surviving Corporation or any Subsidiary thereof. SECTION 6.8 COMPANY EMPLOYEE STOCK PURCHASE PLAN. The Company shall take all actions necessary pursuant to the terms of Stock Purchase Plan in order to shorten the offering period under such plan which includes the Effective Time (the "Current Offering"), such that the Current Offering shall terminate at or prior to the Effective Time (the final day of the Current Offering period being referred to as the "Final Purchase Date"). On the Final Purchase Date, the Company shall apply the funds credited as of such date under the Stock Purchase Plan within each participant's payroll withholdings account to the purchase of whole shares of Common Stock in accordance with the terms of the Stock Purchase Plan. The cost to each participant in the Stock Purchase Plan for shares of Common Stock shall be the lower of 85% of the closing sale price of Common Stock on the Nasdaq National Market on (i) the first day of the Current Offering period and (ii) the last trading day on or prior to the Final Purchase Date. SECTION 6.9 NOTICE OF CERTAIN EVENTS. The Company shall notify Parent, and Parent shall promptly notify the Company, of: (i) receipt of any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the transactions contemplated by this Agreement; (ii) receipt of any notice or other communication from any Governmental Entity in connection with the transactions contemplated by this Agreement; (iii) receipt of notice that any actions, suits, claims, investigations or proceedings have been commenced or, to the knowledge threatened against, or involving the Company or any of its Subsidiaries, or Parent, as applicable, which, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 4.9 or which relate to the consummation of the transactions contemplated by this Agreement; (iv) the occurrence, or non-occurrence, of any event the occurrence, or non-occurrence, of which would be likely to cause any representation or warranty of it (and, in the case of Parent, of the Purchaser) contained in this Agreement to be untrue or inaccurate; and (v) any failure of the Company, Parent or the Purchaser, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; PROVIDED, HOWEVER, that the delivery of any notice pursuant to this Section 6.9 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. SECTION 6.10 OBLIGATIONS OF PURCHASER. Parent will take all action necessary to cause the Purchaser to perform its obligations under this Agreement and to consummate the Merger on the terms and conditions set forth in this Agreement. SECTION 6.11 VOTING OF SHARES. Parent agrees to cause Purchaser (i) to vote all Shares beneficially owned by it in favor of adoption of this Agreement and the Merger at the Stockholders' Meeting, if any such meeting shall be required by the DGCL, and (ii) if no Stockholders' Meeting shall be required by the DGCL, file the certificate of ownership providing for the Merger of Purchaser with and into the Company as soon as permitted under applicable regulatory requirements and law. 21 ARTICLE VII CONDITIONS PRECEDENT SECTION 7.1 CONDITIONS OF EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective obligation of each party to effect the Merger is subject to the satisfaction prior to the Closing Date of the following conditions: (a) STOCKHOLDER APPROVAL. If required by the DGCL, this Agreement and the Merger shall have been approved and adopted by the affirmative vote or consent of the stockholders of the Company to the extent required by the DGCL and the Certificate of Incorporation of the Company. (b) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order, preliminary or permanent injunction or other order issued by any Governmental Entity of competent jurisdiction nor any statute, rule, regulation or executive order promulgated or enacted by any Governmental Entity, nor other legal restriction, restraint or prohibition, preventing the consummation of the Merger shall be in effect; PROVIDED, HOWEVER, that each of the parties shall have used reasonable efforts to prevent the entry of any such injunction or other order and to appeal as promptly practicable any injunction or other order that may be entered. (c) THE OFFER. Shares shall have been purchased pursuant to the Offer. SECTION 7.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO EFFECT THE MERGER. The obligation of the Company to effect the Merger is further subject to the satisfaction or waiver at or prior to the Effective Time of the conditions that Parent and the Purchaser shall have performed in all material respects each of their obligations under this Agreement required to be performed by them pursuant to the terms hereof and the representations and warranties of Parent and the Purchaser contained herein shall be true and correct in all material respects. ARTICLE VIII TERMINATION SECTION 8.1 TERMINATION. