-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TZ+9tWT/xqsKij0G0OBPEn46kO30ZKTQUeYRNvaFGg0rRsec29EeTKgMvfl4wi7h Cz1Vh0lJrZl9fakv0Jj61A== 0000950123-99-004728.txt : 19990517 0000950123-99-004728.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950123-99-004728 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19990514 GROUP MEMBERS: KONINKLIJKE PHILIPS ELECTRONICS NV GROUP MEMBERS: PHILIPS ELECTRONICS NORTH AMERICA CORP GROUP MEMBERS: VULCAN MERGER SUB, INC. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: VOICE CONTROL SYSTEMS INC /DE/ CENTRAL INDEX KEY: 0000350899 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 751707970 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: SEC FILE NUMBER: 005-33865 FILM NUMBER: 99624439 BUSINESS ADDRESS: STREET 1: 14140 MIDWAY RD SUITE 100 CITY: DALLAS STATE: TX ZIP: 75244 BUSINESS PHONE: 9727261200 MAIL ADDRESS: STREET 1: 14140 MIDWAY ROAD STREET 2: SUITE 100 CITY: DALLAS STATE: TX ZIP: 75244 FORMER COMPANY: FORMER CONFORMED NAME: SCOTT INSTRUMENTS CORP DATE OF NAME CHANGE: 19920703 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: KONINKLIJKE PHILIPS ELECTRONICS NV CENTRAL INDEX KEY: 0000313216 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (NO COMPUTER EQUIP) [3600] STATE OF INCORPORATION: P7 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: REMBRANDT TOWER AMSTELPLEIN 1 STREET 2: 1096 HA AMSTERDAM CITY: THE NETHERLANDS MAIL ADDRESS: STREET 1: REMBRANDT TOWER AMSTELPLEIN 1 STREET 2: 1096 HA AMSTERDAM CITY: THE NETHERLANDS FORMER COMPANY: FORMER CONFORMED NAME: PHILIPS ELECTRONICS N V DATE OF NAME CHANGE: 19930727 SC 14D1 1 VOICE CONTROL SYSTEMS, INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------ VOICE CONTROL SYSTEMS, INC. (NAME OF SUBJECT COMPANY) VULCAN MERGER SUB, INC. A WHOLLY OWNED SUBSIDIARY OF PHILIPS ELECTRONICS NORTH AMERICA CORPORATION AN INDIRECTLY OWNED SUBSIDIARY OF KONINKLIJKE PHILIPS ELECTRONICS N.V. (ROYAL PHILIPS ELECTRONICS) (BIDDERS) COMMON STOCK, PAR VALUE $.01 PER SHARE (TITLE OF CLASS OF SECURITIES) 92861B100 (CUSIP NUMBER OF CLASS OF SECURITIES) WILLIAM E. CURRAN PRESIDENT 1251 AVENUE OF THE AMERICAS 20TH FLOOR NEW YORK, NEW YORK 10020 212-536-0500 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS) COPIES TO: NEIL T. ANDERSON, ESQ. SULLIVAN & CROMWELL 125 BROAD STREET NEW YORK, NEW YORK 10004 (212) 558-4000 CALCULATION OF FILING FEE
- ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- TRANSACTION VALUATION* AMOUNT OF FILING FEE** - ------------------------------------------------------------------------------------------------------- $67,728,748 $13,546 - ------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------
* The transaction valuation set forth herein has been calculated solely for the purpose of computing the filing fee pursuant to Exchange Act Rule 0-11. The valuation was determined by adding (i) 13,742,639 shares of common stock, par value $0.01 per share (the "Shares"), of Voice Control Systems, Inc. outstanding as of May 9, 1999, (ii) 2,212,473 Shares issuable upon exercise of outstanding stock options and (iii) 977,075 Shares issuable upon exercise of outstanding warrants, and multiplying the sum by $4.00, the amount per Share offered by the Bidders in the tender offer. [ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: None Filing Party: N/A Form of Registration No.: N/A Date filed: N/A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 SCHEDULE 14D-1 CUSIP NO. 92861B100 - --------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Koninklijke Philips Electronics N.V. (Royal Philips Electronics) - --------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [ ] - --------------------------------------------------------------------------- 3 SEC USE ONLY - --------------------------------------------------------------------------- 4 SOURCE OF FUNDS WC; OO - --------------------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) OR 2(f) [ ] - --------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION The Netherlands - --------------------------------------------------------------------------- 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 0 Shares - --------------------------------------------------------------------------- 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ] - --------------------------------------------------------------------------- 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 0% - --------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON HC; CO - ---------------------------------------------------------------------------
3 SCHEDULE 14D-1 CUSIP NO. 92861B100 - --------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Philips Holding USA Inc. - --------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [ ] - --------------------------------------------------------------------------- 3 SEC USE ONLY - --------------------------------------------------------------------------- 4 SOURCE OF FUNDS AF - --------------------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) OR 2(f) [ ] - --------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - --------------------------------------------------------------------------- 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 0 Shares - --------------------------------------------------------------------------- 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ] - --------------------------------------------------------------------------- 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 0% - --------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON HC - ---------------------------------------------------------------------------
4 SCHEDULE 14D-1 CUSIP NO. 92861B100 - --------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Philips Electronics North America Corporation - --------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [ ] - --------------------------------------------------------------------------- 3 SEC USE ONLY - --------------------------------------------------------------------------- 4 SOURCE OF FUNDS AF - --------------------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) OR 2(f) [ ] - --------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - --------------------------------------------------------------------------- 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 0 Shares - --------------------------------------------------------------------------- 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ] - --------------------------------------------------------------------------- 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 0% - --------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON CO - ---------------------------------------------------------------------------
5 SCHEDULE 14D-1 CUSIP NO. 92861B100 - --------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Vulcan Merger Sub, Inc. - --------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [ ] - --------------------------------------------------------------------------- 3 SEC USE ONLY - --------------------------------------------------------------------------- 4 SOURCE OF FUNDS AF - --------------------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) OR 2(f) [ ] - --------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - --------------------------------------------------------------------------- 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 0 Shares - --------------------------------------------------------------------------- 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ] - --------------------------------------------------------------------------- 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 0% - --------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON CO - ---------------------------------------------------------------------------
6 ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is Voice Control Systems, Inc., a Delaware corporation (the "Company"), and the address of its principal executive offices is 14140 Midway Road, Suite 100, Dallas, Texas 75244. (b) The class of securities to which this statement relates is the common stock, par value $0.01 per share (the "Shares") of the Company. The information set forth in the introductory section and Section 1 of the Offer to Purchase (the "Offer to Purchase") annexed hereto as Exhibit (a)(1) is incorporated herein by reference. (c) The information set forth in Section 6 of the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d); (g) The information set forth in Section 9 of the Offer to Purchase is incorporated herein by reference. The name, business address, present principal occupation or employment, the material occupations, positions, offices or employments for the past five years and citizenship of each director and executive officer of Koninklijke Philips Electronics N.V., a company incorporated under the laws of The Netherlands ("Royal Philips"), Philips Holding USA Inc., a Delaware corporation ("Philips Holding"), Philips Electronics North America Corporation, a Delaware corporation ("Parent"), and Vulcan Merger Sub, Inc., a Delaware corporation (the "Purchaser") are set forth in Schedule A to the Offer to Purchase and are incorporated herein by reference. (e)-(f) During the last five years, none of the Purchaser, Parent, Philips Holding, Royal Philips, or, to the best of their respective knowledge, any of the directors or executive officers of the Purchaser, Parent, Philips Holding or Royal Philips has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which any such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such law. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a)-(b) The information set forth in the introductory section and Sections 9 and 10 of the Offer to Purchase is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a)-(c) The information set forth in Section 13 of the Offer to Purchase is incorporated herein by reference. ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER. (a)-(g) The information set forth in the introductory section and Sections 7, 10, 12 and 14 of the Offer to Purchase is incorporated herein by reference. Except as set forth in such sections of the offer to Purchase, none of the Purchaser, Parent, Philips Holding, or Royal Philips currently has any plans or proposals which relate to or would result in: (a) an extraordinary corporate transaction, such as a merger, reorganization or liquidation involving the Company or any of its subsidiaries; (b) a sale or transfer of a material amount of assets of the Company or any of its subsidiaries; (c) any change in the present board of directors or management of the Company including, but not limited to, any plans or proposals to change the number or the term of directors or to fill any existing vacancies on the board of directors of the Company; (d) any material change in the Company's corporate structure or business; (f) causing a class of securities of the Company to be delisted from a national securities exchange or cease to be authorized to be quoted in an interdealer quotation system of a registered national 7 securities association; or (g) a class of equity securities of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934, as amended. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a)-(b) The information set forth in Sections 9, 10 and Schedule A of the Offer to Purchase is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth in the introductory section and Sections 9, 10 and 12 of the Offer to Purchase is incorporated herein by reference. ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in Section 16 of the Offer to Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. The information set forth in Section 9 of the Offer to Purchase is incorporated herein by reference. ITEM 10. ADDITIONAL INFORMATION. (a) The information set forth in Section 10 of the Offer to Purchase is incorporated herein by reference. (b)-(d) The information set forth in Sections 7 and 15 of the Offer to Purchase is incorporated herein by reference. (e)-(f) Not applicable. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) Offer to Purchase, dated May 14, 1999. (a)(2) Letter of Transmittal. (a)(3) Letter to brokers, dealers, commercial banks, trust companies and other nominees. (a)(4) Letter to clients to be used by brokers, dealers, commercial banks, trust companies and other nominees. (a)(5) Notice of Guaranteed Delivery. (a)(6) Guidelines to Substitute Form W-9. (a)(7) Letter to former holders of common stock of VCS Industries, Inc. and Voice Processing Corporation. (a)(8) Press release, dated May 9, 1999, announcing tender offer. (a)(9) Newspaper advertisement, dated May 14, 1999, published in The Wall Street Journal. (b) None. (c)(1) Agreement and Plan of Merger, dated May 9, 1999, among Parent, the Company and the Purchaser. (c)(2) Employment Agreement, dated May 9, 1999, between Parent and Peter J. Foster. (c)(3) Employment Agreement, dated May 9, 1999, among Parent, the Company and Dr. Thomas B. Schalk. (c)(4) Employment Agreement, dated May 9, 1999, between Parent and Kim S. Terry. (d) None. (e) Not applicable. (f) None.
8 SIGNATURES After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: May 14, 1999 KONINKLIJKE PHILIPS ELECTRONICS N.V. By: /s/ ERIC P. COUTINHO ------------------------------------ Name: Eric P. Coutinho Title: Director and Deputy Secretary PHILIPS ELECTRONICS HOLDING USA INC. By: /s/ WILLIAM E. CURRAN ------------------------------------ Name: William E. Curran Title: Senior Vice President-Finance PHILIPS ELECTRONICS NORTH AMERICA CORPORATION By: /s/ WILLIAM E. CURRAN ------------------------------------ Name: William E. Curran Title: Senior Vice President and Chief Financial Officer VULCAN MERGER SUB, INC. By: /s/ WILLIAM E. CURRAN ------------------------------------ Name: William E. Curran Title: President and Chief Executive Officer 9 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - -------- ----------- (a)(1) Offer to Purchase, dated May 14, 1999. (a)(2) Letter of Transmittal. (a)(3) Letter to brokers, dealers, commercial banks, trust companies and other nominees. (a)(4) Letter to clients to be used by brokers, dealers, commercial banks, trust companies and other nominees. (a)(5) Notice of Guaranteed Delivery. (a)(6) Guidelines to Substitute Form W-9. (a)(7) Letter to former holders of common stock of VCS Industries, Inc. and Voice Processing Corporation. (a)(8) Press release, dated May 9, 1999, announcing tender offer. (a)(9) Newspaper advertisement, dated May 14, 1999, published in The Wall Street Journal. (b) None. (c)(1) Agreement and Plan of Merger, dated May 9, 1999, among Parent, the Company and the Purchaser. (c)(2) Employment Agreement, dated May 9, 1999, between Parent and Peter J. Foster. (c)(3) Employment Agreement, dated May 9, 1999, among Parent, the Company and Dr. Thomas B. Schalk. (c)(4) Employment Agreement, dated May 9, 1999, between Parent and Kim S. Terry. (d) None. (e) Not applicable. (f) None.
EX-99.A.1 2 OFFER TO PURCHASE 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF VOICE CONTROL SYSTEMS, INC. AT $4.00 NET PER SHARE BY VULCAN MERGER SUB, INC. A WHOLLY OWNED SUBSIDIARY OF PHILIPS ELECTRONICS NORTH AMERICA CORPORATION AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF KONINKLIJKE PHILIPS ELECTRONICS N.V. (ROYAL PHILIPS ELECTRONICS) - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 11, 1999, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED IN SECTION 1 HEREIN) AT LEAST A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE (THE "SHARES"), OF VOICE CONTROL SYSTEMS, INC. (THE "COMPANY") ON A FULLY DILUTED BASIS, AS OF THE DATE THE SHARES ARE ACCEPTED FOR PAYMENT PURSUANT TO THE OFFER AND (2) ANY WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED (THE "HSR ACT"), AND THE REGULATIONS THEREUNDER APPLICABLE TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER HAVING EXPIRED OR BEEN TERMINATED. CERTAIN OTHER CONDITIONS TO CONSUMMATION OF THE OFFER ARE DESCRIBED IN SECTION 11. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT (AS DEFINED IN THE INTRODUCTION HERETO) AND DECLARED ITS ADVISABILITY, APPROVED THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's Shares should (1) complete and sign the Letter of Transmittal or a facsimile thereof in accordance with the instructions in the Letter of Transmittal, including any required signature guarantees, and mail or deliver the Letter of Transmittal or such facsimile with such stockholder's certificate(s) for the tendered Shares and any other required documents to Citibank, N.A., Depositary for the Offer (the "Depositary") (2) follow the procedure for book-entry tender of Shares set forth in Section 3 or (3) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such stockholder. Stockholders having Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if they desire to tender Shares so registered. A stockholder who desires to tender Shares and whose certificates for such Shares are not immediately available, or who cannot comply with the procedure for book-entry transfer on a timely basis, may tender such Shares by following the procedures for guaranteed delivery set forth in Section 3. Questions and requests for assistance may be directed to D.F. King & Co., Inc., Information Agent for the Offer (the "Information Agent"), at the address and telephone number set forth on the back cover of this Offer to Purchase. Requests for additional copies of this Offer to Purchase and the Letter of Transmittal may be directed to the Information Agent or to brokers, dealers, commercial banks or trust companies. May 14, 1999 2 TABLE OF CONTENTS
SECTION PAGE - ------- ---- INTRODUCTION................................................ 1 THE TENDER OFFER............................................ 2 1. Terms of the Offer................................... 2 2. Acceptance for Payment and Payment for Shares........ 3 3. Procedure for Tendering Shares....................... 4 4. Rights of Withdrawal................................. 6 5. Certain United States Federal Income Tax Consequences of the Offer........................................... 7 6. Price Range of Shares; Dividends..................... 8 7. Effect of the Offer on the Market for the Shares; Stock Quotation, Margin Regulations and Exchange Act Registration......... 8 8. Certain Information Concerning the Company........... 9 9. Certain Information Concerning the Purchaser and Parent................................................. 11 10. Background of the Offer; Contacts with the Company; Employment Agreements.................................. 13 11. Certain Conditions of the Offer...................... 16 12. Purpose of the Offer; Plans for the Company; the Merger................................................. 18 13. Source and Amount of Funds........................... 24 14. Dividends and Distributions.......................... 24 15. Certain Legal Matters................................ 25 16. Fees and Expenses.................................... 27 17. Miscellaneous........................................ 28 SCHEDULE A Information Concerning the Directors and Executive Officers of: Koninklijke Philips Electronics N.V., Philips Holding USA Inc., Philips Electronics North America Corporation and Vulcan Merger Sub, Inc.............................. A-1
3 TO THE HOLDERS OF SHARES OF VOICE CONTROL SYSTEMS, INC.: INTRODUCTION Vulcan Merger Sub, Inc., a Delaware corporation (the "Purchaser"), and a wholly owned subsidiary of Philips Electronics North America Corporation, a Delaware corporation ("Parent"), and an indirect wholly owned subsidiary of Koninklijke Philips Electronics N.V., a company incorporated under the laws of The Netherlands ("Royal Philips"), hereby offers to purchase all of the outstanding shares of common stock, par value $0.01 per share (the "Shares"), of Voice Control Systems, Inc., a Delaware corporation (the "Company"), at $4.00 per Share, net to the seller in cash without interest, upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which together with any amendments or supplements hereto or thereto, collectively constitute the "Offer"). Tendering stockholders will not be obligated to pay brokerage fees or commissions or, subject to Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares by the Purchaser pursuant to the Offer. The Purchaser will pay all charges and expenses of the Depositary and the Information Agent. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE AT LEAST A MAJORITY OF THE OUTSTANDING SHARES ON A FULLY DILUTED BASIS, AND (2) ANY WAITING PERIOD UNDER THE HSR ACT AND THE REGULATIONS THEREUNDER APPLICABLE TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER HAVING EXPIRED OR BEEN TERMINATED. CERTAIN OTHER CONDITIONS TO CONSUMMATION OF THE OFFER ARE DESCRIBED IN SECTION 11. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT AND DECLARED ITS ADVISABILITY, APPROVED THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. THE FACTORS CONSIDERED BY THE BOARD OF DIRECTORS OF THE COMPANY IN ARRIVING AT ITS DECISION TO APPROVE THE OFFER AND THE MERGER AND TO RECOMMEND THAT STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES ARE DESCRIBED IN THE COMPANY'S SOLICITATION/RECOMMENDATION STATEMENT ON SCHEDULE 14D-9, WHICH IS BEING MAILED TO STOCKHOLDERS OF THE COMPANY HEREWITH. The Offer is being made pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated as of May 9, 1999, by and among the Company, Parent and the Purchaser, pursuant to which, after completion of the Offer, the Purchaser will be merged with and into the Company or, at the option of Parent, the Company will be merged with and into the Purchaser (either such merger, the "Merger") and each issued and outstanding Share (other than Shares owned by Parent, Purchaser or any other subsidiary of Parent (collectively, the "Parent Companies") or Shares held by stockholders ("Dissenting Stockholders") exercising appraisal rights pursuant to Section 262 of the Delaware General Corporate Law (the "DGCL")) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and represent the right to receive an amount in cash, without interest, equal to the price paid for each Share pursuant to the Offer. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ IN THEIR ENTIRETY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 4 THE TENDER OFFER 1. TERMS OF THE OFFER Upon the terms and subject to the conditions set forth in the Offer (including the terms and conditions set forth in Section 11 (the "Offer Conditions") and if the Offer is extended or amended, the terms and conditions of such extension or amendment), the Purchaser will accept for payment, and pay for all Shares validly tendered on or prior to the Expiration Date and not withdrawn as permitted by Section 4. The term "Expiration Date" means 12:00 midnight, New York City time, on Friday, June 11, 1999, unless and until the Purchaser shall, subject to the terms of the Merger Agreement, have extended the period for which the Offer is open. In such a case, the term "Expiration Date" shall mean the latest time and date on which the Offer, as so extended by the Purchaser, shall expire. The Offer is conditioned on, among other things, there being validly tendered and not withdrawn at least a majority of the outstanding Shares. ACCORDING TO THE COMPANY, AS OF MAY 9, 1999 THERE WERE 13,742,639 SHARES OUTSTANDING, 2,212,473 SHARES SUBJECT TO ISSUANCE UPON EXERCISE OF OUTSTANDING STOCK OPTIONS PURSUANT TO THE COMPANY'S STOCK OPTION AND INCENTIVE PLANS AND 977,075 SHARES SUBJECT TO ISSUANCE UPON EXERCISE OF CERTAIN OUTSTANDING WARRANTS TO PURCHASE SHARES. Based on the foregoing, the Purchaser believes that if all of the Shares subject to issuance as set forth above are considered to be outstanding on a fully diluted basis on the Expiration Date, this condition would be satisfied if at least 8,466,094 Shares are validly tendered and not withdrawn prior to the Expiration Date. The Purchaser may, without the consent of the Company, (i) extend the Offer, if on the scheduled expiration date of the Offer any of the conditions to the Purchaser's obligation to purchase Shares are not satisfied, until such time as such conditions are satisfied or waived, (ii) extend the Offer for a period of up to 30 business days after all of the Offer Conditions have been satisfied or waived if it reasonably determines such extension is appropriate in order to enable it to purchase at least 90% of the outstanding Shares in the Offer and (iii) extend the Offer for any period required by any regulation, rule, interpretation or position of the Securities and Exchange Commission (the "SEC") applicable to the Offer. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the right of a tendering stockholder to withdraw such stockholder's Shares. If the Purchaser accepts any Shares for payment pursuant to the terms of the Offer, it will accept for payment all Shares validly tendered prior to the Expiration Date and not withdrawn, and, subject to the terms and conditions of the Offer, including but not limited to the Offer Conditions, it will accept for payment and promptly pay for all Shares so accepted for payment. The Purchaser's right to delay payment for Shares which it has accepted for payment is limited by Rule 14e-1(c) under the Securities Exchange Act of 1934 (the "Exchange Act"), which requires that a tender offeror pay the consideration offered or return the tendered securities promptly after the termination or withdrawal of a tender offer. The Purchaser is not required to extend the Offer. Subject to the applicable rules and regulations of the SEC, applicable law and the Merger Agreement, the Purchaser may, without the consent of the Company, terminate the Offer and not accept for payment any Shares if any of the conditions to the Purchaser's obligation to purchase Shares are not satisfied. Any extension, delay, termination or amendment of the Offer will be followed as promptly as practicable by public announcement thereof. In the case of an extension, Rule 14(e)-1(d) under the Exchange Act requires that the announcement be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Subject to applicable law (including Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act, which require that any material change in the information published, sent or given to stockholders in connection with the Offer be promptly disseminated to stockholders in a manner reasonably designed to inform stockholders of such change) and without limiting the manner in which the Purchaser may choose to make any public announcement, the Purchaser shall have no obligation to publish, advertise or otherwise communicate any such public 2 5 announcement other than by issuing a press release or other announcement. If it makes a material change in the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, the Purchaser will extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The Company has provided the Purchaser with the Company's stockholder lists and security position listings for the purpose of disseminating the Offer to holders of the Shares. This Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed by the Purchaser to record holders of Shares and will be furnished by the Purchaser to brokers, dealers, banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder lists or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES Upon the terms and subject to the conditions of the Offer (including the Offer Conditions and, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Purchaser will accept for payment, and will pay for, Shares validly tendered and not withdrawn as soon as practicable after the Expiration Date. In addition, subject to applicable rules of the SEC, the Purchaser expressly reserves the right to delay acceptance for payment of or payment for Shares in order to comply, in whole or in part, with any applicable law including the HSR Act. Parent intends to file a Notification and Report Form under the HSR Act on May 18, 1999 and, accordingly, unless earlier terminated or extended by a request for additional information, the waiting period under the HSR Act is scheduled to expire at 11:59 p.m., New York City time, on June 2, 1999. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for such Shares (or a confirmation of a book-entry transfer of such Shares (a "Book-Entry Confirmation") into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility"), a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other documents required by the Letter of Transmittal. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment Shares validly tendered and not withdrawn if and when the Purchaser gives oral or written notice to the Depositary of its acceptance for payment of such Shares pursuant to the Offer. Payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for the tendering stockholders for the purpose of receiving payments from the Purchaser and transmitting such payments to the tendering stockholders. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR SHARES BE PAID, REGARDLESS OF ANY DELAY IN MAKING SUCH PAYMENT. If any tendered Shares are not accepted for payment pursuant to the terms and conditions of the Offer for any reason, or if certificates are submitted for more Shares than are tendered, certificates for such unpurchased Shares will be returned, without expense to the tendering stockholder (or, in the case of Shares tendered by book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3, such Shares will be credited to an account maintained with the Book-Entry Transfer Facility), as soon as practicable following expiration or termination of the Offer. The Purchaser reserves the right to transfer or assign in whole or in part from time to time to one or more direct or indirect subsidiaries of Parent the right to purchase all or any portion of the Shares tendered pursuant to the Offer. However, any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer and will in no way prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 3 6 3. PROCEDURE FOR TENDERING SHARES Valid Tender To tender Shares pursuant to the Offer, (a) a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) in accordance with the instructions of the Letter of Transmittal, with any required signature guarantees, certificates for Shares to be tendered, and any other documents required by the Letter of Transmittal, must be received by the Depositary prior to the Expiration Date at one of its addresses set forth on the back cover of this Offer to Purchase, (b) such Shares must be delivered pursuant to the procedures for book-entry transfer described below (and a Book-Entry Confirmation of such delivery received by the Depositary, including an Agent's Message (as defined below) if the tendering stockholder has not delivered a Letter of Transmittal), prior to the Expiration Date, or (c) the tendering stockholder must comply with the guaranteed delivery procedures set forth below. The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares which are the subject of such Book-Entry Confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Purchaser may enforce such agreement against the participant. Book-Entry Delivery The Depositary will establish accounts with respect to the Shares at the Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry transfer of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer, either the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in lieu of the Letter of Transmittal, and any other required documents, must, in any case, be transmitted to and received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase by the Expiration Date, or the tendering stockholder must comply with the guaranteed delivery procedures described below. The confirmation of a book-entry transfer of Shares into the Depositary's account at a Book-Entry Transfer Facility as described above is referred to herein as a "Book-Entry Confirmation." DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT THE STOCKHOLDER USE PROPERLY INSURED REGISTERED MAIL WITH RETURN RECEIPT REQUESTED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. Signature Guarantees Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (each, an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed (a) if the Letter of Transmittal is signed by the registered holders (which term, for purposes of this section, includes any participant in any of the Book-Entry Transfer Facilities' systems whose name appears on a security 4 7 position listing as the owner of the Shares) of Shares tendered therewith and such registered holder has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (b) if such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If the certificates for Shares are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made or certificates for Shares not tendered or not accepted for payment are to be returned to a person other than the registered holder of the certificates surrendered, then the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holders or owners appear on the certificates, with the signatures on the certificates or stock powers guaranteed as described above. See Instructions 1 and 5 of the Letter of Transmittal. Guaranteed Delivery A stockholder who desires to tender Shares pursuant to the Offer and whose certificates for Shares are not immediately available, or who cannot comply with the procedure for book-entry transfer on a timely basis, or who cannot deliver all required documents to the Depositary prior to the Expiration Date, may tender such Shares by following all of the procedures set forth below: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Purchaser, is received by the Depositary, as provided below, prior to the Expiration Date; and (iii) the certificates for all tendered Shares, in proper form for transfer (or a Book-Entry Confirmation with respect to all such Shares, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal), and any other required documents, are received by the Depositary within three trading days after the date of execution of such Notice of Guaranteed Delivery. A "trading day" is any day on which the New York Stock Exchange, Inc. (the "NYSE") is open for business. The Notice of Guaranteed Delivery may be delivered by hand to the Depositary or transmitted by facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. Other Requirements Notwithstanding any provision hereof, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (a) certificates for (or a timely Book-Entry Confirmation with respect to) such Shares (b) a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal) and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering stockholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE OF THE SHARES BE PAID BY THE PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. Tender Constitutes an Agreement The valid tender of Shares pursuant to one of the procedures described above will constitute a binding agreement between the tendering stockholder and the Purchaser upon the terms and subject to the conditions of the Offer. 5 8 Appointment By executing a Letter of Transmittal as set forth above, the tendering stockholder irrevocably appoints designees of the Purchaser as such stockholder's proxies, each with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by the Purchaser and with respect to any and all other Shares or other securities issued or issuable in respect of such Shares on or after May 14, 1999. All such proxies will be considered coupled with an interest in the tendered Shares. Such appointment is effective when, and only to the extent that, the Purchaser deposits the payment for such Shares with the Depositary. Upon the effectiveness of such appointment, all prior powers of attorney, proxies and consents given by such stockholder will be revoked, and no subsequent powers of attorney, proxies and consents may be given (and, if given, will not be deemed effective). The Purchaser's designees will, with respect to the Shares for which the appointment is effective, be empowered to exercise all voting and other rights of such stockholder as they, in their sole discretion, may deem proper at any annual, special or adjourned meeting of the stockholders of the Company, by written consent in lieu of any such meeting or otherwise. The Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, the Purchaser must be able to exercise full voting rights with respect to such Shares immediately upon the Purchaser's payment for such Shares. Determination of Validity All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by the Purchaser in its sole discretion, which determination will be final and binding. The Purchaser reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance for payment of or payment for which may, in the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves the absolute right to waive any defect or irregularity in the tender of any Shares of any particular stockholder whether or not similar defects or irregularities are waived in the case of other stockholders. No tender of Shares will be deemed to have been validly made until all defects and irregularities relating thereto have been cured or waived. None of the Purchaser, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. The Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and instructions thereto) will be final and binding. 4. RIGHTS OF WITHDRAWAL Tenders of Shares made pursuant to the Offer are irrevocable except that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any time after July 13, 1999. For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any such notice of withdrawal must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the names in which the certificate(s) evidencing the Shares to be withdrawn are registered, if different from that of the person who tendered such Shares. The signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Shares have been tendered for the account of any Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry tender as set forth in Section 3, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with the Book-Entry Transfer Facility's Procedures. If certificates for Shares to be withdrawn have been delivered or otherwise identified to the Depositary, the name of the registered holder and the serial numbers of the particular certificates evidencing the Shares to be withdrawn must also be furnished to the Depositary as aforesaid prior to the physical release of such certificates. All questions as to the form and validity (including time of 6 9 receipt) of any notice of withdrawal will be determined by the Purchaser, in its sole discretion, which determination shall be final and binding. None of the Purchaser, Parent, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give such notification. Withdrawals of tender for Shares may not be rescinded, and any Shares properly withdrawn will be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by following one of the procedures described in Section 3 at any time prior to the Expiration Date. If the Purchaser extends the Offer, is delayed in its acceptance for payment of Shares, or is unable to accept for payment Shares pursuant to the Offer, then for any reason, without prejudice to the Purchaser's rights under this Offer, the Depositary may, on behalf of the Purchaser, retain tendered Shares, and such Shares may not be withdrawn except to the extent that tendering stockholders are entitled to withdrawal rights as set forth in this Section 4. 5. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER General Sales of Shares pursuant to the Offer and the exchange of Shares for cash pursuant to the Merger will be taxable transactions for U.S. federal income tax purposes and may also be taxable under applicable state, local, foreign and other tax laws. For U.S. federal income tax purposes, a stockholder whose Shares are purchased pursuant to the Offer or who receives cash as a result of the Merger will realize gain or loss equal to the difference between the adjusted basis of the Shares sold or exchanged and the amount of cash received therefor. Such gain or loss will be capital gain or loss if the Shares are held as capital assets by the stockholder and will be long-term capital gain or loss if the stockholder's holding period in such Shares for U.S. federal income tax purposes is more than one year at the time of the sale or exchange. Long-term capital gain of a non-corporate stockholder is generally subject to a maximum tax rate of 20%. In addition, a stockholder's ability to use capital losses to offset ordinary income is limited. Backup Withholding In order to avoid "backup withholding" of U.S. federal income tax on payments of cash pursuant to the Offer or the Merger, a stockholder surrendering Shares in the Offer or the Merger must, unless an exemption applies, provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") on a Substitute Form W-9 included as part of the Letter of Transmittal and certify under penalties of perjury that such TIN is correct and that such stockholder is not subject to backup withholding. If a stockholder does not provide such stockholder's correct TIN or fails to provide the certifications described above, the Internal Revenue Service (the "IRS") may impose a penalty on such stockholder and payment of cash to such stockholder pursuant to the Offer or the Merger may be subject to backup withholding tax of 31%. All stockholders surrendering Shares pursuant to the Offer or the Merger should complete and sign the main signature form and the Substitute Form W-9 included as part of the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to Purchaser and the Depositary). Certain stockholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. Foreign stockholders should complete and sign the main signature form and Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See Instruction 9 to the Letter of Transmittal. THE INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO STOCKHOLDERS IN SPECIAL SITUATIONS SUCH AS STOCKHOLDERS WHO RECEIVED THEIR SHARES UPON THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION AND STOCKHOLDERS WHO ARE NOT UNITED STATES PERSONS. STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO THEM, IN THEIR PARTICULAR CIRCUMSTANCES, OF THE 7 10 OFFER AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX LAWS. 6. PRICE RANGE OF SHARES; DIVIDENDS The Shares are traded on the Nasdaq Stock Market's National Market under the symbol "VCSI." The following table sets forth, for the calendar quarters indicated, the high and low per share sales prices for the Shares on the Nasdaq National Market:
SALES PRICE -------------- CALENDAR YEAR HIGH LOW - ------------- ----- ----- 1997: First Quarter............................................. $9.00 $5.50 Second Quarter............................................ 5.88 4.38 Third Quarter............................................. 5.94 3.63 Fourth Quarter............................................ 4.22 2.50 1998: First Quarter............................................. 7.50 2.25 Second Quarter............................................ 7.53 3.09 Third Quarter............................................. 3.31 1.56 Fourth Quarter............................................ 3.00 1.50 1999: First Quarter............................................. 5.00 1.75 Second Quarter (through May 13, 1999)..................... 3.91 2.88
