SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, For Use of the Commission Only
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Definitive Proxy Statement
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(as permitted by Rule 14a-6(e)(2))
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Definitive Additional Materials
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Soliciting Material Under Rule 14a-12
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Photon Dynamics, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1
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Title of each class of securities to which transaction applies:
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Common stock, no par value, of Photon Dynamics, Inc.
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(2
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Aggregate number of securities to which transaction applies:
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17,813,875 shares of common stock, options to purchase 1,096,135 shares of common stock
and restricted stock units representing an aggregate of 827,207 shares of common stock,
each as of July 9, 2008.
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(3
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Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and
state how it was determined):
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The filing fee of $11,528 was calculated pursuant to applicable rules and orders of the
Commission and is equal to $39.30 per $1,000,000 of the proposed aggregate merger
consideration of $293,327,943, which represents the sum of (A) 17,813,875 issued and
outstanding shares of common stock multiplied by $15.60 per share, (B) options to
purchase 516,301 shares of common stock with exercise prices at or below $15.60 multiplied
by $4.89 (which is the difference between $15.60 and the weighted average exercise price
with respect to such options of $10.71 per share), and (C) restricted stock units
representing 827,207 shares of common stock multiplied by $15.60 per share.
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(4
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Proposed maximum aggregate value of transaction:
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$293,327,943
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(5
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Total fee paid:
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$11,528
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the form or schedule and the date of its filing.
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(1
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Amount previously paid:
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(2
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Form, Schedule or Registration Statement No.:
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(3
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Filing Party:
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(4
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Date Filed:
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Dear Shareholder:
The Board of Directors of Photon Dynamics, Inc. has unanimously approved a merger in which
Photon Dynamics, Inc. will be acquired by Orbotech Ltd. for $15.60 per share in cash.
Shareholders of Photon Dynamics will be asked, at a special meeting of Photon Dynamics
shareholders, to approve the merger agreement and the principal terms of the merger.
The Board of Directors recommends that Photon Dynamics shareholders vote
FOR approval of the merger agreement and the principal terms of the merger.
The special meeting will be held at 9:00 a.m., local time, on , 2008, at the
offices of Photon Dynamics, at 5970 Optical Court, San Jose, California.
The proxy statement attached to this letter provides you with information about the proposed
merger and the special meeting of Photon Dynamics shareholders. Photon Dynamics encourages you to
read the entire proxy statement carefully. You may also obtain more information about Photon
Dynamics from documents Photon Dynamics has filed with the Securities and Exchange Commission.
Your vote is important regardless of the number of shares of Photon Dynamics common stock you
own. Because approval of the merger agreement and the principal terms of the merger requires the
affirmative vote of the holders of a majority of the issued and outstanding shares of Photon
Dynamics common stock, a failure to vote will count as a vote against the merger, except with
respect to your appraisal rights. Accordingly, whether or not you plan to attend the special
meeting, you are requested to promptly vote your shares by completing, signing and dating the
enclosed proxy card and returning it in the envelope provided, or by voting over the telephone or
over the Internet as instructed in these materials. If you sign, date and mail your proxy card
without indicating how you wish to vote, your vote will be counted as a vote FOR approval of the
merger agreement and the principal terms of the merger.
Voting by proxy will not prevent you from voting your shares in person if you subsequently
choose to attend the special meeting.
Thank you for your cooperation and continued support.
Very truly yours,
Jeffrey A. Hawthorne
President and Chief Executive Officer
THIS PROXY STATEMENT IS DATED , 2008 AND IS FIRST BEING MAILED
TO SHAREHOLDERS OF PHOTON DYNAMICS ON OR ABOUT , 2008.
PHOTON DYNAMICS, INC.
5970 Optical Court, San Jose, CA 95138
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 2008
To the Shareholders of Photon Dynamics, Inc.:
A special meeting of shareholders of Photon Dynamics, Inc., a California corporation, will be
held at 9:00 a.m., local time, on , 2008 at the offices of Photon Dynamics, at 5970 Optical
Court, San Jose, California, for the following purposes:
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to consider and vote on a proposal to approve the Agreement and Plan of Merger and
Reorganization dated as of June 26, 2008, by and among Orbotech Ltd., PDI Acquisition,
Inc., an indirect wholly-owned subsidiary of Orbotech Ltd., and Photon Dynamics, and the
principal terms of the merger contemplated thereby, pursuant to which, upon the merger
becoming effective, each share of common stock, no par value, of Photon Dynamics will be
converted into the right to receive $15.60 in cash, without interest; and
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2.
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to transact such other business as may properly come before the special meeting or any
adjournment or postponement thereof.
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Only shareholders of record at the close of business on , 2008 are entitled to notice of
and to vote at the special meeting and at any adjournment or postponement of the special meeting.
All shareholders of record are cordially invited to attend the special meeting in person. To
ensure your representation at the meeting in case you cannot attend, you are urged to vote your
shares by marking, signing, dating and returning the enclosed proxy card as promptly as possible in
the postage prepaid envelope enclosed for that purpose. Any shareholder attending the special
meeting may vote in person even if he or she has returned a proxy card.
Holders of Photon Dynamics common stock may have the right to dissent from the merger and
obtain payment in cash of the fair value of their common stock as appraised by a California court
under applicable provisions of California law. This amount could be more, the same as or less than
the amount a shareholder would be entitled to receive under the terms of the merger agreement. In
order to perfect and exercise their appraisal rights, shareholders must vote against the merger and
give written demand for appraisal of their shares, and other criteria must be met. A copy of the
applicable California statutory provisions is included as Annex C to the accompanying proxy
statement, and a summary of these provisions can be found under
Dissenters Rights of Appraisal
in the accompanying proxy statement.
The approval of the merger agreement and the principal terms of the merger requires the
affirmative vote of the holders of a majority of the outstanding shares of Photon Dynamics common
stock.
Even if you plan to attend the special meeting in person, please complete, sign, date and
return the enclosed proxy or vote over the telephone or the Internet as instructed in these
materials, as promptly as possible to ensure that your shares will be represented at the special
meeting if you are unable to attend.
If you sign, date and mail your proxy card without indicating
how you wish to vote, your vote will be counted as a vote in favor of approval of the merger
agreement and the principal terms of the merger. If you fail to return your proxy card, the effect
will be that your shares will not be counted for purposes of determining whether a quorum is
present at the special meeting and will effectively be counted as a vote against approval of the
merger agreement and the principal terms of the merger. If you do attend the special meeting and
wish to vote in person, you may withdraw your proxy and vote in person.
By Order of the Board of Directors,
Carl C. Straub, Jr.
General Counsel and Secretary
San Jose, California
, 2008
i
TABLE OF CONTENTS
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ii
QUESTIONS AND ANSWERS ABOUT THE MERGER
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Q:
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What is the proposed transaction?
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A:
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The proposed transaction is the acquisition of Photon Dynamics, Inc.
(Photon Dynamics or the Company) by Orbotech Ltd. (Orbotech).
Orbotech has agreed to acquire the Company pursuant to an Agreement
and Plan of Merger and Reorganization (the merger agreement) dated
as of June 26, 2008 among Orbotech, PDI Acquisition, Inc. (merger
sub) and the Company. Merger sub is an indirect wholly-owned
subsidiary of Orbotech. Once the merger agreement and the principal
terms of the merger have been approved by the Companys shareholders
and the other closing conditions under the merger agreement have been
satisfied or waived, merger sub will merge with and into the Company.
The Company will be the surviving corporation in the merger (the
surviving corporation) and will become an indirect wholly-owned
subsidiary of Orbotech.
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The merger agreement is attached as Annex A to this proxy statement.
Please read it carefully.
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Q:
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What will the Companys shareholders receive in the merger?
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A:
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Upon completion of the merger, the Companys shareholders (other than
those shareholders who properly exercise and perfect dissenters
rights of appraisal as discussed in this proxy statement) will receive
$15.60 in cash, without interest, for each share of Photon Dynamics
common stock that they own.
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Q:
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Where and when is the special meeting?
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A:
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The special meeting will take place at 9:00 a.m., local time,
on , 2008, at the offices of Photon Dynamics, at 5970 Optical
Court, San Jose, California.
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Who is eligible to vote?
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A:
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Holders of Photon Dynamics common stock at the close of business
on , 2008, the record date for the special meeting, are eligible
to vote.
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How many votes do I have?
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A:
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You have one vote for each share of Photon Dynamics common stock that
you owned at the close of business on , 2008, the record date
for the special meeting.
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Q:
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What vote of the Companys shareholders is required to approve the
merger agreement and the principal terms of the merger?
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A:
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In order to complete the merger, shareholders holding at least a
majority of the shares of Photon Dynamics common stock outstanding at
the close of business on the record date must vote FOR the approval of
the merger agreement and the principal terms of the merger.
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Q:
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How does the Companys Board of Directors recommend that I vote?
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A:
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The Board of Directors has
unanimously determined that the merger and the terms of
the merger agreement are advisable and in the best interests of the
Company and its shareholders, and recommends that shareholders vote
FOR the proposal to approve the merger agreement and the principal
terms of the merger. You should read
The MergerThe
Recommendation of the Companys Board of Directors and the Companys
Reasons for the Merger
for a discussion of the factors that the Board
of Directors considered in deciding to recommend approval.
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What do I need to do now?
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Please read this proxy statement carefully, including its annexes, to
consider how the merger affects you. After you read this proxy
statement, you should complete, sign and date your proxy card and mail
it in the enclosed return envelope or submit your proxy over the
telephone or over the Internet as soon as possible so that your shares
can be voted at the special meeting of the Companys shareholders. If
you sign, date and mail your proxy card without indicating how you
wish to vote, your vote will be counted as a vote in favor of approval
of the merger agreement and the principal terms of the merger.
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What happens if I do not return a proxy card or otherwise vote?
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Because the required vote of the Companys shareholders is based upon
the number of outstanding shares of common stock, the failure to
return your proxy card or to otherwise vote will have the same effect
as voting against the merger, except with respect to your appraisal
rights. A vote to abstain will also have the same effect as voting
against the merger, except with respect to your appraisal rights.
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How do I vote?
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A:
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If you are a shareholder of record, you may vote in person at the
special meeting, vote by proxy using the enclosed proxy card, vote by
proxy over the telephone, or vote by proxy on the Internet. If you
vote by proxy, your shares will be voted as you specify on the proxy
card, over the telephone or on the Internet. Whether or not you plan
to attend the meeting, the Company urges you to vote by proxy to
ensure your vote is counted. You may still attend the special meeting
and vote in person if you have already voted by proxy.
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To vote in person, come to the special meeting and you will be given a ballot
when you arrive.
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To vote using the enclosed proxy card, simply complete, sign and date the
enclosed proxy card and return it promptly in the enclosed return envelope. If you
return your signed proxy card to the Company before the Annual Meeting, the Company
will vote your shares as you direct.
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To vote over the telephone, dial toll-free using a touch-tone phone and
follow the recorded instructions. You will be asked to provide the company number
and control number from the enclosed proxy card. Your vote must be received
by a.m., Pacific Time, on , 2008 to be counted.
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To vote on the Internet, go to www.investorvote.com to complete an electronic proxy card.
You will be asked to provide the company number and control number from the
enclosed proxy card. Your vote must be received by a.m., Pacific Time,
on , 2008 to be counted.
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If your shares are held in street name by your broker, you should have received a proxy
card and voting instructions with these proxy materials from that organization rather than
from the Company. Your broker will vote your shares only if you provide instructions to
your broker on how to vote. You should instruct your broker to vote your shares, following
the procedures provided by your broker. Without such instructions, your shares will not be
voted, which will have the same effect as voting against the merger. See
The Special
Meeting of the Companys ShareholdersVoting by Proxy
.
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The Company provides Internet proxy voting to allow you to vote your shares online, with
procedures designed to ensure the authenticity and correctness of your proxy vote
instructions. However, please be aware that you must bear any costs associated with your
Internet access, such as usage charges from Internet access providers and telephone
companies.
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What does it mean if I receive more than one set of materials?
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This means you own shares of Photon Dynamics common stock that are
registered under different names. For example, you may own some
shares directly as a shareholder of record and other shares through a
broker or you may own shares through more than one broker. In these
situations, you will receive multiple
sets of proxy materials. You must complete, sign, date and return
each
of the proxy
cards that you receive,
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or vote all of your shares over the telephone or over the Internet
in accordance with the instructions above in order to vote all of the shares you own. Each
proxy card you receive comes with its own prepaid return envelope; if you vote by mail, make
sure you return each proxy card in the return envelope that accompanies that proxy card.
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May I vote in person?
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Yes. If your shares are not held in street name through a broker
you may attend the special meeting of the Companys shareholders and
vote your shares in person, rather than signing and returning your
proxy card. If your shares are held in street name, you must first
get a proxy card from your broker in order to attend the special
meeting and vote.
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Am I entitled to appraisal rights?
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A:
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Under Sections 1300 through 1313 of the California General Corporation
Law, holders of Photon Dynamics common stock will be entitled to
dissent and seek appraisal for their shares of Photon Dynamics common
stock only if certain criteria are satisfied. See
Dissenters Rights
of Appraisal
and Annex C of this proxy statement.
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Is the merger expected to be taxable to me?
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In general, your receipt of $15.60 in cash for each of your shares of
Photon Dynamics common stock pursuant to the merger will be a taxable
transaction for U.S. federal income tax purposes and may be a taxable
transaction under state, local or non-U.S. income or other
tax laws. You should read
The MergerMaterial U.S. Federal Income Tax
Consequences
for a more complete discussion of the U.S. federal
income tax consequences of the merger. You should also consult your
tax advisor on the tax consequences of the merger in light of your
particular circumstances.
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When do you expect the merger to be completed?
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A:
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The Company and Orbotech are working to complete the merger as quickly
as possible after the special meeting. The Company anticipates that
the merger will be completed during the second half of 2008. In order
to complete the merger, the Company must obtain shareholder approval
and a number of other closing conditions under the merger agreement
must be satisfied. See
The Merger
AgreementConditions to Completion of the Merger
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Should I send in my stock certificates now?
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No. Shortly after the merger is completed, you will receive a letter
of transmittal with instructions informing you how to send in your
stock certificates to Orbotechs paying agent in order to receive the
merger consideration. You should use the letter of transmittal to
exchange stock certificates for the merger consideration to which you
are entitled as a result of the merger. DO NOT SEND ANY STOCK
CERTIFICATES WITH YOUR PROXY.
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Q:
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Who can help answer my questions?
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A:
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The information provided above in the question-and-answer format is
for your convenience only and is merely a summary of some of the
information in this proxy statement. You should carefully read the
entire proxy statement, including its annexes. If you would like
additional copies of this proxy statement, without charge, or if you
have questions about the merger, including the procedures for voting
your shares, you should contact the Companys proxy solicitation
agent:
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The Altman Group
Attn: Domenick DeRobertis
1200 Wall Street West, 3rd Floor
Lyndhurst, New Jersey 07071
Telephone: (866) 863-8624
Fax: (201) 460-0050
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You may also wish to consult your legal, tax and/or financial advisors with respect to any aspect
of the merger, the merger agreement or other matters discussed in this proxy statement.
3
SUMMARY
This summary does not contain all of the information that is important to you. You should
carefully read the entire proxy statement to fully understand the merger. The merger agreement is
attached as Annex A to this proxy statement. The Company encourages you to read the merger
agreement because it is the legal document that governs the merger.
The Proposed Transaction
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Shareholder Vote
. You are being asked to vote to approve a merger agreement and the
principal terms of a merger in which the Company will be acquired by Orbotech.
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Price for Your Stock
. Upon completion of the merger, you will receive $15.60 in cash,
without interest, for each of your shares of Photon Dynamics common stock.
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The Acquiror
. Orbotech is principally engaged in the design, development, manufacture,
marketing and service of yield-enhancing and production solutions for specialized
applications in the supply chain of the electronics industry. Orbotechs products include
automated optical inspection and process control systems for bare and assembled printed
circuit boards and for flat panel displays, and imaging solutions for printed circuit board
production. Orbotech also markets computer-aided manufacturing and engineering solutions
for printed circuit board production. In addition, through its subsidiary, Orbograph Ltd.,
Orbotech develops and markets automatic check reading solutions to banks and other
financial institutions, and has developed a proprietary technology for web-based,
location-independent data entry for check processing and forms processing; and, through its
subsidiaries, Orbotech Medical Denmark A/S and Orbotech Medical Solutions Ltd., is engaged
in the research and development, manufacture and sale of specialized products for
application in medical nuclear imaging.
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Board
Recommendation
(see page 19)
The Companys Board of Directors, by unanimous vote, has determined that the merger agreement
is advisable, has approved the merger agreement and the merger and unanimously recommends that the
Companys shareholders vote FOR approval of the merger agreement and the principal terms of the
merger.
Reasons
for the Merger
(see page 19)
The Companys Board of Directors considered a number of factors in making its determination
that the merger and the merger agreement are advisable and in the best interests of the Company and
its shareholders, including the following:
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the merger consideration to be received by the Companys shareholders, including the
fact that a price of $15.60 per share represents a significant premium to both the closing
price of the Companys common stock on the last trading day prior to the public
announcement of the execution of the merger agreement and the enterprise value of the
Company;
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the Companys prospects as an independent company, including the significant risks
associated with remaining independent;
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the extensive process conducted during the several months prior to the signing of the
merger agreement, and the lack of assurance as to when or whether another favorable
opportunity to sell the Company would arise;
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the opinion of Credit Suisse Securities (USA) LLC (Credit Suisse) dated June 26, 2008
that, based upon and subject to the assumptions and other considerations stated in the
opinion, the merger consideration was fair, from a financial point of view, to the
Companys shareholders;
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the terms of the merger agreement, including the Companys ability to respond to and
accept a superior proposal, the agreements termination provisions and the breakup and
reverse breakup fees provided for in the agreement;
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the relatively limited nature of the closing conditions included in the merger agreement
and the likelihood that the merger will be completed;
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the fact that the merger will be a taxable transaction to the Companys shareholders;
and
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the fact that the Companys shareholders will not participate in the future growth of
the Company or Orbotech following the merger because they will be receiving cash for their
stock.
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Fairness
Opinion
(see page 25)
Credit Suisse has delivered to the Companys Board of Directors its written opinion, dated
June 26, 2008, to the effect that, as of that date and based upon and subject to the matters and
assumptions stated in that opinion, the merger consideration of $15.60 in cash per share was fair
from a financial point of view to the Companys shareholders.
The full text of Credit Suisses written opinion, which sets forth the procedures followed,
assumptions made, matters considered and limitations and qualifications on the scope of the review
undertaken by Credit Suisse in rendering its opinion, is attached as Annex B to this proxy
statement. The Company urges you to read it carefully in its entirety.
Credit Suisses opinion is
directed to the Companys Board of Directors and relates only to the fairness of the merger
consideration from a financial point of view as of June 26, 2008. The opinion does not address any
other aspect of the proposed transaction and is not a recommendation as to how any of the Companys
shareholders should vote with respect to the merger agreement or the merger.
Financing
(see page 32)
The Company and Orbotech estimate that the total amount of funds necessary to pay the merger
consideration is approximately $278 million. Orbotech expects to fund the payment of the merger
consideration through a combination of its and the Companys existing cash and debt financing from
external sources. Although the merger agreement does not contain any financing-related closing
condition, funding of Orbotechs debt financing is subject to the satisfaction of the conditions
set forth in the commitment letter and the financing agreement pursuant to which the financing will
be provided.
Material
U.S. Federal Income Tax Consequences
(see page 32)
In general, the merger will be a taxable transaction for holders of the Companys common
stock. For U.S. federal income tax purposes, you will generally recognize a gain or loss measured
by the difference, if any, between the cash you receive in the merger and your tax basis in the
shares exchanged in the merger. Gain or loss will be determined separately for each block of your
shares (i.e., shares acquired at the same cost in a single transaction). You should consult your
own tax advisor about the tax consequences to you of the merger.
The
Special Meeting of the Companys Shareholders
(see page
12)
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Place, Date and Time
. The special meeting will be held at 9:00 a.m. local time,
on , 2008, at the offices of Photon Dynamics, at 5970 Optical Court, San Jose,
California.
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Vote Required
. The approval of the merger agreement and the principal terms of the merger
requires the affirmative vote of the holders of a majority of the outstanding shares of the
Companys common stock. A failure to vote or a vote to abstain has the same effect as a
vote AGAINST approval of the merger agreement and the principal terms of the merger, except
with respect to your appraisal rights.
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Who Can Vote at the Meeting
. You can vote at the special meeting all of the shares of
the Companys common stock you own of record as of , 2008, which is the record date
for the special meeting. If you own shares that are registered in the name of someone
else, such as a broker, you need to direct that person to vote those shares or obtain an
authorization from them and vote the shares yourself at the meeting. As of the close of
business on July 9, 2008, there were 17,813,875 shares of the Companys common stock
outstanding.
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Procedure for Voting
. You can vote shares you hold of record by attending the special
meeting and voting in person, by mailing the enclosed proxy card, or by voting over the
telephone or over the Internet. If your shares are held in street name by your broker,
you should instruct your broker on how to vote your shares using the instructions provided
by your broker. If you do not instruct your broker to vote your shares, your shares will
not be voted.
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How to Revoke Your Proxy
. You may revoke your proxy at any time before the vote is
taken at the meeting. To revoke your proxy, you must either advise the Companys Secretary
in writing, deliver a proxy dated after the date of the proxy you wish to revoke, or attend
the meeting and vote your shares in person. Merely attending the special meeting will not
constitute revocation of your proxy. If you have instructed your broker to vote your
shares, you must follow the directions provided by your broker to change those
instructions.
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Dissenters
Rights of Appraisal
(see page 50)
If certain criteria are satisfied, California law provides you with appraisal rights in the
merger. This means that if you are not satisfied with the amount you are receiving in the merger,
you may be entitled to have the value of your shares determined by a California court and to
receive payment based on that valuation. The amount you ultimately receive as a dissenting
shareholder in an appraisal proceeding may be more, the same as or less than the amount you would
be entitled to receive under the terms of the merger agreement.
The
Companys Stock Price
(see page 47)
Shares of the Companys common stock are listed on The Nasdaq Global Market (the Nasdaq)
under the trading symbol PHTN. On June 25, 2008, which was the last trading day before the
announcement of the merger, the Companys common stock closed at $11.56 per share. On ,
2008, which was the last practicable trading day before this proxy statement was printed, the
Companys common stock closed at $ per share.
Non-Solicitation
of Other Offers
(see page 42)
The merger agreement contains restrictions on the Companys ability to solicit or engage in
discussions or negotiations with any third party regarding a proposal to acquire a significant
interest in the Company. Notwithstanding these restrictions, under certain limited circumstances,
the Board of Directors may respond to an unsolicited competing
proposal and terminate the merger
agreement and enter into an acquisition agreement with respect to a superior proposal.
Conditions
to Completing the Merger
(see page 41)
Each partys obligation to complete the merger is subject to the satisfaction or waiver of
various conditions, including the following:
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the receipt of approval by the Companys shareholders;
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the expiration or termination of the waiting period under U.S. antitrust laws and the
receipt of any consents or approvals required under the competition laws of South Korea,
Taiwan, Japan and China;
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the receipt of any other governmental approvals necessary for the consummation of the
merger; and
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the absence of any injunctions or legal prohibitions preventing the consummation of the
merger.
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6
Orbotechs obligation to complete the merger is subject to the satisfaction or waiver of additional
conditions, including the following:
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the accuracy of the Companys representations and warranties in the merger agreement;
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the Companys performance of its obligations under the merger agreement;
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the absence of governmental antitrust litigation relating to the merger;
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the expiration or termination of the review process by the Committee on Foreign
Investment in the United States (CFIUS); and
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the absence of a material adverse effect on the Company.
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Termination
of the Merger Agreement
(see page 44)
The merger agreement can be terminated under certain circumstances, including:
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by mutual written consent of Orbotech, merger sub and the Company;
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by either the Company or Orbotech, if:
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the merger has not been completed by December 26, 2008; except that
this right is not available to any party whose material breach of the merger
agreement has resulted in the failure to complete the merger by this date; and
provided that this date (referred to herein as the outside date) may be extended
to March 26, 2009 if any antitrust, governmental or regulatory approvals have not
been received;
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a governmental entity issues an order, decree or ruling or takes any
other nonappealable final action permanently enjoining, restraining or otherwise
prohibiting the merger; or
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the required Photon Dynamics shareholder vote has not been obtained at
the special meeting or any postponement or adjournment thereof;
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the Company breaches or materially fails to perform any of its
representations, warranties or covenants contained in the merger agreement, which
breach would result in the failure of the related Orbotech closing condition and
cannot be or has not been cured after 30 days notice;
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the Companys Board of Directors changes its recommendation regarding
the merger agreement and the merger, or publicly proposes to approve or recommend a
competing proposal; or
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following the public announcement of a competing proposal, the
Companys Board of Directors fails to reaffirm its recommendation and reject the
competing proposal;
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if Orbotech materially breaches or fails to perform any of its
covenants contained in the merger agreement, which breach cannot be or has not been
cured after 30 days notice;
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to accept a proposal from a third party to acquire the Company on terms
that the Companys Board of Directors determines to be superior to the terms of the
merger, if the Company provides
Orbotech a three business day matching right and pays the applicable termination fee
(as described below); or
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if CFIUS clearance has not been obtained and all other conditions to
the completion of the merger have been met, and following three business days
notice to Orbotech, Orbotech does not waive the CFIUS closing condition.
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7
Termination
Fees; Expenses
(see page 45)
The Company has agreed to pay Orbotech a termination fee of $9,000,000 if the merger agreement
is terminated:
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by the Company to accept a superior proposal;
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by Orbotech, if the Companys Board of Directors changes its recommendation or
recommends a competing proposal, or fails to reaffirm its recommendation following the
public announcement of a competing proposal;
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following the public announcement of a competing proposal that is not withdrawn prior to
the special meeting, if (i) such termination results from a failure to obtain the required
Photon Dynamics shareholder vote and (ii) within twelve months after such termination, the
Company enters into a definitive agreement relating to an alternative acquisition or
consummates an alternative acquisition; or
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following the receipt by the Company of a competing proposal that is not withdrawn on or
prior to the outside date, if (i) the required Photon Dynamics shareholder vote is not
obtained and (ii) within twelve months after such termination, the Company enters into a
definitive agreement relating to an alternative acquisition or consummates an alternative
acquisition.
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In addition to the termination fee, the Company has agreed to reimburse up to $2,000,000 of
Orbotechs expenses if the merger agreement is terminated:
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as a result of the failure to obtain the required Photon Dynamics shareholder vote; or
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as a result of the Companys breach or material failure to perform any of its
representations, warranties or covenants contained in the merger agreement,
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provided, however, that in the event that the Company pays the $9,000,000 termination fee to
Orbotech, it will not be required to also reimburse its expenses.
Orbotech has agreed to pay the Company a termination fee of $9,000,000 if the merger agreement
is terminated because CFIUS clearance has not been obtained and all other conditions to the
completion of the merger have been met, and following three business days notice to Orbotech,
Orbotech does not waive the CFIUS closing condition.
Employee
Benefits Matters; Stock Options; Restricted Stock Unit Awards
(see pages 35 and 45)
The merger agreement contains provisions relating to the benefits that the Companys
employees will receive in connection with and following the merger. In particular, under the
merger agreement:
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the Companys directors, officers and employees will have their stock options converted
into options to purchase Orbotech ordinary shares with the same terms, except that the
number of shares and the exercise price will be adjusted pursuant to a conversion formula
set forth in the merger agreement;
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the Companys directors, officers and employees will have their restricted stock unit
awards converted into restricted stock unit awards for Orbotech
ordinary shares with the same terms, except
that the number of shares will be adjusted pursuant to a conversion formula set forth in
the merger agreement;
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assuming the merger will close prior to the expiration of the
current offering period, the Company will establish an early purchase date under its Employee Stock Purchase Plan
(ESPP) prior to the effective time of the merger with respect to then-accrued rights to
purchase the Companys common stock under the plan. The ESPP will be terminated at or
prior to the effective time of the merger;
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Orbotech has agreed to provide, for one year after the
merger, the Companys employees who remain in the employment of
the surviving corporation with employee benefits and base salary that are comparable in the aggregate to the employee benefits and base salary
provided to such employees immediately prior to the effective time (not taking into account equity
compensation); and
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Orbotech has agreed to provide the Companys employees with credit for their service to
the Company for all purposes under the employee benefit plans (other than
pension-based plans or arrangements, or where such service credit would result in
duplicative benefits) of Orbotech or the surviving corporation.
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Interests
of the Companys Directors and Executive Officers in the Merger
(see page 21)
You should be aware that some of the Companys directors and executive officers have interests
in the merger that are different from, or are in addition to, the interests of the Companys
shareholders generally. These interests relate to equity and equity-linked securities held by such
persons; change of control severance and retention arrangements covering the Companys executive officers; and
indemnification of the Companys directors and officers by the surviving corporation following the
merger.
Shares
Held by Directors and Executive Officers
(see page 48)
As of the close of business on the record date, the directors and executive officers of the
Company were deemed to beneficially own shares of Photon Dynamics common stock, which represented
% of the shares of Photon Dynamics common stock outstanding on that date.
Procedure
for Receiving Merger Consideration
(see page 36)
Orbotech will appoint a paying agent to coordinate the payment of the cash merger
consideration following the merger. The paying agent will send you written instructions for
surrendering your certificates and obtaining the cash merger consideration after the Company has
completed the merger. Do not send in your share certificates now.
Questions
If you have additional questions about the merger or other matters discussed in this proxy
statement after reading this proxy statement, you should contact the Companys proxy solicitation
agent:
The Altman Group
Attn: Domenick DeRobertis
1200 Wall Street West, 3rd Floor
Lyndhurst, New Jersey 07071
Telephone:
(866) 863-8624
Fax: (201) 460-0050
9
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This proxy statement contains forward-looking statements based on estimates and assumptions.
Forward-looking statements include information concerning possible or assumed future results of
operations of each of the Company and Orbotech, the expected completion and timing of the merger
and other information relating to the merger. There are forward-looking statements throughout this
proxy statement, including, among others, under the headings
Summary
,
The Merger
and
Fairness
Opinion Delivered to the Companys Board of Directors
, and in statements containing the words
believes, expects, anticipates, intends, estimates or other similar expressions. For each
of these statements, the Company claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995. You should be aware
that forward-looking statements involve known and unknown risks and uncertainties. Although the
Company believes that the expectations reflected in these forward-looking statements are
reasonable, the Company cannot assure you that the actual results or developments the Company
anticipates will be realized, or even if realized, that they will have the expected effects on the
business or operations of each of the Company and Orbotech. These forward-looking statements speak
only as of the date on which the statements were made. In addition to other factors and matters
contained or incorporated in this document, the Company believes the following factors could cause
actual results to differ materially from those discussed in the forward-looking statements:
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the financial performance of each of the Company and Orbotech through the completion of
the merger, including in particular the Companys cash flows and cash balances;
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volatility in the stock markets;
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the timing of, and regulatory and other conditions associated with, the completion of
the merger;
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competitive pressures in the markets in which the Company competes;
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risks associated with other consolidations, restructurings or ownership changes in the
industries in which the Company operates;
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the loss of key employees;
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general economic conditions;
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the Companys history of losses and variable financial results;
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risks related to failure to protect the Companys intellectual property and litigation
in which the Company may become involved; and
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other factors that are described from time to time in the Companys periodic filings with
the SEC.
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10
THE PARTIES TO THE MERGER
Photon Dynamics is a California corporation with executive offices located at 5970 Optical
Court, San Jose, California 95138-1400. Its telephone number is (408) 226-9900. The Company is a
global supplier utilizing advanced machine vision technology for liquid crystal display flat panel
display test and repair systems and for digital imaging systems for defense, surveillance,
industrial inspection and medical imaging applications.
Orbotech is an Israeli company limited by shares whose address is Sanhedrin Boulevard, North
Industrial Zone, Yavne, 81101, Israel. Its telephone number is +972 (8) 942-3533. Orbotech is
principally engaged in the design, development, manufacture, marketing and service of
yield-enhancing and production solutions for specialized applications in the supply chain of the
electronics industry. Orbotechs products include automated optical inspection and process control
systems for bare and assembled printed circuit boards and for flat panel displays, and imaging
solutions for printed circuit board production. Orbotech also markets computer-aided manufacturing
and engineering solutions for printed circuit board production. In addition, through its
subsidiary, Orbograph Ltd., Orbotech develops and markets automatic check reading solutions to
banks and other financial institutions, and has developed a proprietary technology for web-based,
location-independent data entry for check processing and forms processing; and, through its
subsidiaries, Orbotech Medical Denmark A/S and Orbotech Medical Solutions Ltd., is engaged in the
research and development, manufacture and sale of specialized products for application in medical
nuclear imaging.
PDI
Acquisition, Inc., or merger sub, is an indirect wholly-owned subsidiary of Parent, whose address is 44
Manning Road, Billerica, Massachusetts 01821. Its telephone number is (978) 667-6037. Merger sub
was formed solely for the purpose of facilitating Orbotechs acquisition of the Company.
11
THE SPECIAL MEETING OF THE COMPANYS SHAREHOLDERS
Time, Place and Purpose of the Special Meeting
The special meeting will be held at 9:00 a.m. local time on , 2008, at the offices of
Photon Dynamics, at 5970 Optical Court, San Jose, California. The purpose of the special meeting
is to consider and vote on the proposal to approve the merger agreement and the principal terms of
the merger.
The Companys Board of Directors has unanimously determined that the merger agreement
is advisable, has approved the merger agreement and the merger and recommends that the Companys
shareholders vote FOR approval of the merger agreement and the principal terms of the merger.
Who Can Vote at the Special Meeting
Only holders of record of Photon Dynamics common stock as of the close of business on ,
2008, which is the record date for the special meeting, are entitled to receive notice of and to
vote at the special meeting. If you own shares that are registered in the name of someone else,
such as a broker, you need to direct that person to vote those shares or obtain an authorization
from them and vote the shares yourself at the meeting. On July 9, 2008, there were 17,813,875
shares of the Companys common stock outstanding.
Vote Required; Quorum
The approval of the merger agreement and the principal terms of the merger requires the
affirmative vote of the holders of a majority of the outstanding shares of the Companys common
stock. Each share of common stock is entitled to one vote. Because the required vote of
shareholders is based upon the number of outstanding shares of Photon Dynamics common stock,
failure to submit a proxy or to vote in person will have the same effect as a vote AGAINST approval
of the merger agreement and the principal terms of the merger, except with respect to appraisal
rights. A vote to abstain will have the same effect.
If your shares are held in street name by your broker, you should instruct your broker how
to vote your shares using the instructions provided by your broker. Under applicable regulations,
brokers who hold shares in street name for customers may not exercise their voting discretion
with respect to non-routine matters such as the approval of the merger agreement and the principal
terms of the merger. As a result, if you do not instruct your broker
to vote your shares, your shares will not be voted.
The holders of a majority of the outstanding shares of the Companys common stock entitled to
be cast as of the record date, represented in person or by proxy, will constitute a quorum for
purposes of the special meeting. A quorum is necessary to hold the special meeting. Once a share
is represented at the special meeting, it will be counted for the purpose of determining a quorum
and any adjournment of the special meeting, unless the holder is present solely to object to the
special meeting. However, if a new record date is set for an adjourned meeting, a new quorum will
have to be established.
Voting by Proxy
This proxy statement is being sent to you on behalf of the Board of Directors of the Company
for the purpose of requesting that you allow your shares of the Companys common stock to be
represented at the special meeting by the persons named in the enclosed proxy card. All shares of
the Companys common stock represented at the meeting by properly executed proxy cards, voted over
the telephone or voted over the Internet will be voted in accordance with the instructions
indicated on those proxies. If you sign and return a proxy card without giving voting
instructions, your shares will be voted as recommended by the Companys Board of Directors.
The
Board recommends a vote FOR approval of the merger agreement and the principal terms of the merger.
The Company does not expect that any matter other than the proposal to approve the merger
agreement and the principal terms of the merger will be brought before the special meeting. If,
however, such a matter is properly presented at the special meeting, the persons named in the proxy
card will use their own judgment to determine how to vote your shares.
12
You may revoke your proxy at any time before the vote is taken at the special meeting. To
revoke your proxy, you must either advise the Companys Secretary in writing, deliver a proxy dated
after the date of the proxy you wish to revoke, or attend the special meeting and vote your shares
in person. Attendance at the special meeting will not by itself constitute revocation of a proxy.
If you have instructed your broker to vote your shares, you must follow the directions provided by
your broker to change those instructions.
Householding
Some banks, brokerages and other nominee record holders may be participating in the practice
of householding proxy statements and annual reports. This means that only one copy of this proxy
statement may have been sent to multiple stockholders in your household. The Company will promptly
deliver a separate copy of this proxy statement, including the attached appendices, to you if you
call or write to the Companys transfer agent, Computershare Limited, at the following address or
telephone number:
Computershare Limited
Attn: Photon Dynamics, Inc.
P.O. Box 8694
Edison, New Jersey 08818-8694
Telephone: (877) 282-1168
Solicitation of Proxies
The Company will pay all of the costs of this proxy solicitation. In addition to soliciting
proxies by mail, directors, officers and employees of the Company may solicit proxies personally
and by telephone, e-mail or otherwise. None of these persons will receive additional or special
compensation for soliciting proxies. The Company will, upon request, reimburse brokers, banks and
other nominees for their expenses in sending proxy materials to their customers who are beneficial
owners and obtaining their voting instructions.
The Company has engaged The Altman Group to assist in the solicitation of proxies for the special
meeting and will pay The Altman Group a fee of approximately $20,000, plus reimbursement of
out-of-pocket expenses. The address of The Altman Group is 1200 Wall Street West, 3rd Floor,
Lyndhurst, New Jersey 07071. The Altman Groups telephone number
is (866) 863-8624.
13
THE MERGER
The discussion of the merger in this proxy statement is qualified by reference to the merger
agreement, which is attached to this proxy statement as Annex A. You should read the merger
agreement carefully.
Background of the Merger
From time to time, the Companys management and Board of Directors have reviewed the strategic
options available to the Company, including organic growth of the Companys core flat panel
business through product and customer initiatives, and growth through acquisitions and other
diversification efforts. As part of this review, the Company has from time to time considered
various possible business combinations and commercial arrangements and had discussions with
potential strategic partners.
Discussions regarding a transaction between the Company and Orbotech began in August 2005 when
the management teams of the two companies met and presented information regarding their businesses.
The Company engaged a financial advisor in connection with these discussions and the parties and
their financial advisors conducted preliminary due diligence. Following these meetings, in September 2005
Orbotech proposed a transaction in which each share of the Companys common stock would be
exchanged for $5.89 in cash and 0.6561 to 0.6968 shares of Orbotech common stock, which at the time
represented approximately $22 to $23 in value per Photon Dynamics share, or approximately $377 to
$394 million in total equity value based on the Companys fully-diluted share count, and a premium
of approximately 13% to 18% to the Companys share price. The Company responded that it would be
unwilling to consider a transaction at that price but that it potentially would be willing to
consider a transaction in which the Companys shareholders received $27 to $28 in value per share,
or approximately $463 to $480 million in total equity value. During late September and early
October 2005, the parties held further discussions and negotiated the form and amount of
consideration that would be paid. The parties also exchanged drafts of and negotiated a merger
agreement for the transaction, although the terms of that agreement
were not agreed.
On October 20, 2005, the Company and Orbotech reached a preliminary, non-binding understanding
that, subject to further due diligence, they would move forward in negotiating a transaction in which each
share of Photon Dynamics common stock would be exchanged for $9.42 in cash and 0.6271 shares of
Orbotech common stock, a package that at the time was equivalent to approximately $24.50 in value
per Photon Dynamics share, or approximately $420 million in total equity value, and represented a
premium of approximately 37% to the Companys share price. Upon the completion of its due
diligence several weeks later, Orbotech advised the Company that it was no longer interested in
pursuing a potential transaction.
On September 11, 2006, Orbotech delivered a letter to Jeffrey Hawthorne, the Companys chief
executive officer, containing a proposal for a transaction in which Orbotech would acquire the
Company for $15.50 per share in cash, which at the time represented approximately $256 million in
total equity value based on the Companys fully-diluted share count. Based on the closing price of
the Companys common stock on the Nasdaq on September 8, 2006, the trading day immediately
preceding September 11, 2006, the $15.50 per share proposal represented a premium of approximately
25%. During the following weeks, the Company engaged a financial advisor to help it evaluate
Orbotechs proposal and the Companys Board of Directors met to consider the proposal. The Board
of Directors ultimately concluded that Orbotechs proposal should be rejected, as a result of which
discussions did not progress to more advanced negotiations.
On March 13, 2008, Orbotech delivered a letter to the Companys Board of Directors containing
an unsolicited proposal for a transaction in which Orbotech would acquire the Company for $14.00
per share in cash, which at the time represented approximately $263 million in total equity value.
The letter also proposed, in the alternative, that Orbotech would be willing to acquire the
Companys flat panel display business (i.e., all of the Company other than its Salvador Imaging,
Inc. (Salvador) business, cash and other assets unrelated to its flat panel display business)
for $180 million in cash. Based on the closing price of the Companys common stock on the Nasdaq
on March 12, 2008, the $14.00 per share proposal represented a premium of approximately 44%.
On March 14, 2008, the Companys Board of Directors met to consider Orbotechs proposal.
Davis Polk & Wardwell, the Companys outside counsel, advised the Board as to its legal duties in
connection with the proposal, and the Board determined to engage a financial advisor to help it
evaluate the proposal.
14
On March 17, 2008, the Companys Board of Directors met and engaged in further discussion of
Orbotechs proposal and the retention of a financial adviser. Following this discussion, the Board
directed management to retain Credit Suisse.
On March 18, 2008, the Companys Board of Directors met and engaged in further discussion of
Orbotechs proposal and the process by which it would respond.