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, notwithstanding any requisite approval of this Agreement and the transactions contemplated hereby by the stockholders of the Company: (a) by mutual written consent duly authorized by the Boards of Directors of the Company, Parent and the Purchaser; (b) by either Parent or the Company if (i) the Cut-Off Date shall not have occurred on or before May 31, 1996; PROVIDED, HOWEVER, that the right to terminate this Agreement under this Section 8.1(b) shall not be available (A) to any party whose failure to fulfill any obligation under this Agreement has been the substantial cause of, or resulted in, the failure of the Cut-Off Date to occur on or before such date, or (B) to Parent if it shall fail to designate persons that will constitute a majority of the Board of Directors in accordance with Section 1.3 by May 24, 1996; or (ii) any court of competent jurisdiction or other governmental authority shall have issued an order, decree, ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the acceptance for payment of, or payment for, Shares pursuant to the Offer or the Merger and such order, decree, ruling or other action shall have become final and nonappealable; (c) by either Parent or the Company if (i) as a result of an occurrence or circumstance that would result in the failure of any of the conditions set forth in ANNEX I hereto the Offer shall have terminated or expired in accordance with its terms without the Purchaser having accepted for payment any Shares pursuant to the Offer; or (ii) the Purchaser shall not have accepted for payment any Shares pursuant to the Offer within 100 days following the commencement of the 22 Offer; PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to this Section 8.1(c) shall not be available to any party the failure of which (or the failure of the affiliates of which) to perform in any material respect any of its obligations under this Agreement results in the failure of any such condition or if the failure of such condition results from facts or circumstances that constitute a material breach of a representation or warranty under this Agreement by such party; (d) by Parent if prior to the purchase of Shares pursuant to the Offer, (A) the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to the Purchaser or Parent its approval or recommendation of the Offer, this Agreement, the Merger or any other transaction contemplated by this Agreement; (B) the Board of Directors of the Company or any committee thereof shall have recommended to the stockholders of the Company acceptance of a Competing Transaction; (C) the Company shall have entered into any definitive agreement with respect to a Competing Transaction; or (D) the Board of Directors of the Company or any committee thereof shall have resolved to do any of the foregoing; or (e) by the Company if (i) the Board of Directors of the Company shall have withdrawn or modified in a manner adverse to the Purchaser or Parent its approval or recommendation of the Offer, this Agreement or the Merger in order to approve the execution by the Company of a definitive agreement providing for the transactions contemplated by a Superior Proposal; or (ii) Parent or the Purchaser shall have breached in any material respect any of their respective representations, warranties, covenants or other agreements contained in this Agreement which breach cannot be or has not been cured 20 days after the giving of written notice to Parent or the Purchaser, as applicable, except, in any case, for such breaches which are not reasonably likely to affect adversely Parent's or the Purchaser's ability to complete the Offer or the Merger. SECTION 8.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to Section 8.1, this Agreement shall become void and of no effect with no liability on the part of any party hereto, except for fraud and for willful breach of a material obligation contained herein and except that the agreements contained in Sections 6.3, 8.3 and 9.3 shall survive the termination hereof. SECTION 8.3 CERTAIN PAYMENTS. In the event that: (i) any person (including, without limitation, the Company or any affiliate thereof), other than Parent or any affiliate of Parent, shall have become the beneficial owner of a majority of the then outstanding Shares and this Agreement shall have been terminated pursuant to Section 8.1; (ii) any person shall have commenced, publicly proposed or communicated to the Company a Competing Transaction and (A) the Offer shall have remained open for at least 20 business days, (B) the Minimum Condition shall not have been satisfied, (C) this Agreement shall have been terminated pursuant to Section 8.1 and (D) the Company shall have consummated a Competing Transaction with any person other than Parent or any of its affiliates before or within 12 months after the date of such termination; or (iii) this Agreement is terminated (A) pursuant to Section 8.1(d) or Section 8.1(e)(i); or (B) pursuant to Section 8.1(c) to the extent that the termination or the failure to accept any Shares for payment, as set forth in Section 8.1(c), shall relate to the intentional failure of the Company to perform in any material respect any material covenant or agreement of it contained in this Agreement or the intentional material breach by the Company of any material representation or warranty of it contained in this Agreement; then, in any such event, the Company shall pay Parent promptly (but in no event later than one business day after the first of such events shall have occurred) a fee of $3,100,000, which amount shall be payable in immediately available funds. 