On May 7, 1999, the last full trading day prior to the public announcement of the terms of the Offer and the Merger, the reported closing price for the Shares on the Nasdaq National Market was $3.1875 per Share. On May 13, 1999 the last full trading day prior to commencement of the Offer, the reported closing price for the Shares on the Nasdaq National Market was $3.875 per Share. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES. The Purchaser has been advised by the Company that the Company did not pay dividends on its Shares during the years ended December 31, 1997 or 1998 and has not paid any dividends in 1999. The Merger Agreement prohibits the Company from declaring or paying any dividends without the consent of Parent. 7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; STOCK QUOTATION, MARGIN REGULATIONS AND EXCHANGE ACT REGISTRATION Market for Shares The purchase of Shares by the Purchaser pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and may reduce the number of stockholders, which could adversely affect the liquidity and market value of the remaining Shares held by the public. Stock Quotation The Shares are traded on the Nasdaq National Market. According to published guidelines of the Nasdaq National Market, the Shares might no longer be eligible for quotation on the Nasdaq National Market if, among other things, either (i) the number of Shares publicly held was less than 750,000, there were fewer than 400 holders of round lots, the aggregate market value of publicly held Shares was less than $5,000,000, net tangible assets were less than $4,000,000 and there were fewer than two registered and active market makers for the Shares, or (ii) the number of Shares publicly held was less than 1,100,000, there were fewer than 400 holders of round lots, the aggregate market value of publicly held Shares was less than $15,000,000, and either (x) the Company's market capitalization was less than 8 11 $50,000,000 or (y) the total assets and total revenue of the Company for the most recently completed fiscal year or two of the last three most recently completed fiscal years did not exceed $50,000,000 and there were fewer than four registered and active market makers. Shares held directly or indirectly by directors, officers or beneficial owners of more than 10% of the outstanding Shares are not considered as being publicly held for this purpose. According to the Company's 1998 Annual Report on Form 10-KSB, there were 1,838 holders of record of Shares as of March 17, 1999. If the Shares were to cease to be quoted on the Nasdaq National Market, the market for the Shares could be adversely affected. It is possible that the Shares would be traded or quoted on other securities exchanges or in the over-the-counter market, and that price quotations would be reported by such exchanges, or through NASDAQ or other sources. The extent of the public market for the Shares and the availability of such quotations would, however, depend upon the number of stockholders and/or the aggregate market value of the Shares remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act and other factors. Exchange Act Registration The Shares are currently registered under the Exchange Act. Registration of the Shares may be terminated by the Company upon application to the SEC if the Shares are not listed on a national securities exchange, quoted on an automated inter-dealer quotation system or held by 300 or more holders of record. Termination of registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to its stockholders and to the SEC and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b) and the requirement to furnish a proxy statement in connection with stockholders' meetings pursuant to Section 14(a) and the related requirement to furnish an annual report to stockholders, no longer applicable with respect to the Shares. Furthermore, the ability of "affiliates" of the Company and persons holding "restricted securities" of the Company to dispose of such securities pursuant to Rule 144 under the Securities Act of 1933, as amended, may be impaired or eliminated. The Purchaser intends to seek to cause the Company to apply for termination of registration of the Shares as soon as possible after consummation of the Offer if the requirements for termination of registration are met. Margin Regulations The Share are presently "margin securities" under the regulations of the Board of Governors of the Federal Reserve Board (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such Shares. Depending upon factors similar to those described above regarding listing and market quotations, the Shares might no longer constitute "margin securities" for the purposes of the Federal Reserve Board's margin regulations in which event the Shares would be ineligible as collateral for margin loans made by brokers. In any event, the Shares will cease to be "margin securities" if registration of the Shares under the Exchange Act is terminated. 8. CERTAIN INFORMATION CONCERNING THE COMPANY General The Company is a Delaware corporation with its principal executive offices located at 14140 Midway Road, Suite 100, Dallas, Texas 75244. The Company is a leading supplier of speech recognition and related speech input technologies. It offers a selection of speech recognition and speaker verification products and vocabulary libraries. These products employ a proprietary phonetic approach to speech recognition developed by the Company over the past 20 years. The Company has distributed more than 2.5 million speech recognizers in 30 countries. The Company markets its technologies to systems integrators and original 9 12 equipment manufacturers (OEMs) in the telecommunications, desktop computing and consumer electronics markets. The Company's technology has been used in many applications worldwide, including telephone network automation, telephone banking, government services, network-based cellular telephone voice dialing and automotive-based cellular voice dialing. Financial Information Set forth below is certain summary consolidated financial information for each of the Company's last three fiscal years for the period ended December 31, 1998 as contained in the Company's 1997 Annual Report on Form 10-KSB for the year ended December 31, 1997 and its 1998 Annual Report on Form 10-KSB for the year ended December 31, 1998 and for the three months ended March 31, 1998 and March 31, 1999 as contained in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999. More comprehensive financial information is included in such reports (including management's discussion and analysis of financial condition and results of operation) and other documents filed by the Company with the SEC, and the following summary is qualified in its entirety by reference to such reports and other documents and all of the financial information and notes contained therein. Copies of such reports and other documents may be examined at or obtained from the SEC and NASDAQ in the manner set forth below. VOICE CONTROL SYSTEMS, INC. SELECTED CONSOLIDATED FINANCIAL INFORMATION
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------------------- ------------------------- 1996 1997 1998 1998 1999 ----------- ----------- ------------ ----------- ----------- INCOME STATEMENT DATA: Sales.................... $13,577,420 $14,429,867 $ 14,225,691 $ 3,772,067 $ 2,768,043 Gross profit............. 10,855,486 11,208,238 11,522,009 3,039,730 2,489,952 Net loss................. (2,794,573) (439,258) (16,216,791) (456,303) (1,286,161) Basic and diluted net loss per share......... (0.34) (0.04) (1.25) (.04) (.09)
AT DECEMBER 31, AT MARCH 31, --------------------------------------- ------------------------- 1996 1997 1998 1998 1999 ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA: Total assets.............. $19,804,470 $19,033,515 $11,827,578 $18,507,825 $10,735,116 Working capital........... 14,683,595 15,648,857 7,156,841 15,099,481 6,265,048 Long-term debt............ -- -- 18,283 -- 18,283 Stockholders' equity...... 16,203,210 17,327,602 10,089,763 16,764,926 8,952,520
Except as otherwise set forth herein, the information concerning the Company contained in this Offer to Purchase has been taken from or based upon publicly available documents and records on file with the SEC and other public sources and is qualified in its entirety by reference thereto. Although Parent, the Purchaser and the Information Agent have no knowledge that would indicate that any statements contained herein based on such documents and records are untrue, Parent, the Purchaser and the Information Agent do not take responsibility for the accuracy or completeness of the information contained in such documents and records, or for any failure by the Company to disclose events which may have occurred or may affect the significance or accuracy of any such information but which are unknown to Parent, the Purchaser or the Information Agent. During the course of the due diligence conducted by Royal Philips and Parent of the Company in April 1999 and the negotiations between Royal Philips and Parent and the Company, the Company made available to representatives of Royal Philips and Parent certain non-public information regarding 10 13 the Company's projected operating performance and financial position for the twelve months ended December 31, 1999. Specifically, the Company projected total sales for 1999 of $19.6 million, a 37.9% increase from 1998 sales, gross profit of $17.9 million, a 55.7% increase from 1998 gross profit, and a net loss for 1999 of $916,000 compared to a net loss of $16.2 million for 1998. The projections further indicated that stockholders' equity would be approximately $9.3 million at December 31, 1999, an approximate 7.7% decrease from the level at December 31, 1998. The Company has advised the Purchaser that it does not as a matter of course make public any projections as to future performance or earnings and the foregoing projections are included in this Offer to Purchase only because this information was provided to Royal Philips and Parent. The projections were not prepared with a view to public disclosure or compliance with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants regarding projections or forecasts. The projections were based on estimates and assumptions that are inherently subject to significant economic and competitive uncertainties, all of which are difficult to predict and many of which are beyond the Company's control. Accordingly, there can be no assurance that the projected results can be realized or that actual results will not be materially higher or lower than those projected. None of the Company, Royal Philips, Parent or the Purchaser or their respective advisors assumes any responsibility for the accuracy of the projections. The inclusion of the foregoing projections should not be regarded as an indication that the Company, Royal Philips, Parent, the Purchaser or any other person who received such information considers it an accurate prediction of future events. Neither the Company, Royal Philips, Parent nor the Purchaser intends to update, revise or correct such projections if they become inaccurate. Available Information The Company is subject to the information and reporting requirements of the Exchange Act and in accordance therewith is obligated to file reports and other information with the SEC relating to its business, financial condition and other matters. Information concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities, any material interests of such persons in transactions with the Company and other matters is required to be disclosed in proxy statements distributed to the Company's stockholders and filed with the SEC. Such reports, proxy statements and other information are available for inspection at the public reference room at the SEC's offices at 450 Fifth Street, N.W., Washington, D.C., 20549 and also should be available for inspection and copying at the regional offices of the SEC located at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60611. Copies may be obtained by mail, upon payment of the SEC's customary charges, by writing to its principal office at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and can be obtained electronically through the SEC's website at http://www.sec.gov. 9. CERTAIN INFORMATION CONCERNING THE PURCHASER AND PARENT General The Purchaser is a Delaware corporation and a wholly owned subsidiary of Parent. To date it has engaged in no activities other than those incident to its formation and the commencement of the Offer. The principal offices of the Purchaser are located at 1251 Avenue of the Americas, New York, New York 10020. Parent is a Delaware corporation, a wholly owned subsidiary of Philips Holding USA Inc. ("Philips Holding") and an indirect wholly-owned subsidiary of Royal Philips. Parent's activities vary from integrated manufacturing and marketing entities to marketing organizations that sell products imported from Royal Philips and its affiliates or third parties. Based upon sales, Parent's largest businesses are consumer electronics, lighting, semiconductors and components. Parent's principal offices are located at 1251 Avenue of the Americas, New York, New York 10020. 11 14 Philips Holding is a Delaware corporation and a wholly owned subsidiary of Royal Philips. Philips Holding does not engage in any activities other than those incident to its role as a holding company of Royal Philips. Philips Holding's principal offices are located at 1251 Avenue of the Americas, New York, New York 10020. Royal Philips is a company incorporated under the laws of The Netherlands and is the parent company of the Philips Group. The activities of the Philips Group are organized into product divisions which are responsible for Royal Philips' worldwide business policy. Royal Philips has manufacturing and sales organizations in over 60 countries. Royal Philips delivers products, systems and services in the fields of lighting, consumer electronics and communications, domestic appliances and personal care, components, semiconductors, medical systems, business electronics and information technology. Royal Philips' principal executive offices are located at Rembrandt Tower, Amstelplein 1, 1096 HA Amsterdam, The Netherlands. Financial Information Set forth below is certain summary consolidated financial information of Royal Philips derived from its Annual Report on Form 20-F for the year ended December 31, 1998. The complete set of financial statements of Royal Philips for the year ended December 31, 1998 as well as the notes thereto and additional comprehensive financial information (including management's discussion and analysis of financial condition and results of operations) is included in the Royal Philips Form 20-F for the year ended December 31, 1998 and other documents filed by Royal Philips with the SEC. The summary set forth below is qualified in its entirety by reference to the Philips Form 20-F and such other documents and all of the financial information and notes contained therein. Copies of such other documents may be examined at or obtained from the SEC and the NYSE in the manner set forth in Section 8 above. KONINKLIJKE PHILIPS ELECTRONICS N.V. SELECTED CONSOLIDATED FINANCIAL INFORMATION(1)
YEAR ENDED DECEMBER 31, ------------------------------------- 1996 1997 1998 1998(2) NLG NLG NLG US$ ------ ------ ------ ------- (IN MILLIONS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: (Dutch GAAP) Sales.............................................. 59,707 65,358 67,122 35,514 Income from continuing operations.................. 278 2,712 1,192 631 Net income......................................... (590) 5,733 13,339 7,058 Basic net income per common share.................. (1.73) 16.41 37.05 19.60 Diluted net income per common share................ (1.73) 16.09 36.75 19.44 (U.S. GAAP) Net income (loss).................................. (866) 5,881 13,090 6,926 Basic net income per common share.................. (2.53) 16.83 36.36 19.24 Diluted net income per common share................ (2.53) 16.51 36.06 19.08 BALANCE SHEET DATA: (Dutch GAAP) Total assets....................................... 48,278 51,394 62,041 32,826 Working capital.................................... 788 3,471 1,785 944 Long-term debt..................................... 7,512 7,072 6,140 3,249 Other group equity................................. 616 1,232 533 282 Stockholders' equity............................... 13,956 19,457 31,292 16,557
12 15
YEAR ENDED DECEMBER 31, ------------------------------------- 1996 1997 1998 1998(2) NLG NLG NLG US$ ------ ------ ------ ------- (IN MILLIONS, EXCEPT PER SHARE DATA) (U.S. GAAP) Total assets....................................... 48,387 51,634 62,289 32,957 Stockholders' equity............................... 15,003 20,735 32,362 17,123
- --------------- (1) Restated to reflect the sale of PolyGram N.V. and to present the Philips Group accounts on a continuing basis for all years presented. (2) Dutch Guilders (NLG) are translated into U.S. Dollars ($) at a rate of NLG 1.89 = $1.00, the Noon Buying Rate of the Federal Reserve Bank of New York on December 31, 1998. The presentation of the U.S. Dollar amounts should not be construed as a representation that the Dutch Guilder amounts could be so converted into U.S. Dollars at the rate indicated or at any other rate. Royal Philips' financial statements are prepared in accordance with generally accepted accounting principles in The Netherlands ("Dutch GAAP"), which differ in certain significant respects from generally accepted accounting principles in the U.S. ("U.S. GAAP"). Royal Philips, however, believes that the differences between Dutch GAAP and U.S. GAAP are not material to a decision by a holder of Shares whether to sell, tender or hold the Shares. Other Information The name, citizenship, business address, present principal occupation and material positions held during the past five years of each of the directors and executive officers of Royal Philips, Philips Holding, Parent and the Purchaser are set forth in Schedule A to this Offer to Purchase. None of the Purchaser, Philips Holding, Parent or Royal Philips, or, to the best of their knowledge, any of the persons listed in Schedule A hereto nor any associate or majority-owned subsidiary of any of the foregoing, beneficially owns or has a right to acquire any equity securities of the Company. In addition, none of the Purchaser, Philips Holding, Parent or Royal Philips, or, to the best of their knowledge, any of the persons or entities referred to above, nor any director, executive officer or subsidiary of any of the foregoing, has effected any transaction in such equity securities during the past 60 days. None of the Purchaser, Philips Holding, Parent or Royal Philips, or, to the best of their knowledge, any of the persons listed in Schedule A hereto, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Except as set forth in Sections 10 and 12, there have been no contacts, negotiations or transactions since January 1, 1996 between Royal Philips, Philips Holding, Parent or the Purchaser, or, to the best of their knowledge, any of the persons listed in Schedule A hereto, on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors, or a sale or other transfer of a material amount of assets. None of the Purchaser, Parent or Royal Philips, or, to the best of their knowledge, any of the persons listed in Schedule A hereto, has since January 1, 1996 had any transaction with the Company or any of its executive officers, directors or affiliates that would require disclosure under the rules and regulations of the SEC applicable to the Offer. 10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY; EMPLOYMENT AGREEMENTS Background of the Offer and Contacts with the Company In August 1998, representatives of Royal Philips and Parent identified the Company as an acquisition target which would assist it in developing its speech recognition technology business. In Septem- 13 16 ber 1998, Peter Wisgerhof, Treasurer of Philips Business Electronics, a product division of Royal Philips, and other on his behalf, contacted Peter J. Foster, the then Chief Executive Officer of the Company, about the possible benefits and principal objectives of a business combination in which Royal Philips (or one of its affiliates) would acquire the Company. After an introductory meeting on October 16, 1998, the Company and Royal Philips entered into a nondisclosure agreement to govern the exchange of nonpublic information between them. In November and December of 1998, Mr. Wisgerhof and Corina Kuiper, Strategy Planning Manager of Philips Business Electronics, and other representatives of Royal Philips and Parent held additional discussions with Mr. Foster and Kim S. Terry, Vice President Finance of the Company, to exchange information regarding potential strategic opportunities between the companies. As a result of these discussions, in early December 1998, Mr. Foster, Ms. Terry and the then newly-appointed Chief Executive Officer of the Company, Ronald H. Larkin, traveled to Aachen, Germany to visit Philips' speech technology research laboratories and to meet with representatives of Philips Electronics' speech processing business unit, Philips Speech Processing. Discussions among the parties continued into 1999. In mid-January 1999, the parties agreed that Philips would conduct preliminary due diligence of the Company later that month. On February 10, 1999, Mr. Wisgerhof and Peter Besting, New Business Development Manager for the Philips Speech Processing business unit, met in London with Sir John Lucas-Tooth, member of the board of directors of the Company, to discuss general information about the Company, how the Company would fit into the long-term strategy of Philips Business Electronics, the potential synergies of a transaction and how next to proceed towards an acquisition transaction. During March and early April of 1999, representatives of Royal Philips and Parent continued discussions with Sir John Lucas-Tooth, Neal J. Robinson, Chairman of the Board of Directors of the Company, and Mr. John Torkelsen, a member of the board of directors of the Company, regarding a potential acquisition of the Company. In a conversation on April 14, 1999, Mr. Robinson indicated that the Company would be interested in pursuing a transaction with Philips but that any steps would have to be taken quickly. In that conversation, Mr. Robinson and Stephen Havering, Deputy Director of Corporate Mergers and Acquisitions for Royal Philips, agreed that representatives of Royal Philips and Parent would be invited to Dallas, Texas to conduct a one-week due diligence investigation of the Company's business. They further agreed that if Royal Philips and Parent remained interested at the conclusion of the week, Royal Philips and Parent would present an informal proposal containing material terms of an acquisition of the Company by Royal Philips. From April 19 to April 23, 1999, representatives of Royal Philips and Parent met with Company representatives in Dallas to conduct a due diligence investigation of the Company. At the conclusion of these meetings on April 23, Mr. Wisgerhof, Mr. Havering, Eric Coutinho, Director of the Corporate Legal Department at Royal Philips, and other internal and external legal advisors met with Mr. Robinson in Williamsburg, Virginia to discuss the terms of a potential transaction. At this meeting, Mr. Havering proposed that Parent would acquire the Company in a cash tender offer at a price of $4.00 per Share. Between April 24 and April 28, 1999, Mr. Robinson and Mr. Havering had various discussions regarding the terms of the proposal. On April 28, 1999, Mr. Robinson briefed each of the directors of the Company individually regarding the status of the negotiations. On May 3, 1999, Mr. Havering and other representatives of Royal Philips and Parent presented the acquisition proposal to the Board of Management of Royal Philips. During this meeting, the Board of Management approved proceeding with the acquisition of the Company on the terms proposed, subject to the completion of additional due diligence and satisfactory terms and conditions of a definitive agreement to be negotiated. On May 4, 1999, Parent's counsel sent to the Company and its counsel a proposed merger agreement setting forth the basis upon which Parent would be prepared to proceed with a transaction to acquire the Company. 14 17 The Board of Directors of the Company met on May 4, 1999. In this meeting, the Board authorized a committee composed of certain directors and officers of the Company to continue negotiating a transaction in which Royal Philips or Parent would acquire the Company at a purchase price of $4.00 per Share, subject to the further review by the Board of all of the material terms of the transaction. Between May 6 and May 8, 1999, Mr. Havering, Mr. Robinson and the legal advisors of Parent and the Company negotiated the terms of the Merger Agreement. In addition, during this period, Mr. Havering and representatives of the Royal Philips Business Electronics division, Philips Speech Processing business unit and Parent met with Mr. Foster, Ms. Terry, Mr. Larkin and Dr. Thomas Schalk, Chief Technical Officer of the Company, regarding their employment with the Company after an acquisition by Parent and the Purchaser. On May 9, 1999, the negotiations of the Merger Agreement were completed and the Merger Agreement was finalized. In addition, the negotiations regarding the terms of employment of each of Mr. Foster, Dr. Schalk and Ms. Terry were completed and final terms were agreed upon. Later on May 9, 1999, the Board of Directors of the Company unanimously adopted the Merger Agreement and approved the transactions contemplated therein. Shortly thereafter, the Merger Agreement was executed and delivered. A short time later, the employment agreements with Mr. Foster, Dr. Schalk and Ms. Terry were executed and delivered. Employment Agreements Prior to the execution of the Merger Agreement, the Company had entered into a severance agreement with its former chief executive officer, Mr. Peter J. Foster, and an employment agreement with Dr. Thomas B. Schalk which provided for, among other things, the payment of severance amounts and benefits upon certain terminations of employment in connection with a change in control of the Company. Pursuant to Mr. Foster's severance agreement, Mr. Foster will receive a payment of $75,000 upon the successful purchase of Shares pursuant to the Offer (the "Effective Date") in consideration for his services in the negotiations with Royal Philips relating to the Offer. As of the Effective Date, any prior agreements between the Company and Mr. Foster and Dr. Schalk, respectively, will be superseded by new employment agreements entered into with Parent in connection with the Merger (except with respect to any amounts that remain due and owing under such agreements based on events occurring prior to the Effective Date). In connection with the Merger, Ms. Kim S. Terry also entered into an employment agreement with Parent on similar terms. The defined term "Parent" as used in this description of employment agreements includes the subsidiary of Parent with which the executive is employed during the employment term. The new employment agreements have two-year terms (the "Term") commencing on the Effective Date. Copies of the new employment agreements are filed as Exhibits (c)(2), (c)(3) and (c)(4) to the Tender Offer Statement on Schedule 14D-1 to which this Offer to Purchase is an exhibit and are incorporated herein by reference and the following summary is qualified in its entirety by reference to such agreements. Pursuant to the new employment agreements, Mr. Foster will serve as Senior Vice President of the surviving company in the Merger, Dr. Schalk will serve as Senior Vice President and Chief Technical Officer of the surviving company in the Merger and Ms. Terry will serve as the Vice President-Operations and Finance of the surviving company in the Merger, with base salaries of $230,000, $180,000 and $160,000, respectively. Each of them will be entitled to an annual bonus upon achievement of certain targets with a target bonus opportunity of $90,000 for Mr. Foster and 30% of the base salary for Dr. Schalk and Ms. Terry. The actual bonus paid may be higher or lower than the target bonus (subject to a minimum of $20,000 for Dr. Schalk in the first year of the term) depending upon performance. Mr. Foster will also receive a discretionary expense account of up to $30,000 for each 12-month period during the Term for expenses relating to his position. Each of these three executive officers will be eligible to participate in a long-term incentive plan (the "LTIP") during the Term of his or her employment. Under the LTIP, each executive will receive a guaranteed payment equal to 50% of $260,000 for Mr. Foster and 50% of the applicable base salary as 15 18 of June 1999 for Dr. Schalk and Ms. Terry, payable in three substantially equal installments if the officer is actively employed by Parent on the date which is (A) six months following the Effective Date, (B) 12 months following the Effective Date and (C) 18 months following the Effective Date, respectively, one such installment to be paid following each of the dates described in clauses (A), (B) and (C) above if the employment condition has been satisfied on such date. Under the LTIP, each officer will have the opportunity to earn an additional long-term incentive payment equal of to 25% of $260,000 for Mr. Foster and 25% of the applicable base salary as of June 1999 for Dr. Schalk and Ms. Terry if certain business synergies and objectives are achieved during the 18-month period following the Effective Date and the executive remains actively employed by Parent 18 months following the Effective Date. Under the employment agreements, if an executive's employment is terminated by Parent without cause or if the executive terminates his or her employment upon a material breach (as those terms are defined in employment agreements), Parent will pay to the executive (A) base salary accrued through the date of termination and (B) a payment equal to his or her base salary payable for the greater of (i) the remainder of the Term, or (ii) 12 months (18 months, in the case of Dr. Schalk) (the "Coverage Period"), and (C) a payment equal to the sum, pro-rated through the date of termination, of (i) the Target Bonus for the calendar year in which the termination occurs, and (ii) the guaranteed payment under the LTIP. Mr. Foster will continue to receive his discretionary expense account during the Coverage Period. In consideration of these payments, the executive officers have agreed, among other things, not to engage in competition with the Company for a period of 12 months (24 months in the case of Dr. Schalk) following the termination of such executive's employment. Effect of the Merger on Employee Benefit and Stock Plans In addition to the provisions relating to employment agreements described above, the Merger Agreement contemplates that certain additional actions will be taken in respect of employee benefit and stock plans in which executive officers of the Company are eligible to participate. Parent shall cause the Company (or if the Purchaser is the surviving entity in the Merger, the Purchaser) for a period of one year following the Merger to provide benefits (other than stock-related benefits) to Company employees that are in the aggregate substantially comparable to those provided by the Company prior to the Merger. In accordance with the Merger Agreement, the Company will take all necessary action to cause each option to purchase Shares (whether or not exercisable) to be surrendered and canceled as of the effective time of the Merger for a cash payment equal to the excess, if any, of the consideration paid in the Merger (which is the same amount per Share to be paid in the Offer) over the per Share exercise price of the option multiplied by the number of Shares subject to the option. Notwithstanding the foregoing, 200,000 options held by Mr. Larkin shall be canceled and surrendered without consideration therefor. 11. CERTAIN CONDITIONS OF THE OFFER Notwithstanding any other provision of the Offer, but subject to the terms and conditions of the Merger Agreement (and provided that the Purchaser shall not be obligated to accept for payment any Shares until expiration or termination of all applicable waiting periods under the HSR Act), the Purchaser (x) shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) promulgated under the Exchange Act (relating to the Purchaser's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for, and (y) may delay the acceptance for payment of or (subject to such rules and regulations, including Rule 14e-1(c)) payment for, any tendered Shares, in each case if a majority of the total Shares outstanding on a fully diluted basis and as will permit the Purchaser to effect the Merger without the vote of any person other than the Purchaser shall not have been properly and validly tendered pursuant to the Offer and not withdrawn prior to the expiration of the Offer (the "Minimum Condition"), or, if on or 16 19 after the date of the Merger Agreement, and at or before the time of acceptance for payment of any of such Shares, any of the following events shall occur: (a) the Company shall have breached or failed to perform in any material respect any of its obligations, covenants or agreements under the Merger Agreement; (b)(i) any of the representations and warranties of the Company set forth in this Agreement that are qualified by materiality or by Material Adverse Effect (as defined in the Merger Agreement) shall not have been true and correct as of the date of the Merger Agreement or shall not be true and correct on the Expiration Date of the Offer (and any extensions thereof) as though made on and as of such date or (ii) except for such inaccuracies as, individually or in the aggregate, have not had and would not be reasonably likely to have a Material Adverse Effect, the representations and warranties of the Company set forth in the Merger Agreement that are not qualified by materiality or by Material Adverse Effect, shall not have been true and correct as of the date of the Merger Agreement or shall not be true and correct as of the expiration date of the Offer (and any extensions thereof) as though made on and as of such date; (c) there shall be threatened, instituted or pending any action, litigation or proceeding (hereinafter, an "Action") by any governmental entity: (i) challenging the acquisition by Parent or the Purchaser of Shares or seeking to restrain or prohibit the consummation of the Offer or the Merger; (ii) seeking to prohibit or impose any material limitations on Parent's, the Purchaser's or any of their respective affiliates' ownership or operation of all or any material portion of the business or assets of the Company and its subsidiaries taken as a whole or the business or assets of any significant subsidiary of Royal Philips, or to compel Parent or the Purchaser to dispose of or hold separate all or any portion of Parent's or the Purchaser's or the Company's business or assets (including the business or assets of their respective affiliates and subsidiaries) as a result of the Offer or the Merger; (iii) seeking to impose material limitations on the ability of Parent or the Purchaser effectively to acquire or hold, or to exercise full rights of ownership of, the Shares including, without limitation, the right to vote the Shares purchased by them on an equal basis with all other Shares on all matters properly presented to the stockholders of the Company; or (iv) that, in any event, would, individually or in the aggregate, reasonably be likely to have a Material Adverse Effect; (d) any statute, rule, regulation, order or injunction shall be enacted, promulgated, entered, enforced or deemed to or become applicable to the Offer or the Merger, or any other action shall have been taken, proposed or threatened, by any court or other governmental entity, that is reasonably expected to result in any of the effects of, or have any of the consequences sought to be obtained or achieved in, any Action referred to in clauses (i) through (iv) of paragraph (c) above; (e)(i) the Company's stockholders' equity as determined on a consolidated basis in accordance with U.S. GAAP shall be less than $6,000,000 or (ii) Parent shall not have received a certificate signed by the Chief Executive Officer and the Vice President Finance of the Company, dated the Expiration Date of the Offer, certifying that the Company's stockholders' equity determined on consolidated basis in accordance with U.S. GAAP is greater than or equal to $6,000,000; (f) any change or development shall have occurred that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect; or (g) the Merger Agreement shall have been terminated by the Company or Parent or the Purchaser in accordance with its terms; which, in the reasonable judgment of Parent and the Purchaser, in any such case, and regardless of the circumstances (including any action or inaction by Parent or the Purchaser) giving rise to any such conditions, makes it inadvisable to proceed with the Offer and/or with such acceptance for payment of or payment for Shares. The foregoing conditions may be asserted by Parent or the Purchaser regardless of the circumstances (including any action or inaction by Parent or the Purchaser) giving rise to such condition. The 17 20 conditions set forth in paragraphs (a) through (g) above are for the sole benefit of Parent and the Purchaser and may be waived by Parent or the Purchaser, by express and specific action to that effect, in whole or in part at any time and from time to time in their sole discretion. A public announcement will be made of a material change in, or waiver of, such conditions, and the Offer may, in certain circumstances, be extended in connection with any such change or waiver. Even if all of the Offer Conditions have been satisfied pursuant to the Merger Agreement, the Purchaser has the right, without the consent of the Company, to extend the Offer for a period of up to 30 business days if it reasonably determines that such an extension is appropriate in order to enable it to purchase at least 90% of the outstanding Shares in the Offer. 12. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY; THE MERGER Purpose of the Offer The purpose of the Offer is to acquire for cash as many outstanding Shares as possible as a first step in acquiring the entire equity interest in the Company. If the Purchaser acquires over 50% of the outstanding Shares (on a fully-diluted basis) pursuant to the Offer, it will have the vote necessary under Delaware law to approve the Merger of the Purchaser with and into the Company, or at the option of Parent, of the Company with and into the Purchaser. Therefore, if at least 8,466,094 Shares are acquired pursuant to the Offer or otherwise, the Purchaser will be able to and intends to effect the Merger without a meeting of stockholders. Under the DGCL, if the Purchaser owns at least 90% of the outstanding Shares, the Purchaser could effect the Merger using the "short-form" merger procedures without prior notice to, or any action by, any other stockholder of the Company. If the Purchaser acquires Shares pursuant to the Offer, the Purchaser intends to conduct a detailed review of the Company and its assets, business, operations, properties, policies, corporate structure, capitalization and the responsibilities and qualification of the Company's management and personnel and consider what, if any, changes the Purchaser deems desirable in light of the circumstances which then exist. The Purchaser does not presently contemplate any major changes in the operations of the Company. The Merger The Merger Agreement provides that the closing of the Merger will take place on the first business day on which the last to be satisfied or waived of the conditions set forth in the Merger Agreement shall be satisfied or waived, or at such other place and time and/or on such other date as the Company and Parent may agree. Upon consummation of the Merger, each Share issued and outstanding immediately prior to the effective time of the Merger (other than Shares owned by the Parent Companies or Shares held by Dissenting Stockholders) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive, without interest, an amount in cash equal to the price paid per Share pursuant to the Offer. The description of the Merger and the Merger Agreement included herein is qualified by reference to the Merger Agreement which is filed as an exhibit to the Tender Offer Statement on Schedule 14D-1 to which this Offer to Purchase is an exhibit. Vote Required to Approve Merger The DGCL requires, among other things, that the adoption of any plan of merger or consolidation of the Company must be approved by the Board of Directors of the Company and, if the "short form" merger procedure described above is not available, by the holders of a majority of the Company's outstanding Shares. The Board of Directors of the Company has approved the Offer, the Merger and the Merger Agreement; consequently, the only additional action of the Company that may be necessary to 18 21 effect the Merger is adoption of the Merger Agreement by such stockholders if the "short form" merger procedure described above is not available. Under the DGCL, the affirmative vote of holders of a majority of the outstanding Shares (including any Shares owned by the Purchaser) is generally required to adopt the Merger Agreement. If the Purchaser acquires, through the Offer or otherwise, voting power with respect to at least a majority of the outstanding Shares (which would be the case if the Minimum Condition were satisfied and the Purchaser were to accept for payment Shares tendered pursuant to the Offer), it would have sufficient voting power to effect the Merger without the vote of any other stockholder of the Company. THE MERGER AGREEMENT PROVIDES THAT IF ANY TAKEOVER STATUTE IS OR SHALL BECOME APPLICABLE TO THE TRANSACTIONS CONTEMPLATED THEREBY, THE COMPANY AND THE BOARD OF DIRECTORS OF THE COMPANY MUST GRANT SUCH APPROVALS AND TAKE SUCH ACTIONS AS ARE NECESSARY SO THAT THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT MAY BE CONSUMMATED AS PROMPTLY AS PRACTICABLE ON THE TERMS CONTEMPLATED THEREBY AND OTHERWISE ACT TO ELIMINATE THE EFFECTS OF SUCH STATUTE OR REGULATION ON THE TRANSACTIONS CONTEMPLATED THEREBY. Conditions to the Merger The obligations of the Company, the Purchaser and Parent to effect the Merger are subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, including (i) the purchase by the Purchaser, Parent or their affiliates of Shares pursuant to the Offer, (ii) the receipt of stockholder approval, if required, (iii) no statute, rule or regulation shall have been enacted or promulgated by any federal, state, local or foreign court, arbitral tribunal, administrative agency or commission or other governmental or regulatory authority or administrative agency which prohibits the consummation of the Merger, and there shall be no order or injunction of a court of competent jurisdiction in effect precluding consummation of the Merger; and (iv) clearance from the appropriate agencies pursuant to the HSR Act shall have been obtained or the waiting period thereby shall have expired or been terminated. In addition, Parent and the Purchaser's obligations to effect the Merger are subject to the further conditions that (i) the representations and warranties contained in the Merger Agreement are true in all material respects as of the time of the Merger, except with respect to changes permitted by the Merger Agreement, (ii) the Company shall have fulfilled its obligations under the Merger Agreement with respect to employee benefits and benefit plans and (iii) holders of not more than five percent of the outstanding Shares shall have exercised appraisal rights under Section 262 of the DGCL. Acquisition Proposals The Merger Agreement provides that neither the Company nor any of its subsidiaries nor any of the respective officers and directors of the Company or its subsidiaries shall, and the Company shall direct and use its best efforts to cause its employees, agents and representatives not to, directly or indirectly initiate, solicit, encourage or otherwise facilitate, any inquiries or the making of any proposal or offer with respect to a merger, reorganization, share exchange, consolidation or similar transaction involving the Company, or any purchase of more than 15% (on a fair market value basis) of the assets of the Company and its subsidiaries on a consolidated basis, or any purchase of, or tender offer for, more than 15% of any equity securities of the Company (any such proposal or offer being hereinafter referred to as an "Acquisition Proposal"), except that the Company shall have the right, if, and only to the extent that, the Company's Board of Directors concludes in good faith after consultation with outside legal counsel that such actions are required to comply with the fiduciary duties of the Company's Board of Directors under applicable law in response to a bona fide, written Acquisition Proposal not solicited on or after the date of the Merger Agreement, to engage in negotiations concerning, provide confidential information or data to, or have discussions with, any person relating to an Acquisition Proposal. The Company has agreed to notify Parent immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with the Company or any of its subsidiaries. 