On March 28, 2008, the Companys Board of Directors met to further consider Orbotechs
proposal. Credit Suisse presented its preliminary analysis of the Companys valuation and the
financial aspects of a potential combination with Orbotech. Following discussion of the proposal
and the Companys previous negotiations with Orbotech, the Board of Directors determined that the
Company should enter into a nondisclosure agreement with Orbotech and that management and the
advisors should engage with Orbotech with a view toward determining whether Orbotech would agree to
terms that would be potentially acceptable to the Company. The Board of Directors also discussed a
number of alternative strategic partners to Orbotech and directed management and the Companys
advisors to consider which of such parties would be worthwhile to contact and what impact such
discussions would have on the Companys business, the Companys discussions with Orbotech and the
Boards desire to preserve the confidentiality of the broader process. Later in the day on March
28, 2008, Davis Polk sent Lehman Brothers, Orbotechs financial advisor, a draft nondisclosure
agreement relating to the transaction.
On March 30, 2008, Lehman Brothers contacted Credit Suisse and relayed Orbotechs request that
the parties management teams meet in the near future to review the Companys business and to
discuss other matters relating to the potential transaction.
On April 2, 2008, the Companys Board of Directors met to further consider Orbotechs proposal
and various other strategic alternatives. Credit Suisse updated the Board on the discussions with
Orbotech that had taken place since the Boards March 28 meeting. The Board directed management
and the advisors to continue to engage with Orbotech and to attempt to schedule a follow-up
meeting. With the assistance of Credit Suisse, the Board also discussed a list of other potential
strategic partners. Based on a variety of factors, including size, potential strategic fit and
capacity to complete a transaction, the Board determined that a number of the companies on the list
were unlikely to have any serious interest in an acquisition of the Company. At the conclusion of
this discussion, the Board identified four companies other than Orbotech, referred to in this proxy
statement as Companies A, B, C and D, that it believed would potentially have interest in a
strategic transaction with the Company, and directed management and Credit Suisse to contact these
parties to assess their interest. Later in the day on April 2 and on April 3, Credit Suisse made
initial contact with each of Companies A, B, C and D. Of these four companies, only Company A was
willing to enter into a nondisclosure agreement and review nonpublic information regarding the
Company, and none of the four ultimately made a proposal for a transaction with the Company.
On April 3, 2008, the Company and Orbotech entered into a mutual nondisclosure agreement.
On April 4, 2008, the Companys Board of Directors again met to consider Orbotechs proposal
and various other strategic alternatives. Credit Suisse updated the Board on the discussions with
Orbotech and the contacts that had been made with Companies A, B, C and D. Credit Suisse reported
that Company A had expressed an interest in conducting further discussions; Companies B and C had
indicated that they were familiar with the Company and would consider whether to pursue a potential
transaction; and Company D had not yet returned the message. Following this discussion, the Board
directed management and the advisors to continue the process of reviewing the Companys strategic
alternatives both with Orbotech and with Companies A, B, C and D.
Later in the day on April 4, 2008, Mr. Hawthorne left a message with Company D regarding the
opportunity for a potential transaction with the Company. Company D never responded to this
message.
On April 8, 2008, the Companys Board of Directors again met to consider Orbotechs proposal
and other strategic alternatives. Credit Suisse updated the Board on the status of discussions
with Orbotech and other potential strategic partners, and indicated that meetings had been
scheduled for April 10 with Company A and April 14 with Orbotech. Following the meeting of the
full Board of Directors, the independent members of the Board met with Davis Polk to further
discuss Orbotechs proposal and the other strategic alternatives being considered.
15
On April 9, 2008, the Company and Company A entered into a mutual nondisclosure agreement.
On April 10, 2008, the Company met with Company A in Menlo Park, California. The meetings
were attended by senior management of the Company and Company A, as well as Credit Suisse and
Company As financial advisor, and focused on the Companys operating plans and strategy, product
development efforts and financial position.
On April 11, 2008, Credit Suisse sent Company B a draft nondisclosure agreement. From April
11 through April 23, the Company and Company B attempted to reach agreement on the nondisclosure
agreement, including in particular the Companys request that the agreement include a standstill
provision that would have prevented Company B from launching a hostile takeover of the Company for
a period following the execution of the agreement. After an exchange of messages on April 23
regarding this provision and other open points in the draft nondisclosure agreement, Company B did
not respond further to the Companys representatives. The draft nondisclosure agreement was
ultimately not executed and Company B did not participate in the process after April 23.
On April 14, 2008, representatives of the Company held meetings with representatives of
Orbotech in Boston. The meetings were attended by senior management of the Company and Orbotech,
as well as Credit Suisse, Lehman Brothers, Davis Polk and Cravath Swaine & Moore LLP, Orbotechs
outside counsel, and focused on the Companys operating plans and strategy, product development
efforts and financial position.
Also on April 14, 2008, Company C informed Credit Suisse that it was not interested in
pursuing a strategic transaction with the Company.
On April 15, 2008, the Companys Board of Directors met to further consider Orbotechs
proposal and various other strategic alternatives. Credit Suisse updated the Board on the status
of discussions with Orbotech and other potential strategic partners, and the Board considered a
timeline under which such parties would be required to submit detailed indications of interest by
April 23. Following this discussion, the Board directed management and the advisors to continue
the process of engaging with Orbotech, Company A and Company B and to request that Orbotech and
Company A, the two parties that were farthest along in the process, provide written indications of
their interest in a strategic transaction with the Company.
On April 16, 2008, Credit Suisse delivered process letters to each of Orbotech and Company A
requesting that they provide a written indication of interest in a potential transaction no later
than April 23, 2008. The process letters requested that the indication of interest include
information regarding the amount and form of consideration; financing plans; plans with respect to
employees; due diligence requirements; conditions and contingencies; and any internal or external
approvals that would be required to execute a definitive agreement and complete a potential
transaction.
On April 22, 2008, the Company held further discussions with Company A regarding the flat
panel display market and the Companys operating plans and strategy.
On April 25, 2008, Company As financial advisor informed Credit Suisse that its client was
not interested in pursuing a strategic transaction with the Company.
On April 27, 2008, Orbotech responded to the process letter by delivering to Credit Suisse an
updated version of its March 13 proposal and an initial draft of a merger agreement. The updated
proposal indicated that, subject to due diligence and negotiation of a merger agreement, Orbotech
would be willing to pay aggregate cash consideration of $265 million for the Company, which based
on the Companys fully-diluted share count represented a price of approximately $14.18 per share.
The letter further indicated that Orbotech expected it would have access to $150 to $200 million in
debt financing from one or more Israeli banks for use in connection with the transaction. The
letter also requested that the Company agree to a 45-day period of exclusive negotiations with
Orbotech.
On April 28, 2008, the Companys Board of Directors met to consider Orbotechs response to the
process letter. Credit Suisse reviewed Orbotechs updated proposal in the context of the valuation
and financial analysis that it had presented to the Board on March 28, and a representative of
Davis Polk discussed the Boards fiduciary duties
with respect to the proposal. Following this discussion, the Board directed management and
the Companys advisors to respond to Orbotech that a price of $14.18 per share was inadequate.
16
On April 29, 2008, Credit Suisse contacted Lehman Brothers to advise that the price reflected
in Orbotechs updated proposal was inadequate and that the Company would be unwilling to continue
discussions with Orbotech on that basis. Credit Suisse also indicated that the Company would not
agree to exclusive negotiations with Orbotech. From April 29 until May 9, Credit Suisse and Lehman
Brothers engaged in periodic negotiations of the price to be paid in the potential transaction,
with Credit Suisse indicating that Orbotech would need to pay significantly more than $14.18 per
share and that a price in the range of $16.50 to $17.00 would be an appropriate basis on which to
continue negotiations.
On May 9, 2008, Lehman Brothers presented to Credit Suisse a revised proposal under which each
share of Photon Dynamics common stock would be exchanged for $15.00 in cash plus the per share
equivalent of the net proceeds to be realized from a sale of Salvador. Based on the Companys
fully-diluted share count at the time, $15.00 per share was equivalent to total equity value of
approximately $282 million.
Later in the day on May 9, 2008, the Companys Board of Directors met and considered
Orbotechs most recent proposal. Following discussion of the proposal with management and the
Companys advisors, the Board determined to further consider the proposal at a meeting on May 13.
On May 13, 2008, the Companys Board of Directors again met to consider Orbotechs most recent
proposal. Management and representatives of Credit Suisse and Davis Polk discussed with the Board
the risks and uncertainties associated with the proposal, including the uncertainty as to when a
sale of Salvador could be concluded and the unfavorable terms that could potentially result from
undertaking a sale under the pressure of a deadline. The Board also considered the extent to which
the relative immaturity of Salvadors business would make it difficult to realize appropriate value
in a near-term sale. Following this discussion, the Board concluded that it was unwilling to
proceed with a transaction that was structured in the manner Orbotech had proposed, but that it
would be willing to consider a sale of the entire Company at an appropriate fixed price, with no
Salvador-related value contingency. The Board directed
management and the Companys advisors to respond to Orbotech with a counterproposal of $16.10 per
share.
On May 15, 2008, Credit Suisse told Lehman Brothers that the Company was unwilling to move
forward with a transaction structure that involved a Salvador-related value contingency. Credit
Suisse also presented the $16.10 per share counterproposal. Later in the day on May 15, the
Company delivered to Orbotech a mark-up of the draft merger agreement.
On May 23, 2008,
Mr. Hawthorne and Rani Cohen, Orbotechs chief executive officer, discussed
the terms of a potential transaction. Mr. Cohen said that Orbotech was prepared to pay consideration of $290 million for the
Company in an all-cash transaction, which based on the Companys fully-diluted share
count at the time represented a per-share price of approximately $15.43. Later in the day on May
23, Davis Polk sent Cravath a term sheet reflecting proposed resolutions of a number of issues
relating to non-price terms in the draft merger agreement.
On May 24, 2008, Messrs. Hawthorne and Cohen again discussed price. Mr. Hawthorne indicated
that the Company would be willing to accept a price as low as $15.80 per share, in response to
which Mr. Cohen indicated that Orbotech would be willing to pay up to $15.50 per share. Following
this discussion, both parties agreed to consult further with their boards of directors.
On May 26, 2008, and May 27, 2008, Cravath and Davis Polk exchanged revised drafts of the term
sheet and negotiated the non-price terms of a potential transaction, including in particular the
break-up fee that would be payable by the Company under certain circumstances and Orbotechs
proposals for closing conditions relating to employee retention, private antitrust litigation,
third party contractual consents and national security clearances.
On May 28, 2008, the Companys Board of Directors met to consider Orbotechs most recent
proposal. Mr. Hawthorne updated the Board on the status of discussions, and Davis Polk reviewed
the principal non-price transaction terms that were under negotiation with Cravath. Following this
discussion, the Board directed
management and the Companys advisors to continue to focus on
persuading Orbotech to raise its price.
17
On
May 29, 2008, Messrs. Cohen and Hawthorne
tentatively agreed to recommend to their respective boards a price of $15.60 per
share, which based on the Companys fully-diluted share count at the time was equivalent to total
equity value of approximately $293 million.
At a Photon Dynamics Board meeting on May 30, 2008, Mr. Hawthorne reviewed the status of
discussions with Orbotech, including the tentative agreement on price. Davis Polk and Credit
Suisse discussed the expected timeline for completing due diligence and negotiation of the merger
agreement, and reviewed the principal non-price terms that were under negotiation. Following this
discussion, the Board directed management and the advisors to continue to move forward in
negotiating a definitive merger agreement.
Also on May 30, 2008, Orbotech sent the Company an initial due diligence request list
requesting various information and documents. From May 30, 2008 until the execution of the merger
agreement, Orbotech and its representatives conducted extensive due diligence on the Company.
From June 1 through 5, 2008, the Company held due diligence meetings with Orbotech in Menlo
Park. The meetings were attended by senior management of both companies and focused on the
Companys operating plans and strategy, product development efforts and financial position. During
this time, Orbotech also held discussions with a number of the Companys employees regarding their
interest in remaining with the combined company following closing.
From June 4, 2008, until the execution of the merger agreement, the Company and Orbotech and
their advisors exchanged drafts of the merger agreement and held extensive negotiations.
On June 11, 2008, the Companys Board of Directors met and reviewed with management and Davis
Polk and Credit Suisse the status of the negotiations. Davis Polk reviewed the principal terms of
and open issues in the draft merger agreement, with particular focus on Orbotechs proposals for
closing conditions relating to employee retention, private antitrust litigation, third party
contractual consents and national security clearances. Thereafter, the Companys Board of
Directors directed management and the advisors to tell Orbotech that the Company would not accept
an employee-related closing condition in the merger agreement. Later on June 11, Mr. Hawthorne
communicated this message to Mr. Cohen.
On June 12, 2008, Mr. Cohen advised Mr. Hawthorne that Orbotech would agree to forego an
employee-related closing condition in the merger agreement. Mr. Cohen said that now that it was
agreeing to proceed without such a condition, Orbotech would need to hold discussions with a
broader group of the Companys employees than it had met to date, and would seek to obtain
non-binding indications from certain of them that they intended to remain with the combined company
following the closing. From June 12 until shortly before the execution of the merger agreement,
the Company and Orbotech and their advisors held extensive discussions regarding the employees to
be contacted by Orbotech, and Orbotech met with a number of the Companys employees.
At a Photon Dynamics Board meeting on June 18, 2008, Mr. Hawthorne updated the Board on the
status of the negotiations with Orbotech and Orbotechs discussions with various of the Companys
employees. Following the meeting of the full Board of Directors, the independent members of the
Board met with Davis Polk to further discuss the potential transaction.
Following the Companys June 18 Board meeting, negotiations continued on the merger agreement,
in the course of which Orbotech agreed to eliminate conditions relating to private antitrust
litigation and third party contractual consents. The parties continued to discuss Orbotechs
request for a condition related to national security clearance for the transaction related to the
Salvador business. In discussions on June 21, the parties agreed to handle this issue by including
such a condition in the merger agreement, but providing also that Orbotech would agree to divest
the Salvador business or hold it separate if required to obtain the clearance, and that the Company
would have the right to terminate the merger agreement and receive from Orbotech a termination fee
of $9 million if all of the conditions except national security clearance had been obtained and
Orbotech declined to complete the transaction.
18
On June 24, 2008, the Companys Board of Directors met to review with management and Davis
Polk and Credit Suisse the status of the negotiations. Davis Polk reviewed the open issues in the
merger agreement and provided a summary of its principal provisions. A representative of Credit
Suisse reviewed for the Board of Directors the financial analyses of the Company performed by
Credit Suisse and indicated that Credit Suisse expected to be able to deliver an opinion that, as
of the date of such opinion and based upon and subject to the assumptions and other considerations
to be described in its written opinion, the merger consideration to be received by the holders of
the Companys common stock in the Merger was fair, from a financial point of view, to such holders.
Thereafter, the Companys Board of Directors directed management and the advisors to continue the
process.
On June 25, 2008, the Companys Board of Directors again met to review the transaction. Davis
Polk reviewed the terms of the merger agreement and updated the Companys Board of Directors
regarding the changes from the terms discussed at the prior meeting. At the request of the Board
of Directors, a representative of Credit Suisse then delivered its oral opinion (which was
subsequently confirmed in writing as of June 26, 2008) to the effect that, as of that date and
based upon and subject to the various considerations to be described in its written opinion, the
merger consideration to be received by the holders of the Companys common stock in the Merger was
fair, from a financial point of view, to such holders. The full text of Credit Suisses written
opinion dated June 26, 2008, which sets forth, among other things, the procedures followed,
assumptions made, matters considered and limitations and qualifications on the scope of the review
undertaken by Credit Suisse in rendering its opinion, is attached to this Proxy Statement as Annex
B. Following the presentations by Davis Polk and Credit Suisse, the Companys Board of Directors
unanimously approved the merger agreement and the merger and recommended that the Companys
shareholders vote in favor of the approval of the merger agreement and the principal terms of the
merger.
On June 26, 2008, representatives of Orbotech and the Company finalized the merger agreement
and related schedules. Orbotech and the Company thereafter executed the merger agreement. Later
the same day Orbotech and the Company issued a joint press release announcing the transaction and
the execution of the merger agreement.
The Recommendation of the Companys Board of Directors and the Companys Reasons for the Merger
The Companys Board of Directors believes that the merger and the merger agreement are
advisable and in the best interests of the Company and its shareholders. Accordingly, the Board of
Directors has unanimously approved the merger and the merger agreement and recommends that the
Companys shareholders vote FOR the proposal to approve the merger agreement and the principal
terms of the merger. When you consider the Boards recommendation, you should be aware that the
Companys directors may have interests in the merger that may be different from, or in addition to,
your interests. These interests are described in
Interests of the Companys Directors and
Executive Officers in the Merger
beginning on page 21.
In determining that the merger and the merger agreement are advisable and in the best
interests of the Company and its shareholders, the Board of Directors consulted with management and
its financial and legal advisors and considered a number of factors, including the following:
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Merger Consideration
. The Board concluded that the merger consideration of $15.60 per
share represented an attractive valuation for the Company. This price represents a premium
of approximately 35% to the closing price of $11.56 on June 25, 2008, the last trading day
prior to the public announcement of the execution of the merger agreement, and a premium of
approximately 49% to the enterprise value of the Company, meaning the value of the Company
business implied by adding debt to, and subtracting cash from, the Companys equity market
capitalization, and is higher than the price at which the Companys common stock has traded
at any time during the last two years. The Board also believed that $15.60 per share was
the highest fixed price that Orbotech would be willing to pay.
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Review of Prospects in Remaining Independent.
The Board considered the Companys
financial condition, results of operations and business and earnings prospects if it were
to remain independent in light of various factors, including the cyclical and volatile
nature of the flat panel display equipment market and
industrywide changes that are occurring as a result of the maturation of flat panel display
technology. With respect to the Companys core flat panel display business, the Board
considered that while the business has
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19
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recently been demonstrating strong momentum, and
while the Companys strategy of reducing fixed costs through outsourcing would position the
Company to better withstand future downturns, the business is likely to continue to be
highly cyclical and dependent on a relative handful of key customers. With respect to the
Companys efforts at diversification beyond the flat panel display business, the Board
considered that these initiatives, while promising, are still in early stages, involve
significant execution risk and will require continued financial investment for a meaningful
period of time before they could be expected to generate financial returns. After
considering these factors, the Board concluded that there were significant risks in
remaining independent.
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Extensive Process.
The Board reviewed the Companys strategic alternatives, the
relatively limited universe of potential strategic partners other than Orbotech, and the
extensive process that it had conducted during the several months prior to the signing of
the merger agreement, which involved contacting the four parties other than Orbotech that
the Board believed would potentially have an interest in acquiring the Company. The Board
also considered that none of the other potential acquirors that had been contacted had made
a proposal for a transaction with the Company and that there was no assurance as to when or
whether another favorable opportunity to sell the Company would arise.
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Fairness Opinion
. The Board considered the financial analysis presented by Credit Suisse on June 24, 2008, and Credit Suisses opinion, delivered orally on June 25, 2008, and subsequently
confirmed in writing and dated June 26, 2008, to the effect that, as of that date and subject to
the assumptions and other considerations stated in the opinion, the merger consideration was fair
from a financial point of view to the Companys shareholders. The full text of Credit Suisses
written opinion is attached to this proxy statement as Annex B.
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Terms of the Merger Agreement
. The Board considered the terms of the merger agreement,
including the parties respective representations, warranties and covenants, the conditions
to their respective obligations to complete the merger and the ability of the respective
parties to terminate the merger agreement. The Board noted that the termination or
breakup fee provisions of the merger agreement could have the effect of discouraging
competing proposals for a business combination between the Company and a third party, but
that such provisions are customary for transactions of this size and type. The Board
considered that the $9 million amount of the termination fee, which amount is approximately
equal to 3.1% of the transaction value, was within a reasonable range, particularly in
light of the extensive process conducted by the Board with the assistance of Credit Suisse
and management. The Board also noted that the merger agreement permits the Company and the
Board to respond to a competing proposal that the Board determines is a superior proposal,
subject to certain restrictions imposed by the merger agreement and the requirement that
the Company pay Orbotech the termination fee in the event that the Company terminates the
merger agreement to accept a superior proposal.
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Likelihood of Closing
. The Board considered the relatively limited nature of the
closing conditions included in the merger agreement, including the absence of any
financing-related closing condition and the likelihood that the merger will be approved by
requisite regulatory authorities and the Companys shareholders. The Board also considered
that Orbotech has received a financing commitment that contains conditions that the Board
believes, based on the advice of its advisors, are customary for transactions of this
nature. The Board further considered Orbotechs obligation to pay a reverse breakup fee
of $9 million if the merger agreement is terminated under certain circumstances in which
the CFIUS-related closing condition has not been waived or satisfied.
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Taxability
. The Board also considered that the merger will be a taxable
transaction to the Companys shareholders.
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No Participation in Future Growth
. The Board considered the fact that, because the
Companys shareholders will be receiving a fixed amount of cash for their stock, they will
not be compensated for any increase in value of the Company or Orbotech either during the
pre-closing period or following the closing.
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20
The Board of Directors also identified and considered a number of countervailing factors and
risks to the Company and its shareholders relating to the merger and the merger agreement,
including the following:
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the possibility that the merger may not be completed and the potential adverse
consequences to the Company if the merger is not completed, including the potential loss of
customers, suppliers and employees, reduction of value offered by others to the Company in
a future business combination and erosion of customer and employee confidence in the
Company;
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the limitations imposed in the merger agreement on the conduct of the Companys business
during the pre-closing period, its ability to solicit and respond to competing proposals
and the ability of the Board of Directors to change or withdraw its recommendation of the
merger;
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the $9 million termination fee payable to Orbotech if the merger agreement is terminated
under certain circumstances, and the potential effect that such termination fee may have in
deterring other potential acquirors from making competing proposals that could be more
advantageous to the Companys shareholders; and
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the potential conflicts of interest of the Companys directors and executive officers,
as described in the section entitled
Interests of the Companys Directors and Executive
Officers in the Merger
beginning on page 21.
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The foregoing discussion of the information and factors considered by the Board of Directors
is not intended to be exhaustive but includes the material factors considered by the Board. In
view of the wide variety of factors considered in connection with its evaluation of the merger and
the complexity of these matters, the Board did not find it useful to and did not attempt to
quantify, rank or otherwise assign weights to these factors. In addition, the Board of Directors
did not undertake to make any specific determination as to whether any particular factor, or any
aspect of any particular factor, was favorable or unfavorable to its ultimate determination, but
rather the Board of Directors conducted an overall analysis of the factors described above,
including discussions with the Companys management and its financial and legal advisors. In
considering the factors described above, individual members of the Board of Directors may have
given different weights to different factors.
Interests of the Companys Directors and Executive Officers in the Merger
Change of Control and Severance Benefits
Non-Employee Directors.
Under the terms of the Companys shareholder-approved non-employee
directors stock incentive plans, all equity awards become vested immediately prior to the
effective time of a change of control of the Company (which will include the merger) and the
post-termination exercise period for stock options is increased from three months to one year.
Therefore, all restricted stock unit (RSU) awards held by
the Companys non-employee directors that are unvested
will become vested and be settled for Photon Dynamics shares immediately prior to the effective time of the merger,
and all stock options held by the Companys non-employee
directors will become vested immediately
prior to the effective time of the merger and to the extent that such
options are not exercised immediately, following their conversion into Orbotech options as
described below, such options will remain exercisable for one year following the closing date of
the merger.
The following table sets
forth information with respect to the estimated amount of accelerated vesting of equity awards
that each of the Companys non-employee directors would be entitled to receive under the
non-employee directors stock incentive plans described above, assuming a change of control as of
July 9, 2008 and using the proposed transaction price of $15.60 per share.
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Number of options
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Number of RSUs
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Intrinsic value of accelerated
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Name
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subject to accelerated vesting
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subject to accelerated vesting
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equity awards
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Dr. Malcolm J. Thompson
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7,500
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4,167
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$
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111,280
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Ms. Terry H. Carlitz
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12,500
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4,167
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$
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111,280
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Dr. Donald C. Fraser
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13,750
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4,550
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$
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155,818
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Mr. Edward Rogas Jr.
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17,500
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2,917
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$
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91,780
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Mr. Curtis S. Wozniak
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12,500
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4,167
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$
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111,280
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Executive Officers.
The Company has change of
control severance agreements with each of Messrs. Jeffrey A.
Hawthorne, Wendell T. Blonigan and James P. Moniz that provide severance benefits
following a change of control (which will include the merger). The surviving corporation will
assume the obligations of the Company under these agreements if the merger is completed.
21
Under each of Mr. Hawthornes, Mr. Blonigans and Mr. Monizs change of control severance
agreements, if within twelve months following a change of control his employment is terminated
by the surviving corporation without cause (as defined
below) or he resigns for good reason (as defined below), he will be entitled to receive the
following, on the condition that he signs a general release of claims in favor of the surviving
corporation:
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severance in the amount of one year of his annual base salary and on-target
bonus, less payroll deductions and all required withholdings; and
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accelerated vesting of all stock awards, which include both stock options and
RSUs.
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Under the Companys change of control severance agreements with Messrs. Hawthorne, Blonigan
and Moniz, cause means one of the following as pertains to the executive: indictment or
conviction of any felony or crime involving moral turpitude or dishonesty; participation in any
fraud against the Company or its successor; breach of duties to the Company or its successor;
intentional damage to any property of the Company or its successor; willful conduct that is
demonstrably injurious to the Company or its successor; breach of any agreement with the Company or
its successor, including the Proprietary Information and Inventions Agreement; or conduct that in
the good faith and reasonable determination of the Company or its successor demonstrates gross
unfitness to serve.
Under the Companys change of control severance agreements with Messrs. Hawthorne, Blonigan
and Moniz, good reason means resignation due to the occurrence of one or more of the following
without the executives consent: a reduction of then-current annual base salary by more than ten
percent, unless the then-current base salaries of other executive officers of the Company are
accordingly reduced; a material reduction in the package of benefits and incentives, taken as a
whole, provided to the executive, except to the extent that such benefits and incentives of other
executive officers of the Company are similarly reduced; assignment of any duties or any
limitations of responsibilities substantially inconsistent with the executives position, duties,
responsibilities and status with the Company immediately prior to the date of the change of
control; or relocation of the principal place of the executives employment to a location that is
more than fifty miles from the executives principal place of employment immediately prior to the
date of the change of control.
The Company also has change of control severance agreements with certain of its non-executive
officers, including Mr. Steve Song, who was an executive officer at the beginning of the Companys
fiscal year ended September 30, 2007. These agreements provide that if within twelve months following a change of
control such officers employment is terminated by the surviving corporation without cause (as defined below) or the officer
resigns for good reason (as defined below), the officer will be entitled to receive the
following, on the condition that the officer allow to become effective a general release of claims
in favor of the surviving corporation:
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severance in the amount of one year of his annual base salary
and on-target bonus, less payroll deductions and all required
withholdings;
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acceleration of all stock awards, including stock options and RSUs;
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payment or reimbursement of health benefit continuation coverage under COBRA
through the earlier of twelve months following the termination date or the date the
officer becomes eligible for health benefits with another employer; and
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outplacement services for up to three months immediately following the
termination date.
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Under the Companys change of control severance agreements with Mr. Song and such other
officers, cause means one of the following: commission of any felony or any crime involving
fraud, moral turpitude or dishonesty; participation in any fraud against the Company; intentional,
material violation of any material contract or agreement between the employee and the Company or
any statutory duty owed to the Company; unauthorized use or
disclosure of the Companys confidential
information or trade secrets; or gross misconduct.
Under the Companys change of control severance agreements with Mr. Song and such other
officers, good reason generally means a reduction of then-existing annual base salary by more
than ten percent; relocation of the employees principal place of employment to a location that is
more than fifty miles from the employees principal place of employment immediately prior to the
date of the change of control; or a material reduction in
authority, duties or responsibilities after the change of control when compared to the
authority, duties or responsibilities of the employee prior to the change of control.
22
As of the date of the mailing of this Proxy Statement, Orbotech does not expect to retain all
of the Companys executive officers on a long-term basis after the merger. Should Orbotech or the Company terminate the
employment of one or more of the Companys executive officers, including any terminations by
Orbotech following the closing of the merger, such terminations would likely trigger benefits under
the change of control severance agreements described above.
The following table summarizes the estimated amount of cash payments and accelerated vesting
of equity awards that each of the Companys officers who have been executive officers at any time
since the beginning of the fiscal year ended September 30,
2007 would be entitled to receive under the change of
control severance agreements described above, assuming a termination date of July 9, 2008 and using
the proposed transaction price of $15.60 per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Intrinsic value of
|
|
|
|
|
|
|
Number of options subject
|
|
RSUs subject to
|
|
accelerated equity
|
Name
|
|
Cash payment
|
|
to
accelerated vesting
|
|
accelerated vesting
|
|
awards
|
Jeffrey A. Hawthorne
Chief Executive Officer and President
|
|
$
|
700,000
|
|
|
|
8,640
|
|
|
|
100,000
|
|
|
$
|
1,560,000
|
|
James P. Moniz
Chief Financial Officer
|
|
$
|
440,000
|
|
|
|
20,000
|
|
|
|
80,000
|
|
|
$
|
1,344,400
|
|
Wendell T. Blonigan
Chief Operating Officer
|
|
$
|
486,682
|
|
|
|
49,000
|
|
|
|
117,500
|
|
|
$
|
2,061,830
|
|
Steve Song
Vice President, Global Sales
|
|
$
|
453,709
|
|
|
|
2,400
|
|
|
|
40,000
|
|
|
$
|
624,000
|
|
Retention Bonus Plan Agreements
Shortly after receiving Orbotechs unsolicited March 13, 2008, proposal for a transaction
involving the Company, the Board of Directors and compensation committee began to consider the
risks to the Company of a pending change of control, particularly in the context of an attempted
hostile takeover, including the risk that employees who do not have change of control severance
arrangements such as those described above would lack appropriate incentives to remain with the
Company during such events. Accordingly, the Board of Directors and the compensation committee
engaged an outside compensation consultant to provide advice regarding a potential retention bonus
plan to address this risk. After review and discussion during several meetings of the Companys
compensation committee and based on advice and research of the outside consultant, in early April
2008 the Company adopted the change of control severance agreement for officers who are not
executive officers described above and retention arrangements for key employees below the officer
level.
As discussions regarding a potential transaction with Orbotech moved forward, Orbotech requested
that these newly adopted retention arrangements be modified with respect to both payment amounts and vesting
schedules. After extensive negotiation of this topic, and in connection with Orbotechs agreement
on June 12, 2008 to forego an employee-related closing condition in the merger agreement, the
Company agreed to modify the retention arrangements by both increasing the payment amounts and
lengthening the vesting schedules. Under the resulting arrangements, certain employees will
receive cash retention payments (totaling six or nine months of pay, depending on position), paid
in installments of 25% at 90 days following closing, 25% at nine months following closing, and 50%
at 18 months following closing, if the employee remains employed with the combined company on the
applicable payment date. If the employment of an employee covered by
a retention agreement is terminated without
cause before all installment payments have been made, he or she will
receive the remaining unpaid balance of the retention payments, provided that he or
she sign a general release of claims in favor of the surviving
corporation. In addition, certain employee retention arrangements
provide that if the employees employment is involuntarily
terminated without cause following the closing, all of his or her
unvested stock awards (including stock options and RSUs) will vest.
Orbotech also requested that Mr. Blonigan, Mr. Song and certain of the Companys other
non-executive officers who are parties to change of control
agreements receive retention arrangements as well. The parties agreed that if the merger
closes, Mr. Blonigan will receive a retention payment equal to
the sum of 12 months of his current base salary
and target bonus (totaling $486,682), which will be paid 12 months following the effective time of
the merger if he remains employed at that time, and that at the
closing of the merger, 50% of his currently outstanding unvested RSUs and stock
options will become vested, with the remaining unvested portion becoming vested on the first
anniversary of the closing of the merger if he remains employed on that date. In addition, Mr.
Song and certain of the Companys
23
other non-executive officers will receive retention payments
equal to 150% of the employees annual base salary
and target bonus, paid out in four equal semi-annual payments over two years starting on the six-month
anniversary of the closing date assuming continued employment on such
dates.
Certain other non-executive officers will receive retention payments equal to 12 months of base
salary payable 12 months from the date of close if they remain
employed at that time. Other than Mr. Blonigan and Mr. Song, none of the Companys
executive officers who were executive officers at any time since the beginning of the fiscal
year ended September 30, 2007 is eligible for retention payments.
Photon Dynamics Common Stock, RSUs and Stock Options Held by Directors and Executive Officers
Under the terms of the merger agreement, all of the Companys stock options and RSUs,
including those held by its directors and executive officers, will be assumed by Orbotech at the
effective time of the merger (except for unvested RSUs
held by non-employee directors, which will be treated pursuant to the
terms of the Companys shareholder-approved non-employee
directors stock incentive plans as described above). Specifically, each Photon Dynamics stock option that is outstanding
immediately prior to the effective time will be converted automatically into an option to purchase
Orbotech ordinary shares on the same terms and conditions as were applicable to such stock option
immediately prior to the effective time of the merger, except that (i) the number of Orbotech
ordinary shares subject to the converted Orbotech stock option will be determined by multiplying
the number of shares of Photon Dynamics common stock subject to the Photon Dynamics stock option
immediately prior to the effective time of the merger by the exchange ratio (rounded down to the
nearest whole share) and (ii) the per share exercise price for Orbotech ordinary shares issuable
upon exercise of the converted Orbotech stock option will be determined by dividing the aggregate
exercise price for the shares of Photon Dynamics common stock subject to the Photon Dynamics
stock option immediately prior to the effective time of the merger by the number of Orbotech
ordinary shares deemed purchasable pursuant to such converted Orbotech stock option (rounded up to
the nearest cent). Similarly, each Photon Dynamics RSU award that is outstanding immediately
prior to the effective time will be converted automatically into an RSU award with respect to
Orbotech ordinary shares on the same terms and conditions as were applicable to the RSU award
immediately prior to the effective time of the merger, except that the number of Orbotech ordinary
shares subject to the converted RSU award will be equal to the product of (x) the number of shares
of Photon Dynamics common stock subject to the Photon Dynamics RSU award immediately
prior to the effective time and (y) the exchange ratio (rounded down to the nearest whole share).
The merger agreement provides that for these purposes, the exchange ratio is determined by
dividing $15.60 by the average Nasdaq closing price per Orbotech ordinary share during
the five trading days immediately preceding the closing date.
The rounding down of the number of shares underlying each converted option and RSU and the
rounding up of the per-share exercise price applicable to each converted option are intended to
avoid adverse tax consequences to the holders of Photon Dynamics options and RSUs.
The following table summarizes the Photon Dynamics common stock, RSUs and options to purchase
Photon Dynamics common stock held by each of the Companys directors and officers who have been
directors or executive officers at any time since the beginning of the last fiscal year, whether
vested or unvested, as of July 9, 2008.
All such shares of Photon Dynamics common stock are being treated identically in the merger to
shares of Photon Dynamics common stock held by other Photon Dynamics shareholders. All such RSUs
and stock options are also being treated identically to RSUs and stock options held by the
Companys employees generally except as provided above under
Change of Control and Severance
Benefits
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares of
|
|
|
|
|
|
Number of shares
|
|
|
Photon Dynamics
|
|
Number
|
|
underlying stock
|
Name
|
|
common stock
|
|
of RSUs
|
|
options
|
Non-Employee Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Malcolm J. Thompson
|
|
|
1,250
|
|
|
|
5,000
|
|
|
|
84,201
|
|
Ms. Terry H. Carlitz
|
|
|
|
|
|
|
5,000
|
|
|
|
50,000
|
|
Dr. Donald C. Fraser
|
|
|
|
|
|
|
4,550
|
|
|
|
13,750
|
|
Mr. Edward Rogas Jr.
|
|
|
208
|
|
|
|
2,917
|
|
|
|
29,375
|
|
Mr. Curtis S. Wozniak
|
|
|
|
|
|
|
5,000
|
|
|
|
50,000
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares of
|
|
|
|
|
|
Number of shares
|
|
|
Photon Dynamics
|
|
Number
|
|
underlying stock
|
Name
|
|
common stock
|
|
of RSUs
|
|
options
|
Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Jeffrey A. Hawthorne
|
|
|
15,138
|
|
|
|
100,000
|
|
|
|
277,983
|
|
Mr. James P. Moniz
|
|
|
|
|
|
|
80,000
|
|
|
|
20,000
|
|
Mr. Wendell T. Blonigan
|
|
|
8,443
|
|
|
|
117,500
|
|
|
|
70,000
|
|
Mr. Steve Song
|
|
|
3,567
|
|
|
|
40,000
|
|
|
|
84,676
|
|
Indemnification and Insurance
The merger agreement provides that after the effective time of the merger and to the fullest
extent permitted by law, Orbotech will cause the surviving corporation to honor all rights to
indemnification for acts or omissions prior to the effective time of the merger existing in favor
of the current or former directors or officers of the Company and its subsidiaries, as provided in
their respective articles of incorporation, by-laws and other organizational documents and
indemnification agreements with such individuals, in full force and effect in accordance with their
terms. The merger agreement also provides that, prior to the effective time of the merger, the
Company will purchase six-year tail officers and directors liability insurance policies on
terms and conditions no less favorable than the Companys existing directors and officers
liability insurance. If the Company cannot purchase these tail policies for an aggregate premium
of 150% or less of the annual premium paid by the Company for such existing insurance, the Company
will purchase as much insurance coverage as can be obtained within the 150% cap. Orbotech and the
surviving corporation are obligated to comply with their respective obligations thereunder for the
full term thereof.
Fairness Opinion Delivered to the Companys Board of Directors
The Company retained Credit Suisse to act as its financial advisor in connection with the
merger. In connection with Credit Suisses engagement, the Board of Directors requested that
Credit Suisse advise it with respect to the fairness to holders of Photon Dynamics common stock,
from a financial point of view, of the merger consideration. On June 25, 2008, at a meeting of the
Board of Directors held to evaluate the merger, Credit Suisse rendered to the Board of Directors an
oral opinion, subsequently confirmed in writing and dated June 26, 2008, to the effect that, as of
that date and based upon and subject to the factors, assumptions, limitations, qualifications and
other considerations described in Credit Suisses written opinion, the merger consideration to be
received by the holders of Photon Dynamics common stock in the merger was fair, from a financial
point of view, to such holders.
The full text of Credit Suisses written opinion, dated June
26, 2008, to the Board of
Directors, which sets forth, among other things, the procedures followed, assumptions made, matters
considered and limitations and qualifications on the scope of the review undertaken by Credit
Suisse in rendering its opinion, is attached as Annex B hereto and is incorporated herein by
reference in its entirety. Photon Dynamics shareholders are urged to read this opinion carefully
in its entirety. Credit Suisses opinion was provided to the Board of Directors in connection with
its consideration of the merger and addresses only the fairness to the holders of Photon Dynamics
common stock, from a financial point of view, of the merger consideration set forth in the merger
agreement and does not address any other aspect or implication of the merger or any other
agreement, arrangement or understanding entered into in connection with the merger or otherwise,
including, without limitation, the fairness of the amount or nature of, or any other aspect
relating to, any compensation to any officers, directors or employees of any party to the Merger,
or class of such persons, relative to the Merger Consideration or otherwise and does not constitute
advice or a recommendation to any shareholder as to how such shareholder should vote or act on any
matter relating to the merger. The issuance of Credit Suisses opinion was approved by an
authorized internal committee of Credit Suisse. The summary of Credit Suisses opinion herein is
qualified in its entirety by reference to the full text of the opinion.
In arriving at its opinion, Credit Suisse reviewed the merger agreement and certain publicly
available business and financial information relating to the Company. Credit Suisse also reviewed
certain other information and data relating to the Company, including financial forecasts, provided
to and discussed with Credit Suisse by the Company, and Credit Suisse met with the Companys
management to discuss the business and prospects of the Company. Credit Suisse also considered
certain of the Companys financial and stock market data, and Credit Suisse compared that data with
similar data for other publicly held companies in businesses that Credit Suisse deemed similar to
the Companys. Credit Suisse also considered, to the extent publicly available, the financial
terms of certain other business combinations and other transactions which have been effected or
announced. Credit Suisse
also considered such other information, financial studies, analyses and investigations and
financial, economic and market criteria that Credit Suisse deemed relevant.
25
In connection with Credit Suisses review, Credit Suisse did not independently verify any of
the foregoing information and assumed and relied on such information being complete and accurate in
all material respects. With respect to the financial forecasts that Credit Suisse reviewed, the
Companys management advised Credit Suisse, and Credit Suisse assumed, that such forecasts were
reasonably prepared on bases reflecting the best currently available estimates and judgments of the
Companys management as to its future financial performance. Credit Suisse also assumed, with the
consent of the Board of Directors, that, in the course of obtaining any regulatory or third party
consents, approvals or agreements in connection with the merger, no delay, limitation, restriction
or condition would be imposed that would have an adverse effect on
the Company or the merger and
that the merger would be consummated in accordance with the terms of the merger agreement without
waiver, modification or amendment of any material term, condition or agreement thereof. In
addition, Credit Suisse was not requested to make, and did not make, an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of
the Company, nor was Credit
Suisse furnished with any such evaluations or appraisals.
Credit Suisses opinion is necessarily based upon information made available to Credit Suisse
as of the date of the opinion and financial, economic, market and other conditions as they existed
and could be evaluated on the date thereof. Credit Suisses opinion did not address the relative
merits of the merger as compared to alternative transactions or strategies that might be available
to the Company, nor did it address the Companys underlying business decision to proceed with the
merger.
Financial Analyses
In preparing its opinion, Credit Suisse performed a variety of financial and comparative
analyses, including those described below. The summary of Credit Suisses analyses described below
is not a complete description of the analyses underlying Credit Suisses opinion. The preparation
of a fairness opinion is a complex process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of those methods to the
particular circumstances and, therefore, a fairness opinion is not readily susceptible to partial
analysis or summary description. In arriving at its opinion, Credit Suisse made qualitative
judgments with respect to the analyses and factors that it considered. Credit Suisse arrived at
its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole
and did not draw, in isolation, conclusions from or with regard to any one factor or method of
analysis. Accordingly, Credit Suisse believes that its analyses must be considered as a whole and
that selecting portions of its analyses and factors or focusing on information presented in tabular
format, without considering all analyses and factors or the narrative description of the analyses,
could create a misleading or incomplete view of the processes underlying its analyses and opinion.