23 ARTICLE IX GENERAL PROVISIONS SECTION 9.1 AMENDMENT. This Agreement may be amended by the parties, by action taken by their respective Boards of Directors, at any time before or after approval of matters presented in connection with the Merger by the stockholders of the Company but, after any such approval, no amendment shall be made which by law requires further approval by such stockholders without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. SECTION 9.2 EXTENSION; WAIVER. At any time prior to the Effective Time, the parties, by action taken by their respective Boards of Directors, may, to the extent legally allowed (i) extend the time for the performance of any of the obligations or other acts of the other parties, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. SECTION 9.3 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All representations, warranties and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall not survive the Merger or termination of this Agreement, as the case may be, except for the agreements contained in Sections 6.5, 6.6 and 6.7 of this Agreement, each of which shall survive the Merger, and the agreements contained in Sections 6.3 and 8.3, each of which shall survive termination of this Agreement. SECTION 9.4 ENTIRE AGREEMENT. This Agreement (including the Annexes, Schedules and Exhibits), together with the Confidentiality Agreement, contains the entire agreement between the parties with respect to the subject matter hereof and supersede all prior arrangements and understandings with respect thereto. SECTION 9.5 SEVERABILITY. It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the law and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, in the event that any term or other provision of this Agreement would be held in any jurisdiction to be invalid, prohibited or unenforceable for any reason, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible. 24 SECTION 9.6 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to be sufficient if contained in a written instrument and shall be deemed given if delivered personally or telecopied to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Parent or the Purchaser: CHO Holdings Inc. or CHO Acquisition Inc. Metro Tower, Suite 1170 950 Tower Lane Foster City, California 94404-2121 Attention: Daniel J. Boverman Facsimile: (415) 286-2383 with copies in each case to: Shearman & Sterling 555 California Street San Francisco, California 94104-1522 Attention: Michael J. Kennedy, Esq. Facsimile: (415) 616-1199 (b) if to the Company: Andros Incorporated 2332 Fourth Street Berkeley, CA 94710-2402 Attention: Chairman of the Board Facsimile: (510) 849-5849 with copies to: Cooley Godward Castro Huddleson & Tatum One Maritime Plaza San Francisco, California 94111-3580 Attn: Susan Cooper Philpot, Esq. Facsimile: (415) 951-3698 and Brobeck, Phleger & Harrison LLP One Market Spear Street Tower San Francisco, California 94105 Attn: Steven J. Tonsfeldt, Esq. Facsimile: (415) 422-1010 All such notices and other communications shall be deemed to have been received (i) in the case of personal delivery, on the date of such delivery and (ii) in the case of a telecopy, when the party who receives such telecopy shall have confirmed receipt of the communication. Notices and other communications which are delivered by telecopier shall be followed promptly with a copy of the notice or other communication by registered or certified mail. SECTION 9.7 HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 9.8 EXPENSES. Except as otherwise provided herein, all costs and expenses incurred in connection with this Agreement shall be borne by the party incurring such cost or expense. 25 SECTION 9.9 BENEFITS; ASSIGNMENT. This Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder and, except as provided in Section 1.1(a), shall not be assigned other than by operation of law; PROVIDED, HOWEVER, that the officers and directors of the Company and its Subsidiaries as provided in Section 6.5 are intended beneficiaries of the covenants and agreements contained in such Section. SECTION 9.10 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event any of the provisions of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity. SECTION 9.11 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its principles of conflicts of laws other than principles directing the application of Delaware law. SECTION 9.12 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreements and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above. CHO HOLDINGS INC. By: /s/ RICHARD PATERSON______________ Title: Chairman and President CHO ACQUISITION INC. By: /s/ JEAN-PIERRE L. CONTE__________ Title: Vice President and Treasurer ANDROS INCORPORATED By: /s/ BOB TURNER____________________ Title: Vice President 26 ANNEX I CONDITIONS OF THE OFFER DEFINED TERMS. Capitalized terms used in this Annex I and not otherwise defined