19 22 Termination of the Merger Agreement The Merger Agreement may be terminated and the transactions contemplated thereby abandoned at any time prior to the Merger, before or after approval by holders of Shares: (a) by the mutual consent of Parent (also acting on behalf of the Purchaser) and the Company, by action of their respective Boards of Directors; or (b) by action of the Board of Directors of either Parent or the Company if (i) the Purchaser shall not have accepted for payment any Shares pursuant to the Offer prior to September 15, 1999; provided, however, that such right to terminate the Merger Agreement shall not be available to any party whose failure to perform any of its obligations under the Merger Agreement results in the failure of any Offer Condition or (ii) any governmental entity shall have issued an Order which shall have become final and non-appealable. In addition, the Merger Agreement may be terminated by action of the Board of Directors of Parent, if (x) (i) the Company shall have failed to comply in any material respect with any of the covenants or agreements under the Merger Agreement or (ii) a representation or warranty of the Company set forth in the Merger Agreement shall have been inaccurate when made or shall thereafter become inaccurate, except for such inaccuracies which, when taken together (in each case without regard to any qualification as to materiality or a Material Adverse Effect contained in the applicable representations and warranties) would not reasonably be likely to have a Material Adverse Effect, and, with respect to any such breach, failure to perform or inaccuracy that can be remedied, the breach, failure or inaccuracy is not remedied within 15 business days after the giving of written notice of such breach, failure or inaccuracy to the Company; (y) the Board of Directors of the Company shall have withdrawn or modified in a manner adverse to Parent or the Purchaser its approval or recommendation of the Offer, the Merger Agreement or the Merger or shall have adopted or recommended any Acquisition Proposal, or the Board of Directors of the Company, upon request by Parent, shall fail to reaffirm such approval or recommendation within 10 business days after such request if an Acquisition Proposal is pending, or shall have resolved to do any of the foregoing; or (z) if the Company or any of the other persons or entities shall have initiated, solicited or otherwise facilitated another Acquisition Proposal for the Company other than solely to fulfill fiduciary obligations under applicable law as advised in writing by counsel. The Merger Agreement may also be terminated by action of the Board of Directors of the Company, (x) if Parent or the Purchaser (or another Parent Company) (i) shall have breached in any material respect any of the representations, warranties, covenants or agreements contained in the Merger Agreement (other than any immaterial covenants or agreements) and, with respect to any such breach that can be remedied within 15 business days after the Company has provided Parent with written notice of such breach, or (ii) shall have failed to commence the Offer within the time agreed upon in the Merger Agreement or (y) if (i) the Board of Directors of the Company receives a written offer not solicited on or after the date of the Merger Agreement, with respect to a merger, reorganization, share exchange, consolidation or sale of all or substantially all of the Company's assets or a tender or exchange offer not solicited on or after the date hereof for more than 50% of the outstanding Shares is commenced, and with respect to which the Board of Directors of the Company concludes in good faith, after consultation with an independent financial advisor and its outside counsel, that approval, acceptance or recommendation of such transaction is required by the fiduciary duties of the Company's Board of Directors under applicable law (any such transaction, a "Superior Proposal") and (ii) the Company has given Parent three business days' prior written notice of its intention to terminate the Merger Agreement to accept the Superior Proposal, which notice shall indicate the name of the person making such Superior Proposal and the material terms of such Superior Proposal, and Parent shall have failed to offer to amend the Offer so that it is at least as favorable to the stockholders of the Company as the Superior Proposal. Termination Payments The Merger Agreement provides that if (x)(i)(A) the Offer shall have remained open for a minimum of at least 20 business days, (B) after the date of the Merger Agreement, any corporation, partnership, person, other entity or group other than Parent or the Purchaser or any of their respective subsidiaries 20 23 or affiliates shall have become the beneficial owner of 15% or more of the outstanding Shares or made any Acquisition Proposal, and (C)(1) the Minimum Condition shall not have been satisfied or (2) the Offer is terminated by Parent due to a breach of the Company's obligations with respect to initiating or soliciting other Acquisition Proposals or because September 15, 1999 has passed without the purchase of any Shares pursuant to the Offer; or (ii) Parent shall have terminated the Merger Agreement as a result of the board of directors of the Company having withdrawn or modified in a manner adverse to Parent or the Purchaser its approval or recommendation of the Offer, the Merger Agreement or the Merger or having adopted or recommended another Acquisition Proposal or having failed to reaffirm its approval or recommendation within 10 business days after a request if an Acquisition Proposal is pending; or (iii) the Company shall have terminated the Merger Agreement after having received a Superior Proposal and having given Parent three days' notice of its intent to terminate and Parent shall have failed to amend the Offer to match the Superior Proposal; and (y) within 18 months of such termination (or the Expiration Date of the Offer in the case of (C)(1) above), the Company consummates an Acquisition Proposal, then, upon consummation of such Acquisition Proposal, the Company shall promptly, but in no event later than five business days after the date of a request by Parent for payment of such fee, pay Parent a fee of $2,000,000, plus all documented fees and expenses incurred by Parent or the Purchaser in connection with the Merger Agreement, the Offer and the Merger up to a maximum amount of $1,000,000. Treatment of Stock Options The Merger Agreement provides that prior to the Merger, the Company shall take all actions as may be necessary such that at the effective time of the Merger, each stock option outstanding pursuant to the Company's stock option plans ("Option"), whether or not then exercisable, shall be canceled and only entitle the holder thereof, upon surrender thereof, to receive an amount in cash equal to the excess, if any, of the per Share consideration paid in the Merger over the exercise price per Share of such Option multiplied by the number of Shares previously subject to such Option, less all applicable withholding taxes. Such payment shall be made by the Company as soon as administratively feasible after the Merger. Treatment of Warrants In the Merger, each outstanding warrant to purchase Shares which has not been exercised at the time of the Merger will be treated in accordance with the terms of each individual warrant. Treatment of Other Employee Benefits The Merger Agreement provides that, for a period of one year following the Merger, it will cause the Company to continue to provide employees with benefits under employee benefit plans (other than stock option or other plans involving the potential issuance of securities of the Company) which in the aggregate are substantially comparable to the benefits provided by the Company to such employees immediately prior to the Merger, provided that employees covered by collective bargaining agreements need not be provided such benefits. Composition of the Board of Directors If requested by Parent, the Company will, subject to compliance with applicable law, immediately following the acceptance for payment of, and payment by the Purchaser for, more than 50% of the outstanding Shares (on a fully diluted basis) pursuant to the Offer, take all actions necessary to cause persons designated by Parent to become directors of the Company so that the total number of such persons (after all such actions have been taken) equals at least that number of directors, rounded up to the next whole number, which represents the product of (x) the total number of directors on the Board of Directors multiplied by (y) the percentage that the number of Shares so accepted for payment and paid for plus any Shares beneficially owned by Parent or its affiliates on the date of the Merger Agreement bears to the number of Shares outstanding at the time of such payment. In furtherance thereof, if 21 24 requested by Parent, the Company will increase the size of the Board, or use its best efforts to secure the resignation of directors, or both, as is necessary to permit Parent's designees to be elected to the Company's Board of Directors; provided, however, that prior to the effective time of the Merger, the Company's Board of Directors shall always have at least one member who is not an officer, designee, stockholder or affiliate of Parent or Parent's affiliates. Conduct of Business of the Company Pursuant to the Merger Agreement, the Company has agreed that, prior to the Merger, unless consented to in writing by Parent, it and each of its subsidiaries will conduct its business only in the ordinary and usual course and will use its best efforts to preserve its business organization intact and maintain its existing relations with customers, suppliers, employees and business associates. Prohibited Actions by the Company Under the Merger Agreement, the Company has agreed that, prior to the Merger, unless consented to in writing by Parent, neither it nor any of its subsidiaries will: (a) (i) sell or pledge or agree to sell or pledge any stock owned by it in any of its subsidiaries; (ii) amend its certificate of incorporation or by-laws; (iii) split, combine or reclassify the outstanding Shares; or (iv) declare, set aside or pay any dividend payable in cash, stock or property with respect to the Shares; (b) (i) issue, sell, pledge, dispose of or encumber any additional shares of, or securities convertible or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of its capital stock of any class of the Company or its subsidiaries or any other property or assets other than, in the case of the Company, Shares issuable pursuant to options outstanding on the date hereof under the Company stock option plans, Shares issuable upon exercise of warrants to purchase Shares or Shares issuable pursuant to the terms of the Company's Stock Purchase Plan; (ii) transfer, lease, license, guarantee, sell, mortgage, pledge, dispose of or encumber any assets or incur or modify any indebtedness or other liability other than in the ordinary and usual course of business; (iii) acquire directly or indirectly by redemption or otherwise any shares of the capital stock of the Company; or (iv) authorize capital expenditures individually or in the aggregate in excess of $200,000 or make any acquisition of, or investment in, assets or stock of any other person or entity; (c) other than (i) the employment agreements entered into in connection with the Merger Agreement, (ii) as required by law, (iii) as required under a plan existing as of the date of the Merger Agreement, (iv) as specifically provided in the Merger Agreement, (A) grant any severance or termination pay to, or enter into any employment or severance agreement with any director, officer or other employee of the Company or such subsidiaries; or (B) establish, adopt, enter into, make any new grants or awards (or accelerate the vesting or increase the value of any benefit) under or amend, any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, employee stock ownership, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any directors, officers or employees; (d) settle or compromise any material claims or litigation or, except in the ordinary and usual course of business, modify, amend or terminate any of its material contracts or waive, release or assign any material rights or claims; (e) make any tax election or permit any insurance policy naming it as a beneficiary or a loss payable payee to be canceled or terminated without notice to Parent, except in the ordinary and usual course of business; (f) (i) terminate the employment of any employee who is covered by a change in control, employment, termination or similar agreement, except for Cause (as defined in such agreements) 22 25 or (ii) permit circumstances to exist that would provide such employee with Good Reason (as defined in such agreements) to terminate employment; (g) hire any new employees except in the ordinary and usual course of business; (h) permit any person not participating in the Company's Stock Purchase Plan as of the date of the Merger Agreement to participate in such plan or permit any present participant in the Company's Stock Purchase Plan to increase his or her percentage contribution under such plan; or (i) authorize or enter into an agreement to do any of the foregoing. Indemnification of Officers and Directors The Merger Agreement provides that from and after the Merger, Parent agrees that it will indemnify and hold harmless each present and former director and officer of the Company, determined as of the effective time of the Merger (the "Indemnified Parties"), against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities incurred in such person's capacity as a director or officer of the Company in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the Merger, whether asserted or claimed prior to, at or after the Merger, to the fullest extent that the Company would have been permitted under Delaware law and its certificate of incorporation or by-laws in effect on the date of the Merger Agreement to indemnify such person. The Merger Agreement also provides that the surviving corporation in the Merger shall maintain the Company's existing officers' and directors' liability insurance ("D&O Insurance") for a period of two years after the Merger so long as the annual premium therefor is not in excess of the last annual premium paid prior to the date hereof (the "Current Premium"); provided, however, if the existing D&O Insurance expires, is terminated or canceled during such two year period, the surviving corporation in the Merger will use its best efforts to obtain as much D&O Insurance as can be obtained for the remainder of such period for a premium not in excess (on an annualized basis) of the Current Premium. In the Merger Agreement, the Company represented to Parent that the Current Premium is $75,000. Notwithstanding the foregoing, the Surviving Corporation may replace the D&O Insurance with coverage provided by Parent's D&O insurer with respect to events occurring on or prior to the Merger so long as the coverage provided by Parent's D&O policy with respect to such events are, in the aggregate, substantially the same as, or more favorable than, the D&O Insurance with respect to such events. Appraisal Rights Holders of Shares do not have appraisal rights as a result of the Offer. However, if the Merger is consummated, each holder of Shares who has neither voted in favor of the Merger nor consented thereto in writing will be entitled to an appraisal by the Delaware Court of Chancery of the fair value of such holder's Shares, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with a fair rate of interest, if any, to be paid. In determining such fair value, the Court may consider all relevant factors. The value so determined could be more or less than the consideration to be paid in the Offer and the Merger. Any judicial determination of the fair value could be based upon considerations other than or in addition to the market value of the Shares, including, among other things, asset values and earning capacity. If any holder of Shares who demands appraisal under Section 262 of the DGCL fails to perfect, or effectively withdraws or loses such holder's right to appraisal as provided in the DGCL, each Share of such stockholder will be converted into the right to receive the per Share amount paid by the Purchaser in the Offer in accordance with the Merger Agreement. A stockholder may withdraw his demand for appraisal by delivery to Parent of a written withdrawal of such holder's demand for appraisal and acceptance of the Merger. The foregoing discussion is not a complete statement of law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262 of the DGCL. 23 26 FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS. Rule 13e-3 The Merger would have to comply with any applicable federal law operative at the time of its consummation. Rule 13e-3 under the Exchange Act is applicable to certain "going private" transactions. The Purchaser does not believe that Rule 13e-3 will be applicable to the Merger unless the Merger is consummated more than one year after the termination of the Offer. If applicable, Rule 13e-3 would require, among other things, that certain financial information concerning the Company and certain information relating to the fairness of the Merger and the consideration offered to minority stockholders be filed with the SEC and disclosed to minority stockholders prior to consummation of the Merger. 13. SOURCE AND AMOUNT OF FUNDS The Purchaser estimates that the total amount of funds required to purchase all of the outstanding Shares (other than those already owned by Parent) pursuant to the Offer and the Merger and to pay related fees and expenses will be approximately $60 million. The Purchaser will obtain these funds from Royal Philips, either directly or indirectly, or via other subsidiaries of Royal Philips, through loans, advances or capital contributions. Any loan from Royal Philips to the Purchaser, its indirect wholly owned subsidiary, would be made at arm's length interest rates that Royal Philips customarily uses for its intercompany transactions. It is currently anticipated that such funds will be generated internally from cash reserves of Royal Philips and its subsidiaries. No final decisions have been made, however, concerning the method Royal Philips will employ to obtain such funds. Such decisions, when made, will be based on Royal Philips' review from time to time of the advisability of particular actions, as well as on prevailing interest rates and financial and other economic conditions. 14. DIVIDENDS AND DISTRIBUTIONS Pursuant to the terms of the Merger Agreement, the Company is prohibited from taking any of the actions described in Section 12 without the consent of Parent. Nothing herein shall constitute a waiver by the Purchaser or Parent of any of its rights under the Merger Agreement or a limitation of remedies available to the Purchaser or Parent for any breach of the Merger Agreement, including termination thereof. If, on or after the date of the Merger Agreement, the Company should (1) split, combine or otherwise change the Shares or its capitalization, (2) acquire currently outstanding Shares or otherwise cause a reduction in the number of outstanding Shares or (3) issue or sell additional Shares, shares of any other class of capital stock, other voting securities or any securities convertible into, or rights, warrants or options, to acquire any of the foregoing, other than Shares issued pursuant to the exercise of stock options and warrants outstanding as of the date of the Merger Agreement or Shares issuable pursuant to the Company Stock Purchase Plan, then, subject to the provisions of Section 11 above, the Purchaser, in its sole discretion, may make such adjustments as it deems appropriate in the Merger Consideration and other terms of the Offer, including, without limitation, the number or type of securities offered to be purchased. If, on or after the date of the Merger Agreement, the Company should declare or pay any cash dividend on the Shares or other distribution on the Shares, or issue with respect to the Shares any additional Shares, shares of any other class of capital stock other voting securities or any securities convertible into, or rights, warrants or options, conditional or otherwise, to acquire, any of the foregoing, payable or distributable to stockholders of record on a date prior to the transfer of the Shares purchased pursuant to the Offer to the Purchaser or its nominee or transferee on the Company's stock transfer records, then, subject to the provisions of Section 11 above, (1) the per Share price to be paid in the Offer may, in the sole discretion of the Purchaser, be reduced by the amount of any such cash dividend or cash distribution and (2) the whole of any such noncash dividend, distribution or issuance to be 24 27 received by the tendering stockholders will (a) be received and held by the tendering stockholders for the account of the Purchaser and will be required to be promptly remitted and transferred by each tendering stockholder to the Depositary for the account of the Purchaser, accompanied by appropriate documentation of transfer, or (b) at the direction of the Purchaser, be exercised for the benefit of the Purchaser, in which case the proceeds of such exercise will promptly be remitted to the Purchaser. Pending such remittance and subject to applicable law, the Purchaser will be entitled to all rights and privileges as owner of any such noncash dividend, distribution, issuance or proceeds and may withhold the entire per Share price to be paid in the Offer or deduct from such price the amount or value thereof, as determined by the Purchaser in its sole discretion. 15. CERTAIN LEGAL MATTERS General Except as otherwise disclosed herein, based upon an examination of publicly available filings with respect to the Company, Parent and the Purchaser are not aware of any licenses or other regulatory permits which appear to be material to the business of the Company and which might be adversely affected by the acquisition of Shares by the Purchaser pursuant to the Offer or of any approval or other action by any governmental, administrative or regulatory agency or authority which would be required for the acquisition or ownership of Shares by the Purchaser pursuant to the Offer. Should any such approval or other action be required, it is currently contemplated that such approval or action would be sought or taken. There can be no assurance that any such approval or action, if needed, would be obtained or, if obtained, that it will be obtained without substantial conditions or that adverse consequences might not result to the Company's or Parent's business or that certain parts of the Company's or Parent's business might not have to be disposed of in the event that such approvals were not obtained or such other actions were not taken, any of which could cause the Purchaser to elect to terminate the Offer without the purchase of the Shares thereunder. The Purchaser's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions set forth in Section 11. Antitrust Compliance Under the HSR Act and the rules that have been promulgated thereunder by the Federal Trade Commission ("FTC"), certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the "Antitrust Division") and the FTC and certain waiting period requirements have been satisfied. The acquisition of Shares by the Purchaser is subject to these requirements. Pursuant to the HSR Act, Parent intends to file a Notification and Report Form with respect to the acquisition of Shares pursuant to the Offer and the Merger with the Antitrust Division and the FTC on May 18, 1999. Under the provisions of the HSR Act applicable to the purchase of Shares pursuant to the Offer, such purchases may not be made until the expiration of a 15-calendar day waiting period following the filing by Parent. Accordingly, the waiting period under the HSR Act will expire at 11:59 p.m., New York City time, on June 2, 1999, unless early termination of the waiting period is granted or Parent receives a request for additional information or documentary material prior thereto. If either the FTC or the Antitrust Division were to request additional information or documentary material from Parent, the waiting period would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by Parent with such request unless the waiting period is sooner terminated by the FTC or the Antitrust Division. Thereafter, the waiting period could be extended only by agreement or by court order. Only one extension of such waiting period pursuant to a request for additional information is authorized by the rules promulgated under the HSR Act, except by agreement or by court order. Any such extension of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. Although the Company is required to file certain information and documentary material with the Antitrust Division and the FTC in connection with the Offer, neither the 25 28 Company's failure to make such filings nor a request from the Antitrust Division or the FTC for additional information or documentary material made to the Company will extend the waiting period. The Antitrust Division and the FTC frequently scrutinize the legality under the antitrust laws of transactions such as the proposed acquisition of Shares by the Purchaser pursuant to the Offer. At any time before or after the Purchaser's purchase of Shares, the Antitrust Division or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the acquisition of Shares pursuant to the Offer or seeking divestiture of Shares acquired by the Purchaser or the divestiture of substantial assets of Parent, the Company or any of their respective subsidiaries. Private parties may also bring legal action under the antitrust laws under certain circumstances. There can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if a challenge is made, what the result will be. Section 11 of this Offer to Purchase contains a description of certain conditions to the Offer that could become applicable in the event of such a challenge. Neither Parent, the Purchaser nor the Company believes that the antitrust and competition laws of certain other foreign jurisdictions require notification of the transaction or the observance of pre-consummation waiting periods. State Takeover Laws A number of states have adopted laws and regulations applicable to offers to acquire securities of corporations which are incorporated in such states and/or which have substantial assets, stockholders, principal executive offices or principal places of business therein. In Edgar v. MITE Corporation, the Supreme Court of the United States held that the Illinois Business Takeover Statute, which made the takeover of certain corporations more difficult, imposed a substantial burden on interstate commerce and was therefore unconstitutional. In CTS Corporation v. Dynamics Corporation of America, the Supreme Court held that as a matter of corporate law, and in particular, those laws concerning corporate governance, a state may constitutionally disqualify an acquiror of "control shares" (ones representing ownership in excess of certain voting power thresholds e.g. 20%, 33% or 50%) of a corporation incorporated in its state and meeting certain other jurisdictional requirements from exercising voting power with respect to those shares without the approval of a majority of the disinterested stockholders. Section 203 of the DGCL limits the ability of a Delaware corporation to engage in business combinations with "interested stockholders" (defined generally as any beneficial owner of 15% or more of the outstanding voting stock of the corporation) unless, among other things, the corporation's board of directors has given its prior approval to either the business combination or the transaction which resulted in the stockholder becoming an "interested stockholder." The Company's Board of Directors has approved the Merger Agreement and the Purchaser's acquisition of Shares pursuant to the Offer and, therefore, Section 203 of the DGCL is inapplicable to the Offer and the Merger. Based on information supplied by the Company, the Purchaser does not believe that any state takeover laws purport to apply to the Offer or the Merger. Neither the Purchaser nor Parent has currently complied with any state takeover statute or regulation. The Purchaser reserves the right to challenge the applicability or validity of any state law purportedly applicable to the Offer or the Merger and nothing in this Offer to Purchase or any action taken in connection with the Offer or the Merger is intended as a waiver of such right. If it is asserted that any state takeover statute is applicable to the Offer or the Merger and if an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer or the Merger, the Purchaser might be required to file certain information with, or to receive approvals from, the relevant state authorities, and the Purchaser might be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or be delayed in consummating the Offer or the Merger. In such case, the Purchaser may not be obliged to accept for payment or pay for any Shares tendered pursuant to the Offer. 26 29 If it is asserted that one or more state takeover laws applies to the Offer and it is not determined by an appropriate court that such act or acts do not apply or are invalid as applied to the Offer, the Purchaser might be required to file certain information with, or receive approvals from, the relevant state authorities. In addition, if enjoined, the Purchaser might be unable to accept for payment any Shares tendered pursuant to the Offer, or be delayed in consummating the Offer. In such case, the Purchaser may not be obligated to accept for payment any Shares tendered. Exon-Florio Under Section 721 of Title VII of the United States Defense Production Act of 1950, as amended by Section 5021 of the Omnibus Trade and Competitiveness Act of 1988 ("Exon-Florio"), the President of the United States is authorized to prohibit or suspend acquisitions, mergers or takeovers by foreign persons of persons engaged in interstate commerce in the United States if the President determines, after investigation, that such foreign persons in exercising control of such acquired persons 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 authority to protect national security. Pursuant to Exon-Florio, notice of an acquisition by a foreign person is to be made to the Committee on Foreign Investment in the United States ("CFIUS"), which is comprised of representatives of the Departments of the Treasury, State, Commerce, Defense and Justice, the Office of Management and Budget, the United States Trade Representative's Office and the Council of Economic Advisors and which has been selected by the President to administer Exon-Florio, either voluntarily by the parties to such proposed acquisition, merger or takeover or by any member of CFIUS. A determination that an investigation is called for must be made within 30 days after notification of a proposed acquisition, merger or takeover is first filed with CFIUS. Any such investigation must be completed within 45 days of such determination. Any decision by the President to take action must be announced within 15 days of the completion of the investigation. Although Exon-Florio does not require the filing of a notification, nor does it prohibit the consummation of an acquisition, merger or takeover if notification is not made, such an acquisition, merger or takeover thereafter remains indefinitely subject to divestment should the President subsequently determine that the national security of the United States has been threatened or impaired. Neither Royal Philips nor the Purchaser believes that the Offer or the Merger threatens to impair the national security of the United States and neither Royal Philips nor the Purchaser intends to notify CFIUS of the proposed transaction. 16. FEES AND EXPENSES The Purchaser has retained D.F. King & Co., Inc. to act as Information Agent in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telex, telegraph and personal interviews and may request brokers, dealers and other nominee stockholders to forward materials relating to the Offer to beneficial owners of Shares. The Information Agent will receive reasonable and customary compensation for such services, plus reimbursement of out-of-pocket expenses and the Purchaser will indemnify the Information Agent against certain liabilities and expenses in connection with the Offer, including liabilities under the federal securities laws. The Purchaser will pay the Depositary reasonable and customary compensation for its services in connection with the Offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Depositary against certain liabilities and expenses in connection therewith, including liabilities under the federal securities laws. Brokers, dealers, commercial banks and trust companies will be reimbursed by the Purchaser for customary mailing and handling expenses incurred by them in forwarding material to their customers. 17. MISCELLANEOUS The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance 27 30 with the laws of such jurisdiction. However, the Purchaser may, in its sole discretion, take such action as it may deem necessary to make the Offer in any such jurisdiction and extend the Offer to holders of Shares in such jurisdiction. Neither the Purchaser nor Parent is aware of any jurisdiction in which the making of the Offer or the acceptance of Shares in connection therewith would not be in compliance with the laws of such jurisdiction. The Purchaser and Parent have filed with the SEC a Statement on Schedule 14D-1 pursuant to Rule l4d-3 of the General Rules and Regulations under the Exchange Act, furnishing certain additional information with respect to the Offer, and may file amendments thereto. Such Statement and any amendments thereto, including exhibits, may be examined and copies may be obtained from the principal office of the SEC in Washington, D.C. in the manner set forth in Section 8. No person has been authorized to give any information or make any representation on behalf of Parent or the Purchaser not contained in this Offer to Purchase or in the Letter of Transmittal and, if given or made, such information or representation must not be relied upon as having been authorized. VULCAN MERGER SUB, INC. May 14, 1999 28 31 SCHEDULE A INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF ROYAL PHILIPS, PHILIPS HOLDING, PARENT AND THE PURCHASER The following tables set forth the name, business address, present principal occupation and material positions held within the past five years of each director and executive officer of Royal Philips, Philips Holding, Parent and the Purchaser. DIRECTORS AND EXECUTIVE OFFICERS OF KONINKLIJKE PHILIPS ELECTRONICS N.V. (ROYAL PHILIPS ELECTRONICS)*
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND NAME AND BUSINESS ADDRESS OFFICE(S) FIVE-YEAR EMPLOYMENT HISTORY - -------------------------- --------- ---------------------------------------------- Cor Boonstra.............. President; Chairman of President, Chairman of the Board of Management the Board of Management and the Group Management Committee of Royal and Group Management Philips Electronics. Chairman of Philips Committee Lighting Division from 1994 to 1995. Prior to 1999, Member of the Supervisory Board of PolyGram N.V. Currently, Member of the Supervisory Board of Sara Lee DE N.V., Vendex International N.V., Hunter Douglas International N. V., Technical University Eindhoven. Member of the Board of Directors of The Seagram Company Ltd. Jan H.M. Hommen........... Executive Vice-President; Executive Vice-President, Member of the Board Member of the Board of of Management and the Group Management Management and the Group Committee and Chief Financial Officer of Royal Management Committee; Philips Electronics. Prior to 1997, Chief Chief Financial Officer Financial Officer of Alcoa International Holdings Co. From 1997 to 1999, Member of the Supervisory Board of PolyGram N.V. Adri Baan................. Executive Vice-President; Executive Vice-President, Member of the Board Member of the Board of of Management, the Group Management Committee, Management and the Group and Chairman of The Consumer Electronics Management Committee; Division of Royal Philips Electronics. Prior Chairman of the Consumer to 1998, Chairman of the Philips Business Electronics Division Electronics Division of Royal Philips Electronics. Arthur P.M. van der Poel.................... Executive Vice-President; Executive Vice-President, Member of the Board Member of the Board of of Management, Member of the Group Management Management and the Group Committee and Chairman of the Semiconductors Management Committee; Division of Royal Philips Electronics. Member Chairman of the of the Board of Directors of Taiwan Semiconductors Division Semiconductor Manufacturing Company Ltd.
- --------------- * Each person has a business address at Rembrandt Tower, Amstelplein 1, 1096 HA Amsterdam, The Netherlands and is a citizen of The Netherlands, unless a different address and/or citizenship is indicated under his or her name. A-1 32
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND NAME AND BUSINESS ADDRESS OFFICE(S) FIVE-YEAR EMPLOYMENT HISTORY - -------------------------- --------- ---------------------------------------------- Y.C. Lo................... Executive Vice-President; Executive Vice-President, Member of the Board Republic of China Member of the Board of of Management, Member of the Group Management Management and the Group Committee and, prior to 1999, Chairman of the Management Committee Components Division of Royal Philips Electronics. Prior to 1996, Chairman of the Board of Directors of Philips Taiwan Ltd and Member of the Board of Directors of Taiwan Semiconductor Manufacturing Company Ltd. John W. Whybrow........... Executive Vice-President; Executive Vice-President, Member of the Board United Kingdom Member of the Board of of Management, Member of the Group Management Management and the Group Committee and Chairman of the Lighting Management Committee; Division of Royal Philips Electronics. Since Chairman of the Lighting 1997, Director of Wolseley PLC. Division Roel Pieper............... Executive Vice-President; Executive Vice-President, Member of the Board Member of the Board of of Management and Member of the Group Management and the Group Management Committee. Chief Executive Officer Management Committee of Tandem Computers from 1996 to 1997 and Chief Executive Officer of Ungermaan-Bass from 1993 to 1995. Ad H.A. Veenhof........... Member of the Group Member of the Group Management Committee, Management Committee; Chairman of the Domestic Appliances and Chairman of the Domestic Personal Care Division of Royal Philips Appliances and Personal Electronics. Prior to 1996, Member of the Care Division Management of Philips Consumer Electronics. Hans M. Barella........... Member of the Group Member of the Group Management Committee of Management Committee; Royal Philips Electronics. Chairman and Member Chairman of the Medical of the Management Committee of the Medical Systems Division Systems Division of Royal Philips Electronics. Fred B. Bok............... Member of the Group Member of the Group Management Committee and Management Committee; Chairman of the Business Electronics Division Chairman of the Business of Royal Philips Electronics. Member of the Electronics Division Board of Directors of FEI Company of the United States and Member of the Supervisory Board of Toolex International B.V. Prior to April 1998, Chairman of the Philips Industrial Electronics Division. Gerard J. Kleisterlee..... Member of the Group Member of the Group Management Committee and Management Committee; Chairman of the Components Division of Royal Chairman of the Philips Electronics. Member of the Board of Components Division Directors of Taiwan Semiconductor Manufacturing Company Ltd. Prior to January 1, 1999, Chairman of the Philips Taiwan Ltd. Jan P. Oosterveld......... Member of the Group Member of the Group Management Committee and Management Committee; Senior Director of Corporate Strategy of Royal Senior Director of Philips Electronics. Prior to 1997, Management Corporate Strategy. of Philips Key Modules.
A-2 33
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND NAME AND BUSINESS ADDRESS OFFICE(S) FIVE-YEAR EMPLOYMENT HISTORY - -------------------------- --------- ---------------------------------------------- Arie Westerlaken.......... Member of the Group Member of the Group Management Committee, Management Committee; General Secretary, Chief Legal Officer and General Secretary; Chief Secretary to the Board of Management of Royal Legal Officer; Secretary Philips Electronics. Member of the Supervisory to the Board of Board of ASM Lithography Holding N.V. From Management 1990 to 1994, Chief Legal Officer of DAF N.V. Nico J. Bruijel........... Member of the Group Member of the Group Management Committee Management Committee responsible for Corporate Human Resources responsible for Corporate Management of Royal Philips Electronics. Human Resources Member of the Supervisory Board of Business Management Creation Europe B.V. Prior to July 1998, General Management of Philips Japan. Prior to 1996, Management of Philips Lighting Division. Ad Huijser................ Member of the Group Member of the Group Management Committee and Management Committee and Head of Corporate Research of Royal Philips Head of Corporate Electronics. Prior to 1999, Managing Director Research of Philips Research Coordination. Prior to 1998, Manager of Philips Multimedia Center. Prior to 1996, Chairman of the Management Committee of the Philips Research Laboratories. L.C. van Wachem........... Chairman of the Retired. Member of the Supervisory Board of Supervisory Board Royal Philips Electronics since 1993. Member of the Supervisory Boards of N.V. Koninklijke Nederlandsche Petroleum Maatschappij, ABB Asea Brown Boveri Ltd., Akzo Nobel N.V., Bayer AG, BMW AG, and Zurich Versicherungs-Gruppe; Member of the Board of Directors of IBM Corporation, ATCO Ltd, and Credit Suisse Holding. W. de Kleuver............. Vice-Chairman and Retired. Member of the Supervisory Board of Secretary of the Royal Philips Electronics since 1998. Prior to Supervisory Board September 1998, Executive Vice-President, Member of the Board of Management and the Group Management Committee of Royal Philips Electronics. Prior to 1996, Member of the Group Management Committee and Chairman of the Components Division of Royal Philips Electronics. W. Hilger................. Member of the Supervisory Retired. Member of the Supervisory Board of Germany Board Royal Philips Electronics since 1990. Prior to 1994, Chairman of the Board of Management of Hoechst A.G. Currently, Member of the Supervisory Boards of Dresdner Bank A.G., Mannesmann AG, Alusuisse Lonza, Huls AG, IBM Deutschland GmbH; Chairman of the Supervisory Boards of Victoria Versicherung AG and Victoria Lebensversicherung AG.
A-3 34
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND NAME AND BUSINESS ADDRESS OFFICE(S) FIVE-YEAR EMPLOYMENT HISTORY - -------------------------- --------- ---------------------------------------------- C.J. Oort................. Member of the Supervisory Retired. Member of the Supervisory Board of Board Royal Philips Electronics since 1995. Chairman of the Supervisory Boards of Royal Dutch Airlines KLM and the Robeco group; Member of the Supervisory Boards of KPN Koninklijke PTT Nederland (KPN and TPG since June 26, 1998), Northern Telecom International Finance, BCE Telecom International Holdings, BCE Tele- Direct Publications International, Hoogenbosch Retail Group; Member of the Board of Stichting HBG, Stichting Koninklijke Nedlloyd, Stichting Koninklijke van Ommeren; Advisory Board Member of Price Waterhouse (the Netherlands). Prior to 1995, Professor of Economics, University of Maastricht. L. Schweitzer............. Member of the Supervisory Member of the Supervisory Board of Royal 34 Quai du Point du Jour Board Philips Electronics since 1997. Chairman and BP 103 92109 Chief Executive Officer of La Regie Nationale Boulogne des Usines Renault; Member of the Boards of Bilancourt Pechiney, Banque Nationale de Paris, Credit Cedex, France National, and I.F.R.I. France Sir Richard Greenbury..... Member of the Supervisory Member of the Supervisory Board of Royal United Kingdom Board Philips Electronics since 1998. Chairman and CEO of Marks & Spencer plc and former non-executive member of the Board of Directors of Lloyds TSB, ICI and Zeneca. J.M. Hessels.............. Member of the Supervisory Member of the Supervisory Board of Royal Board Philips Electronics since 1999. Chief Executive Officer of Vendex International N.V. Member of the Supervisory Boards of Koninklijke Van Ommeren N.V., Amsterdam Exchanges N.V., Amsterdam Airport Schiphol N.V., Staal Bankiers N.V. and BAM Holding N.V.
A-4 35 DIRECTORS AND EXECUTIVE OFFICERS OF PHILIPS HOLDING USA INC.*
NAME, BUSINESS ADDRESS AND PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND CITIZENSHIP OFFICE(S) FIVE-YEAR EMPLOYMENT HISTORY - -------------------------- --------- ---------------------------------------------- John T. Losier............ Chairman of the Board; President and Chief Executive Officer of President; Director Philips Electronics North America Corporation since November 1, 1998. Prior to that time, Vice President of Global Accounts at Compaq and Senior Vice President of Worldwide Sales, Marketing, Services and Support at Tandem Computers. William E. Curran......... Senior Vice President -- Senior Vice President and Chief Financial Finance; Treasurer Officer of Philips Electronics North America Corporation since February, 1996. Prior to that time, Vice President, Chief Operating Officer and Chief Financial Officer of Philips Medical Systems. Belinda W. Chew........... Senior Vice President; Senior Vice President, General Counsel and Secretary Secretary of Philips Electronics North America Corporation since January 1999. Prior to that time, General Counsel of Philips Consumer Communications L.P. Prior to October 1997, Counsel of Philips Electronics North America Corporation. Paul S. Friedlander....... Assistant Secretary Vice President, Tax and Customs Administration of Philips Electronics North America Corporation.
- --------------- * Each person has a business at 1251 Avenue of the Americas, New York, NY 10020 and is a citizen of U.S.A., unless a different address and /or citizenship is indicated under his or her name. A-5 36 DIRECTORS AND EXECUTIVE OFFICERS OF PHILIPS ELECTRONICS NORTH AMERICA CORPORATION*
NAME, BUSINESS ADDRESS PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND AND CITIZENSHIP OFFICE(S) FIVE-YEAR EMPLOYMENT HISTORY - ---------------------- --------- ---------------------------------------------- John T. Losier Chairman of the Board; President and Chief Executive Officer of President; Chief Philips Electronics North America Corporation Executive Officer; since November 1, 1998. Prior to that time, Director Vice President of Global Accounts at Compaq and Senior Vice President of Worldwide Sales, Marketing, Services and Support at Tandem Computers. William E. Curran Senior Vice President Senior Vice President and Chief Financial and Chief Financial Officer of Philips Electronics North America Officer; Director Corporation since February 1996. Prior to that time, Vice President, Chief Operating Officer and Chief Financial Officer of Philips Medical Systems. Belinda W. Chew Senior Vice President; Senior Vice President, General Counsel and Secretary; General Secretary of Philips Electronics North America Counsel Corporation since January 1999. Prior to that time, General Counsel of Philips Consumer Communications L.P. Prior to October 1997, Counsel of Philips Electronics North America Corporation. William A. Enser Senior Vice President, Senior Vice President, Business Development Business Development and Process Improvement of Philips Electronics and Process North America Corporation. Prior to January Improvement 1998, President of Philips Electronic Instruments Company, a division of Philips Electronics North America Corporation. Robert F. Matthews Senior Vice President, Senior Vice President, Human Resources of Human Resources Philips Electronics North America Corporation. Prior to July 1994, Manager, Financial Leadership Development and Human Resources of General Electric Company.