In its analyses, Credit Suisse considered industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the Companys control.
No company, transaction or business used in Credit Suisses analyses as a comparison is identical
to the Company, its business or the merger, and an evaluation of the results of the analyses is not
entirely mathematical. Rather, the analyses involve complex considerations and judgments
concerning financial and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the companies, business segments or transactions
analyzed. The estimates contained in Credit Suisses analyses and the ranges of valuations
resulting from any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less favorable than
those suggested by the analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, the estimates used in, and the results derived from,
Credit Suisses analyses are inherently subject to substantial uncertainty.
Credit Suisse was not requested to, and it did not, recommend the specific consideration
payable in the proposed merger, which consideration was determined between the Company and
Orbotech, and the decision to enter into the merger agreement was solely that of the Companys
Board of Directors. Credit Suisses opinion and financial analyses were only one of many factors
considered by the Board of Directors in its evaluation of the proposed merger and should not be
viewed as determinative of the views of either of the Board of Directors or the Companys
management with respect to the merger or the consideration to be paid in the merger.
26
The following is a summary of the material financial analyses reviewed with the Companys
Board of Directors in connection with Credit Suisses opinion dated June 26, 2008.
The financial
analyses summarized below include information presented in tabular format. In order to fully
understand Credit Suisses financial analyses, the tables must be read together with the text of
each summary. The tables alone do not constitute a complete description of the financial analyses.
Considering the data in the tables below without considering the full narrative description of the
financial analyses, including the methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of Credit Suisses financial analyses.
The implied per
share equity reference ranges set forth below were based on the fully diluted shares outstanding of
the Companys common stock, including the dilutive effect of all outstanding restricted stock and
in-the-money options based primarily on publicly available information as well as certain
information provided by the Companys management.
Discounted Cash Flow Analysis
Credit Suisse calculated the estimated present value of the unlevered, after-tax free cash
flows that the Companys business could generate from the second half of calendar year 2008 through
2012, using projected financial information that was provided by the Companys management. Credit
Suisse estimated the unlevered, after-tax free cash flows by using estimated earnings before
interest and taxes for each of the second half of calendar year 2008 and the full calendar years
2009 through 2012 and adjusting for taxes, depreciation and amortization, capital expenditures and
changes in working capital. Credit Suisse then calculated a range of estimated terminal values for
the Company by multiplying the terminal year net operating profit after taxes, based on estimates
of Photon Dynamics management, by selected next twelve months (NTM) net operating profit after
taxes multiples of 12.0x to 20.0x. The present values as of June 30, 2008 of the cash flows and
the terminal value of the Company were then calculated using discount rates ranging from 12.0% to
16.0%. The resulting present values of the cash flows of the Company ranged from $67 million to
$71 million, and the resulting present values of the terminal value of the Company ranged from $100
million to $196 million. Credit Suisse then added the estimated net cash of the Company to the sum
of the present values as of June 30, 2008 of the cash flows and the terminal value of the Company
to calculate the implied equity value of the Company, which ranged from $235 million to $334
million. The resulting implied equity values were then calculated on a per share basis.
This analysis indicated the following implied per share equity reference range for the
Companys common stock, as compared to the merger consideration:
|
|
|
Implied Per Share Equity Reference Range
|
|
Per Share Consideration in
|
for Photon Dynamics
|
|
Merger
|
$12.54 $17.72
|
|
$15.60
|
Selected Companies Analysis
Credit Suisse reviewed financial and stock market information of the Company and the following
eighteen selected publicly traded companies:
|
|
|
Agilent Technologies, Inc.
|
|
|
|
|
Applied Materials, Inc.
|
|
|
|
|
Electro Scientific Industries, Inc.
|
|
|
|
|
FEI Company
|
27
|
|
|
GSI Group Inc.
|
|
|
|
|
Hitachi High-Technologies Corporation
|
|
|
|
|
Hoya Corporation
|
|
|
|
|
KLA-Tencor Corporation
|
|
|
|
|
Micronics Japan Co. Ltd.
|
|
|
|
|
Nanometrics Incorporated
|
|
|
|
|
NTN Corporation
|
|
|
|
|
Orbotech Ltd.
|
|
|
|
|
Rudolph Technologies, Inc.
|
|
|
|
|
Shimadzu Corporation
|
|
|
|
|
Tokyo Electron Limited
|
|
|
|
|
ULVAC Technologies, Inc.
|
|
|
|
|
Veeco Instruments Inc.
|
|
|
|
|
Zygo Corporation
|
Credit Suisse reviewed, among other things, trading statistics and per share stock prices of
the selected companies as a multiple of calendar year 2007 actual earnings per share and calendar
years 2008 and 2009 estimated earnings per share. Credit Suisse also reviewed the aggregate market
values of the selected companies as a multiple of calendar year 2007 actual revenues and calendar
years 2008 and 2009 estimated revenues and as a multiple of net operating profits after taxes on a
NTM basis. All statistics related to the selected companies that were reviewed by Credit Suisse in
connection with its analysis were based on closing stock prices on June 20, 2008, and research
analysts estimates. Credit Suisse also reviewed certain operating statistics of the selected
companies, including revenue, revenue growth, gross margin, operating margin, net margin and
long-term growth rates. Credit Suisse applied a range of selected multiples derived from the
selected companies analysis to revenue and earnings per share data of the Company, using actual
results for 2007 and both the estimates of Photon Dynamics management and consensus research
analysts estimates for 2008 and 2009, in order to derive implied estimated per share equity
reference ranges.
This analysis indicated the following implied per share equity reference ranges for the
Companys common stock, as compared to the merger consideration:
|
|
|
|
|
|
|
Implied Per Share Equity Reference Range
|
|
Per Share Consideration in
|
for Photon Dynamics
|
|
Merger
|
Based on Management Estimates
|
|
$6.91$21.52
|
|
$
|
15.60
|
|
Based on Consensus of
Research Analysts Estimates
|
|
$3.92$18.14
|
|
|
|
|
28
Selected Transactions Analysis
Credit Suisse reviewed publicly available information and data for the following twenty-three
selected transactions announced since January 1, 2002:
|
|
|
Target
|
|
Acquiror
|
ICOS Vision Systems Corporation NV
|
|
KLA-Tencor Corporation
|
Axcelis Technologies, Inc.
|
|
Sumitomo Heavy Industries Ltd.
|
Nextest Systems Corporation
|
|
Teradyne, Inc.
|
SEZ Group
|
|
Lam Research Corporation
|
ASE Test Ltd.
|
|
Advanced Semiconductor Engineering, Inc.
|
United Test and Assembly Center Ltd.
|
|
Affinity Equity Partners / TPG Capital
|
STATS ChipPAC Ltd.
|
|
Temasek Holdings Ltd.
|
Therma-wave, Inc.
|
|
KLA-Tencor Corporation
|
Toshiba Ceramics Co., Ltd.
|
|
The Carlyle Group
|
Applied Films, Inc.
|
|
Applied Materials, Inc.
|
ADE Corporation
|
|
KLA-Tencor Corporation
|
Helix Technology Corporation
|
|
Brooks Automation, Inc.
|
Mykrolis Corp.
|
|
Entegris, Inc.
|
August Technology Corporation
|
|
Rudolph Technologies, Inc.
|
DuPont Photomasks, Inc.
|
|
Toppan Printing Co., Ltd.
|
Metron Technology, Inc.
|
|
Applied Materials, Inc.
|
Genus, Inc.
|
|
AIXTRON AG
|
UltraTera Corp.
|
|
United Test and Assembly Center Ltd.
|
NPTest Corporation
|
|
Credence Systems Corporation
|
ChipPAC Inc.
|
|
ST Assembly Test Services Ltd.
|
CoorsTek, Inc.
|
|
Investor Group
|
SpeedFam-IPEC, Inc.
|
|
Novellus Systems, Inc.
|
FEI Company
|
|
Veeco Instruments Inc.
|
29
Credit Suisse compared the aggregate value of each target company as a multiple of that target
companys revenue on both a last twelve months (LTM) and NTM basis. Credit Suisse also compared
the price paid for each target company as a multiple of that target companys earnings on both an
LTM and NTM basis. All statistics related to the selected transactions that were reviewed by
Credit Suisse in connection with its analysis were based on publicly available financial
information at the time of announcement of the relevant transaction. Credit Suisse then applied
ranges of selected multiples derived from the selected transactions to LTM and NTM revenues and
earnings
per share data of the Company, using actual results for LTM revenues and earnings per share
data and both the estimates of Photon Dynamics management and consensus research analysts
estimates for NTM revenues and earnings per share data, in order to derive implied estimated per
share equity reference ranges.
This analysis indicated the following implied per share equity reference ranges for the
Companys common stock, as compared to the merger consideration:
|
|
|
|
|
|
|
Implied Per Share Equity Reference Range
|
|
Per Share Consideration in
|
for Photon Dynamics
|
|
Merger
|
Based on Management Estimates
Based on Consensus of
Research Analysts Estimates
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$9.91$47.48
$9.91$35.45
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$
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15.60
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In light of the lack of direct comparability between the companies engaged in the selected
transactions and the Company, the cyclicality of the businesses of the companies engaged in the
selected transactions, the cyclicality of the Companys business and the length of the time period
over which the selected transactions occurred, Credit Suisse advised the Board of Directors that it
accorded less weight to this analysis than to the other analyses used by it for purposes of
rendering its opinion.
Miscellaneous
The Company selected Credit Suisse based on Credit Suisses qualifications, experience and
reputation, and its familiarity with the Company and its business. Credit Suisse is an
internationally recognized investment banking firm and is regularly engaged in the valuation of
businesses and securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
Credit Suisse is a full service securities firm engaged in securities trading and brokerage
activities, as well as providing investment banking and other financial services. In the ordinary
course of business, Credit Suisse and its affiliates may acquire, hold or sell, for its and its
affiliates, own accounts and the accounts of customers, equity, debt and other securities and
financial instruments (including bank loans and other obligations) of
the Company, Orbotech and any
other company that may be involved in the merger, as well as provide investment banking and other
financial services to such companies.
Pursuant to the engagement agreement between the Company and Credit Suisse, the Company has
agreed to pay Credit Suisse, upon closing of the transaction, a
transaction fee that is expected to be
approximately $4.5 million based on the aggregate value of the transaction at announcement. The
substantial majority of the transaction fee is contingent upon the consummation of the proposed
merger and is payable at the time of the closing. The engagement agreement also provides that
Credit Suisse will receive a fee for rendering its opinion to the Board of Directors, which fee is
not contingent on the consummation of the proposed merger but will be fully credited against the
transaction fee if the merger is completed. In addition, the Company also agreed to reimburse
Credit Suisse for expenses resulting from or arising out of its engagement, including the fees and
expenses of Credit Suisses outside legal counsel, and to indemnify Credit Suisse and related
parties against certain liabilities and other items arising out of Credit Suisses engagement.
Projected Financial Information
The Company does not as a matter of course make public projections as to future performance,
earnings or other results beyond the current fiscal year due to the unpredictability of the
underlying assumptions and estimates. However, the Company provided certain non-public financial
information to Credit Suisse in its capacity as the Companys financial advisor, including
projections by management of the Companys standalone financial performance for the second half of
calendar year 2008 and for the full calendar years 2009 through 2012. These projections were in
turn used by Credit Suisse in performing the discounted cash flow
analysis described on pages 27
through 28 of this proxy statement. Portions of this projected financial information were also
provided to Orbotech. A summary of these projections is set forth below.
30
The prospective financial information included in this proxy statement has been prepared by,
and is the responsibility of, the Companys management. This projected financial information was
not prepared with a view toward public disclosure and, accordingly, does not necessarily comply
with published guidelines of the SEC, the
guidelines established by the American Institute of Certified Public Accountants for
preparation and presentation of financial forecasts, or generally accepted accounting principles.
Ernst & Young LLP, the Companys outside auditors, have not examined, compiled, or performed any
procedures with respect to this prospective financial information and do not express an opinion or
any other form of assurance with respect thereto. The summary of these projections is not being
included in this proxy statement to influence a Photon Dynamics shareholders decision whether to
vote in favor of the proposal to approve the merger agreement and the principal terms of the
merger, but because the projections represent an assessment by the Companys management of the
future cash flows that were used in Credit Suisses financial analysis and on which the Board of
Directors relied in making its recommendation to the Companys shareholders.
There can be no assurance that the projections will be realized, and actual results may vary
materially from those shown. The assumptions upon which the projected financial information was
based necessarily involve judgments with respect to, among other things, future economic and
competitive conditions and financial market conditions, which are difficult to predict accurately
and many of which are beyond the Companys control. Important factors that may affect actual
results and result in the projected results not being achieved include, but are not limited to, the
risks described in the Companys most recent annual and quarterly reports filed with the SEC on
Forms 10-K and 10-Q, respectively, and in this Proxy Statement under the heading Cautionary
Statement Concerning Forward-Looking Information.
The inclusion of the projections in this Proxy Statement should not be regarded as an
indication that the Company or any of its affiliates, advisors or representatives considered or
consider the projections to be predictive of actual future events, and the projections should not
be relied upon as such. None of the Company or any of its affiliates, advisors, officers, directors
or representatives can give any assurance that actual results will not differ from these
projections, and none of them undertakes any obligation to update or otherwise revise or reconcile
the projections to reflect circumstances existing after the date such projections were generated or
to reflect the occurrence of future events even in the event that any or all of the assumptions
underlying the projections are shown to be in error. The Company does not intend to make publicly
available any update or other revision to the projections, except as required by law. None of the
Company or any of its affiliates, advisors, officers, directors or representatives has made or
makes any representation to any shareholder or other person regarding the ultimate performance of
the Company compared to the information contained in the projections or that forecasted results
will be achieved. The Company has made no representation to Orbotech, in the merger agreement or
otherwise, concerning the projections.
Photon Dynamics shareholders are cautioned not to place undue reliance on the projected
financial information included in this proxy statement.
PROJECTED FINANCIAL INFORMATION
(in millions)
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Calendar Period
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2H-CY 2008
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CY 2009
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CY 2010
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CY 2011
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CY 2012
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Total Revenue
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$
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114
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$
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172
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$
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130
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$
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152
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$
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183
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EBIT
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$
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18
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$
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26
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$
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4
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$
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14
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$
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26
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Net Operating Profit after Tax
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$
|
17
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$
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23
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$
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4
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$
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12
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$
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24
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Unlevered Free Cash Flow
(1)
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$
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29
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$
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20
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$
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2
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$
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13
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$
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23
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(1)
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Calculated as net operating profit after tax, plus depreciation and amortization,
less capital expenditures, and less increase in working capital.
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31
Financing
The Company and Orbotech estimate that the total amount of funds necessary to pay the merger
consideration is $278 million. Orbotech expects to finance the acquisition from its own financial
resources, from the Companys cash and short-term investments balance of approximately $63.7
million as of March 31, 2008, and by way of debt financing from one or more Israeli banks.
Orbotech has received a commitment letter and agreed to the terms of a financing agreement with
Israel Discount Bank Ltd. (the lender) pursuant to which the lender has agreed, on the terms and
subject to the conditions in the financing agreement, to provide up
to $185 million in debt
financing for the acquisition of the Company (the debt financing).
The obligation of the lender to provide the debt financing on the terms contained in the
financing agreement is subject to the following conditions:
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the lender having been provided with a legal opinion, in the form annexed to the
financing agreement, signed by counsel to Orbotech;
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the merger agreement being in full force and effect and Orbotech having complied
with all its undertakings in accordance with the terms of the merger agreement;
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Orbotechs rights under the merger agreement being free from any lien or claim;
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Orbotech having received prior to the closing all authorizations, grants and
permits required to acquire and own the Company; and
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Orbotech having not signed any additional financing or loan agreement with
respect to the merger, other than with another Israeli bank.
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The debt financing may be utilized by Orbotech at any time on or prior to December 31, 2008.
Material U.S. Federal Income Tax Consequences
The following are the material U.S. federal income tax consequences to holders of the
Companys common stock whose shares are converted to cash in the merger. This discussion does not
address the consequences of the merger under the tax laws of any state, local or foreign
jurisdiction and does not address tax considerations applicable to holders of stock options,
restricted stock, restricted stock units or to holders who receive cash pursuant to the exercise of
appraisal rights. In addition, this discussion does not describe all of the tax consequences that
may be relevant to particular classes of taxpayers, including persons who are not citizens or
residents of the United States, who acquired their shares of the Companys common stock through the
exercise of an employee stock option or otherwise as compensation, who hold their shares as part of
a hedge, straddle or conversion transaction, whose shares are not held as a capital asset for tax
purposes or who are otherwise subject to special tax treatment under the Code.
This discussion is based on the Code, administrative pronouncements, judicial decisions and
final, temporary and proposed Treasury Regulations, all as currently in effect. These laws are
subject to change, possibly on a retroactive basis. Any such change could alter the tax
consequences to you as described herein.
The receipt of cash for the Companys common stock pursuant to the merger will be a taxable
transaction for U.S. federal income tax purposes. In general, if you receive cash in exchange for
your shares of the Companys common stock pursuant to the merger, you will recognize capital gain
or loss equal to the difference, if any, between the cash received and your tax basis in the shares
exchanged in the merger. Gain or loss will be determined separately for each block of your shares
(i.e., shares acquired at the same cost in a single transaction). Such gain or loss will be
long-term capital gain or loss if your holding period for such shares is more than one year at the
time of the consummation of the merger.
You may be subject to backup withholding at a 28% rate on the receipt of cash pursuant to the
merger. In general, backup withholding will only apply if you fail to furnish a correct taxpayer
identification number, or otherwise fail to comply with applicable backup withholding rules and
certification requirements. Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules will be allowable as a refund or credit against your U.S.
federal income tax liability provided you timely furnish the required information to the Internal
Revenue Service.
32
The U.S. federal income tax discussion set forth above is included for general information only and
is based upon present law. Due to the individual nature of tax consequences, you are urged to
consult your tax
advisors as to the specific tax consequences to you of the merger, including the effects of
applicable foreign, state, local and other tax laws.
Required Antitrust Approvals
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, amended (the HSR Act),
and the rules promulgated thereunder, Orbotech and the Company cannot complete the merger until
they notify and furnish information to the Federal Trade Commission and the Antitrust Division of
the U.S. Department of Justice, and specified waiting period requirements are satisfied. Orbotech
and the Company expect to file notification and report forms under the HSR Act with the Federal Trade
Commission and the Antitrust Division no later than July 16, 2008, as a
result of which
the waiting period would be expected to expire by August 15, 2008, unless otherwise terminated or extended by the antitrust
agencies.
The Company and Orbotech will also make foreign antitrust filings pursuant to the Monopoly
Regulation and Fair Trade Act of South Korea, the Fair Trade Act of Taiwan, the Act Concerning
Prohibition of Private Monopolization and Maintenance of Fair Trade (Law No. 54 of 1947) of Japan
and, as applicable, the Regulation of the Merger and Acquisition of Domestic Enterprises by Foreign
Investors of the Peoples Republic of China and the Anti-Monopoly Law of the Peoples Republic of
China. The merger agreement further provides that it is a condition to each partys obligation to
consummate the merger that any other consents, approvals and filings under any other foreign
antitrust law shall have been received, the absence of which would prohibit the consummation of the
merger and is reasonably expected to have a material adverse effect on Orbotech or the Company.
While the Company has no reason to believe it will not be possible to obtain these regulatory
approvals in a timely manner and without the imposition of burdensome conditions, there is no
certainty that these approvals will be obtained within the period of time contemplated by the
merger agreement or on conditions that would not be detrimental. For example, at any time before
or after completion of the merger, the U.S. Federal Trade Commission or the Antitrust Division
could take such action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the consummation of the merger or seeking divestiture of
substantial assets of Orbotech or the Company. Private parties may also bring actions under the
antitrust laws under certain circumstances.
Under the merger agreement, both the Company and Orbotech have each agreed to use all
reasonable efforts to take or cause to be taken all actions to obtain all regulatory and
governmental approvals necessary to complete the merger. Notwithstanding that agreement, with
respect to antitrust and competition law matters, the merger agreement does not require Orbotech to
agree to dispose of any assets or limit its freedom of action with respect to any of its or the
Companys businesses, except for actions that (i) have not had and are not reasonably expected to
have a material adverse effect on either Orbotech or the Company or (ii) involve the disposition
of, an agreement to hold separate or other restrictions or limitations with respect to a portion of
the flat panel display business of Orbotech or the Company that is immaterial.
Required Exon-Florio/CFIUS Clearance and ITAR Filing
s
The Companys Salvador subsidiary is engaged in the development and manufacture of
high-performance digital cameras that are used in defense applications. The Exon-Florio Amendment
to the Defense Production Act of 1950 (Exon-Florio) empowers the President of the United States
to prohibit or suspend an acquisition of, or investment in, a U.S. business by a foreign person
if the President, after investigation, finds credible evidence that the foreign person might take
action that threatens to impair the national security of the United States and that other
provisions of existing law do not provide adequate and appropriate authority to protect national
security. The Committee on Foreign Investment in the United States (CFIUS), an interagency
committee chaired by the U.S. Department of the Treasury, is authorized to receive notices of
proposed transactions, conduct reviews, determine whether an investigation is warranted, conduct
investigations and submit recommendations to the President to suspend or prohibit pending
transactions or to require divestitures in the case of completed transactions. CFIUS is also
authorized to negotiate and enter into agreements or impose conditions to mitigate national
security threats identified during the review or investigation.
33
Parties to a transaction may, but are not required to, submit a voluntary notice of the
transaction to CFIUS. Orbotech and the Company expect to submit such a
notice to CFIUS no later than July 25,
2008. CFIUS has 30 calendar days from the date it accepts the voluntary notice to review the
transaction and decide whether to initiate a formal investigation. If CFIUS declines to
investigate, it sends a letter to the parties stating that it has determined that there are no
issues of national security sufficient to warrant an investigation and the clearance process is at
an end. If CFIUS decides to investigate, it has 45 calendar days to complete its investigation.
Upon completion of an investigation, CFIUS is required to send a report to the President if it
recommends that he prohibit or suspend the transaction or if it is unable to reach a decision on
whether to recommend prohibition or suspension of the transaction. If CFIUS refers the matter to
the President, he must decide within 15 calendar days whether to block the transaction. Any
decision by CFIUS to recommend that the transaction be blocked or to impose restrictions should
therefore occur no later than 75 days following acceptance of the formal notice, although on
occasion, when more time has been required, parties have withdrawn their notice and refiled,
extending the time period for review.
Although the Company and Orbotech do not believe that an investigation of, or recommendation
to block, the transaction is warranted, CFIUS and the President have considerable discretion to
conduct investigations and block transactions under Exon-Florio. The expiration or termination of
the CFIUS review process and the determination by CFIUS or the President that there are no issues
of national security sufficient to warrant investigation or block the proposed transaction are a
condition to Orbotechs obligation to consummate the merger. However, if, at any point, all other
conditions to the completion of the merger have been met other than the condition pertaining to
Exon-Florio clearance (and other than those that by their nature cannot be satisfied until at or
immediately prior to the closing), the merger agreement permits the Company to notify Orbotech that
it intends to terminate the merger agreement as a result of the failure to satisfy the Exon-Florio
closing condition. If this closing condition is not then waived by Orbotech or satisfied within
three business days following such notice, the Company is permitted to terminate the merger
agreement, upon which termination Orbotech is required to pay the Company a $9 million reverse
breakup fee. See
The Merger AgreementTermination Fees and Expenses
.
The merger agreement requires Orbotech to take or commit to the following actions to the
extent necessary to obtain clearance from CFIUS or to avoid an action or proceeding by a
governmental entity under Exon-Florio or under requirements of the National Industrial Security
Program of the Defense Security Service of the U.S. Department of Defense or the International
Traffic in Arms Regulations (ITAR) of the U.S. Department of State (collectively, the Defense
Review Laws):
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sell or arrange for the sale of Salvador within a reasonable amount of time following
the consummation of the merger;
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maintain and operate Salvador as a separate, ongoing business as a supplier of
high-performance digital cameras, which would include maintaining the books, records,
classified information and other controlled information regarding Salvadors sales and
customer information separate from Orbotech and the surviving corporations other
operations, including under a proxy arrangement or voting trust (other than to the extent
that such information is necessary for Orbotech or the Company to comply with applicable
law);
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ensure that restrictions satisfactory to the applicable governmental entities are placed
on all classified or other controlled information held by Salvador in order to prevent such
information from being communicated or delivered to Orbotech; or
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take any other action that is not reasonably expected to have a material adverse effect
on Salvador (excluding any action with respect to any business or asset of Orbotech or the
Company other than Salvador).
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The merger agreement also requires the Company to file a notification regarding the merger
with the Directorate of Defense Trade Controls of the U.S. Department of State pursuant to ITAR,
which the Company filed on July 1, 2008. ITAR controls the export of defense-related technology
pursuant to the Arms Export Control Act. The merger agreement provides that it is a condition to
Orbotechs obligation to consummate the merger that either (i) 60 days have passed since the date
of such filing or (ii) the Directorate of Defense Trade Controls has not taken or threatened to
take enforcement action against Orbotech in connection with the merger.
34
THE MERGER AGREEMENT
The following discussion sets forth the principal terms of the Agreement and Plan of Merger
and Reorganization, which is referred to as the merger agreement, a copy of which is attached as
Annex A to this Proxy Statement and is incorporated by reference herein. The rights and obligations
of the parties are governed by the express terms and conditions of the merger agreement and not by
this discussion, which is summary by nature. This discussion is not complete and is qualified in
its entirety by reference to the complete text of the merger agreement. The Company urges you to
read the merger agreement carefully in its entirety, as well as this proxy statement, before making
any decisions regarding the merger.
The representations and warranties described below and included in the merger agreement were
made by the Company and Orbotech to each other as of specific dates. The assertions embodied in
those representations and warranties were made solely for purposes of the merger agreement and may
be subject to important qualifications and limitations agreed to by the Company and Orbotech in
connection with negotiating its terms. Moreover, the representations and warranties may be subject
to a contractual standard of materiality that may be different from what may be viewed as material
to shareholders, or may have been used for the purpose of allocating risk between the Company and
Orbotech rather than establishing matters as facts. The merger agreement is described in this proxy
statement and included as Annex A only to provide you with information regarding its terms and
conditions, and not to provide any other factual information regarding the Company, Orbotech or
their respective businesses. Accordingly, you should not rely on the representations and warranties
in the merger agreement as characterizations of the actual state of facts about the Company or
Orbotech, and you should read the information provided elsewhere in this proxy statement and in the
Companys and Orbotechs filings with the SEC for information regarding the Company and Orbotech
and their respective businesses. See Where You Can Find More Information.
The Merger
Subject to the terms and conditions of the merger agreement and in accordance with California
law, merger sub, a California corporation and an indirect wholly-owned subsidiary of Orbotech, will
merge with and into the Company, and the Company will survive the merger as an indirect
wholly-owned subsidiary of Orbotech.
Closing and Effective Time of the Merger
The closing of the merger will occur on the second business day after the conditions to its
completion have been satisfied or waived, unless otherwise agreed to between the Company and
Orbotech. The merger will become effective at such time (the effective time) as the parties file
an agreement of merger and officers certificates with the Secretary of State of the State of
California in accordance with California law.
Consideration to be Received in the Merger
Common Stock.
At the effective time of the merger, each outstanding share of Photon Dynamics
common stock (other than treasury stock and shares owned by the Company, Orbotech or merger sub)
will be converted into the right to receive $15.60 in cash, without interest. For example, if you
currently own 100 shares of Photon Dynamics common stock, you would be entitled to receive (100 x
$15.60) or $1,560 in cash. As a result of this conversion, after the merger is completed, the
Companys shareholders will have only the right to receive this consideration, and will no longer
have any rights as shareholders, including voting or other rights. Shares of Photon Dynamics
common stock held as treasury stock or owned by the Company, Orbotech or merger sub will be
cancelled at the effective time of the merger.
Employee Stock Options
. At the effective time of the merger, each option to purchase shares
of Photon Dynamics common stock that is outstanding and unexercised
immediately prior to the effective
time will cease to represent a right to acquire Photon Dynamics common stock and will be assumed by
Orbotech and converted automatically into an option to purchase Orbotech ordinary shares. The
number of Orbotech ordinary shares underlying each converted option will be equal to the number of
Photon Dynamics shares underlying the Photon Dynamics option immediately prior to the effective
time multiplied by the exchange ratio, which is determined by dividing $15.60 by the average Nasdaq
closing price per share of Orbotech ordinary shares during the five trading
35
days immediately preceding the closing date, rounded down to the nearest whole share. The per
share exercise price applicable to each converted option will be equal to the quotient of such
options former aggregate exercise price with respect to Photon Dynamics common stock divided by
the number of Orbotech ordinary shares underlying the converted option, rounded up to the nearest
cent. The duration and other terms of each converted option will be the same as those of the former
Photon Dynamics option, except that all references to the Company will be deemed to be references
to Orbotech. Each holder of converted options will be credited for his or her service with the
Company or its subsidiaries for purposes of determining vesting under the converted option.
As an example, assume that the average Nasdaq closing price per share of Orbotech ordinary
shares during the five trading days immediately preceding the closing date is $12.48. In that
case, the exchange ratio would be $15.60 / $12.48, or 1.25. If an employee holds a Photon Dynamics
option for 500 shares with an exercise price of $16.00 per share immediately before closing, the
converted Orbotech option will be calculated as follows:
Number
of shares = (500 shares) * (exchange ratio) or (500 * 1.25) = 625
Exercise
price = (aggregate exercise price)/625 shares or ($16.00 * 500)/625 = $12.80
That is, immediately following the closing, the employee would have an option to purchase 625
Orbotech ordinary shares with an exercise price of $12.80 per share, with the same vesting schedule
as applied to the Photon Dynamics option. Note that the actual conversion ratio may be different
than as used in this example, depending on the actual Orbotech stock price during the five trading days
immediately preceding the closing date.
The rounding down of the number of shares underlying each converted option and the rounding up
of the per-share exercise price applicable to each converted option are intended to avoid adverse
tax consequences to the holders of Photon Dynamics stock options.
Restricted Stock Units
. At the effective time of the merger, each outstanding Photon Dynamics
restricted stock unit will be assumed by Orbotech and converted automatically into a restricted
stock unit with respect to Orbotech ordinary shares. The number of Orbotech ordinary shares
underlying each such converted restricted stock unit will be equal to the number of shares of
Photon Dynamics common stock underlying the Photon Dynamics restricted stock unit immediately prior
to the effective time multiplied by the Exchange Ratio, rounded down to the nearest whole share.
Each holder of converted restricted stock units will be credited for his or her service with the
Company or its subsidiaries for purposes of determining vesting under the converted restricted
stock units.
Employee
Stock Purchase Program.
Assuming the merger will close prior to
the expiration of the current offering period, the Company will establish an early purchase date under its
ESPP prior to the effective time of the merger with respect to then-accrued rights to purchase the
Companys common shares under the plan. The ESPP will be terminated at or prior to the effective
time of the merger.
Procedures for Exchange of Certificates
Orbotech will appoint a paying agent for the payment of the merger consideration upon
surrender of certificates and uncertificated shares of Photon Dynamics common stock. As soon as
reasonably practicable after the effective time of the merger, the paying agent will mail a letter
of transmittal to each holder of record of Photon Dynamics shares of common stock, advising such
holders of the procedure for surrendering their stock certificates and/or uncertificated shares to
the paying agent. Upon surrender to the paying agent of the applicable Photon Dynamics common
stock certificate or uncertificated shares, together with a letter of transmittal covering such
shares and such other documents as the paying agent may reasonably require, the holder of such
certificate or uncertificated share will be entitled to receive the merger consideration for each
share represented by such certificate or uncertificated share, and the certificate or
uncertificated share will be cancelled. The paying agent, the surviving corporation and Orbotech
are entitled to deduct and withhold any applicable taxes from the merger consideration that would
otherwise be payable.
After the effective time, each certificate that previously represented shares of Photon
Dynamics common stock will represent only the right to receive the applicable merger consideration
as described above under
Consideration to be Received in the Merger
. In addition, the Company
will not register any transfers of the shares of Photon Dynamics common stock after the effective
time of the merger.
36
Holders of Photon Dynamics common stock should not send in their Photon Dynamics stock
certificates until they receive and complete and submit a signed letter of transmittal sent by the
paying agent with instructions for the surrender of Photon Dynamics stock certificates.
The Company and Orbotech are not liable to holders of shares of Photon Dynamics common stock
for any amount delivered to a public official under applicable abandoned property, escheat or
similar laws.
Representations and Warranties
The merger agreement contains a number of representations and warranties made by Orbotech and
the Company to each other. The representations and warranties are subject in some cases to
specified exceptions and qualifications. The parties reciprocal representations and warranties
relate to, among other things:
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organization, good standing and corporate power and authority to enter into the merger
agreement and consummate the merger;
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the approval by such partys board of directors of the merger agreement and the merger;
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documents filed with the SEC and the accuracy of information contained in those
documents;
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the absence of any violation of or conflict with such partys organizational documents,
applicable law or certain agreements as a result of entering into the merger agreement and
consummating the merger; and
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consents and approvals of governmental entities required in connection with the merger
agreement and the merger.
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In addition to the foregoing, the merger agreement contains representations and warranties
made by the Company to Orbotech, including regarding:
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capital structure and subsidiaries;
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the shareholder vote required to consummate the merger;
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financial statements and undisclosed liabilities;
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accounting and disclosure controls;
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the absence of any material adverse effect or certain other changes or events from
October 1, 2007 through June 26, 2008;
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filing of tax returns, payment of taxes and other tax matters;
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employee benefit plans and the Employee Retirement Income Security Act of 1974;
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litigation and legal proceedings;
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compliance with applicable legal requirements;
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environmental matters;
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properties and assets;
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Salvadors products and services;
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intellectual property;
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37
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certain material contracts; and
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brokers used in connection with the merger.
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In addition, the merger agreement contains representations and warranties made by Orbotech to
the Company regarding:
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the commitment that it received for the debt financing; and
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the absence of tax withholding requirements under Israeli law with respect to holders of
Photon Dynamics common stock who are not tax residents of Israel.
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Conduct of Business Pending the Merger
Under the merger agreement, the Company is required to carry on its business in the usual,
regular and ordinary in substantially the same manner as previously conducted and use all
commercially reasonable efforts to maintain and preserve its business organization, keep available
the services of its officers and employees and preserve its business relationships with customers,
suppliers, licensors, licensees, distributors and others.
In addition, the Company may not, among other things and subject to certain exceptions,
without Orbotechs consent:
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declare or pay any dividends on or make other distributions in respect of its capital
stock;
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split, combine or reclassify any of its capital stock;
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purchase, redeem or otherwise acquire any of its capital stock or other securities or
any rights, warrants or options to acquire any of its capital stock or other securities;
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issue, deliver, sell, grant or pledge any shares of its capital stock or other voting
securities, or securities convertible into or exchangeable for such stock or securities,
subject to certain exceptions for the exercise of Photon Dynamics stock options and rights
under the ESPP and the vesting of restricted stock units outstanding as of the date of the
merger agreement and for certain restricted stock units granted to new hires;
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amend its charter or bylaws;
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acquire any business or material assets other than as part of purchases of inventory or
raw materials in the ordinary course of business consistent with past practices or
permitted capital expenditures;
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enter into any joint ventures, strategic partnerships, strategic alliances or
arrangements that restrict its ability to compete or sell products and services;
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except as required by law or pursuant to existing benefit
plans or agreements, (a) enter into, amend
or terminate any collective bargaining or employee benefit plan or agreement, (b) increase
the compensation, bonus or benefits of any director, officer, employee, contractor or
consultant, or pay bonuses to any such persons, other than in the ordinary course of
business consistent with past practice to employees who are not executive officers, in
connection with promotions of such employees, (c) pay any benefit not required by any
existing employee benefit plan or agreement, other than in the ordinary course of business
consistent with past practice to employees who are not executive officers, (d) grant, pay
or increase any severance pay, (e) grant awards under any bonus or compensation plan, (f)
amend or modify any stock option or restricted stock unit, (g) take any action to fund or
otherwise secure the payment of compensation or benefits under any employee benefit plan or
agreement, (h) accelerate the vesting or payment of any employee
compensation or benefits or (i) materially change any actuarial assumption used to calculate
funding obligations with respect to any pension plan;
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38
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make any changes in accounting methods, principles or practices, except as required by a
change in generally accepted accounting principles;
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sell, lease or otherwise dispose of or subject to liens any material properties or
assets, except sales of inventory in the ordinary course of business consistent with past
practice;
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incur any indebtedness for borrowed money, except for certain short-term borrowings of
less than $500,000 incurred in the ordinary course of business consistent with past
practice;
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issue debt securities or rights to acquire debt securities;
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guarantee any indebtedness or other obligations of any person, or enter into any keep
well or similar arrangement;
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make any loans, advances or capital contributions to any person or entity other than
wholly-owned subsidiaries, or make loans, advances or capital contributions to Salvador or
any of its subsidiaries in excess of $400,000 per month;
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make any capital expenditures in excess of $100,000 with respect to Salvador and its
subsidiaries, or in excess of $500,000 per fiscal quarter with respect to the rest of the
Company;
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make or change any material tax election, settle or compromise any material tax
liability or refund or change any material method of accounting for tax purposes or file
any materially amended tax return;
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settle any litigation, other than in the ordinary course of business consistent with
past practice in accordance with disclosures in filed SEC documents, or other than
litigation incurred after the filing of the SEC documents in the ordinary course of
business consistent with past practice;
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cancel any material indebtedness or waive any claims of substantial value;
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waive, modify, terminate, release, or fail to enforce any confidentiality, standstill,
or similar agreement to which the Company or its subsidiaries are parties or beneficiaries,
except as described below in
No Solicitation; Changes in Recommendation
;
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amend or terminate any material contract other than in the ordinary course of business
consistent with past practice;
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enter into, modify, amend or terminate any contract relating to LT Solar or any material
contract relating to Salvador;
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take any action the purpose of which is to materially impair the Companys ability to
perform its obligations under the merger agreement or to materially impede the consummation
of the merger;
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transfer or license any material intellectual property rights other than on a
non-exclusive basis in the ordinary course of business consistent with past practice;
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form, establish or acquire any subsidiary; or
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authorize or agree to take any of the foregoing actions.
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39
Reasonable Efforts; Other Agreements
Reasonable Efforts
. Orbotech and the Company have each agreed to use all reasonable efforts to
take all actions necessary or advisable to consummate the merger as quickly as possible, including
efforts needed to obtain all necessary regulatory and governmental approvals.
Notwithstanding the parties all reasonable efforts obligation, with respect to antitrust
and competition law matters, the merger agreement does not require Orbotech to agree to dispose of
any assets or limit its freedom of action with respect to any of its or the Companys businesses,
except for actions that (i) have not had and are not reasonably expected to have a material adverse
effect on either Orbotech or the Company or (ii) involve the disposition of, an agreement to hold
separate or other restrictions or limitations with respect to a portion of the flat panel display
business of Orbotech or the Company that is immaterial.
In addition to filings with antitrust and competition law authorities, the merger agreement
provides that the parties will submit a joint voluntary notice regarding the merger to CFIUS, which
Orbotech and the Company expect to submit no later than July 25, 2008. To the extent necessary to obtain
clearance from CFIUS or to avoid an action or proceeding by a governmental entity under Defense
Review Laws, the merger agreement requires Orbotech to:
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sell or arrange for the sale of Salvador within a reasonable amount of time following
the consummation of the merger;
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maintain and operate Salvador as a separate, ongoing business as a supplier of
high-performance digital cameras, which would include maintaining the books, records,
classified information and other controlled information regarding Salvadors sales and
customer information separate from Orbotech and the surviving corporations other
operations, including under a proxy arrangement or voting trust (other than to the extent
that such information is necessary for Orbotech or the Company to comply with applicable
Law);
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ensure that restrictions satisfactory to the applicable governmental entities are placed
on all classified or other controlled information held by Salvador in order to prevent such
information from being communicated or delivered to Orbotech; or
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take any other action that is not reasonably expected to have a material adverse effect
on Salvador (excluding any action with respect to any business or asset of Orbotech or the
Company other than Salvador).
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Proxy Statement; Shareholders Meeting
. The Company has agreed to prepare and file with the
SEC this proxy statement, to use its reasonable efforts to resolve any SEC comments relating to
this proxy statement and to cause this proxy statement to be mailed to its shareholders as promptly
as practicable, but in any event no later than two weeks after resolution of any comments by the
SEC. The merger agreement also provides that the Company will hold the special meeting as promptly
as practicable and will include in this proxy statement its Board of Directors recommendation that
its shareholders vote in favor of the approval of the merger agreement and the principal terms of
the merger, unless such recommendation has been withdrawn or modified.
Other Agreements
. The merger agreement contains certain other agreements, including agreements
relating to access to information and cooperation between Orbotech and the Company during the
pre-closing period, public announcements and certain tax matters.
Financing
Although the merger agreement does not contain any financing-related closing condition,
Orbotech expects to fund the payment of the merger consideration through a combination of its and
Companys existing cash and debt financing from external sources. Orbotech has obtained a written
commitment (referred to in this proxy statement as the commitment letter) from the lender to
provide up to $185 million in debt financing in connection with the merger and the other
transactions contemplated by the merger agreement. Orbotech has
agreed to the terms of a financing
agreement with the lender. See
The MergerFinancing
.
The merger agreement requires that Orbotech will use its best efforts to satisfy the
conditions applicable to it in the commitment letter and the financing agreement and to consummate
the debt financing no later than the
outside date. The merger agreement also requires Orbotech to keep the Company informed on a
reasonably current basis in reasonable detail of the status of its efforts to arrange for the debt
financing and not to permit any material amendment or modification to be made to, or any waiver of
any material provisions or remedy under, the commitment letter without first consulting with the
Company or, if such amendment would reasonably be expected
40
to prevent, delay or hinder the consummation of the merger, obtaining the Companys consent.