shall have the meanings attributed thereto in the Agreement and Plan of Merger, dated as of February 14, 1996 (the "Merger Agreement"), by and among CHO Holdings Inc., CHO Acquisition Inc. and Andros Incorporated. CONDITIONS OF THE OFFER. Notwithstanding any other term of the Offer, the Purchaser shall not be required to accept for payment or pay for any Shares tendered pursuant to the Offer, and may terminate or amend the Offer and may postpone the acceptance for payment of and payment for Shares tendered, if (i) the Minimum Share Condition shall not have been satisfied, or (ii) any applicable waiting period under the HSR Act shall not have expired or been terminated prior to the expiration of the Offer, (iii) the Purchaser shall not have obtained financing pursuant to, or on terms and conditions no less favorable than those contained in, the Financing Commitments (the "Financing Condition"), or (iv) at any time on or after the date of the Merger Agreement and before the acceptance of such Shares for payment or the payment therefor, any of the following conditions exists: (a) a preliminary or permanent injunction or other order by any federal, state or foreign court which prevents the acceptance for payment of, or payment for, some of or all the Shares shall have been issued and shall remain in effect; (b) there shall have been instituted or be pending any action or proceeding by any Governmental Entity (i) challenging the acquisition by the Purchaser of Shares or otherwise seeking to restrain, materially delay or prohibit the consummation of the Offer or the Merger or seeking damages that would make the Offer, the Merger or any other transaction contemplated hereby materially more costly to Parent or the Purchaser, (ii) seeking to prohibit or limit materially the ownership or operation by the Purchaser or Parent of all or a material portion of the business or assets of the Company and its Subsidiaries, or to compel the Purchaser or Parent to dispose of or hold separate all or a material portion of the business or assets of the Company and its Subsidiaries or the Purchaser or Parent, as a result of the Offer or the Merger, (iii) seeking to impose or confirm limitations on the ability of Parent or the Purchaser effectively to exercise full rights of ownership of the Shares, including, without limitation, the right to vote the Shares purchased by it on all matters properly presented to the Company's stockholders, including, without limitation, the approval and adoption of the Merger Agreement and the transactions contemplated hereby, or (iv) seeking to require divestiture by Parent, the Purchaser or any other affiliate of Parent of any Shares; (c) there shall have been any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Offer, the Merger or any other transaction contemplated hereby, Parent, the Company or any affiliate of Parent or the Company by any Governmental Entity, except for the waiting period provisions of the HSR Act, which is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (i) through (iv) of paragraph (b) above; (d) any change or effect that, individually or in the aggregate, is or is reasonably likely to constitute a Material Adverse Effect shall have occurred following the date of the Merger Agreement; (e) the Company shall have breached or failed to perform in any material respect any of its obligations, covenants or agreements under the Merger Agreement; 1 (f) any representation or warranty of the Company in the Merger Agreement that is qualified as to materiality shall not be true and correct or any such representation or warranty that is not so qualified shall not be true and correct in any material respect, in each case when made and at and as of such time as if made at and as of such time; (g) there shall have occurred (i) any general suspension of, or limitation on prices for, trading in securities on the Nasdaq National Market; (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or Canada; (iii) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States or Canada which has or is reasonably likely to have a Material Adverse Effect; (iv) any extraordinary material adverse change in the financial markets in the United States which has or is reasonably likely to have a Material Adverse Effect; or (v) in the case of any of the foregoing existing on the date hereof, a material acceleration or worsening thereof; (h) (i) it shall have been publicly disclosed or the Purchaser shall have otherwise learned that beneficial ownership (determined for the purposes of this paragraph as set forth in Rule 13d-3 promulgated under the Exchange Act) of a majority of the then outstanding Shares have been acquired by any person other than Parent or any of its affiliates or (ii)(A) the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to Parent or the Purchaser the approval or recommendation of the Offer, the Merger or the Merger Agreement, or approved or recommended any Competing Transaction or any other acquisition of Shares other than the Offer and the Merger or (B) the Board of Directors of the Company or any committee thereof shall have resolved to do any of the