- --------------- * Each person has a business at 1251 Avenue of the Americas, New York, NY 10020 and is a citizen of U.S.A., unless a different address and/or citizenship is indicated under his or her name. A-6 37 DIRECTORS AND EXECUTIVE OFFICERS OF VULCAN MERGER SUB, INC.*
PRESENT PRINCIPAL OCCUPATION NAME, BUSINESS ADDRESS OR EMPLOYMENT AND AND CITIZENSHIP OFFICE(S) FIVE-YEAR EMPLOYMENT HISTORY ---------------------- --------- ---------------------------- William E. Curran....... President and Chief Executive Senior Vice President and Chief Financial Officer; Director Officer of Philips Electronics North America Corporation since February, 1996. Prior to that time, Vice President, Chief Operating Officer and Chief Financial Officer of Philips Medical Systems. Belinda W. Chew......... Vice President and Secretary; Senior Vice President, General Counsel and Director Secretary of Philips Electronics North America Corporation since 1999. Prior to that time, General Counsel of Philips Consumer Communications L.P. Prior to October 1997, Counsel of Philips Electronics North America Corporation. Eric P. Coutinho........ Vice President and Treasurer Director of the Corporate Legal Department Rembrandt Tower at Royal Philips Electronics. Amstelplein 1 1096 HA Amsterdam The Netherlands
- --------------- * Each person has a business at 1251 Avenue of the Americas, New York, NY 10020 and is a citizen of U.S.A., unless a different address and/or citizenship is indicated under his or her name. A-7 38 Facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal, certificates for the Shares and any other required documents should be sent by each stockholder of the Company or his broker-dealer, commercial bank, trust company or other nominee to the Depositary as follows: The Depositary for the Offer is: CITIBANK, N.A. By Hand: By Mail: By Overnight Courier: CITIBANK, N.A. CITIBANK, N.A. CITIBANK, N.A. Corporate Trust Window P.O. Box 685 915 Broadway 111 Wall Street, 5th Floor Old Chelsea Station 5th Floor New York, New York 10043 New York, New York 10113 New York, New York 10010
By Facsimile Transmission (For Eligible Institutions Only): (212) 505-2248 Confirm Receipt of Facsimile by Telephone Only: (800) 270-0808 Any questions or requests for assistance or additional copies of the Offer to Purchase and the Letter of Transmittal may be directed to the Information Agent at the telephone number and location listed below. You may also contact your broker, dealer, commercial bank or trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: D.F. KING & CO., INC. 77 Water Street New York, New York 10005 Bankers and Brokers call collect: (212) 425-1685 All Others Call Toll Free: (800) 769-5414 EX-99.A.2 3 LETTER OF TRANSMITTAL 1 LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK OF VOICE CONTROL SYSTEMS, INC. AT $4.00 NET PER SHARE PURSUANT TO THE OFFER TO PURCHASE DATED MAY 14, 1999 BY VULCAN MERGER SUB, INC. A WHOLLY OWNED SUBSIDIARY OF PHILIPS ELECTRONICS NORTH AMERICA CORPORATION AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF KONINKLIJKE PHILIPS ELECTRONICS N.V. (ROYAL PHILIPS ELECTRONICS) THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY JUNE 11, 1999, UNLESS THE OFFER IS EXTENDED. The Letter of Transmittal, certificates for Shares (as defined below) and any other required documents should be sent or delivered by each stockholder of the Company or his broker, dealer, commercial bank or other nominee to the Depositary at one of its addresses set forth below. The Depositary for the Offer is: CITIBANK, N.A. By Mail: By Overnight Delivery: By Hand: CITIBANK, N.A. CITIBANK, N.A. CITIBANK, N.A. P.O. Box 685 915 Broadway Corporate Trust Window Old Chelsea Station 5th Floor 111 Wall Street, 5th Floor New York, New York 10113 New York, New York 10010 New York, New York 10043
Facsimile Transmission: Confirm Facsimile by Telephone Only: (For Eligible Institutions Only) (800) 270-0808 (201) 505-2248
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by stockholders either if certificates are to be forwarded herewith or, unless an Agent's Message (as defined in Section 3 of the Offer to Purchase (as defined below)) is utilized, if delivery is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of the Offer to Purchase. 2 Stockholders whose certificates evidencing Shares ("Share Certificates") are not immediately available or who cannot deliver their Share Certificates and all other documents required hereby to the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase) or who cannot comply with the book-entry transfer procedures on a timely basis must tender their Shares according to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
- ---------------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED - ---------------------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON SHARE SHARE CERTIFICATE(S) AND SHARE(S) TENDERED CERTIFICATE(S) AND SHARE(S) TENDERED) (ATTACH ADDITIONAL LIST IF NECESSARY) - ---------------------------------------------------------------------------------------------------------------------------- TOTAL NUMBER SHARE OF SHARES NUMBER CERTIFICATE REPRESENTED BY OF SHARES NUMBER(S)* CERTIFICATES* TENDERED** ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ TOTAL SHARES: - ---------------------------------------------------------------------------------------------------------------------------- * Need not be completed by stockholders tendering by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Shares evidenced by each Share Certificate delivered to the Depositary are being tendered hereby. See Instruction 4. - ----------------------------------------------------------------------------------------------------------------------------
BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: - -------------------------------------------------------------------------------- Account Number: - -------------------------------------------------------------------------------- Transaction Code Number: - -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY SENT TO THE DEPOSITARY PRIOR TO THE DATE HEREOF AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s): - -------------------------------------------------------------------------------- Window Ticket Number (if any): - -------------------------------------------------------------------------------- Date of Execution of Notice of Guaranteed Delivery: --------------------------------------------------------------- Name of Institution that Guaranteed Delivery: ---------------------------------------------------------------------- Account Number (if delivered by Book-Entry Transfer): ------------------------------------------------------------- Transaction Code Number: - -------------------------------------------------------------------------------- 2 3 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Vulcan Merger Sub, Inc., a Delaware corporation (the "Purchaser"), a wholly owned subsidiary of Philips Electronics North America Corporation, a Delaware corporation ("Parent"), and an indirect wholly owned subsidiary of Koninklijke Philips Electronics N.V., a company incorporated under the laws of The Netherlands ("Royal Philips"), the above-described shares of common stock, par value $0.01 per share (the "Shares"), of Voice Control Systems, Inc., a Delaware corporation (the "Company"), at $4.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 14, 1999, (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"). The undersigned understands that the Purchaser reserves the right to transfer or assign, in whole or in part, from time to time, to Parent or one or more direct or indirect wholly owned subsidiaries of Parent, the right to purchase Shares tendered pursuant to the Offer. Subject to and effective upon acceptance for payment of the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer (including the Offer Conditions and, if the Offer is extended or amended, the terms and conditions of any extension or amendment), the undersigned hereby sells, assigns and transfers to, or upon the order of, the Purchaser all right, title and interest in and to all of the Shares that are being tendered hereby and any and all cash dividends, distributions, rights, other Shares or other securities issued or issuable in respect of such Shares on or after May 14, 1999 (collectively, "Distributions") and irrevocably appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares and all Distributions with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to the fullest extent of such stockholder's right with respect to such Shares (and any Distributions) (a) to deliver such Share Certificates evidencing such Shares and all Distributions, or transfer ownership of such Shares and all Distributions on the account books maintained by the Book-Entry Transfer Facility together, in either case, with all accompanying evidences of transfer and authenticity, to or upon the order of the Purchaser, upon receipt by the Depositary, as the undersigned's agent, of the purchase price (adjusted, if appropriate, as provided in the Offer to Purchase), (b) present such Shares and all Distributions for transfer on the books of the Company, and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares and all Distributions, all in accordance with the terms of the Offer. The undersigned hereby irrevocably appoints the Purchaser, its officers and designees, and each of them, the attorneys-in-fact and proxies of the undersigned, each with full power of substitution, to the full extent of the undersigned's rights, including to exercise such voting and other rights as each such attorney and proxy or his (or her) substitute shall, in his (or her) sole discretion, deem proper, and otherwise act (including pursuant to written consent), with respect to all of the Shares tendered hereby which have been accepted for payment by the Purchaser (and any and all Distributions), which the undersigned is entitled to vote at any meeting of stockholders of the Company (whether annual or special and whether or not an adjourned meeting), or written consent in lieu of such meeting, or otherwise. This proxy and power of attorney is coupled with an interest in the Shares tendered hereby and is irrevocable and is granted in consideration of, and is effective upon, the acceptance for payment of such Shares by the Purchaser in accordance with the terms of the Offer. Such acceptance for payment shall, without further action, revoke all prior proxies and consents granted by the undersigned with respect to such Shares (and all Shares and other securities issued in Distributions in respect of such Shares), and no subsequent proxy or power of attorney or written consent shall be given (and if given or executed, shall be deemed not to be effective) with respect thereto by the undersigned. The Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Purchaser's acceptance for payment of such Shares, the Purchaser is able to exercise full voting and other rights with respect to such Shares (and any associated Distributions), including voting at any meeting of stockholders. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and all Distributions, and that when such Shares are accepted for payment by the Purchaser, the Purchaser will acquire good, marketable and unencumbered title 3 4 thereto, free and clear of all liens, restrictions, charges and encumbrances, and that none of such Shares and Distributions will be subject to any adverse claim. The undersigned, upon request, shall execute and deliver any signature guarantees or additional documents deemed by the Depositary or the Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby and all other Securities. In addition, the undersigned shall promptly remit and transfer to the Depositary for the account of the Purchaser all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer, and pending such remittance or appropriate assurance thereof, the Purchaser shall be entitled to all rights and privileges as owner of such Distributions and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by the Purchaser in its sole discretion. All authority herein conferred or agreed to be conferred pursuant to this Letter of Transmittal shall not be affected by, and shall survive, the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators and legal representatives of the undersigned. Except as stated in the Offer to Purchase, this tender is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute a binding agreement between the undersigned and the Purchaser upon the terms and subject to the conditions of the Offer. The undersigned recognizes that under certain circumstances set forth in the Offer to Purchase, the Purchaser may not be required to accept for payment any of the Shares tendered hereby. Unless otherwise indicated herein under "Special Payment Instructions," please issue the check for the purchase price and/or return any Share Certificates evidencing Shares not tendered or not accepted for payment in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered." Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price and/or return any Share Certificates evidencing Shares not tendered or accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered." If both the Special Delivery Instructions and the Special Payment Instructions are completed, please issue the check for the purchase price and/or return any Share Certificates evidencing Shares not purchased (together with accompany documents as appropriate) in the name(s) of, and deliver said check and/or return such Share Certificates to, the person or persons so indicated. Stockholders tendering Shares by book-entry transfer may request that any Shares not accepted for payment be returned by crediting such account maintained at the Book-Entry Transfer Facility as such stockholder may designate by making an appropriate entry under "Special Payment Instructions." The undersigned recognizes that the Purchaser has no obligation pursuant to the Special Payment Instructions to transfer any Shares from the name of the registered holder(s) thereof if the Purchaser does not accept for payment any of the Shares so tendered. 4 5 ------------------------------------------------------------ SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the purchase price of Shares purchased or Share Certificates evidencing Shares not tendered or not purchased are to be issued in the name of someone other than the undersigned. Issue: [ ] Check and/or [ ] Certificate(s) To: ------------------------------------------------------- Name(s) (Please Print) ------------------------------------------------------------ Address: ------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------ (Include Zip Code) ------------------------------------------------------------ (Taxpayer Identification or Social Security No.) (See Substitute Form W-9) ------------------------------------------------------------ ------------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 5 AND 7) To be completed ONLY if certificate(s) for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be sent to someone other than the undersigned, or to the undersigned at an address other than that shown under "Description of Shares Tendered." Mail: [ ] Check and/or [ ] Certificate(s) To: ------------------------------------------------------- Name (Please Print) Address: ------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------ (Include Zip Code) ------------------------------------------------------------ 5 6 STOCKHOLDERS SIGN HERE (ALSO COMPLETE SUBSTITUTE FORM W-9) X - -------------------------------------------------------------------------------- X - -------------------------------------------------------------------------------- SIGNATURE(S) OF STOCKHOLDER(S) Dated: --------------------------- , 1999 (Must be signed by registered holder(s) as name(s) appear(s) on share certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, agents, officers of a corporation or others acting in a fiduciary or representative capacity, please provide the following information. See Instruction 5.) - -------------------------------------------------------------------------------- (NAME(S)) - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPE) - -------------------------------------------------------------------------------- CAPACITY (FULL TITLE) - -------------------------------------------------------------------------------- ADDRESS - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) - ----------------------------------------------------------- ----------------------------------------------------------- AREA CODE AND TELEPHONE NUMBER (HOME) TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER (COMPLETE SUBSTITUTE FORM W-9 BELOW) - ----------------------------------------------------------- ----------------------------------------------------------- AREA CODE AND TELEPHONE NUMBER (BUSINESS)
GUARANTEE OF SIGNATURE(S) (IF REQUIRED--SEE INSTRUCTIONS 1 AND 5) X - -------------------------------------------------------------------------------- AUTHORIZED SIGNATURE - -------------------------------------------------------------------------------- NAME (PLEASE PRINT OR TYPE) - ----------------------------------------------------------- ----------------------------------------------------------- FULL TITLE NAME OF FIRM - ------------------------------------------------------------------------------------------------------------------------ ADDRESS - ------------------------------------------------------------------------------------------------------------------------ (INCLUDE ZIP CODE) - ----------------------------------------------------------- AREA CODE AND TELEPHONE NUMBER
Date: ---------------------------, 1999 6 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as provided below, all signatures on this Letter of Transmittal must be guaranteed by a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program or the Stock Exchange Medallion Program (each, an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed (a) if this Letter of Transmittal is signed by the registered holders (which term, for purposes of this document, includes any participant in the Book-Entry Transfer Facility's systems whose name appears on a security position listing as the owner of the Shares) of Shares tendered herewith and such registered holder has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal, or (b) if such Shares are tendered for the account of an Eligible Institution. 2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by stockholders either if Share Certificates are to be forwarded herewith or if a tender of Shares is to be made pursuant to the procedures for delivery by book-entry transfer set forth in Section 3 of the Offer to Purchase. Share Certificates evidencing all physically tendered Shares, or confirmation ("Book-Entry Confirmation") of any book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility of Shares delivered by book-entry transfer as well as a properly completed and duly executed letter of transmittal, must be received by the Depositary, at one of the addresses set forth herein on or prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase). If Share Certificates are forwarded to the Depositary in multiple deliveries, a properly completed and duly executed Letter of Transmittal must accompany each such delivery. Stockholders whose Share Certificates are not immediately available, who cannot deliver their Share Certificates and all other required documents to the Depositary prior to the Expiration Date or who cannot comply with the book-entry transfer procedures on a timely basis may tender their Shares by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure, (i) such tender must be made by or through an Eligible Institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Purchaser, must be received by the Depositary prior to the Expiration Date and (iii) the Share Certificates evidencing all physically tendered Shares (or Book-Entry Confirmation with respect to such Shares), as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees and any other documents required by this Letter of Transmittal, must be received by the Depositary within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase. If Share Certificates are forwarded separately to the Depositary, a properly completed and duly executed Letter of Transmittal must accompany each such delivery. THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT THE STOCKHOLDER USE PROPERLY INSURED REGISTERED MAIL WITH RETURN RECEIPT REQUESTED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering stockholders, by execution of this Letter of Transmittal (or facsimile thereof), waive any right to receive any notice of the acceptance of their Shares for payment. 3. INADEQUATE SPACE. If the space provided herein under "Description of Shares Tendered" is inadequate, the certificate numbers and/or the number of Shares tendered should be listed on a separate signed schedule and attached hereto. 7 8 4. PARTIAL TENDERS. (Not applicable to stockholders who tender by book-entry transfer.) If fewer than all the Shares evidenced by any Share Certificate submitted are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered." In such cases, new Share Certificate(s) evidencing the remainder of the Shares that were evidenced by the old Share Certificate(s) will be sent to the registered holder, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the Expiration Date. All Shares represented by Share Certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the Share Certificate(s) without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are held of record by two or more persons, all such persons must sign this Letter of Transmittal. If any tendered Shares are registered in different names on several Share Certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of Share Certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Shares evidenced by Share Certificates listed and transmitted hereby, no endorsements of Share Certificates or separate stock powers are required unless payment is to be made to or Share Certificates evidencing Shares not tendered or purchased are to be issued in the name of a person other than the registered holder(s), in which case the Share Certificate(s) evidencing the Shares tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on such Share Certificate(s). Signatures on such certificates and stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, the Share Certificate(s) evidencing the Shares tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holder or holders appear on the Share Certificate(s). Signatures on such Share Certificate(s) or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any Share Certificates or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of a corporation or any person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Purchaser of such person's authority so to act must be submitted. 6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, the Purchaser will pay or cause to be paid any stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if Share Certificates evidencing Shares not tendered or purchased are to be registered in the name of, any person other than the registered holder(s), or if Share Certificates evidencing tendered Shares are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s) or such other person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or exemption therefrom, is not submitted. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) LISTED IN THIS LETTER OF TRANSMITTAL. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase price of any Shares tendered hereby is to be issued, or Share Certificate(s) evidencing Shares not tendered or not purchased are to be issued, in the name of a person other than the person(s) signing this Letter of Transmittal or if such check or any such Share Certificate is to be sent and/or any Share Certificates are to be returned to someone other than the signer above, or to the signer above but at an address other than that shown in the box entitled "Description of Shares Tendered" above, the appropriate boxes on this Letter of Transmittal should be completed. Stockholders tendering 8 9 Shares by book-entry transfer may request that Shares not purchased be credited to such account maintained at any of the Book-Entry Transfer Facilities as such stockholder may designate under "Special Delivery Instructions." If no such instructions are given, any such Shares not purchased will be returned by crediting the account at the Book-Entry Transfer Facilities designated above. 8. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES. Questions or requests for assistance may be directed to, or additional copies of the Offer to Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from, the Information Agent at the telephone numbers and addresses set forth below. Stockholders may also contact their broker, dealer, commercial bank or trust company. 9. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under the "backup withholding" provisions of federal tax law, the Depositary may be required to withhold 31% of the purchase price of Shares purchased pursuant to the Offer. To prevent backup withholding, each tendering stockholder should complete and sign the Substitute Form W-9 included in this Letter of Transmittal and either: (a) provide the stockholder's correct taxpayer identification number ("TIN") and certify, under penalties of perjury, that the TIN provided is correct (or that such stockholder is awaiting a TIN), and that (i) the stockholder has not been notified by the Internal Revenue Service ("IRS") that the stockholder is subject to backup withholding as a result of failure to report all interest or dividends, or (ii) the IRS has notified the stockholder that the stockholder is no longer subject to backup withholding; or (b) provide an adequate basis for exemption. If "Applied for" is written in Part I of the substitute Form W-9, the Depositary will retain 31% of any payment of the purchase price for tendered Shares during the 60-day period following the date of the Substitute Form W-9. If the stockholder furnishes the Depositary with his or her TIN within 60 days of the date of the Substitute W-9, the Depositary will remit such amount retained during the 60-day period to the stockholder and no further amounts will be retained or withheld from any payment made to the stockholder thereafter. If, however, the stockholder has not provided the Depositary with his or her TIN within such 60-day period, the Depositary will remit such previously-retained amounts to the IRS as backup withholding and shall withhold 31% of any payment of the purchase price for the tendered Shares made to the stockholder thereafter unless the stockholder furnishes a TIN to the Depositary prior to such payment. In general, an individual's TIN is the individual's Social Security number. If a certificate for tendered Shares is registered in more than one name or is not in the name of the actual owner, consult the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. If the Depositary is not provided with the correct TIN or an adequate basis for exemption, the stockholder may be subject to a $50 penalty imposed by the IRS and backup withholding at a rate of 31%. Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order to satisfy the Depositary that a foreign individual qualifies as an exempt recipient, such foreign individual must submit a statement (generally, IRS Form W-8), signed under penalties of perjury, attesting to that individual's exempt status. A form for such statements can be obtained from the Depositary. If payment for tendered Shares is to be made, pursuant to Special Payment Instructions, to a person other than the tendering stockholder, backup withholding will apply unless such other person, rather than the tendering stockholder, complies with the procedures described above to avoid backup withholding. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how an individual who does not have a TIN can obtain one and how to complete the Substitute Form W-9 if Shares are held in more than one name), consult the Guidelines of the IRS for Certification of Taxpayer Identification Number on Substitute Form W-9 attached to this Letter of Transmittal. Failure to complete the Substitute Form W-9 will not, by itself, cause Shares to be deemed invalidly tendered, but may require the Depositary to withhold 31% of the amount of any payments for such Shares. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided the appropriate information is furnished to the IRS. Additional copies of this Letter of Transmittal may be obtained from the Information Agent in connection with the Offer (the "Information Agent"). The address and telephone number of the Information Agent are set forth below. 9 10 Any questions or requests for assistance should be directed to the Information Agent at the address and telephone number set forth above. IMPORTANT: THIS LETTER OF TRANSMITTAL (TOGETHER WITH SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE. 10 11 - --------------------------------------------------------------------------------------------------------------------------- SUBSTITUTE Name: ------------------------------------------------------------------------- FORM W-9 Address:----------------------------------------------------------------------- DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE ---------------------------------------------------------------------------------- REQUEST FOR TAXPAYER Check appropriate box: IDENTIFICATION NUMBER (TIN) AND CERTIFICATION Individual [ ] Corporation [ ] Partnership [ ] Other (specify) [ ] ----------------------- - --------------------------------------------------------------------------------------------------------------------------- PART I. Please provide your taxpayer identification number in the space at right. If SSN: ------------------------------ awaiting TIN, write "Applied For." or EIN:------------------------------- - --------------------------------------------------------------------------------------------------------------------------- PART II. For Payees exempt from backup withholding. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9." - --------------------------------------------------------------------------------------------------------------------------- PART III. CERTIFICATION Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding either because: (a) I have not been notified by the IRS that I am subject to backup withholding as a result of a failure to report all interests or dividends, or (b) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). Signature: --------------------------------------------------------------- Date: --------------------------------, 1999
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE MERGER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 11 12 The Information Agent for the Offer is: D.F. KING & CO., INC. 77 Water Street New York, New York 10005 Bankers and Brokers call collect: (212) 425-1685 CALL TOLL FREE: (800) 769-5414 EX-99.A.3 4 LETTER TO BROKERS, DEALERS, COMMERCIAL BANKS ETC. 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF VOICE CONTROL SYSTEMS, INC. AT $4.00 NET PER SHARE BY VULCAN MERGER SUB, INC. A WHOLLY OWNED SUBSIDIARY OF PHILIPS ELECTRONICS NORTH AMERICA CORPORATION AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF KONINKLIJKE PHILIPS ELECTRONICS N.V. (ROYAL PHILIPS ELECTRONICS) THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 11, 1999, UNLESS THE OFFER IS EXTENDED. May 14, 1999 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: Vulcan Merger Sub. Inc., a Delaware corporation (the "Purchaser"), a wholly owned subsidiary of Philips Electronics North America Corporation, a Delaware corporation ("Parent"), and an indirect wholly owned subsidiary of Koninklijke Philips Electronics N.V., a company incorporated under the laws of The Netherlands ("Royal Philips"), is offering to purchase all of the outstanding shares of common stock, par value $0.01 per share (the "Shares"), of Voice Control Systems, Inc., a Delaware corporation (the "Company"), at $4.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 14, 1999 (the "Offer to Purchase") of the Purchaser and in the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"). Please furnish copies of the enclosed materials to those of your clients for whom you hold Shares registered in your name or in the name of your nominee. Enclosed herewith are the following documents: 1. Offer to Purchase, dated May 14, 1999. 2. Letter of Transmittal to be used by stockholders of the Company in accepting the Offer; 3. Letter to stockholders of the Company from Chairman of the Board of the Company, accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9; and 4. A printed form of letter that may be sent to your clients for whose account you hold Shares in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 5. Notice of Guaranteed Delivery; 2 6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; 7. Return envelope addressed to Citibank, N.A., the Depositary. Payment for Shares accepted for payment pursuant to the Offer will be in all cases made only after timely receipt by Citibank, N.A. (the "Depositary"), of (a) certificates for (or a timely Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to) such Shares, (b) a Letter of Transmittal, properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer effected pursuant to the procedures set forth in Section 3 of the Offer to Purchase, an Agent's Message, and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering stockholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE FOR SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING PAYMENT PURSUANT TO THE OFFER. The Offer is being made pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated as of May 9, 1999, by and among the Company, Parent and the Purchaser, pursuant to which, after completion of the Offer, the Purchaser will be merged with and into the Company or, at the option of Parent, the Company will be merged with and into the Purchaser (either such merger, the "Merger") and each issued and outstanding Share (other than Shares owned by Parent, the Purchaser or any other subsidiary of Parent or Shares held by stockholders exercising appraisal rights under Delaware law) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and represent the right to receive the price per Share paid by Purchaser pursuant to the Offer, without interest. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT AND DECLARED ITS ADVISABILITY, APPROVED THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Purchaser will be deemed to have accepted for payment, and will pay for, all Shares validly tendered and not properly withdrawn by the Expiration Date (as defined in the Offer to Purchase) if, as and when the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance of the tenders of such Shares for payment pursuant to the Offer. Payment for Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates evidencing such Shares or timely confirmation of a book-entry transfer of such Shares into the Depositary's account at one of the Book-Entry Transfer Facilities (as defined in the Offer to Purchase), (ii) a properly completed and duly executed Letter of Transmittal (or facsimile thereof) or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase), and (iii) any other documents required by the Letter of Transmittal. The Offer is not being made to, nor will tenders be accepted from, or on behalf of, holders of Shares in any jurisdiction in which the making or acceptance of the Offer would not be in compliance with the laws of such jurisdiction. In any jurisdiction where the securities or blue sky laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed made on behalf of registered brokers or dealers that are licensed under the laws of such jurisdiction. An envelope in which to return your instructions to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise indicated in such instruction form. Please forward your instructions to us as soon as possible to allow us ample time to tender Shares on your behalf prior to the expiration of the Offer. In order to tender Shares pursuant to the Offer, a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, or an Agent's Message (in the case of any book-entry transfer), and any other documents required by the Letter of Transmittal, should be sent to the Depositary, and either certificates representing the tendered Shares should be delivered or such Shares must be delivered to the Depositary pursuant to the procedures for book-entry transfers, all in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase. Neither Parent nor the Purchaser will pay any fees or commissions to any broker or dealer or other person (other than the Information Agent and the Depositary as described in the Offer to Purchase) in connection with the 2 3 solicitation of tenders of Shares pursuant to the Offer. You will be reimbursed upon request for customary mailing and handling expenses incurred by you in forwarding the enclosed offering materials to your clients. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 11, 1999, UNLESS THE OFFER IS EXTENDED. Any inquiries you may have with respect to the Offer may be addressed to the Information Agent at the address and telephone numbers set forth on the back cover page of the Offer to Purchase. Requests for additional copies of enclosed materials may be directed to the Information Agent. Very truly yours, Vulcan Merger Sub, Inc. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU OR ANY PERSON THE AGENT OF ROYAL PHILIPS, THE PURCHASER, PARENT, THE COMPANY, ANY AFFILIATE OF THE COMPANY, THE INFORMATION AGENT OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY REPRESENTATION ON BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFER NOT CONTAINED IN THE OFFER TO PURCHASE OR THE LETTER OF TRANSMITTAL. 3 EX-99.A.4 5 LETTER TO CLIENTS 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF VOICE CONTROL SYSTEMS, INC. AT $4.00 NET PER SHARE BY VULCAN MERGER SUB, INC. A WHOLLY OWNED SUBSIDIARY OF PHILIPS ELECTRONICS NORTH AMERICA CORPORATION AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF KONINKLIJKE PHILIPS ELECTRONICS N.V. (ROYAL PHILIPS ELECTRONICS) THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 11, 1999 UNLESS THE OFFER IS EXTENDED. To Our Clients: Enclosed for your consideration is an Offer to Purchase, dated May 14, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"), relating to the Offer by Vulcan Merger Sub, Inc., a Delaware corporation (the "Purchaser"), a wholly owned subsidiary of Philips Electronics North America Corporation, a Delaware corporation ("Parent"), and an indirect wholly owned subsidiary of Koninklijke Philips Electronics N.V., a company incorporated under the laws of The Netherlands ("Royal Philips"), to purchase all of the outstanding shares of common stock, par value $0.01 per share (the "Shares"), of Voice Control Systems, Inc., a Delaware corporation (the "Company"), at $4.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer. Also enclosed is the letter to stockholders of the Company from the Chairman of the Board of the Company accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9. WE ARE THE HOLDER OF RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL ACCOMPANYING THIS LETTER IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish to tender any or all of the Shares held by us for your account, pursuant the terms and conditions set forth in the Offer. Your attention is directed to the following: 1. The offer price is $4.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions of the Offer. 2. The Offer is being made for all of the outstanding Shares. 2 3. The Offer is being made pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated as of May 9, 1999, by and among the Company, Parent and the Purchaser, pursuant to which, after completion of the Offer, the Purchaser will be merged with and into the Company or, at the option of Parent, the Company will be merged with and into the Purchaser (either such merger, the "Merger") and each issued and outstanding Share (other than Shares owned by Parent, the Purchaser or any other subsidiary of Parent or Shares held by stockholders exercising appraisal rights under Delaware law) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and represent the right to receive the price per Share paid by the Purchaser pursuant to the Offer, without interest. 4. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT AND DECLARED ITS ADVISABILITY, APPROVED THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. 5. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the Expiration Date that number of Shares which represents a majority of the total voting power of all shares of capital stock of the Company outstanding on a fully diluted basis, and which will permit the Purchaser to effect the Merger without the vote of any person other than the Purchaser. Subject to the terms of the Merger Agreement, the Offer is also subject to other terms and conditions, including receipt of certain regulatory approvals, set forth in the Offer to Purchase. Any or all conditions to the Offer may be waived by the Purchaser. 6. The Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Friday, June 11, 1999, unless the Offer is extended. 7. Any stock transfer taxes applicable to the sale of Shares to the Purchaser pursuant to the Offer will be paid by the Purchaser, except as otherwise provided in Instruction 6 of the Letter of Transmittal. If you wish to have us tender any or all of the Shares held by us for your account, please so instruct us by completing, executing and returning to us the instruction form set forth below. Please forward your instructions to us in ample time to permit us to submit a tender on your behalf prior to the expiration of the Offer. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified on the instruction form set forth below. Payment for Shares accepted for payment pursuant to the Offer will be in all cases made only after timely receipt by Citibank, N.A. (the "Depositary"), of (a) certificates for (or a timely Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to) such Shares, (b) a Letter of Transmittal, properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer effected pursuant to the procedure set forth in Section 3 of the Offer to Purchase, an Agent's Message, and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering stockholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE FOR SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING PAYMENT PURSUANT TO THE OFFER. The Offer is not being made to, nor will tenders be accepted from, or on behalf of, holders of Shares in any jurisdiction in which the making or acceptance of the Offer would not be in compliance with the laws of such jurisdiction. In any jurisdiction where the securities or blue sky laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed made on behalf of the Purchaser by the registered brokers or dealers that are licensed under the laws of such jurisdiction. An envelope in which to return your instructions to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise indicated in such instruction form. Please forward your instructions to us as soon as possible to allow us ample time to tender Shares on your behalf prior to the expiration of the Offer. 2 3 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF VOICE CONTROL SYSTEMS, INC. The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase, dated May 14, 1999 and the related Letter of Transmittal, in connection with the offer by Vulcan Merger Sub, Inc., a Delaware corporation (the "Purchaser"), a wholly owned subsidiary of Philips Electronics North America Corporation, a Delaware corporation ("Parent"), and an indirect wholly owned subsidiary of Koninklijke Philips Electronics N.V., a company incorporated under the laws of The Netherlands ("Royal Philips"), to purchase for cash all of the outstanding shares of common stock, par value $0.01 per share (the "Shares"), of Voice Control Systems, Inc., a Delaware corporation. This will instruct you to tender the number of Shares indicated below (or if no number is indicated below, all Shares) that are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer and the related Letter of Transmittal. Dated: , 1999 NUMBER OF SHARES TO BE TENDERED: SHARES* - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SIGNATURE(S) - -------------------------------------------------------------------------------- PLEASE PRINT NAME(S) - -------------------------------------------------------------------------------- PLEASE PRINT ADDRESS(ES) - -------------------------------------------------------------------------------- AREA CODE AND TELEPHONE NUMBER(S) - -------------------------------------------------------------------------------- TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S) - --------------- * Unless otherwise indicated, it will be assumed that all your Shares are to be tendered. 3 EX-99.A.5 6 NOTICE OF GUARANTEED DELIVERY 1 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK OF VOICE CONTROL SYSTEMS, INC. BY VULCAN MERGER SUB, INC. A WHOLLY OWNED SUBSIDIARY OF PHILIPS ELECTRONICS NORTH AMERICA CORPORATION AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF KONINKLIJKE PHILIPS ELECTRONICS N.V. (ROYAL PHILIPS ELECTRONICS) As set forth in Section 3 of the Offer to Purchase (as defined below), this form, or a form substantially equivalent to this form, must be used to accept the Offer (as defined below) if the certificates representing shares of common stock, par value $0.01 per share (the "Shares"), of Voice Control Systems, Inc., a Delaware corporation (the "Company"), are not immediately available or time will not permit all required documents to reach the Depositary prior to the Expiration Date (as defined in the Offer to Purchase) or the procedures for book-entry transfer cannot be completed on a timely basis. Such form may be delivered by hand or transmitted by facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution (as defined in Section 3 of the Offer to Purchase). See Section 3 of the Offer to Purchase. The Depositary for the Offer is: CITIBANK, N.A. By Hand: By Mail: By Overnight Courier: CITIBANK, N.A. CITIBANK, N.A. CITIBANK, N.A. Corporate Trust Window P.O. Box 685 915 Broadway, 5th Floor 111 Wall Street, 5th Floor Old Chelsea Station New York, New York 10010 New York, New York 10043 New York, New York 10113