In the event that any portion of the debt financing becomes unavailable on the terms and conditions
contemplated in the commitment letter or financing agreement, the merger agreement requires
Orbotech to use its best efforts to obtain any such unavailable portion from alternative sources on
comparable or more favorable terms as promptly as practicable following the occurrence of such
event but in any event no later than the outside date.
The Company has agreed to provide Orbotech with all reasonable cooperation in connection with
the debt financing, including with respect to the provision of information, the preparation of
agreements and other documentation required in connection with the debt financing and the
attendance and participation in meetings.
Conditions to Completion of the Merger
Each partys obligation to effect the merger is subject to the satisfaction or waiver of
various conditions, which include the following:
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the receipt of approval by the Companys shareholders;
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the expiration or termination of the waiting period under U.S. antitrust laws, the
receipt of any consents or approvals required under the competition laws of South Korea,
Taiwan, Japan and China, and the receipt of any other consents or approvals under foreign
antitrust law the absence of which would prohibit the consummation of the merger and
reasonably be expected to have a material adverse effect on Orbotech or the Company;
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the receipt of any other governmental approvals necessary for the consummation of the
merger; and
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the absence of any injunctions or legal prohibitions preventing the consummation of the
merger.
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Orbotechs obligation to complete the merger is subject to the satisfaction or waiver of
additional conditions, which include the following:
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the accuracy of the Companys representations and warranties in the merger agreement,
except to the extent that any inaccuracies have not had and are not reasonably expected to
have a material adverse effect on the Company;
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the Company having performed its obligations under the merger agreement in all material
respects;
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the delivery to Orbotech of a Photon Dynamics officers certificate confirming that the
conditions described in the immediately preceding two bullets have been satisfied;
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the absence of governmental antitrust litigation seeking to prohibit, limit or restrain
the merger or Orbotechs ownership of the Company following the closing, or that would
otherwise be reasonably likely to have a material adverse effect on the Company;
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the expiration or termination of the CFIUS review process;
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the absence of a material adverse effect on the Company;
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the Company having filed notification and report forms regarding the merger with the
Office of Defense Trade Controls pursuant to ITAR, with either (i) 60 days having passed
since the date of such filing or (ii) the Office of Defense Controls having not taken or
threatened to take enforcement action against Orbotech in connection with the merger;
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Orbotech having received the resignations of all Photon Dynamics directors; and
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demands for appraisal not having been filed with respect to 10% or more of the Companys
outstanding common stock.
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41
The merger agreement provides that certain of the conditions described above may be waived.
Neither Orbotech nor the Company currently expects to waive any material condition to the
completion of the merger. The approval of the Companys shareholders is not required for any waiver
by the Company.
A material adverse effect is defined generally in the merger agreement to mean a material
adverse effect on the business, assets, condition (financial or otherwise) or results of operations
of the relevant party and its subsidiaries, taken as a whole.
A material adverse effect with respect to the Company is more specifically defined in the
merger agreement to mean (a) a material adverse effect on the Company and its subsidiaries, taken
as a whole, or (b) a material adverse effect on the ability of the Company to perform its
obligations under the merger agreement within a reasonable period of time or to consummate the
merger and the other transactions contemplated by the merger agreement within a reasonable period
of time; provided, however, that for purposes of the merger agreements closing conditions, none of
the following occurring after the date of signing of the merger agreement are deemed either alone
or in combination to constitute, and none of the following will be taken into account in
determining whether there has been or is reasonably expected to be, a material adverse effect under
clause (a) above:
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any adverse effect arising from or otherwise relating to (A) the announcement, pendency
or consummation of the merger and the other transactions contemplated by the merger
agreement; (B) general economic, business, financial or market conditions in any of the
jurisdictions or regions in which the Company or any of its subsidiaries conducts business,
to the extent that such conditions do not have a disproportionate effect on the Company or
any of its subsidiaries or (C) any condition or event that generally affects any of the
industries or industry sectors in which the Company or any of its subsidiaries operates, to
the extent that such condition or event does not have a disproportionate effect on the
Company or any of its subsidiaries;
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any adverse effect arising from or otherwise relating to fluctuations in the value of
any currency;
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any adverse effect arising from or otherwise relating to any act of terrorism or war,
any regional, national or international calamity, natural disaster or any other similar
event, to the extent that such event does not result in material damage to any of the
assets or facilities of the Company or any of its subsidiaries (with such materiality
measured in reference to the Company and its subsidiaries taken as a whole);
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any adverse effect arising from any changes (after the date of the merger agreement) in
GAAP;
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any adverse effect arising from the taking of any action that is expressly required by
the merger agreement, excluding actions (including non-actions) required to be taken or not
to be taken pursuant to the Companys covenants regarding the conduct of its business
pending the completion of the merger;
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in and of itself, any failure of the Company to meet internal or analysts expectations
or projections, excluding the events giving rise to such failure; or
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in and of itself, any decline in the Companys stock price, excluding the events giving
rise to such decline.
|
A material adverse effect with respect to Orbotech is more specifically defined in the
merger agreement to mean a material adverse effect on the ability of Orbotech or merger sub to
perform its obligations under the merger agreement within a reasonable period of time or a material
adverse effect on the ability of Orbotech or merger sub to consummate the merger and the other
transactions contemplated by the merger agreement within a reasonable period of time.
No Solicitation; Changes in Recommendations
In the merger agreement the Company has agreed that its Board will recommend that the
Companys shareholders approve the merger agreement and the principal terms of the merger and that
it will not:
42
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directly or indirectly solicit, initiate or encourage the submission of any company
takeover proposal, as described below;
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enter into any agreement with respect to any company takeover proposal;
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directly or indirectly participate in any discussions or negotiations regarding, or
furnish to any person any non-public information in connection with, or participate in, any
competing proposal or the making of any proposal that may reasonably be expected to lead to
any competing proposal;
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withdraw or modify in a manner adverse to Orbotech or merger sub its recommendation to
the Companys shareholders, or propose to do so;
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approve any letter of intent, agreement in principle, acquisition agreement or similar
agreement relating to any company takeover proposal; or
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approve or recommend, or publicly propose to approve or recommend, any company takeover
proposal.
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However, at any time before the date that the vote required to be obtained from its
shareholders in connection with the merger has been obtained, the Company and its Board of
Directors may, to the extent required by the Boards fiduciary obligations:
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in response to a superior proposal (as defined below) or a company takeover proposal
that the Board of Directors, as determined in good faith after consultation with outside
counsel, reasonably believes may lead to a superior proposal and that in either case was
not solicited by the Company and did not otherwise result from a breach of the relevant
provisions of the merger agreement, (i) furnish information relating to the Company to the
person making such proposal pursuant to a confidentiality agreement that is not less
restrictive of the other party than the Companys confidentiality agreement with Orbotech
(other than with respect to standstill provisions) and (ii) participate in discussions with
such person and its representatives regarding any such proposal.
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waive standstill provisions in effect with a third party whose identity has been
disclosed to Orbotech in response to an unsolicited request from such third party for such
a waiver, provided that such third party has either made a superior proposal or expressed
an intention to make a company takeover proposal that the Board of Directors determines is
reasonably likely to result in a superior proposal and the waiver is limited to making a
company takeover proposal; or
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withdraw or modify its recommendation that the Companys shareholders vote to approve
the merger agreement and the principal terms of the merger.
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The terms company takeover proposal and competing proposal mean (i) any proposal or offer
for a merger, consolidation, dissolution, recapitalization or other business combination involving
the Company, (ii) any proposal for the issuance by the Company of over 20% of its equity securities
as consideration for the assets or securities of another entity or person or (iii) any proposal or
offer to acquire in any manner, directly or indirectly, over 20% of the equity securities or
consolidated total assets of the Company, in each case other than the merger.
The term superior proposal means any proposal made by a third party to acquire substantially
all the equity securities or assets of the Company, pursuant to a tender or exchange offer, a
merger, a consolidation, a liquidation or dissolution, a recapitalization, a sale of all or
substantially all its assets or otherwise, (i) on terms which the Board of Directors determines in
good faith to be more favorable to the holders of Photon Dynamics common stock than the merger and
the other transactions contemplated by the merger agreement, taking into account all the terms and
conditions of such proposal and the merger agreement (including any proposal by Orbotech to amend
the terms of the merger and the merger agreement) and (ii) that is reasonably capable of being
completed, taking into account all financial, regulatory, legal and other aspects of such proposal.
43
The merger agreement also provides that the Company must notify Orbotech of any company
takeover proposal received by the Company or any inquiry with respect to a company takeover
proposal. The Company must keep Orbotech fully informed of the status of any such company takeover
proposal or inquiry and provide to Orbotech any non-public information relating to the Company that
has not already been provided to Orbotech.
Termination of the Merger Agreement
Generally, the merger agreement may be terminated and the merger may be abandoned at any time
prior to its completion:
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by mutual written consent of Orbotech, merger sub and the Company;
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by either the Company or Orbotech, if:
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the merger has not been completed by December 26, 2008; except that
this right is not available to any party whose material breach of the merger
agreement has resulted in the failure to complete the merger by this date; and
provided that this date may be extended to March 26, 2009 if any antitrust,
governmental or regulatory approvals have not been received;
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a governmental entity issues an order, decree or ruling or takes any
other nonappealable final action permanently enjoining, restraining or otherwise
prohibiting the merger; or
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the required Photon Dynamics shareholder vote has not been obtained at
the special meeting or any postponement or adjournment thereof;
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the Company breaches or materially fails to perform any of its
representations, warranties or covenants contained in the merger agreement, which
breach would result in the failure of the related Orbotech closing condition and
cannot be or has not been cured after 30 days notice;
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the Companys Board of Directors changes its recommendation regarding
the merger agreement and the merger, or publicly proposes to approve or recommend a
competing proposal; or
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following the public announcement of a competing proposal, the
Companys Board of Directors fails to reaffirm its recommendation and reject the
competing proposal;
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o
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if Orbotech materially breaches or fails to perform any of its
covenants contained in the merger agreement, which breach cannot be or has not been
cured after 30 days notice;
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to accept a proposal from a third party to acquire the Company on terms
that the Companys Board of Directors determines to be superior to the terms of the
merger, if the Company provides Orbotech a three business day matching right and
pays the applicable termination fee (as described below); or
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if CFIUS clearance has not been obtained and all other conditions to
the completion of the merger have been met, and following three business days
notice to Orbotech, Orbotech does not waive the CFIUS closing condition.
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44
Termination Fees and Expenses
The Company is required to pay Orbotech a $9,000,000 termination fee if the merger agreement
is terminated:
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by the Company to accept a superior proposal;
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by Orbotech, if the Companys Board of Directors changes its recommendation or
recommends a competing proposal, or fails to reaffirm its recommendation following the
public announcement of a competing proposal;
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following the public announcement of a competing proposal that is not withdrawn prior to
the special meeting, if (i) such termination results from a failure to obtain the required
Photon Dynamics shareholder vote and (ii) within twelve months after such termination, the
Company enters into a definitive agreement relating to an alternative acquisition or
consummates an alternative acquisition; or
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following the receipt by the Company of a competing proposal that is not withdrawn on or
prior to the outside date, if (i) the required Photon Dynamics shareholder vote is not
obtained and (ii) within twelve months after such termination, the Company enters into a
definitive agreement relating to an alternative acquisition or consummates an alternative
acquisition.
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In addition to the termination fee, the Company has agreed to reimburse up to $2,000,000 of
Orbotechs reasonable out-of-pocket expenses if the merger agreement is terminated:
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as a result of the failure to obtain the required Photon Dynamics shareholder vote; or
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as a result of the Companys breach or material failure to perform any of its
representations, warranties or covenants contained in the merger agreement,
|
provided, however, that in the event that the Company pays the $9,000,000 termination fee to
Orbotech, it will not be required to also reimburse its expenses.
Orbotech has agreed to pay the Company a termination fee of $9,000,000 if the merger agreement
is terminated because CFIUS clearance has not been obtained and all other conditions to the
completion of the merger have been met, and following three business days notice to Orbotech,
Orbotech does not waive the CFIUS closing condition.
Except as described above, all costs and expenses incurred in connection with the merger
agreement and the transactions contemplated by the merger agreement other than those incurred in
connection with the filing, printing and mailing of this proxy statement will be paid by the party
incurring those costs or expenses. The Company has agreed to bear expenses incurred in connection
with filing, printing and mailing this proxy statement.
Effect of Termination
If
the merger agreement is terminated as described in
Termination of the Merger Agreement
above, the merger
agreement will be void, and there will be no liability or obligation of any party except that:
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each party will remain liable for any willful and material breach of its
representations, warranties, covenants, or agreements in the merger agreement, except that
in the event that one of the parties pays a termination fee to the other party, such fee
will constitute the exclusive remedy for breach of the merger agreement or other claims
relating to the merger; and
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certain provisions of the merger agreement, including the provisions relating to the
allocation of fees and expenses (including, if applicable, the termination fees described
below), will survive termination.
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Employee Matters
The merger agreement provides that, for a period of one year after the effective time,
Orbotech will provide employee benefits and base salary to non-director employees of the Company
and its subsidiaries that, taken as a whole, are comparable in the aggregate to the employee
benefits and base salary provided to such employees immediately prior to the effective time;
provided, however, that Orbotech shall have no obligation to grant any equity compensation to such
employees and no benefit plans providing for equity compensation shall be taken into account in
determining whether employee benefits are comparable in the aggregate. The merger agreement also
45
provides that Orbotech will waive any pre-existing condition, waiting period or exclusion
limitation under any welfare benefit plan that it maintains, except to the extent that such
pre-existing condition, waiting period or exclusion limitation would have been applicable under a
comparable Company plan immediately prior to the effective time. The merger agreement further
provides that Orbotech will provide the Companys employees with
credit for their service to the Company for all purposes under the employee benefit
plans (other than pension-based plans or arrangements, or where such service credit would result in
duplicative benefits) of Orbotech or the surviving corporation.
Indemnification and Insurance
The merger agreement provides that after the effective time of the merger and to the fullest
extent permitted by law, Orbotech will cause the surviving corporation to honor all rights to
indemnification for acts or omissions prior to the effective time of the merger existing in favor
of the current or former directors or officers of the Company and its subsidiaries, as provided in
their respective articles of incorporation, by-laws and other organizational documents and
indemnification agreements with such individuals, in full force and effect in accordance with their
terms. The merger agreement also provides that, prior to the effective time of the merger, the
Company will purchase six-year tail officers and directors liability insurance policies on
terms and conditions no less favorable than the Companys existing directors and officers
liability insurance. If the Company cannot purchase these tail policies for an aggregate premium
of 150% or less of the annual premium paid by the Company for such existing insurance, the Company
will purchase as much insurance coverage as can be obtained within the 150% cap. Orbotech and the
surviving corporation are obligated to comply with their respective obligations thereunder for the
full term thereof.
Amendment; Extension and Waiver
The merger agreement may generally be amended by the parties in writing at any time. However,
after approval by the Companys shareholders of the transactions contemplated by the merger
agreement, the merger agreement may not be amended in a manner that would require further approval
by either partys shareholders unless the parties obtain such approval. In addition, no amendment
of the merger agreement by the Company may require the approval of the Companys shareholders.
Governing Law
The merger agreement is governed by and will be construed in accordance with the laws of the
State of New York, except to the extent that the laws of California are mandatorily applicable to
the merger.
46
MARKET PRICE OF THE COMPANYS COMMON STOCK
The Companys common stock is listed on the Nasdaq under the trading symbol PHTN. The
following table shows the high and low sale prices of the common stock as reported on the Nasdaq
for each quarterly period since the beginning of the Companys 2006 fiscal year:
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High
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Low
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2006 Fiscal Year
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Quarter ended December 31, 2005
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$
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19.40
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$
|
16.29
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Quarter ended March 31
|
|
$
|
23.17
|
|
|
$
|
17.22
|
|
Quarter ended June 30
|
|
$
|
20.49
|
|
|
$
|
12.29
|
|
Quarter ended September 30
|
|
$
|
13.65
|
|
|
$
|
9.80
|
|
2007 Fiscal Year
|
|
|
|
|
|
|
|
|
Quarter ended December 31, 2006
|
|
$
|
13.64
|
|
|
$
|
10.30
|
|
Quarter ended March 31
|
|
$
|
13.25
|
|
|
$
|
10.54
|
|
Quarter ended June 30
|
|
$
|
12.85
|
|
|
$
|
10.25
|
|
Quarter ended September 30
|
|
$
|
11.77
|
|
|
$
|
8.03
|
|
2008 Fiscal Year
|
|
|
|
|
|
|
|
|
Quarter ended December 31, 2007
|
|
$
|
11.32
|
|
|
$
|
7.71
|
|
Quarter ended March 31
|
|
$
|
11.35
|
|
|
$
|
7.76
|
|
Quarter ended June 30
|
|
$
|
15.28
|
|
|
$
|
9.68
|
|
Quarter ending September 30 (through July 9, 2008)
|
|
$
|
15.15
|
|
|
$
|
14.80
|
|
The closing sale price of the common stock on the Nasdaq on June 25, 2008, which was the last
trading day before the announcement of the merger, was $11.56. On , 2008, which is the latest
practicable trading day before this proxy statement was printed, the closing price for the
Companys common stock on the Nasdaq was $ .
The Company has never declared or paid cash dividends on the Companys common stock and it
does not expect to pay cash dividends on its common stock at any time in the foreseeable future.
As of July 9, 2008, there were 17,813,875 shares of the Companys common stock outstanding.
47
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of Photon Dynamics
common stock as of July 9, 2008 by: (i) each director; (ii) the chief executive officer and the
chief financial officer at the end of the Companys most recently completed fiscal year end and the
Companys three other most highly compensated executive officers who were serving as executive
officers at the end of the Companys most recently completed fiscal year (the named executive
officers); (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 five percent of its common stock.
This table is based on information supplied by executive officers, directors and principal
shareholders and Schedules 13G and Forms 13-F filed with the SEC. Unless otherwise indicated in the
footnotes to this table and subject to community property laws where applicable, the Company
believes that each of the shareholders named in this table has sole voting and investment power
with respect to the shares indicated as beneficially owned. Applicable percentages are based on
17,813,875 shares of Photon Dynamics common stock outstanding on July 9, 2008. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange Commission. In computing
the number of shares beneficially owned by a shareholder and the percentage ownership of that
shareholder, shares of common stock that may be acquired within 60 days of July 9, 2008 (whether upon
exercise of options or vesting of restricted stock units held by that shareholder) are deemed to be
outstanding (which does not include acceleration of options and RSUs that may
occur in connection with the merger as described in the section above
entitled
The MergerInterests of the
Companys Directors and Executive Officers in the Merger
). Unless otherwise indicated, the address of each of
the individuals and entities listed in this table is c/o the Company at the address on the first
page of this proxy statement.
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially
|
|
Percent of
|
Name and Address of Beneficial Owner
|
|
Owned
|
|
Class
|
Five Percent Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systematic Financial Management, LP(1a)
300 Frank W. Burr Blvd.
Glenpointe East, 7th Floor
Teaneck, NJ 07666
|
|
|
1,271,283
|
|
|
|
7.14
|
%
|
|
|
|
|
|
|
|
|
|
Renaissance Technologies Corporation, LLC(1b)
800 Third Avenue
New York, NY 10022
|
|
|
1,209,800
|
|
|
|
6.79
|
%
|
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors, Inc.(1c)
1299 Ocean Ave.
Santa Monica, CA 90401
|
|
|
1,240,225
|
|
|
|
6.96
|
%
|
|
|
|
|
|
|
|
|
|
Barclays Global Investors
45 Fremont Street
San Francisco, CA 94105
|
|
|
901,000
|
|
|
|
5.06
|
%
|
|
|
|
|
|
|
|
|
|
Glazer Capital, LLC(1d)
237 Park Avenue, Suite 900
New York, NY 10017
|
|
|
896,943
|
|
|
|
5.04
|
%
|
|
|
|
|
|
|
|
|
|
David W. Gardner(2)(3)
|
|
|
1,074,330
|
|
|
|
6.03
|
%
|
|
Directors and Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey A. Hawthorne(2)
|
|
|
287,361
|
|
|
|
1.61
|
%
|
|
|
|
|
|
|
|
|
|
Wendell T. Blonigan(2)
|
|
|
31,776
|
|
|
|
*
|
|
48
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially
|
|
Percent of
|
Name and Address of Beneficial Owner
|
|
Owned
|
|
Class
|
James P. Moniz(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Merrill(2)
|
|
|
[2,335]
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Michael W. Schradle(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Song(2)
|
|
|
86,643
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Nicholas E. Brathwaite(2)
|
|
|
833
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Terry H. Carlitz(2)
|
|
|
38,333
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Donald C. Fraser
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Kim(2)
|
|
|
833
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Malcolm J. Thompson(2)
|
|
|
78,784
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Edward Rogas Jr.(2)
|
|
|
12,083
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Curtis S. Wozniak(2)
|
|
|
38,333
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
All named executive officers and directors as a group
(13 persons)(4)
|
|
|
574,815
|
|
|
|
3.23
|
%
|
|
|
|
*
|
|
Less than one percent (5% Shareholder information, subject to change, to be determined)
|
|
(1a)
|
|
Based on a Form 13F-HR filed on May 12, 2008 reflecting share ownership as of March 31, 2008.
|
|
(1b)
|
|
Based on a Form 13F-HR filed on May 15, 2008 reflecting share ownership as of March 31, 2008.
|
|
(1c)
|
|
Based on a Form 13F-HR filed on May 5, 2008 reflecting share ownership as of March 31, 2008.
|
|
(1d)
|
|
Based on a Form 13G filed on July 7, 2007 reflecting share ownership as of July 7, 2008.
|
|
(2)
|
|
With respect to each of the following individuals, this
number includes the following number of shares
that such person had the right to acquire within 60 days after the date of this table
pursuant to outstanding stock options and RSUs: David W. Gardner, 8,000
shares; Jeffrey A. Hawthorne, 272,223 shares; Wendell T. Blonigan, 23,333 shares; Steve Song,
83,076 shares; Terry H. Carlitz, 37,500 shares; Edward Rogas Jr., 11,875 shares; Malcolm J.
Thompson, 76,701 shares; and Curtis S. Wozniak, 37,500 shares. This
number does not include acceleration of options and RSUs that may occur in connection with the merger. With respect to each of Terry H. Carlitz, Malcolm J.
Thompson and Curtis S. Wozniak, this number includes 833 shares underlying vested
RSUs.
|
|
(3)
|
|
Includes 1,066,330 shares held by the Salvador Foundation, the board of directors of which is
appointed by David W. Gardner.
|
|
(4)
|
|
Includes an aggregate of 550,208 shares which the Companys named executive officers and
directors have the right to acquire (upon exercise of options and vesting of restricted stock
units) within 60 days after the date of this table.
|
49
DISSENTERS RIGHTS OF APPRAISAL
The following is a summary of Sections 1300 through 1313 of the California General Corporation
Law, which sets forth the procedures for the Companys shareholders to dissent from the merger and
to demand statutory appraisal rights under the California General Corporation Law. This summary
does not purport to be a complete statement of the provisions of California law relating to the
rights of the Companys shareholders to an appraisal of the value of their shares and is qualified
in its entirety by reference to Sections 1300 through 1313 of the California General Corporation
Law, the full text of which is attached as Annex C hereto. Failure to follow the procedures
required by the California General Corporation Law could result in the loss of dissenters rights.
Under Sections 181 and 1201 of the California General Corporation Law, the merger constitutes
a reorganization. Chapter 13 of the California General Corporation Law provides appraisal rights
for shareholders dissenting from reorganizations in certain circumstances. Photon Dynamics common
stock is listed on the Nasdaq. Generally, there are no appraisal rights in connection with
securities listed on the Nasdaq or other national securities exchanges. Photon Dynamics common
stock shareholders will be entitled to dissent and seek appraisal for their shares of Photon
Dynamics common stock only if either of the following criteria are satisfied:
|
|
|
the Photon Dynamics common stock for which appraisal rights are sought are
subject to restrictions on transfer imposed by the Company or by any law or
regulation (for example, the shares of stock are restricted securities not
registered pursuant to the Securities Act of 1933, as amended (the Securities
Act) and are not eligible for unrestricted resale pursuant to Rule 144 of the
Securities Act) in which case only the holders of Photon Dynamics common stock that
are subject to such restrictions will have the right to dissent and seek appraisal
for such stock; or
|
|
|
|
|
holders of 5% or more of the outstanding shares of the Photon Dynamics common
stock dissent from the proposed merger and demand appraisal, in which case all
holders of Photon Dynamics common stock will have the right to dissent and seek
appraisal for such shares.
|
The Company is not aware of any transfer restrictions on its shares, except for those
restrictions that apply to some of the Photon Dynamics common stock held by shareholders who are
deemed to be affiliates of the Company as that term is defined in Rule 144 adopted by the SEC under
the Securities Act. Any shareholder who believes there is another type of restriction on its shares
and who wishes to exercise dissenters rights should consult with legal counsel as to the nature of
the restriction and its relationship to the availability of dissenters rights in connection with
the merger.
Even though a shareholder who wishes to exercise dissenters rights may take certain actions
in furtherance of those rights, if the merger agreement is later terminated and the merger is
abandoned, no shareholder of the Company will have the right to any payment from the Company by
reason of having taken such actions. The following discussion is subject to the foregoing
qualifications.
For a shareholder of the Company to exercise dissenters rights as to any shares of Photon
Dynamics common stock in connection with the merger, the shareholder must vote against the merger
and merger agreement and must make a written demand to the Company that it purchase the shares at
their fair market value.
The written demand must:
|
|
|
be made by the record holder of the shares; thus, a beneficial owner of the
Companys stock that is registered in the record ownership of another person (such
as a broker or nominee) should instruct the record holder to follow the procedures
for perfecting dissenters rights if the beneficial owner wants to dissent with
respect to any or all of those shares;
|
|
|
|
|
be mailed or otherwise directed to Photon Dynamics, Inc., 5970 Optical Court,
San Jose, California 95138-1400, Attention: Corporate Secretary;
|
|
|
|
|
be received not later than 30 days after notice of the approval of the merger is
mailed to shareholders who voted against the merger (as described below);
|
50
|
|
|
specify the shareholders name and mailing address and the number and class of
the Companys shares held of record that the shareholder demands the Company
purchase;
|
|
|
|
|
state that the shareholder is demanding purchase of the shares and payment of
their fair market value; and
|
|
|
|
|
state the price that the shareholder claims to be the fair market value of the
shares (this statement will constitute an offer by the shareholder to sell the
shares to the Company at that price).
|
In addition, within 30 days after notice of the approval of the merger is mailed to
shareholders, the shareholder must also submit to the Company or a transfer agent of the Company,
for endorsement as dissenting shares, the stock certificates representing the Companys shares as
to which the shareholder is exercising dissenters rights.
Simply failing to vote for, or voting against, the proposed merger will not be sufficient to
constitute the demand described above.
Shares of the Company held by shareholders who have perfected their dissenters rights in
accordance with Chapter 13 of the California General Corporation Law and have not withdrawn their
demands or otherwise lost their rights are referred to in this
summary as dissenting shares.
Within ten days after approval of the merger by the Companys shareholders, the Company must
mail a notice of the approval to each shareholder who voted against the merger and who could
potentially exercise dissenters rights in accordance with the California General Corporation Law.
This notice must state the price determined by the Company to represent the fair market value of
the dissenting shares. Chapter 13 of the California General Corporation Law states that the fair
market value, for this purpose, is determined as of the day before the first announcement of the
terms of the proposed merger. The day before the first announcement of the terms of the proposed
merger was June 25, 2008.
The Companys notice must also include a brief description of the procedures to be followed by
those holders if the holders desire to exercise their dissenters rights and a copy of Sections
1300 through 1304 of Chapter 13 of the California General Corporation Law. The statement of price
determined by the Company to represent the fair market value of dissenting shares, as set forth in
the notice of approval of the merger, will constitute an offer by the Company to purchase any
dissenting shares at the stated amount if the merger closes.
If the Company and a dissenting shareholder agree that the shares are dissenting shares and
agree on the price of the shares, the dissenting shareholder is entitled to receive the agreed-upon
price with interest at the legal rate on judgments from the date of that agreement. Payment for the
dissenting shares must be made within 30 days after the later of the date of that agreement or the
date on which all statutory and contractual conditions to the merger are satisfied. Payments are
also conditioned on the surrender to the Company of the certificates representing the dissenting
shares.
If the Company denies that shares are dissenting shares or the shareholder fails to agree with
the Company as to the fair market value of the shares, then, within the time period provided by
Section 1304(a) of Chapter 13 of the California General Corporation Law, any shareholder demanding
purchase of such shares as dissenting shares or any interested corporation may file a complaint in
the superior court in the proper California county requesting a determination as to whether the
shares are dissenting shares or as to the fair market value of the holders shares, or both, or may
intervene in any action pending on such a complaint.
On the trial of the action, the court will determine the status of the shares as dissenting
shares if their status is in issue. If the fair market value of the dissenting shares is in issue,
the court will determine, or appoint one or more impartial appraisers to determine, the fair market
value of the shares.
51
If the court appoints an appraiser or appraisers, they will proceed to determine the fair
market value per share. Within the time fixed by the court, the appraisers, or a majority of the
appraisers, will make and file a report in the office of the clerk of the court. Thereafter, on the
motion of any party, the report is submitted to the court and
considered on such evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
If the single appraiser or a majority of the appraisers fails to make and file a report within
10 days after the date of their appointment or within such further time as the court allows, or if
the court does not confirm the report, the court will determine the fair market value of the
dissenting shares. Subject to Section 1306 of Chapter 13 of the California General Corporation Law,
judgment is rendered against the corporation for payment of an amount equal to the fair market
value of each dissenting share multiplied by the number of dissenting shares that any dissenting
shareholder who is a party, or who has intervened, is entitled to require the corporation to
purchase, with interest at the legal rate from the date on which the judgment is entered.
The costs of the action, including reasonable compensation to the appraisers to be fixed by
the court, is assessed or apportioned as the court considers equitable. However, if the price
determined by the court is more than the price offered by the corporation, the corporation pays the
costs (including, in the discretion of the court, attorneys fees, fees of expert witnesses and
interest at the legal rate on judgments from the date the shareholder made the demand and submitted
shares for endorsement if the price determined by the court is more than 125 percent of the price
offered by the corporation).
Except as expressly limited by Chapter 13, holders of dissenting shares continue to have all
the rights and privileges incident to their shares until the fair market value of their shares is
agreed upon or determined.
A holder of dissenting shares may not withdraw a demand for payment unless the Company
consents to the withdrawal. Dissenting shares lose their status as dissenting shares, and
dissenting shareholders cease to be entitled to require the Company to purchase their shares, if:
|
|
|
the merger is abandoned;
|
|
|
|
|
the shares are transferred before their submission to the Company for the
required endorsement or surrendered for conversion into shares of another class in
accordance with the Companys articles of incorporation;
|
|
|
|
|
the dissenting shareholder and the Company do not agree on the status of the shares as dissenting shares or do not agree on the purchase price, but neither the
Company nor the shareholder files a complaint or intervenes in a pending action
within six months after the Company mails a notice that its shareholders have
approved the merger; or
|
|
|
|
|
with the Companys consent, the holder delivers to the Company a written
withdrawal of such holders demand for purchase of the shares.
|
To the extent that the provisions of Chapter 5 of the California General Corporation Law
(which places conditions on the power of a California corporation to make distributions to its
shareholders) prevent the payment to any holders of dissenting shares of the fair market value of
the dissenting shares, the dissenting shareholders will become creditors of the Company for the
amount that they otherwise would have received in the repurchase of their dissenting shares, plus
interest at the legal rate on judgments until the date of payment, but subordinate to all other
creditors of the Company in any liquidation proceeding, with the debt to be payable when
permissible under the provisions of Chapter 5 of the California General Corporation Law.
For U.S. federal income tax purposes, the Companys shareholders who receive cash for their
shares of the Companys stock pursuant to the exercise of appraisal rights will generally recognize
taxable gain or loss. Each holder should consult its own tax advisor as to the particular tax
consequences of the exercise of appraisal rights to such holder.
52
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR 2009 ANNUAL MEETING
If the merger is completed, there will be no public shareholders of the Company and no public
participation in any future meetings of the Companys shareholders. However, if the merger is not
completed, the Company will hold a 2009 annual meeting of shareholders. In that event, in order to
be considered for inclusion in the proxy statement and related proxy card for the Companys 2009
annual meeting, shareholder proposals must be submitted in writing by September 27, 2008, to the
Companys Secretary at 5970 Optical Court, San Jose, California 95138. However, if the Companys
2009 Annual Meeting of Shareholders is not held between January 12, 2009 and March 13, 2009, then
the deadline will be a reasonable time prior to the time the Company begins to print and mail its
proxy materials. The proposal notice must also have been in accordance with the requirements set
forth in Section 10.2.2 of the Companys amended and restated bylaws.
If a shareholder wishes to submit a proposal or nominate a director at the Companys 2009
Annual Meeting of Shareholders, but is not requesting that its proposal or nomination be included
in next years proxy materials, then such shareholder must provide specified information to the
Company between October 14, 2008 and November 13, 2008. However, if the Companys 2009 Annual
Meeting of Shareholders is not held between January 12, 2009 and March 13, 2009, then the deadline
will be the later of (a) the 90th day prior to the 2009 Annual Meeting of Shareholders and (b) the
10th day following the day on which the Company publicly announces the date of such meeting. If a
shareholder wishes to submit such a proposal or nominate a director at the Companys 2009 Annual
Meeting of Shareholders, such shareholder should review the Companys bylaws, which contain a
description of the information required to be submitted as well as additional requirements about
advance notice of shareholder proposals and director nominations.
If a shareholder wishes to bring a matter before the shareholders at next years Annual
Meeting and does not notify the Company before November 23, 2008, the Companys management will
have discretionary authority to vote all shares for which it has proxies in opposition to the
matter. However, if the Companys 2009 Annual Meeting of Shareholders is not held between
January 12, 2009 and March 13, 2009, then the deadline will be a reasonable time prior to the time
the Company mails its proxy materials.
53
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy this information at the following location of the
SEC:
Public Reference Room
Room 1580
100 F Street, N.E.
Washington, D.C. 20549
Please call the SEC at 1-800-732-0330 for further information on the public reference room.
You may also obtain copies of this information by mail from the Public Reference Section of the
SEC, Room 1580, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. The Companys
public filings are also available to the public from document retrieval services and the website
maintained by the SEC at
http://www.sec.gov
. The Companys annual, quarterly and current reports
are not incorporated by reference in this proxy statement or delivered with it, but are available,
without exhibits, to any person, including any beneficial owner of Photon Dynamics common stock, to
whom this proxy statement is delivered, without charge, upon request directed to the Company at
Photon Dynamics, Inc., 5970 Optical Court, San Jose, California 95138, Attention: Investor
Relations, with a copy to the attention of the Companys General Counsel, by calling (408) 360-3561
or by emailing
investor@photondynamics.com
.
You should rely only on the information contained in this proxy statement. No persons have
been authorized to give any information or to make any representations other than those contained,
or incorporated by reference, in this proxy statement and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company or any other
person. The Company has supplied all information contained in this proxy statement relating to the
Company and its affiliates. Orbotech has supplied all information contained in this proxy
statement relating to Orbotech, merger sub and their affiliates, and the debt financing that
Orbotech expects to use to fund a portion of the merger consideration.
54
ANNEX A
MERGER AGREEMENT
The representations and warranties included in the merger agreement were made by the Company
and Orbotech to each other as of specific dates. The assertions embodied in those representations
and warranties were made solely for purposes of the merger agreement and may be subject to
important qualifications and limitations agreed to by the Company and Orbotech in connection with
negotiating its terms. Moreover, the representations and warranties may be subject to a contractual
standard of materiality that may be different from what may be viewed as material to shareholders,
or may have been used for the purpose of allocating risk between the Company and Orbotech rather
than establishing matters as facts. The merger agreement is included in this Annex A only to
provide you with information regarding its terms and conditions, and not to provide any other
factual information regarding the Company, Orbotech or their respective businesses. Accordingly,
you should not rely on the representations and warranties in the merger agreement as
characterizations of the actual state of facts about the Company or Orbotech, and you should read
the information provided elsewhere in this proxy statement and in the Companys and Orbotechs
filings with the SEC for information regarding the Company and Orbotech and their respective
businesses.
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
Dated as of June 26, 2008
Among
ORBOTECH LTD.,
PDI ACQUISITION, INC.
And
PHOTON DYNAMICS, INC.
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
ARTICLE I
|
|
|
|
|
|
The Merger
|
|
|
|
|
|
SECTION 1.01. The Merger
|
|
|
A-1
|
|
SECTION 1.02. Closing
|
|
|
A-1
|
|
SECTION 1.03. Effective Time
|
|
|
A-2
|
|
SECTION 1.04. Effects
|
|
|
A-2
|
|
SECTION 1.05. Articles of Incorporation and By-laws
|
|
|
A-2
|
|
SECTION 1.06. Directors
|
|
|
A-2
|
|
SECTION 1.07. Officers
|
|
|
A-2
|
|
|
|
|
|
|
ARTICLE II
|
|
|
|
|
|
Effect on the Capital Stock of the Constituent Corporations; Exchange of Certificates
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SECTION 2.01. Effect on Capital Stock
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SECTION 2.02. Exchange of Certificates
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ARTICLE III
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Representations and Warranties of the Company
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SECTION 3.01. Organization, Standing and Power
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SECTION 3.02. Company Subsidiaries; Equity Interests
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SECTION 3.03. Capital Structure
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SECTION 3.04. Authority; Execution and Delivery; Enforceability
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SECTION 3.05. No Conflicts; Consents
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SECTION 3.06. Company SEC Documents; Undisclosed Liabilities
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SECTION 3.07. Information Supplied
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SECTION 3.08. Absence of Certain Changes or Events
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SECTION 3.09. Taxes
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SECTION 3.10. Absence of Changes in Benefit Plans
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SECTION 3.11. Benefit Plans; Excess Parachute Payments
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SECTION 3.12. Litigation
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SECTION 3.13. Compliance with Applicable Laws
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SECTION 3.14. Environmental Matters
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SECTION 3.15. Title to Properties
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SECTION 3.16. Products and Services
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SECTION 3.17. Intellectual Property
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SECTION 3.18. Labor Matters
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SECTION 3.19. Contracts; Debt Instruments
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SECTION 3.20. Brokers; Schedule of Fees and Expenses
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ARTICLE IV
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Representations and Warranties of Parent and Sub
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SECTION 4.01. Organization, Standing and Power
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SECTION 4.02. Sub
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SECTION 4.03. Parent SEC Documents; Undisclosed Liabilities
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SECTION 4.04. Authority; Execution and Delivery; Enforceability
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SECTION 4.05. No Conflicts; Consents
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SECTION 4.06. Information Supplied
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SECTION 4.07. Financing
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SECTION 4.08. Withholding
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ARTICLE V
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Covenants Relating to Conduct of Business
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SECTION 5.01. Conduct of Business
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SECTION 5.02. No Solicitation by the Company
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ARTICLE VI
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Additional Agreements
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SECTION 6.01. Preparation of the Company Proxy Statement; Shareholder Meeting
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SECTION 6.02. Access to Information; Confidentiality
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SECTION 6.03. Reasonable Efforts; Notification
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SECTION 6.04. Obligations of Sub
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SECTION 6.05. Equity Awards
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SECTION 6.06. Benefit Plans
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SECTION 6.07. Indemnification
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SECTION 6.08. Fees and Expenses
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SECTION 6.09. Public Announcements
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SECTION 6.10. Certain Tax Matters
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SECTION 6.11. Financing
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ARTICLE VII
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Conditions Precedent
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SECTION 7.01. Conditions to Each Partys Obligation To Effect The Merger
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SECTION 7.02. Conditions to Obligations of Parent and Sub
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ARTICLE VIII
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Termination, Amendment and Waiver
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SECTION 8.01. Termination
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SECTION 8.02. Effect of Termination
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SECTION 8.03. Amendment
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SECTION 8.04. Extension; Waiver
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SECTION 8.05. Procedure for Termination, Amendment, Extension or Waiver
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ARTICLE IX
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General Provisions
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SECTION 9.01. Nonsurvival of Representations and Warranties
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SECTION 9.02. Notices
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SECTION 9.03. Definitions
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SECTION 9.04. Interpretation; Company Disclosure Letter
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SECTION 9.05. Severability
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SECTION 9.06. Counterparts
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SECTION 9.07. Entire Agreement; No Third-Party Beneficiaries
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SECTION 9.08. Governing Law
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SECTION 9.09. Assignment
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SECTION 9.10. Enforcement
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A-1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this
Agreement
) dated as of June 26, 2008, among ORBOTECH LTD., a
company organized under the laws of Israel (
Parent
), PDI
ACQUISITION, INC., a California corporation (
Sub
) and an
indirect wholly owned subsidiary of Parent, and PHOTON DYNAMICS, INC., a
California corporation (the
Company
).
WHEREAS the respective Boards of Directors of Parent, Sub and the Company have approved the
merger (the
Merger
) of Sub into the Company on the terms and subject to the conditions
set forth in this Agreement, whereby each issued share of common stock, no par value, of the
Company (the
Company Common Stock
) not owned by Parent, Sub or the Company shall be
converted into the right to receive $15.60 in cash; and
WHEREAS Parent, Sub and the Company desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe various conditions to
the Merger.
NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements
contained in this Agreement, and subject to the conditions set forth herein, the parties hereto
agree as follows:
ARTICLE I
The Merger
SECTION 1.01.
The Merger.
On the terms and subject to the conditions set forth in
this Agreement, and in accordance with the applicable provisions of the California General
Corporation Law (the
CGCL
), Sub shall be merged with and into the Company at the
Effective Time (as defined in Section 1.03). Following the Effective Time, the separate corporate
existence of Sub shall cease and the Company shall continue as the surviving corporation (the
Surviving Corporation
). At the election of Parent, any direct or indirect subsidiary of
Parent may be substituted for Sub as a constituent corporation in the Merger. In such event, the
parties shall execute an appropriate amendment to this Agreement in order to reflect the foregoing.