foregoing; or (i) the Merger Agreement shall have been terminated in accordance with its terms. The foregoing conditions are for the sole benefit of the Purchaser and Parent. The foregoing rights of the Purchaser shall be available regardless of the circumstances giving rise to any such conditions (including any action or omission to act of the Purchaser) and, subject to Section 1.1(a) of the Merger Agreement, may be waived by Purchaser or Parent in whole or in part at any time and from time to time in their sole discretion. Any determination by the Purchaser will be final and binding upon all parties including tendering stockholders. The failure by the Purchaser or Parent at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances; and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. 2 EX-3 4 EXHIBIT 3 EXHIBIT 3 FORM OF MANAGEMENT ROLL-OVER AGREEMENT February 14, 1996 CHO Holdings Inc. CHO Acquisition Inc. Metro Tower, Suite 1170 950 Tower Lane Foster City, California 94404-2121 Gentlemen: I understand that Andros Incorporated (the "Company"), CHO Holdings Inc. ("Holdings") and CHO Acquisition Inc. ("Acquisition") have entered into an Agreement and Plan of Merger of even date herewith (the "Merger Agreement") pursuant to which (i) Acquisition shall commence a tender offer (the "Offer") for all of the outstanding shares of common stock of the Company (the "Shares") and (ii) Acquisition shall, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, be merged with and into the Company (the "Merger"). In connection with the Merger Agreement, Acquisition, Holdings and I hereby agree as follows: 1. I agree that the number of options for Shares (the "Options") specified below my signature hereto shall not be cashed out pursuant to the terms of the Merger Agreement, and that I shall not exercise any of such Options. Instead, prior to the Merger I shall surrender such Options in exchange for options to acquire shares of common stock of Holdings. 2. At or prior to the consummation of the Merger, I shall enter into a stockholders' agreement, upon terms and in a form reasonably satisfactory to me and Holdings, governing the exercise of such Options and the terms of common stock issuable pursuant to such Options. 3. This Agreement shall terminate upon any termination of the Merger Agreement (other than as a result of consummation of the Merger). Please acknowledge your understanding of and agreement to the foregoing by executing and returning to me the enclosed copy of this letter. Sincerely, -------------------------------------- Name: Number of Rolled Options: ACKNOWLEDGED AND AGREED: CHO HOLDINGS INC. By ---------------------------------------- Name: Title: CHO ACQUISITION INC. By ---------------------------------------- Name: Title:
EX-4 5 EXHIBIT 4 Donaldson, Lufkin and Jenrette Securities Corporation 600 California Street, San Francisco, CA 94108-2704 (415) 249-2100 EXHIBIT 4 October 25, 1994 PRIVATE AND CONFIDENTIAL ________________________ Andros Incorporated 2332 Fourth Street Berkeley, California 94710 Attention: Eugene Kleiner Chairman of the Board of Directors Gentlemen: This letter agreement (the "Agreement") confirms our understanding that Andros Incorporated (which together with its subsidiaries and affiliates is hereinafter referred to as the "Company") has engaged Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") to act as the exclusive financial advisor to the Company and the Special Committee of the Company's Board of Directors (the "Committee") for a period of 12 months, commencing upon your acceptance of this Agreement, with respect to the sale, merger, consolidation or any other business combination, in one or a series of transactions, involving all or a substantial amount of the business, securities or assets of the Company (each, a "Transaction"). As discussed, we propose to undertake certain services on the Committee's behalf including to the extent requested by the Committee: (i) assisting in preparing an offering memorandum describing the Company, its operations, its historical performance and its future prospects; (ii) identifying and contacting selected qualified acquirors; (iii) arranging for potential acquirors to conduct business investigations; and (iv) negotiating the financial aspects of any proposed Transaction under the Committee's guidance (the "Financial Advisory Services"). Also, DLJ will deliver an opinion to the Committee as to the fairness from a financial point of view of the consideration to be received by the Company's stockholders in any proposed Transaction (a "Fairness Opinion"). As compensation for the Financial Advisory Services to be provided by DLJ hereunder, the Company agrees to pay to DLJ: (a) $100,000, payable promptly upon execution of this Agreement, (b) $300,000 as compensation for the Fairness Opinion, payable at the time DLJ notifies the Committee that it is prepared to deliver the Fairness Opinion and, (c) an amount equal to one precent (1%) of the aggregate amount of consideration received by the Company and/or its shareholders (treating any shares issuable upon exercise of options, warrants, or other rights of