By Facsimile Transmission (For Eligible Institutions Only): (212) 505-2248 Confirm Receipt of Facsimile by Telephone Only: (800) 270-0808 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN AS LISTED ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. 2 Ladies and Gentlemen: The undersigned hereby tenders to Vulcan Merger Sub, Inc., a Delaware corporation (the "Purchaser"), a wholly owned subsidiary of Philips Electronics North America Corporation, a Delaware corporation, and an indirect wholly owned subsidiary of Koninklijke Philips Electronics N.V., a company incorporated under the laws of The Netherlands, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 14, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"), receipt of which is hereby acknowledged, the number of Shares indicated below pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. - ------------------------------------------------------------ Number of Shares: ----------------------------------- Share Certificate Numbers (if available): ---------------------------------------------------------- ---------------------------------------------------------- If Shares will be delivered by book-entry transfer, Account Number: ------------------------------------- Date: , 1999 - ------------------------------------------------------------ - ------------------------------------------------------------ Name(s) or Record Holder(s): ----------------------------------------------------------- ----------------------------------------------------------- PLEASE TYPE OR PRINT Address(es): ------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- ZIP CODE Telephone Number: ----------------------------------------------------------- AREA CODE Signature(s): ----------------------------------------------------------- ----------------------------------------------------------- SIGNATURES - ------------------------------------------------------------ 2 3 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a participant in the Security Transfer Agents Medallion Program or any other eligible guarantor institution as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (each, an "Eligible Institution"), hereby guarantees that either the certificates representing the Shares tendered hereby in proper form for transfer, or timely confirmation of a book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company (pursuant to procedures set forth in Section 3 of the Offer to Purchase), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase)) and any other documents required by the Letter of Transmittal, will be received by the Depositary at one of its addresses set forth above within three (3) New York Stock Exchange trading days after the date of execution hereof. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal, certificates for Shares and any other required documents to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. Name of Firm: - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ZIP CODE Area Code and Telephone Number: - -------------------------------------------------------------------------------- AUTHORIZED SIGNATURE Name: - -------------------------------------------------------------------------------- PLEASE TYPE OR PRINT Title: - -------------------------------------------------------------------------------- Dated: - ---------------------------------------------------------------------------,1999 NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE OF GUARANTEED DELIVERY. CERTIFICATES FOR SHARES ARE TO BE DELIVERED WITH THE LETTER OF TRANSMITTAL. 3 EX-99.A.6 7 GUIDELINES TO SUBSTITUTE FORM W-9 1 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--Social Security numbers have nine digits separated by two hyphens: e.g., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: e.g., 00-0000000. The table below will help determine the name and number to give the payer. - ------------------------------------------------------------ GIVE THE NAME AND SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT NUMBER OF-- - ------------------------------------------------------------ 1. An individual's account The individual 2. Two or more individuals (joint The actual owner of account) the account or, if combined funds, any one of the individuals(1) 3. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 4. a. The usual revocable savings The grantor- trust account (grantor is also trustee(1) trustee) b. So-called trust account that is The actual owner(1) not a legal or valid trust under state law 5. Sole proprietorship The owner(3) - ------------------------------------------------------------ - ------------------------------------------------------------ GIVE THE NAME AND EMPLOYER FOR THIS TYPE OF ACCOUNT IDENTIFICATION NUMBER OF-- - ------------------------------------------------------------ 6. A valid trust, estate, or pension The legal entity(4) trust 7. Corporate account The corporation 8. Association, club, religious, The organization charitable, educational or other tax-exempt organization account 9. Partnership account The partnership 10. A broker or registered nominee The broker or nominee 11. Account with the Department of The public entity Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments - ------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your Social Security Number or Employer Identification Number. (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.) NOTE: If no name is circled when more than one name is listed, the number will be considered to be that of the first name listed. 2 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A TAXPAYER IDENTIFICATION NUMBER Persons without a taxpayer identification number should apply for one and write "Applied for" in Part 1 of Substitute Form W-9. Individuals should file Form SS-5, Application for a Social Security Card (or, in the case of resident aliens who do not have and are not eligible for Social Security numbers, Form W-7, Application for Individual Taxpayer Identification Number). Corporations, partnerships or other entities should file Form SS-4, Application for Employer Identification Number. Form SS-5 may be obtained from local Social Security Administration offices. Forms W-7 and SS-4 may be obtained from the IRS by calling 1-800-TAX-FORM (1-800-829-3676). NOTE: Writing "Applied for" in Part 1 means that you have already applied for a TIN or that you intend to apply for one soon. The following persons are exempt from backup withholding on payments from the sale of Shares pursuant to the Offer: - A corporation. - An organization exempt from tax under Section 501(a) of the Internal Revenue Code. - An individual retirement plan ("IRA"). - A custodial account under Section 403(b)(7) of the Internal Revenue Code. - The United States or any of its agencies or instrumentalities. - A State, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. - A foreign government or any of its political subdivisions, agencies or instrumentalities. - A foreign central bank of issue. - A dealer in securities or commodities required to register in the United States or a possession of the United States. - A futures commission merchant registered with the Commodities Futures Trading Commission. - A real estate investment trust. - An entity registered at all times during the tax year under the Investment Company Act of 1940. - A common trust fund operated by a bank under Section 584(a) of the Internal Revenue Code. - A financial institution. - A person registered under the Investment Advisers Act of 1940 who regularly acts as a broker. Such persons should nevertheless complete Substitute Form W-9 to avoid possible erroneous withholding. An exempt person should enter the correct TIN in part I, write "Exempt" in Part II, and sign and date the form. PRIVACY ACT NOTICE. -- Section 6109 of the Internal Revenue Code requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of individuals' tax returns. The IRS may also provide this information to the Department of Justice for civil and criminal litigation and to states, cities and the District of Columbia to help carry out their tax laws. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. EX-99.A.7 8 LETTER TO FORMER HOLDERS OF COMMON STOCK 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF VOICE CONTROL SYSTEMS, INC. AT $4.00 NET PER SHARE BY VULCAN MERGER SUB, INC. A WHOLLY OWNED SUBSIDIARY OF PHILIPS ELECTRONICS NORTH AMERICA CORPORATION AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF KONINKLIJKE PHILIPS ELECTRONICS N.V. (ROYAL PHILIPS ELECTRONICS) THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 11, 1999, UNLESS THE OFFER IS EXTENDED. To Certain Former Holders of Common Stock of VCS Industries, Inc., Voice Processing Corporation and/or PureSpeech, Inc.: Our records show that you formerly were a holder of common stock of VCS Industries, Inc., an Illinois corporation ("Industries"), Voice Processing Corporation, a Delaware corporation ("VPC"), and/or PureSpeech, Inc., a Delaware corporation ("PureSpeech"). As a result of one of the mergers described in the following three situations, your shares of Industries, VPC and/or PureSpeech were converted into the right to receive shares of common stock, par value $0.01 per share (the "Shares"), of Voice Control Systems, Inc., a Delaware corporation (the "Company"). The following is a description of each merger and its respective share exchange ratio. Effective August 11, 1994, Industries merged with and into Scott Instruments Corporation (the "Industries Merger"), which changed its name to "Voice Control Systems, Inc." following completion of the merger. In connection with the Industries Merger, each share of Industries outstanding immediately prior to the effective time of the Industries Merger was converted into the right to receive 0.6530225 of a Share of the Company. Effective November 4, 1996, VPC was merged with and into the Company (the "VPC Merger"). In connection with the VPC Merger, each share of VPC was converted into the right to receive 0.87091 of a Share of the Company. Effective April 14, 1998, a subsidiary of the Company was merged with and into PureSpeech (the "PureSpeech Merger"). In connection with the PureSpeech Merger, each share of PureSpeech was converted into the right to receive 0.1422 of a Share of the Company. Enclosed for your consideration is an Offer to Purchase, dated May 14, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"), relating to the Offer by Vulcan Merger Sub, Inc., a Delaware corporation (the "Purchaser"), a wholly owned subsidiary of Philips Electronics North America Corporation, a Delaware corporation ("Parent"), and an indirect wholly owned subsidiary of Koninklijke Philips Electronics N.V., a company incorporated under the laws of The Netherlands, to purchase all of the outstanding Shares, at $4.00 per Share, net to the seller in cash, upon the 2 terms and subject to the conditions set forth in the Offer. Also enclosed is the letter to stockholders of the Company from the Chairman of the Board of the Company accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9. Your attention is directed to the following: 1. The offer price is $4.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions of the Offer. 2. The Offer is being made for all of the outstanding shares. 3. The Offer is being made pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated as of May 9, 1999, by and among the Company, Parent and the Purchaser, pursuant to which, after completion of the Offer, the Purchaser will be merged with and into the Company or, at the option of Parent, the Company will be merged with and into the Purchaser (either such merger, the "Merger") and each issued and outstanding Share (other than Shares owned by Parent, the Purchaser or any other subsidiary of Parent or Shares held by stockholders exercising appraisal rights under Delaware law) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and represent the right to receive the price per Share paid by the Purchaser in the Offer, without interest. 4. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT AND DECLARED ITS ADVISABILITY, APPROVED THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. 5. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the Expiration Date that number of Shares which represents a majority of the total voting power of all shares of capital stock of the Company outstanding on a fully diluted basis, and which will permit the Purchaser to effect the Merger without the vote of any person other than the Purchaser. Subject to the terms of the Merger Agreement, the Offer is also subject to other terms and conditions, including receipt of certain regulatory approvals, set forth in the Offer to Purchase. Any or all conditions to the Offer may be waived by the Purchaser. 6. The Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Friday, June 11, 1999, unless the Offer is extended. 7. Any stock transfer taxes applicable to the sale of Shares to the Purchaser pursuant to the Offer will be paid by the Purchaser, except as otherwise provided in Instruction 6 of the Letter of Transmittal. As a result of the aforementioned mergers, you are a stockholder of the Company and are entitled to participate in the Offer. If you wish to tender any or all of your Shares, please do so by completing, executing and returning to us the Letter of Transmittal enclosed herein. Please send it to us in ample time to permit us to submit a tender on your behalf prior to the expiration of the Offer. Note that if you tender your Shares you will NOT receive $4.00 multiplied by the number of shares of Industries, VPC or PureSpeech you are holding, but rather will receive $4.00 multiplied by the number of Shares of the Company after taking into account the share exchange ratios of the applicable merger(s). Payment for Shares accepted for payment pursuant to the Offer will be in all cases made only after timely receipt by Citibank, N.A. (the "Depositary"), of (a) certificates for (or a timely Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to) such Shares, (b) a Letter of Transmittal, properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer effected pursuant to the procedure set forth in Section 3 of the Offer to Purchase, an Agent's Message, and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering stockholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE FOR SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING PAYMENT PURSUANT TO THE OFFER. 2 3 The Offer is not being made to, nor will tenders be accepted from, or on behalf of, holders of Shares in any jurisdiction in which the making or acceptance of the Offer would not be in compliance with the laws of such jurisdiction. In any jurisdiction where the securities or blue sky laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed made on behalf of the Purchaser by the registered brokers or dealers that are licensed under the laws of such jurisdiction. An envelope in which to return your instructions to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise indicated in such instruction form. Please forward your instructions to us as soon as possible to allow us ample time to tender Shares on your behalf prior to the expiration of the Offer. 3 EX-99.A.8 9 PRESS RELEASE 1 Amsterdam, May 9, 1999 99019 PHILIPS TO ACQUIRE VCS TO EXTEND SPEECH TECHNOLOGY LEADERSHIP INTO NORTH AMERICA Royal Philips Electronics of the Netherlands (AEX:PHI, NYSE:PHG) and Voice Control Systems, Inc of the United States (NASDAQ:VCSI) announced today that they have signed a definitive merger agreement for Philips to acquire all of the outstanding shares of VCS for $4.00 per share, for a total transaction value of approx. $59 million. VCS will become a key part of Philips Speech Processing, a business unit of Philips Business Electronics. Senior members of the VCS management team will play leading roles in the new merged company. The transaction is structured as a cash tender offer followed by a cash merger to acquire any shares not previously tendered. Philips expects to commence its cash tender offer on Friday May 14, 1999. The cash tender offer is subject to Philips receiving at least a majority of the fully diluted shares of VCS in the tender offer, as well as receipt of customary regulatory approvals. "I am proud to announce this acquisition since speech technology is of strategic importance to Philips," said Fred Bok, President and CEO of Philips Business Electronics Division. "By joining forces, VCS's experienced staff and proven products truly complement Philips Speech Processing's product and services offering and will put Philips in a unique position in the industry. Philips now offers the widest spectrum of speech recognition technologies, ranging from simple voice commands to full natural dialogue capabilities in the main markets." VCS was one of the first companies to enter the speech technology market about two decades ago. VCS is a leading company for small vocabulary, highly robust speech technology in the telephony environment, especially for IVR (Interactive Voice Response) applications. VCS has an extensive installed base, centered in North America, extending into Europe, Asia-Pacific and Latin America. It is also a leading provider of speech enhanced auto attendants. VCS will expand Philips' technology portfolio with over 50 languages. Philips will now be able to offer to its customers the broadest range of languages in the industry. "Through this acquisition, we can really offer our customers a one-stop-shop portfolio", said Ron van den Bos, President and CEO of Philips Speech Processing. "It fully supports our strategy to offer world-class products and services. VCS's patents relating to voice dialing and speaker verification will further strengthen our position in the telecommunications and automotive markets." "Philips' technology will be a welcome expansion for our installed base of over 2.5 million recognizers", said Peter Foster, Board Member of VCS. "We believe that VCS's partners and customers will greatly benefit from the combined product offerings and Philips long-term commitment to speech technologies." 2 ABOUT THE COMPANIES PHILIPS SPEECH PROCESSING IS A PIONEER AND ONE OF THE GLOBAL MARKET LEADERS IN SPEECH RECOGNITION, NATURAL DIALOGUE AND LANGUAGE UNDERSTANDING TECHNOLOGIES. A DEVELOPER OF VOICE ENABLED TELEPHONY APPLICATIONS, PHILIPS HAS A LARGE INSTALLED BASE OF SPEECH RECOGNITION AND NATURAL DIALOGUE SYSTEMS IN EUROPE AND IS A MAJOR SPEECH TECHNOLOGY PROVIDER IN NORTH AMERICA. ITS NATURAL DIALOGUE PLATFORM SPEECHMANIA AND SPEECHPEARL SPEECH RECOGNITION ENGINES ARE USED FOR BANKING, TRAVEL, AUTO ATTENDANTS SPEECH PORTALS AND WHITE AND YELLOW PAGES AUTOMATION. PHILIPS HAS MORE THAN 40 YEARS EXPERIENCE IN THE DEVELOPMENT AND MARKETING OF SPEECH PRODUCTS AND DEVELOPED THE FIRST COMMERCIALLY AVAILABLE PC BASED NATURAL, CONTINUOUS SPEECH RECOGNITION ENGINE FOR SPEECH TO TEXT APPLICATIONS IN 1993. PHILIPS' LINE OF END USER SOFTWARE (FREESPEECH 98 AND FREESPEECH 2000 FOR SOHO AND CONSUMER MARKETS, AND SPEECHPRO FOR THE PROFESSIONAL DICTATION USERS) IS AVAILABLE IN 16 LANGUAGES AND ITS VOCON SPEECH RECOGNIZER FOR EMBEDDED SYSTEMS HAS BEEN SUCCESSFULLY INTEGRATED IN CONSUMER ELECTRONICS PRODUCTS AND DEVICES. PHILIPS HAS SET UP SPEECHSOLUTIONS DESIGN CENTERS AROUND THE GLOBE, SUPPORTING R&D AND THE ESTABLISHMENT OF INDUSTRY STANDARDS, AND IS A MEMBER IN VARIOUS STANDARDIZATION BODIES SUCH AS ECTF, SAPI, HAVI, HOMEAPI, VXML, W3C AND VOICETIMES. INTERNET: WWW.SPEECH.PHILIPS.COM. VCS IS A LEADING SPEECH SOFTWARE PLATFORM PROVIDER, OFFERING VOCABULARIES IN OVER 50 LANGUAGES WITH MORE THAN 2.5 MILLION SPEECH RECOGNIZERS, INCLUDING 500,000 IN TELECOM, INSTALLED IN 30 COUNTRIES. SPEECH-DRIVEN APPLICATIONS USING VCS PRODUCTS ARE USED TODAY IN TELECOMMUNICATIONS, AUTOMOTIVE AND CONSUMER ELECTRONICS TO ENABLE COMPUTERS AND ELECTRONIC DEVICES TO UNDERSTAND AND PROCESS HUMAN SPEECH. VCS IS HEADQUARTERED IN DALLAS, TEXAS, WITH REGIONAL OFFICES IN CAMBRIDGE, MASSACHUSETTS, SAN JOSE, CALIFORNIA, AND PORTSMOUTH, ENGLAND. THE COMPANY'S STOCK IS TRADED ON THE NASDAQ NATIONAL MARKET SYSTEM UNDER THE SYMBOL VCSI. FOR MORE INFORMATION VISIT THE COMPANY'S WEB SITE AT HTTP://WWW.VOICECONTROL.COM. For further information: Philips Media Relations Alison Screeton, tel: +31 20 59 77216 VCS Kim Terry, tel: +1 972 726 1200 ROYAL PHILIPS ELECTRONICS OF THE NETHERLANDS IS ONE OF THE WORLD'S BIGGEST ELECTRONICS COMPANIES AND EUROPE'S LARGEST, WITH SALES OF US$ 33.9 BILLION IN 1998. IT IS A GLOBAL LEADER IN COLOR TELEVISION SETS, LIGHTING, ELECTRIC SHAVERS, COLOR PICTURE TUBES FOR TELEVISIONS AND MONITORS, AND ONE-CHIP TV PRODUCTS. ITS 228,800 EMPLOYEES IN MORE THAN 60 COUNTRIES ARE ACTIVE IN THE AREAS OF LIGHTING, CONSUMER ELECTRONICS, DOMESTIC APPLIANCES, COMPONENTS, SEMICONDUCTORS, MEDICAL SYSTEMS, BUSINESS ELECTRONICS, AND IT SERVICES (ORIGIN). PHILIPS IS QUOTED ON THE NYSE, LONDON, FRANKFURT, AMSTERDAM AND OTHER STOCK EXCHANGES. NEWS FROM PHILIPS IS LOCATED AT WWW.NEWS.PHILIPS.COM EX-99.A.9 10 NEWSPAPER ADVERTISEMENT 1 This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (as defined below). The Offer (as defined below) is made solely by the Offer to Purchase, dated May 14, 1999, and the related Letter of Transmittal and any amendments or supplements thereto, and is being made to all holders of Shares. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on behalf of the Purchaser (as defined below) by one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. Notice of Offer to Purchase for Cash All Outstanding Shares of Common Stock of Voice Control Systems, Inc. at $4.00 Net Per Share by Vulcan Merger Sub, Inc. a wholly owned subsidiary of Philips Electronics North America Corporation and an indirect wholly owned subsidiary of Koninklijke Philips Electronics N.V. (Royal Philips Electronics) Vulcan Merger Sub, Inc., a Delaware corporation (the "Purchaser"), and a wholly owned subsidiary of Philips Electronics North America Corporation, a Delaware corporation ("Parent"), and an indirect wholly owned subsidiary of Koninklijke Philips Electronics N.V. (Royal Philips Electronics), a company incorporated under the laws of The Netherlands, is offering to purchase all outstanding shares of common stock, par value $0.01 per share (the "Shares"), of Voice Control Systems, Inc., a Delaware corporation (the "Company"), at $4.00 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 14, 1999, and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares by the Purchaser pursuant to the Offer. The purpose of the Offer is to acquire for cash as many outstanding Shares as possible as a first step in acquiring the entire equity interest in the Company. Following the consummation of the Offer, the Purchaser intends to effect the Merger (as defined below). THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 11, 1999, UNLESS THE OFFER IS EXTENDED. The Offer is conditioned upon, among other things, (1) there being validly tendered and not withdrawn prior to the expiration of the Offer at least a majority of the outstanding Shares on a fully diluted basis and (2) any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations thereunder applicable to the purchase of Shares pursuant to the Offer having expired or been terminated. Certain other conditions to the Offer are described in Section 11 of the Offer to Purchase. The Offer is being made pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated as of May 9, 1999, by and among the Company, Parent and the Purchaser, pursuant to which, after completion of the Offer, the Purchaser will be merged with and into the Company or, at the option of Parent, the Company 2 will be merged with and into the Purchaser (either such merger, the "Merger") and each issued and outstanding Share (other than Shares owned by Parent, the Purchaser or any other subsidiary of Parent or Shares held by stockholders exercising appraisal rights pursuant to Section 262 of the Delaware General Corporate Law) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and represent the right to receive an amount in cash, without interest, equal to the price paid for each Share pursuant to the Offer. The Merger Agreement is more fully described in the Offer to Purchase. The Board of Directors of the Company has unanimously adopted the Merger Agreement and declared its advisability, approved the Offer and the Merger, determined that the Offer and the Merger are fair to, and in the best interests of, the holders of Shares and unanimously recommends that holders of Shares accept the Offer and tender their Shares pursuant to the Offer. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment, and thereby purchased Shares validly tendered and not withdrawn, if and when the Purchaser gives oral or written notice to Citibank, N.A. (the "Depositary") of the Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for the tendering stockholders for the purpose of receiving payments from the Purchaser and transmitting such payments to the tendering stockholders whose Shares have been accepted for payment. Under no circumstances will interest on the purchase price for Shares be paid, regardless of any extension of the Offer or any delay in making such payment. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (a) certificates for such Shares or timely confirmation of the book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of the Offer to Purchase, (b) a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message (as defined in Section 3 of the Offer to Purchase) in lieu of the Letter of Transmittal), and (c) any other documents required by the Letter of Transmittal. The term "Expiration Date" means 12:00 Midnight, New York City time, on Friday, June 11, 1999, unless and until the Purchaser, in its sole discretion, subject to the terms of the Merger Agreement, shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date on which the Offer, as so extended by the Purchaser, shall expire. Subject to the terms of the Merger Agreement and the applicable rules and regulations of the Securities and Exchange Commission (the "Commission"), the Purchaser expressly reserves the right, in its sole discretion, at any time or from time to time, to extend the period of time during which the Offer is open by giving oral or written notice of such extension to the Depositary. Any such extension will be followed as promptly as practicable by public announcement thereof to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date of the Offer. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the right of a tendering stockholder to withdraw such stockholder's Shares. Subject to the applicable rules and regulations of the Commission, applicable law and the Merger Agreement, the Purchaser also expressly reserves the right, in its sole discretion, at any time or from time to time, (i) to terminate the Offer and not accept for payment any Shares if any of the conditions referred to in Section 11 of the Offer to Purchase are not satisfied, and (ii) to waive any 3 condition, or otherwise amend the Offer in any respect, in each case, by giving oral or written notice of such termination, waiver or amendment to the Depositary and by making public announcement thereof. Tenders of Shares made pursuant to the Offer are irrevocable except that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any time after July 13, 1999. For a withdrawal to be effective, a written, or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase. Any such notice of withdrawal must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the names in which the certificate(s) evidencing the Shares to be withdrawn are registered, if different from that of the person who tendered such Shares. The signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution (as defined in Section 3 of the Offer to Purchase), unless such Shares have been tendered for the account of any Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry transfer as set forth in Section 3 of the Offer to Purchase, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with the Book-Entry Transfer Facility's procedures. If certificates for Shares to be withdrawn have been delivered or otherwise identified to the Depositary, the name of the registered holder and the serial numbers shown on such certificates must also be furnished to the Depositary as aforesaid prior to the physical release of such certificates. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Purchaser, in its sole discretion, which determination shall be final and binding. None of Parent, the Purchaser, the Depositary, the Information Agent (listed below), or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give such notification. Withdrawals of tenders of Shares may not be rescinded, and any Shares properly withdrawn will be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by following one of the procedures described in Section 3 of the Offer to Purchase at any time prior to the Expiration Date. The information required to be disclosed by paragraph (e)(1)(vii) of Rule 14d-6 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. The Company has provided the Purchaser with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase and the Letter of Transmittal and, if required, other relevant materials, will be mailed by the Purchaser to record holders of Shares and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the Company's stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. The Offer to Purchase and the Letter of the Transmittal contain important information which should be read carefully before any decision is made with respect to the Offer. Questions and requests for assistance may be directed to the Information Agent at the address and telephone number set forth below. Requests for additional copies of the Offer to Purchase and the related Letter of Transmittal may be directed to the Information Agent or to brokers, dealers, commercial banks or trust companies. Such additional copies will be furnished at the Purchaser's expense. The Purchaser will not pay any fees or commissions to any broker or 4 dealer or any other person (other than the Information Agent) for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: D.F. King & Co., Inc. 77 Water Street New York, New York 10005 Banks and Brokers Call Collect (212) 425-1685 All Others Call Toll Free (800) 769-5414 May 14, 1999 EX-99.C.1 11 AGREEMENT AND PLAN OF MERGER 1 AGREEMENT AND PLAN OF MERGER Among PHILIPS ELECTRONICS NORTH AMERICA CORPORATION, VOICE CONTROL SYSTEMS, INC. and VULCAN MERGER SUB, INC. Dated as of May 9, 1999 2 TABLE OF CONTENTS Page ARTICLE I The Tender Offer 1.1. Tender Offer.............................................................1 ARTICLE II The Merger; Closing; Effective Time 2.1. The Merger...............................................................3 2.2. Closing..................................................................4 2.3. Effective Time...........................................................4 ARTICLE III Certificate of Incorporation and By-Laws of the Surviving Corporation 3.1. The Certificate of Incorporation.........................................4 3.2. The By-Laws..............................................................5 ARTICLE IV Officers and Directors of the Surviving Corporation 4.1. Officers and Directors...................................................5 4.2. Actions by Directors.....................................................5 4.3. Boards of Directors; Committees..........................................5 ARTICLE V Conversion or Cancellation of Shares in the Merger 5.1. Conversion or Cancellation of Shares.....................................6 5.2. Payment for Shares.......................................................7 5.3. Appraisal Rights.........................................................8 5.4. Transfer of Shares After the Effective Time..............................9 ARTICLE VI Representations and Warranties 6.1. Representations and Warranties of the Company............................9 i 3 6.2. Representations and Warranties of Parent and Merger Sub .............................................................22 ARTICLE VII Covenants 7.1. Interim Operations of the Company.......................................24 7.2. Acquisition Proposals...................................................26 7.3. Meetings of the Company's Stockholders..................................27 7.4. Filings; Other Action...................................................28 7.5. Access .................................................................28 7.6. Notification of Certain Matters.........................................29 7.7. Publicity...............................................................29 7.8. Benefits................................................................29 7.9. Indemnification; Directors' and Officers' Insurance ....................30 7.10. Takeover Statutes.......................................................32 ARTICLE VIII Conditions 8.1. Conditions to Obligations of Parent and Merger Sub......................32 8.2. Conditions to Obligations of the Company................................33 ARTICLE IX Termination 9.1 Termination by Mutual Consent...........................................34 9.2. Termination by either Parent or the Company.............................34 9.3. Termination by Parent...................................................35 9.4. Termination by the Company..............................................35 9.5. Effect of Termination and Abandonment...................................36 ii 4 ARTICLE X Miscellaneous and General 10.1. Payment of Expenses....................................................38 10.2. Survival...............................................................38 10.3. Modification or Amendment..............................................38 10.4. Waiver of Conditions...................................................38 10.5. Counterparts...........................................................39 10.6. Governing Law..........................................................39 10.7. Notices................................................................40 10.8. Entire Agreement, etc..................................................41 10.9. Definitions of "Subsidiary," "knowledge" and "Material Adverse Effect"............................................41 10.10. Obligation of Parent...................................................42 10.11. Captions...............................................................42 10.12. Severability...........................................................42 iii 5 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated as of May 9, 1999, among Philips Electronics North America Corporation, a Delaware corporation ("Parent"), Voice Control Systems, Inc., a Delaware corporation (the "Company"), and Vulcan Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), the Company and Merger Sub sometimes being hereinafter collectively referred to as the "Constituent Corporations." RECITALS WHEREAS, the Boards of Directors of Parent and the Company each have determined that it is in the best interests of their respective shareholders for Parent to acquire the Company upon the terms and subject to the conditions set forth herein; and WHEREAS, in connection with the transactions contemplated by this Agreement, Parent has entered into employment agreements with certain executives of the Company set forth on Schedule 1 hereto; and WHEREAS, the Company, Parent and Merger Sub desire to make certain representations, warranties, covenants and agreements in connection with this Agreement. NOW, THEREFORE, in consideration of the premises and of the representations, warranties, covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I The Tender Offer 1.1. Tender Offer. (a) Provided that this Agreement shall not have been terminated in accordance with Article IX hereof and none of the events set forth in Annex A hereto (the "Offer Conditions") shall have occurred or be existing, within five business days of the date hereof, Merger Sub will commence a tender offer (the "Offer") for all of the outstanding shares of common stock, 6 par value $0.01 per share (the "Shares"), of the Company at a price of $4.00 per Share in cash, net to the seller. The obligation of Merger Sub to accept for payment and pay for any Shares tendered pursuant to the Offer shall be subject only to the satisfaction or waiver of the Offer Conditions. It is understood and agreed that Merger Sub may from time to time extend the expiration date of the Offer after all of the Offer Conditions have been satisfied or waived for a period of up to thirty (30) business days (or a greater period with the consent of the Company) if it reasonably determines such extension is appropriate in order to enable it to purchase at least 90% of the outstanding Shares in the Offer. Subject to the terms and conditions of the Offer, Parent will promptly pay for all Shares validly tendered and not withdrawn pursuant to the Offer that it is obligated to purchase thereunder as soon as practicable after the expiration of the Offer. The Company's Board of Directors shall recommend acceptance of the Offer to its stockholders in a Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") to be filed with the Securities and Exchange Commission (the "SEC") upon commencement of the Offer; provided, however, that the Company's Board of Directors may thereafter amend or withdraw its recommendation in accordance with Section 7.2. (b) Parent and Merger Sub agree, as to the Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1"), Offer to Purchase and related Letter of Transmittal (all of which together constitute the "Offer Documents") and the Company agrees, as to the Schedule 14D-9, that such documents shall, in all material respects, comply with the requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations thereunder and other applicable laws. The Company and its counsel, as to the Offer Documents, and Merger Sub and its counsel, as to the Schedule 14D-9, shall be given an opportunity to review such documents prior to their being filed with the SEC. Parent, Merger Sub and the Company each agrees promptly to correct any information provided by it for use in the Offer Documents or the Schedule 14D-9 that shall have become false or misleading in any material respect. Parent and Merger Sub further agree to take all steps necessary to cause the Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer Documents as so corrected to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. The Company further agrees to take all steps necessary to cause the -2- 7 Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. (c) In connection with the Offer, the Company will cause its Transfer Agent to furnish promptly to Merger Sub a list, as of the most recent practicable date, of the record holders of Shares and their addresses, as well as mailing labels containing the names and addresses of all record holders of Shares, any non-objecting beneficial owner lists and lists of security positions of Shares held in stock depositories. The Company will furnish Merger Sub with such additional information (including, but not limited to, updated lists of holders of Shares and their addresses, mailing labels, non-objecting beneficial owner lists and lists of security positions) and such other assistance as Parent or Merger Sub or their agents may reasonably request in communicating the Offer to the record and beneficial holders of Shares. ARTICLE II The Merger; Closing; Effective Time 2.1. The Merger. (a) Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 2.3) Merger Sub shall be merged with and into the Company and the separate corporate existence of Merger Sub shall thereupon cease (the "Merger"). The Company shall be the surviving corporation in the Merger (sometimes hereinafter referred to as the "Surviving Corporation") and shall continue to be governed by the laws of the State of Delaware, and the separate corporate existence of the Company with all its rights, privileges, immunities, powers and franchises shall continue unaffected by the Merger, except as set forth in Section 3.1. The Merger shall have the effects specified in the Delaware General Corporation Law (the "DGCL"). (b) In its discretion, Parent may, for any reason, by written notice to the Company and in lieu of the provisions set forth in the first two sentences of Section 2.1(a), elect to cause the Company to merge with and into Merger Sub at the Effective Time, in which case, at the Effective Time, the Company shall be merged with and into Merger Sub and the separate corporate existence of the -3- 8 Company shall thereupon cease; provided, however, that the Company shall not be deemed to have breached any of its representations, warranties or covenants set forth in this Agreement solely by reason of such election. In such circumstance, the merger of the Company into Merger Sub shall be deemed the "Merger" for all purposes hereunder and Merger Sub shall be deemed the "Surviving Corporation" for all purposes hereunder. 2.2. Closing. The closing of the Merger (the "Closing") shall take place (i) at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York at 10:00 A.M. on the first business day on which the last to be fulfilled or waived of the conditions set forth in Article VIII hereof shall be fulfilled or waived in accordance with this Agreement or (ii) at such other place and time and/or on such other date as the Company and Parent may agree. 2.3. Effective Time. As soon as practicable following the Closing, and provided that this Agreement has not been terminated or abandoned pursuant to Article IX hereof, the Company and the Parent will cause a Certificate of Merger (the "Certificate of Merger") to be executed and filed with the Secretary of State of Delaware as provided in Section 251 of the DGCL. The Merger shall become effective on the date on which the Delaware Certificate of Merger has been duly filed with the Secretary of State of Delaware, and such time is hereinafter referred to as the "Effective Time." Unless Parent and the Company agree otherwise, the Certificate of Merger shall specify that the Merger will become effective upon its filing with the Secretary of State of the State of Delaware. ARTICLE III Certificate of Incorporation and By-Laws of the Surviving Corporation 3.1. The Certificate of Incorporation. The Certificate of Incorporation of the Company (the "Certificate") in effect at the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation, until duly amended in accordance with the terms thereof, and the DGCL, except that Article Fourth of the Company's Certificate shall be amended to read in its entirety as follows: -4- 9 "The aggregate number of shares which the Corporation shall have the authority to issue is 1,000 shares of Common Stock, par value $0.01 per share." 3.2. The By-Laws. The By-Laws of Merger Sub in effect at the Effective Time shall be the By-Laws of the Surviving Corporation, until duly amended in accordance with the terms thereof and the DGCL. ARTICLE IV Officers and Directors of the Surviving Corporation 4.1. Officers and Directors. The directors of Merger Sub and the officers of the Company at the Effective Time shall, from and after the Effective Time, be the directors and officers, respectively, of the Surviving Corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Certificate of Incorporation and By-Laws. 4.2. Actions by Directors. For purposes of Article IX and Sections 10.3 and 10.4, no action taken by the Board of Directors of the Company after consummation of the Offer and prior to the Merger shall be effective unless such action is approved by the affirmative vote of at least a majority of the directors of the Company which are not officers of Parent or designees, stockholders or affiliates of Parent. 4.3. Boards of Directors; Committees. (a) If requested by Parent, the Company will, subject to compliance with applicable law, immediately following the acceptance for payment of, and payment by Merger Sub for, more than 50% of the outstanding Shares (on a fully-diluted basis) pursuant to the Offer, take all actions necessary to cause persons designated by Parent to become directors of the Company so that the total number of such persons (after all such actions have been taken) equals at least that number of directors, rounded up to the next whole number, which represents the product of (x) the total number of directors on the Board of Directors multiplied by (y) the percentage that the number of Shares so accepted for payment and paid -5- 10 for plus any Shares beneficially owned by Parent or its affiliates on the date hereof bears to the number of Shares outstanding at the time of such payment. In furtherance thereof, if requested by Parent, the Company will increase the size of the Board, or use its best efforts to secure the resignation of directors, or both, as is necessary to permit Parent's designees to be elected to the Company's Board of Directors; provided, however, that prior to the Effective Time, the Company's Board of Directors shall always have at least one member who is neither an officer of Parent nor a designee, shareholder or affiliate of Parent or Parent's affiliates. At such time, the Company, if so requested, will use its best efforts to cause persons designated by Parent to constitute the same percentage of each committee of such board, each board of directors of each subsidiary of the Company and each committee of each such board (in each case to the extent of the Company's ability to elect such persons). The Company's obligations to appoint designees to the Board of Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 thereunder. The Company shall promptly take all actions required pursuant to such Section and Rule in order to fulfill its obligations under this Section 4.3 and shall provide for inclusion in the Schedule 14D-9 being mailed to shareholders contemporaneously with the commencement of the Offer such information with respect to Parent and its designees as is required under such Section and Rule in order to fulfill its obligations under this Section 4.3 (provided that Parent shall have provided to the Company on a timely basis all information required to be included under such Section and Rule with respect to the designees of Parent). ARTICLE V Conversion or Cancellation of Shares in the Merger 5.1. Conversion or Cancellation of Shares. The manner of converting or canceling shares of the Company and Merger Sub in the Merger shall be as follows: (a) At the Effective Time, each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by Parent, Merger Sub or any other subsidiary of Parent (collectively, the "Parent Companies")) or Shares which are held by stockholders ("Dissenting Stockholders") exercising appraisal rights pursuant to -6- 11 Section 262 of the DGCL) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive, without interest, an amount in cash (the "Merger Consideration") equal to $4.00 or such greater amount which may be paid pursuant to the Offer. All such Shares, by virtue of the Merger and without any action on the part of the holders thereof, shall no longer be outstanding and shall be canceled and retired and shall cease to exist, and each holder of a certificate representing any such Shares shall thereafter cease to have any rights with respect to such Shares, except the right to receive the Merger Consideration for such Shares upon the surrender of such certificate in accordance with Section 5.2 or the right, if any, to receive payment from the Surviving Corporation of the "fair value" of such Shares as determined in accordance with Section 262 of the DGCL. (b) At the Effective Time, each Share issued and outstanding at the Effective Time and owned by any of the Parent Companies, and each Share issued and held in the Company's treasury at the Effective Time, shall, by virtue of the Merger and without any action on the part of the holder thereof, cease to be outstanding, shall be canceled and retired without payment of any consideration therefor and shall cease to exist. (c) At the Effective Time, each share of Common Stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of Merger Sub or the holders of such shares, be converted into one hundred (100) shares of the Surviving Corporation, provided, however that if Parent has made the election provided for in Section 2.1(b) hereof, each such share of Merger Sub shall remain outstanding and each certificate therefor shall continue to evidence one share of Common Stock of the Surviving Corporation. 5.2. Payment for Shares. Parent shall make available or cause to be made available as and when needed to the paying agent appointed by Parent, which paying agent shall be reasonably acceptable to the Company (the "Paying Agent"), amounts sufficient in the aggregate to provide all funds necessary for the Paying Agent to make payments pursuant to Section 5.1(a) hereof to holders of Shares issued and outstanding immediately prior to the Effective Time. Promptly after the Effective Time, the Surviving -7- 12 Corporation shall instruct the Paying Agent to mail to each person who was, at the Effective Time, a holder of record (other than any of the Parent Companies) of issued and outstanding Shares a form of letter of transmittal and instructions for use in effecting the surrender of the certificates which, immediately prior to the Effective Time, represented any of such Shares in exchange for payment therefor. Upon surrender to the Paying Agent of such a certificate, together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, the Surviving Corporation shall promptly cause to be paid to the persons entitled thereto a check in the amount to which such persons are entitled, after giving effect to any required tax withholdings. No interest will be paid or will accrue on the amount payable upon the surrender of any such certificate. If payment is to be made to a person other than the registered holder of the certificate surrendered, it shall be a condition of such payment that the certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that 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 the certificate surrendered or establish to the satisfaction of the Surviving Corporation or the Paying Agent that such tax has been paid or is not applicable. 180 days following the Effective Time, the Surviving Corporation shall be entitled to cause the Paying Agent to deliver to it any funds (including any interest received with respect thereto) made available to the Paying Agent which have not been disbursed to holders of certificates formerly representing Shares outstanding on the Effective Time, and thereafter such holders shall be entitled to look to the Surviving Corporation only as general creditors thereof with respect to the cash payable upon due surrender of their certificates. Notwithstanding the foregoing, neither the Paying Agent nor any party hereto shall be liable to any holder of certificates formerly representing Shares for any amount paid to a public official pursuant to any applicable abandoned property, escheat or similar law. The Surviving Corporation shall pay all charges and expenses of the Paying Agent in connection with the exchange of cash for Shares and Parent shall reimburse the Surviving Corporation for such charges and expenses. 5.3. Appraisal Rights. If any Dissenting Stockholder shall be entitled to be paid the "fair value" of -8- 13 his or her Shares, as provided in Section 262 of the DGCL, the Company shall give Parent notice thereof and Parent shall have the right to participate in all negotiations and proceedings with respect to any such demands. Neither the Company nor the Surviving Corporation shall, except with the prior written consent of Parent, voluntarily make any payment with respect to, or settle or offer to settle, any such demand for payment. If any Dissenting Stockholder shall fail to perfect or shall have effectively withdrawn or lost the right to dissent, the Shares held by such Dissenting Stockholder shall thereupon be treated as though such Shares had been converted into the Merger Consideration pursuant to Section 5.1. 