The Merger, the payment of cash in connection with the Merger and the other transactions
contemplated by this Agreement are referred to in this Agreement collectively as the
Transactions
.
SECTION 1.02.
Closing.
The closing (the
Closing
) of the Merger shall take
place at the offices of Cravath, Swaine & Moore LLP, 825 Eighth Avenue, New York, New York 10019 at
10:00 a.m. on the second Business Day following the
A-2
satisfaction (or, to the extent permitted by Law (as defined in Section 3.05(a)), waiver by
the party or parties entitled to the benefits thereof) of the conditions set forth in Article VII,
or at such other place, time and date as shall be agreed in writing between Parent and the Company.
The date on which the Closing occurs is referred to in this Agreement as the
Closing
Date
.
SECTION 1.03.
Effective Time.
The parties shall jointly prepare and execute, and the
Surviving Corporation shall file as soon as practicable on the Closing Date, with the Secretary of
State of the State of California, an agreement of merger with an officers certificate of each of
the constituent corporations (together, the
Merger Filing
) executed in accordance with
Section 1103 of the CGCL and shall make all other filings or recordings required under the CGCL.
The Merger shall become effective at such time as the Merger Filing is accepted for filing with
such Secretary of State, or at such other time as Parent and the Company shall agree and specify in
the Merger Filing (the time the Merger becomes effective being the
Effective Time
).
SECTION 1.04.
Effects.
The Merger shall have the effects set forth in the CGCL,
including in Sections 1107 and 1107.5 of the CGCL.
SECTION 1.05.
Articles of Incorporation and By-laws.
(a) The Amended and Restated
Articles of Incorporation of the Company, as in effect immediately prior to the Effective Time,
shall be amended as of the Effective Time so that Article III of such Articles of Incorporation
reads in its entirety as follows: The total number of shares of all classes of stock which the
corporation shall have authority to issue is 1,000 shares of Common Stock, no par value per
share., and, as so amended, such Articles of Incorporation shall be the Articles of Incorporation
of the Surviving Corporation until thereafter changed or amended as provided therein or by
applicable Law.
(b) The By-laws of Sub as in effect immediately prior to the Effective Time shall be the
By-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by
applicable Law.
SECTION 1.06.
Directors.
The directors of Sub immediately prior to the Effective Time
shall be the directors of the Surviving Corporation, until the earlier of their resignation or
removal or until their respective successors are duly elected and qualified, as the case
may be.
SECTION 1.07.
Officers.
The officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected or appointed and
qualified, as the case may be.
A-3
ARTICLE II
Effect on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 2.01.
Effect on Capital Stock.
At the Effective Time, by virtue of and
simultaneously with the Merger and without any action on the part of Parent, Sub, the Company or
the holder of any shares of Company Common Stock or any shares of capital stock of Sub:
(a)
Capital Stock of Sub.
Each issued and outstanding share of capital stock of Sub
shall be converted into and become one fully paid and nonassessable share of common stock, no par
value per share, of the Surviving Corporation.
(b)
Cancellation of Treasury Stock and Parent-Owned Stock.
Each share of Company
Common Stock that is owned by the Company, Parent or Sub shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and no cash or other consideration
shall be delivered or deliverable in exchange therefor.
(c)
Conversion of Company Common Stock.
(1) Subject to Sections 2.01(a) and
2.01(b), each share of Company Common Stock issued and outstanding immediately prior to the
Effective Time shall automatically be converted into the right to receive $15.60 in cash (the
Company Common Stock Price
).
(2) The aggregate cash payable upon the conversion of shares of Company Common Stock pursuant
to this Section 2.01(c) is referred to as the
Merger Consideration
. As of the Effective
Time, all such shares of Company Common Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Common Stock shall cease to have any rights with respect
thereto, except the right to receive Merger Consideration upon surrender of such certificate in
accordance with Section 2.02, without interest.
(3) Notwithstanding the foregoing, if between the date of this Agreement and the Effective
Time, (A) the outstanding shares of Company Common Stock are changed into a different number of
shares or a different class, by reason of the occurrence or record date of any stock dividend,
subdivision, reclassification, recapitalization, stock split, stock combination, reverse stock
split or similar transaction, (B) the Company declares or makes any dividend or distribution on its
shares or (C) the Company engages in any spin-off or split-off to its shareholders, then in any
such case the Merger Consideration shall be appropriately and proportionately adjusted to reflect
such action (it being understood that pursuant to Article V none of the foregoing actions are
permitted between the date of this Agreement and the Effective Time).
A-4
(d)
Dissent Rights
. Notwithstanding anything in this Agreement to the contrary,
shares of Company Common Stock that are (i) determined to be dissenting shares under Section
1300(b) of the CGCL (
Dissenting Shares
), (ii) outstanding immediately prior to the
Effective Time and (iii) held by any person who is entitled to demand and properly demands payment
of the fair market value of such Dissenting Shares pursuant to, and who complies in all respects
with, Chapter 13 of the CGCL, shall not be converted into Merger Consideration as provided in
Section 2.01(c), but rather the holders of Dissenting Shares shall be entitled to payment of the
fair market value of such Dissenting Shares in accordance with Section 1301 of the CGCL;
provided
,
however
, that if any such holder shall fail to perfect or otherwise shall
waive, withdraw or lose the right to receive payment of fair market value under Section 1301, then
the right of such holder to be paid the fair market value of such holders Dissenting Shares shall
cease and such Dissenting Shares shall be deemed to have been converted as of the Effective Time
into, and to have become exchangeable solely for the right to receive, Merger Consideration as
provided in Section 2.01(c). The Company shall serve prompt notice to Parent of any demands
received by the Company for appraisal of any shares of Company Common Stock, and Parent shall have
the right to participate in and direct all negotiations and proceedings with respect to such
demands. Prior to the Effective Time, the Company shall not, without the prior written consent of
Parent, make any payment with respect to, or settle or offer to settle, any such demands, or agree
to do any of the foregoing.
SECTION 2.02.
Exchange of Certificates.
(a)
Paying Agent.
Immediately
following the Effective Time, Parent shall, or shall cause the Surviving Corporation (or any other
Parent Subsidiary (as defined in Section 6.06(b))) to, deposit with Computershare Trust Company,
N.A. or such other bank or trust company as may be designated by Parent (the
Paying
Agent
), for the benefit of the holders of shares of Company Common Stock, for exchange in
accordance with this Article II, through the Paying Agent, the cash necessary to pay for the shares
of Company Common Stock converted into the right to receive cash pursuant to Section 2.01 (such
cash being hereinafter referred to as the
Exchange Fund
). The Paying Agent shall,
pursuant to irrevocable instructions, deliver the cash out of the Exchange Fund to the holders of
shares of Company Common Stock who have surrendered their certificates representing such stock as
set forth in Section 2.02(b). The Exchange Fund shall not be used for any other purpose.
(b)
Exchange Procedure.
As soon as reasonably practicable after the Effective Time,
Parent shall cause the Paying Agent to mail to each holder of record of a certificate or
certificates that immediately prior to the Effective Time represented shares of Company Common
Stock whose shares were converted into the right to receive Merger Consideration pursuant to
Section 2.01 (the
Certificates
), (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Paying Agent and shall be in such form and have such other
provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for Merger Consideration. Upon surrender of a
Certificate for cancellation to the Paying
A-5
Agent or to such other agent or agents as may be appointed by Parent, together with such
letter of transmittal, duly executed, and such other customary documents as may reasonably be
required by the Paying Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor the amount of cash that such holder has the right to receive pursuant to the
provisions of this Article II, and the Certificate so surrendered shall forthwith be canceled. In
the event of a transfer of ownership of Company Common Stock that is not registered in the transfer
records of the Company, payment of Merger Consideration may be made to a person other than the
person in whose name the Certificate so surrendered is registered, if such Certificate shall be
properly endorsed or otherwise be in proper form for transfer and the person requesting such
payment shall pay any transfer or other taxes required by reason of the payment to a person other
than the registered holder of such Certificate or establish to the satisfaction of Parent that such
tax has been paid or is not applicable. Until surrendered as contemplated by this Section 2.02,
each Certificate shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender Merger Consideration as contemplated hereunder. No interest shall
be paid or accrue on any cash payable upon surrender of any Certificate.
(c)
No Further Ownership Rights in Company Common Stock.
The Merger Consideration
paid in accordance with the terms of this Article II upon conversion of any shares of Company
Common Stock shall be deemed to have been paid in full satisfaction of all rights pertaining to
such shares of Company Common Stock,
subject
,
however
, to the Surviving
Corporations obligation to pay any dividends or make any other distributions with a record date
prior to the Effective Time that may have been declared or made by the Company on such shares of
Company Common Stock in accordance with the terms of this Agreement or prior to the date of this
Agreement and which remain unpaid at the Effective Time. After the close of business on the day in
which the Effective Time occurs there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of shares of Company Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time, any Certificates formerly
representing shares of Company Common Stock are presented to the Surviving Corporation or the
Paying Agent for any reason, they shall be canceled and exchanged against the delivery of Merger
Consideration as provided in this Article II.
(d)
Termination of Exchange Fund.
Any portion of the Exchange Fund that remains
undistributed to the holders of Company Common Stock for six months after the Effective Time shall
be delivered to Parent, upon demand, and any holder of Company Common Stock who has not theretofore
complied with this Article II shall thereafter look only to Parent, and Parent shall remain liable,
for payment of its claim for Merger Consideration.
(e)
No Liability.
None of Parent, Sub, the Company, the Surviving Corporation or the
Paying Agent shall be liable to any person in respect of any cash from the Exchange Fund delivered
to a public official pursuant to any applicable abandoned
A-6
property, escheat or similar Law. If any Certificate has not been surrendered prior to the
date on which Merger Consideration in respect of such Certificate would otherwise escheat to or
become the property of any Governmental Entity (as defined in Section 3.05(b)), then, immediately
prior to such date, any cash in respect of such Certificate shall, to the extent permitted by
applicable Law, become the property of the Surviving Corporation, free and clear of all claims or
interest of any person previously entitled thereto.
(f)
Investment of Exchange Fund.
The Paying Agent shall invest any cash included in
the Exchange Fund, as directed by Parent, on a daily basis. If, subject to the first sentence of
Section 2.02(a), for any reason (including losses) the cash in the Exchange Fund shall be
insufficient to fully satisfy all of the payment obligations to be made by the Paying Agent
hereunder, Parent shall promptly deposit cash into the Exchange Fund in an amount which is equal to
the amount of such insufficiency. Any interest and other income resulting from such investments
shall be paid to Parent.
(g)
Withholding Rights.
Parent, the Surviving Corporation or the Paying Agent shall
be entitled to deduct and withhold from the consideration otherwise payable to any holder of
Company Common Stock pursuant to this Agreement such amounts as may be required to be deducted and
withheld with respect to the making of such payment under the Internal Revenue Code of 1986, as
amended (the
Code
), the Israeli Income Tax Ordinance (New Version) 1961, as amended, or
under any other provision of U.S. state, local, Israeli or other foreign tax Law. To the extent
that amounts are so withheld and paid over to the appropriate Tax Authority by Parent, the
Surviving Corporation or the Paying Agent, such withheld amounts will be treated for all purposes
of this Agreement as having been paid to the holders of the shares of Company Common Stock in
respect of which such deduction and withholding was made by Parent, the Surviving Corporation or
the Paying Agent.
(h)
Lost Certificates.
If any Certificates shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed (which affidavit shall include an undertaking (in a form reasonably acceptable
to Parent) to indemnify Parent for any losses incurred by Parent in connection with any action
taken pursuant to this clause (h)) and, if required by Parent, the posting by such person of a bond
in such reasonable amount as Parent may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Paying Agent shall deliver in exchange for such
lost, stolen or destroyed Certificate the Merger Consideration.
A-7
ARTICLE III
Representations and Warranties of the Company
The Company represents and warrants to Parent and Sub that, except as set forth in the letter,
dated as of the date of this Agreement, from the Company to Parent and Sub (with specific reference
to the section of this Agreement to which the information stated in such letter relates) (the
Company Disclosure Letter
):
SECTION 3.01.
Organization, Standing and Power.
Each of the Company and each of its
subsidiaries (the
Company Subsidiaries
) is duly organized, validly existing and, where
relevant, in good standing under the laws of the jurisdiction in which it is organized and has full
corporate power and authority and possesses all governmental franchises, licenses, permits,
authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties
and assets and to conduct its businesses as presently conducted, other than such franchises,
licenses, permits, authorizations and approvals the lack of which, individually or in the
aggregate, has not had and is not reasonably expected to have a Company Material Adverse Effect (as
defined in Section 9.03(a)). The Company and each Company Subsidiary is duly qualified to do
business in each jurisdiction where the nature of its business or the ownership or leasing of its
properties make such qualification necessary other than in any such jurisdiction where the failure
to so qualify, individually or in the aggregate, has not had or is not reasonably expected to have
a Company Material Adverse Effect. The Company has made available to Parent true and complete
copies of the articles of incorporation of the Company, as amended to the date of this Agreement
(as so amended, the
Company Charter
), and the By-laws of the Company, as amended to the
date of this Agreement (as so amended, the
Company By-laws
), and the comparable charter
and organizational documents of each Company Subsidiary, in each case as amended through the date
of this Agreement.
SECTION 3.02.
Company Subsidiaries; Equity Interests.
(a) Section 3.02(a) of the
Company Disclosure Letter lists as of the date of this Agreement each Company Subsidiary and its
jurisdiction of organization. All the outstanding shares of capital stock of each Company
Subsidiary have been validly issued and are fully paid and nonassessable and are owned by the
Company, by another Company Subsidiary or by the Company and another Company Subsidiary, free and
clear of all pledges, liens, charges, mortgages, encumbrances and security interests of any kind or
nature whatsoever (each a
Lien
and, collectively,
Liens
) (other than transfer
restrictions imposed by applicable securities laws).
(b) Except for its interests in the Company Subsidiaries, as of the date of this Agreement
the Company does not own, directly or indirectly, any capital stock, membership interest,
partnership interest, joint venture interest or other equity interest in any person.
(c) Neither the Company nor any Company Subsidiary: (i) carries on business in Israel in such
a manner so as to require it to register as a foreign corporation
A-8
or owns, directly or indirectly, any equity interest in any person that is organized in Israel
or that conducts business in Israel; or (ii) has made any sales to Israel in the twenty-four months
ended March 31, 2008.
SECTION 3.03.
Capital Structure.
(a) The authorized capital stock of the Company
consists of 30,000,000 shares of Company Common Stock and 5,000,000 shares of preferred stock, with
no par value (the
Company Preferred Stock
). At the close of business on June 24, 2008,
(i) 17,813,875 shares of Company Common Stock were issued and outstanding, of which none were
subject to vesting or restrictions on transfer, (ii) 1,119,690 shares of Company Common Stock were
reserved and available for issuance pursuant to Company Stock Plans (as defined in Section 6.05(d))
and (iii) no shares of Company Preferred Stock were outstanding. Except as set forth above, as of
the date of this Agreement, no shares of capital stock or other voting securities of the Company
were issued, reserved for issuance or outstanding. There are no outstanding Company SARs (as
defined in Section 6.05(d)). Section 3.03 of the Company Disclosure Letter sets forth a complete
and accurate list, as of June 24, 2008, of all outstanding Company Stock Options (as defined in
Section 6.05(d)) and Company RSUs (as defined in Section 6.05(d)), the number of shares of Company
Common Stock subject thereto, the exercise prices (if applicable) and vesting schedules thereof and
whether any of the foregoing are subject to terms that provide for acceleration of vesting upon the
consummation of the Merger. All Company Stock Options and Company RSUs are evidenced by stock
option agreements or restricted stock unit agreements, in each case substantially identical to the
forms set forth in Section 3.03 of the Company Disclosure Letter, and no stock option agreement or
restricted stock unit agreement contains terms that are inconsistent with, or in addition to, the
terms contained in such forms. With respect to the Company Stock Options, (i) each Company Stock
Option that was intended to qualify as an incentive stock option under Section 422 of the Code so
qualifies, (ii) each grant of a Company Stock Option was duly authorized no later than the date on
which the grant of such Company Stock Option was by its terms to be effective (the
Grant
Date
) by all necessary corporate action, including, as applicable, approval by the Company
Board (or a duly constituted and authorized committee thereof) and any required shareholder
approval by the necessary number of votes or written consents, and the award agreement governing
such grant (if any) was duly executed and delivered by each party whose signature was necessary to
make such agreement legally binding, (iii) each such grant was made in accordance with the terms of
the Company Stock Plans and all other applicable Laws and regulatory rules or requirements and (iv)
the per share exercise price of each Company Stock Option was equal to the fair market value of a
share of Company Common Stock on the applicable Grant Date. The maximum number of shares of
Company Common Stock that could be purchased with accumulated payroll deductions under the ESPP (as
defined in Section 6.05(d)) at the close of business on November 18, 2008 (assuming the fair market
value of a share of Company Common Stock on such date is equal to $15.60 and payroll deductions
continue at the current rate) is 70,000. Each Company Stock Option and Company RSU may be treated
in accordance with Section 6.05 without the consent of the holder of such Company Stock Option or
Company RSU. No holder of any Company Stock Option or Company RSU is
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entitled to any treatment of such Company Stock Option or Company RSU other than as provided
in Section 6.05, and after the Effective Time no holder of a Company Stock Option or Company RSU
(or former holder of a Company Stock Option or Company RSU) or any Company Participant (as defined
in Section 3.08(iv)) in the Company Stock Plans or any Company Benefit Plan (as defined in Section
3.10) or Company Benefit Agreement (as defined in Section 3.08(iv)) shall have the right thereunder
to acquire any capital stock of the Company or any other equity interest therein (including
phantom stock or stock appreciation rights). All outstanding shares of Company Common Stock are,
and all such shares that may be issued prior to the Effective Time will be when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to or issued in violation
of any purchase option, call option, right of first refusal, preemptive right, subscription right
or any similar right under any provision of the CGCL, the Company Charter, the Company By-laws or
any Contract (as defined in Section 3.05(a)) to which the Company is a party or otherwise bound.
(b) There are not any bonds, debentures, notes or other indebtedness of the Company having
the right to vote (or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which holders of Company Common Stock may vote (
Voting Company Debt
).
Except as set forth above, as of the date of this Agreement, there are not any options, warrants,
rights, convertible or exchangeable securities, phantom stock rights, stock appreciation rights,
stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to
which the Company or any Company Subsidiary is a party or by which any of them is bound (i)
obligating the Company or any Company Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other equity interests in, or any security
convertible or exercisable for or exchangeable into any capital stock of, or other equity interest
in, the Company or any Company Subsidiary, or any Voting Company Debt, (ii) obligating the Company
or any Company Subsidiary to issue, grant, extend or enter into any such option, warrant, call,
right, security, commitment, Contract, arrangement or undertaking or (iii) that give any person the
right to receive any economic benefit or right similar to or derived from the economic benefits and
rights occurring to holders of Company Common Stock. As of the date of this Agreement, (A) there
are not any outstanding contractual obligations of the Company or any Company Subsidiary to
repurchase, redeem or otherwise acquire any shares of capital stock of the Company or any Company
Subsidiary and (B) no dividends or other distributions have been declared and not paid by the
Company on any shares of Company Common Stock.
SECTION 3.04.
Authority; Execution and Delivery; Enforceability.
(a) The Company has
all requisite corporate power and authority to execute and deliver this Agreement and to consummate
the Transactions, subject, in the case of the Merger, to receipt of the Company Shareholder
Approval (as defined in Section 3.04(c)). The execution and delivery by the Company of this
Agreement and the consummation by the Company of the Transactions have been duly authorized by all
necessary corporate action on the part of the Company, subject, in the case of the Merger, to
receipt of the Company Shareholder Approval. The Company has duly executed and delivered this
Agreement,
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and this Agreement constitutes its legal, valid and binding obligation, enforceable against it
in accordance with its terms.
(b) The Board of Directors of the Company (the
Company Board
), at a meeting duly
called and held, duly and unanimously adopted resolutions (i) approving this Agreement, the Merger
and the other Transactions, (ii) determining that the terms of the Merger and the other
Transactions are advisable, fair to and in the best interests of the Company and its shareholders
and (iii) recommending that the Companys shareholders give the Company Shareholder Approval.
Except for applicable provisions of the CGCL, to the Companys knowledge, no U.S. state takeover
statute or similar statute or regulation applies or purports to apply to the Company with respect
to this Agreement, the Merger or any other Transaction.
(c) The only vote of holders of any class or series of capital stock of the Company necessary
to approve this Agreement, the Merger and the other Transactions is the approval of the principal
terms of this Agreement by the holders of a majority of the outstanding shares of Company Common
Stock (the
Company Shareholder Approval
). The affirmative vote of the holders of Company
Common Stock, or any of them, is not necessary to consummate any Transaction other than the Merger.
SECTION 3.05.
No Conflicts; Consents.
(a) The execution and delivery by the Company
of this Agreement do not, and the consummation of the Merger and the other Transactions and
compliance with the terms hereof will not, conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a benefit under, or to increased,
additional, accelerated or guaranteed rights or entitlements of any person under, or result in the
creation of any Lien upon any of the properties or assets of the Company or any Company Subsidiary
under, any provision of (i) the Company Charter, the Company By-laws or the comparable charter or
organizational documents of any Company Subsidiary, (ii) any contract, lease, license, indenture,
note, bond, agreement, permit, governmental concession, governmental franchise or other instrument
(a
Contract
) to which the Company or any Company Subsidiary is a party or by which any of
their respective properties or assets is bound or (iii) subject to the filings and other matters
referred to in Section 3.05(b), any judgment, order or decree (
Judgment
) or statute, law
(including common law), ordinance, directive, rule or regulation (
Law
) applicable to the
Company or any Company Subsidiary or their respective properties or assets, other than, in the case
of clauses (ii) and (iii) above, any such items that, individually or in the aggregate, have not
had and are not reasonably expected to have a Company Material Adverse Effect.
(b) No consent, approval, license, permit, order or authorization (
Consent
) of, or
registration, declaration or filing with, or permit from, any U.S. Federal, U.S. state, local,
Israeli or other foreign government or any court of competent jurisdiction, administrative agency
or commission or other governmental authority or instrumentality, U.S., Israeli or otherwise
foreign (a
Governmental Entity
) is required
to be obtained or made by or with respect to the Company or any Company Subsidiary in
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connection with the execution, delivery and performance of this Agreement or the consummation of
the Transactions, other than (i) compliance with and filings under (A) the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
HSR Act
), (B) the Monopoly Regulation
and Fair Trade Act of South Korea, (C) the Fair Trade Act of Taiwan, (D) the Act Concerning
Prohibition of Private Monopolization and Maintenance of Fair Trade (Law No. 54 of 1947) of Japan,
and (E) as applicable, the Regulation of the Merger and Acquisition of Domestic Enterprises by
Foreign Investors of the Peoples Republic of China and the Anti-Monopoly Law of the Peoples
Republic of China, (ii) compliance with and legally required filings under any Defense Review Laws
(as defined in Section 6.03(d)), (iii) the filing with the Securities and Exchange Commission (the
SEC
) of (A) a proxy statement relating to the approval of this Agreement and the Merger
by the Companys shareholders (the
Company Proxy Statement
) and (B) such reports under
Sections 13 and 16 of the Securities Exchange Act of 1934, as amended (the
Exchange Act
),
as may be required in connection with this Agreement, the Merger and the other Transactions, (iv)
the filing of the Merger Filing with the Secretary of State of the State of California and
appropriate documents with the relevant authorities of the other jurisdictions in which the Company
is qualified to do business, (v) any filings with NASDAQ Global Select Market (the
NASDAQ
) and (vi) such other items (A) that may be required under the applicable Law of
any foreign country (including Israel), (B) required solely by reason of the participation of
Parent (as opposed to any third party) in the Transactions or (C) that, individually or in the
aggregate, have not had and are not reasonably expected to have a Company Material Adverse Effect.
SECTION 3.06.
Company SEC Documents; Undisclosed Liabilities.
(a) The Company has
filed all reports, schedules, forms, statements and other documents required to be filed by the
Company with the SEC since October 1, 2006 (the
Company SEC Documents
).
(b) Except to the extent that information contained in any Company SEC Document has been
revised, amended, supplemented or superseded by a later filed Filed Company SEC Document (as
defined in Section 3.08), each Company SEC Document as of its respective date complied in all
material respects with the requirements of the Exchange Act or the Securities Act of 1933, as
amended (the
Securities Act
), as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to such Company SEC Document, and did not contain any untrue
statement of a material fact or omit 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. Except to the extent that information contained in any Company SEC
Document has been revised, amended, supplemented or superseded by a later filed Filed Company SEC
Document, none of the Company SEC Documents contains any untrue statement of a material fact or
omits 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. The
consolidated financial statements of
the Company included in the Company SEC Documents complied at the time they were filed
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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 United States
generally accepted accounting principles (
GAAP
) (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, except to the extent that such
consolidated financial statements have been revised, amended, supplemented or superseded in a later
filed Company SEC Document, fairly present in all material respects the consolidated financial
position of the Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods shown (subject, in the case
of unaudited statements, to normal year-end audit adjustments).
(c) Except as set forth in the Filed Company SEC Documents, the Company and the Company
Subsidiaries taken as a whole, do not have any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by GAAP to be set forth on a consolidated
balance sheet or in the notes thereto and that, individually or in the aggregate, are reasonably
expected to have a Company Material Adverse Effect.
(d) With respect to the Companys (i) annual report on Form 10-K for the fiscal year ended
September 30, 2007 (filed January 23, 2008) and (ii) quarterly reports on Form 10-Q for the
quarterly periods ended December 31, 2007 (filed February 8, 2008) and March 31, 2008 (filed May
12, 2008), (A) the statements made in Exhibits 31.1 and 31.2 to each of such filings are true and
correct in all material respects, (B) the chief executive officer and chief financial officer of
the Company at the time of the filing of such reports were responsible for establishing and
maintaining disclosure controls and procedures (as such terms are defined in Rule 13a-14(c) under
the Exchange Act) for the Company and: (1) designed such disclosure controls and procedures to
ensure that material information relating to the Company, including its consolidated subsidiaries,
was made known to them by others within those entities, particularly during the period in which
such report or amendment thereto was being prepared; (2) evaluated the effectiveness of the
Companys disclosure controls and procedures as of a date within 90 days prior to the filing date
of such report or amendment thereto; and (3) presented in such report or amendment thereto their
conclusions about the effectiveness of the Companys disclosure controls and procedures and (C) the
chief executive officer and chief financial officer of the Company at the time of filing such
reports indicated in such report or amendment thereto significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of their
most recent evaluation, including any corrective action with respect to significant deficiencies
and material weaknesses.
(e) Except as disclosed in the Companys quarterly report on Form 10-Q for the period ended
March 31, 2008, the chief executive officer and chief financial officer of the Company, based on
their most recent evaluation, did not disclose to the
Companys auditors and the audit committee of the Company Board: (i) any significant
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deficiency in the design or operation of internal controls which could adversely affect the
Companys ability to record, process, summarize and report financial data or material weaknesses in
the Companys internal controls; or (ii) any fraud, whether or not material, that involves
management or other employees who have a significant role in the Companys internal controls.
(f) The Company maintains a system of internal accounting controls that is sufficient to
provide reasonable assurances that (i) transactions are executed in accordance with managements
general or specific authorization, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain accountability for
assets, (iii) access to assets is permitted only in accordance with managements general or
specific authorization, and (iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with respect to any differences.
(g) None of the Company Subsidiaries is, or has at any time since October 1, 2006, been,
subject to the reporting requirements of Sections 13(a) and 15(d) of the Exchange Act.
(h) Set forth in Section 3.06(h) of the Company Disclosure Letter is a list of the names of
all suppliers of the Company or any Company Subsidiary under which the Company or any Company
Subsidiary has purchased, either on an individual Contract basis or in the aggregate, at least
$200,000 in goods and services in the twelve months ended April 30, 2008.
SECTION 3.07.
Information Supplied.
None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in the Company Proxy Statement
will, at the date it is first mailed to the Companys shareholders, or at the time of the
Shareholders Meeting (as defined in Section 6.01(c)), contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made, not misleading.
The Company Proxy Statement will comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations thereunder, except that no representation is made
by the Company with respect to statements made or incorporated by reference therein based on
information supplied by Parent or Sub in writing for inclusion or incorporation by reference in the
Company Proxy Statement.
SECTION 3.08.
Absence of Certain Changes or Events.
Except as disclosed in the
Company SEC Documents filed and publicly available prior to the date of this Agreement (the
Filed Company SEC Documents
), from October 1, 2007, to the date of this Agreement, the
Company has conducted its business only in the ordinary course consistent with prior practice, and
during such period there has not been:
(i) any event, change, effect or development that, individually or in the aggregate,
has had or is reasonably expected to have a Company Material
A-14
Adverse Effect, other than
events, changes, effects and developments relating to the economy in general or to the
Companys industry in general and not specifically relating to the Company or any Company
Subsidiary;
(ii) any declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any Company Common Stock or any
repurchase for value by the Company of any Company Common Stock;
(iii) any split, combination or reclassification of any Company Common Stock or any
issuance or the authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of Company Common Stock;
(iv) (A) (1) any granting by the Company or any of the Company Subsidiaries of any
loan or material increase in compensation, perquisites or benefits or any bonus or award,
or (2) any payment by the Company or any of the Company Subsidiaries of any bonus, in each
case to any current or former director, officer, employee, contractor or consultant of the
Company or any of the Company Subsidiaries (each, a
Company Participant
), other
than in the ordinary course of business consistent with prior practice or as was required
under any plan or agreement in effect as of the date of the most recent financial
statements included in the Filed Company SEC Documents, (B) any granting by the Company or
any of the Company Subsidiaries to any Company Participant of any increase in severance,
change in control or termination pay or benefits, (C) any material amendment of or
modification to or agreement to materially amend or modify (or announcement of an intention
to so amend or modify), (x) any employment, deferred compensation, severance, change in
control, termination, employee benefit, loan, indemnification, retention, stock repurchase,
stock option, consulting or similar agreement, commitment or obligation between the Company
or any of the Company Subsidiaries, on the one hand, and any Company Participant, on the
other hand, (y) any agreement between the Company, on the one hand, and any Company
Participant, on the other hand, the terms of which are altered, upon the occurrence of
transactions involving the Company of the nature contemplated by this Agreement or (z) any
trust or insurance Contract or other agreement to fund or otherwise secure payment of any
compensation or benefit to be provided to any Company Participant (all such agreements
under clauses (x), (y) and (z), collectively,
Company Benefit Agreements
), (D)
any entry into any Company Benefit Agreement other than a customary offer letter for
at-will employment of a Company Participant who is not an executive officer, (E) any
payment to any Company Participant of any material benefit not provided for under any
Contract, Company Benefit Plan or Company Benefit Agreement other than the payment of cash
compensation (including accrued bonuses) in the
ordinary course of business consistent with prior practice, (F) any amendment to or
modification of or agreement to amend or modify (or announcement of an intention to amend
or modify) any Company Stock Plan or any Company Stock
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Options or Company RSUs, (G) except
as expressly provided in this Agreement, any action to accelerate, or which is reasonably
expected to result in the acceleration of, any rights, benefits or funding obligations, or
any material determinations, under any collective bargaining agreement, Company Benefit
Plan or Company Benefit Agreement, (H) any grant of Company Stock Options, Company RSUs or
any other award under any Company Stock Plan or any agreement to grant any Company Stock
Option, Company RSU or any other award under any Company Stock Plan, or (I) any other
granting by the Company or any of the Company Subsidiaries of any awards or rights under
any Company Benefit Plan or Company Benefit Agreement (including the removal of existing
restrictions in any Company Benefit Plans or Company Benefit Agreements or agreements or
awards made thereunder) other than in the ordinary course consistent with past practice;
(v) any change in accounting methods, principles or practices by the Company or any
Company Subsidiary materially affecting the consolidated assets, liabilities or results of
operations of the Company, except insofar as may have been required by a change in GAAP; or
(vi) any material elections (or change in any material elections) with respect to
Taxes by the Company or any Company Subsidiary, any change in any material method of
accounting for Tax purposes by the Company or any Company Subsidiary, or settlement or
compromise by the Company or any Company Subsidiary of any material Tax liability or
refund.
SECTION 3.09.
Taxes.
(a) (i) The Company and each of the Company Subsidiaries has
filed (or joined in the filing of) when due all material Tax Returns required by applicable Law to
be filed with respect to the Company and each of the Company Subsidiaries and all Taxes shown to be
due on such Tax Returns have been paid; (ii) all such material Tax Returns were true, correct and
complete in all material respects as of the time of such filing; (iii) all material Taxes relating
to periods ending on or before the Closing Date owed by the Company (whether or not shown on any
Tax Return) and each of the Company Subsidiaries or to which the Company or any of the Company
Subsidiaries may be liable under Treasury Regulations Section 1.1502-6 (or analogous state or
foreign provisions) by virtue of having been a member of any affiliated or consolidated group (or
other group filing on a combined or unitary basis) at any time on or prior to the Closing Date, if
required to have been paid, have been paid (except for Taxes which are being contested in good
faith); and (iv) any liability of the Company or any of the Company Subsidiaries for material Taxes
not yet due and payable, or which are being contested in good faith, has been adequately provided
for in accordance with GAAP on the most recent financial statements contained in the Filed Company
SEC
Documents for all taxable periods and portions thereof through the date of such financial
statements.
(b) There is no action, suit, proceeding, investigation, audit or claim now pending against,
or with respect to, the Company or any of the Company Subsidiaries in
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respect of any material Tax
or assessment, nor is any written claim for additional material Tax or assessment asserted by any
Tax Authority. To the knowledge of the Company, neither the Company nor any Company Subsidiary has
been threatened by any Tax Authority to be charged with any material violation of any applicable
Tax Law during the past two years. The relevant statute of limitations is closed with respect to
the U.S. Federal income Tax Returns of the Company and each of the Company Subsidiaries for all
years through September 30, 2004.
(c) No claim has been received by the Company or any Company Subsidiary from any Tax
Authority in a jurisdiction where the Company or any of the Company Subsidiaries has not filed a
Tax Return that it is or may be subject to Tax by such jurisdiction, nor to the Companys knowledge
has any such assertion been threatened.
(d) (i) There is no outstanding request for any extension of time within which to pay any
Taxes or file any Tax Returns; (ii) there has been no waiver or extension of any applicable statute
of limitations for the assessment or collection of any Taxes of the Company or any of the Company
Subsidiaries that remains in effect as of the date of this Agreement; (iii) there has been no power
of attorney with respect to any material Taxes executed or filed with any Tax Authority by or on
behalf of the Company or any Company Subsidiary; and (iv) no ruling with respect to Taxes (other
than a request for determination of the status of a qualified pension plan) has been requested by
or on behalf of the Company or any of the Company Subsidiaries.
(e) No material liens for Taxes exist with respect to any assets or properties of the Company
or any Company Subsidiary, except for Liens described in clause (i) of the definition of Permitted
Liens.
(f) The Company and each of the Company Subsidiaries have, within the time and manner
prescribed by applicable Law, withheld and paid all material Taxes required to be withheld in
connection with any amounts paid or owing to any employee, creditor, independent contractor or
other third party.
(g) The Company has not been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(h) During the two year period ending on the date hereof, neither the Company nor any of the
Company Subsidiaries has distributed stock of another person, or has had its stock distributed by
another person, in a transaction that was purported or intended to be governed in whole or in part
by Section 355 of the Code.
(i) The Company and, to the extent required, each of the Company Subsidiaries have disclosed
on their U.S. Federal income Tax Returns all positions taken therein that could give rise to a
substantial understatement of U.S. Federal income Tax within the meaning of Section 6662 of the
Code.
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(j) Neither the Company nor any of the Company Subsidiaries is a party to or bound by any Tax
allocation or sharing agreement other than (i) agreements effectuating an allocation of property
Taxes, (ii) agreements entered into in the ordinary course of business consistent with prior
practice effectuating an allocation of sales or use Taxes or (iii) indemnification agreements or
arrangements pertaining to the sale or lease of assets of the Company or any of the Company
Subsidiaries.
(k) Neither the Company nor any Company Subsidiary will be required to include in a taxable
period ending after the Closing Date taxable income attributable to income that accrued in a prior
taxable period but was not recognized in any prior taxable period as a result of the installment
method of accounting, the long-term contract method of accounting, the cash method of accounting or
Section 481 of the Code or comparable provisions of state, local or foreign Tax Law, or any other
change in the method of accounting.
(l) Neither the Company nor any Company Subsidiary has participated in any listed
transaction as defined in Treasury Regulations Section 1.6011-4.
(m) To the Companys knowledge and based on its transfer pricing documentation (including any
applicable transfer pricing studies), all material related party transactions involving the Company
or any Company Subsidiary are at arms length in material compliance with Section 482 of the Code
and the Transfer Regulations promulgated thereunder and any comparable provision of any Tax Law.
(n) For purposes of this Agreement:
Tax Authority
shall mean any U.S. Federal, U.S. state and local, Israeli and other
foreign governmental body (including any subdivision, agency or commission thereof) or any
quasi-governmental body, in each case, exercising regulatory authority in respect of Taxes.
Tax Returns
shall mean returns, reports, information statements and other
documentation (including any additional or supporting material) filed, or required to be filed, in
connection with the calculation, determination, assessment, claim for refund or collection of any
Tax and shall include any amended returns required as a result of examination adjustments made by
the Internal Revenue Service (
IRS
) or other Tax Authority.
Taxes
shall mean any and all U.S. Federal, U.S. state, local, Israeli, other foreign
and other taxes, levies, fees, imposts, duties and charges of whatever kind (including any
interest, penalties or additions to the tax imposed in connection therewith or with respect
thereto), whether or not imposed on the Company or any of the Company Subsidiaries, including,
without limitation, taxes imposed on, or measured by, income, franchise, profits or gross receipts,
and also ad valorem, value added, sales, use, service, real or personal property, capital stock,
license, payroll, withholding, employment, social security, workers compensation, unemployment
compensation, utility, severance,
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production, excise, stamp, occupation, premium, windfall profits, transfer and gains taxes and
customs duties, whether disputed or not.
SECTION 3.10.
Absence of Changes in Benefit Plans.
Except as disclosed in the Filed
Company SEC Documents or as expressly permitted pursuant to Section 5.01(a)(i) through (xxi) and
excluding any Company Benefit Agreements, since the date of the most recent audited financial
statements included in the Filed Company SEC Documents to the date of this Agreement, none of the
Company or any of the Company Subsidiaries has materially amended, materially modified or
agreed (or announced an intention) to materially amend or modify, any collective bargaining
agreement or any employment, bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock appreciation, restricted stock, stock option,
phantom stock, performance, retirement, thrift, savings, stock bonus, cafeteria, paid time off,
perquisite, fringe benefit, vacation, severance, disability, death benefit, hospitalization,
medical, welfare benefit or other plan, program, policy, arrangement or understanding (whether or
not legally binding) maintained, contributed to or required to be maintained or contributed to by
the Company or any of the Company Subsidiaries or any other person or entity that, together with
the Company, is treated as a single employer under Section 414(b), (c), (m) or (o) of the
Code (each, a
Company Commonly Controlled Entity
), in each case providing benefits to any
Company Participant and whether or not subject to United States Law (collectively, the
Company
Benefit Plans
, which for the avoidance of doubt shall exclude any Company Benefit Agreements),
or has terminated or adopted (or agreed or announced an intention to terminate or adopt) any
material Company Benefit Plan, or has made any material change in any actuarial or other assumption
used to calculate funding obligations with respect to any Company Pension Plans (as defined in
Section 3.11(a)), or any change in the manner in which contributions to any Company Pension Plans
are made or the basis on which such contributions are determined, other than amendments or other
changes as required to ensure that such Company Benefit Plan is not then out of compliance with
applicable Law, or reasonably determined by the Company to be necessary or appropriate to preserve
the qualified status of a Company Pension Plan under Section 401(a) of the Code or under any
non-U.S. tax Law or regulation.
SECTION 3.11.
Benefit Plans; Excess Parachute Payments.
(a) Section 3.11(a) of the
Company Disclosure Letter contains a list of all material Company Benefit Plans and all Company
Benefit Agreements, including each employee welfare benefit plan (as defined in Section 3(1) of
the Employee Retirement Income Security Act of 1974, as amended (
ERISA
)) whether or not
subject to ERISA (a
Company Welfare Plan
) and employee pension benefit plan (as defined
in Section 3(2) of ERISA) whether or not subject to ERISA (a
Company Pension Plan
). The
Company has delivered or made available to Parent complete and correct copies of (i) each Company
Benefit Plan and each Company Benefit Agreement (or, in the case of any material unwritten Company
Benefit Plans or material unwritten Company Benefit Agreements, written descriptions thereof),
(ii) the two most recent annual reports required to be filed, or such similar reports, statements,
information returns or material
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correspondence filed with or delivered to any Governmental Entity, with respect to each
Company Benefit Plan (including reports filed on Form 5500 with accompanying schedules and
attachments), (iii) the most recent summary plan description prepared for each Company Benefit
Plan, (iv) each trust agreement and group annuity contract and other documents relating to the
funding or payment of benefits under any Company Benefit Plan, (v) the most recent determination or
qualification letter issued by any Governmental Entity for each Company Benefit Plan intended to
qualify for favorable tax treatment and (vi) if applicable, the two most recent actuarial
valuations for each Company Benefit Plan. All Company Participant data necessary to administer
each Company Benefit Plan and Company Benefit Agreement is in the possession of the Company and is
sufficient for the proper administration of the Company Benefit Plans and Company Benefit
Agreements in accordance, in all material respects, with their terms and all applicable Laws and
such data is complete and correct in all material respects. Each Company Benefit Plan has been
administered in all material respects in compliance with its terms. The Company and the Company
Subsidiaries and all the Company Benefit Plans are in compliance in all material respects with all
applicable provisions of ERISA, the Code, and all other applicable Laws (in the case of the Company
and the Company Subsidiaries, as such Laws relate to the Company Benefit Plans), and the terms of
all collective bargaining agreements, if any. All Company Pension Plans intended to be
tax-qualified under U.S. Laws have been the subject of determination or opinion letters from the
IRS with respect to TRA (as defined in Section 1 of Rev. Proc. 93-39) and have timely filed with
the IRS determination letter applications (or have received such a determination letter) with
respect to GUST (as defined in Section 1 of Notice 2001-42) and the Economic Growth and Tax
Relief Reconciliation Act of 2001, to the effect that such Company Pension Plans are qualified and
exempt from United States Federal income taxes under Sections 401(a) and 501(a), respectively, of
the Code; no such letter has been revoked (nor, to the knowledge of the Company, has revocation
been threatened) nor has any event occurred since the date of the most recent determination letter
or application therefor relating to any such Company Pension Plan that is reasonably expected to
adversely affect the qualification of such Company Pension Plan or materially increase the costs
relating thereto or require security under Section 307 of ERISA. All Company Pension Plans
required to have been approved by any non-U.S. Governmental Entity have been so approved or timely
submitted for approval; no such approval has been revoked (nor, to the knowledge of the Company,
has revocation been threatened) and no event has occurred since the date of the most recent
approval or application therefor that is reasonably expected to affect any such approval or
materially increase the costs relating thereto. The Company has delivered or made available to
Parent a true, complete and correct copy of each pending application for a determination or
approval letter, if any, with respect to each Company Pension Plan.