conversion as outstanding) plus the face amount of any debt securities assumed (excluding trade debt and any amounts outstanding under the current working capital line) or the liquidation value of any preferred stock redeemed or remaining outstanding in connection with the Transaction, including, in the case of a sale or other disposition by the Company of assets, the net value of any assets not sold by the Andros Incorporated October 25, 1994 Page 2 Company (the "Transaction Value"), less the amount paid by the Company pursuant to clauses (a) and (b) of this sentence. The compensation referred to in clause (c) above shall be payable in cash promptly upon consummation of a Transaction. For purposes of this Agreement, a Transaction shall be deemed to have been consummated upon the earliest of any of the following events to occur: (a) the acquisition of a majority of the outstanding common stock of the Company calculated on a fully-diluted basis, (b) a merger or consolidation of the Company with another person, (c) the acquisition by another person of all or a substantial portion of the assets of the Company or, (d) in the case of any other Transaction, the consummation thereof. Upon request by DLJ from time to time, the Company shall reimburse DLJ promptly for all reasonable out-of-pocket expenses (including reasonable fees and expenses of counsel) incurred by DLJ in connection with its engagement hereunder, whether or not a Transaction is consummated. As DLJ will be acting on the Committee's behalf, the Company agrees to the indemnification and other obligations set forth in Schedule I attached hereto, which schedule is an integral part hereof: In the event that the consideration received in a Transaction is paid in whole or in part in the form of securities or other assets, the value of such securities or other assets, for purposes of calculating our additional compensation, shall be the fair market value thereof, as the parties hereto shall mutually agree, on the day prior to the consummation of the Transaction; provided, that if such consideration includes securities with an existing public trading market, the value thereof shall be determined by the last sales price for such securities on the last trading day thereof prior to such consummation. The Company shall make available to DLJ all financial and other information concerning its business and operations which DLJ reasonably requests as well as any other information relating to any Transaction prepared by the Company or any of its other advisors. In performing its services hereunder (including, without limitation, in giving an opinion of the type referred to in the second paragraph hereof), DLJ shall be entitled to rely without investigation upon all information that is available from public sources as well as all other information supplied to it by or on behalf of the Company or its advisors and shall not in any respect be responsible for the accuracy or completeness of, or have any obligation to verify, the same or to conduct any appraisal of assets. To the extent consistent with legal requirements, all information given to DLJ by the Company unless publicly available or otherwise available to DLJ without restriction or breach of any confidentiality agreement, will be held by DLJ in confidence and will not be disclosed to anyone other than DLJ's agents and advisors without the Company's prior approval or used for any purpose other than those referred to in this Agreement. Any opinion requested by the Committee and any advice, written or oral, provided by DLJ pursuant to this Agreement will be treated by the Committee and the Company as confidential, will be solely for the information and assistance of the Committee in connection with its consideration of a transaction of the type referred to in the first paragraph of this Agreement and will not be used, circulated, quoted or otherwise referred to for any other purpose, nor will it be filed with, included in or referred to in whole or in part in any registration statement, proxy statement or any other document, except in each case with our prior written consent. We understood that our opinion may be reproduced in full in any proxy statement mailed to shareholders of the Company, and we agree to provide our written consent to such use, provided that we are afforded a reasonable opportunity to review and influence those portions of any such proxy statement that include or refer to our opinion or otherwise refer to DLJ. Andros Incorporated October 25, 1994 Page 3 In order to coordinate our efforts with respect to a possible Transaction, during the period of our engagement hereunder none of the Company, the Committee, nor any representative thereof (other than DLJ) will initiate discussions regarding a Transaction except through DLJ. In the event the Committee or management of the Company receives an inquiry regarding a Transaction, it will promptly advise DLJ of such inquiry in order that we may evaluate such prospective purchaser and its interest and assist the Committee in any resulting negotiations. This Agreement may be terminated by either the Company or DLJ upon receipt