5.4. Transfer of Shares After the Effective Time. No transfers of Shares shall be made on the stock transfer books of the Surviving Corporation at or after the Effective Time. ARTICLE VI Representations and Warranties 6.1. Representations and Warranties of the Company. Except as set forth in the corresponding section of the Disclosure Letter, dated the date hereof, delivered by the Company to Parent prior to the execution hereof (the "Disclosure Letter"), the Company hereby represents and warrants to Parent and Merger Sub that: (a) Corporate Organization and Qualification. Each of the Company and its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation and is in good standing as a foreign corporation in each jurisdiction where the properties owned, leased or operated, or the business conducted, by it require such qualification, except for such failure to so qualify or be in such good standing, which, when taken together with all other such failures, is not reasonably likely to have a Material Adverse Effect. Each of the Company and its subsidiaries has the corporate requisite power and authority to carry on its respective businesses as they are now being conducted. The Company has made available to Parent a complete and correct copy of the Company's Certificate and By-Laws and the comparable governing instruments of each of its -9- 14 subsidiaries, each as amended to date. The Company's Certificate and By-Laws and the comparable governing instruments of each of its subsidiaries so delivered are in full force and effect. (b) Authorized Capital. As of the date hereof, the authorized capital stock of the Company consists of 20,000,000 Shares, of which 13,742,639 Shares were outstanding and 300,000 shares of Preferred Stock, par value $1.00 per share, none of which were outstanding. All of the outstanding Shares have been duly authorized and are validly issued, fully paid and nonassessable. The Company has no Shares subject to issuance, except that, as of the date hereof, there were 2,212,473 Shares subject to issuance pursuant to the Company 1997 Non-Qualified Stock Option Plan, the PureSpeech, Inc. 1997 Stock Option Plan, the Voice Processing Corporation 1996 Stock Plan, the Voice Processing Corporation 1989 Stock Plan, the VCS Industries, Inc. 1986 Incentive Stock Plan and the Company 1992 Stock Option Plan (together, the "Company Option Plans") and 977,075 Shares subject to issuance pursuant to outstanding warrants to purchase Shares (the "Warrants"). In addition, as of the date hereof, $30,988.58 has been contributed by employees for the purchase of Shares under the Company's 1998 Employee Stock Purchase Plan (the "Company Stock Purchase Plan" and, together with the Company Option Plans, the "Company Stock Plans"). The Company has provided Parent with copies of all certificates evidencing Warrants that as of the date hereof have been issued by the Company or its predecessors (except as set forth in Section 6.1(b)(iii) of the Disclosure Letter), all agreements entered into by the Company or its predecessors with respect to any outstanding Warrant and copies of all forms of certificates evidencing Warrants that the Company may be required to issue under the terms of any outstanding Warrants. Section 6.1(b)(i) of the Disclosure Letter sets forth a list of all outstanding Warrants, together with the names of the holders, exercise prices and expiration dates of all such outstanding Warrants. Section 6.1(b)(ii) of the Disclosure Letter sets forth a list of all outstanding options to purchase Shares under the Company Option Plans, together with the names of the holders, exercise prices and expiration dates of all such outstanding options. Each of the outstanding shares of capital stock of each of the Company's subsidiaries is duly authorized, validly issued, fully paid and nonassessable and owned, either directly or indirectly, by the Company free and clear of all liens, pledges, security interests, claims or other -10- 15 encumbrances. Except as set forth above, there are no shares of capital stock of the Company authorized, issued or outstanding and except as set forth above, there are no preemptive rights or any outstanding subscriptions, options, warrants, rights, convertible securities of the Company or any of its subsidiaries or other agreements or commitments of any character relating to the issued or unissued capital stock or other securities of the Company or any of its subsidiaries. After the Effective Time the Surviving Corporation will have no obligation to issue, transfer or sell any Shares or common stock of the Surviving Corporation pursuant to any Compensation and Benefit Plan (as defined in Section 6.1(h)(i)). (c) Corporate Authority. Subject only to approval of this Agreement by the holders of a majority of the outstanding Shares, the Company has the requisite corporate power and authority and has taken all corporate action necessary in order to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement is a valid and binding agreement of the Company enforceable against the Company in accordance with its terms. The Board of Directors of the Company has unanimously approved this Agreement, the Offer and the Merger. (d) Governmental Filings; No Violations. (i) Other than those notices, reports, filings, consents, registrations, approvals, permits or authorizations provided for in Section 2.3, or as required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the Exchange Act and by the European Commission (collectively, the "Regulatory Filings"), no notices, reports or other filings are required to be made by the Company with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by the Company from, any governmental or regulatory authority, agency, commission or other entity, domestic or foreign ("Governmental Entity"), in connection with the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, except for those the failure of which to be made or obtained would not, individually or in the aggregate, be likely to have a Material Adverse Effect or to prevent the consummation of, or materially impair the Company's ability to consummate, the transactions contemplated hereby. -11- 16 (ii) Except as set forth in the Disclosure Letter, the execution and delivery of this Agreement by the Company does not, and the consummation by the Company of the transactions contemplated by this Agreement will not, constitute or result in (i) a breach or violation of, or a default under, the Certificate or By-Laws of the Company or the comparable governing instruments of any of its subsidiaries, (ii) a breach or violation of, a default under or the triggering of any payment or other material obligations pursuant to, any of the Company's existing Compensation and Benefit Plans (as defined herein) or any grant or award made under any of the foregoing, (iii) a breach or violation of, or a default under, the acceleration of or the creation of a lien, pledge, security interest or other encumbrance on assets (with or without the giving of notice or the lapse of time) pursuant to, any provision of any agreement, lease, contract, note, mortgage, indenture, arrangement or other obligation ("Contracts") of the Company or any of its subsidiaries or any law, rule, ordinance or regulation or judgment, decree, order, award or governmental or non-governmental permit or license to which the Company or any of its subsidiaries is subject or (iv) any change in the rights or obligations of any party under any of the Contracts, except, in the case of clause (iii) or (iv) above, for any such breach, violation, default, triggering, acceleration or change that, individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect or to prevent the consummation of, or materially impair the Company's ability to consummate, the transactions contemplated hereby. Schedule 6.1(d)(ii) of the Disclosure Letter sets forth a list of (x) all material consents required under any Contracts to be obtained prior to consummation of the transactions contemplated by this Agreement (whether or not subject to the exception set forth with respect to clauses (iii) and (iv) above) and (y) any Contracts containing any covenants of the Company or any of its subsidiaries not to compete in any line of business or with any person. The Company will use its best efforts to obtain the consents referred to in the Disclosure Letter. (e) Company Reports; Financial Statements. The Company has delivered to Parent each registration statement, schedule, report, proxy statement or information statement prepared by it since December 31, 1998 (the "Audit Date"), including, without limitation, the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998 in the -12- 17 form (including exhibits and any amendments thereto) filed with the Securities and Exchange Commission (the "SEC") (the "Company Report"). As of its date, the Company Report did not contain, and no Company Report filed with the SEC subsequent to the date hereof will contain, any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. Each of the consolidated balance sheets included in or incorporated by reference into the Company Report (including the related notes and schedules) fairly presents the consolidated financial position of the Company and its subsidiaries as of its date and each of the consolidated statements of income and of changes in financial position included in or incorporated by reference into the Company Report (including any related notes and schedules) fairly presents the results of operations, retained earnings and changes in financial position, as the case may be, of the Company and its subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which will not be material in amount or effect), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein. Other than the Company Report, the Company has not filed any other definitive reports or statements with the SEC since December 31, 1998. (f) Absence of Certain Changes. Except as set forth in the Disclosure Letter, since December 31, 1998, the Company and its subsidiaries have conducted their respective businesses only in, and have not engaged in any material transaction other than according to, the ordinary and usual course of such businesses and there has not been (i) any change or development in the business of the Company and its subsidiaries that, individually or in the aggregate, is reasonably likely to have, a Material Adverse Effect; (ii) any declaration, setting aside or payment of any dividend or other distribution with respect to the capital stock of the Company; or (iii) any change by the Company in accounting principles, practices or methods. Section 6.1(f) of the Disclosure Letter sets forth, since December 31, 1998, all increases in the compensation payable or which could become payable by the Company and its subsidiaries to their directors, officers or employees pursuant to any contract, arrangement or otherwise, all amendments to any -13- 18 Compensation and Benefit Plans and all claims for reimbursement or compensation from the Company made or, to the knowledge of the Company, threatened to be made by any director, officer or employee of the Company or any other amounts payable to any director, officer or employee of the Company outside the ordinary course of business. (g) Litigation and Liabilities. Except as disclosed in the Company Report filed with the SEC prior to the date hereof or the Disclosure Letter, there are no (i) civil, criminal or administrative actions, suits, claims, hearings, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company or any of its subsidiaries or (ii) obligations or liabilities, whether or not accrued, contingent or otherwise, including, without limitation, those relating to matters involving any Environmental Law (as hereinafter defined), in each of cases (i) and (ii), other than those that, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect. (h) Employee Benefits. (i) All bonus, deferred compensation, pension, retirement, profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase, restricted stock and stock option plans, all employment, termination, severance, welfare, fringe benefit, compensation, medical or health contract or other plan, contract, policy or arrangement which covers employees or former employees (the "Employees") and current and former directors of the Company or its subsidiaries or their respective predecessors (the "Compensation and Benefit Plans"), including, but not limited to, "employee benefit plans" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), are listed in Schedule 6.1(h)(i) of the Disclosure Letter. True and complete copies of all Compensation and Benefit Plans and such other benefit plans, contracts or arrangements, including, but not limited to, any material trust instruments and/or insurance contracts, if any, forming a part of any such plans and agreements, and all amendments thereto have been made available to Parent. (ii) All Compensation and Benefit Plans are in material compliance with applicable law and all Compensation and Benefit Plans which are employee benefit plans, other -14- 19 than "multiemployer plans" within the meaning of Sections 3(37) of ERISA, covering Employees (the "Plans"), to the extent subject to ERISA, are in substantial compliance with ERISA. Each Plan which is an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA ("Pension Plan") and which is intended to be qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), has received a favorable determination letter from the Internal Revenue Service, and the Company has no knowledge of any circumstances likely to result in revocation of any such favorable determination letter. There is no pending or, to the knowledge of the Company, threatened material litigation relating to the Compensation and Benefit Plans. Neither the Company nor any of its subsidiaries has engaged in a transaction with respect to any Plan that, assuming the taxable period of such transaction expired as of the date hereof, could subject the Company or any of its subsidiaries to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA in an amount which would be material. (iii) No material liability under Subtitle C or D of Title IV of ERISA has been or is expected to be incurred by the Company or any of its subsidiaries with respect to any ongoing, frozen or terminated "single-employer plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them, or the single-employer plan of any entity which is considered one employer with the Company under Section 4001 of ERISA or Section 414 of the Code (an "ERISA Affiliate"). None of the Company, its subsidiaries or any ERISA Affiliate has contributed to a "multiemployer plan", within the meaning of Section 3(37) of ERISA, at any time on or after September 26, 1980. No notice of a "reportable event," within the meaning of Section 4043 of ERISA for which the 30-day reporting requirement has not been waived, has been required to be filed for any Pension Plan or by any ERISA Affiliate within the 12-month period ending on the date hereof. (iv) All material contributions required to be made under the terms of any Plan have been timely made. Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate has an "accumulated funding deficiency" (whether or not waived) within the meaning of Section 412 of the Code or Section 302 of ERISA. Neither the Company nor -15- 20 any of its subsidiaries has provided, or is required to provide, security to any Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code. (v) There has been no material adverse change in the financial condition of any single-employer plan since the last day of the most recent Plan year. (vi) Neither the Company nor any of its subsidiaries have any obligations for retiree health and life benefits under any Compensation and Benefit Plan. There are no restrictions on the rights of the Company or any of its subsidiaries to amend or terminate any such Plan without incurring any material liability thereunder. (vii) All Compensation and Benefit Plans covering foreign employees comply with applicable local law, except for any non-compliance which would not be material to the Company. Except as disclosed in the Company Report filed with the SEC prior to the date hereof, neither the Company nor any of its subsidiaries has any material unfunded liabilities with respect to any Pension Plan which covers foreign Employees. (viii) Except as set forth in Section 6.1(h)(viii) of the Disclosure Letter, the consummation of the transactions contemplated by this Agreement will not (x) entitle any employees of the Company or any of its subsidiaries to severance pay or (y) accelerate the time of payment or vesting or trigger any payment of compensation or benefits under, increase the amount payable or trigger any other material obligation pursuant to, any of the Compensation and Benefit Plans. (ix) No payment (or acceleration of benefits) required to be made to any Employee as a result of the transactions contemplated by this Agreement under any Compensation and Benefit Plan or otherwise will, if made, constitute an "excess parachute payment" within the meaning of Section 280G of the Code. Notwithstanding the foregoing, the Company is not a party to any Contract pursuant to which it could be liable to indemnify any "disqualified individual" as defined in Section 280G(c) of the Code for any excise tax under Section 4999 of the Code with respect to any "excess parachute payment." -16- 21 (i) Brokers and Finders. Neither the Company nor any of its officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders, fees in connection with the transactions contemplated herein, except as set forth in Section 6.1(i) of the Disclosure Letter. (j) Takeover Statutes. No "fair price", "moratorium", "control share acquisition" or other similar antitakeover statute or regulation (including, without limitation, the DGCL) (each a "Takeover Statute") is applicable to the Offer, the Merger or the transactions contemplated thereby or hereby. (k) Environmental Matters. Except as disclosed in the Company Report filed with the SEC prior to the date hereof or the Disclosure Letter and except for such matters that, individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect (i) the Company and its subsidiaries have complied with all applicable Environmental Laws; (ii) the properties presently or formerly owned or operated by the Company or its subsidiaries (including, without limitation, soil, groundwater or surface water on, under or adjacent to the properties, and buildings thereon) (the "Properties") do not contain, and have not contained, any Hazardous Substance (as hereinafter defined) other than as permitted under applicable Environmental Law, do not contain, and have not contained, any underground storage tanks, do not have any asbestos present and have not been used as a sanitary landfill or hazardous waste disposal site; (iii) neither the Company nor any of its subsidiaries has within the last five years received any notice, demand letter or request for information from any Governmental Entity or any third party that the Company may be in violation of, or liable under, any Environmental Law and none of the Company, its subsidiaries or the Properties are subject to any court order, administrative order or decree arising under any Environmental Law and (iv) no Hazardous Substance has been disposed of, transferred, released or transported from any of the Properties during the time such Property was owned or operated by the Company or one of its subsidiaries, other than as permitted under and as would not reasonably be expected to result in any liability under any applicable Environmental Law. -17- 22 "Environmental Law" means any applicable Federal, state, foreign or local law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, common law, legal doctrine, order, judgment, decree, injunction, requirement or agreement with any governmental entity, relating to the protection, preservation or restoration of the environment, (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety, or the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as amended and as now in effect. "Hazardous Substance" means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any Environmental Law, whether by type or by quantity, including any substance containing any such substance as a component. (l) Intellectual Property. (i) The Company and/or each of its subsidiaries owns, or is licensed or otherwise possesses legally enforceable rights to use, all material patents, copyrights, trademarks, trade names, service marks, and any applications therefor, trade secrets, technology, know-how, computer software programs or applications, and tangible or intangible proprietary information or materials that are used in the business of the Company and its subsidiaries as currently conducted, and all material patents, trade secrets, proprietary information, copyrights, trademarks, trade names and service marks held by the Company and/or its subsidiaries are valid and subsisting. (ii) Except as disclosed in Company Report filed prior to the date hereof: (A) neither the Company nor any of its subsidiaries is, nor will the Company or any of its subsidiaries be as a result of the execution and delivery of this Agreement or the performance of the Company's obligations hereunder, in violation of any licenses, sublicenses or other agreements as to which the Company or any of its subsidiaries is a party or pursuant to which the Company or any of its -18- 23 subsidiaries is authorized to use any third-party patents, trademarks, tradenames, service marks, copyrights, trade secrets, technology, know-how or computer software (collectively, "Third-Party Intellectual Property Rights"), in each case which violation would, individually or in the aggregate, reasonably be likely to have a Material Adverse Effect; (B) no litigation or material claims with respect to (I) the patents, copyrights, trademarks and service marks, trade names, and any applications therefor, trade secrets, know-how, technology or computer software owned by the Company or any of its subsidiaries (collectively, the "Company Intellectual Property Rights"); or (II) Third-Party Intellectual Property Rights are currently pending or, to the knowledge of the Company, are threatened by any person; (C) there is no pending litigation or material claims or threats alleging that the activities or conduct of business of the Company or any of its subsidiaries infringes upon, violates, misappropriates or constitutes unauthorized use of Intellectual Property rights of any third party; and (D) to the knowledge of the Company, there is no material unauthorized use, infringement or misappropriation of any of the Company Intellectual Property Rights by any third party, including any employee of the Company or any of its subsidiaries. (iii) Each of the Company and its subsidiaries has taken all steps that are reasonably required to protect the rights of the Company and its subsidiaries in its confidential information and trade secrets. Without limiting the foregoing, the Company and each of its subsidiaries has and enforces a policy of requiring (A) each of its employees and consultants to execute agreements providing that each employee or consultant (I) will keep all proprietary information of the Company and/or the applicable subsidiaries confidential and (II) thereby assigns to the Company and/or the applicable subsidiary all rights that such employee or consultant otherwise would have in Company Intellectual Property Rights developed by such employee or consultant while in the employ of the Company and/or the applicable subsidiary and (B) requiring each of its contractors to execute agreements providing that each -19- 24 contractor will keep all proprietary information of the Company and/or the applicable subsidiaries confidential. Complete and current copies of each such agreement have been made available to Parent. Except as disclosed in Section 6.1(l)(iii) of the Disclosure Letter, all former employees whose employment terminated within the past two years, consultants and contractors of the Company and each subsidiary have executed similar confidentiality and assignment agreements. Except under confidentiality obligations, there has been no material disclosure of any Company or subsidiary confidential information or trade secrets. (iv) Section 6.1(l)(iv) of the Disclosure Letter sets forth a list of all contract or license agreements granting any right to use or practice any Intellectual Property Rights, to which the Company or any of its subsidiaries is a party as either licensee or licensor, involving payments to or by the Company or its subsidiaries in excess of $50,000. (m) Tax Matters. (i) The Company and its predecessors have timely filed or caused to be filed all federal, state, local and foreign tax returns and tax reports required to be filed by, or with respect to, the Company and its subsidiaries and their predecessors on or prior to the date hereof, except to the extent that any failure to so file would not, individually or in the aggregate, reasonably be likely to adversely affect the Company in any material manner. Such returns and reports are complete and accurate in all material respects. The Company and its subsidiaries and their predecessors have timely paid (A) all taxes shown as due on such tax returns and (B) all taxes for which no return is required to be filed, except to the extent that any failure to so pay would not, individually or in the aggregate, reasonably be likely to adversely affect the Company in any material manner. No material issues have been raised in writing by the relevant taxing authority in connection with any examination of the tax returns and reports referred to in the first sentence of this clause (i). (ii) The Company will timely file or cause to be filed all federal, state, local and foreign tax returns and tax reports required to be filed by, or with respect to, the -20- 25 Company and its subsidiaries between the date hereof and the Effective Time, except to the extent that any failure to so file would not, individually or in the aggregate, reasonably be likely to adversely affect the Company in any material manner. Such returns and reports will be complete and accurate in all material respects. (iii) No waivers of statutes of limitations have been given or requested with respect to any material taxes of the Company or its subsidiaries. (iv) The Company is not, nor was it at any time during the five-year period ending on the date on which the Effective Time occurs, a "United States real property holding corporation" within the meaning of Section 897(C) of the Code. (n) Insurance. All material fire and casualty, general liability, business interruption, product liability, and sprinkler and water damage insurance policies maintained by the Company or any of its subsidiaries are with reputable insurance carriers, provide adequate coverage for risks incident to the business of the Company and its subsidiaries and their respective properties and assets in character and amount generally comparable with those carried by persons engaged in similar businesses and subject to generally comparable perils or hazards. All such policies are in full force and effect and no notice of cancellation, termination or default has been received with respect to any such policy. All premiums due and payable on such policies covering all periods up to and including the Closing Date have been paid in full or accrued. (o) Product Warranties. (i) There are no material warranties, express or implied, written or oral, with respect to the products of the Company or any of its subsidiaries ("Company Products"), except as set forth in Section 6.1(o)(i) of the Disclosure Letter; (ii) as of the date hereof there are no pending or threatened material claims with respect to any such warranty; and (iii) there are no material pending, or, to the knowledge of the Company as of the date hereof, threatened, product liability claims against or involving the Company or any of its subsidiaries or any Company Product and no such claims have been settled or adjudicated since December 31, 1996. -21- 26 (p) Year 2000. The Company has taken all actions necessary and adequate to ensure that all computer software and data processing devices (i) used by the Company and/or any of its subsidiaries in its management information systems, or (ii) utilized in or by any Company Products, including any Company Products sold and/or installed prior to the date hereof, are present or will in 1999 become "Year 2000 Compliant" and the Company will not incur costs associated with ensuring such Year 2000 Compliance in an amount that would reasonably be likely, individually or in the aggregate, to have a Material Adverse Effect. "Year 2000 Compliant" means that the product or software accurately processes and stores date/time data (including, but not limited to calculating, comparing, displaying, recording and sequencing operations involving date/time data) during, from and into and between the twentieth and twenty-first centuries, and the years 1999 and 2000, including correct processing of leap year data. (q) Government Contracts. Except as set forth in Section 6.1(q) of the Disclosure Letter, the Company does not have any agreements, contracts or arrangements with any Governmental Entity. 6.2. Representations and Warranties of Parent and Merger Sub. Parent and Merger Sub represent and warrant to the Company that: (a) Corporate Organization and Qualification. Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation and is in good standing as a foreign corporation in each jurisdiction where the properties owned, leased or operated, or the business conducted, by it require such qualification except for such failure to so qualify or to be in such good standing, which, when taken together with all other such failures, is not reasonably likely to have a material adverse effect on the financial condition, properties, business or results of operations of Parent and its subsidiaries, taken as a whole, or on the ability of Parent on Merger Sub to perform their obligations under this Agreement. (b) Corporate Authority. Parent and Merger Sub each has the requisite corporate power and authority and has taken all corporate action necessary in order to execute and -22- 27 deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement is a valid and binding agreement of Parent and Merger Sub enforceable against Parent and Merger Sub in accordance with its terms. (c) Governmental Filings; No Violations. (i) Other than the Regulatory Filings, no notices, reports or other filings are required to be made by Parent and Merger Sub with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by Parent and Merger Sub from, any Governmental Entity in connection with the execution and delivery of this Agreement by Parent and Merger Sub and the consummation of the transactions contemplated hereby by Parent and Merger Sub, except for those the failure of which to be made or obtained would not, individually or in the aggregate, reasonably be likely to prevent the consummation of, or materially impair the ability of Parent or Merger Sub to consummate the transactions contemplated by this Agreement. (ii) The execution and delivery of this Agreement by Parent and Merger Sub do not, and the consummation of the transactions contemplated hereby by Parent and Merger Sub will not, constitute or result in (i) a breach or violation of, or a default under, the Certificate of Incorporation or By-Laws of Parent or Merger Sub or (ii) a breach or violation of, a default under, the acceleration of or the creation of a lien, pledge, security interest or other encumbrance on assets (with or without the giving of notice or the lapse of time) pursuant to, any provision of any Contract of Parent or Merger Sub or any law, ordinance, rule or regulation or judgment, decree, order, award or governmental or non-governmental permit or license to which Parent or Merger Sub is subject, except, in the case of clause (ii) above, for any such breach, violation, default or acceleration that, individually or in the aggregate, is not reasonably likely to prevent the consummation of, or materially impair the ability of Parent or Merger Sub to consummate, the transactions contemplated hereby. (d) Funds. Parent has or will have the funds necessary to consummate the Offer and the Merger. -23- 28 ARTICLE VII Covenants 7.1. Interim Operations of the Company. The Company covenants and agrees that, prior to the Effective Time (unless Parent shall otherwise agree in writing and except as otherwise contemplated by this Agreement): (a) the business of the Company and its subsidiaries shall be conducted only in the ordinary and usual course and, to the extent consistent therewith, each of the Company and its subsidiaries shall use its best efforts to preserve its business organization intact and maintain its existing relations with customers, suppliers, employees and business associates; (b) the Company shall not (i) sell or pledge or agree to sell or pledge any stock owned by it in any of its subsidiaries; (ii) amend its Certificate or By-Laws; (iii) split, combine or reclassify the outstanding Shares; or (iv) declare, set aside or pay any dividend payable in cash, stock or property with respect to the Shares; (c) neither the Company nor any of its subsidiaries shall (i) issue, sell, pledge, dispose of or encumber any additional shares of, or securities convertible or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of its capital stock of any class of the Company or its subsidiaries or any other property or assets other than, in the case of the Company, Shares issuable pursuant to options outstanding on the date hereof under the Company Option Plans, shares issuable upon exercise of the Warrants or shares issuable pursuant to the terms of the Company Stock Purchase Plan; (ii) transfer, lease, license, guarantee, sell, mortgage, pledge, dispose of or encumber any assets or incur or modify any indebtedness or other liability other than in the ordinary and usual course of business; (iii) acquire directly or indirectly by redemption or otherwise any shares of the capital stock of the Company; or (iv) authorize capital expenditures individually or in the aggregate in excess of $200,000 or make any acquisition of, or investment in, assets or stock of any other person or entity; -24- 29 (d) other than (i) the employment agreements entered into in connection with this Agreement, (ii) as required by law, (iii) as required under a plan existing as of the date hereof, (iv) as set forth in Section 7.1(d) of the Disclosure Letter or (v) as otherwise provided herein, neither the Company nor any of its subsidiaries shall (A) grant any severance or termination pay to, or enter into any employment or severance agreement with any director, officer or other employee of the Company or such subsidiaries; or (B) establish, adopt, enter into, make any new grants or awards (or accelerate the vesting or increase the value of any benefit) under or amend, any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, employee stock ownership, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any directors, officers or employees; (e) neither the Company nor any of its subsidiaries shall settle or compromise any material claims or litigation or, except in the ordinary and usual course of business, modify, amend or terminate any of its material Contracts or waive, release or assign any material rights or claims; (f) neither the Company nor any subsidiary shall make any tax election or permit any insurance policy naming it as a beneficiary or a loss payable payee to be canceled or terminated without notice to Parent, except in the ordinary and usual course of business; (g) neither the Company nor any of its subsidiaries shall (i) terminate the employment of any Employee who is covered by a change in control, employment, termination or similar agreement, except for Cause (as defined in such agreements) or (ii) permit circumstances to exist that would provide such Employee with Good Reason (as defined in such agreements) to terminate employment; (h) neither the Company nor any of its subsidiaries shall hire any new employees except in the ordinary and usual course of business; -25- 30 (i) the Company shall not permit any person not participating in the Company Stock Purchase Plan as of the date hereof to participate in such plan or permit any present participant in the Company Stock Purchase Plan to increase his or her percentage contribution under such plan; and (j) neither the Company nor any of its subsidiaries will authorize or enter into an agreement to do any of the foregoing. 7.2. Acquisition Proposals. The Company agrees that neither the Company nor any of its subsidiaries nor any of the respective officers and directors of the Company or its subsidiaries shall, and the Company shall direct and use its best efforts to cause its employees, agents and representatives (including, without limitation, any investment banker, attorney or accountant retained by the Company or any of its subsidiaries) not to, directly or indirectly initiate, solicit, encourage or otherwise facilitate (including by providing any confidential information or data to or having any negotiations or discussions with any person (other than Parent or its affiliates) making or inquiring with respect to making an Acquisition Proposal), any inquiries or the making of any proposal or offer (including, without limitation, any proposal or offer to stockholders of the Company) with respect to a merger, reorganization, share exchange, consolidation or similar transaction involving the Company, or any purchase of more than 15% (on a fair market value basis) of the assets of the Company and its subsidiaries on a consolidated basis (including any such purchase of assets effected indirectly through the purchase of such subsidiaries), or any purchase of, or tender offer for, more than 15% of any equity securities of the Company (any such proposal or offer being hereinafter referred to as an "Acquisition Proposal"), except that the Company shall have the right, if, and only to the extent that, the Company's Board of Directors concludes in good faith after consultation with outside legal counsel that such actions are required to comply with the fiduciary duties of the Company's Board of Directors under applicable law in response to a bona fide, written Acquisition Proposal not solicited on or after the date hereof, to engage in negotiations concerning, provide confidential information or data to, or have discussions with, any person relating to an Acquisition Proposal. The Company will immediately cease -26- 31 and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. The Company will take the necessary steps to inform the individuals or entities referred to in the first sentence hereof of the obligations undertaken in this Section 7.2. The Company will notify Parent immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with the Company or any of its subsidiaries. The Company also will promptly request each person which has heretofore executed a confidentiality agreement in connection with its consideration of acquiring the Company to return all confidential information heretofore furnished to such person by or on behalf of the Company. 7.3. Meetings of the Company's Stockholders. If adoption of this Agreement by the Company's stockholders is required by law following consummation of the Offer, the Company will take, consistent with applicable law and its Certificate and By-Laws, all action necessary to convene a meeting of holders of Shares as promptly as practicable to consider and vote upon the adoption of this Agreement. Subject to fiduciary requirements of applicable law, the Board of Directors of the Company shall recommend such adoption and the Company shall take all lawful action to solicit such adoption. At any such meeting of the Company, all of the Shares then owned by the Parent Companies will be voted in favor of adoption of this Agreement. The Company's proxy or information statement with respect to such meeting of shareholders (the "Proxy Statement"), at the date thereof and at the date of such meeting, will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing shall not apply to the extent that any such untrue statement of a material fact or omission to state a material fact was made by the Company in reliance upon and in conformity with written information concerning the Parent Companies furnished to the Company by Parent specifically for use in the Proxy Statement. The Proxy Statement shall not be filed, and no amendment or supplement to the Proxy Statement will be made by the Company, without consultation with Parent and its counsel. -27- 32 7.4. Filings; Other Action. Subject to the terms and conditions herein provided, the Company and Parent shall: (a) promptly make their respective filings and thereafter make any other required submissions under the HSR Act and other Regulatory Filings with respect to the Offer and the Merger; and (b) use their respective reasonable best efforts to promptly take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or appropriate under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as soon as practicable; provided, however, that neither Parent nor Merger Sub will be required to divest or hold separate any of their, the Company's or any of their respective affiliates' businesses or assets. 7.5. Access. Upon reasonable notice, the Company shall (and shall cause each of its subsidiaries to) afford Parent's officers, employees, counsel, accountants and other authorized representatives ("Representatives") access, during normal business hours throughout the period prior to the Effective Time, to its properties, books, Contracts and records and, during such period, the Company shall (and shall cause each of its subsidiaries to) furnish promptly to Parent all information concerning its business, properties and personnel as Parent or its Representatives may reasonably request, provided that no investigation pursuant to this Section 7.5 shall affect or be deemed to modify any representation or warranty made by the Company and provided, further, that the foregoing shall not require the Company to permit any inspection, or to disclose any information, which in the reasonable judgment of the Company would result in the disclosure of any trade secrets of third parties or violate any obligation of the Company with respect to confidentiality if the Company shall have used reasonable efforts to obtain the consent of such third party to such inspection or disclosure. All information exchanged pursuant to this Section 7.5 shall be subject to the confidentiality agreement, dated October 16, 1998 (the "Confidentiality Agreement"), between the Company and Philips International BV. All requests for information made pursuant to this Section shall be directed to an executive officer of the Company or such person as may be designated by any such officer. Upon any termination of this Agreement, Parent will collect and deliver to the Company all documents obtained by it or any of its Representatives then in their possession and any copies thereof. -28- 33 7.6. Notification of Certain Matters. The Company shall give prompt notice to Parent of: (a) any notice of, or other communication relating to, any material environmental matter, or any material default or event that, with notice or lapse of time or both, would become a material default, received by the Company or any of its subsidiaries subsequent to the date of this Agreement and prior to the Effective Time, under any Contract to which the Company or any of its subsidiaries is a party or is subject; and (b) any change or development that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect. Each of the Company and Parent shall give prompt notice to the other party of any notice or other communication from any third party alleging that the consent of such third party is or may be required in connection with the transactions contemplated by this Agreement. 7.7. Publicity. The initial press release by the parties hereto with request to this Agreement shall be a joint press release and thereafter the Company and Parent shall consult with each other prior to issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and prior to making any filings with any Governmental Entity or with any national securities exchange with respect thereto. 7.8. Benefits. (a) Stock Options. Except as set forth in Section 7.8(a) of the Disclosure Letter, prior to the Effective Time, the Company shall take all such actions as may be necessary such that at the Effective Time each stock option outstanding pursuant to the Company Option Plans ("Option"), whether or not then exercisable, shall be canceled and shall thereafter only entitle the holder thereof, upon surrender thereof, to receive an amount in cash equal to the excess, if any, of the Merger Consideration over the exercise price per Share of such Option multiplied by the number of Shares previously subject to such Option, less any required withholding taxes. Promptly following the execution of this Agreement, the Company shall mail to each person who is a holder of outstanding stock options granted pursuant to the Company Option Plans (regardless of whether such stock options are vested or exercisable at the time) a letter in a form acceptable to Parent which describes the treatment of and payment for such options pursuant to this Section 7.8(a) and provides instructions for use in obtaining payment for such options hereunder. Each such holder shall sign a release by -29- 34 which such holder effectively relinquishes all rights with respect to such holder's outstanding stock options upon payment therefor in accordance with this Section 7.8(a) prior to or as soon as practicable following the Closing. The Company shall take all actions necessary to cause the Company Stock Plans to be terminated effective as of the Effective Time; provided, however, that the Company shall be permitted, immediately prior to the Effective Time, to issue Shares pursuant to the terms of the Company Stock Purchase Plan in respect of amounts contributed as of such date under such plan. (b) Employee Benefits. Parent agrees that, for a period of one year following the Effective Time, it will cause the Company to continue to provide the Employees with benefits under employee benefit plans (other than stock option or other plans involving the potential issuance of securities of the Company or of any of the Parent Companies) which in the aggregate are substantially comparable to the benefits currently provided by the Company to such employees immediately prior to the Effective Time, provided that employees covered by collective bargaining agreements need not be provided such benefits. Notwithstanding the foregoing, nothing contained herein shall in any way limit or restrict the ability of Parent or the Surviving Corporation following the Effective Time to modify, amend or terminate any Compensation and Benefit Plan, in accordance with the terms of such Compensation and Benefit Plan, or to terminate the employment of any employee. 7.9. Indemnification; Directors' and Officers' Insurance. (a) From and after the Effective Time, Parent agrees that it will indemnify and hold harmless each present and former director and officer of the Company, determined as of the Effective Time (the "Indemnified Parties"), against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities (collectively, "Costs") incurred in such person's capacity as a director or officer of the Company in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent that the Company would have been permitted under Delaware law and its Certificate of Incorporation or By-Laws in effect on the date hereof to indemnify such -30- 35 person (and Parent shall also advance expenses as incurred to the fullest extent permitted under applicable law, provided the person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification). (b) Any Indemnified Party wishing to claim indemnification under paragraph (a) of Section 7.9, upon learning of any such claim, action, suit, proceeding or investigation, shall promptly notify Parent thereof. In the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the Effective Time), (i) Parent or the Surviving Corporation shall have the right to assume the defense thereof and Parent shall not be liable to such Indemnified Parties for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof, except that if Parent or the Surviving Corporation elects not to assume such defense or counsel for the Indemnified Parties advises that there are issues which raise conflicts of interest between Parent or the Surviving Corporation and the Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to them, and Parent or the Surviving Corporation shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received; provided, however, that Parent shall be obligated pursuant to this paragraph (b) to pay for only one firm of counsel for all Indemnified Parties in any jurisdiction unless the use of one counsel for such Indemnified Parties would present such counsel with a conflict of interest (ii) the Indemnified Parties will cooperate in the defense of any such matter and (iii) Parent shall not be liable for any settlement effected without its prior written consent; and provided further that Parent shall not have any obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, and such determination shall have become final, that the indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by applicable law. (c) The Surviving Corporation shall maintain the Company's existing officers' and directors' liability insurance ("D&O Insurance") for a period of two years after the Effective Time so long as the annual premium therefor is not in excess of the last annual premium paid prior to the -31- 36 date hereof (the "Current Premium"); provided, however, if the existing D&O Insurance expires, is terminated or canceled during such two year period, the Surviving Corporation will use its best efforts to obtain as much D&O Insurance as can be obtained for the remainder of such period for a premium not in excess (on an annualized basis) of the Current Premium. The Company represents to Parent that the Current Premium is $75,000. Notwithstanding the foregoing, the Surviving Corporation may replace the D&O Insurance with coverage provided by Parent's D&O insurer with respect to events occurring on or prior to the Effective Time so long as the coverage provided by Parent's D&O policy with respect to such events are, in the aggregate, substantially the same as, or more favorable than, the D&O Insurance with respect to such events. 