(b) Neither the Company nor any Company Commonly Controlled Entity has in the last six years
maintained, contributed to or been obligated to maintain or contribute to, or has any actual or
contingent liability under, any Company Benefit Plan that is a defined benefit plan (as defined
in Section 3(35) of ERISA), a multiemployer
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plan (within the meaning of Section 4001(a)(3) of ERISA), or is subject to Title IV of ERISA
and neither the Company nor any Company Commonly Controlled Entity could incur any liability under
Title IV of ERISA.
(c) With respect to each Company Welfare Plan, there are no understandings, agreements or
undertakings, written or oral, that would prevent any such plan (including any such plan covering
retirees or other former Company Participants) from being amended or terminated without material
liability to the Company or any of the Company Subsidiaries at or at any time after the Closing.
No Company Welfare Plan is unfunded or, if subject to the Code, funded through a welfare benefits
fund (as such term is defined in Section 419(e) of the Code). No Company Welfare Plan provides
benefits after termination of employment except where the cost thereof is borne entirely by the
former employee (or his or her eligible dependents or beneficiaries) or as required by
Section 4980B(f) of the Code or any similar state statute. The Company and the Company
Subsidiaries comply in all material respects with the applicable requirements of Section 4980B(f)
of the Code or any similar U.S. state statute with respect to each Company Benefit Plan that is a
group health plan, as such term is defined in Section 5000(b)(1) of the Code or any similar U.S.
state statute.
(d) All material reports, returns and similar documents with respect to all Company Benefit
Plans required to be filed with any Governmental Entity or distributed to any Company Benefit Plan
participant have been duly and timely filed or distributed. Neither the Company nor any of the
Company Subsidiaries has received notice of and, to the knowledge of the Company, there are no
pending investigations by any Governmental Entity with respect to, or pending termination
proceedings or other claims (except claims for benefits payable in the normal operation of the
Company Benefit Plans or Company Benefit Agreements), suits, actions or proceedings against, or
involving or asserting any rights or claims to benefits under, any Company Benefit Plan or Company
Benefit Agreement.
(e) All contributions, premiums and benefit payments under or in connection with the Company
Benefit Plans that are required to have been made by the Company or any of the Company Subsidiaries
in accordance with the terms of the Company Benefit Plans and applicable Laws have been timely
made. No Company Benefit Plan, or any insurance Contract related thereto, requires or permits a
retroactive increase in premiums or payments on termination of such Company Benefit Plan or such
insurance Contract. Neither the Company nor any of the Company Subsidiaries has incurred, or is
reasonably expected to incur, any unfunded liabilities in relation to any Company Benefit Plan, and
for any Company Benefit Plan for which funding is not required, all unfunded liabilities have been
properly accrued on the Companys most recent financial statements in accordance with GAAP.
(f) With respect to each Company Benefit Plan, (i) there has not occurred any prohibited
transaction in which the Company or any of the Company Subsidiaries or any of their employees, or
to the knowledge of the Company, any trustee, administrator or other fiduciary of any trust created
under any Company Benefit Plan, has engaged that
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could subject the Company, any of the Company Subsidiaries or any of their employees, or, to
the knowledge of the Company, a trustee, administrator or other fiduciary of any trust created
under any Company Benefit Plan, to a material tax or penalty on prohibited transactions imposed by
Section 4975 of the Code or a material sanction imposed under Title I of ERISA and (ii) none of the
Company, any Company Subsidiary, nor, to the knowledge of the Company, any trustee, administrator
or other fiduciary of any Company Benefit Plan nor any agent of any of the foregoing has engaged in
any transaction or acted in a manner that could, or failed to act so as to, subject the Company,
any Company Subsidiary or, to the knowledge of the Company, any trustee, administrator or other
fiduciary to any material liability for breach of fiduciary duty under ERISA or any other
applicable Law. No Company Benefit Plan or related trust has been terminated, nor has there been
any reportable event (as such term is defined in Section 4043 of ERISA) for which the 30-day
reporting requirement has not been waived with respect to any Company Benefit Plan during the last
five years, and no notice of a reportable event will be required to be filed in connection with the
Transactions.
(g) The Company and the Company Subsidiaries do not have any liabilities or obligations that
are material to the Company and the Company Subsidiaries, taken as a whole, including under or on
account of a Company Benefit Plan or Company Benefit Agreement, arising out of the hiring of
persons to provide services to the Company and treating such persons as consultants or independent
contractors and not as employees of the Company.
(h) No deduction by the Company or any of the Company Subsidiaries in respect of any
applicable remuneration (within the meaning of Section 162(m) of the Code) has been disallowed or
is subject to disallowance by reason of Section 162(m) of the Code.
(i) Other than payments or benefits that may be made to the persons listed in Section 3.11(i)
of the Company Disclosure Letter (
Primary Company Executives
), no amount or other
entitlement or economic benefit that could be received (whether in cash or property or the vesting
of property) as a result of the execution and delivery of this Agreement, the obtaining of the
Company Shareholder Approval, the consummation of the Merger or any other transaction contemplated
by this Agreement (including as a result of termination of employment on or following the Effective
Time) by or for the benefit of any Company Participant who is a disqualified individual (as such
term is defined in Treasury Regulations Section 1.280G-1) under any Company Benefit Plan, Company
Benefit Agreement or otherwise would be characterized as an excess parachute payment (as such
term is defined in Section 280G(b)(1) of the Code), and no disqualified individual is entitled to
receive any additional payment from the Company or any of the Company Subsidiaries, the Surviving
Corporation or any other person in the event that the excise tax required by Section 4999(a) of the
Code is imposed on such disqualified individual (a
Parachute Gross Up Payment
).
(j) None of the execution and delivery of this Agreement, the obtaining of the Company
Shareholder Approval or the consummation of the Merger or any other
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transaction contemplated by this Agreement (including as a result of any termination of
employment on or following the Effective Time) will (i) entitle any Company Participant to
severance or termination pay, (ii) accelerate the time of payment or vesting or accelerate
exercisability of, or trigger any payment or funding (through a grantor trust or otherwise) of,
compensation or benefits under, increase the amount payable or trigger any other material
obligation pursuant to, any Company Benefit Plan or Company Benefit Agreement or (iii) result in
any breach or violation of, or a default under, any Company Benefit Plan or Company Benefit
Agreement.
(k) Each Company Benefit Plan and each Company Benefit Agreement that is a nonqualified
deferred compensation plan within the meaning of Section 409A(d)(1) of the Code (a
Company
Nonqualified Deferred Compensation Plan
) subject to Section 409A of the Code has been operated
in compliance with Section 409A of the Code since January 1, 2005, based upon a good faith,
reasonable interpretation of (i) Section 409A of the Code and (ii)(A) the Final Regulations issued
thereunder, (B) the Proposed Regulations issued thereunder or (C) IRS Notice 2005-1, in the case of
clauses (B) and (C), as modified by IRS Notice 2006-79 and Notice 2007-86 (clauses (i) and (ii),
together, the
409A Authorities
). No Company Benefit Plan or Company Benefit Agreement
that would be a Company Nonqualified Deferred Compensation Plan subject to Section 409A of the Code
but for the effective date provisions that are applicable to Section 409A of the Code, as set forth
in Section 885(d) of the American Jobs Creation Act of 2004, as amended (the
AJCA
), has
been materially modified within the meaning of Section 885(d)(2)(B) of the AJCA after October 3,
2004, based upon a good faith reasonable interpretation of the AJCA and the 409A Authorities, or
has been operated in violation of the 409A Authorities. No Company Participant is entitled to any
gross-up, make-whole or other additional payment from the Company or any of the Company
Subsidiaries in respect of any Tax (including Federal, state, local or foreign income, excise or
other Taxes (including Taxes imposed under Section 409A of the Code)) or interest or penalty
related thereto.
SECTION 3.12.
Litigation.
There is no suit, action or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any Company Subsidiary that,
individually or in the aggregate, has had or is reasonably expected to have a Company Material
Adverse Effect, nor is there any Judgment outstanding against the Company or any Company Subsidiary
that has had or is reasonably expected to have a Company Material Adverse Effect.
SECTION 3.13.
Compliance with Applicable Laws.
Except as disclosed in the Filed
Company SEC Documents, the Company and the Company Subsidiaries are in compliance with all
applicable Laws, except for instances of noncompliance that, individually or in the aggregate, have
not had and are not reasonably expected to have a Company Material Adverse Effect. Except as
disclosed in the Filed Company SEC Documents, neither the Company nor any Company Subsidiary has
received any written communication during the past two years from a Governmental Entity that
alleges that the Company or a Company Subsidiary is not in compliance in any material respect with
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any applicable Law. This Section 3.13 does not relate to matters with respect to Taxes,
Company Benefit Plan matters and environmental matters, which are the subject of Sections 3.09,
3.11 and 3.14, respectively.
SECTION 3.14.
Environmental Matters.
Except for such matters that individually or in
the aggregate have not had, and are not reasonably expected to have, a Company Material Adverse
Effect: (a) the Company and each Company Subsidiary is in compliance with all Laws relating to
pollution, protection of the environment, natural resources, or human health and safety
(collectively,
Environmental Laws
); (b) the Company and each Company Subsidiary hold, and
are in compliance with, all permits, licenses, certificates or other approvals required under
Environmental Laws for the Company and the Company Subsidiaries to conduct their respective
businesses as currently conducted; and (c) to the knowledge of the Company, neither the Company nor
any Company Subsidiary has (i) placed, held, located, released, transported or disposed of any
Hazardous Materials (as defined below) on, under, from or at any of the Companys or any Company
Subsidiarys properties or any other property or (ii) received any written claim, notice, inquiry
or warning or entered into or agreed to any court decree or order or become subject to any
Judgment, in each case relating to compliance with any Environmental Law or to the investigation or
cleanup of Hazardous Materials. For purposes of this Agreement, the term
Hazardous
Materials
means any radioactive materials or wastes, petroleum (including any byproduct or
fraction thereof), asbestos or asbestos-containing materials, and any other wastes, materials,
chemicals or substances which, in relevant form, quantity or concentration, are regulated pursuant
to any Environmental Law.
SECTION 3.15.
Title to Properties.
(a) Each of the Company and the Company
Subsidiaries has good and marketable title to, or valid leasehold interests in, all its properties
and assets, except for (i) any Lien for Taxes not yet due or being contested in good faith by any
appropriate proceedings before any court or Governmental Entity, (ii) mechanics and other similar
statutory liens that do not materially detract from the value or materially interfere with any
present or intended use of the property or assets to which such Lien relates, (iii) any Lien
disclosed on Schedule 3.15(a) and (iv) any other Lien (other than those securing indebtedness) that
does not materially detract from the value or materially interfere with any present or intended use
of the property or assets to which such Lien relates (collectively,
Permitted Liens
).
All such assets and properties are free and clear of all Liens except for Permitted Liens.
(b) Section 3.15(b) of the Company Disclosure Letter contains (i) a correct legal description
and street address of all real property (
Owned Real Property
) in which any of the Company
or the Company Subsidiaries has a fee simple estate or other ownership interest, with the name of
the owning entity being specified, and containing a brief description of the use being made thereof
(e.g., a manufacturing plant, a warehouse, office use, vacant land); and (ii) an accurate
description of all leases, subleases and licenses of real property (collectively,
Real
Property Leases
) pursuant to which any of the Company or the Company Subsidiaries has a
leasehold interest or
A-24
otherwise has a right to occupy the real property demised thereunder (
Leased Real
Property
), including (w) the location of each Leased Real Property, (x) the date of each Real
Property Lease and of any amendments and supplements thereto, (y) the name of the original lessor
and lessee (and, in the event an assignment has occurred, the name of the current lessor and
lessee), and (z) the expiration date of the term, and whether there are any extant renewal options
(e.g., one five year renewal option).
(c) True and complete photocopies of all Real Property Leases (and all amendments and
supplements thereto) have been furnished to Parent. Each of the Company and the Company
Subsidiaries has complied in all material respects with the terms of all material Real Property
Leases to which it is a party and under which it is in occupancy, and all such leases are in full
force and effect. None of the Company or the Company Subsidiaries, as applicable, has given or
received any notice of default thereunder which is extant (i.e., not cured within the applicable
grace period) nor has any event occurred which with the giving of notice or the passage of time or
both would constitute a material default thereunder. Each of the Company and the Company
Subsidiaries enjoys peaceful and undisturbed possession under all such material leases, and all
material Real Property Leases are free and clear of all Liens except for Permitted Liens, and Liens
affecting the interest of a third party lessor thereunder (i.e., a lessor other than the Company or
a Company Subsidiary).
SECTION 3.16.
Products and Services.
Except as would not be material to Salvador
Imaging, Inc. (
Salvador
) and its subsidiaries taken as a whole, each of the products and
services produced, sold or licensed to a third party by Salvador or any subsidiary of Salvador is,
and at all times up to and including the sale thereof has been, (i) in compliance with the terms
and requirements of any applicable warranty or other Contract between Salvador or any subsidiary of
Salvador, and such third party, (ii) in compliance with applicable Law and (iii) fit for the
ordinary purposes for which it is intended to be used. Except for any defects or deficiencies that
can be corrected without incurring expense that would be material to Salvador and its subsidiaries
taken as a whole, each product that has been sold by Salvador or any subsidiary of Salvador to any
person was free of any design defects, construction defects or other defects or deficiencies at the
time of sale. All repair services and other services that have been performed by Salvador or any
subsidiary of Salvador were performed in conformance with the terms and requirements of all
applicable warranties and other Contracts and with applicable Law, except as would not be material
to Salvador and its subsidiaries taken as a whole. No product manufactured or sold by Salvador or
any subsidiary of Salvador has been the subject of any recall or other similar action; and to the
knowledge of the Company, no event has occurred, and no condition or circumstance exists, that has
given or is reasonably expected to give rise to or serve as a basis for any such recall or other
similar action relating to any such product (with or without notice or lapse of time).
SECTION 3.17.
Intellectual Property.
(a) The Company and the Company Subsidiaries
own free and clear of all Liens (other than non-exclusive licenses granted by the Company in
connection with sales of the products of the Company or
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Company Subsidiaries in the ordinary course of business), or are validly licensed or otherwise
have the right to use free and clear of all royalties, all Intellectual Property Rights (as defined
in Section 3.17(i)) which are material to the conduct of the business of the Company and the
Company Subsidiaries taken as a whole. With respect to any Intellectual Property Rights licensed
to the Company or any Company Subsidiary, neither the Company nor any Company Subsidiary has any
obligation to assign or license back any improvements or derivative works which are made by the
Company or a Company Subsidiary in such licensed Intellectual Property Rights. Each Intellectual
Property Right owned by the Company or a Company Subsidiary is (i) to the knowledge of the Company,
valid and (ii) in full force and effect and has not been abandoned. Section 3.17(a) of the Company
Disclosure Letter sets forth a description of all registered Intellectual Property Rights owned by
the Company or any Company Subsidiary and all Intellectual Property Rights licensed to the Company
(other than licenses to the Company or any Company Subsidiary of standard off-the-shelf commercial
software products), in each case which are material to the conduct of the business of the Company
and the Company Subsidiaries taken as a whole. No claims are pending or, to the knowledge of the
Company, threatened that the Company or any Company Subsidiary is infringing or otherwise
misappropriating or violating the rights of any person with regard to any Intellectual Property
Right. To the knowledge of the Company, the business of and Intellectual Property Rights owned by
the Company and the Company Subsidiaries do not infringe the rights of any third party with respect
to any Intellectual Property Right. To the knowledge of the Company, no person is infringing the
rights of the Company or any Company Subsidiary with respect to any Intellectual Property Right
that is material to the conduct of the business of the Company and the Company Subsidiaries taken
as a whole. None of the Company or any of the Company Subsidiaries has given to any person an
indemnity in connection with any Intellectual Property Right other than in connection with sales of
the products of the Company or the Company Subsidiaries in the ordinary course of business. The
Company and each Company Subsidiary has taken commercially reasonable action in accordance with
normal industry practice to protect the Intellectual Property Rights owned by it.
(b) To the knowledge of the Company, (x) the Company has not disclosed to any person any
material confidential source code that is part of the software owned or exclusively licensed by the
Company and (y) no person, other than the Company, possesses any current or contingent right to
obtain, modify, distribute, disclose or have disclosed to them any material confidential source
code that is part of the software owned or exclusively licensed by the Company. No software used
or owned by the Company (i) is subject to any copyleft obligation or condition or contains any
software code that is distributed under any of the following licenses or distribution models, or
licenses or distribution models similar to any of the following: GNU General Public License or GNU
Lesser General Public License; (ii) contains any software code that is licensed under any terms or
conditions that create, or purport to create, obligations requiring the disclosure, distribution or
license of all or a portion of the source code for any software owned or used by the Company; (iii)
contains any software code that is licensed under any terms or conditions that impose any
requirements that any software using, linked with,
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incorporating, distributed with, based on, derived from or accessing such software code (A) be
licensed for the purpose of making derivative works, (B) be licensed under terms that allow reverse
engineering, reverse assembly or disassembly of any kind or (C) be redistributable at no charge; or
(iv) is subject to any obligation or condition that could otherwise impose any limitation,
restriction or condition on the right or ability of the Company to use or distribute its products
and services (any of the foregoing items (i), (ii), (iii) or (iv) referred to as
Open Source
Materials
). Section 3.17(b) of the Company Disclosure Letter describes the manner in which
such Open Source Materials were and/or are used.
(c) Each former and current employee, agent, consultant or contractor of and to the Company or
any Company Subsidiary has executed and delivered to the Company or such Company Subsidiary a
confidential information and Intellectual Property Right assignment agreement in substantially the
same form as the standard form confidential information and Intellectual Property Right assignment
agreement of the Company or Company Subsidiary, as the case may be, a copy of which is set forth in
Section 3.17(c) of the Company Disclosure Letter and there has been conveyed to the Company or such
Company Subsidiary by appropriately executed instruments of assignment full, effective and
exclusive ownership of all tangible and intangible property thereby arising and all such agreements
have been, where relevant, recorded with the United States Patent Office or with the applicable
Governmental Entity. No current or former employee, agent, consultant or independent contractor
associated with the Company or any Company Subsidiary who has contributed to or participated in the
conception and development of Intellectual Property Rights of the Company or such Company
Subsidiary has asserted or threatened any claim against the Company or such Company Subsidiary in
connection with such persons involvement in the conception and development of any Intellectual
Property Rights of the Company or such Company Subsidiary.
(d) Neither the Company nor any Company Subsidiary nor any of their respective officers or
employees has any patents issued or applications pending for any device, process, design or
invention of any kind now used or needed by the Company or such Company Subsidiary in the
furtherance of its business operations as presently conducted or as proposed to be conducted, which
patents or applications have not been assigned to the Company or such Company Subsidiary with such
assignment duly recorded in the United States Patent Office or with the applicable foreign
Governmental Entity.
(e) No Trade Secret (as defined in Section 3.17(i)) of the Company or any Company Subsidiary
has been disclosed by the Company or any Company Subsidiary or authorized to be disclosed by the
Company or any Company Subsidiary to any third party, other than pursuant to a non-disclosure
agreement that protects the Companys or such Company Subsidiarys proprietary interests in and to
such Trade Secrets.
(f) All Intellectual Property Rights of the Company or any Company Subsidiary are freely
transferable, conveyable and/or assignable by the Company or such
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Company Subsidiary to Parent without any restriction, constraint, control, supervision or
limitation that could be imposed by any Governmental Entity, university, college, educational
institution, research center, foundation or similar institution, other than, with respect to
Intellectual Property Rights of Salvador, under the Defense Review Laws and the Export
Administration Regulations administered by the U.S. Department of Commerce.
(g) The Company and each Company Subsidiary has obtained all material approvals necessary for
the exporting from the country in which any product is developed and the importing to the country
in which such product is directed, in accordance with all applicable export and import control
regulations and all such export and import approvals throughout the world are in full force and
effect.
(h) None of the Intellectual Property Rights currently owned by the Company was developed by
or for or on behalf of, or using grants or any other subsidies of, any Governmental Entity or any
university, and no government funding, facilities, faculty or students of a university, college,
other educational institution or research center or funding from third parties was used in the
development of the Intellectual Property Rights owned by the Company. No current or former
employee, agent, consultant or independent contractor of the Company, who was involved in, or who
contributed to, the creation or development of any Intellectual Property Right owned by the
Company, has performed services for a government, university, college, or other educational
institution or research center during a period of time during which such employee, consultant or
independent contractor was also performing services for the Company.
(i) For purposes of this Agreement:
Intellectual Property Rights
shall mean patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, service marks, service mark rights, copyrights,
computer programs, Trade Secrets and other proprietary intellectual property rights.
Trade Secrets
shall mean (a) any idea, formula, algorithm, design, pattern,
compilation, program, specification, data, device, method, technique, process or other know-how,
and (b) any other financial, marketing, customer, pricing and cost confidential and proprietary
information, which, in the case of both (a) and (b), is related to the business of the Company or
the Company Subsidiaries and, that derives, in the Companys reasonable opinion, independent
economic value, actual or potential, from not being generally known to the public or to other
persons who can obtain economic value from its disclosure or use.
SECTION 3.18.
Labor Matters.
There are no collective bargaining or other labor union
agreements to which the Company or any Company Subsidiary is a party or by which any of them is
bound. To the knowledge of the Company, since January 1, 2003, neither the Company nor any Company
Subsidiary has been the subject
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of any labor union organizing activity, or had any actual or threatened employee strikes, work
stoppages, slowdowns or lockouts.
SECTION 3.19.
Contracts; Debt Instruments.
(a) Set forth in Section 3.19(a) of the
Company Disclosure Letter is a list, as of the date of this Agreement, of (i) all Contracts of the
Company or any of the Company Subsidiaries with any of the ten largest customers of the Company and
the Company Subsidiaries (determined on the basis of aggregate revenues received by the Company and
the Company Subsidiaries over the four consecutive fiscal quarter period ended March 31, 2008),
(ii) all sales agencies Contracts, sales representatives Contracts and distributorship Contracts of
the Company or any of the Company Subsidiaries, (iii) all Contracts with suppliers of the Company
or any Company Subsidiary under which the Company or any Company Subsidiary is obligated to
purchase over the next twelve months from the date of this Agreement or has purchased in the twelve
months ended March 31, 2008, either on an individual Contract-basis or in the aggregate, at least
$500,000 in goods or services, (iv) all Contracts with sole suppliers of the Company or any Company
Subsidiary under which the Company or any Company Subsidiary is obligated to purchase over the next
twelve months from the date of this Agreement or has purchased in the twelve months ended
March 31, 2008, either on an individual Contract-basis or in the aggregate, at least $200,000 in
goods or services, (v) all outsourcing Contracts of the Company or any Company Subsidiary, (vi) all
Contracts pursuant to which the Company or any Company Subsidiary licenses or has an obligation to
buy or sell any Intellectual Property Rights to or from a third party (other than (x) licenses to
the Company or any Company Subsidiary of standard off-the-shelf commercial software products and
(y) licenses of intellectual property included in the Companys products as they are sold in the
ordinary course of business), (vii) all strategic alliance, joint venture, partnership and joint
marketing Contracts of the Company or any Company Subsidiary, (viii) all Contracts of the Company
or any Company Subsidiary for the indemnification of directors or officers, (ix) all Contracts of
the Company or any Company Subsidiary under which the Company has agreed either to outsource any
material research and development program or to perform research and development for a third party,
(x) all Contracts with most favored nation provisions or similar preferential arrangements, (xi)
(A) all Contracts of the Company or any Company Subsidiary to which Lam Toshima Solar LLC (
LT
Solar
) or any of its other affiliates, members, officers, employees, agents or controlling
persons is a party, (B) all guarantees by the Company or any Company Subsidiary of any indebtedness
or other obligations of LT Solar and (C) all keep well or other Contracts of the Company or any
Company Subsidiary to maintain any financial statement condition of LT Solar or any arrangement
having the economic effect of a guarantee (each an
LT Solar Contract
and collectively,
the
LT Solar Contracts
), (xii) (A) all Contracts between Salvador or any subsidiary of
Salvador, on the one hand, and the Company or any Company Subsidiary (other than Salvador or any
subsidiary of Salvador), on the other hand, (B) all guarantees by the Company or any Company
Subsidiary (other than Salvador or any subsidiary of Salvador) of any indebtedness or other
obligations of Salvador or any subsidiary of Salvador, (C) all keep well or other Contracts of
the Company or any Company Subsidiary (other than
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Salvador or any subsidiary of Salvador) to maintain any financial statement condition of
Salvador or any subsidiary of Salvador or any arrangement having the economic effect of a
guarantee, (D) all Contracts of the Company or any Company Subsidiary that limit or impose
restrictions upon the sale or disposition of Salvador or any subsidiary of Salvador and (E) all
Contracts of Salvador or any subsidiary of Salvador that are material to the Company and the
Company Subsidiaries, taken as a whole (each, a
Salvador Contract
and collectively, the
Salvador Contracts
) and (xiii) all other Contracts that are material to the business,
properties, assets, condition (financial or otherwise) or results of operations of the Company and
the Company Subsidiaries taken as a whole;
provided
,
however
, that for purposes of
clause (xiii), with respect to any Contract the materiality or immateriality of which would be
determined solely by the Companys annual expenditure or receipts, the standard of materiality
shall be $1,000,000; and
provided
,
further
, that in the case of each of clauses (i)
through (xiii) above, Contract shall be deemed to exclude any Contract as to which there are no
remaining material obligations or remaining obligations of the types referred to in clauses (iv),
(v), (vii) through (xi) and (xii)(A)-(D) above to be performed by any party thereto (each Contract
of the type described in clauses (i) through (x) and clause (xiii),
Company Material
Contracts
). The Company has made available to Parent complete and correct copies of all
Company Material Contracts, LT Solar Contracts and Salvador Contracts.
(b) Except as would not reasonably be expected to have a Company Material Adverse Effect:
(i) all Company Material Contracts, LT Solar Contracts and Salvador Contracts are
valid, binding and in full force and effect and are enforceable by the Company or the
relevant Company Subsidiary in accordance with their terms;
(ii) neither the Company nor any Company Subsidiary is in breach or default under any
Company Material Contract, LT Solar Contracts or Salvador Contracts and, to the Companys
knowledge, no other party to any of the Company Material Contracts, LT Solar Contracts or
Salvador Contracts is in breach or default thereunder;
(iii) neither the Company nor any Company Subsidiary is in violation of or in default
under (nor does there exist any condition which upon the passage of time or the giving of
notice would cause such a violation of or default under) any Contract to which it is a
party or by which it or any of its properties or assets is bound; and
(iv) neither the Company nor any Company Subsidiary is a party to any Contract the
terms of which preclude, limit, restrict or impair the ability of the Company or any
Company Subsidiary to conduct its business in the ordinary course consistent with prior
practice or to enter into any other lines of business.
(c) Set forth in Section 3.19(c) of the Company Disclosure Letter is (x) a list of all loan or
credit agreements, notes, bonds, mortgages, indentures and other
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agreements and instruments pursuant to which any indebtedness of the Company or any Company
Subsidiary in an aggregate principal amount in excess of $500,000 is outstanding or may be incurred
and (y) the respective principal amounts currently outstanding thereunder. For purposes of this
Section 3.19(c), indebtedness shall mean, with respect to any person, without duplication, (A)
all obligations of such person for borrowed money, or with respect to deposits or advances of any
kind to such person, (B) all obligations of such person evidenced by bonds, debentures, notes or
similar instruments, (C) all obligations of such person upon which interest charges are customarily
paid, (D) all obligations of such person under conditional sale or other title retention agreements
relating to property purchased by such person, (E) all obligations of such person issued or assumed
as the deferred purchase price of property or services (excluding obligations of such person to
creditors for raw materials, inventory, services and supplies incurred in the ordinary course of
such persons business), (F) all capitalized lease obligations of such person, (G) all obligations
of others secured by any lien on property or assets owned or acquired by such person, whether or
not the obligations secured thereby have been assumed, (H) all obligations of such person under
interest rate or currency hedging transactions (valued at the termination value thereof), (I) all
letters of credit issued for the account of such person and (J) all guarantees and arrangements
having the economic effect of a guarantee of such person of any indebtedness of any other person.
SECTION 3.20.
Brokers; Schedule of Fees and Expenses.
No broker, investment banker,
financial advisor or other similar person, other than Credit Suisse, the fees and expenses of which
will be paid by the Company, is entitled to any brokers, finders, financial advisors or other
similar fee or commission in connection with the Merger and the other Transactions based upon
arrangements made by or on behalf of the Company. The estimated fees and expenses incurred and to
be incurred by the Company in connection with the Merger and the other Transactions (including the
fees of Credit Suisse and the fees of the Companys legal counsel) have been disclosed to Parent.
The Company has furnished to Parent a true and complete copy of all agreements between the Company
and Credit Suisse relating to the Merger and the other Transactions.
ARTICLE IV
Representations and Warranties of Parent and Sub
Parent and Sub, jointly and severally, represent and warrant to the Company that:
SECTION 4.01.
Organization, Standing and Power.
Each of Parent and Sub is duly
organized, validly existing and, where relevant, in good standing under the laws of the
jurisdiction in which it is organized and has full corporate power and authority and possesses all
governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to
perform its obligations under this Agreement and
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consummate the Transactions, other than such franchises, licenses, permits, authorizations and
approvals the lack of which, individually or in the aggregate, has not had and is not reasonably
expected to have a Parent Material Adverse Effect (as defined in Section 9.03(a)). Parent has
delivered to the Company true and complete copies of the memorandum of association of Parent, as
amended to the date of this Agreement (as so amended, the
Parent Memorandum of
Association
), and the articles of association of Parent, as amended to the date of this
Agreement (as so amended, the
Parent Articles
), and the comparable charter and
organizational documents of Sub, as amended through the date of this Agreement.
SECTION 4.02.
Sub.
Since the date of its incorporation, Sub has not carried on any
business or conducted any operations other than the execution of this Agreement, the performance of
its obligations hereunder and matters ancillary thereto. All of the outstanding capital stock of,
or other voting securities or ownership interests in, Sub is owned by Parent, directly or
indirectly, free and clear of any Lien and free of any other limitation or restriction.
SECTION 4.03.
Parent SEC Documents; Undisclosed Liabilities.
(a) Parent has filed
all reports, schedules, forms, statements and other documents required to be filed by Parent with
the SEC since October 1, 2007 (the
Parent SEC Documents
).
(b) As of its respective date, each Parent SEC Document complied in all material respects with
the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Parent SEC Document, and did not
contain any untrue statement of a material fact or omit 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 except to the extent that information contained in any
Parent SEC Document has been revised, amended, supplemented or superseded by a later filed Parent
SEC Document. The consolidated financial statements of Parent included in the Parent SEC Documents
complied at the time they were filed 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 GAAP applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present in all material respects the
consolidated financial position of Parent and its consolidated subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows for the periods shown (subject, in
the case of unaudited statements, to normal year-end audit adjustments).
(c) Except as disclosed in the Parent SEC Documents filed and publicly available prior to the
date of this Agreement, neither Parent nor any Parent Subsidiary has any liabilities or obligations
of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be set forth
on a consolidated balance sheet or in the notes thereto and that, individually or in the aggregate,
is reasonably expected to have a Parent Material Adverse Effect.
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SECTION 4.04.
Authority; Execution and Delivery; Enforceability.
(a) Each of Parent
and Sub has all requisite corporate power and authority to execute and deliver this Agreement and
to consummate the Transactions. The execution and delivery by each of Parent and Sub of this
Agreement and the consummation by it of the Transactions have been duly authorized by all necessary
corporate action on the part of Parent and Sub and the consummation of the Merger does not require
any vote of the shareholders of Parent. Parent, as the indirect shareholder of Sub, has approved
this Agreement. Each of Parent and Sub has duly executed and delivered this Agreement, and this
Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance
with its terms.
(b) The Board of Directors of Parent (the
Parent Board
), at a meeting duly called
and held, duly adopted resolutions approving this Agreement, the Merger and the other Transactions.
SECTION 4.05.
No Conflicts; Consents.
(a) The execution and delivery by each of
Parent and Sub of this Agreement, do not, and the consummation of the Merger and the other
Transactions and compliance with the terms hereof will not conflict with or result in any violation
of any provision of, or cause an event that, with or without notice or lapse of time or both, could
become a violation of, (i) the Parent Memorandum of Association, the Parent Articles or the
comparable charter or organizational documents of Sub, (ii) any Contract to which Parent or Sub is
a party or by which any of their respective properties or assets is bound or (iii) subject to the
filings and other matters referred to in Section 4.05(b), any Judgment or Law applicable to Parent
or Sub other than, in the case of clauses (ii) and (iii) above, any such items that, individually
or in the aggregate, have not had and are not reasonably expected to have a Parent Material Adverse
Effect.
(b) No Consent of, or registration, declaration or filing with, or permit from, any
Governmental Entity is required to be obtained or made by or with respect to Parent or any Parent
Subsidiary in connection with the execution, delivery and performance of this Agreement or the
consummation of the Transactions, other than (i) compliance with and filings under (A) the HSR Act,
(B) the Monopoly Regulation and Fair Trade Act of South Korea, (C) the Fair Trade Act of Taiwan,
(D) the Act Concerning Prohibition of Private Monopolization and Maintenance of Fair Trade (Law No.
54 of 1947) of Japan, and (E) as applicable, the Regulation of the Merger and Acquisition of
Domestic Enterprises by Foreign Investors of the Peoples Republic of China and the Anti-Monopoly
Law of the Peoples Republic of China, (ii) compliance with and legally required filings under any
Defense Review Laws, (iii) the filing with the SEC of such reports under Sections 13 and 16 of the
Exchange Act, as may be required in connection with this Agreement, the Merger and the other
Transactions, (iv) the filing of the Merger Filing with the Secretary of State of the State of
California and (v) such other items (A) that may be required under the applicable Law of any
foreign country (other than Israel), (B) required (x) solely by reason of the participation of the
Company (as opposed to any third party) in the Transactions or (y) as a result of the actions taken
pursuant to
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Sections 6.05(a)(i) and 6.05(a)(ii) or (C) that, individually or in the aggregate, have not
had and are not reasonably expected to have a Parent Material Adverse Effect.
SECTION 4.06.
Information Supplied.
None of the information supplied or to be
supplied by Parent or Sub for inclusion or incorporation by reference in the Company Proxy
Statement will, at the date it is first mailed to the Companys shareholders, or at the time of the
Shareholders Meeting, 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.
SECTION 4.07.
Financing.
Parent, Sub and the Surviving Corporation will have, or will
have access to, funds available sufficient to consummate the Transactions and, at the Effective
Time, to pay the Merger Consideration and perform their respective obligations under this
Agreement. Parent has provided to the Company a true, complete and correct copy of an executed
commitment letter (as the same may be amended or replaced in accordance with Section 6.11, the
Financing Commitment
) from an Israeli bank whose identity has been disclosed to the
Company (the
Lender
) pursuant to which, and subject to the terms and conditions thereof,
the Lender has committed to provide Parent with financing in an aggregate amount up to $185,000,000
(the
Financing
). The Financing Commitment, in the form so delivered, is a legal, valid
and binding obligation of each of the parties thereto, including the Lender. As of the date of
this Agreement, (i) the Financing Commitment has not been amended, modified, withdrawn or rescinded
in any respect, (ii) no event has occurred that, with or without notice, lapse of time or both,
would constitute a default or breach on the part of Parent or Sub under any term or condition of
the Financing Commitment and (iii) Parent reasonably believes that it will be able to satisfy the
material conditions to the Financing contemplated by the Financing Commitment and that the
Financing will be made available to Parent on the Closing Date. Except for the payment of
customary fees, there are no conditions precedent or other contingencies related to the funding of
the full amount of the Financing (including in any side letter or similar arrangement), other than
as set forth in or contemplated by the Financing Commitment.
SECTION 4.08.
Withholding.
No amount of the consideration otherwise payable to any
holder of Company Common Stock pursuant to this Agreement who is not a tax resident of Israel is
required to be deducted and withheld from the payment of such consideration under Israeli tax Law.
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ARTICLE V
Covenants Relating to Conduct of Business
SECTION 5.01.
Conduct of Business.
(a)
Conduct of Business by the Company.