of written notice to that effect by the other party. Upon any termination or expiration of this Agreement, DLJ will be entitled to prompt payment of all fees accrued prior to such termination or expiration and reimbursement of all out-of-pocket expenses as described above. The indemnity and other provisions contained in Schedule I will also remain operative and in full force and effect regardless of any termination or expiration of this Agreement. In addition, if at any time prior to 12 months after the termination or expiration of this Agreement a Transaction is consummated, DLJ will be entitled to payment in full of the compensation described in the third paragraph of this letter. It is understood that if the Company completes a transaction in lieu of any Transaction for which DLJ is entitled to compensation pursuant to this Agreement (including, but not limited to, a recapitalization or a partial or complete liquidation), DLJ and the Company will in good faith mutually agree upon acceptable compensation for DLJ taking into account, among other things, the results obtained and the custom and practice of investment bankers acting in similar transactions. The Company further agrees that it will not enter into any transaction referred to in either of the two preceding paragraphs unless, prior to or simultaneously with such transaction, adequate provision is made with respect to the payment of compensation to DLJ as contemplated by such paragraphs. Please not that DLJ is a full service securities firm engaged in securities trading and brokerage activities, as well as providing investment banking and financial advisory services. In the ordinary course of our trading and brokerage activities, DLJ or its affiliates may at any time hold long or short positions, and may trade or otherwise effect transactions, for our own account or on the accounts of customers, in debt or equity securities of the Company or other entities that may be involved in the Transaction. We recognize our responsibility for compliance with Federal laws in connection with any such activities. The Company acknowledges and agrees that DLJ has been retained solely to provide the advice or services set forth in this Agreement. DLJ shall act as an independent contractor, and any duties of DLJ arising out of its engagement hereunder shall be owned solely to the Committee. This letter Agreement shall be binding upon and inure to the benefit of the Committee, the Company, DLJ, each Indemnified Person (as defined in Schedule I hereto) and their respective successors and assigns. This letter Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York. Andros Incorporated October 25, 1994 Page 4 The Company irrevocably and unconditionally submits to the non-exclusive jurisdiction of any State or Federal court sitting in New York City over any suit, action or proceeding arising out of or relating to this letter (including Schedule I hereto). The Company hereby agrees that service of any process, summons, notice or document by U.S. registered mail addressed to the Company shall be effective service of process for any action, suit or proceeding brought in any such court. The Company irrevocably and unconditionally waives any objection to the laying of venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. The Company agrees that a final judgment in any such suit, action or proceeding brought in any such court shall be conclusive and binding upon the Company and may be enforced in any other courts to whose jurisdiction the Company is or may be subject, by suit upon such judgment. If any term, provision, covenant or restriction contained in this Agreement, including Schedule I, is held by a court of competent jurisdiction or other authority to be invalid, void, unenforceable or against its regulatory policy, the remainder of the terms, provisions, covenants and restrictions contained in this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. After reviewing this Agreement, please confirm that the foregoing is in accordance with your understanding by signing and returning to me the duplicate of this letter attached hereto, whereupon it shall be our binding Agreement. Very truly yours, DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: /s/ Ian H. Zwicker -------------------------- Accepted and agreed to this 25th day of October, 1994 By: /s/ Eugene Kleiner -------------------------------- Eugene Kleiner Chairman of the Board of Andros Incorporated and its Special Committee EX-5 6 EXHIBIT 5 EXHIBIT 5 DONALDSON, LUFKIN & JENRETTE Donaldson, Lufkin & Jenrette Securities Corporation 600 California Street, San Francisco, CA 94108-2704 - (415) 249-2100 February 14, 1996 Board of Directors Andros Incorporated 2332 Fourth Street Berkeley, CA 94710-2402 Dear Sirs: You have requested our opinion as to the fairness from a financial point of view to the shareholders of Andros Incorporated (the "Company") of the consideration to be received by such shareholders pursuant to the terms of the Agreement and Plan of Merger dated as of February 14, 1996, among CHO Holdings Inc. ("Holdings"), the Company and CHO Acquisition