7.10. Takeover Statutes. If any Takeover Statute is or shall become applicable to the transactions contemplated hereby, the Company and the Board of Directors of the Company shall grant such approvals and take such actions as are necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to eliminate the effects of such statute or regulation on the transactions contemplated hereby. ARTICLE VIII Conditions 8.1. Conditions to Obligations of Parent and Merger Sub. The respective obligations of Parent and Merger Sub to consummate the Merger shall be subject to the satisfaction or waiver, where permissible, prior to the Effective Time, of the following conditions: (a) Stockholder Approval. If adoption of this Agreement by the holders of Shares is required by applicable law, the Agreement shall have been duly adopted by the holders of a majority of the Shares, in accordance with applicable law and the Certificate and By-Laws of the Company; (b) Purchase of Shares. Merger Sub (or one of the Parent Companies) shall have purchased Shares pursuant to the Offer; -32- 37 (c) Governmental and Regulatory Consents. The waiting period applicable to the consummation of the Merger under the HSR Act and any applicable waiting periods relating to the Regulatory Filings shall have expired or been terminated and, other than the filings provided for in Section 2.3, all filings required to be made prior to the Effective Time by the Company with, and all consents, approvals and authorizations required to be obtained prior to the Effective Time by the Company from, any Governmental Entity in connection with the execution and delivery of this Agreement by the Company and the consummation of the transactions contemplated hereby by the Company, Parent and Merger Sub shall have been made or obtained (as the case may be); (d) Litigation. No United States or state court or other Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and prohibits consummation of the transactions contemplated by this Agreement or imposes material restrictions on Parent or the Company in connection with consummation of the Merger or with respect to their business operations, either prior to or subsequent to the Merger (collectively, an "Order"); (e) Compliance; Consents. The representations and warranties contained in Section 6.1 shall be true in all material respects as of the Effective Time as though made at and as of the Effective Time, except for changes contemplated by this Agreement and the Company shall have obtained the necessary consents to the Merger of the parties set forth in the Disclosure Letter; (f) Other Obligations. The Company shall have fulfilled its obligations under Section 7.8; and (g) Dissenting Stockholders. Holders of not more than five percent of the outstanding Shares shall have exercised appraisal rights as provided in Section 262 of the DGCL. 8.2. Conditions to Obligations of the Company. The obligations of the Company to consummate the Merger shall be subject to the satisfaction or waiver, where -33- 38 permissible, prior to the Effective Time, of the following conditions: (a) Stockholder Approval. If adoption of this Agreement by the holders of Shares is required by applicable law, the Agreement shall have been duly adopted by the holders of a majority of the Shares, in accordance with applicable law and the Certificate and By-Laws of the Company; (b) Purchase of Shares. Merger Sub (or one of the Parent Companies) shall have purchased Shares pursuant to the Offer; (c) Governmental Consents. The waiting period applicable to the consummation of the Merger under the HSR Act and any applicable waiting periods relating to the Regulatory Filings shall have expired or been terminated and, other than the filings provided for in Section 2.3, all filing required to be made prior to the Effective Time by Parent and Merger Sub with, and all consents, approvals, permits and authorizations required to be obtained prior to the Effective Time by Parent and Merger Sub from, any Governmental Entity in connection with the execution and delivery of this Agreement by Parent and Merger Sub and the consummation of the transactions contemplated hereby by Parent, Merger Sub and the Company shall have been made or obtained (as the case may be); and (d) Order. No Order shall be in effect. ARTICLE IX Termination 9.1 Termination by Mutual Consent. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the approval by holders of Shares, by the mutual consent of Parent (also acting on behalf of Merger Sub) and the Company, by action of their respective Boards of Directors. 9.2. Termination by either Parent or the Company. This Agreement may be terminated and the Merger may be abandoned by action of the Board of Directors of either Parent or the Company if (i) Merger Sub shall not have -34- 39 accepted for payment any Shares pursuant to the Offer prior to September 15, 1999; provided, however, that the right to terminate this Agreement pursuant to this Section 9.2(i) shall not be available to any party whose failure to perform any of its obligations under this Agreement results in the failure of any Offer Condition or (ii) any Governmental Entity shall have issued an Order which shall have become final and non-appealable. 9.3. Termination by Parent. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the adoption, if necessary, by holders of Shares, by action of the Board of Directors of Parent, if (x)(i) the Company shall have failed to comply in any material respect with any of the covenants or agreements contained in this Agreement or (ii) a representation or warranty of the Company set forth in this Agreement shall have been inaccurate when made or shall thereafter become inaccurate, except for such inaccuracies which, when taken together (in each case without regard to any qualification as to materiality or a Material Adverse Effect contained in the applicable representations and warranties) would not reasonably be likely to have a Material Adverse Effect, and, with respect to any such breach, failure to perform or inaccuracy that can be remedied, the breach, failure or inaccuracy is not remedied within 15 business days after the giving of written notice of such breach, failure or inaccuracy to the Company; (y) the Board of Directors of the Company shall have withdrawn or modified in a manner adverse to Parent or Merger Sub its approval or recommendation of the Offer, this Agreement or the Merger or shall have adopted or recommended any Acquisition Proposal, or the Board of Directors of the Company, upon request by Parent, shall fail to reaffirm such approval or recommendation within 10 business days after such request if an Acquisition Proposal is pending, or shall have resolved to do any of the foregoing; or (z) if the Company or any of the other persons or entities described in Section 7.2 shall take any actions that would be proscribed by Section 7.2 but for the exception therein allowing certain actions to be taken if required by fiduciary obligations under applicable law as advised in writing by counsel. 9.4. Termination by the Company. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the approval by holders of Shares by action of the Board of -35- 40 Directors of the Company, (x) if Parent or Merger Sub (or another Parent Company) (i) shall have breached in any material respect any of the representations, warranties, covenants or agreements contained in this Agreement (other than any immaterial covenants or agreements) and, with respect to any such breach that can be remedied within 15 business days after the Company has provided Parent with written notice of such breach, or (ii) shall have failed to commence the Offer within the time required in Section 1.1 or (y) if (i) the Board of Directors of the Company receives a written offer not solicited on or after the date hereof, with respect to a merger, reorganization, share exchange, consolidation or sale of all or substantially all of the Company's assets or a tender or exchange offer not solicited on or after the date hereof for more than 50% of the outstanding Shares is commenced, and with respect to which the Board of Directors of the Company concludes in good faith, after consultation with an independent financial advisor and its outside counsel, that approval, acceptance or recommendation of such transaction is required by the fiduciary duties of the Company's Board of Directors under applicable law (any such transaction, a "Superior Proposal") and (ii) the Company has given Parent three business days' prior written notice of its intention to terminate this Agreement to accept the Superior Proposal, which notice shall indicate the name of the person making such Superior Proposal and the material terms of such Superior Proposal, and Parent shall have failed to offer to amend the Offer so that it is at least as favorable to the stockholders of the Company as the Superior Proposal. 9.5. Effect of Termination and Abandonment. (a) In the event of termination of this Agreement and abandonment of the Merger pursuant to this Article IX, no party hereto (or any of its directors or officers) shall have any liability or further obligation to any other party to this Agreement, except as provided in Section 9.5(b) below and Section 10.2 and except that nothing herein will relieve any party from liability for any wilful and material breach of its covenants under this Agreement. (b) If: (x) (i) (A) the Offer shall have remained open for a minimum of at least 20 business days, (B) after the date hereof any corporation, partnership, person, other entity or -36- 41 group (as defined in Section 13(d)(3) of the Exchange Act) other than Parent or Merger Sub or any of their respective subsidiaries or affiliates (collectively, a "Person") shall have become the beneficial owner of 15% or more of the outstanding Shares or made any Acquisition Proposal, and (C) (1) the Minimum Condition (as defined in Annex A) shall not have been satisfied or (2) the Offer is terminated pursuant to Section 9.3(x) due to a breach of the Company's obligations under Section 7.2 or pursuant to Section 9.2(i) without the purchase of any Shares thereunder; or (ii) Parent shall have terminated this Agreement pursuant to Section 9.3(y); or (iii) the Company shall have terminated this Agreement pursuant to Section 9.4(y); and (y) within eighteen months of such termination (or the expiration date of the Offer in the case of (C)(1) above), the Company consummates an Acquisition Proposal then, upon consummation of such Acquisition Proposal, the Company shall promptly, but in no event later than five business days after the date of a request by Parent for payment of such fee, pay Parent a fee of $2,000,000, plus all documented fees and expenses incurred by Parent or Merger Sub in connection with this Agreement, the Offer and the Merger up to a maximum amount of $1,000,000, which amounts shall be payable in same day funds. The Company acknowledges that the agreements contained in this Section 9.5(b) are an integral part of the transactions contemplated in this Agreement, and that, without these agreements, Parent and Merger Sub would not enter into this Agreement; accordingly, if the Company fails to promptly pay the amount due pursuant to this Section 9.5(b), and, in order to obtain such payment, Parent or Merger Sub commences a suit which results in a judgment against the Company for the fee set forth in this paragraph (b), the Company shall pay to Parent or Merger Sub its costs and expenses (including attorneys' fees) in connection with such suit, together with interest -37- 42 on the amount of the fee at the prime rate of Citibank N.A. on the date such payment was required to be made. ARTICLE X Miscellaneous and General 10.1. Payment of Expenses. (a) Except as otherwise set forth in Section 9.5, whether or not the Merger shall be consummated, each party hereto shall pay its own expenses incident to preparing for, entering into and carrying out this Agreement and the consummation of the Merger. (b) Except as otherwise provided in the fifth sentence of Section 5.2 of this Agreement, all state, local, foreign or provincial sales, use, real property transfer, stock transfer or similar taxes (including any interest, penalties or additions thereto) attributable to the transactions contemplated by this Agreement shall be timely paid by Parent or Merger Sub. 10.2. Survival. The agreements of the Company, Parent and Merger Sub contained in Sections 5.2 (but only to the extent that such Section expressly relates to actions to be taken after the Effective Time), 5.3, 5.4, 7.8, 7.9, 7.11 and 10.1 shall survive the consummation of the Merger. The agreements of the Company, Parent and Merger Sub contained in Sections 7.5, 9.5 and 10.1 shall survive the termination of this Agreement. All other representations, warranties, agreements and covenants in this Agreement shall not survive the consummation of the Merger or the termination of this Agreement. 10.3. Modification or Amendment. Subject to the applicable provisions of the DGCL, at any time prior to the Effective Time, the parties hereto may modify or amend this Agreement, by written agreement executed and delivered by duly authorized officers of the respective parties. 10.4. Waiver of Conditions. The conditions to each of the parties' obligations to consummate the Merger are for the sole benefit of such party and may be waived by such party in whole or in part to the extent permitted by applicable law. -38- 43 10.5. Counterparts. For the convenience of the parties hereto, this Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. 10.6. Governing Law. (a) GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The parties hereby irrevocably submit to the jurisdiction of the courts of the State of New York and the Federal courts of the United States of America located in the State of New York solely in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement, and in respect of the transactions contemplated hereby and thereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a New York State or Federal court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 10.7 or in such other manner as may be permitted by law shall be valid and sufficient service thereof. (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER -39- 44 PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.6. 10.7. Notices. Any notice, request, instruction or other document to be given hereunder by any party to the others shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, or by facsimile: if to Parent or Merger Sub: Philips Electronics North America Corporation 1251 Avenue of the Americas 20th Floor New York, NY 10020 Attention: General Counsel Fax: (212) 536-0505 with a copy to: Koninklijke Philips Electronics N.V. Rembrandt Tower Amstelplein 1 1096 HA Amsterdam The Netherlands Attention: General Secretary Fax: (011) (31 20) 59 77150 Neil T. Anderson, Esq. Sullivan & Cromwell 125 Broad Street New York, NY 10004 Fax: (212) 558-3588 -40- 45 if to the Company Voice Control Systems, Inc., 14140 Midway Road Dallas, Texas 75244 Attention: Kim S. Terry Fax: (972) 726-1211 with a copy to: William G. Milne, Esq., 13760 Noel Road, Suite 101 Dallas, Texas 75240 Fax: (972) 386-5233 or to such other persons or addresses as may be designated in writing by the party to receive such notice as provided above. 10.8. Entire Agreement, etc. This Agreement (including the Disclosure Letter and any exhibits or Annexes hereto) (a) constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties both written and oral, among the parties, other than the Confidentiality Agreement, with respect to the subject matter hereof, and (b) shall not be assignable by operation of law or otherwise and is not intended to create any obligations to, or (except with respect to the provisions of Section 7.9) rights in respect of, any persons other than the parties hereto; provided, however, that Parent may designate, by written notice to the Company, another wholly owned direct or indirect subsidiary to be a Constituent Corporation in lieu of Merger Sub, in the event of which, all references herein to Merger Sub shall be deemed references to such other subsidiary except that all representations and warranties made herein with respect to Merger Sub as of the date of this Agreement shall be deemed representations and warranties made with respect to such other subsidiary as of the date of such designation. 10.9. Definitions of "Subsidiary," "knowledge" and "Material Adverse Effect". When a reference is made in this Agreement to a subsidiary of a party, the word "subsidiary" means any corporation or other organization whether incorporated or unincorporated of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority -41- 46 of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its subsidiaries, or by such party and one or more of its subsidiaries. When the word "knowledge" is used in this Agreement with reference to the Company or its management or officers, such word will be deemed to refer to the actual knowledge of the executive officers of the Company and such other officer that has primary responsibility for the subject matter with respect to which "knowledge" is being considered. For purposes of this Agreement, "Material Adverse Effect" means any material adverse effect on the financial condition, properties, business or results of operations of the Company and its subsidiaries taken as a whole (excluding any change or development resulting from the announcement of this Agreement or the transactions contemplated hereby). 10.10. Obligation of Parent. Whenever this Agreement requires Merger Sub to take any action, such requirement shall be deemed to include an undertaking on the part of Parent to cause Merger Sub to take such action. 10.11. Captions. The Article, Section and paragraph captions herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. 10.12. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of 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 contemplated hereby is not affected in any manner 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 the transactions contemplated hereby are fulfilled to the fullest extent possible. -42- 47 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto on the date first hereinabove written. PHILIPS ELECTRONICS NORTH AMERICA CORPORATION /s/ William E. Curran ------------------------------------------ By: William E. Curran Title: Senior Vice President and Chief Financial Officer VULCAN MERGER SUB, INC. /s/ William E. Curran ------------------------------------------ By: William E. Curran Title: President and Chief Executive Officer VOICE CONTROL SYSTEMS, INC. /s/ Kim S. Terry ------------------------------------------ By: Kim S. Terry Title: Vice President Finance -43- 48 Annex A Certain Conditions of the Offer. Notwithstanding any other provision of the Offer, but subject to the terms and conditions of the Merger Agreement (and provided that Merger Sub shall not be obligated to accept for payment any Shares until expiration or termination of all applicable waiting periods under the HSR Act and any applicable waiting periods relating to the Regulatory Filings, in each case with respect to the Offer and/or the Merger (the "Regulatory Condition")), Merger Sub (x) shall not be required to accept for payment or, subject to any applicable rules and regulations of the Commission, including Rule 14e-1(c) promulgated under the Exchange Act (relating to Merger Sub's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for, and (y) may delay the acceptance for payment of or (subject to such rules and regulations, including Rule 14e-1(c)) payment for, any tendered Shares, in each case if a majority of the total Shares outstanding on a fully diluted basis and as will permit Merger Sub to effect the Merger without the vote of any person other than Merger Sub shall not have been properly and validly tendered pursuant to the Offer and not withdrawn prior to the expiration of the Offer (the "Minimum Condition"), or, if on or after the date of the Merger Agreement, and at or before the time of acceptance for payment of any of such Shares, any of the following events shall occur: (a) the Company shall have breached or failed to perform in any material respect any of its obligations, covenants or agreements under the Merger Agreement; (b) (i) any of the representations and warranties of the Company set forth in this Agreement that are qualified by materiality or by Material Adverse Effect shall not have been true and correct as of the date of the Merger Agreement or shall not be true and correct on the expiration date of the Offer (and any extensions thereof) as though made on and as of such date or (ii) except for such inaccuracies as, individually or in the aggregate, have not had and would not be reasonably likely to have a Material Adverse Effect, the representations and warranties of the Company set forth in the Merger Agreement that are not qualified by materiality or by Material Adverse Effect, shall not have been A-1 49 true and correct as of the date of the Merger Agreement or shall not be true and correct as of the expiration date of the Offer (and any extensions thereof) as though made on and as of such date; (c) there shall be threatened, instituted or pending any action, litigation or proceeding (hereinafter, an "Action") by any Governmental Entity: (i) challenging the acquisition by Parent or Merger Sub of Shares or seeking to restrain or prohibit the consummation of the Offer or the Merger; (ii) seeking to prohibit or impose any material limitations on Parent's, Merger Sub's or any of their respective affiliates' ownership or operation of all or any material portion of the business or assets of the Company and its subsidiaries taken as a whole or the business or assets of any significant subsidiary of Koninklijke Philips Electronics N.V., or to compel Parent or Merger Sub to dispose of or hold separate all or any portion of Parent's or Merger Sub's or the Company's business or assets (including the business or assets of their respective affiliates and subsidiaries) as a result of the Offer or the Merger; (iii) seeking to impose material limitations on the ability of Parent or Merger Sub effectively to acquire or hold, or to exercise full rights of ownership of, the Shares including, without limitation, the right to vote the Shares purchased by them on an equal basis with all other Shares on all matters properly presented to the shareholders of the Company; or (iv) that, in any event, would, individually or in the aggregate, reasonably be likely to have a Material Adverse Effect; (d) any statute, rule, regulation, order or injunction shall be enacted, promulgated, entered, enforced or deemed to or become applicable to the Offer or the Merger, or any other action shall have been taken, proposed or threatened, by any court or other Governmental Entity, that is reasonably expected to result in any of the effects of, or have any of the consequences sought to be A-2 50 obtained or achieved in, any Action referred to in clauses (i) through (iv) of paragraph (c) above; (e) (i) the Company's stockholders' equity as determined on a consolidated basis in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") is less than $6,000,000 or (ii) Parent shall not have received a certificate signed by the Chief Executive Officer and the Vice President Finance of the Company, dated the expiration date of the Offer (as such date may be extended by Parent), certifying that the Company's stockholders' equity determined on consolidated basis in accordance with U.S. GAAP is greater than or equal to $6,000,000; (f) any change or development shall have occurred that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect; or (g) the Merger Agreement shall have been terminated by the Company or Parent or Merger Sub in accordance with its terms; which, in the reasonable judgment of Parent and Merger Sub, in any such case, and regardless of the circumstances (including any action or inaction by Parent or Merger Sub) giving rise to any such conditions, makes it inadvisable to proceed with the Offer and/or with such acceptance for payment of or payment for Shares. The foregoing conditions may be asserted by Parent or Merger Sub regardless of the circumstances (including any action or inaction by Parent or Merger Sub) giving rise to such condition. The conditions set forth in paragraphs (a) through (g) above are for the sole benefit of Parent and Merger Sub and may be waived by Parent or Merger Sub, by express and specific action to that effect, in whole or in part at any time and from time to time in their sole discretion. A-3 51 Schedule 1 Employment Agreements Peter Foster Dr. Thomas Schalk Kim Terry EX-99.C.2 12 EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT AGREEMENT, dated as of May 9, 1999, by and between Philips Electronics North America Corporation ("Philips") and Peter J. Foster ("Employee"). WHEREAS, Voice Control Systems, Inc. (the "Company"), Employee's former employer, has entered into an Agreement and Plan of Merger, dated as of May 9, 1999 with Merger Sub and Philips (the "Merger Agreement"); and WHEREAS, Philips desires to secure the continued services and employment of Employee following the successful consummation of the Offer (as such term is defined in the Merger Agreement) with the Company or such other subsidiary designated by Philips; and WHEREAS, the parties desire to enter into an agreement setting forth the terms and conditions of the employment of Employee with the Company or such other subsidiary designated by Philips on and after the successful consummation of the Offer; NOW, THEREFORE, in consideration of the mutual covenants herein contained, and other good and valuable consideration, the parties hereto agree as follows: 1. Employment. For all purposes under this Agreement, references to the Company shall be deemed to refer to the subsidiary of Philips which employs Employee during the Term, as defined below. The Company hereby agrees to employ Employee, and Employee agrees to serve as an employee of the Company, on the terms and conditions set forth in this Agreement, effective upon the purchase of Shares by Merger Sub pursuant to the Offer (as such terms are defined in the Merger Agreement) (the "Effective Date"); it being understood that the employment obligations undertaken by the Company hereunder shall not become effective, and shall become null and void, in the event that such purchase of Shares does not occur. 2. Term. The "Term" shall be the period commencing on the Effective Date and ending on the second anniversary of the Effective Date. 3. Duties and Responsibilities. During the Term, Employee shall serve as the Senior Vice President, Philips Speech Processing Telephony North America, and shall be responsible for the general and active management of the business of the Company with such duties and responsibilities that are customary for such position. Employee shall perform such other duties and shall have such other authority and power as the Board of Directors of the Company, or any executive committee thereof, may from time to time prescribe during the Term. Employee shall devote substantially all Employee's working time, attention and energies during normal business hours (other than absences due to illness or vacation) to the performance of Employee's duties for the Company. Employee may engage in other outside activities, including community 2 activities, provided that such activities do not unreasonably interfere with Employee's performance of Employee's duties with the Company. 4. Place of Performance. The principal place of employment of Employee shall be at the Company's offices in Dallas, Texas. Employee acknowledges that he may be required to travel on Company business in connection with the performance of his duties hereunder without violation of this Section 4. 5. Compensation and Related Matters. (a) Base Salary and Bonus. During the Term the Company shall pay Employee a base salary at the rate of not less than $230,000 ("Base Salary") which shall be annually reviewed by the Company. Employee's Base Salary shall be paid in approximately equal installments in accordance with the Company's customary payroll practices. Employee's performance and Base Salary shall be reviewed annually. If Employee's Base Salary is increased by the Company, such increased Base Salary shall then constitute the Base Salary for all purposes of the Agreement other than Section 5(c), below. The Employee shall be eligible to receive an annual bonus opportunity equal to $90,000 (the "Target Bonus"). The actual bonus payment, which may be higher or lower than the Target Bonus, will be determined, by Philips in consultation with Employee, according to the level of achievement of performance targets established by Philips in consultation with Employee. The bonus will be paid no later than during the first quarter after the end of the relevant calendar year, or if this Agreement is terminated due to its expiration during a calendar year, no later than ninety (90) days following such termination. (b) Benefit Plans. Employee shall be entitled to participate in such employee benefit plans and insurance programs applicable to the Company, or which it may adopt from time to time, for its executive management or supervisory personnel generally, in accordance with the eligibility requirements for participation therein. Notwithstanding the foregoing, Employee shall not be entitled to receive severance pursuant to any severance plan applicable to the Company if the Employee is entitled to receive payments pursuant to Section 8(b) of this Agreement. Nothing herein shall be construed so as to prevent the Company from modifying or terminating any employee benefit plans or programs, or employee fringe benefits, it may adopt from time to time; provided that any such modification or termination is made, or occurs, in connection with modifications or terminations that are applicable to all similarly situated executives of Philips. 2 3 (c) Long-Term Incentive Plan. Employee shall be eligible to participate in a long-term incentive plan (the "LTIP") during the Term, as specified below. Payments under the LTIP will be based on two components: (i) Guaranteed Payment. The Employee will be eligible to receive a guaranteed payment ("Guaranteed Payment") equal to 50% of $260,000 which shall become payable to Employee in three (3) substantially equal installments if Employee is actively employed by the Company on the date which is (A) six (6) months following the Effective Date, (B) twelve (12) months following the Effective Date and (C) eighteen (18) months following the Effective Date, respectively, one such installment to be paid following each of the dates described in clauses (A), (B) and (C) above if the employment condition has been satisfied on such date. (ii) Earned Payment. The Employee will have the opportunity to earn an additional long-term incentive payment ("Earned Payment") equal to up to 25% of $260,000 if (A) business synergies and objectives (as defined by Philips in consultation with Employee) during the eighteen (18) month period following the Effective Date are achieved and (B) Employee remains actively employed by the Company on the date which is eighteen (18) months following the Effective Date; provided, however, that Employee's performance in relation to such objectives shall be measured every six (6) months, beginning with the date which is six (6) months following the Effective Date, and if the objectives have been achieved after such six (6) month period, Employee shall be paid an amount equal to one-third of the Earned Payment as soon as practicable thereafter, but in no event later than thirty (30) days after each such six (6) month period. (d) Expenses. The Company shall promptly reimburse Employee for all reasonable business expenses, including cellular telephone usage, upon the presentation of reasonably itemized statements of such expenses in accordance with the Company's policies and procedures now in force or as such policies and procedures may be modified with respect to all employees of the Company. In addition, the Company shall reimburse Employee for discretionary expenses of up to $30,000 during each twelve (12) month period during the Term to be used for expenses which in Employee's sole discretion are related to Employee's job or position at the Company. 6. Termination. This Agreement shall be terminated upon the earliest to occur of the following: 3 4 (a) Expiration. The expiration of the Term. (b) Death. The death of Employee. (c) Disability. If, as a result of Disability, Employee shall have been substantially unable to perform the duties of Employee's employment hereunder for a period of ninety (90) consecutive days or any ninety (90) days within a period of two hundred seventy (270) days and within thirty (30) days after written Notice of Termination is given by the Company after such ninety (90) day period, Employee shall not have returned to the substantial performance of duties on a full-time basis. For purposes of this Agreement, "Disability" shall have the same meaning as that term is defined in the Long Term Disability Plan applicable to employees of the Company; provided, that, if no such plan exists, "Disability" shall have the same meaning as provided in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended. (d) Cause. The Company terminates Employee for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate Employee's employment upon Employee's (i) willful and continued failure to substantially perform Employee's duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to Employee which identifies the manner in which the Company believes that Employee has not substantially performed Employee's duties and Employee is given a reasonable opportunity to correct any such deficiency in performance, or (ii) willful misconduct (but excluding any action that Employee reasonably believes is in the best interests of the Company) which is demonstrably and materially injurious to the Company or to any entity in control of, controlled by or under common control with the Company (an "Affiliate"), including, but not limited to, any breach of Sections 9 and 10 hereof or gross negligence or gross misconduct, or (iii) the conviction of, or plea of guilty or nolo contendere to, a felony involving moral turpitude, or (iv) habitual drug or alcohol abuse by Employee. (e) Without Cause. The Company terminates Employee's employment hereunder without Cause by providing Employee with a Notice of Termination. (f) Voluntary Termination. Employee terminates this Agreement and Employee's employment hereunder at any time upon ninety (90) days prior written notice to the Company. (g) Material Breach. Employee terminates employment because of a material breach of this Agreement by the Company. For purposes of this Agreement, a "material breach" shall be deemed to occur upon a failure by the Company to comply with any material provision of Sections 4 and 5 (other than Section 5(c)(ii)) of this Agreement without Employee's written consent, including (i) any reduction in Base 4 5 Salary, Target Bonus opportunity and Guaranteed Payment under the LTIP, when considered in the aggregate, or (ii) a relocation of the Employee to a location more than 50 miles from the Employee's present location, which in the case of any alleged breach, has not been cured in all material respects within thirty (30) days after written notice of such noncompliance has been given by Employee to the Company. 7. Termination Procedure. (a) Notice of Termination. Any termination of Employee by the Company or by Employee (other than termination pursuant to Section 6(a) or (b) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 11. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee under the provisions so indicated. (b) Date of Termination. "Date of Termination" shall mean (i) if Employee's employment is terminated by reason of Employee's death, the date of death, (ii) if Employee's employment is terminated pursuant to Section 6(c) hereof, thirty (30) days after Notice of Termination is given (provided that Employee shall not have returned to work on a regular basis during such thirty (30) day period), (iii) if Employee's employment is terminated pursuant to Sections 6(d), 6(e) or 6(g), the date specified in the Notice of Termination, and (iv) if Employee's employment is terminated pursuant to Section 6(f), the date specified in a Notice of Termination which shall not be less than ninety (90) days following the date of such Notice, unless determined by the Company in its sole discretion. 8. Amounts Due Upon Termination. In the event Employee's employment terminates during the Term, the Company shall provide Employee with the payments set forth below. Employee acknowledges and agrees that the payments set forth in this Section 8 constitute liquidated damages for termination of employment during the Term. (a) If Employee is terminated following expiration of the Term under Section 6(a), or pursuant to Sections 6(b), 6(c), 6(d), or 6(f), the Company shall pay Employee all accrued but unpaid Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and reimburse Employee for incurred regular, as opposed to discretionary, expenses pursuant to Section 5(d), and the Company shall have no further obligations to Employee under this Agreement; provided, that, Employee shall be entitled to any other benefit or payment provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms. (b) If Employee's employment is terminated pursuant to 5 6 Sections 6(e) or 6(g), the Company shall pay to Employee (A) Base Salary accrued through the Date of Termination and (B) a payment equal to the sum of Employee's Base Salary and Employee's discretionary expense account payable for the greater of (i) the remainder of the Term, or (ii) twelve (12) months, and (C) a payment equal to the sum, pro-rated through the Date of Termination, of (i) the Target Bonus for the calendar year in which the termination occurs, and (ii) the Guaranteed Payment under the LTIP. All such payments shall be made no later than 30 days following such termination. Employee shall also be entitled to reimbursement for regular, as opposed to discretionary, expenses incurred pursuant to Section 5(d) and to any other benefits or payments provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms, subject to 5(b). 9. Fair Dealing/Non-Competition/Non-Solicitation. (a) Employee recognizes and acknowledges that, during the term of his employment by the Company, he will have access to and become familiar with various trade secrets and other confidential or proprietary information of the Company. Trade secrets, proprietary information and confidential information encompass, without limitation, anything which is owned by the Company and is regularly used in the operation of the business of the Company to obtain a competitive advantage over the Company's competitors who do not know, have access to, or utilize such information or trade secrets. Proprietary information further includes, but is not limited to, records, files, documents, bulletins, publications, manuals, financial data and information, marketing plans and proposals, accounting control procedures, and information concerning and the identity of customers, prospects and suppliers. Trade secrets further include, but are not limited to, specifications, software programs, both the source code and the object code, documentation, flow charts, diagrams, schematics, data, data bases, and business and production methods and techniques. Employee further recognizes and acknowledges that the trade secrets and other confidential or proprietary information of the Company are valuable, special and unique and that the protection thereof is of critical importance to the Company in maintaining its competitive position. Employee, therefore, covenants and agrees that, except as required by his employment hereunder or with the express prior written consent of the Company or as required by court order, he shall not, during the term of his employment by the Company or at anytime thereafter, either directly or indirectly, make independent use of, publish or otherwise disclose any of the aforesaid trade secrets or other confidential or proprietary information of the Company (whether acquired, learned, obtained or developed by him alone or in conjunction with others) to any person, firm, corporation, association or other entity for any reason or purpose whatsoever or allow any other person, firm, corporation, association or other entity to make use of, publish or disclose any of the aforesaid trade secrets or other confidential or proprietary information. Employee agrees not to use, steal, or appropriate such items or versions thereof, whether copied or reconstructed from memory or otherwise, in any manner. Employee further recognizes and acknowledges that in order to enable Company 6 7 to perform services for its clients, those clients may furnish to Company confidential information concerning their business affairs, property, methods of operation or other data; that the goodwill afforded to Company depends upon, among other things, Company and its employees keeping such services and information confidential. Employee therefore covenants and agrees that he shall keep all such client services and information confidential and shall not disclose any such information to any third party. Such client information shall be subject to all of the restrictions to which Company's confidential information is subject under this Agreement. (b) Employee agrees not to disclose or use any protected secret of any of his former employers. (c) During the term of this Agreement, Employee shall not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any business that is in competition with the business of Company, or to use in any manner whatsoever for his own benefit, directly or indirectly, any business opportunity rightfully belonging to Company. (d) Employee agrees that during the term of the Agreement and thereafter he shall not interfere with Company's relationship with any customer or supplier or with the due performance of any understanding, agreement or contract, whether written or oral, between Company and any of its customers or suppliers. Without limiting the generality of the preceding sentence, Employee agrees that for twelve (12) months following termination of his employment, Employee will not solicit business from or perform services for any person or entity which was a customer of the Company at the time of the termination of employment, whether such solicitation is made or such services are performed on Employee's own behalf or on behalf of any other person, firm, corporation, association or other entity, unless such solicitation or service is not competing, directly or indirectly, with the Company. (e) Employee agrees upon his termination of employment that he shall not enter or engage in competition with the Company in the development or marketing of any speech recognition product or service in the United States, either as an individual on his own, or as a partner or a joint venturer, or as an employee, agent, officer, director or shareholder for any other person, or otherwise for the period starting at the termination and continuing for a period of twelve (12) months after the date of the termination of his employment. (f) Employee expressly recognizes and acknowledges that the Company has expanded substantial resources, energies and efforts in connection with the aforesaid trade secrets, proprietary information, and customer and supplier relationships, that the protection and confidentiality thereof are critical to the growth, development and success of the Company and that compliance with the restrictive covenants contained in 7 8 this Agreement is necessary to protect the business and good will of the Company. As a result, Employee further recognizes that the Company will suffer substantial, irreparable and continuing injuries, damages and costs attendant thereto in the event of the breach of this Agreement. Therefore, the existence of any claim or cause of action of Employee against Company, whether predicated under this Agreement or otherwise, shall not constitute a defense to the enforcement by Company of the covenants on the part of the Employee in this Section 9. Further recognizing that money damages may not provide adequate relief, the Employee agrees that, in the event that he breaches the provision of this Section 9, Company shall be entitled to a preliminary or permanent injunction in order to prevent the continuation of such harm. Employee further agrees that any and all sums collected by Employee, or any company owned, controlled, employing or employed by Employee, directly or indirectly, in violation of this Agreement, shall be constructively held by Employee in trust for Company. Nothing in this Agreement shall be construed to prohibit the Company from also pursuing any other remedy, the parties having agreed that all remedies are cumulative. (g) Employee hereby assigns and agrees to assign to the Company or its subsidiaries or affiliates, as appropriate, its successors, assigns or nominees, his entire right, title and interest in any developments, designs, patents, inventions and improvements, trade secrets, trademarks, copyrightable subject matter or proprietary information which Employee made or conceived, or may make or conceive, either solely or jointly with others while providing services to Company or with the use of the time, material or facilities of Company, or resulting from any task assigned to him or work performed by him for or on behalf of Company. It is further agreed that, without charge to Company, but at its expense, Employee will execute and deliver all such further papers as may be necessary, including original applications and applications for renewal, extension or reissue of patents, trademark registrations or copyright registrations, in any and all countries, to vest title thereto in Company, its successors, assigns or nominees. Either during or after employment with Company, Employee will not disclose to anyone outside of Company, nor use in other than Company business, except with the prior written permission of an officer of the Company, any developments, designs, inventions and improvements, trade secrets, works of authorship, proprietary information or proprietary things developed by him while providing services to Company. 10. Successors; Binding Agreement. This Agreement shall be binding upon and shall inure to the benefit of Employee, his heirs, executors, administrators, beneficiaries and assigns and shall be binding upon and shall inure to the benefit of the Company and its successors, including, following the Effective Time, Philips Speech Processing Telephony North America. 11. Notice. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered either personally or by United States 8 9 certified or registered mail, return receipt requested, postage prepaid, addressed, in case of Employee, to the last address on file with the Company and if to the Company, to its executive offices or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 12. Resolution of Differences Over Breaches of Agreement. The parties shall use good faith efforts to resolve any controversy or claim arising out of, or relating to this Agreement or the breach thereof, first in accordance with the Company's internal review procedures, except that this requirement shall not apply to any claim or dispute under or relating to Section 9 of this Agreement. If despite their good faith efforts, the parties are unable to resolve such controversy or claim through the Company's internal review procedures, then such controversy or claim shall be resolved by a court of law having jurisdiction thereof. If any contest or dispute shall arise between the Company and Employee regarding any provision of this Agreement, the parties shall be responsible for paying all of its own legal fees and expenses incurred in connection with such contest or dispute. 13. Governing Law; Venue. This Agreement is governed by, and is to be construed and enforced in accordance with, the laws of the State of New York, without regard to principles of conflicts of laws. If, under such law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation or ordinance, such portion shall be deemed to be modified or altered to conform thereto or, if that is not possible, to be omitted from this Agreement, and the invalidity of any such portion shall not affect the force, effect and validity of the remaining portion hereof. The parties agree and consent that Dallas County, Texas shall be the proper venue for the resolution of any disputes arising hereunder. 14. Amendment. No provisions of this Agreement may be amended, modified, or waived unless such amendment or modification is agreed to in writing signed by Employee and by a duly authorized officer of the Company, and such waiver is set forth in writing and signed by the party to be charged. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 15. Survival. The respective obligations of, and benefits afforded to, Employee and Company as provided in Section 9 of this Agreement shall survive the termination of this Agreement. 16. No Conflict of Interest. During the Term, Employee shall not directly, or indirectly render service, or undertake any employment or consulting agreement with another entity without the express written consent of the Company. 9 10 17. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto (and in the case of the Company, its predecessors and successors) in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of such subject matter, including, but not limited to, the Employment Agreement by and between VCS Industries, Inc. and Employee, dated as of June 18, 1993 and any and all amendments made subsequent thereto and the Severance Agreement entered into during 1999 (collectively, the "Prior Agreement"), and as of the Effective Date, such Prior Agreement shall be void and of no further force or effect (except as to any sums that remain due and owing to Employee thereunder as of the Effective Date as a result of events occurring prior to the Effective Date. Any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and canceled, as of the successful consummation of the Offer. Employee acknowledges that in consideration of the benefits to be provided hereunder, Employee has agreed to terminate the Prior Agreement. 19. Guaranty. Philips hereby guarantees the obligations of the Company undertaken hereby. 10 11 20. Section Headings. The section headings in this Agreement are for convenience of reference only, and they form no part of this Agreement and shall not affect its interpretation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. PHILIPS ELECTRONICS NORTH AMERICA CORPORATION By:/s/ William E. Curran ------------------------------------ Title: Senior Vice President and Chief Financial Officer /s/ Peter J. Foster ---------------------------- Peter J. Foster 11 EX-99.C.3 13 EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT AGREEMENT, dated as of May 9, 1999, by and between Philips Electronics North America Corporation ("Philips"), Voice Control Systems, Inc. (the "Company") and Dr. Thomas B. Schalk ("Employee"). WHEREAS, the Company, Employee's current employer, has entered into an Agreement and Plan of Merger, dated as of May 9, 1999 with Merger Sub and Philips (the "Merger Agreement"); and WHEREAS, Philips and the Company desire to secure the continued employment of Employee following the successful consummation of the Offer (as such term is defined in the Merger Agreement) with the Company or such other subsidiary designated by Philips; and WHEREAS, the parties desire to enter into an agreement setting forth the terms and conditions of the employment of Employee with the Company on and after the successful consummation of the Offer; NOW, THEREFORE, in consideration of the mutual covenants herein contained, and other good and valuable consideration, the parties hereto agree as follows: 1. Employment. The Company hereby agrees to employ Employee, and Employee agrees to serve as an employee of the Company, on the terms and conditions set forth in this Agreement, effective upon the purchase of Shares by Merger Sub pursuant to the Offer (as such terms are defined in the Merger Agreement) (the "Effective Date"); it being understood that the employment obligations undertaken by the Company hereunder shall not become effective, and shall become null and void, in the event that such purchase of Shares does not occur. For all purposes under this Agreement, references to the Company shall be deemed to refer to the subsidiary of Philips which employs Employee during the Term, as defined below. 