Except for matters set forth in Section 5.01 of the Company Disclosure Letter or as otherwise
expressly permitted by this Agreement, from the date of this Agreement to the earlier of the
Effective Time and the termination of this Agreement in accordance with its terms (the
Pre-Closing Period
), the Company shall, and shall cause each Company Subsidiary to,
conduct its business in the usual, regular and ordinary course in substantially the same manner as
previously conducted and, to the extent consistent therewith, use all commercially reasonable
efforts to preserve intact its current business organization, keep available the services of its
current officers and employees and preserve its relationships with customers, suppliers, licensors,
licensees, distributors and others having business dealings with them to the end that its goodwill
and ongoing business shall be unimpaired at the Effective Time. In addition, and without limiting
the generality of the foregoing, except for matters set forth in Section 5.01 of the Company
Disclosure Letter or otherwise expressly permitted by this Agreement, during the Pre-Closing
Period, the Company shall not, and shall not permit any Company Subsidiary to, do any of the
following without the prior written consent of Parent (which consent or withholding of consent
shall be communicated by Parent to the Company within a reasonable timeframe):
(i) (A) declare, set aside or pay any dividends on, or make any other distributions in
respect of, any of its capital stock, other than dividends and distributions (whether in
cash, stock, equity securities or property) by a direct or indirect wholly owned subsidiary
of the Company to its parent or to the Company, (B) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock or (C) purchase, redeem or
otherwise acquire, directly or indirectly, any shares of capital stock of the Company or
any Company Subsidiary or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities;
(ii) issue, deliver, sell, grant, authorize, pledge or otherwise encumber, or agree to
any of the foregoing with respect to (A) any shares of its capital stock, including any
restricted shares, (B) any Voting Company Debt or other voting securities, (C) any
securities convertible into or exchangeable for, or any options, warrants or rights to
acquire, any such shares, Voting Company Debt, voting securities or convertible or
exchangeable securities, including any Company Stock Options or Company RSUs, or enter into
other agreements or commitments of any character obligating it to issue any such share or
convertible or exchangeable security, or (D) any phantom stock, stock appreciation
rights, phantom stock rights, stock-based or stock-related awards or performance units,
other than the (1) issuance of Company Common Stock upon the exercise of
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Company Stock Options outstanding on the date hereof and in accordance with their
terms on the date hereof, (2) issuance of Company Common Stock upon the vesting of Company
RSUs outstanding on the date hereof and in accordance with their terms on the date hereof,
(3) issuance of Company Common Stock upon the exercise of purchase rights under the ESPP in
accordance with their terms on the date hereof and pursuant to an offering that has been
commenced on or prior to the date hereof and (4) grant of Company RSUs to employees hired
after the date hereof in a manner and amount consistent with past practice;
provided
,
however
, that (x) any grant of Company RSUs under this clause (4)
may not contain any provision that would provide for acceleration of vesting upon (A) the
consummation of the Merger or (B) termination of grantees employment with the Company or
any Company Subsidiary after the consummation of the Merger, and (y) the number of shares
of Company Common Stock issuable upon the vesting of Company RSUs granted under this clause
(4) each month shall not exceed 10,000 shares (the
New Grant Cap
), and that any
unused shares remaining at the conclusion of each month below the New Grant Cap shall be
added to the New Grant Cap for the subsequent month, and provided further that the shares
underlying any RSUs forfeited upon termination of employment of any employees of the
Company or any of the Company Subsidiaries after the date of this Agreement shall also be
added to the New Grant Cap;
(iii) amend the Company Charter, Company By-laws or other comparable charter or
organizational documents with respect to the Company Subsidiaries;
(iv) acquire or agree to acquire (A) by merging or consolidating with, or by
purchasing a portion of the assets of, or by any other manner, any equity interest in or
business of any corporation, partnership, joint venture, association or other business
organization or division thereof or (B) any assets that are material, individually or in
the aggregate, to the Company and the Company Subsidiaries, taken as a whole, except
(1) purchases of inventory and raw materials in the ordinary course of business consistent
with prior practice and (2) capital expenditures permitted under clause (xiv) below;
(v) enter into (A) any joint ventures or strategic partnerships, (B) any strategic
alliances, other than in the ordinary course of business consistent with past practice, or
(C) any arrangement that provides for the exclusivity of territory or otherwise restricts
the Companys and/or any Company Subsidiarys ability to compete or to offer or sell any
products or services;
(vi) except as required to ensure that any Company Benefit Plan or Company Benefit
Agreement is not then out of compliance with applicable Law, or as required pursuant to the
terms of Company Benefit Plans and Company Benefit Agreements in effect on the date of this
Agreement, (A) adopt, enter into, terminate or amend (I) any collective bargaining
agreement or Company Benefit Plan or (II) any Company Benefit Agreement or other agreement,
plan or policy involving the Company or any of the Company Subsidiaries and one or more
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Company Participants, (B) increase in any manner the compensation, bonus or fringe or
other benefits of, or pay any bonus of any kind or amount whatsoever to, any Company
Participant, other than in the ordinary course of business consistent with past practice to
employees who are not executive officers, in connection with promotions of such employees,
(C) pay any benefit or amount not required under any Company Benefit Plan or Company
Benefit Agreement or any other benefit plan or arrangement of the Company or any of the
Company Subsidiaries as in effect on the date of this Agreement, other than in the ordinary
course of business consistent with past practice to employees who are not executive
officers within the meaning of the U.S. Federal securities laws, (D) grant or pay any
severance or termination pay or increase in any manner the severance or termination pay of
any Company Participants, (E) grant any awards under any bonus, incentive, performance or
other compensation plan or arrangement, Company Benefit Agreement or Company Benefit Plan
(including the removal of existing restrictions in any Company Benefit Agreements, Company
Benefit Plans or agreements or awards made thereunder), (F) amend or modify any Company
Stock Option or Company RSU, (G) take any action to fund or in any other way secure the
payment of compensation or benefits under any employee plan, agreement, contract or
arrangement or Company Benefit Plan or Company Benefit Agreement, (H) take any action to
accelerate the vesting or payment of any compensation or benefit under any Company Benefit
Plan or Company Benefit Agreement or (I) materially change any actuarial or other
assumption used to calculate funding obligations with respect to any Company Pension Plan
or change the manner in which contributions to any Company Pension Plan are made or the
basis on which such contributions are determined;
(vii) make any change in accounting methods, principles or practices materially
affecting the reported consolidated assets, liabilities or results of operations of the
Company or revalue any of its assets, except insofar as may have been required by GAAP or a
change in GAAP;
(viii) sell, lease (as lessor) or otherwise dispose of or subject to any Lien (other
than Liens described in clause (i) or (ii) of the definition of Permitted Liens) any
material properties or assets, except sales of inventory in the ordinary course of business
consistent with prior practice; or license any properties or assets other than in the
ordinary course of business consistent with past practice;
(ix) incur any indebtedness for borrowed money, except for short-term borrowings (not
by Salvador or any subsidiary of Salvador) of less than $500,000 incurred in the ordinary
course of business consistent with prior practice;
(x) issue or sell any debt securities or warrants or options or calls or other rights
to acquire any debt securities of the Company or any Company Subsidiary;
(xi) guarantee any indebtedness or other obligations of LT Solar, Salvador, any
subsidiary of Salvador or any other person;
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(xii) enter into any keep well or other agreement to maintain any financial
statement condition of LT Solar, Salvador, any subsidiary of Salvador or any other person
or enter into any arrangement having the economic effect of a guarantee;
(xiii) (A) make any loans, advances or capital contributions to, or investments in,
any person other than a wholly-owned Company Subsidiary or (B) make any loans, advances or
capital contributions to, or investments in, Salvador or any subsidiary of Salvador other
than cash capital contributions not in excess of $400,000 per month;
(xiv) make or agree to make any capital expenditure or capital expenditures (A) that
is in excess of $100,000 in respect of Salvador and its subsidiaries or (B) that is in
excess of $500,000 per fiscal quarter, beginning with the fiscal quarter ending
September 30, 2008, in respect of the Company and Company Subsidiaries other than Salvador
and its subsidiaries;
(xv) make or change any material Tax elections, settle or compromise any material Tax
liability or refund, change any material method of accounting for Tax purposes or file any
materially amended Tax Return;
(xvi) (A) pay, discharge, settle or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise) or litigation (whether
or not commenced prior to the date of this Agreement), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with prior practice or in
accordance with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the notes thereto)
of the Company included in the Filed Company SEC Documents or incurred after the date of
such financial statements in the ordinary course of business consistent with prior
practice, (B) cancel any material indebtedness (individually or in the aggregate) or waive
any claims or rights of substantial value or (C) except as provided in Section 5.02(a),
waive the benefits of, or agree to modify in any manner, terminate, release any person from
or knowingly fail to enforce any confidentiality, standstill or similar agreement to which
the Company or any Company Subsidiary is a party or beneficiary;
(xvii) (A) modify, amend or terminate any Company Material Contract or enter into any
Contract which would have been a Company Material Contract had it been in existence on the
date of this Agreement, in each case other than in the ordinary course of business
consistent with past practice, or (B) modify, amend or terminate any LT Solar Contract or
Salvador Contract or enter into any Contract that would have been a LT Solar Contract or
Salvador Contract had it been in existence on the date of this Agreement;
(xviii) subject to any action taken in accordance with Section 5.02, take any action
or permit any of the Company Subsidiaries to take any action (or omit to
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take any action) the purpose of which is to impair in any material respect the
Companys ability to perform its obligations under this Agreement or prevent or materially
impede, interfere with, hinder or delay the consummation of the Transactions;
(xix) transfer or license to any person or otherwise extend, amend or modify any
material rights to any Intellectual Property Rights of the Company and/or any Company
Subsidiary, or enter into grants to transfer or license to any person future patent rights,
other than in the ordinary course of business consistent with past practices,
provided
,
however
, that in no event shall the Company or any Company
Subsidiary license on an exclusive basis or sell any Intellectual Property Rights of the
Company or any Company Subsidiary (other than non-exclusive licenses of any Intellectual
Property Rights of the Company or any Company Subsidiary in connection with the sale of the
Companys products in the ordinary course of business);
(xx) form, establish or acquire any subsidiary; or
(xxi) authorize any of, or commit or agree to take any of, the foregoing actions.
(b)
Other Actions.
The Company and Parent shall not, and shall not permit any of
their respective subsidiaries to, take any action that would, or that is reasonably expected to,
result in any condition to the Merger set forth in Article VII not being satisfied, except as
otherwise permitted by Section 5.02 or 8.01.
(c)
Advice of Changes.
The Company shall promptly advise Parent orally and in writing
of any change or event that has or is reasonably expected to have a Company Material Adverse
Effect.
SECTION 5.02.
No Solicitation by the Company.
(a) The Company shall not, nor shall
it authorize or permit any Company Subsidiary to, nor shall it authorize or permit any officer,
director or employee of, or any investment banker, attorney or other advisor or representative
(collectively,
Representatives
) of, the Company or any Company Subsidiary to,
(i) directly or indirectly solicit, initiate or encourage the submission of, any Company Takeover
Proposal (as defined in Section 5.02(e)), (ii) enter into any agreement with respect to any Company
Takeover Proposal or (iii) directly or indirectly participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Company Takeover Proposal;
provided
,
however
, that prior
to receipt of the Company Shareholder Approval, the Company and its Representatives may, to the
extent required by the fiduciary obligations of the Company Board, as determined in good faith by
it after consultation with outside counsel, in response to a Superior Company Proposal (as defined
in Section 5.02(e)) or a Company Takeover Proposal that the Company Board reasonably believes may
lead to a Superior Company Proposal and that in either case was
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not solicited by the Company and that did not otherwise result from a breach or a deemed
breach of this Section 5.02(a), and subject to compliance with Section 5.02(c), (x) furnish
information with respect to the Company to the person making such Superior Company Proposal and its
Representatives pursuant to a confidentiality agreement that, except with respect to any standstill
or similar provisions, is not less restrictive of the other party than the Confidentiality
Agreement (as defined in Section 6.02) (it being understood and agreed that such confidentiality
agreement need not contain any standstill or similar provisions) and (y) participate in discussions
with such person and its representatives regarding any such Superior Company Proposal. Without
limiting the foregoing, it is agreed that any violation of the restrictions set forth in the
preceding sentence by any person who is a director, officer or employee of the Company or any
Company Subsidiary or any other Representative authorized to act on behalf of the Company or any
Company Subsidiary, shall be deemed to be a breach of this Section 5.02(a) by the Company. The
Company shall, and shall cause its Representatives to, cease immediately all discussions and
negotiations regarding any proposal that constitutes, or may reasonably be expected to lead to, a
Company Takeover Proposal. Notwithstanding any other provision of this Agreement (including the
provisions of Section 5.01), the Company may, to the extent required by the fiduciary obligations
of the Company Board, as determined in good faith by the Company Board after consultation with
outside counsel, waive standstill provisions in effect with a third party in response to an
unsolicited request from such third party for such a waiver, if (1) the Company Board immediately
discloses to Parent the fact of the waiver and the identity of the third party, (2) the third party
has first either made a Superior Company Proposal or has expressed to the Company an intention to
make a Company Takeover Proposal that the Company Board determines in good faith after consultation
with outside counsel and its financial advisor is reasonably likely to lead to a Superior Company
Proposal and (3) the waiver is limited to making a Company Takeover Proposal.
(b) Neither the Company Board nor any committee thereof shall (i) withdraw or modify in a
manner adverse to Parent or Sub, or propose to withdraw or modify in a manner adverse to Parent or
Sub, the approval by the Company Board of this Agreement or the Merger or the Company Board
Recommendation (as defined in Section 6.01(c)), (ii) approve any letter of intent, agreement in
principle, acquisition agreement or similar agreement relating to any Company Takeover Proposal or
(iii) approve or recommend, or publicly propose to approve or recommend, any Company Takeover
Proposal. Notwithstanding the foregoing, if, prior to receipt of the Company Shareholder Approval
the Company Board determines in good faith after consultation with outside counsel that it is
necessary to do so in order to comply with their fiduciary obligations, the Company Board may
withdraw or modify its recommendation that the Companys shareholders give the Company Shareholder
Approval.
(c) The Company promptly shall advise Parent orally and in writing of any Company Takeover
Proposal or any inquiry with respect to or that could lead to any Company Takeover Proposal, the
identity of the person making any such Company Takeover Proposal or inquiry and the material terms
of any such Company Takeover
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Proposal or inquiry. The Company shall (i) keep Parent fully informed of the status
(including any change to the details) of any such Company Takeover Proposal or inquiry and (ii)
provide to Parent as soon as practicable after delivery thereof to the third party making such
Company Takeover Proposal any nonpublic information relating to the Company that has not already
been provided to Parent.
(d) Nothing contained in this Section 5.02 shall prohibit the Company from making any required
disclosure to the Companys shareholders if, in the good faith judgment of the Company Board after
consultation with outside counsel, failure so to disclose would be inconsistent with its
obligations under applicable Law. Notwithstanding anything in this Section 5.02(d) or the last
sentence of Section 5.02(b), but except as provided in Section 8.01(f), the Company Board may not
take any action that would result in the Companys shareholders no longer being legally capable
under the CGCL of validly approving this Agreement.
(e) For purposes of this Agreement:
Company Takeover Proposal
means (i) any proposal or offer for a merger,
consolidation, dissolution, recapitalization or other business combination involving the Company,
(ii) any proposal for the issuance by the Company of over 20% of its equity securities as
consideration for the assets or securities of another person or (iii) any proposal or offer to
acquire in any manner, directly or indirectly, over 20% of the equity securities or consolidated
total assets of the Company, in each case other than the Transactions.
Superior Company Proposal
means any proposal made by a third party to acquire
substantially all the equity securities or assets of the Company, pursuant to a tender or exchange
offer, a merger, a consolidation, a liquidation or dissolution, a recapitalization, a sale of all
or substantially all its assets or otherwise, (i) on terms which the Company Board determines in
good faith to be more favorable to the holders of Company Common Stock than the Transactions,
taking into account all the terms and conditions of such proposal and this Agreement (including any
proposal by Parent to amend the terms of the Transactions) and (ii) that is reasonably capable of
being completed, taking into account all financial, regulatory, legal and other aspects of such
proposal.
ARTICLE VI
Additional Agreements
SECTION 6.01.
Preparation of the Company Proxy Statement; Shareholder Meeting.
(a)
As soon as practicable following the date of this Agreement, and in any event no later than three
weeks after such date, the Company shall prepare and file with the SEC the Company Proxy Statement
in preliminary form. The Company shall
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use its reasonable efforts to respond as promptly as practicable to any comments of the SEC
with respect thereto. The Company shall use its reasonable efforts to cause the Company Proxy
Statement to be mailed to the Companys shareholders as promptly as practicable after filing with
the SEC and in any event, no later than two weeks after clearance by the SEC. The Company shall
provide Parent a reasonable opportunity to review and comment on any filing of, or amendment or
supplement to, the Company Proxy Statement by providing a draft to Parent of such documents a
reasonable time prior to their filing. The Company shall notify Parent promptly of the receipt of
any comments from the SEC or its staff and of any request by the SEC or its staff for amendments or
supplements to the Company Proxy Statement or for additional information and shall promptly supply
Parent with copies of all correspondence between the Company or any of its representatives, on the
one hand, and the SEC or its staff, on the other hand, with respect to the Company Proxy Statement.
(b) If prior to the Effective Time, any event occurs with respect to the Company or any
Company Subsidiary, or any change occurs with respect to other information supplied by the Company
for inclusion in the Company Proxy Statement which is required to be described in an amendment of,
or a supplement to, the Company Proxy Statement the Company shall promptly notify Parent of such
event, and the Company shall promptly file with the SEC any necessary amendment or supplement to
the Company Proxy Statement, as required by Law, in disseminating the information contained in such
amendment or supplement to the Companys shareholders.
(c) The Company shall, as promptly as practicable, duly call, give notice of, convene and hold
a meeting of its shareholders (the
Shareholders Meeting
) for the purpose of seeking the
Company Shareholder Approval. The Company shall, through the Company Board, recommend to its
shareholders that they give the Company Shareholder Approval (the
Company Board
Recommendation
) and shall include such recommendation in the Company Proxy Statement, except
to the extent that the Company Board shall have withdrawn or modified the Company Board
Recommendation as permitted by Section 5.02(b).
(d) The Companys obligations in this Section 6.01 (other than pursuant to the second sentence
of Section 6.01(c)) shall not be affected by (i) the commencement, public proposal, public
disclosure or communication to the Company of any Company Takeover Proposal or (ii) the withdrawal
or modification by the Company Board of its recommendation that the Companys shareholders give the
Company Shareholder Approval;
provided
,
however
, that the Companys obligations in
this Section 6.01 shall be suspended if the Company provides notice to Parent as permitted by
Section 8.05(b) for so long as the Superior Company Proposal giving rise to such notice remains a
Superior Company Proposal.
SECTION 6.02.
Access to Information; Confidentiality.
To the extent permitted by
applicable Law, the Company shall, and shall cause each Company Subsidiary to, afford to Parent and
to the officers, employees, accountants, counsel, financial advisors, consultants and other
representatives of Parent, reasonable access
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during normal business hours and upon reasonable prior notice during the Pre-Closing Period to
all its properties, books, contracts, commitments, personnel and records, but only to the extent
that such access does not unreasonably interfere with the business or operations of the Company or
any Company Subsidiary and, during such period, the Company shall, and shall cause each Company
Subsidiary to, make available promptly to Parent (a) a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to the requirements of U.S.
Federal or U.S. state securities laws and (b) all other information concerning its business,
properties and personnel as Parent may reasonably request;
provided
,
however
, that
the Company shall not be required to (or to cause any Company Subsidiary to) afford access or
furnish such copies or other information if doing so would, or is reasonably expected to, subject
the Company to liability under, or constitute a violation of, applicable Law or any confidentiality
obligation to a third party. Without limiting the generality of the foregoing, the Company shall,
within two Business Days of request therefor, provide to Parent the information described in Rule
14a-7(a)(2)(ii) under the Exchange Act and any information to which a holder of Company Common
Stock would be entitled under Sections 1600 and 1601 of the CGCL (assuming such holder meets the
requirements of such sections). All information exchanged pursuant to this Section 6.02 shall be
subject to the amended and restated mutual non-disclosure agreement dated as of April 3, 2008
between the Company and Parent (the
Confidentiality Agreement
), and Parent shall cause
its advisors and representatives who receive such information to agree to hold such information in
confidence in accordance with the terms of the Confidentiality Agreement.
SECTION 6.03.
Reasonable Efforts; Notification.
(a) Upon the terms and subject to
the conditions set forth in this Agreement, each of the parties shall use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger and the other
Transactions, including (i) the obtaining of all necessary actions or nonactions, waivers, consents
and approvals from Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities, if any) and the taking of all reasonable steps as
may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (ii) the obtaining of all necessary consents, approvals or waivers from third
parties, (iii) the defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the Transactions, including
seeking to have any stay or temporary restraining order entered by any court or other Governmental
Entity vacated or reversed and (iv) the execution and delivery of any additional instruments
necessary to consummate the Transactions and to fully carry out the purposes of this Agreement. In
connection with and without limiting the foregoing, the Company and the Company Board shall
(i) take all action necessary and within its power to prevent a takeover statute or similar statute
or regulation from becoming applicable to any Transaction or this Agreement and (ii) if any
takeover statute or similar statute or regulation becomes applicable to any Transaction or this
Agreement, take all action necessary and within its power to ensure that the Merger and the other
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Transactions may be consummated as promptly as practicable on the terms contemplated by this
Agreement.
(b) The Company shall give prompt notice to Parent, and Parent or Sub shall give prompt notice
to the Company, of (i) any representation or warranty made by it contained in this Agreement that
is qualified as to materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or inaccurate in any material
respect, in each case such as would cause the condition set forth in Section 7.02(a) not to be
satisfied or (ii) the failure by it to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this Agreement, in each case
such as would cause the condition set forth in Section 7.02(b) not to be satisfied;
provided
,
however
, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the obligations of the
parties under this Agreement.
(c) Nothing in Section 6.03(a) shall require Parent to dispose of any of its assets or to
limit its freedom of action with respect to any of its businesses, or to consent to any disposition
of the Companys assets or limits on the Companys freedom of action with respect to any of its
businesses, or to commit or agree to any of the foregoing, and nothing in Section 6.03(a) shall
authorize the Company to commit or agree to any of the foregoing, to obtain any consents,
approvals, permits or authorizations or to remove any impediments to the Merger relating to the HSR
Act or other antitrust, competition, premerger notification or trade regulation law, regulation or
order of any applicable jurisdiction (
Antitrust Laws
, which for the avoidance of doubt
shall not include any Defense Review Laws) or to avoid the entry of, or to effect the dissolution
of, any injunction, temporary restraining order or other order in any suit or proceeding relating
to Antitrust Laws, other than dispositions, limitations, consents, commitments or other actions in
furtherance of the consummation of the Merger that, individually or in the aggregate, (i) have not
had and are not reasonably expected to have a Parent Material Adverse Effect or a Company Material
Adverse Effect or (ii) involve the disposition of, an agreement to hold separate (including by
establishing a trust or otherwise), or other restrictions, limitations, consents or commitments
with respect to, a portion of the flat panel display business of Parent or the Company that is not
material to Parent and its subsidiaries, taken as a whole, in the case of actions that relate to
Parents flat panel display business or to the Company and the Company Subsidiaries, taken as a
whole, in the case of actions that relate to the Companys flat panel display business.
(d) To the extent necessary to obtain clearance from the Committee on Foreign Investment in
the United States (
CFIUS
) (whether in the form of written advice from CFIUS that the
Merger is not subject to its review, a determination by CFIUS not to undertake an investigation of
the Merger, a recommendation by CFIUS, after investigation, that the President take no action with
respect to the Merger, a determination by CFIUS, after investigation, that no action by the
President with respect to the Merger is warranted, or a determination by the President to take no
action with respect to the Merger), or to avoid an action or proceeding by, any Governmental Entity
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under any of (i) the Exon-Florio Amendment to the Defense Production Act of 1950, as amended,
and related regulations (
Exon-Florio
); (ii) the regulations and/or other requirements of
the National Industrial Security Program and/or the U.S. Department of Defense Security Service; or
(iii) the Arms Export Control Act and International Traffic in Arms Regulations of the U.S.
Department of State (collectively,
Defense Review Laws
), Parent shall take or commit to
take some or all of the following actions: (A) (x) sell or arrange for sale of Salvador within a
reasonable amount of time following the consummation of the Merger; (y) maintain and operate
Salvador as a separate, ongoing business as a supplier of high-performance digital cameras, which
will include maintaining the books, records, classified information and other controlled
information regarding Salvadors sales and customer information separate, distinct and apart from
Parent and the Surviving Corporations other operations, including under a proxy arrangement or
voting trust (other than to the extent that such information is necessary for Parent or the
Surviving Corporation to comply with applicable Law); (z) ensure that restrictions satisfactory to
the applicable Governmental Entities are placed on all classified or other controlled information
held by Salvador in order to prevent such information from being communicated or delivered to
Parent; or (B) take any other action that is not reasonably expected to have a material adverse
effect on Salvador, excluding from this clause (B) any action with respect to any business or asset
of Parent or the Company other than Salvador. For the avoidance of doubt, in determining whether
any action taken under clause (B) is reasonably expected to have a material adverse effect on
Salvador, the actions described in clauses (A)(x), (A)(y) and (A)(z) will be disregarded.
(e) In connection with and without limiting the foregoing, (i) the Company and Parent shall
submit a joint voluntary notice within 15 days following the date of this Agreement and thereafter
any requested supplemental information (collectively, the
Joint Filing
) to CFIUS pursuant
to 31 C.F.R. Part 800 with regard to the Merger, (ii) Parent shall take responsibility for
preparation and submission of the Joint Filing, (iii) the Company hereby agrees to provide to
Parent all requisite information and otherwise to assist Parent in a timely fashion in order for
Parent to complete preparation and submission of the Joint Filing in accordance with this Section
6.03(e), to respond to any inquiries from CFIUS, any member agency of CFIUS or any other interested
Governmental Entity in a timely fashion and to take all reasonable steps to cause CFIUS to conclude
its review and, if undertaken, investigation, without referring the Merger to the President of the
United States and (iv) each of Parent and the Company agrees to promptly notify the other of any
communication from or with any of the Governmental Entities in connection with the review of the
Merger under Exon-Florio listed in clause (iii), which notice will include copies of any written or
electronic communication and the material content of any verbal communication, and to respond as
promptly as practicable to any request for information from any of such Governmental Entities.
(f) In connection with the foregoing, the Company shall submit within 15 days following the
date of this Agreement to the Office of Defense Trade Controls a notification of the Transactions
in substantially the form contemplated by the
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International Traffic in Arms Regulations of the U.S. Department of State (22 C.F.R. Part
122.4(b)) (
ITAR
).
(g) Nothing in this Section 6.03 shall require Parent to (i) give any consent under
Section 5.01 to any action or omission by the Company, except for such consents as Parent may be
required to grant pursuant to Section 6.03(c) or 6.03(d), or (ii) agree to amend or waive any
provision of this Agreement.
SECTION 6.04.
Obligations of Sub.
Parent shall cause Sub, or any direct or indirect
subsidiary of Parent that may be substituted for Sub pursuant to Section 1.01, to timely perform
its obligations under this Agreement.
SECTION 6.05.
Equity Awards.
(a) As soon as practicable following the date of this
Agreement, the Company Board (or, if appropriate, any committee administering the Company Stock
Plans) shall adopt such resolutions or take such other actions as may be required to effect the
following:
(i) adjust the terms of all outstanding Company Stock Options to provide that, at the
Effective Time, each Company Stock Option outstanding immediately prior to the Effective
Time shall be deemed to constitute an option to acquire, on the same terms and conditions
as were applicable under such Company Stock Option, the number of ordinary shares, NIS 0.14
nominal (par) value per share, of Parent (the
Parent Ordinary Shares
), rounded
down to the nearest whole share, determined by multiplying the number of shares of Company
Common Stock subject to such Company Stock Option by the Exchange Ratio, at a price per
share rounded up to the nearest whole cent equal to (A) the aggregate exercise price for
the shares of Company Common Stock otherwise purchasable pursuant to such Company Stock
Option divided by (B) the number of Parent Ordinary Shares deemed purchasable pursuant to
such Company Stock Option (each, as so adjusted, an
Adjusted Option
);
provided
,
however
, that in the case of any option to which Section 421 of
the Code applies by reason of its qualification under either Section 422 or 424 of the
Code (
qualified stock options
), the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of exercise of such option
shall be determined in order to comply with Section 424(a) of the Code;
(ii) adjust the terms of all outstanding Company RSUs to provide that, at the
Effective Time, each Company RSU outstanding immediately prior to the Effective Time shall
be deemed to constitute a restricted stock unit with respect to, on the same terms and
conditions as were applicable under such Company RSU, the number of Parent Ordinary Shares,
rounded down to the nearest whole share, determined by multiplying the number of shares of
Company Common Stock subject to such Company RSU by the Exchange Ratio (each, as so
adjusted, an
Adjusted RSU
);
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(iii) make such other changes to the Company Stock Plans as it deems appropriate to
give effect to the Merger (subject to the approval of Parent, which shall not be
unreasonably withheld);
(iv) ensure that, after the Effective Time, no Company Stock Options, Company SARs or
Company RSUs may be granted under any Company Stock Plan;
(v) ensure the approval, for purposes of Rule 16b-3 under the Exchange Act, of the
transactions contemplated by this Section 6.05 and any other dispositions of Company equity
securities (including derivative securities) in connection with this Agreement by each
individual who is a director or officer of the Company subject to Section 16 under the
Exchange Act; and
(vi) with respect to the ESPP, ensure that (A) participants may not increase their
payroll deductions or purchase elections from those in effect on the date of this
Agreement, (B) no offering period shall be commenced after the date of this Agreement,
(C) each participants outstanding right to purchase shares of Company Common Stock under
the ESPP shall terminate five Business Days prior to the day on which the Effective Time
occurs, and all amounts allocated to each participants account under the ESPP as of such
date shall thereupon be used to purchase from the Company whole shares of Company Common
Stock at the applicable price determined under the terms of the ESPP for the then
outstanding offering periods using such date as the final purchase date for each such
offering period, and (D) the ESPP shall terminate immediately following such purchases of
Company Common Stock.
(b) At the Effective Time, and subject to compliance by the Company with Section 6.05(a),
Parent shall assume all the obligations of the Company under the Adjusted Options and the Adjusted
RSUs and the agreements evidencing the grants thereof. As soon as practicable after the Effective
Time, Parent shall deliver to the holders of Adjusted Options and the Adjusted RSUs appropriate
notices setting forth such holders rights pursuant to the respective Company Stock Plans, and the
agreements evidencing the grants of such Adjusted Options and the Adjusted RSUs shall continue in
effect on the same terms and conditions (subject to the adjustments required by this Section 6.05
after giving effect to the Merger).
(c) Parent shall take all corporate action necessary to reserve for issuance a sufficient
number of Parent Ordinary Shares for delivery upon exercise of the Adjusted Options and the
Adjusted RSUs assumed in accordance with this Section 6.05. As soon as reasonably practicable
after the Effective Time (but in no event later than ten Business Days following the Effective
Date), Parent shall either (i) prepare and file with the SEC a registration statement on Form S-8
(or another appropriate form) registering a number of shares of Parent Ordinary Shares equal to the
number of shares subject to such Adjusted Options and the Adjusted RSUs or (ii) assume such
Adjusted Options and the Adjusted RSUs (in a manner that maintains the contractual terms of such
Adjusted Options and the
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Adjusted RSUs as set forth above) under an existing equity incentive plan of Parent or any of
its affiliates with respect to which a registration statement on Form S-8 (or another appropriate
form) is currently effective. Any such registration statement shall be kept effective (and the
current status of the prospectus or prospectuses required thereby shall be maintained) as long as
any Adjusted Option or Adjusted RSU may remain outstanding.
(d) In this Agreement:
Company RSU
means any restricted stock unit with respect to Company Common Stock
granted under any Company Stock Plan or otherwise.
Company SAR
means any stock appreciation right linked to the price of Company Common
Stock and granted under any Company Stock Plan.
Company Stock Option
means any option to purchase Company Common Stock granted under
any Company Stock Plan or otherwise, excluding purchase rights under the ESPP.
Company Stock Plans
means the Companys 2005 Equity Incentive Plan, 2006
Non-Employee Directors Stock Incentive Plan, 2005 Non-Employee Directors Stock Option Plan,
2001 Equity Incentive Plan, the Amended and Restated 1995 Stock Option Plan, 1987 Stock Option
Plan, 2005 Employee Stock Purchase Plan (the
ESPP
) and the CR Technology, Inc. 1991 Stock
Option Plan.
Exchange Ratio
means the quotient obtained by dividing the Company Common Stock
Price by the average closing price per share of Parent Ordinary Shares on the NASDAQ on the five
trading days immediately preceding the Closing Date.
SECTION 6.06.
Benefit Plans.
(a) For a period of one year after the Effective Time,
Parent shall provide or cause the Surviving Corporation to provide employee benefits and base
salary to non-director employees of the Company and the Company Subsidiaries who remain in the
employment of the Surviving Corporation and its subsidiaries (the
Continuing Employees
)
that, taken as a whole, are comparable in the aggregate to the employee benefits and base salary
provided to such employees immediately prior to the Effective Time;
provided
,
however
, that (i) neither Parent nor the Surviving Corporation nor any of their
subsidiaries shall have any obligation to issue, or adopt any plans or arrangements providing for
the issuance of, shares of capital stock, warrants, options, stock appreciation rights or other
rights in respect of any shares of capital stock of any entity or any securities convertible or
exchangeable into such shares pursuant to any such plans or arrangements and (ii) no plans or
arrangements of the Company or any of the Company Subsidiaries providing for such issuance shall be
taken into account in determining whether employee benefits are comparable in the aggregate.
(b) With respect to any employee benefit plan, as defined in Section 3(3) of ERISA,
maintained by Parent or any of its subsidiaries (each a
Parent
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Subsidiary
) (including any severance plan), for all purposes, including determining
eligibility to participate, level of benefits and vesting, service with the Company or any Company
Subsidiary shall be treated as service with Parent or the Parent Subsidiaries;
provided
,
however
, that such service need not be recognized for purposes of any defined benefit
pension plan or to the extent that such recognition would result in any duplication of benefits.
(c) Parent shall waive, or cause to be waived, any pre-existing condition, waiting period or
exclusion limitation under any welfare benefit plan maintained by Parent or any of its
affiliates (other than the Company) in which Continuing Employees and their eligible dependents
will be eligible to participate from and after the Effective Time, except to the extent that such
pre-existing condition, waiting period or exclusion limitation would have been applicable under the
comparable Company welfare benefit plan immediately prior to the Effective Time. Parent shall
recognize, or cause to be recognized, the dollar amount of all expenses incurred by each Continuing
Employee (and his or her eligible dependents) during the calendar year in which the Effective Time
occurs for purposes of satisfying such years deductible and co-payment limitations under the
relevant welfare benefit plans in which they will be eligible to participate from and after the
Effective Time.
(d) The provisions of this Section 6.06 are solely for the benefit of the parties to this
Agreement, and no Company Participant or any other individual associated therewith (including any
beneficiary or dependent thereof) shall be regarded for any purpose as a third-party beneficiary of
the Agreement, and no provision of this Section 6.06 shall create such rights in any such persons
in respect of any benefits that may be provided, directly or indirectly, under any Company Benefit
Plan or Company Benefit Agreement or any employee program or any plan or arrangement of Parent or
any Parent Subsidiary. No provision of this Agreement shall constitute a limitation on the rights
to amend, modify or terminate after the Effective Time any such plans or arrangements of Parent,
the Surviving Corporation or any of their respective subsidiaries, and nothing herein shall be
construed as an amendment to any Company Benefit Plan or Company Benefit Agreement for any purpose.
No provision of this Section 6.06 shall require Parent to continue the employment of any employee
of the Company or any Company Subsidiary for any specific period of time following the Effective
Time.
SECTION 6.07.
Indemnification.
(a) Parent and Sub agree that all rights to
indemnification for acts or omissions occurring prior to the Effective Time now existing in favor
of the current or former directors or officers of the Company and the Company Subsidiaries (the
Indemnified Persons
) as provided in their respective articles of incorporation, by-laws,
other organizational documents or indemnification agreements existing as of the date of this
Agreement shall survive the Merger and shall continue in full force and effect in accordance with
their terms. Parent shall cause the Surviving Corporation to assume the obligations with respect
to such rights to indemnification. In the event that the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person and is not the
continuing or surviving
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corporation or entity of such consolidation or merger, (ii) transfers or conveys all or
substantially all of its properties and other assets to any person, (iii) transfers any material
portion of its assets in a single transaction or in a series of transactions or (iv) Parent takes
any action to materially impair the financial ability of the Surviving Corporation to satisfy the
obligations referred to in this Section 6.07, then, and in each such case, Parent shall either (A)
guarantee, expressly assume, or shall cause proper provision to be made so that the successors and
assigns of the Surviving Corporation shall expressly assume, the obligations set forth in this
Section 6.07 or (B) take such other action to insure that the ability of the Surviving Corporation
to satisfy such obligations will not be diminished in any material respect. Parent shall (and
shall cause the Surviving Corporation and its Subsidiaries to) cause the certificate of
incorporation and By-laws (or other similar organizational documents) of the Surviving Corporation
and its Subsidiaries to contain provisions with respect to indemnification, advancement of expenses
and exculpation that are at least as favorable to the Indemnified Persons as the indemnification,
advancement of expenses and exculpation provisions contained in the certificate of incorporation
and By-laws (or other similar organizational documents) of the Company immediately prior to the
date of this Agreement, and such provisions shall not be amended, repealed or otherwise modified in
any manner that would adversely affect the rights thereunder of individuals who were covered by
such provisions, except as required by applicable Law.
(b) Prior to the Effective Time, the Company shall purchase tail officers and directors
liability insurance policies, which by their terms shall survive the Merger and shall provide each
Indemnified Person with coverage for six years following the Effective Time on terms and conditions
no less favorable than the Companys existing directors and officers liability insurance
(
Tail Policies
);
provided
,
however
, that the aggregate premium for such
Tail Policies shall not be greater than 150% of the annual premium paid by the Company for such
existing insurance (such 150% amount, the
Maximum Premium
), and
provided
,
further
, that if the Maximum Premium is not sufficient for such coverage, the Company shall
spend up to that amount to purchase such lesser coverage as may be obtained with such amount.
Parent and the Surviving Corporation shall comply with their respective obligations under the Tail
Policies. The Company represents and warrants to Parent that the Maximum Premium is $615,600.
(c) The provisions of this Section 6.07 are intended to be in addition to the rights otherwise
available to the Indemnified Persons by law, charter, statute, by-law or agreement, and shall
operate for the benefit of, and shall be enforceable by the Indemnified Persons, their heirs and
their representatives as third-party beneficiaries.
SECTION 6.08.
Fees and Expenses
. (a) Except as provided below, all fees and expenses
incurred in connection with the Merger and the other Transactions shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated, except that expenses
incurred in connection with filing, printing and mailing the Company Proxy Statement shall be paid
by the Company.
(b) The Company shall pay to Parent a fee of $9,000,000, if: (i) the Company terminates this
Agreement pursuant to Section 8.01(f); (ii) Parent terminates
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this Agreement pursuant to Section 8.01(d); (iii) any person makes a Company Takeover Proposal
that was publicly disclosed prior to the Shareholders Meeting, but not publicly withdrawn prior to
the date of the Shareholders Meeting, and thereafter this Agreement is terminated pursuant to
Section 8.01(b)(iii); or (iv) any person makes a Company Takeover Proposal that was not withdrawn
on or before the Outside Date (as defined in Section 8.01(b)) and the Company Shareholder Approval
is not obtained prior to termination of this Agreement; and, in the case of each of clauses (iii)
and (iv), this Agreement is terminated (other than termination pursuant to Section 8.01(f)) and
within 12 months of such termination the Company enters into a definitive agreement to consummate,
or consummates, the transactions contemplated by a Company Takeover Proposal. Any fee due under
this Section 6.08(b) shall be paid by wire transfer of same-day funds on the date of termination of
this Agreement (except that in the case of termination pursuant to clauses (iii) and (iv) above
such payment shall be made on the date of execution of such definitive agreement or, if earlier,
consummation of such transactions).
(c) Parent shall pay to the Company a fee of $9,000,000, if the Company terminates this
Agreement pursuant to Section 8.01(g). Any fee due under this Section 6.08(c) shall be paid by
wire transfer of same-day funds on the date of termination of this Agreement.
(d) The Company shall reimburse Parent and Sub for their reasonable out-of-pocket expenses
actually incurred in connection with this Agreement, the Merger and the other Transactions, up to a
maximum reimbursement of $2,000,000, if this Agreement is terminated pursuant to
Section 8.01(b)(iii) or 8.01(c) unless the Company is required to pay and actually pays to Parent a
fee pursuant to Section 6.08(b) in connection with such termination. Any amounts paid pursuant to
this Section 6.08(d) shall be credited against any fee subsequently payable under Section 6.08(b).
SECTION 6.09.
Public Announcements.
Parent, Sub and the Company have agreed on the
form of press release attached as Exhibit A to this Agreement which is to be issued upon signing of
this Agreement. Parent and Sub, on the one hand, and the Company, on the other hand, shall
otherwise consult with each other before issuing or permitting their respective affiliates to
issue, and provide each other the opportunity to review and comment upon, any press release or
other public statements with respect to the Merger and the other Transactions and shall not issue
or permit their respective affiliates to issue any such press release or make any such public
statement prior to such consultation, except as may be required by applicable Law, court process or
by obligations pursuant to any listing agreement with any national securities exchange.
SECTION 6.10.
Certain Tax Matters.
(a) During the period from the date of this
Agreement to the Effective Time, (i) the Company and each Company Subsidiary shall timely file all
Tax Returns (
Post-Signing Returns
) required to be filed by each such entity (after taking
into account any extensions), and all Post-Signing Returns shall be complete and correct in all
material respects and shall be prepared on a basis consistent with the past practice of the Company
and (ii) the Company and each
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Company Subsidiary shall promptly notify Parent of any suit, claim, action, investigation,
proceeding or audit pending against or with respect to the Company or any Company Subsidiary in
respect of any material Tax and will not settle or compromise any such suit, claim, action,
investigation, proceeding or audit without Parents prior written consent, which consent shall not
be unreasonably withheld or delayed.
(b) The Company shall deliver to Parent at or prior to Closing a certificate, in form and
substance satisfactory to Parent, duly executed and acknowledged, certifying that the Company has
not been a U.S. real property holding corporation within the meaning of Section 897(c)(2) of the
Code at any time during the five year period ending on the date of the Closing.
SECTION 6.11.
Financing.
(a) Parent and Sub shall use their best efforts to satisfy
all conditions applicable to Parent and Sub in the Financing Commitment and to consummate the
Financing no later than the Outside Date. Solely in the event that any portion of the Financing
becomes unavailable on the terms and conditions contemplated in the Financing Commitment, Parent
shall use its best efforts to obtain any such unavailable portion from alternative sources on
comparable or more favorable terms to Parent (as determined in the reasonable good-faith judgment
of Parent) as promptly as practicable following the occurrence of such event but in no event later
than the Outside Date. Parent shall promptly provide the Company with the documentation evidencing
any replacement or alternative sources of financing and shall give the Company prompt notice (but
in any event within two Business Days) of any material breach by any party to the Financing
Commitment or any termination of the Financing Commitment. Parent shall keep the Company informed
on a reasonably current basis in reasonable detail of the status of its efforts to arrange for the
Financing (or replacements thereof) and shall not permit any material amendment or modification to
be made to, or any waiver of any material provision or remedy under, the Financing Commitment (or
replacements thereof) without first consulting with the Company or, if such amendment would or
would be reasonably expected to prevent, delay or hinder Parents and/or Subs ability to
consummate the Transactions, without first obtaining the Companys prior written consent. For the
avoidance of doubt, if the Financing (or any replacement or alternative financing) has not been
obtained, Parent and Sub shall continue to be obligated to consummate the Merger and the other
Transactions on the terms contemplated by this Agreement and subject only to the satisfaction or
waiver of the conditions set forth in Article VII and to Parents rights and obligations under
Article VIII.
(b) The Company shall and shall cause the Company Subsidiaries and their respective
Representatives to provide all reasonable cooperation in connection with the Financing as may be
reasonably requested by Parent, which cooperation shall include provision of such information
regarding the Company as is reasonably requested by the Lender or other financial institution
providing the Financing, review and consultation with respect to the preparation of all agreements,
offering memoranda and other documentation (including review of schedules for completeness)
required in connection with the Financing and attendance and participation at meetings by telephone
and in
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person with respect to syndication and marketing as is reasonably requested by Parent;
provided
,
however
, that such requested cooperation does not unreasonably interfere
with the ongoing operations of the Company and the Company Subsidiaries. Parent shall, promptly
upon request by the Company, reimburse the Company for all reasonable out-of-pocket costs incurred
by the Company or the Company Subsidiaries in connection with such cooperation in response to any
request that is not a customary request of a target company in a leveraged acquisition transaction.
ARTICLE VII
Conditions Precedent
SECTION 7.01.
Conditions to Each Partys Obligation To Effect The Merger.
The
respective obligation of each party to effect the Merger is subject to the satisfaction or waiver
on or prior to the Closing Date of the following conditions:
(a)
Company Shareholder Approval.
The Company shall have obtained the Company
Shareholder Approval.
(b)
Governmental Approvals.
Any waiting period (and any extension thereof) or consent
applicable to the Merger under the HSR Act, the Monopoly Regulation and Fair Trade Act of South
Korea, the Fair Trade Act of Taiwan, the Act Concerning Prohibition of Private Monopolization and
Maintenance of Fair Trade (Law No. 54 of 1947) of Japan and, as applicable, the Regulation of the
Merger and Acquisition of Domestic Enterprises by Foreign Investors of the Peoples Republic of
China or the Anti-Monopoly Law of the Peoples Republic of China, shall have been terminated or
shall have expired in the case of any waiting period, or shall have been obtained in the case of
any consent. Any consents, approvals and filings under any other foreign Antitrust Law, the
absence of which would prohibit the consummation of the Merger and is reasonably expected to have a
Parent Material Adverse Effect or a Company Material Adverse Effect (disregarding clauses (i)(A)
and (v) of the proviso to the definition thereof), shall have been obtained or made. All other
authorizations, consents, orders or approvals of, or declarations or filings with, or expirations
of waiting periods imposed by, any Governmental Entity necessary for the consummation of the Merger
shall have been obtained or filed or shall have occurred.