Inc. ("Acquisition"), a wholly owned subsidiary of Holdings (the "Agreement"). Pursuant to the Agreement, Acquisition will commence a tender offer for all outstanding shares of the Company's common stock at a price of $18.00 per share. The tender offer is to be followed by a merger in which the shares of all shareholders who did not tender would be converted into the right to receive $18.00 per share in cash. In arriving at our opinion, we reviewed financial and other information that was publicly available or furnished to us by the Company including information provided during discussions with management. Included in the information provided during discussions with management were certain financial projections of the Company for the period beginning July 31, 1995 and ending July 31, 1999 prepared by the management of the Company. In addition, we have compared certain financial and securities data of the Company with various other companies whose securities are traded in public markets, reviewed the historical stock prices and trading volumes of the common stock of the Company, reviewed prices and premiums paid in other business combinations and conducted such other financial studies, analyses and investigations as we deemed appropriate for purposes of this opinion. In rendering our opinion, we have relied upon and assumed the accuracy, completeness and fairness of all of the financial and other information that was available to us from public sources, that was provided to us by the Company or its representatives, or that was otherwise reviewed by us. With respect to the financial projections supplied to us, we have assumed that they have been reasonably prepared on the basis reflecting the best currently available estimates and judgments of the management of the Company as to the future operating and financial performance of the Company. We have not assumed any responsibility for making an independent evaluation of the Company's assets or liabilities or for making any independent verification of any of the information reviewed by us. We have relied as to all legal matters relating to the Agreement and transactions contemplated thereby on advice of counsel to the Company. Our opinion is necessarily based on economic, market, financial and other conditions as they exist on, and on the information made available to us as of, the date of this letter. It should be understood that, although subsequent developments may affect this opinion, we do not have any obligation to update, revise or reaffirm this opinion. Our opinion does not constitute a recommendation to any shareholder as to how such shareholder should vote on the proposed transaction. Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its investment banking services, is regularly engaged in the valuation of businesses and securities in connection with mergers, acquisitions, underwritings, sales and distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. DLJ has been engaged by Holdings in connection with placing $15 million of senior subordinated notes and warrants which will be used to help finance the acquisition. DLJ's Private Placement Group will receive usual and customary fees in conjunction with raising the subordinated notes. Based upon the foregoing and such other factors as we deem relevant, we are of the opinion that the consideration to be received by the shareholders of the Company pursuant to the Agreement is fair to the shareholders of the Company from a financial point of view. Very trust yours, DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: /s/ Thomas M. Benninger ----------------------------------- Thomas M. Benninger MANAGING DIRECTOR EX-6 7 EXHIBIT 6 EXHIBIT 6 ANDROS INCORPORATED TO BE ACQUIRED BY GENSTAR CAPITAL BERKELEY, Calif., Feb. 14 -- Genstar Capital Partners II, L.P. and Andros Incorporated (Nasdaq: ANDY) today announced that they have entered into a definitive merger agreement pursuant to which Andros stockholders will receive $18.00 per share in cash for each share of Andros common stock. The total value of the transaction which includes the cash-out of substantially all existing stock options, is approximately $87.5 million. Pursuant to the merger agreement, which was approved by Andros Board of Directors, Genstar Capital will commence a tender offer for all outstanding shares of common stock of Andros within five business days. Upon completion of the tender offer, the merger agreement provides that shares of Andros not tendered will be acquired in a merger at the same price per share in cash. The merger agreement also provides that Andros will pay Genstar a fee of $3.1 million in certain circumstances. Andros Incorporated designs, manufactures, and sells instrumentation to original equipment manufacturers of environmental and medical monitoring equipment worldwide. Genstar capital Partners II, L.P. based in Foster City, CA, is a private investment fund that concentrates on leveraged acquisitions of manufacturing and services businesses. CONTACT: Dane Nelson of Andros Incorporated, 510-849-5769; or Richard D. Paterson of Genstar Capital, 415-286-2350 -----END PRIVACY-ENHANCED MESSAGE-----