2. Term. The "Term" shall be the period commencing on the Effective Date and ending on the second anniversary of the Effective Date. 3. Duties and Responsibilities. During the Term, Employee shall serve as the Vice President and Chief Technical Officer of the Company with such duties and responsibilities that are customary for such position and shall include those that are assigned to the Employee by the Company during the Term. Employee shall devote substantially all Employee's working time, attention and energies during normal business hours (other than absences due to illness or vacation) to the performance of Employee's duties for the Company. Employee may engage in other outside activities, including community activities, provided that such activities do not unreasonably interfere with Employee's performance of Employee's duties with the Company. 2 4. Place of Performance. The principal place of employment of Employee shall be at the Company's offices in Dallas, Texas. Employee acknowledges that he may be required to travel on Company business in connection with the performance of his duties hereunder without violation of this Section 4 by the Company. 5. Compensation and Related Matters. (a) Base Salary and Bonus. During the Term the Company shall pay Employee a base salary at the rate of not less than $180,000 ("Base Salary") which shall be annually reviewed by the Company. Employee's Base Salary shall be paid in approximately equal installments in accordance with the Company's customary payroll practices. Employee's performance and Base Salary shall be reviewed annually. If Employee's Base Salary is increased by the Company, such increased Base Salary shall then constitute the Base Salary for all purposes of the Agreement other than Section 5(c), below. The Employee shall be eligible to receive an annual bonus opportunity equal to 30% of Employee's Base Salary (the "Target Bonus"). The actual bonus payment, which may be higher or lower than the Target Bonus, will be determined, by Philips in consultation with the Senior Vice President, Philips Speech Processing Telephony North America, according to the level of achievement of performance targets established thereby; provided, however that the annual bonus payable to Employee in respect of the first twelve months of the Term shall not be less than $20,000. The annual bonus will be paid to Employee on a quarterly basis during the Term. (b) Benefit Plans. Employee shall be entitled to participate in such employee benefit plans and insurance programs applicable to the Company, or which it may adopt from time to time, for its executive management or supervisory personnel generally, in accordance with the eligibility requirements for participation therein. Notwithstanding the foregoing, Employee shall not be entitled to receive severance pursuant to any severance plan applicable to the Company if the Employee is entitled to receive payments pursuant to Section 8(b) of this Agreement. Nothing herein shall be construed so as to prevent the Company from modifying or terminating any employee benefit plans or programs, or employee fringe benefits, it may adopt from time to time; provided that any such modification or termination is made, or occurs, in connection with modifications or terminations that are applicable to all similarly situated executives of Philips. 2 3 (c) Long-Term Incentive Plan. Employee shall be eligible to participate in a long-term incentive plan (the "LTIP") during the Term, as specified below. Payments under the LTIP will be based on two components: (i) Guaranteed Payment. The Employee will be eligible to receive a guaranteed payment ("Guaranteed Payment") equal to 50% of Employee's Base Salary applicable as of June, 1999 which shall become payable to Employee in three (3) substantially equal installments if Employee is actively employed by the Company on the date which is (A) six (6) months following the Effective Date, (B) twelve (12) months following the Effective Date and (C) eighteen (18) months following the Effective Date, respectively, one such installment to be paid following each of the dates described in clauses (A), (B) and (C) if the employment condition has been met on such date (ii) Earned Payment. The Employee will have the opportunity to earn an additional long-term incentive payment ("Earned Payment") equal to up to 25% of Employee's Base Salary applicable as of June, 1999 if (A) business synergies and objectives (as defined by Philips in consultation with the Senior Vice President, Philips Speech Processing Telephony North America) during the eighteen (18) month period following the Effective Date are achieved and (B) Employee remains actively employed by the Company on the date which is eighteen (18) months following the Effective Date; provided, however, that Employee's performance in relation to such objectives shall be measured every six (6) months, beginning with the date which is six (6) months following the Effective Date, and if the objectives have been achieved after such six (6) month period, Employee shall be paid an amount equal to one-third of the Earned Payment as soon as practicable thereafter, but in no event later than thirty (30) days after each such six (6) month period. (d) Expenses. The Company shall promptly reimburse Employee for all reasonable business expenses, including cellular telephone usage, upon the presentation of reasonably itemized statements of such expenses in accordance with the Company's policies and procedures now in force or as such policies and procedures may be modified with respect to all employees of the Company. 6. Termination. This Agreement shall be terminated upon the earliest to occur of the following: (a) Expiration. The expiration of the Term. 3 4 (b) Death. The death of Employee. (c) Disability. If, as a result of Disability, Employee shall have been substantially unable to perform the duties of Employee's employment hereunder for a period of ninety (90) consecutive days or any ninety (90) days within a period of two hundred seventy (270) days and within thirty (30) days after written Notice of Termination is given by the Company after such ninety (90) day period, Employee shall not have returned to the substantial performance of duties on a full-time basis. For purposes of this Agreement, "Disability" shall have the same meaning as that term is defined in the Long Term Disability Plan applicable to employees of the Company; provided, that, if no such plan exists, "Disability" shall have the same meaning as provided in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended. (d) Cause. The Company terminates Employee for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate Employee's employment upon Employee's (i) willful and continued failure to substantially perform Employee's duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to Employee which identifies the manner in which the Company believes that Employee has not substantially performed Employee's duties and Employee is given a reasonable opportunity to correct any such deficiency in performance, or (ii) willful misconduct (but excluding any action that Employee reasonably believes is in the best interests of the Company) which is demonstrably and materially injurious to the Company or to any entity in control of, controlled by or under common control with the Company (an "Affiliate"), including, but not limited to, any breach of Sections 9 and 10 hereof or gross negligence or gross misconduct, or (iii) the conviction of, or plea of guilty or nolo contendere to, a felony involving moral turpitude, or (iv) habitual drug or alcohol abuse by Employee. (e) Without Cause. The Company terminates Employee's employment hereunder without Cause by providing Employee with a Notice of Termination. (f) Voluntary Termination. Employee terminates this Agreement and Employee's employment hereunder at any time upon ninety (90) days prior written notice to the Company. (g) Material Breach. Employee terminates employment because of a material breach of this Agreement by the Company. For purposes of this Agreement, a "material breach" shall be deemed to occur upon a failure by the Company to comply with any material provision of Sections 4 and 5 (other than Section 5(c)(ii)) of this Agreement without Employee's written consent, including (i) any reduction in Base Salary, Target Bonus opportunity and Guaranteed Payment under the LTIP, when 4 5 considered in the aggregate, or (ii) a relocation of the Employee to a location more than 50 miles from the Employee's present location, which in the case of any alleged breach, has not been cured in all material respects within thirty (30) days after written notice of such noncompliance has been given by Employee to the Company. 7. Termination Procedure. (a) Notice of Termination. Any termination of Employee by the Company or by Employee (other than termination pursuant to Section 6(a) or (b) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 11. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee under the provisions so indicated. (b) Date of Termination. "Date of Termination" shall mean (i) if Employee's employment is terminated by reason of Employee's death, the date of death, (ii) if Employee's employment is terminated pursuant to Section 6(c) hereof, thirty (30) days after Notice of Termination is given (provided that Employee shall not have returned to work on a regular basis during such thirty (30) day period), (iii) if Employee's employment is terminated pursuant to Sections 6(d), 6(e) or 6(g), the date specified in the Notice of Termination, and (iv) if Employee's employment is terminated pursuant to Section 6(f), the date specified in a Notice of Termination which shall not be less than ninety (90) days following the date of such Notice, unless determined by the Company in its sole discretion. 8. Amounts Due Upon Termination. In the event Employee's employment terminates during the Term, the Company shall provide Employee with the payments set forth below. Employee acknowledges and agrees that the payments set forth in this Section 8 constitute liquidated damages for termination of employment during the Term. (a) If Employee is terminated following expiration of the Term under Section 6(a),or pursuant to Sections 6(b), 6(c), 6(d), or 6(f), the Company shall pay Employee all accrued but unpaid Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and reimburse Employee for incurred expenses in accordance with Section 5(d), and the Company shall have no further obligations to Employee under this Agreement; provided, that, Employee shall be entitled to any other benefit or payment provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms. (b) If Employee's employment is terminated pursuant to Sections 6(e) or 6(g), the Company shall pay to Employee (A) Base Salary accrued through the Date of Termination and (B) a payment equal to the Base Salary payable for 5 6 the greater of (i) the remainder of the Term, or (ii) eighteen (18) months, and (C) a payment equal to the sum, pro-rated through the Date of Termination, of (i) the Target Bonus for the calendar year in which the termination occurs, and (ii) the Guaranteed Payment under the LTIP. All such payments shall be made no later than 30 days following such termination. Employee shall also be entitled to reimbursement for incurred expenses pursuant to Section 5(d) and to any other benefits or payments provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms, subject to Section 5(b). 9. Fair Dealing/Non-Competition/Non-Solicitation. (a) Employee recognizes and acknowledges that, during the term of his employment by the Company, he will have access to and become familiar with various trade secrets and other confidential or proprietary information of the Company. Trade secrets, proprietary information and confidential information encompass, without limitation, anything which is owned by the Company and is regularly used in the operation of the business of the Company to obtain a competitive advantage over the Company's competitors who do not know, have access to, or utilize such information or trade secrets. Proprietary information further includes, but is not limited to, records, files, documents, bulletins, publications, manuals, financial data and information, marketing plans and proposals, accounting control procedures, and information concerning and the identity of customers, prospects and suppliers. Trade secrets further include, but are not limited to, specifications, software programs, both the source code and the object code, documentation, flow charts, diagrams, schematics, data, data bases, and business and production methods and techniques. Employee further recognizes and acknowledges that the trade secrets and other confidential or proprietary information of the Company are valuable, special and unique and that the protection thereof is of critical importance to the Company in maintaining its competitive position. Employee, therefore, covenants and agrees that, except as required by his employment hereunder or with the express prior written consent of the Company or as required by court order, he shall not, during the term of his employment by the Company or at anytime thereafter, either directly or indirectly, make independent use of, publish or otherwise disclose any of the aforesaid trade secrets or other confidential or proprietary information of the Company (whether acquired, learned, obtained or developed by him alone or in conjunction with others) to any person, firm, corporation, association or other entity for any reason or purpose whatsoever or allow any other person, firm, corporation, association or other entity to make use of, publish or disclose any of the aforesaid trade secrets or other confidential or proprietary information. Employee agrees not to use, steal, or appropriate such items or versions thereof, whether copied or reconstructed from memory or otherwise, in any manner. Employee further recognizes and acknowledges that in order to enable Company to perform services for its clients, those clients may furnish to Company confidential information concerning their business affairs, property, methods of operation or other data; that the goodwill afforded to Company depends upon, among other things, 6 7 Company and its employees keeping such services and information confidential. Employee therefore covenants and agrees that he shall keep all such client services and information confidential and shall not disclose any such information to any third party. Such client information shall be subject to all of the restrictions to which Company's confidential information is subject under this Agreement. (b) Employee agrees not to disclose or use any protected secret of any of his former employers. (c) During the term of this Agreement, Employee shall not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any business that is in competition with the business of Company, or to use in any manner whatsoever for his own benefit, directly or indirectly, any business opportunity rightfully belonging to Company. (d) Employee agrees that during the term of the Agreement and thereafter he shall not interfere with Company's relationship with any customer or supplier or with the due performance of any understanding, agreement or contract, whether written or oral, between Company and any of its customers or suppliers. Without limiting the generality of the preceding sentence, Employee agrees that for twenty-four (24) months following termination of his employment, Employee will not solicit business from or perform services for any person or entity which was a customer of the Company at the time of the termination of employment, whether such solicitation is made or such services are performed on Employee's own behalf or on behalf of any other person, firm, corporation, association or other entity, unless such solicitation or service is not competing, directly or indirectly, with the Company. (e) Employee agrees upon his termination of employment that he shall not enter or engage in competition with the Company in the development or marketing of any speech recognition product or service in the United States, either as an individual on his own, or as a partner or a joint venturer, or as an employee, agent, officer, director or shareholder for any other person, or otherwise for the period starting at the termination and continuing for a period of twenty-four (24) months after the date of the termination of his employment. (f) Employee expressly recognizes and acknowledges that the Company has expanded substantial resources, energies and efforts in connection with the aforesaid trade secrets, proprietary information, and customer and supplier relationships, that the protection and confidentiality thereof are critical to the growth, development and success of the Company and that compliance with the restrictive covenants contained in this Agreement is necessary to protect the business and good will of the Company. As a result, Employee further recognizes that the Company will suffer substantial, irreparable and continuing injuries, damages and costs attendant thereto in the event of the breach of 7 8 this Agreement. Therefore, the existence of any claim or cause of action of Employee against Company, whether predicated under this Agreement or otherwise, shall not constitute a defense to the enforcement by Company of the covenants on the part of the Employee in this Section 9. Further recognizing that money damages may not provide adequate relief, the Employee agrees that, in the event that he breaches the provision of this Section 9, Company shall be entitled to a preliminary or permanent injunction in order to prevent the continuation of such harm. Employee further agrees that any and all sums collected by Employee, or any company owned, controlled, employing or employed by Employee, directly or indirectly, in violation of this Agreement, shall be constructively held by Employee in trust for Company. Nothing in this Agreement shall be construed to prohibit the Company from also pursuing any other remedy, the parties having agreed that all remedies are cumulative. (g) Employee hereby assigns and agrees to assign to the Company or its subsidiaries or affiliates, as appropriate, its successors, assigns or nominees, his entire right, title and interest in any developments, designs, patents, inventions and improvements, trade secrets, trademarks, copyrightable subject matter or proprietary information which Employee made or conceived, or may make or conceive, either solely or jointly with others while providing services to Company or with the use of the time, material or facilities of Company, or resulting from any task assigned to him or work performed by him for or on behalf of Company. It is further agreed that, without charge to Company, but at its expense, Employee will execute and deliver all such further papers as may be necessary, including original applications and applications for renewal, extension or reissue of patents, trademark registrations or copyright registrations, in any and all countries, to vest title thereto in Company, its successors, assigns or nominees. Either during or after employment with Company, Employee will not disclose to anyone outside of Company, nor use in other than Company business, except with the prior written permission of an officer of the Company, any developments, designs, inventions and improvements, trade secrets, works of authorship, proprietary information or proprietary things developed by him while providing services to Company. 10. Successors; Binding Agreement. This Agreement shall be binding upon and shall inure to the benefit of Employee, his heirs, executors, administrators, beneficiaries and assigns and shall be binding upon and shall inure to the benefit of the Company and its successors, including, following the Effective Time, Philips Speech Processing Telephony North America. 11. Notice. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered either personally or by United States certified or registered mail, return receipt requested, postage prepaid, addressed, in case of Employee, to the last address on file with the Company and if to the Company, to its executive offices or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective 8 9 only upon receipt. 12. Resolution of Differences Over Breaches of Agreement. The parties shall use good faith efforts to resolve any controversy or claim arising out of, or relating to this Agreement or the breach thereof, first in accordance with the Company's internal review procedures, except that this requirement shall not apply to any claim or dispute under or relating to Section 9 of this Agreement. If despite their good faith efforts, the parties are unable to resolve such controversy or claim through the Company's internal review procedures, then such controversy or claim shall be resolved by a court of law having jurisdiction thereof. If any contest or dispute shall arise between the Company and Employee regarding any provision of this Agreement, the parties shall be responsible for paying all of its own legal fees and expenses incurred in connection with such contest or dispute. 13. Governing Law; Venue. This Agreement is governed by, and is to be construed and enforced in accordance with, the laws of the State of New York, without regard to principles of conflicts of laws. If, under such law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation or ordinance, such portion shall be deemed to be modified or altered to conform thereto or, if that is not possible, to be omitted from this Agreement, and the invalidity of any such portion shall not affect the force, effect and validity of the remaining portion hereof. The parties agree and consent that Dallas County, Texas shall be the proper venue for the resolution of any disputes arising hereunder. 14. Amendment. No provisions of this Agreement may be amended, modified, or waived unless such amendment or modification is agreed to in writing signed by Employee and by a duly authorized officer of the Company, and such waiver is set forth in writing and signed by the party to be charged. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 15. Survival. The respective obligations of, and benefits afforded to, Employee and Company as provided in Section 9 of this Agreement shall survive the termination of this Agreement. 16. No Conflict of Interest. During the Term, Employee shall not directly, or indirectly render service, or undertake any employment or consulting agreement with another entity without the express written consent of the Company. 17. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 9 10 18. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto (and in the case of the Company, its predecessors and successors) in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of such subject matter, including, but not limited to, the Employment Agreement by and between VCS Industries, Inc. and Employee, dated as of June 18, 1993 and any and all amendments made subsequent thereto (the "Prior Agreement"), and as of the Effective Date, such Prior Agreement shall be void and of no further force or effect (except as to any sums that remain due and owing to Employee thereunder as of the Effective Date as a result of events occurring prior to the Effective Date). Any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and canceled, as of the successful consummation of the Offer. Employee acknowledges that in consideration of the benefits to be provided hereunder, Employee has agreed to terminate the Prior Agreement. 19. Guaranty. Philips hereby guarantees the obligations of the Company undertaken hereby. 10 11 20. Section Headings. The section headings in this Agreement are for convenience of reference only, and they form no part of this Agreement and shall not affect its interpretation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. PHILIPS ELECTRONICS NORTH AMERICA CORPORATION By:/s/ William E. Curran ------------------------ Title: Senior Vice President and Chief Financial Officer VOICE CONTROL SYSTEMS, INC. By:/s/ Kim S. Terry ------------------------ Title: Vice President Finance /s/ Dr. Thomas B. Schalk ---------------------------- Dr. Thomas B. Schalk 11 EX-99.C.4 14 EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT AGREEMENT, dated as of May 9, 1999, by and between Philips Electronics North America Corporation ("Philips") and Kim Terry ("Employee"). WHEREAS, Voice Control Systems, Inc. (the "Company"), Employee's current employer, has entered into an Agreement and Plan of Merger, dated as of May 9, 1999 with Merger Sub and Philips (the "Merger Agreement"); and WHEREAS, Philips desires to secure the continued employment of Employee following the successful consummation of the Offer (as such term is defined in the Merger Agreement) with the Company or such other subsidiary designated by Philips; and WHEREAS, the parties desire to enter into an agreement setting forth the terms and conditions of the employment of Employee with the Company or such other subsidiary designated by Philips on and after the successful consummation of the Offer; NOW, THEREFORE, in consideration of the mutual covenants herein contained, and other good and valuable consideration, the parties hereto agree as follows: 1. Employment. For all purposes under this Agreement, references to the Company shall be deemed to refer to the subsidiary of Philips which employs Employee during the Term, as defined below. The Company hereby agrees to employ Employee, and Employee agrees to serve as an employee of the Company, on the terms and conditions set forth in this Agreement, effective upon the purchase of Shares by Merger Sub pursuant to the Offer (as such terms are defined in the Merger Agreement) (the "Effective Date"); it being understood that the employment obligations undertaken by the Company hereunder shall not become effective, and shall become null and void, in the event that such purchase of Shares does not occur. 2. Term. The "Term" shall be the period commencing on the Effective Date and ending on the second anniversary of the Effective Date. 3. Duties and Responsibilities. During the Term, Employee shall serve as the Vice President - Operations and Finance of the Company with such duties and responsibilities that are customary for such position and shall include those that are assigned to the Employee by the Company during the Term. Employee shall devote substantially all Employee's working time, attention and energies during normal business hours (other than absences due to illness or vacation) to the performance of Employee's duties for the Company. Employee may engage in other outside activities, including community activities, provided that such activities do not unreasonably interfere with Employee's performance of Employee's duties with the Company. 2 4. Place of Performance. The principal place of employment of Employee shall be at the Company's offices in Dallas, Texas. Employee acknowledges that she may be required to travel on Company business in connection with the performance of her duties hereunder without violation of this Section 4. 5. Compensation and Related Matters. (a) Base Salary and Bonus. During the Term the Company shall pay Employee a base salary at the rate of not less than $160,000 ("Base Salary") which shall be annually reviewed by the Company. Employee's Base Salary shall be paid in approximately equal installments in accordance with the Company's customary payroll practices. Employee's performance and Base Salary shall be reviewed annually. If Employee's Base Salary is increased by the Company, such increased Base Salary shall then constitute the Base Salary for all purposes of the Agreement other than Section 5(c), below. The Employee shall be eligible to receive an annual bonus opportunity equal to 30% of Employee's Base Salary (the "Target Bonus"). The actual bonus payment, which may be higher or lower than the Target Bonus, will be determined, by Philips in consultation with the Senior Vice President, Philips Speech Processing Telephony North America, according to the level of achievement of performance targets established thereby. The bonus will be paid no later than during the first quarter after the end of the relevant calendar year or if this Agreement is terminated due to its expiration during a calendar year, no later than ninety (90) days following such termination. (b) Benefit Plans. Employee shall be entitled to participate in such employee benefit plans and insurance programs applicable to the Company, or which it may adopt from time to time, for its executive management or supervisory personnel generally, in accordance with the eligibility requirements for participation therein. Notwithstanding the foregoing, Employee shall not be entitled to receive severance pursuant to any severance plan applicable to the Company if the Employee is entitled to receive payments pursuant to Section 8(b) of this Agreement. Nothing herein shall be construed so as to prevent the Company from modifying or terminating any employee benefit plans or programs, or employee fringe benefits, it may adopt from time to time; provided that any such modification or termination is made, or occurs, in connection with modifications or terminations that are applicable to all similarly situated executives of Philips. 2 3 (c) Long-Term Incentive Plan. Employee shall be eligible to participate in a long-term incentive plan (the "LTIP") during the Term, as specified below. Payments under the LTIP will be based on two components: (i) Guaranteed Payment. The Employee will be eligible to receive a guaranteed payment ("Guaranteed Payment") equal to 50% of Employee's Base Salary applicable as of June, 1999 which shall become payable to Employee in three (3) substantially equal installments if Employee is actively employed by the Company on the date which is (A) six (6) months following the Effective Date, (B) twelve (12) months following the Effective Date and (C) eighteen (18) months following the Effective Date, respectively, one such installment to be paid following each of the dates described in clauses (A), (B) and (C) above if the employment condition has been satisfied on such date. (ii) Earned Payment. The Employee will have the opportunity to earn an additional long-term incentive payment ("Earned Payment") equal to up to 25% of Employee's Base Salary applicable as of June, 1999 if (A) business synergies and objectives (as defined by Philips in consultation with the Senior Vice President, Philips Speech Processing Telephony North America) during the eighteen (18) month period following the Effective Date are achieved and (B) Employee remains actively employed by the Company on the date which is eighteen (18) months following the Effective Date; provided, however, that Employee's performance in relation to such objectives shall be measured every six (6) months, beginning with the date which is six (6) months following the Effective Date, and if the objectives have been achieved after such six (6) month period, Employee shall be paid an amount equal to one-third of the Earned Payment as soon as practicable thereafter, but in no event later than thirty (30) days after each such six (6) month period. (d) Expenses. The Company shall promptly reimburse Employee for all reasonable business expenses, including cellular telephone usage, upon the presentation of reasonably itemized statements of such expenses in accordance with the Company's policies and procedures now in force or as such policies and procedures may be modified with respect to all employees of the Company. (e) Signing Bonus. In addition to the foregoing, Employee shall be paid a bonus of $10,000 in consideration of her entering into this Agreement, which shall be payable within one month following the Effective Date. 6. Termination. This Agreement shall be terminated upon the earliest 3 4 to occur of the following: (a) Expiration. The expiration of the Term. (b) Death. The death of Employee. (c) Disability. If, as a result of Disability, Employee shall have been substantially unable to perform the duties of Employee's employment hereunder for a period of ninety (90) consecutive days or any ninety (90) days within a period of two hundred seventy (270) days and within thirty (30) days after written Notice of Termination is given by the Company after such ninety (90) day period, Employee shall not have returned to the substantial performance of duties on a full-time basis. For purposes of this Agreement, "Disability" shall have the same meaning as that term is defined in the Long Term Disability Plan applicable to employees of the Company; provided, that, if no such plan exists, "Disability" shall have the same meaning as provided in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended. (d) Cause. The Company terminates Employee for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate Employee's employment upon Employee's (i) willful and continued failure to substantially perform Employee's duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to Employee which identifies the manner in which the Company believes that Employee has not substantially performed Employee's duties and Employee is given a reasonable opportunity to correct any such deficiency in performance, or (ii) willful misconduct (but excluding any action that Employee reasonably believes is in the best interests of the Company) which is demonstrably and materially injurious to the Company or to any entity in control of, controlled by or under common control with the Company (an "Affiliate"), including, but not limited to, any breach of Sections 9 and 10 hereof or gross negligence or gross misconduct, or (iii) the conviction of, or plea of guilty or nolo contendere to, a felony involving moral turpitude, or (iv) habitual drug or alcohol abuse by Employee. (e) Without Cause. The Company terminates Employee's employment hereunder without Cause by providing Employee with a Notice of Termination. (f) Voluntary Termination. Employee terminates this Agreement and Employee's employment hereunder at any time upon ninety (90) days prior written notice to the Company. (g) Material Breach. Employee terminates employment because of a material breach of this Agreement by the Company. For purposes of this Agreement, a "material breach" shall be deemed to occur upon a failure by the Company 4 5 to comply with any material provision of Sections 4 or 5 (other than Section 5(c)(ii)) of this Agreement without Employee's written consent, including (i) any reduction in Base Salary, Target Bonus opportunity and Guaranteed Payment under the LTIP, when considered in the aggregate, or (ii) a relocation of the Employee to a location more than 50 miles from the Employee's present location, which in the case of any alleged breach, has not been cured in all material respects within thirty (30) days after written notice of such noncompliance has been given by Employee to the Company. 7. Termination Procedure. (a) Notice of Termination. Any termination of Employee by the Company or by Employee (other than termination pursuant to Section 6(a) or (b) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 11. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee under the provisions so indicated. (b) Date of Termination. "Date of Termination" shall mean (i) if Employee's employment is terminated by reason of Employee's death, the date of death, (ii) if Employee's employment is terminated pursuant to Section 6(c) hereof, thirty (30) days after Notice of Termination is given (provided that Employee shall not have returned to work on a regular basis during such thirty (30) day period), (iii) if Employee's employment is terminated pursuant to Sections 6(d), 6(e) or 6(g), the date specified in the Notice of Termination, and (iv) if Employee's employment is terminated pursuant to Section 6(f), the date specified in a Notice of Termination which shall not be less than ninety (90) days following the date of such Notice, unless determined by the Company in its sole discretion. 8. Amounts Due Upon Termination. In the event Employee's employment terminates during the Term, the Company shall provide Employee with the payments set forth below. Employee acknowledges and agrees that the payments set forth in this Section 8 constitute liquidated damages for termination of employment during the Term. (a) If Employee is terminated following expiration of the Term under Section 6(a), or pursuant to Sections 6(b), 6(c), 6(d), or 6(f), the Company shall pay Employee all accrued but unpaid Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and reimburse Employee for incurred expenses pursuant to Section 5(d), and the Company shall have no further obligations to Employee under this Agreement; provided, that, Employee shall be entitled to any other benefit or payment provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms. 5 6 (b) If Employee's employment is terminated pursuant to Sections 6(e) or 6(g), the Company shall pay to Employee (A) Base Salary accrued through the Date of Termination and (B) a payment equal to the Base Salary payable for the greater of (i) the remainder of the Term, or (ii) twelve (12) months, and (C) a payment equal to the sum, pro-rated through the Date of Termination, of (i) the Target Bonus for the calendar year in which the termination occurs, and (ii) the Guaranteed Payment under the LTIP. All such payments shall be made no later than 30 days following such termination. Employee shall also be entitled to reimbursement for incurred expenses pursuant to Section 5(d) and to any other benefits or payments provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms, subject to Section 5(b). 9. Fair Dealing/Non-Competition/Non-Solicitation. (a) Employee recognizes and acknowledges that, during the term of his employment by the Company, he will have access to and become familiar with various trade secrets and other confidential or proprietary information of the Company. Trade secrets, proprietary information and confidential information encompass, without limitation, anything which is owned by the Company and is regularly used in the operation of the business of the Company to obtain a competitive advantage over the Company's competitors who do not know, have access to, or utilize such information or trade secrets. Proprietary information further includes, but is not limited to, records, files, documents, bulletins, publications, manuals, financial data and information, marketing plans and proposals, accounting control procedures, and information concerning and the identity of customers, prospects and suppliers. Trade secrets further include, but are not limited to, specifications, software programs, both the source code and the object code, documentation, flow charts, diagrams, schematics, data, data bases, and business and production methods and techniques. Employee further recognizes and acknowledges that the trade secrets and other confidential or proprietary information of the Company are valuable, special and unique and that the protection thereof is of critical importance to the Company in maintaining its competitive position. Employee, therefore, covenants and agrees that, except as required by his employment hereunder or with the express prior written consent of the Company or as required by a court order, she shall not, during the term of his employment by the Company or at anytime thereafter, either directly or indirectly, make independent use of, publish or otherwise disclose any of the aforesaid trade secrets or other confidential or proprietary information of the Company (whether acquired, learned, obtained or developed by him alone or in conjunction with others) to any person, firm, corporation, association or other entity for any reason or purpose whatsoever or allow any other person, firm, corporation, association or other entity to make use of, publish or disclose any of the aforesaid trade secrets or other confidential or proprietary information. Employee agrees not to use, steal, or appropriate such items or versions thereof, whether copied or reconstructed from memory or otherwise, in any 6 7 manner. Employee further recognizes and acknowledges that in order to enable Company to perform services for its clients, those clients may furnish to Company confidential information concerning their business affairs, property, methods of operation or other data; that the goodwill afforded to Company depends upon, among other things, Company and its employees keeping such services and information confidential. Employee therefore covenants and agrees that she shall keep all such client services and information confidential and shall not disclose any such information to any third party. Such client information shall be subject to all of the restrictions to which Company's confidential information is subject under this Agreement. (b) Employee agrees not to disclose or use any protected secret of any of her former employers. (c) During the term of this Agreement, Employee shall not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any business that is in competition with the business of Company, or to use in any manner whatsoever for his own benefit, directly or indirectly, any business opportunity rightfully belonging to Company. (d) Employee agrees that during the term of the Agreement and thereafter she shall not interfere with Company's relationship with any customer or supplier or with the due performance of any understanding, agreement or contract, whether written or oral, between Company and any of its customers or suppliers. Without limiting the generality of the preceding sentence, Employee agrees that for twelve (12) months following termination of his employment, Employee will not solicit business from or perform services for any person or entity which was a customer of the Company at the time of the termination of employment, whether such solicitation is made or such services are performed on Employee's own behalf or on behalf of any other person, firm, corporation, association or other entity, unless such solicitation or service is not competing, directly or indirectly, with the Company. (e) Employee agrees upon her termination of employment that she shall not enter or engage in competition with the Company in the development or marketing of any speech recognition product or service in the United States, either as an individual on his own, or as a partner or a joint venturer, or as an employee, agent, officer, director or shareholder for any other person, or otherwise for the period starting at the termination and continuing for a period of twelve (12) months after the date of the termination of her employment. (f) Employee expressly recognizes and acknowledges that the Company has expanded substantial resources, energies and efforts in connection with the aforesaid trade secrets, proprietary information, and customer and supplier relationships, that the protection and confidentiality thereof are critical to the growth, development and 7 8 success of the Company and that compliance with the restrictive covenants contained in this Agreement is necessary to protect the business and good will of the Company. As a result, Employee further recognizes that the Company will suffer substantial, irreparable and continuing injuries, damages and costs attendant thereto in the event of the breach of this Agreement. Therefore, the existence of any claim or cause of action of Employee against Company, whether predicated under this Agreement or otherwise, shall not constitute a defense to the enforcement by Company of the covenants on the part of the Employee in this Section 9. Further recognizing that money damages may not provide adequate relief, the Employee agrees that, in the event that he breaches the provision of this Section 9, Company shall be entitled to a preliminary or permanent injunction in order to prevent the continuation of such harm. Employee further agrees that any and all sums collected by Employee, or any company owned, controlled, employing or employed by Employee, directly or indirectly, in violation of this Agreement, shall be constructively held by Employee in trust for Company. Nothing in this Agreement shall be construed to prohibit the Company from also pursuing any other remedy, the parties having agreed that all remedies are cumulative. (g) Employee hereby assigns and agrees to assign to the Company or its subsidiaries or affiliates, as appropriate, its successors, assigns or nominees, his entire right, title and interest in any developments, designs, patents, inventions and improvements, trade secrets, trademarks, copyrightable subject matter or proprietary information which Employee made or conceived, or may make or conceive, either solely or jointly with others while providing services to Company or with the use of the time, material or facilities of Company, or resulting from any task assigned to her or work performed by her for or on behalf of Company. It is further agreed that, without charge to Company, but at its expense, Employee will execute and deliver all such further papers as may be necessary, including original applications and applications for renewal, extension or reissue of patents, trademark registrations or copyright registrations, in any and all countries, to vest title thereto in Company, its successors, assigns or nominees. Either during or after employment with Company, Employee will not disclose to anyone outside of Company, nor use in other than Company business, except with the prior written permission of an officer of the Company, any developments, designs, inventions and improvements, trade secrets, works of authorship, proprietary information or proprietary things developed by him while providing services to Company. 10. Successors; Binding Agreement. This Agreement shall be binding upon and shall inure to the benefit of Employee, her heirs, executors, administrators, beneficiaries and assigns and shall be binding upon and shall inure to the benefit of the Company and its successors, including, following the Effective Time, Philips Speech Processing Telephony North America. 11. Notice. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be 8 9 deemed to have been duly given when delivered either personally or by United States certified or registered mail, return receipt requested, postage prepaid, addressed, in case of Employee, to the last address on file with the Company and if to the Company, to its executive offices or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 12. Resolution of Differences Over Breaches of Agreement. The parties shall use good faith efforts to resolve any controversy or claim arising out of, or relating to this Agreement or the breach thereof, first in accordance with the Company's internal review procedures, except that this requirement shall not apply to any claim or dispute under or relating to Section 9 of this Agreement. If despite their good faith efforts, the parties are unable to resolve such controversy or claim through the Company's internal review procedures, then such controversy or claim shall be resolved by a court of law having jurisdiction thereof. If any contest or dispute shall arise between the Company and Employee regarding any provision of this Agreement, the parties shall be responsible for paying all of its own legal fees and expenses incurred in connection with such contest or dispute. 13. Governing Law; Venue. This Agreement is governed by, and is to be construed and enforced in accordance with, the laws of the State of New York, without regard to principles of conflicts of laws. If, under such law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation or ordinance, such portion shall be deemed to be modified or altered to conform thereto or, if that is not possible, to be omitted from this Agreement, and the invalidity of any such portion shall not affect the force, effect and validity of the remaining portion hereof. The Parties agree and consent that Dallas County, Texas shall be the proper venue for the resolution of any disputes arising hereunder. 14. Amendment. No provisions of this Agreement may be amended, modified, or waived unless such amendment or modification is agreed to in writing signed by Employee and by a duly authorized officer of the Company, and such waiver is set forth in writing and signed by the party to be charged. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 15. Survival. The respective obligations of, and benefits afforded to, Employee and Company as provided in Section 9 of this Agreement shall survive the termination of this Agreement. 16. No Conflict of Interest. During the Term, Employee shall not directly, or indirectly render service, or undertake any employment or consulting agreement with another entity without the express written consent of the Company. 9 10 17. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto (and in the case of the Company, its predecessors and successors) in respect of the subject matter contained herein and supersede all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of such subject matter. Any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and canceled, as of the Effective Date. 19. Guaranty. Philips hereby guarantees the obligations of the Company undertaken hereby. 10 11 20. Section Headings. The section headings in this Agreement are for convenience of reference only, and they form no part of this Agreement and shall not affect its interpretation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. PHILIPS ELECTRONICS NORTH AMERICA CORPORATION By:/s/ William E. Curran -------------------------------- Title: Senior Vice President and Chief Financial Officer /s/ Kim Terry ----------------------------------- Kim Terry 11 -----END PRIVACY-ENHANCED MESSAGE-----