(c)
No Injunctions or Restraints.
No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be in effect.
SECTION 7.02.
Conditions to Obligations of Parent and Sub.
The obligations of Parent
and Sub to effect the Merger are further subject to the following conditions:
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(a)
Representations and Warranties.
The representations and warranties of the Company
in this Agreement shall be true and correct, as of the Closing Date as though made on the Closing
Date, except to the extent such representations and warranties expressly relate to an earlier date
(in which case such representations and warranties shall be true and correct on and as of such
earlier date), other than for such failures to be true and correct that, individually or in the
aggregate, have not had and are not reasonably expected to have a Company Material Adverse Effect.
Parent shall have received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to such effect. For purposes of determining
the satisfaction of this condition, the representations and warranties of the Company shall be
deemed not qualified by any references therein to materiality generally or to whether or not any
breach results or may result in a Company Material Adverse Effect.
(b)
Performance of Obligations of the Company.
The Company shall have performed in
all material respects all obligations required to be performed by it under this Agreement at or
prior to the Closing Date, and Parent shall have received a certificate signed on behalf of the
Company by the chief executive officer and the chief financial officer of the Company to such
effect.
(c)
No Litigation.
There shall not be pending or threatened any suit, action or
proceeding by any Governmental Entity relating to Antitrust Laws, in each case that has a
reasonable likelihood of success, (i) challenging the acquisition by Parent or Sub of any Company
Common Stock and seeking to restrain or prohibit the consummation of the Merger or any other
Transaction, (ii) seeking to prohibit or limit the ownership or operation by the Company, Parent or
any of their respective subsidiaries of any material portion of the business or assets of the
Company, Parent or any of their respective subsidiaries, or to compel the Company, Parent or any of
their respective subsidiaries to dispose of or hold separate any material portion of the business
or assets of the Company, Parent or any of their respective subsidiaries, as a result of the Merger
or any other Transaction, (iii) seeking to impose limitations on the ability of Parent to acquire
or hold, or exercise full rights of ownership of, any shares of Company Common Stock, including the
right to vote the Company Common Stock purchased by it on all matters properly presented to the
shareholders of the Company, (iv) seeking to prohibit Parent or any of the Parent Subsidiaries from
effectively controlling in any material respect the business or operations of the Company and the
Company Subsidiaries or (v) which otherwise is reasonably likely to have a Company Material Adverse
Effect (disregarding clauses (i)(A) and (v) of the proviso to the definition thereof).
(d)
Exon-Florio.
The period of time for any review process by CFIUS (including, if
deemed appropriate by CFIUS, any investigation) shall have expired or been terminated, and CFIUS
shall have provided a written notice to the effect that: (a) the Transactions are not subject to
Exon-Florio; (b) the review of the Transactions has concluded and there are no issues of national
security sufficient to warrant investigation; or (c) an investigation has been conducted and CFIUS
has recommended or determined
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that no action by the President is warranted; or the President shall have made a determination
not to take any action with respect to the Transactions.
(e)
Absence of Company Material Adverse Effect.
Except as disclosed in
Section 7.02(e) or 3.08 of the Company Disclosure Letter, since the date of this Agreement there
shall not have been any event, change, effect or development that, individually or in the
aggregate, has had or is reasonably expected to have a Company Material Adverse Effect.
(f)
ITAR Filing.
The Company shall have provided to the Office of Defense Trade
Controls a notification of the Transactions in accordance with Section 6.03(f) and (i) 60 days
shall have passed after the date that the Company provided such ITAR notice or (ii) the Office of
Defense Trade Controls shall have not taken or threatened to take enforcement action against Parent
in connection with the consummation of the Merger.
(g)
Resignation of Company Directors.
Parent shall have received the written
resignation, in a form reasonably acceptable to Parent, of each person who serves as a director of
the Company immediately prior to the Effective Time.
(h)
Dissenters Rights
. Demands for payment shall not have been filed with respect to
10% or more of the outstanding shares of Company Common Stock pursuant to Chapter 13 of the CGCL.
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.01.
Termination.
This Agreement may be terminated at any time prior to the
Effective Time:
(a) by mutual written consent of Parent, Sub and the Company;
(b) by either Parent or the Company:
(i) if the Merger is not consummated on or before December 26, 2008
(the
Outside Date
), unless the failure to consummate the Merger
is the result of a material breach of this Agreement by the party seeking
to terminate this Agreement;
provided
,
however
, that
either Parent or the Company may elect to extend the term of this
Agreement until not later than March 26, 2009, if the expiration of any
waiting period or any consents, approvals or filings needed to satisfy the
conditions set forth in Sections 7.01(b) and 7.02(d) shall not have
occurred or been made or obtained, as the case may be, by the Outside
Date;
A-55
(ii) if any Governmental Entity issues an order, decree or ruling or
takes any other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree, ruling or other action
shall have become final and nonappealable; or
(iii) if, upon a vote at a duly held meeting, or postponement or
adjournment thereof, to obtain the Company Shareholder Approval, the
Company Shareholder Approval is not obtained;
(c) by Parent, if the Company breaches or fails to perform in any material respect any of its
covenants contained in this Agreement or any of the Companys representations and warranties
contained in this Agreement is or becomes untrue, which breach or failure to perform or untruth
(i) would give rise to the failure of a condition set forth in Section 7.02(a) or 7.02(b), and
(ii) cannot be or has not been cured within 30 days after the giving of written notice to the
Company of such breach (provided that Parent is not then in material breach of any representation,
warranty or covenant contained in this Agreement);
(d) by Parent:
(i) if the Company Board or any committee thereof withdraws or
modifies, in a manner adverse to Parent or Sub, or proposes to withdraw or
modify, in a manner adverse to Parent or Sub, the Company Board
Recommendation or its approval of this Agreement or the Merger, fails to
recommend to the Companys shareholders that they give the Company
Shareholder Approval or approves or recommends, or publicly proposes to
approve or recommend, any Company Takeover Proposal; or
(ii) if following the public announcement of any Company Takeover
Proposal, the Company Board fails to reaffirm publicly and unconditionally
the Company Board Recommendation to the Companys shareholders that they
give the Company Shareholder Approval within 20 days of Parents written
request for such public reaffirmation, which public reaffirmation must
also include the unconditional rejection of such Company Takeover
Proposal;
(e) by the Company, if Parent breaches or fails to perform in any material respect any of its
covenants contained in this Agreement which breach or failure to perform cannot be or has not been
cured within 30 days after the giving of written notice to Parent of such breach (
provided
that the Company is not then in material breach of any representation, warranty or covenant
contained in this Agreement);
(f) by the Company prior to receipt of the Company Shareholder Approval in accordance with
Section 8.05(b);
provided
,
however
, that the Company shall have complied with all
provisions thereof, including the notice provisions therein; and
A-56
(g) by the Company in accordance with Section 8.05(c);
provided
,
however
, that
the Company shall have complied with all provisions thereof, including the notice provisions
therein.
SECTION 8.02.
Effect of Termination.
In the event of termination of this Agreement by
either the Company or Parent as provided in Section 8.01, this Agreement shall forthwith become
void and have no effect, without any liability or obligation on the part of Parent, Sub or the
Company, other than the last sentence of Section 6.02, Section 6.08, this Section 8.02 and
Article IX, which provisions shall survive such termination;
provided
,
however
,
that no such termination shall relieve any party hereto from any liability or damages resulting
from the wilful and material breach by a party of any of its representations, warranties, covenants
or agreements set forth in this Agreement. In the event that the fee provided for in Section
6.08(b) is payable and is actually paid by the Company to Parent, such payment shall constitute the
exclusive remedy of Parent and Sub for breaches of this Agreement or other claims that relate to
the Transactions. In the event that the fee provided for in Section 6.08(c) is payable and is
actually paid by Parent to the Company, such payment shall constitute the exclusive remedy of the
Company for breaches of this Agreement or other claims that relate to the Transactions.
SECTION 8.03.
Amendment.
This Agreement may be amended by the parties at any time
before or after receipt of the Company Shareholder Approval;
provided
,
however
,
that (i) after receipt of the Company Shareholder Approval, there shall be made no amendment that
by Law requires further approval by the shareholders of the Company or Parent without the further
approval of such shareholders and (ii) except as provided above no amendment of this Agreement by
the Company shall require the approval of the shareholders of the Company. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the parties.
SECTION 8.04.
Extension; Waiver.
At any time prior to the Effective Time, the parties
may (a) extend the time for the performance of any of the obligations or other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 8.03, waive compliance with any of the agreements or conditions contained in this
Agreement. Subject to the proviso in Section 8.03, no extension or waiver by the Company shall
require the approval of the shareholders of the Company. 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. The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of such rights. Nor shall any single or
partial exercise by any party to this Agreement of any of its rights under this Agreement preclude
any other or further exercise of such rights or any other rights under this Agreement.
SECTION 8.05.
Procedure for Termination, Amendment, Extension or Waiver.
(a) A
termination of this Agreement pursuant to Section 8.01, an amendment of
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this Agreement pursuant to Section 8.03 or an extension or waiver pursuant to Section 8.04
shall, in order to be effective, require in the case of Parent, Sub or the Company, action by its
Board of Directors or the duly authorized designee of its Board of Directors. Termination of this
Agreement prior to the Effective Time shall not require the approval of the shareholders of the
Company.
(b) The Company may terminate this Agreement pursuant to Section 8.01(f) only if (i) the
Company Board has received a Superior Company Proposal, (ii) in light of such Superior Company
Proposal the Company Board shall have determined in good faith after consultation with outside
counsel that it is necessary for the Company Board to withdraw its recommendation that the
Companys shareholders give the Company Shareholder Approval in order to comply with its fiduciary
duty under applicable Law, (iii) the Company has notified Parent in writing of the determination
described in clause (ii) above, (iv) after at least three Business Days following receipt by Parent
of the notice referred to in clause (iii) above, and taking into account any revised proposal made
by Parent since receipt of the notice referred to in clause (iii) above, such Superior Company
Proposal remains a Superior Company Proposal and the Company Board has again made the determination
referred to in clause (ii) above, (v) the Company has not breached Section 5.02 in any respect that
lead to, facilitated or aided the making of such Superior Company Proposal, (vi) the Company pays
the fee due under Section 6.08(b) simultaneously with or prior to such termination and (vii) the
Company Board concurrently approves, and immediately thereafter the Company enters into, a
definitive agreement providing for the implementation of such Superior Company Proposal.
(c) The Company may terminate this Agreement pursuant to Section 8.01(g) only if (i) the
condition set forth in Section 7.02(d) has not been waived by Parent or satisfied, (ii) all other
conditions set forth in Article VII have been satisfied or waived on or prior to the Closing Date,
except for any condition that by its nature cannot be satisfied until at or immediately prior to
the Closing, (iii) the Company has notified Parent in writing that it intends to terminate this
Agreement pursuant to Section 8.01(g) if the condition set forth in Section 7.02(d) is not waived
by Parent or satisfied and (iv) after at least three Business Days following receipt by Parent of
the notice referred to in clause (iii) above, the condition set forth in Section 7.02(d) has not
been waived by Parent or satisfied.
ARTICLE IX
General Provisions
SECTION 9.01.
Nonsurvival of Representations and Warranties.
None of the
representations and warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time. This Section 9.01 shall not
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limit any covenant or agreement of the parties which by its terms contemplates performance
after the Effective Time.
SECTION 9.02.
Notices.
All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed given upon receipt by
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 Sub, to:
Orbotech Ltd.
Sanhedrin Boulevard, North Industrial Zone
P.O. Box 215
Yavne 81101, Israel
Fax: +972 (8) 942 3533
Attention: Arie Weisberg
President and Chief Operating Officer
with a copy to:
Tulchinsky Stern Marciano Cohen & Co.
Museum Tower 4
Berkowitz St.
Tel Aviv 64238, Israel
Fax: +972 (3) 607 5050
Attention: David Cohen
and
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Fax: +1-212-474-3700
Attention: Richard Hall
(b) if to the Company, to
Photon Dynamics, Inc.
5970 Optical Court
San Jose, CA 95138
Fax: +1-408-226-9910
Attention: Jeffrey Hawthorne,
President and Chief Executive Officer
with a copy to:
A-59
Photon Dynamics, Inc.
5970 Optical Court
San Jose, CA 95138
Fax: +1-408-360-3559
Attention: Carl Straub
Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, California 94025
Fax: +1-650-752-2111
Attention: William M. Kelly
SECTION 9.03.
Definitions.
(a) For purposes of this Agreement:
An
affiliate
of any person means another person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common control with, such first
person.
A
Business Day
means a day, other than Saturday, Sunday or other day on which
commercial banks in New York, New York are authorized or required by applicable Law to close.
A
Company Material Adverse Effect
means (a) a material adverse effect on the Company
and its Subsidiaries, taken as a whole, or (b) a material adverse effect on the ability of the
Company to perform its obligations under this Agreement within a reasonable period of time or to
consummate the Merger and the other Transactions within a reasonable period of time;
provided
,
however
, that for purposes of Article VII, none of the following
occurring after the date of signing of this Agreement shall be deemed either alone or in
combination to constitute, and none of the following shall be taken into account in determining
whether there has been or is reasonably expected to be, a Company Material Adverse Effect under
clause (a) above: (i) any adverse effect arising from or otherwise relating to (A) the
announcement, pendency or consummation of the Merger and the other Transactions; (B) general
economic, business, financial or market conditions in any of the jurisdictions or regions in which
the Company or any Company Subsidiary conducts business, to the extent that such conditions do not
have a disproportionate effect on the Company or any Company Subsidiary or (C) any condition or
event that generally affects any of the industries or industry sectors in which the Company or any
Company Subsidiary operates, to the extent that such condition or event does not have a
disproportionate effect on the Company or any Company Subsidiary; (ii) any adverse effect arising
from or otherwise relating to fluctuations in the value of any currency; (iii) any adverse effect
arising from or otherwise relating to any act of terrorism or war, any regional, national or
international calamity, natural disaster or any other similar event, to the extent that such event
does not result in material damage to any of the assets or facilities of the Company or any Company
Subsidiary (for the avoidance of doubt, with such materiality measured in reference to the Company
and the Company Subsidiaries taken as a whole); (iv) any adverse effect arising from any changes
(after the
A-60
date of this Agreement) in GAAP; (v) any adverse effect arising from the taking of any action
that is expressly required by this Agreement, excluding from this clause (v) actions (including
non-actions) required to be taken or not to be taken under Section 5.01; (vi) in and of itself, any
failure of the Company to meet internal or analysts expectations or projections, excluding from
this clause (vi) the events giving rise to such failure; or (vii) in and of itself, any decline in
the Companys stock price, excluding from this clause (vii) the events giving rise to such decline.
A
material adverse effect
on a party means a material adverse effect on the
business, assets, condition (financial or otherwise) or results of operations of such party and its
subsidiaries, taken as a whole.
A
Parent Material Adverse Effect
means a material adverse effect on the ability of
Parent or Sub to perform its obligations under this Agreement within a reasonable period of time or
a material adverse effect on the ability of Parent or Sub to consummate the Merger and the other
Transactions within a reasonable period of time.
A
person
means any individual, firm, corporation, partnership, company, limited
liability company, trust, joint venture, association, Governmental Entity or other entity.
A
subsidiary
of any person means another person, an amount of the voting securities,
other voting ownership or voting partnership interests of which is sufficient to elect at least a
majority of its Board of Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly or indirectly by such
first person.
(b) The following terms have the meanings set forth in the Sections set forth below:
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Definition
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Location
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409A Authorities
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3.11(k)
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Adjusted Option
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6.05(a)
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Adjusted RSU
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6.05(a)
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affiliate
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9.03(a)
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Agreement
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Preamble
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AJCA
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3.11(k)
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Antitrust Laws
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6.03(c)
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Business Day
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9.03(a)
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Certificates
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2.02(b)
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CFIUS
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6.03(d)
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CGCL
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1.01
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Closing
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1.02
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Closing Date
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1.02
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Code
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2.02(g)
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Definition
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Location
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Company
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Preamble
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Company Benefit Agreements
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3.08(iv)
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Company Benefit Plans
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3.10
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Company Board
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3.04(b)
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Company Board Recommendation
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6.01(c)
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Company By-laws
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3.01
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Company Charter
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3.01
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Company Common Stock
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Recitals
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Company Common Stock Price
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2.01(c)
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Company Commonly Controlled Entity
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3.10
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Company Disclosure Letter
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Article III
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Company Material Adverse Effect
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9.03(a)
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Company Material Contracts
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3.19(a)
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Company Nonqualified Deferred Compensation Plan
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3.11(k)
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Company Participant
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3.08(iv)
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Company Pension Plan
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3.11(a)
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Company Preferred Stock
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3.03(a)
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Company Proxy Statement
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3.05(b)
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Company RSU
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6.05(d)
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Company SAR
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6.05(d)
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Company SEC Documents
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3.06(a)
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Company Shareholder Approval
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3.04(c)
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Company Stock Option
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6.05(d)
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Company Stock Plans
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6.05(d)
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Company Subsidiaries
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3.01
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Company Takeover Proposal
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5.02(e)
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Company Welfare Plan
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3.11(a)
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Confidentiality Agreement
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6.02
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Consent
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3.05(b)
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Continuing Employees
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6.06(a)
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Contract
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3.05(a)
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Defense Review Laws
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6.03(d)
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Dissenting Shares
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2.01(d)
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Effective Time
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1.03
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Environmental Laws
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3.14(a)
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ERISA
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3.11(a)
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ESPP
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6.05(d)
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Exchange Act
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3.05(b)
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Exchange Fund
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2.02(a)
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Exchange Ratio
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6.05(d)
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Exon Florio
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6.03(d)
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Filed Company SEC Documents
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3.08
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Financing
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4.07
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Definition
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Location
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Financing Commitment
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4.07
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GAAP
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3.06(b)
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Grant Date
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3.03(a)
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Governmental Entity
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3.05(b)
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Hazardous Materials
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3.14(c)
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HSR Act
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3.05(b)
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Indemnified Persons
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6.07(a)
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Intellectual Property Rights
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3.17(i)
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IRS
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3.09(n)
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ITAR
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6.03(f)
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Joint Filing
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6.03(e)
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Judgment
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3.05(a)
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Law
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3.05(a)
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Leased Real Property
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3.15(b)
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Lender
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4.07
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Liens
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3.02(a)
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LT Solar
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3.19(a)
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LT Solar Contracts
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3.19(a)
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material adverse effect
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9.03(a)
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Maximum Premium
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6.07(b)
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Merger
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Recitals
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Merger Consideration
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2.01(c)(2)
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Merger Filing
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1.03
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NASDAQ
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3.05(b)
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New Grant Cap
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5.01(a)
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Open Source Materials
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3.17(b)
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Outside Date
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8.01(b)
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Owned Real Property
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3.15(b)
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Parachute Gross Up Payment
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3.11(i)
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Parent
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Preamble
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Parent Articles
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4.01
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Parent Board
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4.04(b)
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Parent Material Adverse Effect
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9.03(a)
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Parent Memorandum of Association
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4.01
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Parent Ordinary Shares
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6.05(a)
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Parent SEC Documents
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4.03(a)
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Parent Subsidiary
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6.06(b)
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Paying Agent
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2.02(a)
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Permitted Liens
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3.15(a)
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person
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9.03(a)
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Post-Signing Returns
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6.10(a)
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Pre-Closing Period
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5.01(a)
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Primary Company Executives
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3.11(i)
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A-63
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Definition
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Location
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qualified stock options
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6.05(a)
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Real Property Leases
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3.15(b)
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Representatives
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5.02(a)
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Salvador
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3.16
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Salvador Contracts
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3.19(a)
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SEC
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3.05(b)
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Securities Act
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3.06(b)
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Shareholders Meeting
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6.01(c)
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Sub
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Preamble
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subsidiary
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9.03(a)
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Superior Company Proposal
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5.02(e)
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Surviving Corporation
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1.01
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Tail Policies
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6.07(b)
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Tax Authority
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3.09(n)
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Taxes
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3.09(n)
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Tax Returns
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3.09(n)
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Trade Secrets
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3.17(i)
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Transactions
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1.01
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Voting Company Debt
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3.03(b)
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SECTION 9.04.
Interpretation; Company Disclosure Letter.
When a reference is made in
this Agreement to a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words include, includes or including are used in this Agreement,
they shall be deemed to be followed by the words without limitation. Any matter disclosed in any
section of the Company Disclosure Letter shall be deemed disclosed only for the purposes of the
specific Sections of this Agreement to which such section relates.
SECTION 9.05.
Severability.
If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule or Law, or public policy, 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 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 an acceptable manner to the end that Transactions are fulfilled to the extent possible.
SECTION 9.06.
Counterparts.
This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and shall
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become effective when one or more counterparts have been signed by each of the parties and
delivered to the other parties.
SECTION 9.07.
Entire Agreement; No Third-Party Beneficiaries.
This Agreement, taken
together with the Company Disclosure Letter and the Confidentiality Agreement (a) constitute the
entire agreement, and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the Transactions and (b) except for Section 6.07, are not
intended to confer upon any person other than the parties any rights or remedies.
SECTION 9.08.
Governing Law.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof, except to the extent the laws of
California are mandatorily applicable to the Merger.
SECTION 9.09.
Assignment.
Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by operation of law or
otherwise by any of the parties without the prior written consent of the other parties, except that
Sub may assign, in its sole discretion, any of or all its rights, interests and obligations under
this Agreement to Parent or to any direct or indirect wholly owned subsidiary of Parent, but no
such assignment shall relieve Sub of any of its obligations under this Agreement. Any purported
assignment without such consent shall be void. Subject to the preceding sentences, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
SECTION 9.10.
Enforcement.
The parties agree that irreparable damage may occur in the
event that any of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the parties shall in such
event be entitled to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement, this being in addition to any
other remedy to which they are entitled at law or in equity. Any and all suits, legal actions or
proceedings arising out of this Agreement shall be brought in the United States District Court for
the Southern District of New York;
provided
,
however
, that if (and only after) such
Court determines that it lacks subject matter jurisdiction over any such suit, legal action or
proceeding, such suit, legal action or proceeding shall be brought in any New York state court
sitting in the Borough of Manhattan. Each party hereto hereby submits to and accepts the exclusive
jurisdiction of such courts for the purpose of such suits, legal actions or proceedings. In any
such suit, legal action or proceeding, each party hereto waives personal service of any summons,
complaint or other process and agrees that service thereof may be made by certified or registered
mail directed to it at its address for notices pursuant to this Agreement. To the fullest extent
permitted by Law, each party hereto hereby irrevocably waives any objection which it may now or
hereafter have to the laying of venue of any such suit, legal action or proceeding in any such
court and hereby further waives any claim that any suit, legal action or proceeding brought in any
such court has been brought
A-65
in an inconvenient forum. Each party expressly waives any right to trial by jury with respect
to any suit, legal action or proceeding arising out of or relating to this Agreement.
A-66
IN WITNESS WHEREOF, Parent, Sub and the Company have duly executed this Agreement, all as of
the date first written above.
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ORBOTECH LTD.,
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by /s/ Yochai Richter
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Name: Yochai Richter
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Title: Active Chairman of the Board
of Directors
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by /s/ Raanan Cohen
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Name: Raanan Cohen
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Title: Chief Executive Officer
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PDI ACQUISITION, INC.,
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by /s/ Yochai Richter
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Name: Yochai Richter
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Title: Active Chairman of the Board
of Directors
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by /s/ Raanan Cohen
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Name: Raanan Cohen
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Title: Assistant Secretary
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A-67
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PHOTON DYNAMICS, INC.,
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by /s/ Jeffrey A. Hawthorne
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Name: Jeffrey A. Hawthorne
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Title: President and Chief
Executive Officer
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A-68
LIST OF OMITTED SCHEDULES CONTAINED IN THE COMPANY DISCLOSURE LETTER
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Schedule Section
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Description
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Section 3.01
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Organization, Standing and Power
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Section 3.02
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Company Subsidiaries; Equity Interests
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Section 3.03
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Capital Structure
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Section 3.05
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No Conflicts; Consents
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Section 3.06
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Company SEC Documents; Undisclosed Liabilities
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Section 3.08
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Absence of Certain Changes or Events
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Section 3.09
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Taxes
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Section 3.11
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Benefit Plans; Excess Parachute Payments
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Section 3.12
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Litigation
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Section 3.13
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Compliance with Applicable Laws
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Section 3.14
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Environmental Matters
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Section 3.15
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Title to Properties
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Section 3.17
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Intellectual Property
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Section 3.19
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Contracts; Debt Instruments
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Section 5.01
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Conduct of Business
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ANNEX B
OPINION OF CREDIT SUISSE SECURITIES (USA) LLC
CONFIDENTIAL
June 26, 2008
Board of Directors
Photon Dynamics, Inc.
5970 Optical Court
San Jose, CA 95138
Members of the Board:
You have asked us to advise you with respect to the fairness to the holders of shares of common
stock, no par value, (
Company Common Stock
) of Photon Dynamics, Inc. (the
Company
), from a financial point of view, of the Merger Consideration (as defined below)
to be received by such holders pursuant to the terms of the Agreement and Plan of Merger and
Reorganization dated as of June 26, 2008 (the
Merger Agreement
) among the Company,
Orbotech Ltd. (the Acquiror) and PDI Acquisition, Inc., a wholly owned subsidiary of the Acquiror
(the
Merger Sub
). The Merger Agreement provides for, among other things, the merger
(the
Merger
) of the Company with the Merger Sub pursuant to which the Company will become
a wholly owned subsidiary of the Acquiror and each outstanding share of Company Common Stock will
be converted into the right to receive $15.60 in cash (the
Merger Consideration
).
In arriving at our opinion, we have reviewed the Merger Agreement and certain related agreements
and certain publicly available business and financial information relating to the Company and the
Acquiror. We also have reviewed certain other information relating to the Company, including
financial forecasts relating to the Company, provided to or discussed with us by the Company, and
have met with the management of the Company to discuss the business and prospects of the Company.
We also have considered certain financial and stock market data of the Company, and we have
compared that data with similar data for other publicly held companies in businesses we deemed
similar to the business of the Company, and we have considered, to the extent publicly available,
the financial terms of certain other business combinations and other transactions which have been
effected or announced. We also considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that we deemed relevant.
In connection with our review, we have not independently verified any of the foregoing information
and have assumed and relied on such information being complete and accurate in all material
respects. With respect to the financial forecasts for the Company, the management of the Company
has advised us, and we have assumed, that such financial forecasts have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the Companys management
as to the future financial performance of the Company. We also have assumed, with your consent,
that in the course of obtaining any regulatory or third party consents, approvals or agreements in
connection with the Merger, no delay, limitation, restriction or condition will be imposed that
would have an adverse effect on the Company or the Merger and that the Merger will be consummated
in accordance with the terms of the Merger Agreement, without waiver, modification or amendment of
any material term, condition or agreement thereof. In addition, we have not been requested to make,
and have not made, an independent evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of the Company, nor have we been furnished with any such evaluations or appraisals.
Our opinion addresses only the fairness, from a financial point of view, to the holders of Company
Common Stock, of the Merger Consideration to be received in the Merger, and does not address any
other aspect or implication of the Merger or any other agreement, arrangement or understanding
entered into in connection with the Merger or otherwise, including, without limitation, the
fairness of the amount or nature of, or any other aspect relating to, any compensation to any
officers, directors or employees of any party to the Merger, or class of such persons, relative to
B-1
the Merger Consideration or otherwise. Our opinion is necessarily based upon information made
available to us as of the date hereof and financial, economic, market and other conditions as they
exist and can be evaluated on the date hereof. The issuance of this opinion was approved by our
authorized internal committee. Our opinion does not address the merits of the Merger as compared
to alternative transactions or strategies that might be available to the Company, nor does it
address the underlying decision of the Company to proceed with the Merger.
We have acted as financial advisor to the Company in connection with the Merger and will receive a
fee for our services, a significant portion of which is contingent upon the consummation of the
Merger. We also became entitled to receive a fee upon the rendering of our opinion. In addition,
the Company has agreed to indemnify us for certain liabilities and other items arising out of our
engagement. We are a full service securities firm engaged in securities trading and brokerage
activities, as well as providing investment banking and other financial services. In the ordinary
course of business, we and our affiliates may acquire, hold or sell, for our and our affiliates
own accounts and for the accounts of customers, equity, debt and other securities and financial
instruments (including bank loans and other obligations) of the Company, the Acquiror and any other
company that may be involved in the Merger, as well as provide investment banking and other
financial services to such companies.
It is understood that this letter is for the information of the Board of Directors of the Company
in connection with its consideration of the Merger and does not constitute advice or a
recommendation to any stockholder as to how such stockholder should vote or act on any matter
relating to the proposed Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Merger
Consideration to be received by the holders of Company Common Stock in the Merger is fair, from a
financial point of view, to such holders.
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Very truly yours,
/s/ Credit Suisse Securities (USA) LLC
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B-2
ANNEX C
SECTIONS 1300 THROUGH 1313 OF THE CALIFORNIA GENERAL CORPORATION LAW
Section 1300.
(a) If the approval of the outstanding shares (Section 152) of a corporation is required for a
reorganization under subdivisions (a) and (b) or subdivision (e) or (f) of Section 1201, each
shareholder of the corporation entitled to vote on the transaction and each shareholder of a
subsidiary corporation in a short-form merger may, by complying with this chapter, require the
corporation in which the shareholder holds shares to purchase for cash at their fair market value
the shares owned by the shareholder which are dissenting shares as defined in subdivision (b). The
fair market value shall be determined as of the day before the first announcement of the terms of
the proposed reorganization or short-form merger, excluding any appreciation or depreciation in
consequence of the proposed action, but adjusted for any stock split, reverse stock split, or share
dividend which becomes effective thereafter.
(b) As used in this chapter, dissenting shares means shares which come within all of the
following descriptions:
(1) Which were not immediately prior to the reorganization or short-form merger either (A)
listed on any national securities exchange certified by the Commissioner of Corporations under
subdivision (o) of Section 25100 or (B) listed on the National Market System of the NASDAQ Stock
Market, and the notice of meeting of shareholders to act upon the reorganization summarizes this
section and Sections 1301, 1302, 1303 and 1304; provided, however, that this provision does not
apply to any shares with respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this provision does not apply
to any class of shares described in subparagraph (A) or (B) if demands for payment are filed with
respect to 5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of shareholders entitled to vote
on the reorganization and (A) were not voted in favor of the reorganization or, (B) if described in
subparagraph (A) or (B) of paragraph (1) (without regard to the provisos in that paragraph), were
voted against the reorganization, or which were held of record on the effective date of a
short-form merger; provided, however, that subparagraph (A) rather than subparagraph (B) of this
paragraph applies in any case where the approval required by Section 1201 is sought by written
consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation purchase at their fair
market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in accordance with Section
1302.
(c) As used in this chapter, dissenting shareholder means the recordholder of dissenting
shares and includes a transferee of record.
Section 1301.
(a) If, in the case of a reorganization, any shareholders of a corporation have a right under
Section 1300, subject to compliance with paragraphs (3) and (4) of subdivision (b) thereof, to
require the corporation to purchase their shares for cash, that corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of that approval, accompanied by a copy of Sections 1300, 1302, 1303,
and 1304 and this section, a statement of the price determined by the corporation to represent the
fair market value of the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholders right under those sections. The statement
of price constitutes an offer by the corporation to purchase at the price stated any dissenting
shares as defined in subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase the shareholders
shares for cash under Section 1300, subject to compliance with paragraphs (3) and (4) of
subdivision (b) thereof, and who desires the corporation to purchase shares shall make written
demand upon the corporation for the purchase of those shares and payment to the shareholder in cash
of their fair market value. The demand is not effective for any purpose unless it is received by
the corporation or any transfer agent thereof (1) in the case of shares described in clause (A) or
(B)
C-1
of paragraph (1) of subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders meeting to vote upon the reorganization,
or (2) in any other case within 30 days after the date on which the notice of the approval by the
outstanding shares pursuant to subdivision (a) or the notice pursuant to subdivision (i) of Section
1110 was mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record by the
shareholder which the shareholder demands that the corporation purchase and shall contain a
statement of what that shareholder claims to be the fair market value of those shares as of the day
before the announcement of the proposed reorganization or short-form merger. The statement of fair
market value constitutes an offer by the shareholder to sell the shares at that price.
Section 1302.
Within 30 days after the date on which notice of the approval by the outstanding shares or the
notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, the shareholder
shall submit to the corporation at its principal office or at the office of any transfer agent
thereof, (a) if the shares are certificated securities, the shareholders certificates representing
any shares which the shareholder demands that the corporation purchase, to be stamped or endorsed
with a statement that the shares are dissenting shares or to be exchanged for certificates of
appropriate denomination so stamped or endorsed or (b) if the shares are uncertificated securities,
written notice of the number of shares which the shareholder demands that the corporation purchase.
Upon subsequent transfers of the dissenting shares on the books of the corporation, the new
certificates, initial transaction statement, and other written statements issued therefor shall
bear a like statement, together with the name of the original dissenting holder of the shares.
Section 1303.
(a) If the corporation and the shareholder agree that the shares are dissenting shares and
agree upon the price of the shares, the dissenting shareholder is entitled to the agreed price with
interest thereon at the legal rate on judgments from the date of the agreement. Any agreements
fixing the fair market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market value of dissenting
shares shall be made within 30 days after the amount thereof has been agreed or within 30 days
after any statutory or contractual conditions to the reorganization are satisfied, whichever is
later, and in the case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
Section 1304.
(a) If the corporation denies that the shares are dissenting shares, or the corporation and
the shareholder fail to agree upon the fair market value of the shares, then the shareholder
demanding purchase of such shares as dissenting shares or any interested corporation, within six
months after the date on which notice of the approval by the outstanding shares (Section 152) or
notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but not
thereafter, may file a complaint in the superior court of the proper county praying the court to
determine whether the shares are dissenting shares or the fair market value of the dissenting
shares or both or may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined as defendants in
any such action and two or more such actions may be consolidated.
(c) On the trial of the action, the court shall determine the issues. If the status of the
shares as dissenting shares is in issue, the court shall first determine that issue. If the fair
market value of the dissenting shares is in issue, the court shall determine, or shall appoint one
or more impartial appraisers to determine, the fair market value of the shares.
Section 1305.
(a) If the court appoints an appraiser or appraisers, they shall proceed forthwith to
determine the fair market value per share. Within the time fixed by the court, the appraisers, or
a majority of them, shall make and file a report in the office of the clerk of the court.
Thereupon, on the motion of any party, the report shall be submitted to
C-2
the court and considered on such evidence as the court considers relevant. If the court finds the
report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report within 10 days
from the date of their appointment or within such further time as may be allowed by the court or
the report is not confirmed by the court, the court shall determine the fair market value of the
dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered against the
corporation for payment of an amount equal to the fair market value of each dissenting share
multiplied by the number of dissenting shares which any dissenting shareholder who is a party, or
who has intervened, is entitled to require the corporation to purchase, with interest thereon at
the legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to uncertificated securities
and, with respect to certificated securities, only upon the endorsement and delivery to the
corporation of the certificates for the shares described in the judgment. Any party may appeal
from the judgment.
(e) The costs of the action, including reasonable compensation to the appraisers to be fixed
by the court, shall be assessed or apportioned as the court considers equitable, but, if the
appraisal exceeds the price offered by the corporation, the corporation shall pay the costs
(including in the discretion of the court attorneys fees, fees of expert witnesses and interest at
the legal rate on judgments from the date of compliance with Sections 1300, 1301 and 1302 if the
value awarded by the court for the shares is more than 125 percent of the price offered by the
corporation under subdivision (a) of Section 1301).
Section 1306.
To the extent that the provisions of Chapter 5 prevent the payment to any holders of dissenting
shares of their fair market value, they shall become creditors of the corporation for the amount
thereof together with interest at the legal rate on judgments until the date of payment, but
subordinate to all other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
Section 1307.
Cash dividends declared and paid by the corporation upon the dissenting shares after the date of
approval of the reorganization by the outstanding shares (Section 152) and prior to payment for the
shares by the corporation shall be credited against the total amount to be paid by the corporation
therefor.
Section 1308.
Except as expressly limited in this chapter, holders of dissenting shares continue to have all the
rights and privileges incident to their shares, until the fair market value of their shares is
agreed upon or determined. A dissenting shareholder may not withdraw a demand for payment unless
the corporation consents thereto.
Section 1309.
Dissenting shares lose their status as dissenting shares and the holders thereof cease to be
dissenting shareholders and cease to be entitled to require the corporation to purchase their
shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of the reorganization, the
corporation shall pay on demand to any dissenting shareholder who has initiated proceedings in good
faith under this chapter all necessary expenses incurred in such proceedings and reasonable
attorneys fees.
(b) The shares are transferred prior to their submission for endorsement in accordance with
Section 1302 or are surrendered for conversion into shares of another class in accordance with the
articles.
(c) The dissenting shareholder and the corporation do not agree upon the status of the shares
as dissenting shares or upon the purchase price of the shares, and neither files a complaint or
intervenes in a pending action as provided in Section 1304, within six months after the date on
which notice of the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
C-3
(d) The dissenting shareholder, with the consent of the corporation, withdraws the
shareholders demand for purchase of the dissenting shares.
Section 1310.
If litigation is instituted to test the sufficiency or regularity of the votes of the shareholders
in authorizing a reorganization, any proceedings under Sections 1304 and 1305 shall be suspended
until final determination of such litigation.
Section 1311.
This chapter, except Section 1312, does not apply to classes of shares whose terms and provisions
specifically set forth the amount to be paid in respect to such shares in the event of a
reorganization or merger.
Section 1312.
(a) No shareholder of a corporation who has a right under this chapter to demand payment of
cash for the shares held by the shareholder shall have any right at law or in equity to attack the
validity of the reorganization or short-form merger, or to have the reorganization or short-form
merger set aside or rescinded, except in an action to test whether the number of shares required to
authorize or approve the reorganization have been legally voted in favor thereof; but any holder of
shares of a class whose terms and provisions specifically set forth the amount to be paid in
respect to them in the event of a reorganization or short-form merger is entitled to payment in
accordance with those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in accordance with the
terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is directly or indirectly
controlled by, or under common control with, another party to the reorganization or short-form
merger, subdivision (a) shall not apply to any shareholder of such party who has not demanded
payment of cash for such shareholders shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form merger or to have
the reorganization or short-form merger set aside or rescinded, the shareholder shall not
thereafter have any right to demand payment of cash for the shareholders shares pursuant to this
chapter. The court in any action attacking the validity of the reorganization or short-form merger
or to have the reorganization or short-form merger set aside or rescinded shall not restrain or
enjoin the consummation of the transaction except upon 10 days prior notice to the corporation and
upon a determination by the court that clearly no other remedy will adequately protect the
complaining shareholder or the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is directly or indirectly
controlled by, or under common control with, another party to the reorganization or short-form
merger, in any action to attack the validity of the reorganization or short-form merger or to have
the reorganization or short-form merger set aside or rescinded, (1) a party to a reorganization or
short-form merger which controls another party to the reorganization or short-form merger shall
have the burden of proving that the transaction is just and reasonable as to the shareholders of
the controlled party, and (2) a person who controls two or more parties to a reorganization shall
have the burden of proving that the transaction is just and reasonable as to the shareholders of
any party so controlled.
Section 1313.
A conversion pursuant to Chapter 11.5 (commencing with Section 1150) shall be deemed to constitute
a reorganization for purposes of applying the provisions of this chapter, in accordance with and to
the extent provided in Section 1159.
C-4
SPECIAL MEETING OF SHAREHOLDERS
PROXY
OF
PHOTON DYNAMICS, INC.
, 2008
This proxy is being solicited by the Board of Directors of Photon Dynamics, Inc.
The undersigned, having read the Notice of Special Meeting of Shareholders and the Proxy
Statement dated , 2008, receipt of which are hereby acknowledged, hereby appoint(s) Jeffrey A.
Hawthorne and James P. Moniz and each of them, with full power and authority to act without the
other and with full power of substitution, as proxies to represent and vote, as directed herein,
all shares the undersigned is entitled to vote at the special meeting of shareholders of Photon
Dynamics, Inc. to be held at 9:00 a.m., local time, on , 2008, at the offices of Photon
Dynamics, at 5970 Optical Court, San Jose, California, and all continuations, adjournments or
postponements thereof.
You are encouraged to specify your choices by marking the appropriate boxes. This proxy will
be voted as specified by you, but if no choice is specified, it will be voted FOR the proposal
described on this proxy card. Please complete your voting selection, date, sign and mail your
proxy card in the envelope provided as soon as possible.
The Board of Directors unanimously recommends a vote FOR:
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1.
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Approval of the Agreement and Plan of Merger and Reorganization, dated as of June 26,
2008, among Orbotech Ltd., PDI Acquisition, Inc., a California corporation and an indirect
wholly-owned subsidiary of Orbotech Ltd., and Photon Dynamics, Inc., and the principal
terms of the merger contemplated by such merger agreement.
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FOR
o
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AGAINST
o
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ABSTAIN
o
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(continued, and to be signed and dated, on reverse side)
IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED AND EMPOWERED TO VOTE UPON OTHER MATTERS THAT
MAY PROPERLY COME BEFORE THE SPECIAL MEETING AND ALL CONTINUATIONS, ADJOURNMENTS OR POSTPONEMENTS
THEREOF, INCLUDING, IF SUBMITTED TO A VOTE OF THE SHAREHOLDERS, A MOTION TO ADJOURN THE SPECIAL
MEETING TO ANOTHER TIME OR PLACE FOR THE PURPOSE OF SOLICITING ADDITIONAL PROXIES.
NAME(S):
DATE:
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NOTE:
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Please sign your name exactly as it appears on your stock certificate(s). Joint owners
should each sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, partnership or other entity, please sign in
full.
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